Lok Adalat award nullifying sale deeds can affect capital gains tax and may obviate separate cancellation deeds.

Sale deeds executed in violation of the Tamil Nadu Land Reforms Act were declared null and void by a Lok Adalat award, raising the question whether they could still be treated as giving rise to taxable capital gains. The award, being final and binding and deemed a civil court decree under the Legal Services Authorities Act, meant that a separate cancellation deed was not essential before tax relief could be considered. The proper course was to verify the Lok Adalat award and then determine the tax consequence in accordance with law. The assessee's contention was accepted in principle, and the matter was remitted for fresh verification and decision.

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Issues: Whether the sale deeds, having been declared null and void by a Lok Adalat award, could still be treated as giving rise to taxable capital gains and whether cancellation deeds were necessary before the Assessing Officer could grant relief.

Analysis: The sale deeds were found to have been executed in violation of the Tamil Nadu Land Reforms Act and were subsequently declared null and void by the Lok Adalat. An award of Lok Adalat is final and binding on the parties and is deemed to be a decree of a Civil Court under section 22E of the Legal Services Authorities Act, 1987. In that view, the absence of a separate cancellation deed did not justify sustaining the assessment on the footing that the transfer still subsisted. The appropriate course was to verify the Lok Adalat award and then decide the tax consequence in accordance with law.

Conclusion: The assessee's contention was accepted in principle, the addition was not finally sustained, and the matter was remitted to the Assessing Officer for verification of the Lok Adalat award and fresh decision.

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