TaxTMI 
TaxTMI 
TaxTMI 
2007 (4) TMI 703
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....on 30th Nov., 1994. The assessment order under s. 143(3) was made on 20th March, 1997 at total income of ₹ 1,79,08,424. The difference between assessed income and returned income arose on account of an addition of ₹ 75,76,000 made by the AO by way of long-term capital gain on sale of land. While doing so the learned AO rejected the assessee's contention that as the land in question was held under adverse possession its cost of acquisition was nil and therefore it was not chargeable to tax under the provisions of s. 45 of the Act. Aggrieved by the assessment order the assessee filed appeal before the learned CIT(A) who by his order dt. 23rd April, 1998 decided the issue in favour of the assessee. On Department's appeal Tribunal per its order dt. 1st Dec, 2003 restored the matter to the file of the AO for decision afresh. Thereafter the AO made an order under s. 143(3) r/w s. 254 on 31st March, 2006 wherein long-term capital gains of ₹ 75,76,000 was once again assessed. On assessee's appeal the learned CIT(A)-XXXII by the impugned order dt. 8th Nov., 2006 upheld the order of the learned AO and still aggrieved the assessee is in appeal before us. 3. For ....
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....suring approximately 281.9 sq. mtrs. (E) Old Survey No. 135, Hissa No. 10 corresponding to New Cadestral Survey No. 1411/11 admeasuring approximately 1,164.4 sq. mtrs. (F) An adjoining piece of land admeasuring approximately 889 sq. mtrs. and situated in the south-west corner of the property." 5. For asst. yr. 1994-95 the assessee submitted during the course of original assessment proceedings that possession of the land in question had been acquired by the assessee by way of adverse possession and therefore there was no cost of acquisition. On such facts the ratio of the judgment of Hon'ble Supreme Court in the case of CIT vs. B.C. Srinivasa Setty [1981] 21 CTR (SC) 138 ; [1981] 128 ITR 294 (SC) applied. The learned AO referred to recitals in the agreement dt. 8th Feb., 1994 that the vendors had fully explained and the purchasers had satisfied themselves about the right, title and interest of the vendors subject to the ultimate outcome of legal proceedings in BCCC Suit No. 3809 of 1978 and BCCC Suit No. 3889 of 1982. Thus it was clear that the assessee company was incurring legal cost to obtain the title over the land in question. Any expenditure incurred to obtain the ....
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....he assessee was not available on record and if brought on record the assessee could claim such expenses deductible from the sale consideration. In the absence of such information the entire sale consideration was treated as long-term capital gains. 6. On assessee's appeal, the learned CIT(A)-XXXVII by his order dt. 23rd April, 1998 upheld the contention of the assessee that in view of the ratio of the judgment of Hon'ble Supreme Court in the case of B.C. Srinivasa Setty (supra) no capital gain was chargeable to tax in the hands of the assessee in relation to sale consideration of ₹ 75,76,000 on sale of land held under adverse possession. While doing so he took note of the contentions of the assessee based upon the judgment of Hon'ble Supreme Court in the case B.C. Srinivasa Setty (supra) as also the judgment of Hon'ble Andhra Pradesh High Court reported in CIT vs. Markapakula Agamma [1987] 63 CTR (AP) 108 : [1987] 165 ITR 386 (AP) at p. 395. The assessee explained that it acquired land by virtue of the legal principles in respect of adverse possession contained in the Indian Limitation Act. Those provisions not only cut off one's right to bring an action ....
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....and CIT vs. Smt. Lila Ghosh [1993] 113 CTR (Cal) 219 : [1994] 205 ITR 9 (Cal). As to the contention of the learned AO that the assessee had acquired land by adverse possession only because it was the owner of the two pieces of land those two pieces of land enumerated by the AO were situated in Thane and Lote Parsuram while the land in question was situated at Andheri. It was true that the assessee company had other plots of land also at Andheri but they were different from the land in question. The survey numbers and Hissa numbers were entirely different and the property cards were also separate. The judgment of Hon'ble Karnataka High Court in the case of CIT vs. P. Mahalakshmi (supra) was not applicable. That case related to compulsory acquisition of land under the Land Acquisition Act. In that case it was held that in the matter of ascertainment and apportionment of the cost of acquisition between the acquired and unacquired portion, the cost of acquisition of the acquired portion should be estimated not on average of the original common cost of acquisition but by placing the corresponding premium on the acquired portion, because it fetched a higher price owing to its advanta....
