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Income Tax Officer, -21 (3) (1) , Mumbai Versus Mr. Bhagwan T. Fatnani.

2015 (7) TMI 173 - ITAT MUMBAI

Ownership of property - value of cost of acquisition - unauthorizedly encroached school land for which he has no title/right - whether the assessee could not prove ownership of the property, therefore, have no legal right or title upon the asset, consequently, the income could not be taxed as long term capital gain - Held that:- Mere facts that certain entries were made in the balance sheet would not substantiate or justify the same to be adopted as the cost of acquisition unless such claim is s .....

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considered as ZERO or NIL.

Totality of facts clearly indicates that the assessee is neither the legal owner of the property nor was having any document showing any right/title in his favour and uncontrovertedly the land was meant for a primary school and the assessee illegally encroached upon such land. Before us, the only argument of the assessee is that ownership of the property is not a pre-condition for the claim of capital gains. We are not agreeing with this proposition because .....

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ition or investment made for the property/capital asset. The Fatnani family is consisting of three brothers and encroached upon the adjacent plot meant for a primary school. Even in para-2 at page -3 of the impugned order, it has been admitted by the assessee itself that he occupied the school land unauthorizedly and illegally carried out construction. The totality of facts clearly indicates that the ld. Commissioner of Income Tax (Appeals) without appreciating the facts reached to a particular .....

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eciate that the assessee could not prove ownership of the property, therefore, have no legal right or title upon the asset, consequently, the income could not be taxed as long term capital gain. 2.1. During hearing of this appeal, Shri Vijay Kumar Bora, ld. DR, broadly, defended the conclusion arrived at in the assessment order by inviting our attention to para 4.3 and asserted that even the assessee has accepted that he was unauthorizedly/ illegally having the possession over the land by encroa .....

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arrived at in the impugned order by contending that whether ownership rights are necessary for calculating the gains for which our attention was invited to section 2(14) and 2(47) of the Act. It was pleaded that even no such requirement is there in section 45 of the Act that the assessee has to be the owner of the property. It was pleaded that the assessee occupying the property for the last about 20 years, therefore, it has to be assessed under the head capital gains. Reliance was placed upon .....

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erefore, notices u/s 142(1) and 143(2) were issued and served upon the assessee to which the assessee attended the proceedings. It was found by the Assessing Officer that, during financial year 2007-08, the assessee declared business income by way of remuneration received from partnership firm i.e. poly wines, also declared income from capital gains and other sources by way of interest received from bank deposits. The issue in hand before us is with respect to long term capital gains shown in it .....

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herein, the assessee claimed to have some shares. The Assessing Officer found that the agreement was not registered before any Government Authority and further the document was found to be incomplete. These defects were pointed out to the Authorised Representative of the assessee to which no explanation was furnished. The assessee was provided several opportunities to produce the purchase agreement or proof of any right or ownership of the property. In the absence of a valid agreement/ document, .....

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hare. On perusal of the same, it is seen that the agreement is not registered before any government authority and further the agreements also are incomplete. During the course of assessment proceedings, these defects where pointed out to the ld. AR for which no explanation have been provided. As the assessee has not furnished the purchase agreement and the sale agreement furnished have inherent lacuna, the same cannot be relied upon. The issue of valuation of property was referred to the Valuati .....

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2/2010. However the assessee has not furnished the complete details of the property…. However with the available details, the following figures for the tentative FMV are furnished herewith which are subject to change, if the assessee produces the required details. This is to prevent the assessee from taking undue advantage due to delay in assessment, by his not furnishing the required details. 4.2. This clearly shows the non cooperation attitude of the assessee. The intention of the asses .....

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is substantiated as and when called upon the assessment proceedings. The assessee has failed to produce the same in the present proceedings despite repeated opportunities on various occasions. As the assessee has shown the sale of the immovable property during the year under consideration, the onus is on the assessee to prove that he is the owner of the property that has been sold. The proof can be substantiated only through the purchase agreement. As such, the value of cost of acquisition is be .....

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essee does not have legal right or title over the asset this leads to the conclusion that there is no capital asset owned by the assessee and therefore the income declared is not chargeable u/s 45 of Income Tax Act, 1961. As such, the income so being arrived from the sale of the residential and the commercial units is being treated as income from other sources within the meaning of section 56(1) of the Income Tact Act, 1961. Having arrived at the Head of income to which the income is to taxed. I .....

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are in the commercial unit. As the assessee has railed to furnish the same it is assumed that the assessee is having 100% share and thus the assessee has said to receive an amount of ₹ 9,94,100/-. The assessee had sufficient time (from 18.08.2010 when the notice U/s 142(1) was issued to the date or order) to furnish copy of purchase agreement proving the ownership and the share thereupon. As the assessee has failed to furnish the documentary evidence in respect of his share In the commerci .....

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e are not agreeing with this proposition because how a gain can be claimed on a illegally occupied property which was a meant for a school and the assessee is not having any title/right over the land. Section 2(14) defines capital asset, which is reproduced hereunder for ready reference:- "capital asset" means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include- (i) any stock-in-trade], consumable stores or raw materi .....

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or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel; (b) precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel;] The following Explanation 2 shall be inserted after the renumbered Explanation 1 by the Finance (No. 2) Act, 2014, w.e.f. 1-4-2015 : Explanatio .....

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ether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population4 of not less than ten thousand [ ] ; or [(b) in any area within the distance, measured aerially,- (I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lakh; or (II) .....

