TaxTMI 
TaxTMI 
2006 (10) TMI 174
X X X X Extracts X X X X
X X X X Extracts X X X X
....behalf of assessees. Shri S.N. Soparkar appeared as intervener in the case of Smt. Ramaben M. Parmar v. ITO [IT Appeal No. 89 (Ahd.) of 2003] and Shri J.P. Shah, as intervener in the case of Krishnakumar R. Parmar v. Asstt. CIT [IT (SS) No. 338(Ahd.) of 2004] and in the case of Asstt. CIT v. Krishnakumar R. Parmar [IT (SS) No. 15 (Ahd.) of 2005]. Parties agreed that case of M. Bhujda [IT Appeal No. 639 of 2003] is a lead case and facts, circumstances and controversy involved are similar to other cases. 3. Assessees have sold pieces of land in the area of Union Territory of Dadra and Nagar Haveli ("D&NH" for short) as described in respective cases. Returns were filed in these cases including cases consequent to notices under section 148 claiming "Nil" income from capital gains on sale of pieces of land situated in the area of "D&NH" by putting a note in the statement of income by and large to the following effect: "Sale of land of Rs. 4,93,333 pertains to the land originally acquired by occupancy right as a grant from the administration of Dadra & Nagar Haveli under section 4(1) of D&NH Land Reforms Regulation, 1971. In view of of CIT v. B.C. Srinivasa Shetty [1981] 5 Ta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gain' is not acceptable in view of the Bombay High Court's (Jurisdictional High Court) decision in the case of CIT v. Trikamlal Maneklal (HUF) 168 ITR 733. This view is further confirmed by the same High Court in another case CIT v. Kanubhai R. Shah (HUF) 201 ITR 1050. The Hon'ble High Court has relied upon the decision of the Hon'ble Supreme Court in the case of CIT v. R.C. Srinivasa Shetty 128 ITR 294 section 45 of the Income-tax Act, 1961 charges to Income-tax under the head of "Capital gains" any profits or gains arising from the transfer of a capital asset effected in the previous year. Section 48 of the said Act lays down the mode of computation of the income chargeable under the head "Capital gains". It requires that from the full value of the consideration received or accruing as a result of the transfer of the capital asset, there shall be deducted the expenditure incurred in capital asset and the cost of any improvement thereto. Section 49 of the said Act sets out of the cost of acquisition with reference to certain modes of acquisition. 7. Capital gain tax is levied on the profit or gain that arises on transfer of capital assets. Thus, ordinarily....
X X X X Extracts X X X X
X X X X Extracts X X X X
....assessee's case. The forefathers of Shri Manoharsinhji Jadeja were the rulers of Rajkot State and he acquired the assets by conquest. Here the assessee got the land by virtue of occupancy right as per the order of the local administration. 11. In view of the above discussion, the contention of the assessee that the asset is not chargeable to capital gain tax as the cost of the asset is NIL, is not acceptable. In view of the above, I consider the cost of asset for the computation of capital at Rs. NIL. The total sale consideration of Rs. 14,80,000 in financial year 1997-98 and the 1/3rd share of the assessee in the said property is Rs. 4,93,333 and therefore, the assessee is liable to pay tax on the long-term capital gains. The sale consideration of Rs. 4,93,333 is adopted as per the document as he share. However, if the valuation report is received showing higher value, the assessment will be rectified accordingly. The long-term capital gain is computed as under: Sale consideration (1/3rd share of the assessee as discussed above) of land survey No. 33/1 of Village Dadra, Area 7,400 sq. mtr. Rs. 4,93,333 Less : Rs. Nil Long-term capital gain Rs. 4,93,3....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... ITAT for constituting a Special Bench as the issue was of a public importance and arising in many appeals pending in the Tribunal, With this factual backdrop, the President, ITAT has constituted this Special Bench for adjudication of the above question. 