A Mumbai bench of the Income Tax Appellate Tribunal (ITAT), has recently held that property illegally encroached by an assessee, cannot be considered as a ‘capital asset’ under section 2 (14) of Income Tax Act and consequently, gains arising from transfer of such property cannot be assessed as capital gains, but as income from other sources.
In the case, the assessee, Bhagwan T Fatnani, was not having any legal right over the contested property in Ulhasnagar near the city, and the land was illegally encroached upon by the assessee for the assessment year 2008-09.
The income tax department was represented by its commissioner, Vijay Kumar Bora in the case, while the tribunal comprised judicial member Joginder Singh and accountant member D Karunakara Rao. The tribunal held that since the assessee was not having any legal right or title over the property, there was no question of owning any capital asset and accordingly, there was no question of any sale or transfer of capital asset to claim the capital gains.
The assessee was neither the legal owner of the property, nor was having any document showing any right or the title over the illegally encroached land, which was meant for a primary school in the city.
The assessee took the plea that the word used is property of any kind.
The bench negated the proposition of the assesse and held that the intention of the legislation is any property which is legally acquired, otherwise, anybody could become the owner of the Gateway of India in Mumbai or the Red Fort in New Delhi by showing these properties in their balance sheet and will claim capital gains.
The tribunal lambasted Fatnani over the sale of the illegally acquired school land and compared whether the Red Fort and the Gateway of India could be sold on paper.