ITAT Greenlights Circle Rate for Land Value in Historic Angel Tax Ruling

In a significant decision for India's tax landscape, the Income Tax Appellate Tribunal (ITAT) in New Delhi has reaffirmed that government-notified circle rate are a valid and reliable basis for determining the fair market value (FMV) of land. This ruling specifically applies to computing asset values under Section 56(2)(viib) of the Income Tax Act, 1961, a provision widely known as the 'Angel Tax'. The tribunal emphasized that if a registered valuer uses the state government's circle rate, or even a lower value, for land valuation, it should generally be accepted by tax authorities. This clarification comes amidst ongoing discussions surrounding the now-abolished Angel Tax, which targeted share premium received by closely held companies from resident investors if the issue price exceeded the shares' FMV. Introduced in 2012 to curb money laundering and tax evasion, Section 56(2)(viib) often led to disputes over how FMV, particularly for underlying assets like land, should be determined. The ruling from an appeal concerning Assessment Year 2017-18 highlights the complexities that businesses faced in adhering to valuation norms under this contentious provision. While this particular ruling offers retrospective clarity for similar past tax disputes, the 'Angel Tax' itself has been officially abolished for investments made from April 1, 2025 (Financial Year 2025-26 onwards), with its exclusion confirmed in the new Income Tax Act, 2025. This means future share issuances by unlisted companies will not face this specific tax scrutiny based on FMV differences. However, the ITAT consistent stance on using circle rate for land valuation for past assessments underscores the importance of government benchmarks in property-related tax computations, a principle that continues to apply in various other tax provisions.