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....he case of the assessee. The learned CIT(A) forwarded the detailed submissions of the assessee to the learned AO and called for his remand report. In the remand report the learned AO merely relied on the discussion made in the assessment order. The learned CIT(A) noted that in a number of cases including the jurisdictional High Court, the Courts had decided that in cases of self generated assets like goodwill or where the cost of assets was nil, no tax on capital gains should be charged. A transaction to which the provisions of s. 48 could not be applied was held to be one never intended to be subject to the charge of tax under s. 45(1). In order to overcome the judicial interpretation emanating from the judgment of Hon'ble Supreme Court in the case of B.C. Srinivasa Setty (supra) the legislature by the Finance Act, 1987 introduced the provisions of s. 55(2) w.e.f. 1st April, 1988. The provisions of s. 55(2) as applicable to asst. yr. 1994-95 did not cover the cases of no cost of acquisition on account of title by way of adverse possession. Hence the ratio of B.C. Srinivasa Setty (supra) held good in the case of the assessee. The learned CIT(A) therefore directed the AO not to ....
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.... therefore restored the issue to the file of the AO, with direction to decide it afresh, in accordance with law, after providing adequate opportunity to the assessee of being heard. 7. The AO completed assessment order under s. 143(3) r/w s. 254 of the Act on 31st March, 2006. The learned AO issued a notice to the assessee company. In response the assessee company submitted various details and basically reiterated the stand taken in the earlier round of proceedings. The learned AO found himself not in agreement with the arguments of the assessee. There could not be adverse possession obtained by the assessee company suo motu. It was well settled principle of law that the adverse possession on any property had to be agitated before and settled by a Court of law. Without the sanction of an order of a Court of law, the adverse possession could not be claimed by any person. That would be all the more difficult if the original holder of the property was the State, as in the instant case the property was originally owned by Airport Authority of India. In the case of the assessee, the assessee had acquired the title of land by encroachment without approaching the Civil Courts of Bombay t....
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....e obtained title to the land on the expiry of the statutory period somewhere in or around 1974. Thus the assessee remained in adverse possession as against the real owner continuously and uninterruptedly for more than 12 years and such action was not by violence, stealth or permission. Under such circumstances the land in question became the property of the assessee without any cost of acquisition. Tribunal by its order dt. 1st Dec, 2003 restored the matter to the AO to determine whether or not the assessee had acquired title by being in adverse possession of the land. The assessee was in continuous possession of the land since 1962 and therefore became the owner of the land on adverse possession somewhere in 1974. Even if for the sake of argument it was assumed that the assessee took possession of the land in 1968 as mentioned in the Revenue records based on survey undertaken in 1968, the assessee acquired the title on adverse possession somewhere by 1980. As to the litigations carried out by the assessee only Suit No. 3889/1982 pertained to the plot of land in question. That suit was filed by the company in the year 1982. From Property Register Card the assessee was in occupation....
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....vide letter dt. 7th Jan., 1998. The assessee claimed acquisition of land by adverse possession without any cost. The learned AO referred to the detailed reasons given by the AO in the assessment order dt. 20th March, 1997 for asst. yr. 1994-95. He found that the facts of the case for asst. yr. 1995-96 were the same as for asst. yr. 1994-95. Various plots of land were sold by the assessee to M/s Hotel Leelaventure Ltd. by two agreements dt. 8th Feb., 1994. Similar plot of land thus sold came for consideration for asst. yr. 1994-95 because the possession of that plot of land had been given during financial year 1993-94 itself. Other plots of land fell to be considered for asst. yr. 1995-96 because the possession of the latter land was given on 9th Nov., 1994. Otherwise facts of the case were same. The learned AO extensively quoted the assessment order for asst. yr. 1994-95. Following the reasoning in the assessment order for that year the learned AO held that the sale consideration of ₹ 2,31,92,049 received by the assessee in relation to the land claimed to have been acquired by adverse possession was chargeable to tax as long-term capital gains. In the absence of details of li....
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....urther assailed the findings of the AO that it could acquire lands on adverse possession because of two pieces of land disclosed in the fixed assets schedule to the annual accounts of the company for the year ended 31st March, 1994. Hence the cost of acquisition incurred in relation to those two pieces of land should be treated as cost of acquisition of the lands in question as a whole. The assessee submitted that those two pieces of land were as under: A. Free hold land, Andheri ₹ 6,268 B. Leasehold ₹ 19,03,800 The assessee argued that there was no basis for the AO's finding that the cost of acquisition of lands above mentioned could be presumed to be the cost of acquisition of lands acquired on adverse possession also. Such observations only showed that as per the AO's own admission the assessee had not incurred any cost of acquiring the lands in question. The assessee argued that there was no justification in holding that the assessee could acquire the lands on adverse possession only because he was the owner of two pieces of land reflected in the balance sheet. Those two lands were situated in Thane and Lote Parsuram and had nothing to do with the lan....