9. Learned counsel for appellant assessees, Shri K.C. Patel described nature of ancestral right enjoyed by these assessees in great details. He submitted that the Ancestors of assessees under appeals settled in Portuguese Territory and were allotted lands for cultivation by Portuguese administration on payment of annual rent. The rights were codified in Portuguese law dated 22-9-1919 published in 1927 and was in force in area of "D&NH", the same is known as "Organizacao Agraria" ("OA' for short). Thereafter, Portuguese territory was merged into Indian Union on 11-8-1961 by "D&NH" Regulation Act, 1961. By this Act, the land laws in force i.e. OA were continued to remain operative until repealed or amended by Parliament or competent authority. Charter of OA continued to remain in force by "D&NH" Regulation, '1963 promulgated by the President under article 240 of the Constitution and published in Gazette of India. This Regu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s held under OA under the purview of Land Reforms Regulations, 1971. All these assessees have been granted land under the new Land Reforms Regulations, 1971, after due verification of nature of their rights, holdings in OA and subsequent period. Learned counsel emphasized that what has been sold by the assessees are not the old Alwara rights, but new rights acquired by these assessees as per Land Reforms Regulations, 1971 which in turn are based on the claims of respective assessees based on Alwara rights and OA. Ancestors of these persons were allotted land for cultivation as Alwara rights without any cost thereof. Rights enshrined on these assessees as per subsequent Land Reforms Regulations, 1971 were also without any cost on the basis of Alwara rights, clearly goes to show that rights enjoyed by these assessees as per new regulations are also without any cost. 11. Learned counsel then referred to various provisions of Land Reforms Regulations, 1971, relevant provisions are as under: "2(7) "Alwara" means a document evidencing the grant of concession to enjoy land given under article 50 of the Organizacao Agraria; 2(8) "Alwara holder" in relation to any land,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sideration all ancillary rights clearly establish that occupancy rights are nothing but ownership rights which have been recognized by revenue record accordingly. All these assessees have sold their respective lands with due permission obtained from the prescribed authorities and after following prescribed procedure. These assessees are granted land not as tenant and have been given the right to sell, mortgage, lease, exchange etc. subject to permission in this behalf. These rights are superior in nature than the erstwhile Alwara rights making them equal to ownership rights. 13. Learned counsel, Shri K.C. Patel contends that following proposition clearly emerge from perusal of these provisions: (i) Erstwhile Alwara-holder were granted new occupancy rights by D&NH Land Reforms Regulation, 1971, after grant of these rights, Alwara rights ceased to exit and these new rights were conferred. (ii) Occupancy Rights conferred in place of Alwara rights does not amount to tenancy as clearly spelled out by section 2(29)(iii). Combined reading of provisions reveals that new rights were superior to Alwara rights and amounted to ownership rights. These rights could be sold, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cquisition of which no cost at all can be conceived. When goodwill generated in a new business is sold and the consideration brought to tax, what is charged is the capital value of the asset and not any profit or gain. Further, the date of acquisition of the asset is a material factor in applying the computation provisions pertaining to capital gain; but in the case of goodwill generated in a new business it is not possible to determine the date when it comes into existence." (viii) Looking at the entirety of facts and taking into consideration all relevant provisions of law i.e. sections 2(14), 2(4), 48, 45, 48(2) and 49, it would be clear that cost of acquisition in the instant case is not ascertainable, and therefore, B.C. Srinivasa Shetty's case is clearly applicable and gains thus arising from such assets did not fall within computation of provisions of capital gains and amount cannot thus fall within the charging section for levy of capital gains, therefore, no capital gains are chargeable on the transfer of such land. (ix) In the alternative, it was contended that if it is held, otherwise, then the assessees shall be allowed consequent claims i.e. adopt....