R ROSALIN VASANTHI,SALEM vs. ITO, SALEM

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ITA 3212/CHNY/2018Status: DisposedITAT Chennai05 March 2020AY 2005-066 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal found merit in the assessee's submissions. The existence of a rental agreement, receipt of rent, and rental advance were not disputed. The Tribunal held that the value of the land and building as on 01.04.1981 should be determined on the basis of the rent capitalization method. The assessee quantified this value at Rs. 8,28,750/-, which the Tribunal rounded off to Rs. 10 lakhs. The AO was directed to adopt Rs. 10 lakhs as the cost of acquisition for the land and building as on 01.04.1981 and proceed to determine the cost of indexation accordingly for calculating capital gains. The ratio decidendi is that when rental income and advance are demonstrably received and undisputed, the rent capitalization method is a more appropriate basis for determining the fair market value of property for capital gains computation, especially when other valuation methods are contested or found unreliable. The corresponding grounds of appeal were allowed to this extent.

What were the facts?

The assessee, Smt. R. Rosalin Vasanthi (and L/H of Late A. Sundarammal), appealed against the orders of the CIT(A)-Salem for Assessment Year 2005-06. The assessee claimed the cost of acquisition as on 01.04.1981 at Rs. 231.50 per sq.ft. for land and building. The Assessing Officer (AO) adopted a lower guideline value for land and referred the property to the Valuation Officer for the building's value, subsequently re-working the indexed cost of acquisition and determining long-term capital gains. The CIT(A) dismissed the assessee's appeals. The property, inherited through wills, was sold on 13.10.2004 for Rs. 1,05,00,000/-. The dispute centers on the correct valuation of the land and building as on 01.04.1981.

What were the issues?

1. Whether the Assessing Officer was correct in adopting the sub-registrar's guideline value for land as on 01.04.1981, instead of the fair market value, for computing capital gains, and if the guideline values provided by the Stamp Authorities accurately reflect the market value for agricultural land versus per square foot for developed areas? (Question of law and fact, concerning Section 48 of the Income Tax Act). 2. Whether the CIT(A) erred in concluding that only vacant land was sold, and if the Valuation Officer's report for the superstructure's value as on 01.04.1981 is reliable, given that the building was demolished prior to the valuation inspection? (Question of law and fact, concerning Section 48 of the Income Tax Act). Assessee's Contentions: The AO incorrectly adopted a low guideline value for land, which did not represent the fair market value. The guideline values were for agricultural land and later changed to per square foot, indicating they do not reflect the correct market value. The CIT(A) erred in stating only vacant land was sold, contradicting the AO's own consideration of superstructure value. The Valuation Officer's report is unreliable as the building was demolished before his inspection, making it unscientific. The value of the building should be calculated using the rent capitalization method as per Schedule III of the Wealth Tax Act, considering the rental income and advance received. Revenue's Contentions: The CIT(A) obtained a remand report from the AO, furnished it to the assessee, considered their reply, and upheld the AO's orders. Therefore, the revenue supports the orders of the lower authorities.

Which sections of the Income-tax Act were involved?

Section 48

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “D” BENCH, CHENNAI

Before: SHRI GEORGE MATHAN & SHRI S. JAYARAMAN

Hearing: 10.12.2019

Per contra, the Ld DR submitted that the Ld CIT(A) obtained a remand report from the AO , furnished a copy to the assessee and after considering their reply etc , upheld the orders of the AO and hence he supported the orders of the lower authorities.

4.

We heard the rival submissions and gone through the relevant material. The impugned property was an ancestral property of Shri. S.A.

1.

Thomas Caminus through a registered will during 1979. On 29.01.1995, Mr. Thomas Caminus executed a will in favour of his three brothers. The property consisted of land measuring 9234 sq.ft. and a building thereon which was received by the assessee (Mrs. A. Sundaramma), her daughter (Mrs. R. Rosalin Vasanthi) and assessee’s son having 30% share in 1/3th share of land and building at Pollachi through a will dated 14.07.2001 executed by her husband Shri. A. Royappan. This property was sold on 13.10.2004 for Rs. 1,05,00,000/- and hence the respective assessees’ admitted their share as capital gains. While computing the capital gains, the assessees’ have adopted Rs. 231.50 per sq.ft. as the value of the property as on 01.04.1981 and worked out the indexed cost of acquisition. When the AO proposed to assessee the value of the land adopting the value shown by the registration authority and adopt the :-5-: & 3242/Chny/2018 value of the super structure as per the valuation officer’s report, the assessee submitted that the impugned property was given on rent for Rs. 4,000/- per month with a rental advance of Rs. 2,00,000/- and therefore, it is proper to adopt the value on rent capitalisation method as per the provisions of the Wealth Tax Act. However, the AO did not agree with assessees’ plea and proceeded to compute the capital gains based on the value shown by the stamp authorities and the valuation officer. Before us, the assessee pleads that the guideline value does not reflect the market value and by the time the valuation officer went for inspection, the property was already demolished and hence the valuation made by him cannot be considered as a scientific one. On these facts and circumstances of the case, wefind merit in the submissions of the assessee. The existence of rental agreement, the receipt of rent and rental advance is not disputed. Therefore, we are of the view that the value of the land and building should be determined on the basis of rent capitalisation method. The assessee has quantified the value at Rs. 8,28,750/-, which may be rounded off to Rs. 10 lakhs. Therefore, we direct the AO to adopt Rs. 10 lakhs towards the cost of acquisition for the land and building as on 01.04.1981 and proceed to determine the cost of indexation accordingly, for the determination of capital gains in the respective assessee’s hand. Corresponding grounds of the above assessee’s are allowed to the above extent.

:-6-: & 3242/Chny/2018

5.

In the result, each of the assessee’ s appeal is treated as partly allowed.

Order pronounced on Thursday, 05th March, 2020 at Chennai.

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