2024 (9) TMI 1277 - HC - Income Tax

Capital gain - Valuation of the land - determining the Fair Market Value as on 01.04.1981 - estimating the value of the lease hold rights of the appellant - as argued Tribunal after taking into consideration the valuation report has suitably valued the lease hold rights of the appellant-assessee at Rs. 800/- as on 01.04.1981 instead of Rs. 1,200/- considered by the valuer in the valuation report - Tribunal after considering the provision of Section 55 (2) (a) of the Act held that as the land is not forming part of the assets mentioned therein, provision of Section 55 (2) (a) (ii) of the Act would not apply for the cost of acquisition of the land for the purpose of computation of long term capital gains of the assessee has to be determined as on 01.04.1981 under Section 48 HELD THAT - On perusal of the reasoning given by the Tribunal to determine the cost, the Tribunal has not ignored the valuation report placed on record. Observation of the Tribunal are thus contrary to what is stated in the valuation report which is placed on record, wherein the registered valuer has taken into consideration the value of lease hold rights and reduced the same from the total value of the land. Therefore the contentions raised on behalf of the Revenue that the valuation of the land is required to be arrived at from the perspective of the lessee and not from the lessor is without any basis as the valuation of the land is to be considered after taking into consideration the lease hold rights existing on such land as on 01.04.1981. The registered valuer has after considering such value of the lease hold right and reducing the same from the Fair Market Value as on 01.04.1981 has rightly arrived at the valuation of Rs. 57,75,000/-. Therefore there was no need for the Tribunal to estimate the value of the land as on 01.04.1981 after making suitable deduction on account of the assessee not being the full owner of the land. On perusal of the valuation report, the registered valuer has already made a suitable deduction on the capitalized value of the lease rent from the total Fair Market Value of the land as on 01.04.1981 and thereafter arrived at the valuation of Rs. 57,75,000/-. Thus, we are of the opinion that the Tribunal has committed an error in determining the Fair Market Value of Rs. 800/- per square yard as on 01.04.1981 by ignoring the valuation report of the registered approved valuer determined as on 01.04.1981. - Decided against revenue.

Summary

Issues Involved:
1. Determination of fair market value of the land as on 1.4.1981.
2. Validity of the Income Tax Appellate Tribunal's (ITAT) decision in rejecting the valuation by the approved valuer.

Issue-wise Detailed Analysis:

1. Determination of fair market value of the land as on 1.4.1981:

The appellant filed a return of income for the Assessment Year 2007-08, which was processed under Section 143 (1) of the Income Tax Act, 1961. The appellant, engaged in the business of exhibiting cinema, sold the lease-hold land for Rs. 8,38,53,000/-, claiming the cost of acquisition after indexation based on a valuation report dated 11.09.2006 from M/s Dalal & Company, which determined the value of the property at Rs. 57,75,000/- as on 01.04.1981. The Assessing Officer, however, did not allow the cost of indexation, determining the taxable long-term capital gain at Rs. 4,84,49,254/-. The appellant's appeal to the CIT (Appeals) was dismissed, leading to an appeal before the ITAT. The ITAT decided that the fair market value as on 1.4.1981 should be Rs. 800 per sq yd, instead of the Rs. 1200 per sq yd determined by the approved valuer.

2. Validity of the Income Tax Appellate Tribunal's (ITAT) decision in rejecting the valuation by the approved valuer:

The appellant contended that the ITAT erred in determining the fair market value at Rs. 800 per sq yd, arguing that the approved valuer had already considered the lease-hold nature of the property. The Tribunal's decision was based on the premise that the valuer did not make suitable deductions for the lease-hold nature of the land. However, the valuation report explicitly mentioned that the valuer had deducted the capitalized value of the lease rent from the total value of the land. The Tribunal's observation that the value of Rs. 1200 per sq yd was reasonable for a free-hold land but not for lease-hold rights was contrary to the valuation report, which had already accounted for the lease-hold nature.

The Tribunal's decision was challenged, and it was argued that the valuation of Rs. 57,75,000/- was correct as it had considered the lease-hold rights. The Tribunal's estimation of Rs. 800 per sq yd was found to be erroneous as it ignored the deductions already made by the valuer.

Conclusion:

The High Court concluded that the Tribunal committed an error in determining the fair market value of Rs. 800 per sq yd as on 1.4.1981 by ignoring the valuation report of the registered approved valuer. The Court answered both questions in favor of the appellant, determining that the valuation of Rs. 57,75,000/- as on 1.4.1981 was correct. The cross-objection was accordingly disposed of.