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....ing pieces of lands, the assessee had not mentioned the survey number. The AO argued that as per the general law, if a person continued to be in peaceful possession of certain immovable property and the original owner did not raise any objection or did not initiate any action to recover the possession after a lapse of time mentioned in the Limitation Act, the true owner lost right of recovering the property and the possession from the party who had occupied it. Thus a party who was in adverse possession of plot of land did not generate any right on property. On the other hand his right of a peaceful possession of property emanated from the bar placed on the true owner from recovering his property. Thus to establish the fact that the assessee had acquired the property on adverse possession, it had got to be established first as to who were the original owners of the property ? On which date the assessee encroached upon and from which date he started enjoying peaceful possession of the property ? When the period of limitation prohibiting true owner from recovering the possession of property ended ? Whether any proceedings at all initiated by anyone to recover the possession or to dis....
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.... different from B.C. Srinivasa Setty (supra). That was the case of self generated asset being goodwill. The case of the assessee was obtaining title by adverse possession. If the assessee had incurred any expenditure on litigation to defend its title to the land encroached upon by it, such expenditure would constitute cost of acquisition. Reliance in that respect was placed by the AO on Tribunal decisions reported in ITO vs. S. Kumarswamy Reddiar & Sons [1991] 39 TTJ (coch) 656 and S.M. Subbamya Pillai vs. ITO [1991] 39 TTJ (Mad) 62 . The learned AO relied upon the judgment of Hon'ble Andhra Pradesh High Court reported in [1987] 63 CTR (AP) 108 : [1987] 165 ITR 386 (AP) (supra) and stated that it was held in that decision that the ratio of B.C. Srinivasa Setty (supra) was confined to intangible rights like goodwill and not to tangible assets like immovable property. The assessee was not deliberately filing the particulars as regards cost of improvement by way of perfecting the title in litigation or by way of construction or improvement over the immovable property. Benefit of non-compliance could not be given to the assessee. The learned AO strongly relied upon the provisions o....
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....pting to encroach upon the said land. There was nothing in that suit seeking any right over the lands in question. Litigation was not for the purpose of creating or completing the assessee's title. Such expenditure was revenue expenditure and could not be treated as cost of acquisition or cost of improvement. In support of these contentions the assessee relied upon the judgments reported in Sree Meenakshi Mills Ltd. vs. CIT [1967] 63 ITR 207 (SC), [1971] 81 ITR 754 (SC) (supra), [1945] 13 ITR 340 (Lahore) (supra); [1951] 19 ITR 558 (Mad) (supra) and [1993] 113 CTR (Cal) 219 : [1994] 205 ITR 9 (Cal) (supra). The assessee argued that its contentions were duly supported by the judgment of Hon'ble Supreme Court in the case of B.C. Srinivasa Setty (supra) by the judgment of Hon'ble Andhra Pradesh High Court [1987] 63 CTR (AP) 108 : [1987] 165 ITR 386 (AP) (supra) at p. 395, Evans Fraser & Co. Ltd. ( In Liquidation) vs. CIT [1981] 25 CTR ( Bom) 128 : [1982] 137 ITR 493 (Bom) and CIT vs. Alps Theatre [1967] 65 ITR 377 (SC). The assessee argued that from the assessment orders the learned AOs had themselves proceeded on the basis that there was no cost of acquisition of the land....
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....ial sums are involved in these transactions whose taxability has to be determined and also keeping in view the AO's remarks that full facts with regard to these transactions have still not been established, I consider it only fair and reasonable to restore this issue to the file of the AO for a thorough inquiry into the facts and circumstances of these transactions and to take a proper and reasoned view on the extent and manner of taxability of these amounts particularly noting the fact that the material to be unearthed involves facts over 30 years old. This ground is, therefore, set aside to be adjudicated upon de novo." 13. Thereafter the learned AO passed on 29th Jan., 2002 an order under s. 250/143(3) of the Act in order to give effect to the aforesaid order of the learned CIT(A)-VI, Mumbai dt. 23rd March, 1999. The aforesaid order is reproduced as under: "Order under s. 250/143( 3) of the IT Act, 1961 In view of the CIT(A)s order No. CIT(A)VI/DCSR.5/8/98-99 dt. 23rd March, 1999 and in view of the letters of erstwhile Addl. CIT, SR-5 Mumbai dt. 8th Sept., 1999, 13th Sept., 2000, 10th Nov., 2000 and 14th Nov., 2000 and letter of Dy. CIT 3(3) dt. 15th Jan., 200....
