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Issues: Whether, for computing capital gains, the fair market value of the land as on 1-4-1981 should be taken at the figure reported by the registered valuer, and whether the impact of restrictions under the Urban Land (Ceiling and Regulation) Act, 1976 had to be accounted for.
Analysis: The assessee had opted to substitute the fair market value as on 1-4-1981 in place of cost of acquisition. The Assessing Officer discarded the registered valuer's report without any substantive basis and relied on the value shown in wealth-tax proceedings. The value adopted in wealth-tax, however, could not be treated as conclusive for capital gains purposes. At the same time, the registered valuer's estimate proceeded on the footing that the land was free from the statutory restrictions, whereas the land was in fact subject to severe limitations on user and transfer under the Urban Land (Ceiling and Regulation) Act, 1976. Those restrictions were relevant and had to be reflected in valuation.
Conclusion: The registered valuer's figure could not be accepted in full, but the land's fair market value on 1-4-1981 had to be determined by allowing for the statutory restrictions. The value was directed to be taken at Rs. 13.50 per sq. ft., resulting in relief to the assessee.
Ratio Decidendi: For capital gains valuation, a property's fair market value must reflect legally operative statutory restrictions affecting user and transfer, and a registered valuer's estimate cannot be accepted or rejected mechanically without considering those constraints.
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