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HIGH COURT OF CALCUTTA
P. B. Mukharji, T. K. Basu
MAHMUDABAD PROPERTIES (P.) LTD. - Appellant
Versus
COMMISSIONER OF INCOME-TAX - Respondent
Income-Tax Reference 267 Of 1968
Decided On : JULY 27, 1970
Whether there was a valid and legal basis for the Tribunal's conclusion that capital gain arising out of the sale of the property at No. 221, Russa Road, Calcutta, would be Rs. 75,000 instead of a loss of Rs. 6,000 as claimed by the assessee?
Fact of the Case:
The assessee is a company in voluntary liquidation. The assessment year involved is 1962-63 for which the relevant financial year is the calendar year 1961. The assessee had declared loss under the head "capital gains" of Rs. 6,390 on the sale of properties Nos. 14 and 14/1, Arif Road, and 221, Russa Road. In the computation adopted by the assessee, the valuation of these properties as on January 1, 1954, was claimed to be Rs. 79,200 and Rs. 3,06,000 respectively. These computations were based on the respective valuation reports of Messrs. Talbot and Co. The property at 14 and 14/1, Arif Road, was sold away on October 30, 1961, for Rs. 1,05,000. The property at 221, Russa Road, was sold on April 11, 1961, for a sum of Rs. 3,00,000.
Finding of the Court:
The Tribunal had before it the evidence of the sate of the assessee's other property, viz. , premises Nos. 14 and 14/1, Arif Road. The premises Nos. 14 and 14/1, Arif Road, was sold by the assessee on the 30th October, 1961, a few months after the sale of the Russa Road property. It was a large property as would appear from the fact that it fetched a price of Rs. 1,05,000 on its sale. It is admitted that the property is situate in Calcutta although in a different part. The Tribunal recorded the fact that the Arif Road property fetched on its sale in October, 1961, a sum which was 25 per cent. in excess of what was estimated to be the "fair market value" of the Arif Road property as on the 1st January, 1954. ' This valuation of "fair market value" of the Arif Road property was made by Messrs, Talbot and Co. and was accepted by the Income-tax Appellate Tribunal in that case. This fact of the property fetching 25 per cent. in excess of its fair market value as on 1st January, 1954, on its sale in October, 1961, was taken by the Tribunal to afford a proof of the fact of the rise in prices of landed properties in Calcutta as also an index of the measure of such rise. The Tribunal adopted the same yardstick as to the measure of the index of the rise of the price of Russa Road property as between 1954 and 1961, In our view, the Tribunal was entitled to rely on this piece of evidence of the sale of the Arif Road property in coming to its conclusion.
Issues: 1. Whether the Tribunal was justified in rejecting the valuation report of Messrs. Talbot and Co.? 2. Whether the Tribunal was justified in taking judicial notice of the fact of rise in prices of land between 1954 and 1961? 3. Whether the Tribunal was justified in coming to the conclusion that the capital gain arising out of the sale of the property at No. 221, Russa Road, Calcutta, would be Rs. 75,000 instead of a loss of Rs. 6,000 as claimed by the assessee?
Ratio Decidendi: 1. The Tribunal was justified in rejecting the valuation report of Messrs. Talbot and Co. as it was not based on verifiable data but was based on certain estimates and contained inherent infirmities. 2. The Tribunal was justified in taking judicial notice of the fact of rise in prices of land between 1954 and 1961 as it was a notorious fact. 3. The Tribunal was justified in coming to the conclusion that the capital gain arising out of the sale of the property at No. 221, Russa Road, Calcutta, would be Rs. 75,000 instead of a loss of Rs. 6,000 as claimed by the assessee as there was a valid and legal basis for its conclusion.
Final Decision: The question is answered in the affirmative and in favour of the revenue.
( 1 ) THIS income-tax reference raises interesting questions with regard to the valuation of a "capital asset" for computing capital gains in income-tax law.
( 2 ) THE question which this court directed the Income-tax Appellate Tribunal to refer under Section 256 (2) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") and which has been so referred by the Tribunal is in the following terms :"was there a valid and legal basis for the Tribunal's conclusion that capital gain arising out of the sale of the property at No. 221, Russa Road, Calcutta, would be Rs. 75,000 instead of a loss of Rs. 6,000 as claimed by the assessee?"
( 3 ) THE facts leading to the instant reference may be briefly noted.
( 4 ) THE assessee is a company in voluntary liquidation. The assessment year involved is 1962-63 for which the relevant financial year is the calendar year 1961.
( 5 ) IN the return filed by the assessee for the assessment year 1962-63, the assessee had declared loss under the head "capital gains" of Rs. 6,390 on the sale of properties Nos. 14 and 14/1, Arif Road, and 221, Russa Road. In the computation adopted by the assessee, the valuation of these properties as on January 1, 1954, was claimed to be Rs. 79,200 and Rs. 3,06,000 respectively. These computations were based on the respective valuation reports of Messrs. Talbot and Co. We shall have occasion to deal with the report in some detail at a later stage.
( 6 ) THE property at 14 and 14/1, Arif Road, was sold away on October 30, 1961, for Rs. 1,05,000. The property at 221, Russa Road, was sold on April 11, 1961, for a sum of Rs. 3,00,000. Dealing with the contention of the assessee with regard to the capital loss on the sale of the aforesaid properties, viz. , 14 and 14/1, Arif Road, and 221, Russa Road, the Income-tax Officer in paragraph 5 of the order of assessment for the assessment year 1962-63 observed as follows :"the assessee has declared capital loss of Rs. 6,390 on the sale of properties Nos. 14 and 14/1, Arif Road, and 221, Russa Road. In the computation adopted by the assessee, the values of these two properties as on January 1, 1954, have been taken at Rs. 79,200 and Rs. 3,06,000 respectively based on the valuation report of Messrs. Talbot and Co. The valuation report is not based on verifiable data but is based on certain estimates. This report cannot, therefore, be acted upon. On the other hand, I find that in the wealth-tax assessment for the assessment years 1957-58, 1958-59 and 1959-60, the value of these two properties have been declared by the assessee as under, which was accepted for assessment purposes:
Valuation date Value of 14 and 14/1, Arif Rd.Value of 221, Russa Rd. 31-12-56 18,812 1,68,924 31-12-57 18,980 1,68,924 31-12-58 18,980 1,68,924
Having regard to the rise in the valuation of real properties between January 1, 1954, and December 31, 1956, I estimate the value of the aforesaid two properties as on January 1, 1954, at Rs. 18,000 and Rs. 1,60,000, respectively. "
( 7 ) ON the aforesaid basis, the Income-tax Officer computed the capital gains on the sale of 14 and 14/1, Arif Road, Calcutta, at Rs. 72,876 and the capital gains on the sale of 221, Russa Road, Calcutta, at Rs. 1,31,870.
( 8 ) IN the instant reference, however, we are not concerned with the capital gains on the sale of 14 and 14/1, Arif Road, Calcutta.
( 9 ) AGAINST the order of the Income-tax Officer, the assessee preferred an appeal before the Appellate Assistant Commissioner of Income-tax, "d" Range, Calcutta.
( 10 ) THE relevant portion of the order of the Appellate Assistant Commissioner dealing with this particular question is to be found at paragraphs 7 and 8 of the order and may be set out hereunder : It is claimed that the Income-tax Officer should not have rejected the valuation report without going into the merits of the report itself. Secondly, it was claimed that the wealth-tax basis is wholly incorrect as the same was based on
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