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....eated as forming cost of acquisition of the plots of land. As the assessee had not made any payments as respects acquisition of the two plots of land and had acquired them by adverse possession only, there was no cost of acquisition as respects those two plots of land. Hence the sale consideration received on transfer thereof was not exigible to capital gains. The assessee argued that there was no dispute in the orders of the AO that the two plots of land had been acquired by the assessee on adverse possession. In fact in the assessment orders the AO had himself recorded that the assessee had acquired the possession of the land by way of adverse possession or encroachment. The case of the AO was that expenditure incurred by the assessee on two suits filed should be treated as cost of acquisition. The learned CIT(A) noted that having regard to the contention of the assessee that there was no cost of acquisition the AO should have made enquiries to find out whether the assessee had paid any amounts for acquiring the above two plots of land. But the order of the AO dt. 29th Jan., 2002 did not contain any discussion. The small items of expenses incurred by the assessee on legal charges....
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....not make enquiries for which the matter had been restored. 16. The learned CIT (Departmental Representative) further argued that the ratio of the judgment of Hon'ble Supreme Court in the case of BC Srinivasa Setty (supra) could not be applied in relation to assets like land in question. In that judgment Hon'ble Supreme Court was dealing with goodwill which was an intangible asset. Plots of lands were distinctive example of a capital asset and therefore it could not be said that there was no cost of acquisition or that it was not possible to determine the cost of acquisition. The law did not require that there should be necessarily accuracy as regards the income of an assessee to the last digit. If in a given case it was not possible to compute income chargeable to tax at an accurate figure, the AO was entitled to estimate the income to the best of his judgment. In support of these contentions the learned CIT (Departmental Representative) strongly relied upon the judgment of Hon'ble Karnataka High Court in the case of Emerald Valley Estates Ltd. vs. CIT [1996] 132 CTR (Kar) 1 : [1996] 222 ITR 799 (Kar) . The learned CIT (Departmental Representative) relied upon in this ....
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....s predecessors would amount to cost of acquisition in the hands of the assessee for the purpose of computation of capital gains. In the event the cost of acquisition incurred by the previous owners could not be ascertained, the provisions of s. 55(3) lay down that fair market value on the date on which the capital asset became the property of the previous owner should be treated as cost of acquisition. The learned CIT (Departmental Representative) argued that cost of acquisition in the case of the assessee may be determined on the basis of the fair market value of the lands in question as on the date when the assessee or his predecessors became owner of the land. 19. Shri Deepak Tralshawala, the learned counsel for the assessee relied strongly upon the submissions of the assessee before the first appellate authority as recorded in the first appellate order dt. 23rd March, 1999. He pointed out that the argument that the assessee had not established adverse possession was not there when the original assessment orders framed by the AO. He referred to p. 12 of the assessment order for asst. yr. 1995-96 dt. 27th March, 1998. The learned AO had clearly recorded the finding, "In the....
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....pugned order for asst. yr. 1995-96 had decided the issue in favour of the assessee for that reason alone. As the AO had not carried out any enquiry in spite of the speCITic directions given and the purpose for which the matter was restored to him, the learned CIT(A) directed the AO to furnish a remand report and then AO furnished his remand report dt. 31st Jan., 2003 to the learned CIT(A) as placed at pp. 121 to 123 of the paper book. In the remand report the learned AO enumerated at length the various evidence, material and facts and circumstances relied upon by the assessee. After consideration of all aspects the then AO presented the following findings of fact before the learned - CIT(A) : "As mentioned earlier vide agreement dt. 21st Jan., 1994, these two plots viz. survey No. 1411/11 and plot of 889 sq.mtrs. was sold by the assessee company to Hotel Leelaventure for which consideration of ₹ 231.92 lakhs was received (Rs. 131.51 lakhs and ₹ 100.40 lakhs respectively). The agreement dt. 2nd July, 1962-paper book page No. 52-between partnership firm M/s Star Chemicals and the company M/s Star Chemicals (Bombay) (P) Ltd. for transfer of business and assets do no....
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....2005] 199 CTR (Guj) 223 : [2006] 281 ITR 19 (Guj). In that case "the property had been acquired by the forefathers of the assessee by conquest. The Hon'ble Gujarat High Court held that as there was no cost of acquisition capital gains was not assessable. Hon'ble High Court also rejected the alternative contention of the Revenue that by virtue of provisions of s. 55 the cost of acquisition should be determined at nil. The learned counsel particularly took us through the observations of Hon'ble High Court at pp. 35 and 36. He further pointed out that in para 32 of that judgment on p. 36 the Hon'ble Gujarat High Court had emphasised that the importance of the date of acquisition cannot be lost sight of in taking into consideration the scheme of the Act relating to charge of tax on short-term capital gains and long-term capital gains. The learned counsel argued that the case of the assessee was similar. He too had acquired the lands in question by adverse possession and the date of acquisition too was unascertainable in the case of the assessee. 23. The learned counsel argued that reliance placed by the learned CIT (Departmental Representative) on the provisions o....
