Fair market value of building-site land cannot rest on speculative development projections or imagined future income.

Fair market value for land already used as a building site must be assessed by reference to its real and legally relevant potentialities, not by speculative assumptions about a future shopping complex and projected income from imagined development. A development method that ignores the land's actual condition and existing use is not a permissible basis for valuation under Chapter XX-A of the Income-tax Act, 1961. The contractor's method was also distinguished because it applies to the capital value of an existing building, not to land simpliciter. The impugned valuation report was therefore irrelevant for determining fair market value and could not be relied upon to that extent.

---

---

Issues: Whether the second valuation report, based on the development method, was a legally permissible basis for determining the fair market value of land already used as a building site and whether it could be relied upon in proceedings under Chapter XX-A of the Income-tax Act, 1961.

Analysis: Fair market value may take account of the potentiality of land, but only its real and legally relevant potentialities. Where the property is already a building site, a method which assumes construction of a modern shopping complex and then capitalises the expected income from that imagined development does not reflect the value of the land on the date of sale. The contractor's method was also distinguished, since it is directed to the capital value of an existing building and not to the valuation of land simpliciter. The proceedings themselves were not quashed because they rested on other materials as well, but the impugned valuation report was held to be irrelevant.

Conclusion: The second valuation report could not validly be taken into consideration or relied upon for determining fair market value, and the writ petition was allowed to that limited extent.

Ratio Decidendi: In valuing land already used as a building site, speculative development-based valuation that ignores the property's actual condition and existing use is not a legally permissible basis for determining fair market value.

---