Income Tax Appellate Tribunal - Ahmedabad
Shri Vijaysinh R. Rathod And Ors. vs Ito on 27 October, 2006
ORDER
R.P. Tolani, Judicial Member
1. The President, Income-tax Appellate Tribunal vide order under Section 255(3) of the Income-tax Act, 1961 constituted a Special Bench for aforesaid appeals for considering the following question:
Whether, the possession of land as Ahvara is a capital asset within the meaning of Section 2(14) of the Act and the sale whereof is liable to capital gain Under Section 45?
2. In all these cases, Shri K.C. Patel appeared on behalf of assessees. Shri S.N. Soparkar appeared as intervener in ITA No. 89/Ahd/2003 in the case of Smt. Ramaben M. Parmar v. ITO and Shri J.P. Shah, as intervener in IT(SS) No. 338/Ahd/2004 in the case of Shri Krishnakumar R. Parmar v. ACIT and IT(SS) No. l5/Ahd/2005 in the case of ACIT v. Shri Krishnakumar R. Parmar. Parties agreed that case of M. Bhujda, ITA No. 639/2003 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 CIT v. B.C. Srinivasa Shetty (1981) 5 Taxman 1(SC) as held by Supreme Court it shall not be subject to capital gain tax liability.
4. AO made further inquiries during the course of assessment proceedings. Assessees submitted further explanation for non-taxability of gains on following lines:
The land in question has been allotted to the assessee Under Section 4(1) of D&NH Land Reforms Regulation 1971. The assessee's parents had possessed and held the land for several years even before 1.4.80. The C.A. reproduced Section 49 and stated that Section 49 of he I.T.Act defines cost of acquisition where asset is not purchased by the seller. He further states that occupancy right is a right granted by the Administration of Dadra & Nagar Haveli to the persons who had held and possess land before the year 1971. The said right of occupancy enables the occupant to possesses and use the land for the purpose mentioned in the order conferring the right. It is claimed that occupancy right cannot be considered ownership right because the right to transfer lies with Government. It does not constitute tenancy right because it does not arise from a contract and a right arising thererom. Occupancy right is a grant of right to use and possess land conferred through a Government order as a benevolent grant. It is claimed that it is a self generated source of capital. Alternatively it is claimed that the allotment of land constitute a capital receipt not chargeable to capital gain. It is further claimed that since cost of acquisition of the occupancy right is not capable of being ascertainable, the ratio laid down in B.C. Srinivasa Shetty v. CIT applies and there is no liability for capital gain. Shri Jain has also cited the decision of the I.T.A.T. Gujarat in the case of Shri Manohar Jadeja v. ITO.
5. AO did not accept the claims of assessees' and held that gains from sale of land in question was taxable by following observations:
6. There is no doubt that the assessee acquires the asset for no cost as per Section 4(1) of D&NH Land Reforms Regulations, 1971. But the further contention of the assessee that, if the cost of acquisition and/or the date of acquisition of the asset cannot be determined, then it cannot be described as an asset within the meaning of Section 45, and therefore, its transfer is not subject to income tax under the head of 'capital 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. B.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, is the actual profit or gain. It is to be computed by deducting from the consideration received on the sale of the capital asset, interalia, the cost of its acquisition. Ordinarily, it is the actual cost of acquisition that has to be taken into account. It is only in the specific cases that Section 49 of the I.T.Act, 1961 provides that such cost is deemed to be the cost at which the previous owner acquired it. The legal fiction created by Section 49 applies only to the situations set out therein. If the situation is not contemplated in terms of Section 49 or 55, the actual cost of acquisition alone can be taken into account. If the actual cost of acquisition is NIL, it is that nil figure that must be taken into account.
8. The facts of the decision of the ITAT, Ahmedabad in the case of Shri Manohersinhji Jadeja and the facts of the assesseee's case are different. In the case of Shri Manohersinhji Jadeja, the property in question was acquired by conquest. The forefathers of Shri Manohersinhji Jadeja were the rulers of Rajkot State. In the case of the assessee, he got the asset in question as occupancy right as per Dadra & Nagar Haveli Land Reforms Regulation, 1971.
9. The Honourable Supreme Court observed that all transactions encompassed by Section 45 of the Income-tax 1961, had to fall within the governance of its computation provisions. The charging section and the computation provisions constituted an integrated code. What they contemplated was an asset in the acquisition of which it was possible to envisage a cost. The intent went to the nature and character of the asset, that it was an asset, which possessed the inherent quality of being available on the expenditure of money to a person seeking to acquire it. It was immaterial that although the asset belonged to such a class, it might, on the facts of a certain case, be acquired without the payment of money. The kind of a case was covered by Section 49 of the Income Tax Act, 1961, as its cost for the purpose of Section 48 of the said act was determined in accordance with those provisions. None of the provisions pertaining to capital gains suggested that they included an asset in the acquisition of which no cost at all could be conceived.
10. The facts of the judgment of the I.T.A.T. Gujarat in the case of Shri Manohar Sinhji Jadeja are different than the facts of the assessee's case. The forefathers of Shri Manohar Sinhji 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 F.Y. 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 Rs. 4,93,333/- assessee as discussed above) of land survey No. 33/1 of Village Dadra, Area 7400 sq.mtr. Less: Cost of acquisition Rs. Nil Long term capital gain Rs. 4,93,333/- Total income Rs. 4,93,333/-
6. Aggrieved assessees preferred first appeal where taxability of gains was challenged. Alternative pleas were raised that in any case AO should have computed cost of acquisition on the basis of fair market value as on 1-4-1981 as the land was acquired by the assessees before 1-4-1981. CIT(A), however, upheld the action of AO i.e. taxing entire gains as capital gains. Alternate 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 assessees have not opted for adoption of market value as on 1-4-1981 as cost of acquisition. Further, pleas of the assessees about claim of allowability of exemption capital gains in this behalf, were also denied on the ground that assessees have not discharged burden of establishing that exemption were available to them. Aggrieved assessees are in second appeal before the Tribunal.