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....asset. Therefore the judgment of Hon'ble Supreme Court in the case of B.C. Srinivasa Setty (supra) had no application where the subject matter of transfer was not an intangible asset but a tangible asset. 27. The learned CIT (Departmental Representative) referred to "report on title" from M/s Little & Co, Advocates, Solicitors & Notaries dt. 9th June, 1993 and argued that apart from purchase price paid, from time to time the assessee incurred cost also by way of litigation, fees to solicitors, expenditure incurred for search of title, extracts of land records and so on. It could not therefore be stated that there was no cost of acquisition at all. In support of this contention the learned CIT (Departmental Representative) relied upon the Tribunal decision reported in SAS Hotel Ltd. vs. ITO (supra). He argued that even if there was no cost of acquisition, if there was any cost of improvement that would give rise to capital gains. 28. The learned CIT (Departmental Representative) argued that the assessee had been wrongly reading the remand report of the AO dt. 31st Jan., 2000 as vindication of the assessee's stand that lands in question had been acquired on advers....
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....n prior to the completion of 12 years. In the present case the assessee had become owner of land in question in the year 1969 as borne out from Property Register Card. There could be no question of the assessee acquiring ownership rights on adverse possession in 1969 when the assessee company itself was incorporated on 11th May, 1962. Therefore, it could not be said that the assessee was holding the property by way of adverse possession. 31. The learned CIT (Departmental Representative) argued that in the instant case the Tribunal was competent to give certain findings of fact even if not touched upon by the AO or CIT(A). In support of that contention he relied upon the judgment of Hon'ble Delhi High Court in the case of Indian Management Advisors & Leasing (P.) Ltd. vs. CIT (2007) 207 CTR (Del ) 333. He argued that the Tribunal could consider such facts and documents relevant to the issue before it even if the AO and CIT(A) had not gone through those documents. In the case of the assessee the search report of M/s Little & Co. dt. 3rd June, 1993 had given clear finding that the predecessor of the assessee had in his proprietary capacity paid a sum of ₹ 18,000 by way of p....
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....aring survey No. 135, Hissa No. 7 corresponding CTS No. 1411/12 and survey No. 135, Hissa No. 10 corresponding to CTS No. 1411/11 and adjoining plot of land admeasuring 889 sq. mts., without any survey number that the assessee as its predecessors had claimed acquisition on adverse possession without any cost of acquisition. It was in respect of those lands only that the assessee had claimed that capital gains was not chargeable. 34. We have carefully considered the rival submissions. In this case the assessee has sold lands bearing several survey numbers or CTS numbers to Hotel Leelaventure Ltd. by two agreements both dt. 8th Feb., 1994. Out of the lands thus sold the assessee has treated the transfer of the land bearing old survey No. 135, Hissa No. 7 or new CTS No. 1411/12 as relating to asst. yr. 1994-95 and the transfer of all other lands as pertaining to asst. yr. 1995-96. According to the assessee the difference of assessment years in this manner arose on account of different dates on which the possession of the lands was handed over to Hotel Leelaventure Ltd. This aspect of the case is not under dispute. Secondly while the assessee sold lands falling under survey No. 135 Hi....
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....eld in the order of Tribunal in the case of the assessee for asst. yr. 1994-95 (supra) wherein it has been held that if there is no cost of acquisition, no capital gain can be charged. 36. However certain new issues have been raised during the course of proceedings subsequent to original assessment orders; the same are, briefly enumerated, as under : (1) During the course of first appellate proceedings for asst. yr. 1995-96, the learned AO raised the issue that the assessee was required to establish first as to how he acquired the title on adverse possession and to prove that the assessee had become owner of the lands pertaining to the disputed capital gains tax. The same issue has been raised in Tribunal order for asst. yr. 1994-95 (supra) also. (2) During the course of hearing before the learned CIT(A) the AO raised an argument that the judgment of Hon'ble Supreme Court in the case of B.C. Srinivasa Setty (supra) could be applied only to intangible assets and not when the assets in question are physical assets such as lands. (3) During the course of first appellate proceedings for asst. yr. 1995-96 the AO also took an alternative plea that if provisions of s. 45 did not a....
