AIMS Oxygen Pvt. Ltd vs. WTO (Gujarat High Court Full Bench)

Property subject to ULCA restrictions cannot be valued at market value

The assessee had a plot of open land which was declared to be surplus under the Urban Land [Ceiling & Regulation] Act, 1976. The assessee claimed that as the land was under ULCA and not marketable, its value for wealth-tax purposes had to be taken at the rate of compensation that it was entitled to be awarded under the ULCA. However, the AO, CIT (A) and Tribunal held that as s. 7 of the W.T. Act required the land to be valued on the basis of “if sold in open market”, property had to be valued on that basis and there was no question of reducing the value of the land on the ground of restrictions and prohibitions. On a reference to the High Court, the issue was referred to the Full Bench. HELD by the Full Bench reversing the lower authorities:

The words ‘if sold in open market’ in s. 7 assumes that there is an open market and the property can be sold in such a market. However, if there is a restriction on transfer of the property, the value of the property has to be reduced. On facts, as the land in question was declared surplus land under the ULCA, that had a depressing effect on the value of the asset and the valuation had to be made on the basis of assumption that the purchaser would be able to enjoy the property as the holder, but with restrictions and prohibitions contained in the ULCA. It is not open to the Revenue to assess the property on the basis of the market value, which normally could have fetched without any restriction or prohibition, but it ought to value the land on the basis of the restrictions and prohibitions contained in the ULCA.