Sale or transfer of any capital assets shall be charged under the head Capital Gain only if assessee has legal right or title over the property. If the same is missing then gain on sale or transfer of such capital asset shall be assessed as Income from Other Sources.

Case: Income Tax Officer vs. Bhagwan T. Fatnani

Facts:

Assessee filed his Income Tax Return declaring remuneration from partnership firm, income from capital gain and income from other sources by way of interest received from bank deposits. The said return was selected for scrutiny. During the proceedings, AO noticed that the long term capital gain shown in the return was in respect of the unauthorized encroached school land for which he has no title/right. The AO issued notice to assessee to furnish purchase agreement or proof of any right or ownership of the property of immovable property. When no documents were produced, case was referred to Valuation Officer. In absence of satisfactory documents before AO and Valuation Officer, AO concluded that no capital asset was held by assessee. Thus, AO assessed the income from sale of land as income from Other Source rather than capital gain.

On appeal, CIT (A) allowed the appeal of assessee. Aggrieved by the order, revenue appealed to the Tribunal.

Held:

Assessee argued that the definition of capital asset under section 2(14), the word is property of ‘any kind’ and it is not necessary that it should be lawfully acquired property. The Tribunal rejected this argument stating that the word ‘any kind’ shall be used only for lawful property. Otherwise, anyone shall start claiming any land or government monuments as theirs by showing the same in their Balance Sheet and subsequently shall claim Capital Gain over the same.

In the case in hand, assessee illegally intruded the land meant for primary school. The fact that assessee was illegally occupying the school premises for the last 20 years, does not transfer the controlling rights to assessee. In addition, assessee does not provided any sale/ transfer agreement concluding that there is no registered deed or legal document for the same. Thus, neither any sale nor transfer of the property/asset took place and, therefore, there is no question of capital gain.

As assessee did not produced any documents in support of the cost of acquisition or investment made for the property/capital asset and assessee himself admitted that he occupied the school land unauthorizedly therefore, CIT (A) order could not be upheld.

Hence, Tribunal held that gain from sale of intrude property shall be assessed as Income from Other Source.

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