Fair market value in acquisition must reflect the actual transferred interest, including title risks and other value-depressing factors.

For acquisition under Chapter XX-A of the Income-tax Act, fair market value must be assessed by reference to the interest actually and effectively transferred, not a larger or merely purported title. The valuation must reflect all relevant depressing or enhancing factors, including title defects, pending disputes, occupation, tenancy restrictions, property condition, and litigation risk; an estimate ignoring such matters is legally infirm. On notice under section 269D, substantial prior individual service of notice before Gazette publication led the court to treat the publication requirement as directory on the facts, and the procedural objection was rejected. The valuation challenge succeeded and the matter was remitted for fresh adjudication.

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Issues: (i) Whether, for acquisition under Chapter XX-A of the Income-tax Act, 1961, the fair market value had to be assessed with reference to the interest actually and effectively transferred, taking into account title risks and other depressing factors. (ii) Whether the notice procedure under section 269D was invalid for want of compliance with sub-section (2).

Issue (i): Whether, for acquisition under Chapter XX-A of the Income-tax Act, 1961, the fair market value had to be assessed with reference to the interest actually and effectively transferred, taking into account title risks and other depressing factors.

Analysis: The definition of fair market value in section 269A(d) requires the price the immovable property would ordinarily fetch in the open market on the date of transfer. That valuation must be made on the basis of the property actually and effectively transferred and not on a merely purported or larger title than what the transferor could convey. In determining the price a willing purchaser would pay, all relevant factors that appreciate or depress value must be considered, including the nature of title, pending disputes, occupation, condition of the property, tenancy restrictions, and the risk of litigation. An estimate that ignores such relevant considerations is arbitrary and vitiated in law.

Conclusion: The acquisition findings on fair market value were unsustainable and the appellants succeeded on this issue.

Issue (ii): Whether the notice procedure under section 269D was invalid for want of compliance with sub-section (2).

Analysis: The purpose of publication and service of notice is to apprise the persons concerned of the initiation of proceedings. Where substantially similar individual notices had already been served before the Gazette publication, the requirement was treated as directory in the facts of the case. The appellants had not raised any effective grievance before the competent authority or the Tribunal and were held to have waived the procedural objection. The cited authorities on mandatory notice requirements were distinguished on their facts.

Conclusion: The challenge to the notice procedure failed and was rejected against the appellants.

Final Conclusion: The appeals were allowed in substance on the valuation ground and the matter was sent back for fresh adjudication with liberty to adduce further relevant evidence.

Ratio Decidendi: For acquisition under Chapter XX-A, fair market value must be determined by the price a prudent purchaser would pay for the interest actually transferred, after taking into account all relevant title and market-affecting circumstances; a valuation that omits such factors is legally infirm.

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