Gujarat High Court
Natraj vs Commissioneer Of Income Tax V on 2 September, 2024
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/X-OBJ(O)/3/2013 JUDGMENT DATED: 02/09/2024
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/CROSS OBJECTION NO. 3 of 2013
In R/TAX APPEAL NO. 753 of 2013
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BHARGAV D. KARIA Sd/-
and
HONOURABLE MR. JUSTICE NIRAL R. MEHTA Sd/-
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1 Whether Reporters of Local Papers may be allowed No
to see the judgment ?
2 To be referred to the Reporter or not ? No
3 Whether their Lordships wish to see the fair copy No
of the judgment ?
4 Whether this case involves a substantial question No
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
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NATRAJ
Versus
COMMISSIONEER OF INCOME TAX V
==========================================================
Appearance:
MR B S SOPARKAR(6851) for the Appellant(s) No. 1
MR.VARUN K.PATEL(3802) for the Opponent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE NIRAL R. MEHTA
Date : 02/09/2024
ORAL JUDGMENT
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA) Page 1 of 20 Uploaded by URIL KRISHNAKUMAR RANA(HC01406) on Fri Sep 13 2024 Downloaded on : Fri Sep 13 22:11:09 IST 2024 NEUTRAL CITATION C/X-OBJ(O)/3/2013 JUDGMENT DATED: 02/09/2024 undefined
1.Heard learned advocate Mr.B.S.Soparkar for the appellant and learned Senior Standing Counsel Mr.Varun K.Patel for the respondent no.1.
2.This Cross-objection is Admitted by order dated 18.04.2023 by this Court as under:
" When the matter is taken up for hearing, it is reported to us that the Tax Appeal No.753 of 2013 was already permitted to be withdrawn as the tax effect is below the minimum threshold limited provided by the CBDT in a circular dated 11.7.2008. However, present cross objection raised following substantial questions of law, which requires consideration. Hence, Admit.
(i) Whether, in the facts and circumstances of the case, the Income Tax Appellate Tribunal has erred in law and on facts in determining fair market value of Rs.800 per sq yd as on 1.4.1981 by ignoring the fair market value determined by the approved valuer at Rs.1200/- per sq yd?Page 2 of 20 Uploaded by URIL KRISHNAKUMAR RANA(HC01406) on Fri Sep 13 2024 Downloaded on : Fri Sep 13 22:11:09 IST 2024
NEUTRAL CITATION C/X-OBJ(O)/3/2013 JUDGMENT DATED: 02/09/2024 undefined
(ii) Whether, in the facts and circumstances of the case, the Income Tax Appellate Tribunal has erred in law and on facts in sitting over an appeal over wisdom of approved valuer and rejecting the fair market value determined by approved valuer in spite of the fact that revenue has made no efforts to controvert the value of the land as on 1.4.1981 as estimated by approved valuer?
In view of peculiar background, learned advocate jointly requested to take up this cross objection for final adjudication as early as possible. Considering such request, relist the matter on 1.5.2023."
3.The brief facts of the case are as under:
3.1. The appellant filed return of income for Assessment Year 2007-08 on 31.07.2007 declaring total income of Rs.1,33,32,509/-
which was processed under Section 143(1) of the Income Tax Act, 1961 (for short "the Act") accepting the income as return.
Thereafter the return was accepted for Page 3 of 20 Uploaded by URIL KRISHNAKUMAR RANA(HC01406) on Fri Sep 13 2024 Downloaded on : Fri Sep 13 22:11:09 IST 2024 NEUTRAL CITATION C/X-OBJ(O)/3/2013 JUDGMENT DATED: 02/09/2024 undefined scrutiny and the notice was served upon the assessee under Section 143(2) of the Act and 142(1) of the Act.
3.2. The appellant was engaged in the business of exhibition of Cinema in the name and style of M/s. Natraj. The business was carried out on a Theater building on a lease hold land. The appellant acquired the lease-
hold rights on the land admeasuring 5082 square yards for a period of 98 years vide lease deed dated 15.09.1966. The appellant firm agreed to surrender release and relinquish all the rights title and interest in favour of the lessor in respect of all the residue of the unexpired term created by the registered lease in consideration as per the Memorandum of Understanding dated 10.12.2014.
