Whether failure on part of assessee to submit valuation certificate is a good enough reason for Revenue to levy capital gain tax - NO: HC

THE issues before the Bench are - Whether the failure to submit valuation certificate can be a basis to levy capital gain tax and Whether in such a case, for determining the fair market value, reliance on either the guideline value for the purpose of stamp duty and registration charges, or the value adopted under the Wealth Tax Act is justified. And the verdict goes against the Revenue.

Facts of the case

The assessee, an individual, had purchased land and building consisting of two shops and two houses. For the purpose of computation of capital gain, the assessee took the value of the property as on 1.4.1981 at Rs.2,75,000/-. The AO required the assessee to file the valuation report of the property as on 1.4.1981. Instead of furnishing such report, the assessee filed the computation sheets of net wealth as on 31.3.1992, showing that the value of the property was Rs.2,25,000/- as on 31.3.1992 for the purpose of wealth tax. As the assessee failed to produce any valuation report and also to substantiate the valuation made, AO obtained the details from the office of the Sub-Registrar and ascertained that the value of the land fixed for the purpose of registration as on 1.1.1982 was Rs.113/- per sq.ft. The assessee had adopted the rate of Rs.167/- per sq.ft. as on 1.4.1981. Looking to the value declared by the assessee as on 31.3.1992, the value worked out to Rs.136/- per sq.ft. as on 31.3.1992. Therefore, AO proposed to value the property as on 1.4.1981 at Rs.110/- per sq.ft. Accordingly, capital gains were payable was assessed on that basis.

On appeal, the AAC had dismissed the appeal on the ground that, the assessee had failed to discharge the onus cast on her. On further appeal, Tribunal had proceeded on the basis that the assessee showed the value of the property as on 31.3.1992 at Rs.136/- per sq.ft. After lapse of eight years, the assessee was saying that the value of property as on 1.4.1981 was Rs.167/- per sq.ft. It was true that though the guideline value for registration can not be adopted as conclusive evidence for ascertaining the value of the property, the value of the property written by the assessee in wealth tax for the AY 1992-93 could be taken into consideration and therefore, the Tribunal dismissed the appeal.

Held that,

++ when once under the Act, fair market value has been defined, specifically in relation to the capital asset to calculate the capital gain tax, the question of relying on the definition under any other enactment is not permissible. Therefore, for levying capital gain tax under the Act for the purpose of computing the capital gain tax, the fair market value, which is to be taken into consideration, is the price the property would fetch on sale in the open market on the relevant date. The material on record discloses the guideline value as on 1.4.1981 in respect of the property in dispute would work out to Rs.110/- per sq.ft. The assessee was assessed to wealth tax in respect of the aforesaid property. The material produced by her shows the property was valued at Rs.2,25,000/- as on 31.3.1992 i.e., the net wealth on which the wealth tax was payable. The Wealth Tax Act provides a mechanism, under which the property is valued and net wealth determined for the purpose of payment of wealth tax. It was not a fair market value. Therefore, in determining the fair market value under the Act, neither the guideline value prescribed for the purpose of stamp duty and registration under the Karnataka Stamp Act and the Indian Registration Act nor the net wealth value arrived at under the provisions of the Wealth Tax Act, cannot be the guiding factor. The market value of the property was certainly far more than the guideline value. Similarly, the value of the property, which was the subject matter of wealth tax, was also far more than the value for which it is assessed under the Wealth Tax Act. Therefore, the authorities were not justified in relying on those two inadmissible piece of evidence to arrive at a fair market value;

++ the grievance is that, when the assessee was called upon to produce a valuation report from a duly qualified valuator, she has failed to produce the same. It is true that the assessee could have produced the valuation report to substantiate the valuation. But merely because it was not produced, no adverse inference could be drawn. Even in the absence of production of such report, a duty was cast on the authorities to assess the fair market value independent of the evidence adduced by the assessee. Instead of calling for particulars from the Sub-Registrar’s office about the guideline value, the Assessing Officer himself could have referred the matter to a valuator to get the valuation done u/s 53-A, which he has not resorted to . The assessee has filed a valuation memo. It is in this memo, she has given the valuation of the property at Rs.2,25,000/- as on 31.3.1992 under the Wealth Tax Act. As stated earlier, that cannot be the basis;

++ one other aspect, which the authorities have failed to notice is, where the property is situated and its location. From the address given above, it is clear that the property is situated in the heart of Bangalore city, in a prime commercial locality where the value of the property has multiplied automatically over the years. If the property was purchased for Rs.25,000/- in 1964 and that property was sold for Rs.27,55,000/- in 2000, either adopting a procedure for escalation or re-escalation, the fair market value of the property would be around Rs.2,75,000/- as put forth by the assessee. In that view of the matter, we are of the view that the authorities committed a serious error in relying on an inadmissible evidence and in not taking into consideration the undisputed facts as well as the memo of calculation filed by the assessee, which is more proper. Therefore, the impugned order cannot be sustained and the same is required to be set aside. The appeal is allowed. All the impugned orders are hereby set aside. The substantial question of law is answered in favour of the assessee and against the Revenue. Parties to bear their own costs.