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.... them has not proved the fact of acquiring title on adverse possession. In the impugned orders it has nowhere been spelt out that if the assessee did not acquire these lands on adverse possession, how did the assessee acquire the rights that have been transferred to Hotel Leelaventures Ltd. In this case the assessee has been subjected to examination by the AO time and again. For asst. yr. 1994-95 assessment order under s. 143(3) was first completed on 20th March, 1997. During the course of the first appellate proceedings the learned AO had the opportunity to submit his remand report on the written submissions of the assessee before the learned CIT(A). However, the assessment order did not find favour with the learned CIT(A) and the assessee's contention was accepted in the first order of CIT(A) dated 23rd April, 1998. On Revenue's appeal the Tribunal by its order dt. 1st Dec, 2003 restored the matter to the AO so that the AO may find out how the property was acquired and at what cost, if any ? The AO therefore subjected the assessee to assessment proceedings once again and made his order under s. 143(3) r/w s. 254 on 31st March, 2006. As to assessment order for asst. yr. 19....
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....as under : "(v) Survey No. 135, Hissa No. 7 (City Survey No. 1411/12). (a)The land admeasuring about one acre 1-1/4 gunthas originally belonged to one Mr. Viswanath Mahadev Tilak prior to his demise on the 28th June, 1937 and on his demise it was inherited by his seven sons, namely, Anand, Janardhan, Sitaram, Hari, Shivram, Purushottam and Gopal Vishwanath Tilak as recited in the deed of conveyance referred to in the recital immediately following. (b)By a deed of conveyance dated the 4th April, 1938 registered with the Sub- Registrar, Bandra under Serial No. BND/413 of 1938 on the same day, Fatimabai Ali Mahamed Daya purchased the said land from the abovenamed Anand, Janardhan, Sitaram, Hari, Shivaram, Purushotham and Gopal Vishwanath Tilak against the payment of the purchase price of ₹ 3,799. (c)The said purchase in favour of Fatimabai has been mutated in the record of rights by the Mutation Entry No. on the 31st May, 1938 as per the records in the office of Talathi, Marol Village, Andheri Taluka. (d)By an Indenture of Lease dated the 1st April, 1949 made between Fatimabai Aii Mahamed Daya of the One Part and Habib Meherali Daya, Noor Mahamed Meherali Daya, Ba....
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....l Court at Bombay against Nazirali Ahmedbhai and others seeking declaration that Star was the owner of the said land by adverse possession. In the said suit, with a view to remove defect, if any, in Star's title by adverse possession, a consent decree was ultimately passed on the 24th March, 1983 under which the said Nazirali Ahmedbhai and others admitted and declared that Star had been and was in exclusive possession, use and enjoyment of the said land to the exclusion of the said Nazirali Ahmedbhai and others and thus by obtaining the said consent decree Star improved their title to the said land. (i)According to the defence pleaded by the defendants in the presently pending Bombay City Civil Court Suit No. 3889 of 1982 hereinafter recited, the said land was acquired under the Land Acquisition Act for the purpose of aerodrome and an award was made by the Land Acquisition Officer on the 12th April, 1951 and that the possession of the said land was handed over by the said Fatimabai as the owner of the said land on the 7th May, 1951 to one K. Hatti on behalf of the Addl. Special Acquisition Officer, Bombay Suburban District, and the said K. Hatti handed over the possession to ....
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....inst the payment of the purchase price of ₹ 2389-12-0 as mutated in the record of rights under the Mutation Entry No. 641 dated the 20th Oct., 1950. (b)The Mutation Entry No. 975 dated the 27th March, 1961 erroneously indicates that Mr. R.B. Shah had by a sale deed dated the 26th July, 1956 purchased the said land from the said Mr. Jamnadas Vallabhdas Mehta, but there is no such sale deed or any other document in respect of this land registered with any authority. However, the said land has been along with adjoining pieces of land in sole and exclusive possession of Mr. R.B. Shah, the predecessor in business of Star and accordingly in the 7/12 Extract, Ranchhodlal B. Shah was being shown as the occupant of the said land. (c)However, in or about June, 1990 Star on inspection of the land records discovered that the name of the Santacruz Aerodrome had been under Mutation Entry No. 2430 entered in pencil in the relevant revenue records on the 31st Aug., 1988 on the basis of LAQ/71 B-M dt. 4th May, 1951 and LA71 BM dt. 12th April, 1951 and LAQ/71 B BPN/MR dated the 16th June, 1951. By its letter dated the 8th June, 1990 addressed to the Tahsildar, Andheri (West) Bombay, Star h....
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....se well and sufficiently entitled to the same by adverse possession." It is thus seen that the parties did furnish to the AO such details and history of the lands pertaining to disputed capital gains tax as available on record. We are unable to appreciate the arguments of the Revenue that the assessee did not furnish necessary details and did not establish its claim of acquisition of lands on adverse possession. After these details had been furnished and brought on the record of the AO, the AO was required to either accept the claims of the assessee or to give cogent reasons as to why the averment of the assessee in this behalf is not correct or otherwise not acceptable. Mere refusal to accept the explanation is not enough. 39. As the matter stands before us the Revenue has after long drawn proceedings starting from 30th Nov., 1994 when the assessee filed its return of income for asst. yr. 1994-95 until the hearing given by us has not done much apart from disbelieving the assessee. There is hardly any material/evidence against the claims of the assessee in spite of each of the two assessment years under scrutiny of the AOs on more than one occasion nor any cogent reasons ....