7. It shall be pertinent here to mention that in some other cases similar issues came up for consideration of Ahmedabad Tribunal by consolidated order dated 18-3-2005 in ITA Nos. 446 to 449/Ahd/2003 in the case of Shri Navroz J. Wadia and Others Tribunal held that the nature of "Alwara Right" enjoyed by the assesses was equivalent to tenancy right and its case of acquisition was to be taken as 'Nil' for computing capital gains. It observed -
Thus where the tenancy right is acquired by the assessee by way of purchase, then the amount paid by the assessee would be the cost of acquisition but if the tenancy right is not acquired by the assessee by purchase, then the cost would be taken at NIL. In the case under consideration before us the transfer has taken place in the year 1997 and capital gain is to be worked out for Asstt. Year 1997-98. Therefore, for determining the capital gain Section 55(2) would be applicable in which the tenancy right has been included with effect from 1-4-95. We have expressly determined that the status of "Alwara" is equivalent to that of occupancy tenant and therefore the provisions of Section 55(2) as applicable to "tenancy right" would be squarely applicable for transfer of "Alwara" right accordingly we direct the AO to work out the capital gain by taking the cost of acquisition of "Alwara right" at NIL.
8. The assessees made a petition to the President, 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 Regulation was actually brought in force on July 1, 1964. Nature of Alwara rights has been considered in details by Hon'ble Bombay High Court in the case of Ratilal Chunilal Shah and Ors. in Spl.CA No. 2080/1969 by order dated 11-10-1973 which has described the rights of holding land as grant relevant para is as under:
5. Article 2 to Article 5 are contained in Chapter II of O.A. 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 agricultuea), (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 111 of O.A. deals with the properties which cannot be the objects of grants (as Causes que nao podem ser objecto de concessao). The "Concessao" is translated in the translation supplied to us as "Concession ". The dictionary meaning of Portuguese into English called "Novo Diccionario Portatil Das Linguas Portugeza E Ingleza Vol.1 by Vieyra" gives its meaning as "Concession ". The very author in his New Pocket dictionary of the Portuguese and English languages has given the meaning of "grant" also as "Concesa o". But having regard to the general provisions of O.A. we find that O.A. is inpari material with the land Revenue Code in Bombay. It deals with the various matters relating to land Revenue administration of the Colonial Government of Portugal. It shows that what is really meant by the word "concessao" is in fact a "Grant" as it is understood under the Crown Grant Act or under the Bombay Land Revenue Code.
10. By above Regulation, 1963 Portuguese law continued in force as per Section 33 read with Schedule-2 to this Regulation. Thereafter, Union of India brought "D&NH" Land Reforms Regulation 1971 which was published in official Gazette dated 8-12-1971. This repealed all laws and orders and part thereof was relatable to the matters covered by this Regulation, (Section 57(1) of Regulations, 1971). Learned Counsel stressed the point that holding of Alwara rights under OA entitled the holder to land in terms of "D&NH" Land Reforms Regulation 1971. Detailed survey was made, proper procedure was prescribed to lodge a claim for allotment of land in lieu of Alwara rights 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, means a person in whose favour an Alwara has been-granted in respect of that land and includes the successor-in-interest of such person and where such land has been mortgaged with possession to any other person, such other person;
2(20) "Organizacao Agraria" means the Organizacao Agraria for Nagar Haveli published as Portaria Provincial No. 985 dated the 22nd day of September, 1919 as amended from time to time;
2(26) "rent" means whatever is lawfully payable periodically as rent, in cash or in kind, or partly in cash or partly in kind, whether as a fixed quantity of the produce or as a share of the produce on account of the use or occupation of land or on account of any right in land but does not include land revenue;
2(29) "tenant" means a person who possesses land on lease, under an agreement, whether oral or written, and includes -
(i) a person who is deemed to be a tenant under Section 41;
(ii) a person who is a tenant within the mean of Sub-clause (o) of clause 2 of the Free Dadra and Nagar Haveli Tenancy and Agricultural Lands Ordinance, 1961;
(iii) A Wavaledar; and
(iv) A sub-lessee, but does not include an Alwara-holder, a Terem-holder and a temporary lessee under the Government referred to in Section 5.
12. It was contended that a perusal of these definitions revealed that Alwara rights and OA are recognized by new Land Reforms Regulations, 1971. The definition of "tenant" expressly excludes Alwara holder which goes to show that Alwara holder is not a holder of tenancy right. Further reference was made to Sections 3 and 4 of this Regulation.
It was contended that Section 3 extinguishes Alwara rights and Section 4 create new rights in favour of Alwara-holder. Sub-sections 4(2) to 4(5) provide ceiling on holdings which are not relevant to issue. Assessees have right to sell these lands by Sub-section 6 of Section 4. It is submitted that a plain reading of these provisions makes it abundantly clear that new rights in these lands termed as occupancy rights are granted to erstwhile Alwara-holders. Pertinently, they are not tenants as defined by Section 2(29) and Sub-section 4(6) further provides entitlement to holder the right to transfer by way of sale, lease, mortgage, exchange subject to the permission/rules in this behalf. The right of alienation given and taking into consideration 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, transferred, leased, exchanged or otherwise dealt in by holders which amount to being owners of these rights subject to seeking of approval of the competent authority.
(iii) In all these cases, persons who have sold land have acquired necessary permission from competent authority for such sale and in most of the cases transferred them into non-agriculture purpose. In revenue records they have been termed as owners.
(iv) Holders of these rights are owners in the eyes of law without any shred of doubt and have been treated by the Government authorities accordingly.
(v) Rights having been acquired in lieu of Alwara rights which were held by ancestors for the purpose of cultivation and whatever may be nature of holding they were acquired without any cost and which in any case is unascertainable.
(vi) These assessees being successors of land holdings by virtue of provisions of Section 49(i)(iii), the cost of acquisition in their hands is also unascertainable inasmuch as the land was acquired as Alwara holders by ancestors long time back and the details are not available. Cost of acquisition of these rights being not known has to be held as unascertainable and provision of Hon'ble Supreme Court in the case of B. C. Srinivasa Shetty (supra) will be applicable.
