2007 (4) TMI 703 - AT - Income Tax

Summary

Issues Involved:
1. Whether the assessee acquired title to the disputed lands by adverse possession.
2. Whether the cost of acquisition of the disputed lands could be determined.
3. Applicability of the judgment in B.C. Srinivasa Setty's case to tangible assets.
4. Whether the litigation expenses incurred by the assessee constitute the cost of acquisition.
5. Whether the provisions of Section 55(2) and 55(3) of the IT Act apply.
6. Whether the sale consideration received by the assessee is taxable under Section 10(3) as casual and non-recurring receipts.

Detailed Analysis:

1. Acquisition of Title by Adverse Possession:
The Tribunal found no reason to doubt that the assessee acquired ownership rights through adverse possession. The assessee provided detailed historical records and a memorandum on title from M/s Little & Co., which showed continuous possession and use of the lands without interruption. The Tribunal noted that the Revenue failed to provide any evidence or material to counter the assessee's claims of adverse possession.

2. Determination of Cost of Acquisition:
The Tribunal held that the assessee's consistent stand since 1994 was that no cost was incurred for acquiring the lands. The Revenue's argument that the assessee did not furnish necessary details was not supported by evidence. The Tribunal emphasized that the issue was not the quality of the title but whether any cost of acquisition was incurred. The Tribunal concluded that there was no effective case against the assessee's claim of having acquired the lands without any cost of acquisition.

3. Applicability of B.C. Srinivasa Setty's Judgment:
The Tribunal rejected the Revenue's contention that the judgment in B.C. Srinivasa Setty's case applied only to intangible assets. The Tribunal relied on the judgment of the Andhra Pradesh High Court in CIT vs. Markapakula Agamma and the Gujarat High Court in CIT vs. Manoharsinghji P. Jadeja, which supported the application of the principle to tangible assets like land.

4. Litigation Expenses as Cost of Acquisition:
The Tribunal held that litigation expenses incurred by the assessee to defend its title did not constitute the cost of acquisition. The Tribunal relied on several judgments, including CIT vs. Smt. Leela Ghosh, which stated that expenses incurred for securing justice or vindicating legal rights could not be considered as the cost of acquisition of such rights.

5. Applicability of Section 55(2) and 55(3):
The Tribunal found that the provisions of Section 55(2) as applicable to the assessment years in question did not cover immovable property acquired by adverse possession. The Tribunal also rejected the applicability of Section 55(3), as there was no cost of acquisition incurred by the assessee or its predecessors for the disputed lands.

6. Taxability under Section 10(3):
The Tribunal held that Section 10(3) is not a charging provision and could not be used to bring to tax what are capital receipts in the eyes of the law. The Tribunal cited judgments from the Calcutta High Court and the Supreme Court to support the view that capital receipts that cannot be taxed under Section 45(1) cannot be brought to tax under Section 10(3).

Conclusion:
The Tribunal allowed the assessee's appeal for the assessment year 1994-95 and dismissed the Revenue's appeal for the assessment year 1995-96. The amounts received by the assessee for the disputed lands were not brought to assessment for want of cost of acquisition.