In execution of the Memorandum of Understanding, the land was sold for a consideration of Rs.8,38,53,000/- vide sale Page 4 of 20 Uploaded by URIL KRISHNAKUMAR RANA(HC01406) on Fri Sep 13 2024 Downloaded on : Fri Sep 13 22:11:09 IST 2024 NEUTRAL CITATION C/X-OBJ(O)/3/2013 JUDGMENT DATED: 02/09/2024 undefined deed dated 11.05.2006, out of which the appellant received consideration of Rs.5,03,11,800/-. The appellant claimed the cost of acquisition after indexation of Rs.2,99,72,250/- and expenses of Rs.18,62,546/- on the basis of the valuation report dated 11.09.2006 of M/s Dalal & Company, a Government Registered Valuer, determining the value of the property at Rs.57,75,000/- as on 01.04.1981.
3.3. The Assessing Officer however applying the provision of Section 55(2)(a) of the Act did not allow the cost of indexation and only allowed the expenses of Rs.18,62,546/- and determined the taxable long term capital gain of Rs.4,84,49,254/-.
3.4. The appellant being aggrieved preferred an appeal before the CIT (Appeals) which was dismissed by order dated 06.09.2010. The Page 5 of 20 Uploaded by URIL KRISHNAKUMAR RANA(HC01406) on Fri Sep 13 2024 Downloaded on : Fri Sep 13 22:11:09 IST 2024 NEUTRAL CITATION C/X-OBJ(O)/3/2013 JUDGMENT DATED: 02/09/2024 undefined appellant therefore preferred an appeal before the Tribunal. The 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 of the Act. The Tribunal while considering the valuation on 01.04.1981 held as under:
"8. This leaves us to the only point for decision that what would be the fair market value of the land in question as on 1.4.1981 for the lease hold right of the assessee in the land at Ashram Road, Ahmedabad. This is purely a question of fact. We find that the assessee has obtained the lease-hold rights for a long period of 98 years vide registered deed dated 15.9.1966. The land is situated at the main Ashram Road, Ahmedabad and is a Page 6 of 20 Uploaded by URIL KRISHNAKUMAR RANA(HC01406) on Fri Sep 13 2024 Downloaded on : Fri Sep 13 22:11:09 IST 2024 NEUTRAL CITATION C/X-OBJ(O)/3/2013 JUDGMENT DATED: 02/09/2024 undefined prime commercial location. The land is facing main Ashram Road on east side and TPS road on its south side. Before us, both of the parties have submitted that the cinema building was already demolished and plot was plain plot of land as on the date of sale of the property. The land in question is surrounded by the commercial buildings, viz. cinema theatres, handloom houses, petrol pumps, Reserve Bank of India, Chinubhai Tower, Neptune Building, Karaka Building, Time of India Building, GIDC offices, Income Tax Office, Navdeep Building, etc. are within one km. from the property. We find that the assessee was having only leasehold right for a long period of 98 years in the land, and it is well established principles for valuation of "fair market value"
of such lease hold rights of the assessee, is by capitalizing the "net annual income" of the land of certain number of years purchase in accordance with the prevailing rate of interest and by deducting the annual rent payable to the lesser out of the total income of the assessee. However, no such exercise was undertaken by the assessee or by the department to find out the net annual income of the land in this case and no data of net annual income is available. In such a situation, other method of valuation of fair market value as on 1.4.1981 Page 7 of 20 Uploaded by URIL KRISHNAKUMAR RANA(HC01406) on Fri Sep 13 2024 Downloaded on : Fri Sep 13 22:11:09 IST 2024 NEUTRAL CITATION C/X-OBJ(O)/3/2013 JUDGMENT DATED: 02/09/2024 undefined would be to value free hold land as on the relevant valuation date, and thereafter due deduction on account of the land being leasehold may be allowed. We find that no specific sale instances of free hold/lease hold lands in the vicinity of the land in question have been cited either by the assessee or by the Revenue. The AO has chosen not to refer the issue of valuation of the land in question as on 1.4.1981 to the Departmental Valuation officer. The assessee has filed a copy of the valuation report of the Approved valuer dated 11.9.2006 valuing the land in question as on 1.4.1981 at Rs.57,75,000/- and copy thereof has been filed in the compilation before the Tribunal. We find that no effort has been made by the Revenue to controvert the value of the land as on 1.4.1981 as estimated by the approved valuer. We have perused the copy of the Approved valuer's valuation report filed in the compilation before us. We find that the approved valuer has committed one glaring mistake in its valuation report by not making suitable deduction account of assessee's right