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TMI Blog2012 (11) TMI 847X X X X Extracts X X X X X X X X Extracts X X X X ..... ut 23.6 grounds of land with building situated at No. 67, Dr.Radhakrishnan Salai, Madras to M/s.Gemini Film Processing Industries Private Limited, Madras for a consideration of Rs.10 lakhs on 25.9.1986. This conveyance was exempted from Stamp Duty under the Notification Numbers 2620 and 5121 of 1964 dated 22.10.1964 of the Government of Tamilnadu, by reason of fact that the transferree is a closely held company of the assessee, however for the purpose of registration, the value was taken at Rs.80,26,874/-. Taking note of the difference in value and hence, there was deemed gift arising out of the transfer of the immovable property to subsidiary company viz., M/s. Gemini Film Processing Industries Private Limited, the Assessing Authority invoked Section 4(1) of the Gift Tax Act. With a view to determine the fair market value, the Assessing Authority referred the matter to the District Valuation Officer, who in turn arrived at a sum of Rs.41,93,000/-. Since the value quoted by the District Valuation Officer did not give the fair market value of the property, once again the matter was referred to the District Valuation Officer to determine the fair market value as on 25.9.86. On a seco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration should have been paid in the matter of valuing the property. 3. Referring to the fact that the property was leased for the period of 30 years from 1.4.79 to 2009 with the option to renew the lease for further period of 30 years, the Commissioner pointed out that as per District Valuation Officer the market value of the property was at Rs.1,98,51,600/- and as per assessee, it was Rs.10 lakhs. The reversionery value of the property would be Rs.5,66,243/- as per District Valuation Officer and if the same is for 30 years, the reversionery value would be Rs.35,22,620/-. The Commissioner of Income Tax (Appeals) pointed out that the assessee was receiving lease rent of Rs.24000/- per year, after capitalising the same at 12% per annum, the value would be Rs.2 lakhs. The balance payment of Rs.8 lakhs received by the assessee would be towards the reversionery right of the property which would be delivered back to the owner in the year 2039. In the above circumstances, the Commissioner held that the valuation given by the assessee was acceptable. Referring to the District Valuation Officer's computation, the Commissioner of Income Tax (Appeals) held that the reversionery value o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the absolute interest, the Tribunal held that the deemed gift at Rs.1,88,51,600/- arrived by the Assessing officer on the basis of difference between the fair market value and actual sale consideration was justified. Aggrieved against this order, the assessee is on present appeal. 5. Learned counsel appearing for the assessee placed heavy reliance on the sale deed dated 25.9.1986 only to contend that the subject matter of the sale of the property to Gemini Film Processing Industries Private Limited in fact was as regards the reversionery right attached to the property. As such, the valuation arrived at by the assessee, taking note of the lease period for 60 years could not be faulted with. Learned counsel further pointed out that considering the fact that the property sold was encumbered with a lease for a period of 60 years, the valuation done by the officer without taking into account the said aspect is incorrect. There are no circumstances to say that the value adopted by the assessee for effecting the transfer were illusory or abnormal to adopt the value of the District Valuation Officer to make the assessment under Section 4(1) of the Gift Tax Act. The assessee also placed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight to receive rent from the lessee. 10. It is a matter of record that as far as the presence of lessee therein is concerned, it had been there as a lessee ever since 1.4.1979 and the lease dated 18.2.90 even though originally was for a period of 30 years, there was an option to renew the lease for further period of 30 years. A perusal of the valuation report dated 9.3.88 done for a immediate preceding year show that the value of the property under the Wealth Tax Act as on 31.3.84 was arrived at Rs.41,93,000/- as against the proposed estimate at Rs.63,17,000/-. A reading of the said valuation report shows that the Valuation Officer took into consideration the sale instances at Door No.58, Cathedral Road, Madras for an extent of 6.22 grounds as well as at Door No.2, 7th Street, Dr.Radhakrishna Road, for an extent of 2.092 grounds. Taking the normal escalation in land value at 20% per annum on the above sale instances of the year 1983-84, the Valuation Officer arrived at Rs.2,31,000/- as on 31.3.84. As far as the rental value was concerned, the assessee itself submitted that the District Valuation Officer at best would adopt the fair rent applicable as per Rent Control provisions a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded by the said reasoning of the Valuation Officer, the Gift Tax Officer held that the valuation thus done based on comparable cases, the valuation as done by the District Valuation Officer could be considered. Thus, the Assessing Authority found that the assessee had transferred the immovable property situated at No.67, Radhakrishnan Salai for a total consideration of Rs.10 lakhs, though the fair market value was at Rs.1,98,51,600/-. Thus, the difference between the market price and sale price was assessed as deemed gift at the hands of the assessee company. 11. As far as the contention raised by the assessee as per Section 4(1) of the Gift Tax Act is concerned, it is no doubt true that for the purpose of arriving at the adequate consideration, the determination has to follow Schedule II of the Gift Tax Act. A perusal of Schedule II of the Gift Tax Act reveal that for the purpose of determining the value of the property under Gift Tax Act, coming under the deemed gift, the determination has to be in accordance with the provisions of Schedule III to the Wealth Tax Act. Part B of Schedule III under the Wealth Tax Act deals with valuation of immovable property. Rule 3 of Part B stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was taken at Rs.5,68,560/-. Taking note of such value, applying the factor at 8%, the value of the property was arrived at Rs.41,93,000/-. In contrast to that, for the purpose of Gift Tax Act, as rightly pointed out by the assessee, there is no consideration of the reversionery interest which was the subject matter of sale under the sale deed dated 25th September 1986. The District Valuation Officer reasoned out that the lease being between the closely held company and where there is common management, and the lease rent agreed upon between the parties did not reflect the real market rent, he treated it as an collusive one. In a matter of valuation, for the purpose of Section 4(1) of the Gift Tax Act, when one has to go by Schedule II of the Act, which in turn adopt Schedule III of the Wealth Tax Act, when this specific clause under the sale deed would include reversionery interest too, valuation should have been gone in lines what was considered by the District valuation officer, while arriving at the value for the purpose of Wealth Tax Act. 13. However, as far as the valuation of the land is concerned, we agree with the Revenue's contention that valuation done by the Valuation O ..... X X X X Extracts X X X X X X X X Extracts X X X X
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