2016 (9) TMI 1139 - HC - Wealth-tax

Land value under Urban Land Act set at Rs. 5/sq. mt. - Precedents support Tribunal ruling

The Tribunal determined that the market value of the respondent's excess land, influenced by the Urban Land (Ceiling & Regulation) Act, 1976, should ... Applicability of provisions of Urban Land (Ceiling & Regulation) Act, 1976 for determining the market value of the plot for purposes of Wealth-tax on the relevant valuation date - Held that:- Once there is a restriction on transfer of any land falling under the ULCAR Act, the fair market value of the property would be depressed on account of such restrictions/considerations. Admittedly, in the instant case, it was not open to the assessee to sale the land on account of the restrictions imposed under the ULCAR Act and therefore, the value of the land in question cannot be more than what the Government was to offer to an assessee under the provisions of the ULCAR Act, where the maximum rate of compensation is ₹ 5/- per sq. mt., therefore, the same value has to be held to be the fair market value as on the valuation date and in our view, the Tribunal was just and proper in coming to the aforesaid conclusion that the fair market value of the excess land ad-measuring 16000 sq. mt., would be ₹ 80,000/- @ ₹ 5/- per sq.mt.. Consequently, the question of law is answered in favour of the assessee and against the revenue. Issues Involved:1. Applicability of the Urban Land (Ceiling & Regulation) Act, 1976 for determining the market value of the plot for Wealth-tax purposes.2. Determination of fair market value of the land owned by the assessee under the Wealth Tax Act.3. Consideration of the compensation rate provided under the ULCAR Act.4. Relevance of the ULCAR Act's impact on market value for Wealth-tax assessment.Issue-wise Detailed Analysis:1. Applicability of the Urban Land (Ceiling & Regulation) Act, 1976:The core issue was whether the provisions of the Urban Land (Ceiling & Regulation) Act, 1976 (ULCAR Act) should be applied to determine the market value of the plot for Wealth-tax purposes. The Tribunal was tasked with deciding if the ULCAR Act, which came into force on 17/02/1976 and was applicable in Rajasthan from 09/03/1976, should influence the valuation of the respondent’s land for the assessment years 1976-77 and 1977-78. The Tribunal concluded that the ULCAR Act, which required surrendering excess land to the State Government, indeed affected the land's market value.2. Determination of Fair Market Value under the Wealth Tax Act:The Tribunal had to ascertain the fair market value of the land considering the ULCAR Act. The respondent owned 18,000 sq. mt. of land, but the dispute centered on 16,000 sq. mt. The ULCAR Act restricted the holding of vacant land to 2000 sq. mt. in Ajmer, and the compensation for excess land was fixed at Rs. 5 per sq. mt. The Tribunal accepted the respondent’s claim that the market value of the excess land should be Rs. 5 per sq. mt., leading to a total valuation of Rs. 80,000 for the 16,000 sq. mt. of excess land.3. Consideration of the Compensation Rate under the ULCAR Act:The Tribunal had to consider whether the compensation rate of Rs. 5 per sq. mt. under the ULCAR Act should be the basis for the land's market value. The Revenue argued that there was no evidence of the respondent having filed a declaration under the ULCAR Act and that the previous valuation of Rs. 2,98,000 should be maintained. However, the Tribunal, guided by the ULCAR Act’s provisions, determined that the fair market value should reflect the Rs. 5 per sq. mt. compensation rate.4. Impact of ULCAR Act on Market Value for Wealth-tax Assessment:The Tribunal had to evaluate the impact of the ULCAR Act on the land's market value for Wealth-tax assessment. The Act’s restrictions on landholding and the mandated compensation rate significantly depressed the land's market value. The Tribunal referred to the Supreme Court’s ruling in Sri S.N. Wadiyar (Dead) through LR Vs. Commissioner of Wealth Tax, Karnataka, which held that the ULCAR Act’s provisions depress the land's value. Additionally, the Tribunal noted that the ULCAR Act prohibits the sale, alienation, or gifting of such land, further impacting its market value.Conclusion:The Tribunal concluded that the fair market value of the respondent's excess land, as influenced by the ULCAR Act, should be Rs. 5 per sq. mt., totaling Rs. 80,000 for the 16,000 sq. mt. The Tribunal’s decision was supported by precedents from the Supreme Court and various High Courts, which consistently held that land under the ULCAR Act should be valued according to the Act’s compensation provisions. Consequently, the question of law was answered in favor of the assessee and against the Revenue. The Tribunal was directed to pass an appropriate order in conformity with this conclusion.