in the land being only that of "lessee" for 98 years and the assessee not being owner thereof We find that the approved valuer has recorded that he has taken into consideration surrounding sales and its location, Page 8 of 20 Uploaded by URIL KRISHNAKUMAR RANA(HC01406) on Fri Sep 13 2024 Downloaded on : Fri Sep 13 22:11:09 IST 2024 NEUTRAL CITATION C/X-OBJ(O)/3/2013 JUDGMENT DATED: 02/09/2024 undefined size, frontage, neighborhood, prospects of developments, distance to the commercial establishments, etc. while determining the land rate of Rs.1200/- per square yard as on 81 However, However, this value of the land estimated at Rs.1,200/- per square yard may be reasonable for a free hold land as on 1.4.1981, but the value of a free hold land could not be equated with the value of leasehold rights of "lessee" in a particular piece of land. No mention of the fact that whether the approved valuer has considered this fact while estimating the value of Rs.1,200/- per square yard and whether he has allowed some deduction on account of the fact that the assessee has only the leasehold rights in the plot, we hold that it shall be reasonable to estimate the value of the land as on 1.4.1981 after making suitable deduction on account of the assessee not being full owner of the land. We find that at the time of sale of the land, during the relevant assessment year 2007-2008, the assessee has received 60% of the proceeds and the balance 40% of the sale proceeds have gone to the lessor. However, while the transaction of sale has taken place on 11.5.2006, when the lease period of about 40 years have passed, out of the total lease period of 98 years with the assessee, the lease period of 15 years only had Page 9 of 20 Uploaded by URIL KRISHNAKUMAR RANA(HC01406) on Fri Sep 13 2024 Downloaded on : Fri Sep 13 22:11:09 IST 2024 NEUTRAL CITATION C/X-OBJ(O)/3/2013 JUDGMENT DATED: 02/09/2024 undefined passed as on the relevant valuation date of 1.4.1981, as the lease deed was executed on 15.9.1966 conveying the lease hold rights on the assessee for a period of 98 years. We find that with the passage of 25 more years of lease after the relevant valuation date i.e. 1.4.81, the share of assessee-lessee in the value of the land will definitely be less and the share of the owner (lesser) will definitely be more. Considering the entire factual matrix of the case and holding that fair market value of the land in question as on 1.4.81 has been reasonably estimated at Rs.1,200/- per square yard by the approved valuer as on 1.4.1981, we hold that it shall be fair and justified to value the leasehold rights of the assessee in the land at Ashram Road as on 1.4.1981 at Rs.800/- per square yard after making suitable deduction on account of the land not being free hold and the assessee's right being that of "lessee" for long period of time. We direct the AO to determine the "long term capital gain" after taking the value of the lease hold rights of the assessee at Rs.800/- per square yard as on 1.4.81 and after allowing indexed cost of acquisition to the assessee and also the expenses already allowed by the AO in the assessment out of the total consideration received by the assessee and to Page 10 of 20 Uploaded by URIL KRISHNAKUMAR RANA(HC01406) on Fri Sep 13 2024 Downloaded on : Fri Sep 13 22:11:09 IST 2024 NEUTRAL CITATION C/X-OBJ(O)/3/2013 JUDGMENT DATED: 02/09/2024 undefined determine the "long term capital gain"
of the assessee, and accordingly, the grounds of the assessee are partly allowed."
3.5. Being aggrieved by the order passed by the Tribunal, the Revenue preferred the Tax Appeal No.753 of 2013 which was disposed of on account of the low tax effect. Therefore these cross-objections are to be treated as Tax Appeal arising from the impugned order of the Tribunal as per the admitted substantial questions of law.
4.Learned advocate Mr.B.S.Soparkar for the appellant submitted that the Tribunal has committed an error while considering the Fair Market Value of the land as Rs.800/- per square yard as on 01.04.1981 subject to the indexation instead of cost of acquisition as per the valuation report after considering the cost at the rate of Rs.1,200/- per square yard reduced by the capitalized value of the Page 11 of 20 Uploaded by URIL KRISHNAKUMAR RANA(HC01406) on Fri Sep 13 2024 Downloaded on : Fri Sep 13 22:11:09 IST 2024 NEUTRAL CITATION C/X-OBJ(O)/3/2013 JUDGMENT DATED: 02/09/2024 undefined annual lease rent of the appellant of Rs.57,75,000/-. It was submitted that the Tribunal has erroneously observed in the reasoning that the valuer has not taken into consideration the value of lease hold rights of the appellant-lessee.
