Deemed gift valuation of immovable property must include reversionary rights and follow the statutory capitalisation method.

Transfer of immovable property was required to be examined as a deemed gift under the Gift Tax Act, and valuation had to capture the full transferred interest, including the right to receive rent and the reversionary interest. The statutory valuation mechanism under Schedule II of the Gift Tax Act, read with Schedule III of the Wealth Tax Act, applied to determine the taxable value. The land valuation based on comparable sales was accepted, but the building valuation had to be recomputed by allowing depreciation and applying the correct capitalisation approach from annual letting value. The reversionary interest could not be ignored, so the Revenue's valuation was sustained only in part.

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Issues: Whether the transfer of the property attracted deemed gift under Section 4(1) of the Gift Tax Act, and whether the valuation for that purpose had to account for the reversionary interest, land value, and building value in accordance with Schedule II of the Gift Tax Act read with Schedule III of the Wealth Tax Act.

Analysis: The sale deed showed that the assessee transferred not merely the land but also the right to receive rent during the lease and the reversionary right in the property. For determining deemed gift, the valuation had to follow the mechanism prescribed under Schedule II of the Gift Tax Act, which adopts the valuation principles under Schedule III of the Wealth Tax Act. The land value determined by the Valuation Officer from comparable sales near the date of transfer was accepted. However, the building portion could not be valued without giving effect to depreciation and the proper capitalization approach based on annual letting value. The reversionary interest could not be ignored while valuing the transferred interest.

Conclusion: The transfer was liable to be valued as a deemed gift, but only partly on the basis adopted by the Revenue. The valuation of the land was sustained, while the building valuation had to be recomputed by allowing depreciation and applying the correct capitalisation factor. The assessee succeeded to that limited extent.

Ratio Decidendi: For deemed gift valuation of immovable property, the authority must value the entire transferred interest, including reversionary rights, and must apply the statutory valuation method prescribed by the Gift Tax Act and the incorporated Wealth Tax valuation rules.

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