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Can market price be considered for valuation?
Source : The Hindu Property Plus Published On : 2009-02-14 City : Chennai

Many register the land for lower value because it reduces capital gains tax, writes C.H.Gopinatha Rao

Many often ask why the registered value of the land should be considered for assessing the value for property and not the market value.

Given the fact that the registered value in most of the cases is less than the market value, it does not help in enhancing the value of the property for mortgage and other assessment purposes.

Sellers opt to register the land for lower value because it reduces his/her liability towards capital gains tax. The buyer too gains by paying less stamp duty.

In addition, when the sale price is higher, the buyer has to explain the source of his investment for Income Tax purposes. As a result, even if higher price is paid, the registered value of the property is much lower.

The buyers though gain during registration; they lose out during attempts later to mortgage the property with banks.

In the case of Commissioner of Wealth Tax vs R Ramanthan Chettiar (248 ITR 315 (2001)), the court referred the judgment delivered in case of S.Abdul Rahman vs CWT (1979) 117 ITR 570. In Mr.Rahman’s case it was held that there was nothing in Wealth Tax Act dealing with the valuation of assets which indicates that only the remittable value of asset in a foreign country has to be included in the net wealth and though, normally, the value of money in legal currency would be that value which is equivalent at the official rate of exchange, it would be open to an assessee to prove that the official exchange rate does not reflect the realistic exchange value, or that it was not fixed with reference to convertibility of the currency.

The court held that the onus is on the assessee to prove that the official rate is not a realistic exchange rate. In the above case the tribunal has remitted to the Wealth Tax officer for a decision afresh after determining the real exchange rate if the assessee was to adduce any evidence on that aspect. In the case of the assessee’s failure to place acceptable evidence of the real exchange rate, then the official exchange rate will be adopted.

However, in the case of land, it does not mean that only Guideline Value is to be adopted. In fact in the case Collector of Nilgiris vs Mahavir Plantaions Pvt Ltd (CRP No 526 of 1979) observed that “….. the Guideline values are not indeed as a substitute for market value.… They are only intended to give an information or instruction to the registering authorities ….”

The Supreme Court, in the case of Special Land Acquisition officer vs V.P.Veerapadraappa ((1985) 154 ITR190), has pointed that the best method is comparative sale instances of similar properties in the vicinity (in the recent past) and adjusting the rate them for favourable and unfavourable factors.

The other method is to consider the potential value of land and fair value can be obtained by Development Method.

This can be worked out by ascertaining the zone use and the extent of development legally permissible and the expected value after development and deduction from the outgoings. The bottom line is that the valuation of immovable properties relies on the proof of sale value.

Without proper evidence the value of the property cannot be fixed.

The author is former National President, Institution of Valuers.
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