Sale of granted land taxable too

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: The assessee had sold pieces of land in the area of Union Territory of Dadra and Nagar Haveli. Returns were filed in these cases claiming “Nil” income from capital gains on the sale on the ground that the land was originally acquired by occupancy right as a grant from the administration of Dadra & Nagar Haveli u/s.4(1) of D&NH Land Reforms Regulation 1971. The assessing officer (AO) did not accept this claim and held that gains from the sale of land in question were taxable.

CIT(A) upheld the action of AO taxing the entire gains as capital gains. Pleas of the assessees that cost of acquisition may be adopted as FMV as on 1-4-1981 was also denied on the ground that assessee’s had not opted for adoption of market value as on 1-4-1981 as cost of acquisition. Thereafter, the assessee moved the IT apellate tribunal (ITAT) in appeal.

Similar issues came up for consideration of Ahmedabad Tribunal in the case of Shri Navroz J. Wadia and Others where the Tribunal held that the nature of “Alwara Right” enjoyed by the assessees was equivalent to tenancy right and its case of acquisition was to be taken as ‘Nil’ for computing capital gains.

The President, ITAT constituted a Special Bench for adjudication of the question namely “Whether, the possession of land as Alwara is a capital asset within the meaning of section 2(14) of the Act and its sale is liable to capital gain u/s.45?”

The Special Bench observed that the assessees have sold the occupancy right as granted to them under u/s.4 of D&NH Regulation 1971. The sale by the assessees is not of Alwara right under the “Organizacao Agraria” 1963, which stood abolished by Section 3 of the 1971 Regulation.

It is evident from the treatment given to these rights by D&NH revenue administration by terming them as owners, allowing them to sell the land, converting its user from agricultural to non-agriculture, entries in relevant revenue records and the provisions of 1971 Regulations clearly lead to an impression that new rights granted to the erstwhile Alwara holders under the D&NH Regulation, 1971 are taken as ownership rights.