(vii) In the absence of ascertainment of cost of acquisition computation of cost of machinery for capital gain is not workable, Hon'ble Supreme Court in this case held as under:
The charging section and the computation provisions together constitute an integrated code. When there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section.
All transactions encompassed by Section 45 must fall under the governance of its computation provisions. A transaction to which those provisions cannot be applied must be regarded as never intended by Section 45 to be the subject of the charge. What is contemplated by Section 48(ii) is an asset in the acquisition of which it is possible to envisage a cost: it must be an asset which possesses the inherent quality of being available on the expenditure of money to a person seeking to acquire it. None of the provisions pertaining to the head "Capital gains" suggests that they include an asset in the acquisition 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. 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 (supra) 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. adoption of cost of acquisition as fair market value as on 1-4-1981, indexation of cost of acquisition and allowability of deductions/exemption from capital gains as provided by various provisions in this behalf.
14. Learned Counsel, Shri K.C. Patel, then adverted to various case laws -
(a) CIT v. Mandharsinhji P. Jadeja 281 ITR 19 (Guj). In this case properties were acquired by fore-fathers of the assessee by way of conquest. Hon'ble Gujarat High Court held that capital gains on sale of such property where neither date of acquisition nor cost of land was ascertainable, cannot be brought to tax under head "Capital Gains" with the following observations:
Though Section 45 of the Income-tax Act, 1961, is a charging section the Legislature has enacted detailed provisions in order to compute the profits or gains under that head and no provision at variance with such computation provisions can be applied for determining the chargeable profits and gains. The asset referred to in Section 45 of the Act has to be one: (i) in the acquisition of which it is possible to envisage a cost; (ii) in the acquisition whereof the assessee had incurred a cost, and the onus of showing that the assessee had incurred cost is on the Revenue. If the Revenue fails to show that the assessee had incurred a cost, it would be impossible to compute the income chargeable to tax under the head "Capital gains". By the Finance Act, 1987, with effect from April I, 1988, the amendment to Section 55 of the Act only ropes in taxability of goodwill on transfer of the same even if there is no cost of acquisition. Similarly, Section 55 has been amended from time to time to enable the taxation of other assets wherein no cost of acquisition is envisaged. Therefore, even if the amendment is taken into consideration Section 55 can be invoked in cases of nil cost of acquisition for the purpose of bringing to tax the entire sale consideration only in relation to the specified assets.
The assessee inherited a property known as "Ranjit Vilas Palace" along with appurtenant and adjacent lands situated at Rajkot on the death of his father, on November 9,1973. For the assessment years 1974-75 to 1977-78 certain tax demands along -with estate duty payable on the death of his father were outstanding against the assessee. To effect recovery of these outstanding dues the Income-tax Department attached 22,059 scj. yds. of vacant land on February 1,1983. 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 March 21,1983 and March 22,1983. 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 of taking into consideration the scheme of the Act. Under the Act both short-term capital gains and long-term capital gains are chargeable to tax but the treatment thereof is different. In the present case, admittedly, the assets had been acquired by a mode of acquisition specified in Section 49(1)(iii) (a) of the Act and thus the asset in question was a long-term capital asset but neither the cost nor the date of acquisition were ascertainable. The income-tax authorities were not right in working out the capital gains at Rs. 41,11,414 so as to bring the same to tax under the head "Capital gains".
It was pleaded that facts and circumstances are almost identical, as in assessees' cases also the dates of acquisition are unascertainable as the land though was granted prior to codification of "AO" and thus in the hands of original allottees being unascertainable, ratio of judgment is fully applicable.
(b) Sunil Siddharthbhai v. CIT 156 ITR 509 (SC) for the proposition that right to get share from time to time during the subsistence of partnership and to get the value of share in net partnership assets on dissolution or retirement being impossible for evaluation at the time of bringing the assets into partnership, such consideration cannot come into computation under Section 48 and is, therefore, outside the scope of Section 45.
(c) CIT v. H.H. Maharaja Sahib Shri Lokendra Singhji 162 ITR 93 (MP) and CIT v. H.H. Lokendra Singh 227 ITR 638 (MP) - for the proposition that tax on capital gains arises only in respect of those capital assets involving cost of acquisition. Capital gain tax is not leviable where the element of cost is inconceivable, Jagir property which was gifted to assessee's ancestor, there was no cost of acquisition in the hands of assessees. Sale of part of Jagir property by the successor assessee, no capital gain can be charged as cost of acquisition was not ascertainable. Fair market price cannot be taken into consideration.
(d) CIT v. Pushpraj Singh 232 ITR 754 (MP) - in this case on similarly issue, the case of CIT v. H.H. Maharaja Sahib Shri Lokendra Singhji (supra) capital gains were held to be not chargeable in similar circumstances, i.e. where cost of acquisition was not ascertainable.
(e) CIT v. Markapakula Agama 165 ITR 386 (AP) - for the proposition that rent paid to landlord did not constitute consideration for protected tenancy.
(f) Baroda Cement & Chemicals Ltd. v. CIT 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 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 possession, exploiting usufruct and enjoying the property, were owners for all practical purposes.
15. Learned Counsel, Shri J.P. Shah for the intervener, Shri Krishnakumar R. Parmar contends that occupancy right cannot be held as tenancy right. Reference was made to Section 18(1) of the above Land Reforms Regulation. Further, reference was made to D&NH Land Reforms Administration Regulation, 1971 (Act No. 2 of 1971) Section 34, 42 and 79 for the proposition that these rights are inheritable and transferable and with the permission of Collector can be converted for non-agriculture purpose and holding was allowable for partition in case of legal exigencies. To sum up, learned Counsel contends that word "occupancy" referred in the above Land Revenue Administration Regulation, 1971 and Land Reforms Regulation, 1971 clearly gives no right of tenancy but amounts to right of ownership granted to assessees which is allowable for sale, lease, exchange, mortgage and alienate by another either legal mode subject to permission. Reliance again was placed on B.C. Srinivasa Shetty (supra).