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... attached 22,059 scj. yds. of vacant land on 12-1983. The Department divided 5727 sq. mtrs. of land out of the aforesaid acquired parcel of land and sold 33 plots by way of public auction held on 21-3-1983 and 223-1983. A sum of Rs. 65,50,870 was the gross realization from the auction sale. For the assessment year 1983-84 the assessee advanced reasons for showing long-term capital gains at "nil' in the return of income. The case of the assessee was that he was not liable to the charge of capital gains tax as the land in question was received by him from his forefathers by way of inheritance and no cost had been incurred by his forefathers for acquiring the land in question. The Assessing Officer did not accept the contention of the assessee and worked out the long-term capital gains. The Tribunal held that the property in question was never purchased by the forefathers of the assessee but was acquired by conquest. Accordingly, the Tribunal came to the conclusion that the cost of acquisition of the asset was nil, i.e., not ascertainable. The addition of capital gains was deleted. On a reference: Held, that the importance of the date of acquisition cannot be lost sight o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt paid to landlord did not constitute consideration for protected tenancy. (f) Baroda Cement & Chemicals Ltd. v. CIT [1986] 158 ITR 636 (Guj.) - for the proposition that in this case it was held that right to sue does not have any cost of acquisition and amount received as damages by the assessee for breach of contract of sale of movable property was not chargeable to capital gains as cost of acquisition was unascertainable. (g) Mysore Minerals Ltd. v. CIT[1999] 239 ITR 775 (SC) - for the proposition that right of ownership has to be assigned a wider meaning and anyone in possession of property in his own title exercising such dominion over the property as would enable others being excluded therefrom and having right to use and occupy the property in his own right would be the owner of building for the purpose of section 32(1), even though a formal deed of title may not have been executed and registered. Hon'ble Supreme Court has emphasized broader scope of right of ownership and in instant cases assessees by express provisions of Land Reforms Regulation Act were granted lands which they were able to alienate with due permission - there were having unhindered....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Alwara-holder who do not want land in lieu of Alwara rights. Applying above findings of Hon'ble Supreme Court, why the case should not be viewed from this angle that cost of acquisition was ascertainable and view may be taken accordingly. In reply, Shri K.C. Patel for the assessees contends that these cases are similar to case of Manoharsinhji P. Jadeja in that case lands were acquired by conquest, dating long back in history. In the assessees' case also forefathers settled in Portuguese territory long back, and therefore, dater and cost of acquisition was not ascertainable in these cases also. 18. In reply Learned DR referred to Regulation 3 of 1971 which clearly says that concession granted in respect of any land holding under Alwara right shall stand extinguished and such land shall be vested in the Government free from any encumbrances and subject to rights to any grant in respect thereof. By incorporation of section 3 in new Regulation of Alwara right came to be extinguished in the ownership of entire land vested in Government free from any encumbrance i.e. free from any right, title whatsoever otherwise than Alwara-holder. Under new regulations, by reading of other....