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....e that as it may, if not in the year 1969 the assessee company certainly held the lands in question in adverse possession to the actual owner for more than 12 years at the point of time the same were sold to M/s Leelaventure Ltd. by sale agreement dt. 8th Feb., 1994. A period much longer than 12 years had elapsed by then and if at all there was any imperfection in the title of the assessee as in the year 1969 the same was removed by efflux of time when the lands in question were finally sold in the year 1994. 40. In view of the discussion in the foregoing paras we hold that there is no effective case against the assessee's claim of having acquired the lands pertaining to the disputed capital gains tax on adverse possession. We therefore hold that the question as to charge to capital gains tax in relation to these lands has to be determined on the basis that these lands were acquired by the assessee on adverse possession without payment of any purchase price or any other consideration to the previous owner. 41. The next major contention of the Revenue is that even if the assessee acquired the lands pertaining to the disputed capital gains tax on adverse possession, it cannot ....
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....duction by way of cost of improvement in addition to cost of acquisition of lands incurred by the assessee. There is nothing in that judgment that may be construed as an authority for the proposition that even in a case where the ownership rights over certain land is acquired on adverse possession without any cost of acquisition, litigation expenses should be treated as cost of acquisition of such lands. We do not find this judgment of any assistance to the contentions of the Revenue. 42. In the case of Suit. S. Valliammai vs. CIT (supra) the question considered by Hon'ble Madras High Court under s. 256(2) was whether in computing the capital gains on the sale of the properties proportionate estate duty paid on the death of previous owners in respect of the properties sold should be deducted. The Hon'ble High Court held that in the case before them the assessee's title to the capital assets was already full and complete and the asset as such was not improved in any manner as a result 'of the payment of estate duty. Merely because estate duty had not been paid on the estate passing on death, the assessee's title to the estate was not in anyway imperfect or incom....
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.... The Hon'ble Supreme Court considered the question whether there was a transfer of a capital asset within the meaning of s. 45 and whether the cost of leasehold rights was capable of valuation The Hon'ble Supreme Court held that there was transfer of a capital asset and the value of leasehold rights in the cost of acquisition of land was determinable. The Hon'ble Supreme Court quoted with approval the observations of Viscount Simon in Gold Cost Selection Trust Ltd. vs. Humphrey [1949] 17 ITR 19, 26 (HL)(Supp), "Valuation is an art, not an exact science. Mathematical certainty is not demanded, nor indeed is it possible". In the course of the judgment the Hon'ble Supreme Court considered the arguments of the assessee based on the judgment of the apex Court in B.C. Srinivasa Setty (supra) and held as under: "In view of our finding on the first contention, the second contention does not survive. The value of leasehold rights in the cost of acquisition of land being determinable, the computation provisions under the Act are applicable and s. 45 would be attracted. In CIT vs. B.C.'Srinivasa Setty [1981] 21 CTR (SC) 138 : [1981] 128 ITR 294 (SC), the q....
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....eceived a sum of ₹ 2,75,000 ascribed to goodwill. It was an admitted position that the assessee had paid a sum of ₹ 20,000 to P.J. Kumbhani, the then partner in the erstwhile partnership for acquiring share of Kumbhani in the goodwill of the business. Hence the cost of acquisition so far as the share of Kumbhani in goodwill was available. In this view of the matter the Tribunal upheld the assessment of capital gains at ₹ 2,55,000. Relying upon the judgment of Hon'ble Supreme Court in the case of B.C. Srinivasa Setty (supra) the Hon'ble Bombay High Court held that the Tribunal erred in assessing the entire sale consideration to capital gains tax and only the proportionate sale consideration attributable to Kumbhani's share that had been acquired on cost of acquisition could be subjected to capital gains tax. The Hon'ble Supreme Court upheld capital gains tax on ₹ 1,17,500 only. This judgment affirms the principle laid down in the case of B.C. Srinivasa Setty (supra) relied upon by the assessee. It does not advance the case of the Revenue any further. 45. In the case of SAS Hotel Ltd. vs. ITO (supra) the issue was whether in determining actual....