16. Learned Counsel, Shri S.N. Soparkar appearing for Ramaben M. Parmar as intervener also referred to D&NH Land Reforms Regulation (Act No. 3 of 19710 and reference was made to Section 2(7), 2(24), 2(40) and 28 and referred to Chapter-II, III & IV and VII and to Sections 2(23), 2(24), 2(25) and 2(4), Section 28, 32 to 36 of Regulation (No. 2 of 1971) and contended that what has been envisaged by new Land Reform Administration Regulation and Land Reform Regulation was conferment of occupancy rights in place of Alwara rights and combined reading of the provisions clearly establish that what has been conferred on these assessees are not tenancy rights (which are specifically excluded) but are ownership rights without any doubt. Reference was made to Section 105 of Transfer of Property Act to make out a point that grant of land in question to assessees does not conform to meaning of lease provided by the T.P. Act.
17. Bench drew attention of the learned Counsels towards Hon'ble Supreme Court judgment in the case of CIT v. D.P. Sandu Bros. Chambur P. Ltd. and Ors. 273 ITR 1 (SC) and to explain that since the assessees derived new rights by way of surrendering old rights and there were provisions in the land Regulation Act mentioned above about compensation to be paid in case of 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 CIT v. Mandharsinhji P. Jadeja (supra) in that case lands were acquired by conquest, dating long back in history. In the assessees' case also fore-fathers 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 provisions i.e. Sections 4 and 18 goes to show that these assessees are not owners of the land but are occupants and lessees only, therefore, rights enjoyed by these assessees are not ownership but only as tenants. Surrendering/sale of tenancy right is capital gains liable to be charged under the head capital gains. Since the cost is admittedly nil, by virtue of amendment to Section 55 w.e.f. 1-4-1995, the cost of acquisition of tenancy right has to be taken as "nil". The AO has rightly brought to tax entire consideration from sale of such tenancy right as long term capital gain.
19. Further reliance was placed on Sajjansinh N. Chauhan v. ITO 73 ITD 38 (Ahd), in this case Tribunal has considered cases of H.H. Maharaja Sahib Shri Lokendra Singhji, 162 ITR 93 (supra), CIT v. Pushpraj Singh (supra) and MP Jadeja, 201 ITD 121 (Ahd) and held that additional compensation received by the assessees was chargeable to capital gains tax. In this case original compensation was granted in respect of erstwhile Jagir acquired by government. In respect of additional compensation similar pleas were raised about non-ascertainability of cost, but Tribunal held that additional compensation was liable to tax. Learned DR vehemently relied on Ahmedabad Tribunal decision in the case of Shri Naroz J. Wadia (supra) holding that Alwara rights were tenancy rights after considering all the relevant provision.
20. Learned DR alternatively contended that observations and findings of Hon'ble Supreme Court in the case of D.P. Sandh Bros. Chembur P. Ltd. (supra) and A.R. Krishnamurthy v. CIT (supra) lay down the proposition that cost of acquisition of assets is ascertainable and is a question of fact. In the case of D.P. Sandu Bros, (supra), department itself has pleaded that cost was unascertainable, therefore, Hon'ble Supreme Court did not explore the matter further. However, considering both these cases, it is clear that endeavour should be made on factual terms to see whether the cost is ascertainable. In this background, attention was drawn to Section 13 in Chapter-IV of the Land Reforms Regulation (Act 3 of 1971) which is as under:
13. (1) There shall be paid compensation in respect of every land which vests in the Government under Chapter II:
Provided that no such compensation shall be payable to an Alwara holder or a Terem-holder for any land in respect of which occupancy rights are deemed to have been granted to the Alwara-holder of 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 granted to any person Chapter II.
(4) Where -
(i) occupancy rights in respect of any grass land are deemed to have been granted to any person under Clause (b) of Sub-section (1) of Section 4 and such occupancy rights subsequently stand forfeited to the Government under Clause (c) of Sub-section (2) of that section;
(ii) occupancy rights in respect of any land or part thereof or any farm building on such land are deemed to have been granted to any person on the vesting date and such occupancy rights subsequently cease to be effective under Clause (ii) of Sub-section (5) of Section 4.
Then, there shall be paid compensation to the person who is divested of such occupancy rights, and the compensation so payable, in either case, shall be an amount equal to the compensation which would have been payable to such person had no such occupancy rights been deemed to have been granted to him on the vesting date.
(5) Where on the vesting date, there is any building or other structure on any land in respect of which an Alwara or a Terem has been granted and in respect of which compensation is payable under this section, the compensation so payable shall be increased by an amount equal to the value of such building or structure which may be determined by the prescribed authority in accordance with such rules as may be prescribed.
