IMPORTANT POINT
The fair market value of leasehold rights must be determined considering the lessee's perspective, and valuation reports from approved valuers should be given appropriate weight.

JUDGMENT :

Bhargav D. Karia, J.

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the matter is taken up for hearing, it is reported to us that the Tax Appeal No.753 of 2013 was already permitted to be withdrawn as the tax effect is below the minimum threshold limited provided by the CBDT in a circular dated 11.7.2008.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?

(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 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 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 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 wha