Leasehold Interest in Land is Asset of Co. Capable of Valuation; to Be Included in Asset Value to Determine Shares FMV

Case Detail: PCIT vs. Dr. Karan Singh - [2024] 160 taxmann.com 757 (Jammu & Kashmir)

Judiciary and Counsel Details

• Tashi Rabstan & Puneet Gupta, JJ.
• Suraj Singh Wazir & Pariksha Parmar, Advs. for the Appellant.
• C.S. Aggarwal, Sr. Adv. Subash Dutt & Sachin Sharma, Advs. for the Respondent.

Facts of the Case

The assessee, a shareholder in a private limited company, transferred a portion of his shares to another company. The assessee declared the capital gains on such transfer based on the fair market value of the shares. During the assessment proceedings, the Assessing Officer (AO) computed the value of shares, excluding the value of leasehold land and made additions to the assessee’s income.

The matter reached before the Jammu & Kashmir High Court.

High Court Held

The High Court held that on the date of the transfer of shares by the assessee, the company had only a hotel building along with leasehold interest on the land on which the hotel building stood. The company acquired the rights to the building and other superstructures when it purchased them from its owner.

Such land was acquired by the company from its owner under a lease deed for 40 years due to the restrictions prevailing in the State of Jammu & Kashmir as a company, being a non-state subject, was prevented from owning land in the State.

In the instant case, the assessee computed the fair market value of the company’s asset as per the registered valuer’s report. However, the AO computed the value of shares as per the breakup method but excluded the value of the land on the ground, stating that the said land did not belong to the company.

It was held that as of the date of the sale of shares, the lease period of more than 20 years was still left with the company. Hence, the land value in the hands of the lessor was practically nil, and for all practical purposes, the company was the de facto owner of the underlying land.

Therefore, the value of leasehold land cannot be excluded from calculating the Fair Market Value of shares of the company.