21. A perusal of Section 13, he submitted, clearly reveals that in consideration of Alwara rights, D&NH administration visualized various contingencies i.e. cases where Alwara holder did not want grant of new land rights under new land regulations, they were given suitable compensation as provided by Section 13. Cases where some structures/buildings were there, compensation was to be increased by suitable amount to be value of such building as may be determined by such authority. Section 13 of this Regulation clearly postulates that cost of these rights was clearly ascertainable. What has been given to the assessees is not Alwara right, but a new right, if the assessee was not interested in acquiring these rights, government was willing to pay proper compensation. Alwara rights ceased to exist and new rights were granted, therefore, the cost of land of new rights under Regulation clearly carries a value which can be worked out according to the procedure and method prescribed by Section 13. Therefore, it is 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 clearly applicable. In case these rights are held to be not in the nature of tenancy rights then in that case, cost of acquisition being clearly ascertainable, ratio of B.C. Srinivasa Shetty (supra) does not apply to assessees' case. He also referred to two decisions of Bombay High Court as relied upon by the AO 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 a Terem-holder and which vests in Government under Section 3 shall be deemed to have been granted to the Alwara-holder or the Terem-holder, as the case may be, and nothing in this Regulation, except the provisions contained in Sections 21, 22, 44, 45, 46, 47 and 48, shall be applicable to such land or to any matter connected with such land;
(b) any grass land capable of being used for the purpose of agriculture (including the sites of farm-building, if any, on such land) which vests in Government under Section 3 and which on the vesting date, is in the possession of an Alwara-holder or a Terem-holder or a tenant shall be deemed to have been granted to the Alwara-holder or the Terem-holder or the tenant as the case may be, subject to the conditions specified in Sub-section (2);
(c) any other land which vests in Government under Section 3 and which, on the vesting date, is under the personal cultivation of an Alwara-holder or a Terem-holder or a tenant (including the sites of farm-buildings, if any, appertaining to such land which on the said date is in his possession) shall, subject to the provisions of this Regulation, be deemed to have been granted to the Alwara-holder or the Terem-holder or the tenant, as the case may be;
Provided that nothing in this sub-section shall apply to -
(i) any forest land; or
(ii) any agricultural land which falls within the limits of a village site; or
(iii) any agricultural land possessed by an Alwara-holder or a Terem-holder or a tenant in excess of the ceiling area; or
(iv) any land in relation to -which an application has been made under Section 7 of the Free Dadra and Nagar Haveli Tenancy and Agricultural Lands Ordinance, 1961, for so long as such application has not been finally disposed of.
(2) The conditions referred to in Clause (b) of Sub-section (1) shall the following, namely:
(a) that at the end of two years from the vesting date, the Alwara-holder or the Terem-holder or the tenant, as the case may be shall not possess grass land the extent of which is in excess of one-fourth of the extent of agricultural land possessed by him on the vesting date;
(b) that the grass land, the extent of which is in excess of one-fourth of the extent of agricultural land possessed by the Alwara-holder of the Terem-holder or the tenant, as the 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 of two years from the vesting date, stand forfeited to the Government free from all encumbrances and the provisions of Sections 5, 21 and 22 shall apply to such land.
(3) Notwithstanding anything contained in Sub-section (2), if the Administrator is satisfied that having regard to the nature of any grass land, it is not practicable of bring such land or any part thereof under cultivation in accordance with the provisions of Sub-section (2) he may, by order, for reasons to be recorded in writing, exempt such land or part thereof from the operation of that sub-section and thereupon occupancy rights in such land shall be deemed to have been granted to the Alwara-holder or the Terem-holder or the tenant, as the case may be, as if he has fulfilled the conditions specified in Sub-section (2).
(4) For the purpose of Clause (c) of Sub-section (1), where an Alwara-holder or a Terem-holder, being a person under disability, has leased out any land possessed by him as such or any part thereof to a tenant, such Alwara-holder or Terem-holder, as the case may be, and not the tenant shall be deemed to have personally cultivated such land or part thereof if, -
(i) immediately before the time of granting the lease, such land or part thereof was under his personal cultivation;
(ii) at the time of granting the lease, there was no male member in his family who could undertake the personal' cultivation of such land or part thereof; and
(iii) at the time of granting the lease, he was a person under disability and continues to be so upto an inclusive of the vesting date.
(5) Notwithstanding anything contained in Sub-section (1), -
(i) where at the commencement of this Regulation there is a dwelling house on any land referred to in Clause (b) or Clause (c) of Sub-section (1), but not being land covered by the proviso to that sub-section, and such dwelling house together with the land appurtenant thereto is in the occupation of a cultivator or an agricultural labourer or a village artisan, then, the occupancy rights in respect of such dwelling house and the land appurtenant thereto shall be deemed to have been granted to the person in such occupation;
(ii) where a tenant possessed any land under his personal cultivation and the site of any farm-building on such land on the appointed day but not so on the vesting 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 Alwara right under the OA 1963, which stood abolished by Section 3 of the 1971 Regulation, which reads as under:
3. Notwithstanding anything contained in any law for the time being in force or in any custom or usage or in any agreement settlement, grant, Alwara, Terem or other instrument or in any decree or order of any Court or other authority, with effect on and from such date as the Administrator may, by notification in the Official gazette, appoint (hereinafter referred to as the "vesting date") all concessions granted in respect of any land held under an Alwara or Terem shall stand extinguished and such land shall vest in the Government free from all encumbrances, and be subject to the rights, if any granted in respect thereof under this Chapter.
24. A plain reading of these two provisions 3 and 4 of the 1971 Regulation reveals that all concession granted under OA stood extinguished and the lands vests in Government, free from all encumbrances subject to rights to be granted under the new Regulations and new rights called "Occupation of rights" are granted instead Under Section 4 of 1971 Regulations aforesaid.
25. One of the suggestions was that the there is no difference in erstwhile-Alwara rights under the OA 1963 and Occupation rights 1971 Regulations and the same rights continued without any difference in substance and contents. Reference in this connection was made to the two decisions of Bombay High Court arising under OA, 1963 - one in the case of Ratilal Chunilal Shah in Special Civil Application No. 2080 of 1969 and Others order dated 17th July, 1973 wherein Alwara rights of the assessees were sought to be rescinded under Article 12 of the OA and in dealing with the Alwara rights, the Bombay High Court observed as under:
Paragraph No. 4:- Article 1 of O.A. declares that all the immovable property situated in Nagar Haveli, ownership of which does not belong to any individual person or a Corporation or Association, belongs to the Sate by virtue of Article 1 of the Decree-Law No. 3602 of 24th November, 1917. Although the translation which is filed along with the petition mentions the word "Ownership", in the Portuguese language the word is "propriedade", the dictionary meaning of which is "property". The Article is therefore comparable to Section 37 of the Bombay Land Revenue Code, 1879 and Section 20(1) of the Maharashtra Land Revenue Code 1966 which 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 O.A. 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 A.O. 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 "Concession". The dictionary meaning of Portuguese into English called "Novo Diocionario Portatil Das Linguas Portugueza E Inglezo Vo.l by Vieyra " gives its meaning as "Concession". The very author in his New Pocket Dictionary of the Portuguese and English languages has given the meaning of "grant" also as "Concessao ". But having regard to the general provisions of O.A. we find that O.A. in pari materia with the land Revenue Code in Bombay. It deals with the various matters relating to land Revenue administration of the Colonial Government of Portugal. It shows that what is really meant by the word "concessao " is in fact a "Grant" as it is understood under the Crown Grant Act or under the Bombay Land revenue Code.
