The Jammu and Kashmir and Ladakh High Court ruled that leasehold interest in land is asset of company and capable of valuation. The Assessing Officer adopted the indexed cost of 7150 shares at Rs.2,33,23,300/-, instead of Rs.14,48,59,000/-. As such, the Assessing Officer was of the view that out of rupees ten crore being the sale price, there was a capital gain of Rs.7,66,76,700/- as having been received by the assessee. The CIT(A) held that the value of leasehold land, therefore, cannot be excluded for calculating the Fair Market Value of shares of M/s. Jyoti Pvt. Ltd. The Assessing Officer was, thus, directed to adopt the valuation report submitted by the assessee during the assessment proceedings resulting in no capital gain.

The observation was confirmed by the ITAT against which the present appeal is preferred. The stand of appellant-revenue is that while calculating the cost of acquisition, the value of land measuring 225.85 kanals was to be excluded as the land was not a part of sale consideration of shares of M/s. Jyoti Pvt. Ltd. to M/s. Bharat Hotels Ltd. Therefore, the dispute is with regard to quantum of capital gain arising from transfer of shares in Jyoti Pvt. Ltd. The stand of respondent-assessee is that no capital gain arose to him as a result of selling of his shares in M/s. Jyoti Pvt. Ltd. to M/s. Bharat Hotels Ltd., New Delhi as the fair market value of such shares as on 01.04.1981 had far exceeded the amount of consideration received on such selling/transfer of shares.

The counsel for respondent-assessee in support of the arguments also relied upon the judgments, reported as, Commissioner of Income Tax vs Lakhani Footwear Ltd. A Division Bench of Justices Puneet Gupta and Tashi Rabstan observed that “We are in agreement with the Tribunal that the lease hold interest in the land is an asset of the company and is capable of valuation; as such the same is to be included in the value of asset of M/s. Jyoti Private Limited so as to determine the fair market value of shares held by the assessee as well as other shareholders.” “The fair market value is defined under Section 2(22B) of the Act as the price that such asset would ordinarily fetch on sale in open market on 01.04.1981. Therefore, for the purposes of computation of capital gain, the fair market value has to be determined and not the value of shares, the valuation of shares is to be made under Rule 1D of the Wealth Tax Rules” the Bench noted.