4.1. It was further submitted that the Tribunal has also ignored the fact that the valuer while arriving at the value of the land in question as on 01.04.1981 has taken into consideration the fact of lease hold rights of the appellant-lessee.
4.2. It was therefore submitted that the Tribunal has erred in estimating the value of the lease hold rights of the appellant at Rs.800/- per square yard as on 01.04.1981 instead of the valuation of the land arrived at by the valuer. It was therefore submitted that the order of the Tribunal is required to Page 12 of 20 Uploaded by URIL KRISHNAKUMAR RANA(HC01406) on Fri Sep 13 2024 Downloaded on : Fri Sep 13 22:11:09 IST 2024 NEUTRAL CITATION C/X-OBJ(O)/3/2013 JUDGMENT DATED: 02/09/2024 undefined be modified by substituting the valuation of Rs.57,75,000/- as valued by the registered valuer which is not disputed by the Revenue.
5.On the other hand learned Senior Standing Counsel Mr.Varun Patel submitted that the valuation report placed on record by the appellant-assessee is from the perspective of a lessor as an owner of the land in question and the value arrived at Rs.57,75,000/- is the valuation of the land as on 01.04.1981 from the perspective of the owner of the land and not from the lessee.
5.1. It was further submitted that the 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.
Page 13 of 20 Uploaded by URIL KRISHNAKUMAR RANA(HC01406) on Fri Sep 13 2024 Downloaded on : Fri Sep 13 22:11:09 IST 2024NEUTRAL CITATION C/X-OBJ(O)/3/2013 JUDGMENT DATED: 02/09/2024 undefined 5.2. It was therefore submitted that there is no error in the impugned order of the Tribunal which requires any interference in the cross-objection filed by the appellant as the appellant had already accepted the cost as determined by the Tribunal but for the appeal filed by the Revenue, the appellant would not have approached this Court and therefore no substantial question of law can be said to have arisen from the impugned order of the Tribunal so far as the aspect of valuation of the land in question which is purely a question of fact as observed by the Tribunal. It was therefore submitted that the appeal being devoid of any merit is liable to be dismissed.
6.Considering the submissions made by both the learned advocates, it appears that on perusal of the reasoning given by the Tribunal to Page 14 of 20 Uploaded by URIL KRISHNAKUMAR RANA(HC01406) on Fri Sep 13 2024 Downloaded on : Fri Sep 13 22:11:09 IST 2024 NEUTRAL CITATION C/X-OBJ(O)/3/2013 JUDGMENT DATED: 02/09/2024 undefined determine the cost, the Tribunal has not ignored the valuation report placed on record. The valuation report placed on record reads as under:
"PART-II VALUATION VALUATION REPORT OF LANI BEARING FP. NO. 485, TPS-3 MAJE CHANGISPUR, ASHRAM ROAD, AHMEDABAD KNOWN AS 'NATRAJ ASHRAM ROAD, AHMEDABAD Under the Instruction of the one of the owners, I visited the above property Le, a piece of open land (as sold) with a view to access its value as on 1/4/81 for the purpose of Capital Gain Tax and relying upon all nécessary information and details given by the owner.
The property under consideration is a lease hold land. The lessee constructed the building on the said plot of land at their cost. The building was used as cinema theatre and commercial offices.
The property is sold after demolishing the existing building and the plot has been made completely open and vacant possession is given. Hence for the purpose of valuation only open land without any structure is considered.Page 15 of 20 Uploaded by URIL KRISHNAKUMAR RANA(HC01406) on Fri Sep 13 2024 Downloaded on : Fri Sep 13 22:11:09 IST 2024
NEUTRAL CITATION C/X-OBJ(O)/3/2013 JUDGMENT DATED: 02/09/2024 undefined The property is situated facing main Ashram road on East side and TPS road on its South side. It is surrounded by commercial buildings, cinema theatres, Handloom house, Petrol pumps etc. Reserve bank of India (La-Gajjar Chambers), Famous Chinubhai Tower, Neptune building, Karaka buikding, Dipalee and shiv cinema, Times of Inidia building, G.I.D.C. offices, Income Tax office, Navdeep buding etc are within 1 km. from the property. Ashram road was fast developing posh commercial area of Ahmedabad on material date (je. 1/4/81) of valuation.