X X X X Extracts X X X X
X X X X Extracts X X X X
....holder or a Terem-holder for any land in respect of which occupancy rights are deemed to have been granted to the Alwara-holder or Terem-holder, as the case may be. (2) In the case of any land in respect of which an Alwara has been granted, the compensation payable to the Alwara-holder shall be an amount equal to - (i) fifty-five times the annual land revenue assessment payable in respect of that land, where occupancy rights are not deemed to have been granted to any person under Chapter II; and (ii) thirty-six times the annual land revenue assessment payable in respect of that land, where occupancy rights are deemed to have been granted to any person under Chapter II. (3) In the case of any land in respect of which a Terem has been granted, the compensation payable to the Terem-holder shall be an amount equal to - (i) eighteen times the annual land revenue assessment payable in respect of that land, where occupancy rights are not deemed to have been granted to any person under Chapter II; and (ii) twelve times the annual land revenue assessment payable in respect of that land, where occupancy rights are deemed to have been gran....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... beyond any doubt that new rights granted to these assessees carried a value, which is factually ascertainable. Consequently, the ratio of both the above Hon'ble Supreme Court judgments is dearly applicable. In case these rights are held to be not in the nature of tenancy rights then in that case, cost of acquisition being dearly ascertainable, ratio of B.C. Srinivasa Shetty's case, does not apply to assessees' case. He also referred to two decisions of Bombay High Court as relied upon by the Assessing Officer in his assessment orders and submitted that Bombay High Court is jurisdictional High Court governing the present cases. 22. We have heard the parties, considered the rival submissions and perused the material brought on record. First of all we would mention that what the assessees have sold were the Occupancy right as granted to them under D&NH Regulation, 1971 under section 4 of the Regulation, which reads as under:- "4. (1) On and from the vesting date, occupancy rights in respect of- (a) any land (including grass land not capable of being used for the purpose of agriculture) which has not been put to agricultural use by an Alwara-holder or ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....case may be on the vesting date, shall be brought by him under cultivation within a period of two years from the vesting date subject to the further condition that at least one-half of such excess grass land shall be brought under cultivation within a period of one year from the vesting date: Provided that if (for reasons beyond the control of the Alwara-holder or the Terem-holder or the tenant, as the case may be proved to the satisfaction of the Collector on an application made by him in this behalf one-half of the excess grass land could not be brought under cultivation in the first year, the Collector may grant permission to bring under cultivation in the second year such area of the excess grass land as has not been brought under cultivation in the first year: Provided further that no such permission shall be granted after the expiry of a period of two years from the vesting date; (c) that on failure to comply with the provisions of clause (b), the occupancy rights in respect of the grass land which remains uncultivated and which is in excess of the extent of grass land which can be possessed as such under clause (a), shall, on the expiry of a period....
X X X X Extracts X X X X
X X X X Extracts X X X X
....date and such tenant has been restored to possession of such land or part thereof or such farm-building under section 43, then the occupancy-rights in respect of such land or part thereof or such farm-building shall be deemed to have been granted to such tenant with effect from the date of restoration and the occupancy right, if any, granted to any person in respect of such land or part thereof or such farm-building shall cease to be effective from that date. (6) No person shall transfer by way of sale, lease, mortgage, exchange or otherwise, any agricultural land, including any part thereof, in respect of which occupancy rights are deemed to have been granted to him under this section except in accordance with such rules as may be made in this behalf. (7) Any transfer of land made in contravention of the provisions of sub-section (6) shall be void and the occupancy rights in respect of the land so transferred shall stand forfeited to the Government. (8) Any reference in this section to a "tenant" shall be deemed to include a reference to a person in possession of the land under a mortgage from a tenant." 23. The sale by the assessees is not of Al war ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ch declares that "all lands... which are not the property of persons legally capable of holding property, and except in so far as any rights of such persons may be established, in or over the same, and except as may be otherwise provided in any law for the time being in force, are and are hereby declared to be.... The property of the State Government....". The English into Portuguese Dictionary gives the meaning of that word also as Portuguese equivalent of ownership. Paragraph No.5 - Article 2 to article 5 are contained in Chapter II of OA. Article 2 classifies the lands into three types (i) lands for hamlets or that which is intended for that purpose and its suburbs, (ii) agricultural lands or which are intended for the purpose (Terrenos Agricolas ou destinados a agricultures), (iii) forest lands or which are reserved for forests. The rest of the Articles deal with the manner in which these lands are to be classified and we are not concerned with them. Chapter III of O.A. deals with the properties which cannot be the objects of grants (Das Causes que nao podem ser objecto de concessao). The word "Concessao" is translated in the translation supplied to us as "Con....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ticle 10 lays down that during thirty days from the date of completion of survey of a village the State binds itself not to impose any tax on the land given on perpetual lease in accordance with the present Diploma. The original words in Article 10 referred to as aforamentos is translated as "Perpetual lease" in the translation supplied to us. Article 11 entitles the grantee to transfer or mortgage his right of use of the lands granted to him and burden it with easements." 'Paragraph No. 11 - It is clear thus that OA is nothing but the land Revenue Code of Dadra and Nagar Haveli and the grants or "aforamentoes" given to the citizens under it are similar to the grants of lands or estates conferred on the citizens under the Land Revenue Administrations in other parts of India and particularly, Bombay.' 'Paragraph No. 19 - The Collector in these cases decided to rescind alwara granted many years ago under which the petitioners were entitled to cultivate lands, to use lands in any way they liked subject to the conditions of the aforemento da concessao under provisions of OA. These rights include the right to transfer property or mortgage the property. Such....