Paragraph No. 6:- Article 6 in Chapter VIII lays down that certain properties cannot be given to private Citizens by way of concessao, for instance, urban property for public use, easements for public use, land meant for public use, land kept separate for agricultural farms, forest nursery or any other plantation by State, Streets, ways lanes, roads, bridges etc. Article 7 to 33 deal with terms and conditions of the grant which can be made and are described in Portuguese as "Condicoes de aforamento " which according to the dictionary means "conditions or estate and the act of the giving or taking land for a yearly rent". In the translation which is supplied to us, it is translated as "terms and conditions of concession". In the impugned order at Ex.A annexed to the petition it is referred to as "contract of aforamento meaning as an Alvara under which the land is granted on payment of annual rent". Article 7 deals with contracts of aforamentos and lays down that the rent shall always be in cash; that the contract shall be made administratively, and in case of default in payment of rent, the State had a right to the produce of the land by virtue of Article 880 of the Civil Code. It casts a duty on the grantee of the land to preserve ways, tracks and other existing easements and not to destroy them without the permission of the Governor General. Article 8 lays down that the rent shall be payable from the 1st of November to the 31st of March, every year at the office of the Revenue Department. Article 9 empowers the imposing of Conditions to planting of trees and other types of agriculture in the interest of the National condition of the grant. Article 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 O.A. 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 alvara 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 O.A. These rights include the right to transfer property or mortgage the property. Such rights could not be taken away arbitrarily. The petitioners could not be deprived of these lands without even giving a hearing to them. Moreover, we accept the contention of Mr. Limayo that the words "duty proved" contained in Article 12 show that a fair enquiry is contemplated under that Article before an Agreement is rescinded The authority like the Collector vested with the discretionary power must be held to be under an implied duty to observe the principles of natural justice before he acts or decides, because he must in the first place ascertain the truth in regard to the breach of the terms of the alvara and Article 12.
26. Another decision is in the case of Sitabai in Special Civil Application No. 2289 of 1969 order dated 18th July, 1973, wherein the High Court observed with regard to Alwara right, as under:
3. Yesteryear we considered the entire scheme of O.A. and held in Special C.A. No. 2080 of 1969 and other cases that it is similar to the Land Revenue Code in Bombay and the concessao or aforamento or Alwara is nothing more than a grant which is given in respect of occupancy rights. Mr. Limaya submitted that as the occupant holders, the petitioners had full rights of using the land, cultivating the land, transferring the land, mortgaging the land or leasing them, these rights could not be acquired for public purpose without payment of compensation having regard to the provisions of Article 31(2) of the constitution of India. He submitted that the conditions laid down in Article 31(2) of the Constitution of India had not been fulfilled by the Administrator in proceeding to expropriate the lands under Article 27 without issuing a notification under Section 4 of the land Acquisition Act.
18. The contention of Mr. Advani is that Article 1 of the O.A. declares that the State is the owner of all those lands which are not vested in others. It may be that the State had right to forfeit the Alwara grants, but to the extent that the rights were given to the petitioners to use, cultivate, transfer, mortgage or sell them, they had very important interests in the lands which could not be taken away by the State without the authority of law.
21. Under Article 2 of the O.A. the lands are divided into three parts; (1) Lands for hamlets or that which is intended for that purpose and its suburbs, (2) agricultural lands, and (3) forest lands. Article 5 provides that the agricultural lands may be granted, (1) by any 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 rights. The word "Concessao " does not mean the same thing as "concession " in the Portguese system. Having regard to these provisions in O.A. it must be held that "Concessao " under the Alwara aforamento granted "Occupancy rights". Concessao may mean concession; but it also means "Grant" as it is derived from the Latin word "Concessio" or "Concession" which has the meaning of "grant" as stated in "Latin for Lawyers". Even Article 12 of the O.A. which has dealt with in the other case decided by us shows that the Imperial Government of Portugual had enacted OA with a view to bring the lands into cultivation. Article 12 empowers the Revenue Authorities to rescind Alwaras which are described in Article 7 as "contratos decision aforamentos" or contract by perpetual lease if the lands are not cultivated as mentioned in that Article. It is enough to say that although the word "concessao " may mean concession, what is actually granted as concessao is not a licence to the petitioners but "occupancy rights" right to cultivate, right to transfer, right to mortgage and right to continue in peaceful possession of lands.
27. Alwara rights as explained by the Bombay jurisdictional High Court, if compared with the present Occupancy right under Section 4 of the 1971 Regulation gives an impression that these rights are similar in substance and contents viz., both the holder of these rights are entitled to cultivate lands and to use land in any way they like subject to certain conditions mentioned in the respective statutes, including the right to transfer of property or mortgage the property and burden it with easements.
28. We also find that assessees in these present cases have obtained necessary permission under the Rules, excerpt of one of these orders in this behalf is as under:
...After considering full facts and circumstances of the case and recommendations of the various authorities for grant of N.A. permission, I am of the view that there is no objection if permission is granted for N.A. use and sale for industrial purposes. Therefore, in view of the facts mentioned above and in exercise of the powers conferred upon me Under Section 42 of the Dadra & Nagar Haveli Land Revenue Administration Regulation, 1971 and Rule 17(2) made thereunder, permission is hereby granted to above mentioned land owners to sell their respective land of village Umarkul shown 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.
(underline by us)
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 tenants and shall be deemed to have been personally cultivating such land or part thereof.
