Leasehold gift valuation must reflect restrictive covenants and unearned increase, not merely acquisition cost.

Leasehold rights gifted in a residential plot were required to be valued at market value, but only after accounting for the restrictive covenants in the sub-lease and the lessor's right to recover fifty per cent of the unearned increase. The acquisition cost could not be treated as the taxable value merely because the interest was originally obtained at that amount. The valuation therefore had to reflect the contractual burden attached to transfer, and deduction of the unearned increase was directed, giving the assessee limited relief on that aspect.

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Issues: Valuation of the gifted leasehold rights in a residential plot, including whether the cost of acquisition could be taken as the value and whether the burden of unearned increase under the sub-lease had to be deducted.

Analysis: The sub-lease deed imposed restrictive conditions on transfer, but there was no total prohibition on transfer to a member with consent. In such circumstances, the value of the gifted interest could not be equated with the amount originally contributed for acquiring the plot. The proper basis remained market value, but that valuation had to reflect the restrictive covenants and the lessor's right to recover fifty per cent of the unearned increase. The burden attached to the transfer therefore had to be taken into account while determining the taxable value.

Conclusion: The value of the plot could not be restricted to the acquisition cost of Rs. 22,625. The market valuation approach was upheld, but deduction of the unearned increase was directed, resulting in relief to the assessee on that aspect.

Final Conclusion: The valuation question was answered by applying market value subject to the contractual restrictions and by allowing deduction for the unearned increase, so the assessee succeeded only to that limited extent.

Ratio Decidendi: A leasehold or sub-lease interest subject to restrictive covenants must be valued by taking those restrictions and any recoverable unearned increase into account, and not by treating the acquisition cost as the taxable value.

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