2015 (7) TMI 173 - AT - Income Tax

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 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 being 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 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. The assessee right from assessment stage and till before this Tribunal has not produced any document regarding transfer/purchase of the impugned property in his favour as is evident from para 4.1 of the assessment order also. The assessee did not produce any document in support of the cost of acquisition 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 conclusion, therefore, such order cannot be upheld. - -Decided against assessee.

Issues Involved:
1. Ownership and legal right over the property.
2. Assessment of income as long-term capital gains.
3. Validity of documents supporting ownership and valuation.
4. Classification of income under the appropriate head.
5. Interpretation of "capital asset" under the Income Tax Act.

Issue-wise Detailed Analysis:

1. Ownership and Legal Right Over the Property:
The primary issue was whether the assessee could claim ownership of the property, which was essential for determining the taxability of the income as long-term capital gains. The Revenue argued that the assessee did not have legal ownership or title over the property, which was meant for a primary school and was encroached upon illegally. The assessee failed to produce any sale deed, purchase deed, or proof of ownership, leading to the conclusion that the assessee had no legal right or title over the property.

2. Assessment of Income as Long-Term Capital Gains:
The Revenue contended that since the assessee could not prove ownership, the income could not be taxed as long-term capital gains. The assessee argued that ownership rights were not necessary for calculating gains, citing sections 2(14) and 2(47) of the Income Tax Act. However, the Tribunal did not agree with this proposition, stating that gains could not be claimed on illegally occupied property without title or right.

3. Validity of Documents Supporting Ownership and Valuation:
The Assessing Officer found that the sale agreements provided by the assessee were not registered and were incomplete. Despite several opportunities, the assessee did not furnish valid documents to prove ownership. The valuation of the property was referred to the Valuation Officer, but the assessee did not cooperate by providing the necessary details. The Tribunal noted the non-cooperative attitude of the assessee and the lack of documentary evidence to substantiate the ownership claim.

4. Classification of Income Under the Appropriate Head:
The Tribunal concluded that since the assessee did not have legal ownership of the property, the income from the sale of the property could not be classified as long-term capital gains under section 45 of the Income Tax Act. Instead, the income was treated as "income from other sources" under section 56(1) of the Act.

5. Interpretation of "Capital Asset" Under the Income Tax Act:
The Tribunal examined the definition of "capital asset" under section 2(14) of the Income Tax Act, which includes property of any kind held by an assessee. The assessee argued that the term "any kind" did not require the property to be lawfully acquired. However, the Tribunal disagreed, stating that the legislature intended "any kind" to mean lawfully held property. Allowing claims on illegally occupied property would defeat the purpose of the legislation and encourage misuse.

Conclusion:
The Tribunal upheld the Revenue's appeal, concluding that the assessee did not have legal ownership or title over the property, which was illegally encroached upon. Consequently, the income from the sale of the property could not be taxed as long-term capital gains but was to be treated as income from other sources. The Tribunal emphasized the necessity of lawful ownership for claiming capital gains and rejected the assessee's arguments based on the lack of valid documentary evidence and legal title. The appeal of the Revenue was allowed, and the order of the Commissioner of Income Tax (Appeals) was set aside.

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