30. Section 4(6) of the Regulations defines scope of occupancy right including transfer by way of sale, lease, mortgage, interest or otherwise, though in accordance with such rules made in this behalf. Similarly, clause-(7) of Section (4) provides that if occupancy right holders transfers any land in contravention of provisions of Sub-section-6, it shall be void and the occupancy rights in respect of the land so transferred shall stand forfeited to the Government. Section 5 again makes a difference between occupancy right and temporary lease. It provides that on and from vesting date, all lands which have vested in the Government under Section 3 and which are possessed by any person and in respect of which no occupancy rights are deemed to have been granted under Section 4 shall be possessed by that person as a temporary lessee under Government on such terms and conditions including payment of rent, as may be prescribed and any such land may be resumed by the prescribed authority in accordance with the provisions of this Regulation. Section 6(1) restore and re-attach rights of mortgagee with possession or other encumbrance where the occupancy rights in respect of that land are deemed to have been granted under Section 4 to the mortgagor. Section (10) provides effect of transfer and partitions after the appointed day and states that all transfers whether by way of sale, gift, mortgage with possession, exchange, lease, surrender or otherwise and all sub-divisions' whether by partition or otherwise are to be ignored.
31. From the above, 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 orders 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. Similar types of orders are there in other cases. These orders which have been duly acted upon by revenue authorities of D&NH clearly show that the assessees have been treated as owners for the purpose of sale of these lands and permission has been granted under 1971 Regulation. From the land records, it is clear 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 the Supreme Court decision in the case of Mysore Minerals (supra), 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 and Ors. case (supra) in which Alwara rights are held to be tenancy rights and by applying therefore provisions of Section 55(2) gains have been held to be liable for tax. In our considered opinion, the Tribunal has not appreciated a very vital fact that Alwara right ceased to exist way back in 1971. What was to be adjudicated was not the nature of Alwara rights, but the rights conferred on these assessees as per new Land Reforms Regulations in lieu of extinguishment of Alwara right. In our view Tribunal has adjudicated about the nature of Alwara right which may not be very relevant to the issue.
34. The term "tenant" has been defined in Section 2(29) of 1971 Regulation, as under:
2(29) "tenant" means a person who possesses land on lease, under an agreement, whether oral or written, and includes -
i) a person who is deemed to be a tenant under Section 41;
ii) a person who is a tenant within the mean of Sub-clause (o) of clause 2 of the Free Dadra and Nagar Haveli Tenancy and Agricultural Lands Ordinance, 1961;
iii) A Wavaledar; and
iv) A sub-lessee, but does not include an Alwara-holder, a Terem-holder and a temporary lessee under the Government referred to in Section 5.
Explanation - For the purpose of this clause "Wavaledar", in relation to any land, means 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;
35. What is lease is not defined under the Act. Its meaning, therefore, has to be ascertained from Transfer of Property Act, which defines word "lease". Section 105 of the Transfer of Properties Act defines a lease of immovable property as a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transfer by the transferee, who accepts the transfer on such terms.
36. Section 41 under which certain persons deemed to be tenants as under:
41.(1) Every person lawfully cultivating any land of another person shall be deemed to be the tenant of that land if such person is not -
(a) a member of the family of such other person; or
(b) a hired labourer or a servant on wages (payable in cash or in kind but not as a share of the produce) who 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 (o) 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(2) of "D&NH" Land Reforms Regulation 1971, therefore, erstwhile Alwara-right who have been granted occupancy right under New regulations are not be treated as tenant. It clearly reveals that tenant does not include an Alwara holder, meaning thereby that erstwhile Alwara holder's rights in respect of concessions granted under new regulation are not to be treated as tenant. In view thereof, we find merit in the arguments of learned Counsel that the holding of the assessees cannot be held as tenancy.
40. Be that as it may with regard to the rights to these assessees under OA 1963 or D&NH Regulations 1971, they are the rights of property and on transfer of the same a capital gain tax would arise Under Section 45 of the Act.
41. The assessees, however, wants shelter of the decision of the Supreme Court in the case of B.C. Srinivasa Shetty (supra) and contend that as there was no cost of acquisition, property cannot be subject to capital gain tax. The said decision of the Supreme Court was cited before jurisdictional High Court in the case of CIT v. Trikamlal Maneklal (supra), a decision referred to by the AO in his order and the Court at Pg.737 held as under:
We are fortified in this view by the observations of the Supreme Court in CIT v. B.C. Srinivasa Setty . The Supreme Court observed that all transactions encompassed by Section 45 of the Income-tax Act, 1961, had to fall within the governance of its computation provisions. The charging section and the computation provisions constituted an integrated code. What they contemplated was an asset in the acquisition of which it was possible to envisage a cost. The intent went to the nature and character of the asset, that it was an asset which possessed the inherent quality of being available on the expenditure of money to a person seeking to acquire it. It was immaterial that although the asset belonged to such a class, it might, on the facts of a certain case, be acquired without the payment of money. That kind of a case was covered by Section 49 of the Income-tax Act, 1961, and its cost for the purpose of Section 48 of the said Act was determined in accordance with those provisions. None of the provisions pertaining to capital gains suggested that they included an asset in the acquisition of which no cost at all could be conceived. Accordingly, 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 there under Section 49 for the property thrown into HUF hotchpot. This decision was followed by Bombay High Court in the case of CIT v. Kanubhai R. Shah (HUF) 201 ITR 1050 (Bom), again a case referred by AO in his order, and it was noticed that substituted cost under Section 49(1) was provided for the first time by inserting clause-(iv) w.e.f. 1-4-1976 by the Taxation Laws (Amendment) Act, 1975. The Court took value of cost of acquisition at 'Nil' for computing capital gain. A contention with regard to Section 55(3) was raised before the High Court which held that section has no application. In this case, assessee received the assets on partial partition from bigger HUF and the cost of acquisition in the hands of smaller HUF was taken at 'Nil'. Assessee raised a contention for taking market value to be substituted as cost of acquisition of the previous owner, but the court rejected the contentions by observing as under:
So far as the submission based on Section 55(3) of the Act is concerned, we find that the said provision has no application to the facts of the present case. Sub-section (3) of Section 55 applies only in cases where the cost for which the previous owner acquired the property cannot be ascertained. It is only in such cases that the cost of acquisition to the previous owner is taken to be the market value on the date on which the asset in question became the property of the previous owner. That is not the case here. It is not one of those cases where the cost in the hands of the previous owner cannot be ascertained. Admittedly, the cost in his hands is nil. That being so, there is no scope for taking resort to 'subsection (3) of Section 55 of the Act. That being so, the calculation of capital gain made in the instant case by the Appellate Assistant Commissioner and the Tribunal by taking resort to the said provision cannot be sustained.