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....urred some expenditure to defend its title over the buses. The contention of Revenue was that the buses related to a new route which was never run by the assessee. The acquisition of the new route was a new business started by the assessee and the money spent in perfecting the title of those new buses for carrying on a new business was capital expenditure. The Hon'ble High Court held that the expenditure did not create any new asset nor did alter the character of the capital asset that had been acquired by the assessee. The expenditure incurred to defend the title over an existing asset did not result in any capital expenditure. This judgment also supports the contention of the assessee that cost of litigation to defend an existing asset cannot be considered as part of the cost of acquisition of that asset. 49. In the case of Dalmiya Jain & Co. Ltd. vs. CIT (supra) the assessee in that case incurred expenditure in relation to Murli Hills owned by the State of Bihar that were being claimed by one Kalyanpur Lime Co. The assessee was in possession of the Murli Hills as an agent of the Government with the understanding that Murli Hills will be leased out to the assessee if he succ....
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.... that assessee towards the stamp duty and other legal expenses incurred for obtaining the decree. The Hon'ble Calcutta High Court held as under: "The next question is whether the aforesaid capital receipt is liable to capital gains tax. As indicated, the Tribunal held that the decision of the Supreme Court in CIT vs. B.C. Srinivasa Setty [1981] 21 CTR (SC) 138 : [1981] 128 ITR 294 (SC) , has no application in the facts and circumstances of this case. In our view, the Tribunal fell into an error. The amount spent by the assessee towards stampduty and/or other legal expenses incurred in obtaining the decree cannot be said to be the cost of acquisition. Whether a person in a litigation would be successful in his claim and would get a decree or not does not depend upon the incurring of legal expenses and/or payment of Court fee. The expenses incurred for the purpose of securing justice or for vindication of legal rights cannot be considered as the cost of acquisition of such rights themselves which are the subject matter of legal proceedings. Legal proceedings do not create any new or different rights. The Court only recognises the existing right or claim of the party concer....
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....#39;ble Karnataka High Court in the case of Emerald Valley Estates Ltd. (supra). In that case the question was whether capital gains could be charged on sale of shade trees that had been grown on the coffee estate together with shade trees purchased by the assessee for a total consideration of ₹ 31,51,456. That assessee contended that shade trees grown in the coffee estate did not constitute a capital asset for the purpose of the provisions of s. 45. Secondly, it was argued that since that assessee had not specifically paid any price for the standing trees purchased as a part of the coffee estate it should be presumed that the assessee had incurred no cost of acquisition at all on the trees in question On these facts the Hon'ble Karnataka High Court observed that the judgment of Hon'ble Supreme Court in the case of B.C. Srinivasa Setty (supra) pertained to an intangible capital asset. However in the case of that assessee while that assessee and the seller had not indicated the price paid or received by them in respect of each item of property comprising the estate that changed hands between them, it could not be said that the standing trees was the asset in respect of....
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.... a clue to the interpretation to s. 48. The deemed cost of acquisition is confined to the assets particularised in s. 49 only and in all other assets, the actual cost of acquisition is the substratum for the levy of capital gains. If there is no cost of acquisition, there is no gain and consequently there is no capital gains tax. Thus, the charging section takes colour from the computation as both the provisions are integrated and seek to levy tax regarding an asset in the acquisition of which it is possible to envisage cost." Further at p. 395 in the judgment of Jeevan Reddy J. as he then was, there is clear reference to the cases of adverse possession in the following words : "Take a case, where an assessee becomes the owner of a capital asset (land or building) by adverse possession. The cost of acquisition in such a case is 'nil', so no capital gains tax can be levied upon him-according to the judgment of the Supreme Court-when that asset is sold by him or is acquired from him." We further find that the learned counsel for the assessee has rightly relied, in this behalf, upon the judgment of Hon'ble Gujarat High Court in the case of CIT vs. Manoha....
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....arguments of the learned counsel in this respect in para 21 of this order with which we entirely agree. 56. In the original assessment orders for asst. yrs. 1994-95 and 1995-96 the AOs had taken the stand that the two plots of land appearing in the fixed asset schedule to the balance sheet had certain cost of acquisition and that cost of acquisition should be treated as encompassing the lands relating to disputed capital gains tax also. The assessee has repeatedly informed that freehold land at Andheri acquired at ₹ 6,268 and another leasehold land acquired for ₹ 19,03,800 were not lands in the vicinity of lands in question before us viz. CTS Nos. 1411/11, 1411/12 and unsurveyed unnumbered plot of land admeasuring 889 sq. mtrs. One of the two lands was situated in Thane and another at Lote Parsuram. These repeated assertions of the assessee have not been controverted by Revenue at any stage nor before us. 57. In the assessment order under s. 143(3) r/w s. 254 made on 31st March, 2006 the AO has taken a stand that there cannot be a title on adverse possession unless agitated before and settled by a Court of law. We do not see much force in such contentions. It is impor....