2012 (11) TMI 902 - AT - Income Tax

Chargeability to Capital gain - Whether Land situated at Village Kharghar was a capital asset and enhanced compensation received is chargeable to tax - Held that - Land in dispute is not an agricultural land as it is situated with in municipal limits within the meaning of section 2(14)(iii) as claimed by the assessee and is a capital asset - in favour of revenue. The liability to tax on capital gain would arise in respect of only those capital assets in the acquisition of which, an element of cost is either actually present or is capable of being reckoned and not in respect of those assets in the acquisition of which, the element of cost is altogether inconceivable. - CIT v. B.C. Srinivasa Setty 1981 (2) TMI 1 - SUPREME COURT As the land in question was not having cost because the same was allotted to father of the assessee being refugee from Pakistan by Government of India at relevant point of time which is not in dispute. So the land in question was acquired by father of the assessee free of cost. Therefore, there is no question of capital gain on transfer of such land and enhanced compensation reeived is not chargeable to tax - in favour of assessee.

Summary

Issues:
1. Determination of land as a capital asset under section 2(14) of the Income Tax Act.
2. Taxability of enhanced compensation received for land acquisition as long-term capital gain.
3. Consideration of land acquisition without determinable cost of acquisition.
4. Application of computation provisions for determining taxability of enhanced compensation.

Issue 1:
The first issue revolved around whether the land situated at Village Kharghar qualified as a capital asset under section 2(14) of the Income Tax Act. The appellant contended that the land was agricultural and thus not a capital asset. However, the CIT(A) held that despite being agricultural as per revenue records, the land was located in a specific area, leading to its classification as a capital asset. The tribunal upheld this decision, emphasizing that the land in question was indeed a capital asset, thereby dismissing the appellant's claim.

Issue 2:
The second issue pertained to the taxability of enhanced compensation received for land acquisition as long-term capital gain. The appellant argued that since the land was allotted to his father by the Government without any cost, there was no determinable cost of acquisition, hence no capital gains tax liability. Citing legal precedents, the tribunal agreed with the appellant's stance, concluding that as the land was acquired without any cost, there was no basis for capital gain taxation. Consequently, the tribunal allowed the appeal on this ground.

Issue 3:
The third issue centered on the absence of a determinable cost of acquisition for the land in question. The appellant contended that due to the land being allotted to his father by the Government without any cost, the capital gains tax should not apply. Relying on legal interpretations and factual considerations, the tribunal concurred with the appellant's argument, ruling that as the land was acquired free of cost, there was no capital gain on its transfer. The tribunal directed the Assessing Officer accordingly, partially allowing the appeal on this basis.

Issue 4:
The final issue addressed the application of computation provisions for determining the taxability of the enhanced compensation received. The tribunal, after detailed legal and factual analysis, concluded that since the land in question was acquired without any cost, there was no capital gain on its transfer. By considering relevant legal provisions and precedents, the tribunal held that the enhanced compensation was not liable for capital gain tax, as it did not fall under specified items for taxability. Consequently, the tribunal allowed the appeal partially, directing the Assessing Officer accordingly.