2014 (8) TMI 1043 - HC - Income Tax

Determination of fair market value of the property - property purchased by the Central Government in accordance with the provisions of Section 269 UD(1) - Appropriate Authority compared the proposed sale of said property with a sale instance of 1989 with regard to premises on a 1st floor property situated within the limits of Pune Municipal Corporation ( compared 1st floor property) - Held that - In the present case the said property and the compared 1st floor property are not identical/similar in all respect i.e. compared 1st floor property is situated within the the Pune Municipal Corporation while the said property is outside the Pune Municipal Corporation . This by itself would be a factor which would make difference in the value of the two properties. As a property situated within the limits of Municipal Corporation would be beneficiary of various services made available by the Municipal Corporation which is not available to said property admittedly situated outside the limits of Municipal Corporation. The said property is an open land while the compared 1st floor property is a constructed property. This is a major difference and allowance should be made not only by reducing the cost of construction of the compared property but also other differences. All these would have to be factored in while determining the fair market value of the said property. This admittedly has not been done in this particular case. Therefore the impugned order is unsustainable. It has been also pointed out that the impugned order failed to consider the market value of 3000 sq.ft. built up area to be given by the petitioner to the transferor society i.e. respondent No.4. This was being paid as part of the consideration for the purchase of the said property. However the Appropriate Authority has only considered the cost of construction to arrive at the apparent consideration of the said property and not its market value. This alone would lead to proper determination of value of the said property. Petitioner handed over a letter dated 10 May 2012 from the Commissioner of Income Tax to the petitioner acknowledging the receipt of Rs. 39, 48, 339/- by the Appropriate Authority from the petitioner. The letter is dated 10 May 2012 is taken on record and marked X for identification. Counsel for the parties inform us that the amount of Rs. 39, 48, 339/- is the amount paid by the respondent revenue to the transferor respondent No.4 at the time of passing the impugned order dated 24 February 1995.

Summary

Issues:
Challenge to order under Section 269UD(1) of the Income Tax Act, 1961 regarding purchase of land by Central Government based on fair market value determination.

Analysis:
1. Fair Market Value Determination:
The petitioner challenged the order dated 24 February 1995 for not determining the fair market value of the property, as required by law. The petitioner argued that without determining the fair market value, the order cannot be sustained, citing the precedent in Vimal Agarwal v. Appropriate Authority [1994] 210 ITR 16. The petitioner highlighted differences between the subject property and a compared property, emphasizing that the properties were not comparable due to various factors like location and encumbrances.

2. Comparability of Properties:
The petitioner contended that the subject property being a leasehold outside Pune Municipal Corporation was not comparable to the compared property situated within the corporation limits. The petitioner stressed that differences in location and property type must be factored in for a fair comparison, which was not done in the impugned order.

3. Encumbrances and Consideration:
The petitioner argued that encumbrances on the subject property, such as existing loans and permissions required, were not considered in the valuation process. Additionally, the consideration paid by the petitioner included costs for construction of a specific area, which the Appropriate Authority failed to account for in determining the property's value.

4. Legal Precedents and Interpretation:
The respondent, representing the Revenue, defended the impugned order, asserting that the fair market value was implicitly determined based on the compared property's sale price. The respondent relied on legal precedents to support the position that the absence of an explicit fair market value determination did not invalidate the acquisition process.

5. Judicial Interpretation and Conclusion:
The Court analyzed the arguments presented by both parties and emphasized the importance of determining the fair market value to ascertain under-valuation. Referring to the Vimal Agarwal case, the Court highlighted the uniqueness of properties and the necessity to consider various factors for valuation. The Court concluded that the impugned order lacked a proper determination of fair market value, making it unsustainable in law. The Court also noted the failure to consider the market value of the constructed area provided as part of the consideration. Ultimately, the Court allowed the petition, ruling in favor of the petitioner and directing the acquisition to be set aside.

In summary, the judgment focused on the necessity of determining the fair market value of the property, considering comparability, encumbrances, and all relevant factors for a valid acquisition under Section 269UD(1) of the Income Tax Act, 1961.