The property is lease hold land. For the purpose of valuation land value is worked out and capitalized value of lease rent is deducted from it Annual lease rent is Rs. 33,012/-
Less Outgoings 2% Rs. 660/ Net lease rent Rs. 32.352/-
Capitalizing 10% Υ.Ρ. = 10 Hence capital value = Rs. 32,352/-X 10=3,23,520/- Say Rs.3,23,500.....(A) Land value Studying the surrounding sales and laking all above factors into consideration and also taking into Page 16 of 20 Uploaded by URIL KRISHNAKUMAR RANA(HC01406) on Fri Sep 13 2024 Downloaded on : Fri Sep 13 22:11:09 IST 2024 NEUTRAL CITATION C/X-OBJ(O)/3/2013 JUDGMENT DATED: 02/09/2024 undefined account its situation, position, locabity, size, frontage, depth, street width, neighbourhood, prospects and potentiaäty of development, filled up soil, town plazning taws, planning and restrictions, zoaing, distance to school, temples, transportation, corremercial establishments, level of the picit, rules and regulations of local authonty, land rate is estimated at Rs. 1200/- per sq.yd. Hence land value comes to......
5082 syds. X Rs.1200/sq yd.=Rs.60,90,400........(B) Net value of the property = B-A =Rs. 60,38,400/- - Rs.3,23,500/- =Rs 57,74,900/-
Say Rs.57,75,000/-
(RUPEES FIFTY SEVEN LACS SEVENTY FIVE THOUSAND ONLY)"
7.On perusal of the valuation report, it is apparent that the valuer has taken into consideration the property as lease hold land and after deduction of the annual lease rent at the rate of 10% for ten years has made deduction of Rs.3,23,500/- from the valuation of the land arrived at applying the rate of Page 17 of 20 Uploaded by URIL KRISHNAKUMAR RANA(HC01406) on Fri Sep 13 2024 Downloaded on : Fri Sep 13 22:11:09 IST 2024 NEUTRAL CITATION C/X-OBJ(O)/3/2013 JUDGMENT DATED: 02/09/2024 undefined Rs.1,200/- per square yard. Therefore, the Tribunal was not justified in observing as under:-
"However, this value of the land estimated at Rs.1,200/- per square yard may be reasonable for a free hold land as on 1.4.1981, but the value of a free hold land could not be equated with the value of leasehold rights of "lessee" in a particular piece of land. No mention of the fact that whether the approved valuer has considered this fact while estimating the value of Rs.1,200/- per square yard and whether he has allowed some deduction on account of the fact that the assessee has only the leasehold rights in the plot, we hold that it shall be reasonable to estimate the value of the land as on 1.4.1981 after making suitable deduction on account of the assessee not being full owner of the land......"
8. The above 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 Page 18 of 20 Uploaded by URIL KRISHNAKUMAR RANA(HC01406) on Fri Sep 13 2024 Downloaded on : Fri Sep 13 22:11:09 IST 2024 NEUTRAL CITATION C/X-OBJ(O)/3/2013 JUDGMENT DATED: 02/09/2024 undefined consideration the value of lease hold rights and reduced the same from the total value of the land.
9.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 Page 19 of 20 Uploaded by URIL KRISHNAKUMAR RANA(HC01406) on Fri Sep 13 2024 Downloaded on : Fri Sep 13 22:11:09 IST 2024 NEUTRAL CITATION C/X-OBJ(O)/3/2013 JUDGMENT DATED: 02/09/2024 undefined 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/-.
10. In view of the above facts emerging from the record, 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.
Therefore, we answer both the questions in negative and in favour of the appellant and against the Revenue. The Cross-objection is accordingly disposed of.
Sd/-
(BHARGAV D. KARIA, J) Sd/-
(NIRAL R. MEHTA,J) URIL RANA Page 20 of 20 Uploaded by URIL KRISHNAKUMAR RANA(HC01406) on Fri Sep 13 2024 Downloaded on : Fri Sep 13 22:11:09 IST 2024