Property
illegally encroached by assessee would not be considered as 'Capital asset'
under section 2(14) and, consequently, gain arising from transfer of such
property could not be assessed as capital gain but as income from other
sources.
Facts:
a)
The assessee had shown long-term capital gain
from sale of unauthorisedly encroached school land for which he had no
title/right.
b)
The Assessing Officer
held there was no capital assest owned by assessee as he did not have legal
right or title over the asset and, therefore, the income declared was not
chargeable under section 45 but under section 56 as income from other sources.
c)
On appeal, CIT (A) reversed the findings of AO.
Aggrieved with the CIT(A) order, revenue filed the instant appeal before Tribunal.
The Tribunal
held in favour of revenue as under:
1) The assessee pleaded that the definition of
capital asset under Section 2(14) has used words property of 'any kind' and it
is not necessary that it should be lawfully acquired property. This proposition
could not be accepted because the legislature in its wisdom has used this word
for lawful property only.
2)
If the plea of the assessee was allowed, then
any person will encroach upon a Government land by showing the same in his
balance sheet and shall claim capital gains, which is not permissible.
3) Under the charging section of capital gains,
the crucial requirements are that there must be a transfer and such transfer
must be of a capital asset. The primary school land was encroached
upon/illegally occupied by the assessee and there was no transfer of any
capital asset.
4)
Capital gains under section 45 accrue only if
there is a sale or any transfer of the capital asset. But in the instant case,
there was no transfer as such the assessee encroached upon the school land.
Accordingly, the said land could not be called as capital asset owned by assessee.
