By Vimal Punamiya
Accommodation Times News Services
The concept of “Fair Market Value” is most crucial and important from determining the validity or otherwise of the acquisition proceedings. In CIT vs. Arun Mehra 157 ITR 308 it was held that “when the initiation of proceedings depends on the market value of the property such initiation should not depend on a theoretical calculation of such value. What has to be seen is the market value, in the market and not the value calculated in an abstract manner applying a multiplier with reference to some unknown sale. Further in Joseph Valooran’s case reported in 108 ITR 544 it was held that “the fair market value is linked with the “price” the property would ordinarily fetch in the open market; i.e., the price a willing Purchaser would pay to the willing seller for a property, having due regard to its existing condition, existing advantages and its potential possibilities when laid out in its most advantageous manner.
The Supreme Court in the case of R.C. Cooper vs. Union of India ATR 1970 SC 546 has observed that the fair market value remains unaffected by the special needs of a particular purchaser.
The worlds “in the open market” used in the definition of fair market value does not contemplate actual sale or the actual state of the market but only enjoins that it should be assumed that there is an open market, and the property can be sold in such a market, and on that basis, the value has to be found out. The competent authority must assume that there is an open market in which such immovable property can be transferred. This view was expressed by the Supreme Court in Ahmed G.H. Ariff vs. CWT (1970) 76 ITR 471 (S.C.) and CWT vs. Purshottam N. Amersay (1969) 71 ITR 180 (Bom.) affirmed in Purshottam N. Amersay vs. CWT 1972 CTR (S.C.) 215; (1923) 88 ITR 417 (S.C.)
The determination of fair market value depends on the factors and circumstances of each cases and ultimately on the property itself, and the surrounding circumstances, advantages and disadvantages, which would govern the factors in the determination of the value as decided in CIT vs. Panchanan Das 116 ITR 272.
There are different methods of valuation of property. What method should be adopted depends upon each property.
i) Valuation of fully tenanted property should be made on the basis of capitalisation of rental method and not land and building method was held in Subhkaran Chowdhury vs. IAC, 118 ITR 777, CIT vs. Asharfilal Gupta TC 3R 221, CIT vs. Anup Kumar Kapoor 125 ITR 684 CIT vs. Premnath Anand 108 ITR 549, Smt. Sabita Mohan Nagpal vs. CWT (1986) 53 CTR (Raj.) 332 (1986) 160 ITR 751 (Raj.) CIT vs. New Indra Construction Co. TC 3R 229 and Bakshi Ram Gaur & Anr. vs. IAC 3R 235.
Further even where part of a building is occupied by the landlord rent capitalisation method could be adopted by evaluating the rental for the self occupied portion on the basis of rent paid by the tenant or the instances of rent obtained for comparable area as held in CIT vs. Radhey Mohan 153 ITR 299, Wenger & Co. vs. District Valuation Officer (1978) 115 ITR 648 (Del.), CIT vs. Asharfilal Gupta TC 3R 221.
However where the property is not fully developed, the rent capitalisation method may result is absurd determination of fair market value. In such cases it may be more appropriate to adopt land and building method of valuation. This view is held by the various courts. Badri Vishal Tandon vs. CED (1982) 136 ITR 427 (All.), CIT vs. Anup Kumar Kapoor 125 ITR 684 and CWT vs. Ram Saran Kajriwal (1987) 168 ITR 485 (All.).
The rent fetched or reasonably expected to fetch at the time of transfer is relevant as held in the case of CWT vs. Dr. K. Jagadeesan (1987) 163 ITR 289 (Mad.).
For the purpose of valuation the actual rent charged from sister concerns accepted in Income Tax proceedings should be adopted as the basis for determining fair market value as held in CWT vs. Ashwani Kumar Gordhanbhai (1989) ITR (St.) 37 and Bai Nani vs. WTO (1983) 16 TTJ (Ahd.) 362 and Surendra Kumar Ahuja vs. WHO (1983) 4 ITD 207 (Asr.)
Land and building method of valuation is one of the normally accepted methods adopted in cases of properties which are occupied by the owners themselves or areas lying vacant at the time of transfer. In such method the fair market value of land is determined on the basis of comparable sale instances. Here are the judicial view on some aspects relating to valuation according to land and building method.
i) CIT vs. Leatherite Industries TC 3R 334 held to determine the price of the land, the instances of sales should be similar plots of land in similar locality.
ii) Mani Singh Avta Singh vs. IAC TC 3R 338 held that the cumulative effect of the instances quoted should be taken into account and the instances should not be taken in isolation to the disadvantage of the appellant.
iii) Wrenger & Co. & Ors. Vs. District Valuation Officer (1978) 115 ITR 648 (Del.).
Held it is one of the settled principles of valuation that market value has to be ascertained by considering sales of similar properties in the same neighborhood or similar environment. If there are no such instances of sales available then capitalisation of rent or making some sort of comparative evaluation of sales of other properties is an acceptable mode of valuation. A certain amount of guess work would be there if not exactly similar instances of sale is available in that case an estimate has to be made which need not necessarily be a mathematical calculation.
The aforesaid decision is also affirmed by the Karnataka High Court in the case of V.C. Ramachandran vs. CWT (1979) (1980) 126 ITR 157 (Kar.)
In Smt. Pratipal Kaur vs. IAC TC 3 R 578 it was held the method of land and building is a well recognised one and has been accepted for the purpose of finding out the correct value of the property.
Further in Prodyut Kumar Dutta & Ors. Vs. Competent Authority TC 3% 263.
It was held that there are various methods of valuation of property. In a particular situation which method should be followed in preference to the other would depend on the particular case.
Even under Chapter XX-A few decisions were held as regards comparable sales method, cited as under :
- Premchand & Others vs. IAC & Others TC 3R 549.
Held that in many cases it becomes difficult to adopt capitalisation method and rental value method etc. Therefore these methods must be adopted only when the fair market value cannot be determined by applying the comparable sale method or the sale analysis approach and not otherwise.
In CIT vs. Duncans Agro Industries Ltd. TC 3R 342 it was held that “It is well recognised that small plots in developed colonies fetch much higher price as compared to large areas of land.
Not only the sale instances remote in point of time from the date of acquisition can be considered but a general presumption about the all round rise in the price including that of reality can be considered but a general presumption about the all round rise in the price including that of reality can be raised which can be rebutted by evidence to the contrary that the price had become stagnant in the locality for some valid reasons as held in CIT vs. Sumantilal Chhotalal Shah 724 ITR 862.
Under the Income Tax Act, Tribunal is the highest fact finding authority. It was held by the Delhi High Court in CIT vs. Keshrichand TC. 3R 379.
Keshrichand TC 3R 379 it was held that findings of facts are not open to challenge in appeal before the court.
Reliance is also place in similar case of CIT vs. Triloknath Dube, ITR 613.