X X X X Extracts X X X X
X X X X Extracts X X X X
....forest lands. Article 5 provides that the agricultural lands may be granted, (1) by way of perpetual lease which is described as aforamento and (2) by way of lease which is described as arrendamento. 22. In para 3 of the petition it is stated by the petitioner that under the O.A. agricultural lands were given by way of perpetual lease under "Alwaras" and an indefinite period on - payment of a fixed assessment and in cases where lands were not given on Alwaras as aforesaid, the same were leased for 3 years in plots of not more than 5 hectares each. 23. Article 7 deals with "Alwara Foremenento", whose meaning as given in Novo Diccionario Fortatil of Vieyra is "the act of giving or taking lands for a yearly rent". Article 7 stated that the lease lands were governed by Civil Code with the changes indicated in the said Article. Article 10 provides that during thirty years from the date of completion of survey of a village the State binds itself not to impose any tax on the land given on perpetual lease in accordance with the present Diploma which means that it was settled lease for 30 years. Article 11 etitled the holder on the Alwara to transfer, lease or mortgage his....
X X X X Extracts X X X X
X X X X Extracts X X X X
....own against their names to M/s. Vikas Enterprises for industrial purposes and further M/s. Vikas Enterprises is also granted N.A. permission in respective of the said lands for industrial purposes with the following terms and conditions: (1) The permission is granted subject to the provisions of the Dadra & Nagar Haveli Land Revenue Administration Regulation, 1971 and in the rules made thereunder. (2) Both the parties shall execute sale deed in the office of the Sub-Registrar, Silvassa at the sale consideration of Rs. 200 per Sq. mtrs," 29. On perusal of the section 4 of Regulation, 1971, we find that term 'Alwara right' or 'Terem-holder' or 'tenant' are used simultaneously distinction to each other in clauses (b) and (c) of section 4(1) and clause (a) and clause (b) in section 4(2), section 4(3), section 4(4), which has given an indication that three concepts viz. Alwara-right, Terem-holder and tenants are different in nature and contents. Clause (4) of section 4 of the Regulation further makes it clear that whether the Alwara-right or Terem-holder lease out any land possessed by him under disability, then he was not to be treated as te....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ear that rights, possession, title enjoyed by the assessees construe rights of ownership. The same has been accepted by the revenue authorities, these assessees have been permitted to sell land as owners and have been instructed to execute sale deed. All these revenue records and entries therein clearly goes to show that these assessees have been treated as owners of the land by the D&NH administration authorities. 32. Doubt if any, at all is further dispelled by the Supreme Court decision in the case of Mysore Minerals Ltd., though this case was rendered in respect of depreciation, fact remains that ownership has to be looked from a wider perspective, in the cases before us, assessees enjoyed unhindered possession and use of land, exercised their right of sale, which was duly accepted by the revenue authorities, sale deed was accordingly allowed to be executed and registered, all these put together, clearly leads to an inescapable conclusion that assessees may be owners of the land. 33. We have perused order of Tribunal in Shri Navroz J. Wadia's case in which Alwara rights are held to be tenancy rights and by applying therefore provisions of section 55(2) gains have been....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cultivates the land under the personal supervision of - (i) such other person or of any member of such other person's family; or (ii) where such other person is a person under disability, a paid employee of such other person. (2) In the event of a dispute as to whether a person cultivating the land is a tenant within the meaning of sub-section(1), the same shall be decided by the prescribed authority on an application made to by the tenant or the landlord or any other person interested in the land." 37. Sub-clause (0) of clause 7 of Free Dadra & Nagar Haveli Tenancy & Agriculture Land Ordinance, 1961 define it similarly as a person in possession of land to cultivation on payment of a rent. 38. "Wavaledar" is a person as per the Explanation below section 2(29) to mean a person who has been given such land by the owner thereof in consideration of rendering service to such owner and the land so given is under the personal cultivation of such person. 