Capital gains valuation must reflect encumbered property value where ceiling proceedings and litigation depress realizable market worth.

For capital gains computation, a property under ongoing Urban Land (Ceiling and Regulation) Act proceedings and pending litigation was held not to have a free-market value reflected by the section 50C valuation. Because possession issues, eviction proceedings, and the encumbered character of the land materially depressed its realizable worth, the Tribunal found that the deeming fiction in section 50C could not be applied mechanically. The actual sale consideration was directed to be adopted as the proper basis for computing capital gains, and the DVO's higher valuation was rejected.

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Issues: Whether, for computing capital gains on sale of the subject property, the full value of consideration should be taken at the actual sale consideration or at the value determined under section 50C of the Income-tax Act, 1961 by the DVO, in view of the property being under Urban Land (Ceiling and Regulation) Act proceedings and subject to pending disputes.

Analysis: The property was found to be under proceedings under the Urban Land (Ceiling and Regulation) Act, 1976, with possession having been taken in part and the related proceedings and eviction actions still pending. The Tribunal noted that the land remained entangled in litigation and could not be treated as an uncomplicated free-market asset. It also noticed that the rent capitalization approach produced a value substantially lower than the actual consideration received. In these circumstances, the Tribunal held that the DVO's valuation under section 50C did not reflect the realistic market value of the asset, and that the actual sale consideration was the proper basis for computation of capital gains.

Conclusion: The issue was decided in favour of the assessee. The actual consideration received by the assessee was directed to be adopted for computing capital gains, and the section 50C valuation was not sustained.

Final Conclusion: The appeals succeeded because the disputed and ceiling-affected character of the property warranted adoption of the real sale consideration rather than the enhanced valuation adopted by the tax authorities.

Ratio Decidendi: Where a property is burdened by ongoing ceiling proceedings and pending litigation that materially depress its realizable market value, the deeming mechanism in section 50C cannot be applied mechanically so as to disregard the actual consideration received when that consideration better reflects the property's true market worth.

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