44. The case of CIT v. B.C. Srinivasa Setty (supra) came up for consideration before Supreme Court in the case of CIT v. D.P. Sandu Bros. Chembur P. Ltd. 273 ITR 257, wherein the court observed that in that case court was considering whether consideration received for goodwill could be subjected to capital gains because the cost of its acquisition was inherently incapable of being determined and quoted following observations of Supreme Court in that case Pg. No. 300.
What is contemplated is an asset in the acquisition 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 this Court held that it cannot be said conceptually that there is no cost of acquisition of grant of the lease. It held that the cost of acquisition of leasehold rights can be determined. In the present case however, the Department's stand before the High Court was that the cost of acquisition of the tenancy was incapable of being ascertained. In view of the stand taken by the Department before the High Court we uphold the decision of the High Court on this issue.
46. In the case of A.R. Krishnamurthy v. CIT (supra) also Hon'ble Supreme Court has held as under:
Held, affirming the decision of the High Court, that the grant of mining lease was transfer of a 'capital asset' within the meaning of Section 45 of the Income-tax Act, 1961. The cost of acquisition of the land would include the 'cost of acquisition' of the mining right under the lease and the date of acquisition of the right to grant lease had to be the same as the date of acquisition of the freehold rights. The amount paid by the appellant to purchase the land was for acquiring a bundle of rights in the land including the right to grant a lease. The cost of acquisition had to be apportioned in each case on the basis of evidence. The determination of the cost of the right to excavate clay in the land in terms of money might be difficult but was none the less of a money value and the best valuation possible had to be made.
47. Hon'ble Supreme Court has held that ascertainment of cost is a question of fact implying thereby that it should be explored whether the same can be ascertained. It has not been held that if cost is "Nil" then the cost becomes unascertainable. Endeavour should be made to factually ascertain whether there is an ascertainable cost of the assets in question as conceptually it cannot be said that there is no cost of acquisition in grant of ownership rights also.
48. In these circumstances contention that there was no cost of acquisition, and therefore, there is no capital gain cannot be accepted.
49. Answer to the ascertainability of cost also clearly lies in Section 13 of the Regulation (Act No. 3 of 1971) which has been reproduced at para 14 while dealing learned DR's arguments. This section lays down clear parameters where Alwara right holders if do not prefer to get new occupancy rights formula of compensation has been prescribed. Existence of this machinery in the Land Regulations Rules establishes that cost of new rights being conferred was clearly ascertainable. 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 (supra) and other cases i.e.(a) Sunil Siddharthbhai v. CIT 156 ITR 509 (SC), (b) CIT v. Mandharsinhji P. Jadeja 281 ITR 19 (Guj), (c) CIT v. H.H. Maharaja Sahib Shri Lokendra Singhji 162 ITR 93 (MP) and CIT v. H.H. Lokendra Singh 227 ITR 638 (MP), (d) CIT v. Pushpraj Singh 232 ITR 754 (MP), (e) CIT v. Markapakula Agama 165 ITR 386 (AP), (f) Baroda Cement & Chemicals Ltd. v. CIT 158 ITR 636 (Guj) -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 assessees have sold capital asset as owners of land in question, cost of acquisition is clearly ascertainable, which is to be substituted by fair market value as on 1-4-1981 as prayed to be opted.
52. Even if we accept the view that Alwara rights and Occupancy rights are same in substance and contents as interpreted by the Bombay High Court in the two decision arising under OA, 1963, there would be no change insofar as the taxability of capital gain is concerned. These rights would be then held by the assessees as inherited from the fore-fathers and the cost of acquisition in the hands of the assessees would be that of the fore-fathers by virtue of Section 49(1)(iii)(a) of the Act providing that where capital assets become property of the assessee by succession, inheritance or devolution, cost of acquisition of the assets deemed to be the cost of which the previous owner of the property acquired. In view of the observations of the Bombay High Court in the two other cases cited above, the cost would be Nil in the hands of the previous owner so also in the hands of the present owner. It is, however, subject to the option to substitute the market value as on 1.4.1981 as given Under Section 55(2) of the Act, and therefore, the market value as on that date would be the cost of acquisition which has to be allowed as deduction with benefits of indexation cost to the assessee.
53. Again, if we accept the contention of the assessee that the cost in the hands of the previous owner was not ascertainable, the provisions of Section 55(3) would then come into force, which read as under:
Where the cost for which the previous owner acquired the property cannot be ascertained, the cost of acquisition to the previous owner means the fair market value on the date on which the capital asset became the property of the previous owner.
54. Therefore, the cost of acquisition in the hands of the fore-fathers of the assessee being the previous owner, if cannot be ascertained, is to be the fair market value on the date on which capital assets became property of the previous owner and in that case also the assessees would be entitled to substitute the fair market value as on 14, 1981 Under Section 55(2) of the Act and that has to be allowed as a deduction with benefit of indexation cost as aforesaid. In either of the situation, the result would be same.
55. We, accordingly, hold that the sale of Occupancy right is the transfer of capital asset and would be chargeable to capital gain tax subject to deduction of the market value of the rights as on 1.4.1981 with benefits of indexation cost as aforesaid.
56. In the result, the appeals stand partly allowed.
Order pronounced by us in Open Court on 27th October, 2006.