39. A plain reading of aforesaid provisions clearly reveals that tenant under this provision does not include erstwhile Alwara-right or the persons who has been given occupancy right under section 4(....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Supreme Court held that goodwill generated in a newly commenced business could not be described as an asset within the meaning of section 45 and its transfer was not subject to tax under the head "Capital gains". 42. Court further held at Pg. No. 739 ... "In the context of sections 45 and 48 of the Income-tax Act, 1961, what, in our view, is required to be considered is the actual cost of acquisition of the capital asset by the assessee. It cannot, with respect, be calculated on any notional basis, except in the circumstances mentioned in sections 49 and 55 of the said Act. The notional basis which is employed for the purpose of calculating the cost of acquisition for the purposes of a claim for depreciation has no application in the context of the computation of capital gains." 43. This was a case where certain shares acquired by Karta of HUF were thrown into hotchpot of HUF and on sale thereof, assessee claimed deduction for cost of acquisition thereof at market value of previous owner as cost of acquisition on the date they were thrown into HUF hotchpot. At that time, the provision for substituted cost of acquisition was not thereunder section 49 for the prop....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion of which it is possible to envisage a cost. The intent goes to the nature and character of the asset, that it is an asset which possesses the inherent quality of being available on the expenditure of money to a person seeking to acquire it. It is immaterial that although the asset beings to such a class it may, on the facts of a certain case, be acquired without the payment of money." "In other words, an asset which is capable of acquisition at a cost would be included within the provisions pertaining to the head "Capital gains" as opposed to assets in the acquisition of which no cost at all can be conceived." 45. Finally court held at pg. No.5 of the report that tenancy right is not a capital assets of such nature that the actual cost on acquisition could not be ascertained as a natural legal corollary and observed at para-12 that - "We agree. A tenancy right is acquired with reference to a particular date. It is also possible that it may be acquired at a cost. It is ultimately a question of fact. In A.R. Krishnamurthy v. CIT[1989] 176 ITR 417 this Court held that it cannot be said conceptually that there is no cost of acquisition of grant of the lease. It....
X X X X Extracts X X X X
X X X X Extracts X X X X
....scertainable. Consequently, looking at the entirety of facts and circumstances, we hold that cost of land and rights attached thereof held by the assessees under new regulations as owners was clearly ascertainable, therefore, case of B. C Srinivasa Shetty and other cases i.e. (a) Sunil Siddharthbhai, (b) Manoharsinhji P. Jadeja, (c) H.H. Maharaja Sahib Shri Lokendra Singhji and H.H. Lokendra Singh (d) Pushpraj Singh (e) Markapakula Agamma, (f)Baroda Cement & Chemicals Ltd are not applicable and of no avail to assessee. 50. This issue about calculation of cost again will not pose any problem while working out capital gains as assessees have requested for option for substituting fair market value as on 1-4-1981 as per the scheme of capital gains. 51. in our opinion the possession of land held by assessees' is not as Alwara right holder but on occupancy rights as per D&NH Land Reforms Regulation, 1971. The occupancy rights in these lands, therefore, amount to be capital assets within the meaning of section 2(14), the sale whereof is liable to be taxed as capital gain under section 45. In consideration of above facts, circumstances, arguments and case laws, it is clear that a....