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eceding census of which the relevant figures have been published before the first day of the previous year;]] [(iv) 6 per cent Gold Bonds, 1977,[or 7 per cent Gold Bonds, 1980,] [or National Defence Gold Bonds, 1980,] issued by the Central Government ;] [(v) Special Bearer Bonds, 1991, issued by the Central Government ;] [(vi) Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 notified by the Central Government.] [Explanation.-For the removal of doubts, it is hereby clarified that &qu .....

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his word for lawful property only. Otherwise, the natural intention of the legislature will be defeated and anybody will claim by a forged documents that he/she is the owner of Gateway of India in Mumbai or Red Fort in Delhi by showing these properties in their accounts/balance-sheet and will claim capital gains. It is not permissible. It is a case, where, legal action was required to be taken against the assessee for illegally encroaching upon the land meant for a primary school however that wa .....

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2.6. The ld. Counsel for the assessee heavily relied upon the decision from Hon ble Madras High Court in Madathil Brothers (supra). In that case, the assessee entered into an agreement for sale of property under document dated 16th September, 1975 and the possession was handed over to the assessee on 01st January 1976. During the assessment year, 1987-88, the assessee sold the property for a sum of ₹ 45 lakh to K on 30/09/1986. It was stated that the sale deed in favour of the assessee wa .....

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or specific performance was filed by the assessee before the court and in terms of the compromise memo filed in the suit, a decree was passed on September 30, 1983, in favour of the assessee. Although as part of the settlement terms, the parties agreed to revise the sale consideration this was done with reference to the claim under the agreement. The sale deed was executed in terms of the settlement reached in the suit proceedings. As such there was no novation of contract to result in a fresh a .....

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ssee. The assessee was in lawful possession of a document/agreement to sale. In that situation, the assessment was held to be made treating the gain as long term capital gains arising out of sale of immovable property. However, the facts are absolutely different in the present appeal as the assessee illegally encroached upon a land, which was meant for a school without having any title/ownership right. Thus, the benefit of the aforesaid decision/observation from Hon ble High Court cannot be exte .....

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herefore, the assessee cannot be benefited from this order also. Because, the facts were when a sale of a property took place, the capital gains, arising out of such transfer, has to be computed by taking into account, the full value of consideration received or accruing as a result of such transfer, thus, the facts are different because there is no transfer of land in the present appeal. 2.9. The ld. DR, place reliance to the ratio laid down by Hon ble Kerala High Court in 227 ITR 490 in Penins .....

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were therefore assessable under the head "income from other sources". If the aforesaid decision is kept in juxtaposition with the facts of the present appeal, it can be said that the amount shown by the assessee can never be said to be a capital gains at all rather at best it can be said to be income from other sources, if any. 2.10. Broadly, capital asset includes every kind of property as generally understood, however, the meaning of the expression property it includes every conceiv .....

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ent appeal, it is clear that there is no transfer of asset as such rather, as mentioned earlier, the primary school land was encroached upon/illegally occupied by the assessee and as such there is no transfer of capital asset, thus, under the present facts, it cannot be extended to such an extent as has been claimed by the assessee. In our humble opinion, the word used in the section as any kind means land, building, conveyance of property ( CIT vs Tata Services Ltd.-122 ITR 594-Bom.), mortgage .....

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l for the assessee. To elaborate it further, it can be said that section 6 of the transfer of property Act, which uses the same expression property of any kind in the context of transferability makes an exception in the case of mere right to use. The decisions thereunder makes it abundantly clear that right to sue for damages is not actionable claim. It cannot be assigned. Transfer of such a right is as much opposed to public policy as is gambling in litigation. As such, it will not be quite cor .....

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ven otherwise, controlling interest is not an identifiable or distinct capital asset independent of holding of shares and therefore does not satisfy the language of a capital asset within the meaning of section 2(14) of the Act. Identically was held by Hon ble Apex Court in Vodafone International Holding B.V. vs Union of India (2012) 204 taxman 408 (SC). Right from assessment stage, the assessee has not proved in any manner that the assessee is having any legal right/title over the property. In .....

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ng regard to the facts and the circumstances of that case. There may be factors both for and against a particular point of view. The Court has to answer the question on a consideration of all of them by a process of evaluation, therefore, the inference has to be drawn on cumulative consideration of all the relevant facts, supports our view. Under the facts available before us, if such a liberal/extended meaning is assigned to the word any kind then it will defeat the very purpose of the legislat .....

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section 45 of the Act. Capital gains accrues only if there is a sale or any transfer of the capital asset. If the assessee satisfies the Assessing Officer on the basis of a sale deed/transfer document only then conclusion can be drawn that any gains has accrued. However, in the present case, neither any sale or transfer of the property/asset took place, therefore, there is no question of capital gain. The ratio laid down in Hira lal Ramdayal vs CIT (122 ITR 461)(P & H) supports our view. Ca .....

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ser. If any immovable property is sold or transferred, it should be established by a conveyance/ registered deed or any other legal document. The Hon ble Apex Court in Alapati Venkatramiah vs CIT 57 ITR 185 (SC) held that entries in accounts book are not relevant, rather the date of sale or the transfer date when the sale or transfer takes place is relevant. The ratio laid down in Buddiah vs CIT 155 ITR 277 (Karn.), Harishchandra vs CIT 154 ITR 478 (Del.), Syed Abdul Basir vs CIT 170 ITR 566 (Ra .....

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