Transferable land reform occupancy rights treated as capital assets, with fair market value and indexation allowed for cost computation.

Transfer of occupancy rights granted under the Dadra and Nagar Haveli land reforms regime was held to attract capital gains tax because the rights were transferable, inheritable and ownership-like, bringing them within the meaning of a capital asset. The tribunal distinguished these rights from tenancy and applied the charging provision accordingly. For computation, the cost of acquisition was held ascertainable because the statutory scheme provided a compensatory basis for the rights; the rule excluding assets with no conceivable cost of acquisition did not apply. The assessee was therefore entitled to adopt fair market value as on 1-4-1981 with consequential indexation under the statutory cost provisions.

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Issues: (i) Whether occupancy rights granted under the Dadra and Nagar Haveli land reforms regime constituted a capital asset whose transfer attracted capital gains tax. (ii) Whether the cost of acquisition of such rights was ascertainable and, if so, whether fair market value as on 1-4-1981 could be adopted with indexation.

Issue (i): Whether occupancy rights granted under the Dadra and Nagar Haveli land reforms regime constituted a capital asset whose transfer attracted capital gains tax.

Analysis: The land reforms provisions extinguished the earlier Alwara concessions and conferred fresh occupancy rights, which were transferable, inheritable, and treated by the local administration as ownership-like rights. The Court distinguished these rights from tenancy, noting that the statutory definition of tenant excluded Alwara-holders. It also held that the transfer involved a property right falling within the expression "capital asset" and that a transfer of such rights was within the charging provision for capital gains.

Conclusion: The occupancy rights were capital assets and their transfer was chargeable to capital gains tax.

Issue (ii): Whether the cost of acquisition of such rights was ascertainable and, if so, whether fair market value as on 1-4-1981 could be adopted with indexation.

Analysis: The Court held that the rights conferred under the land reforms regime had an ascertainable value, inter alia because the statute itself provided a compensation mechanism where the holder did not take the new rights. The principle excluding assets with no conceivable cost of acquisition was therefore inapplicable. Even on the alternative footing that the rights were inherited, the statutory scheme permitted substitution of cost in the hands of the previous owner and adoption of fair market value where applicable. The assessee was therefore entitled to the statutory option of adopting fair market value as on 1-4-1981 with consequential indexation.

Conclusion: The cost of acquisition was ascertainable and fair market value as on 1-4-1981 could be adopted with indexation.

Final Conclusion: The transfer was taxable as capital gains, but the computation had to allow the statutory substitute cost and indexation, leaving the assessees only partly successful.

Ratio Decidendi: Where land rights acquired under a statutory reform are transferable ownership-like rights with an ascertainable value or compensable basis, their transfer attracts capital gains tax and the computation must proceed under the statutory cost provisions rather than the rule excluding assets with no conceivable cost of acquisition.

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