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Long Term Capital Gains - Disallowance of payment made to clear encroachers


Smt. Ujjawala Sitaram Baheti Versus Asstt. Commissioner of Income Tax, Circle – 1, Jalgaon and Vica-Versa

Computation of Long term capital gains (LTCG) - Disallowance of payment made to hutment dwellers for vacating the land - Held that:- These unauthorized occupants do not have permanent place of stay and they move from one place to another till the time they get place to settle down. Moreover, the dwellers were not personally known to the assessee. In such circumstances it is not prudent to expect from the assessee to produce the illegal occupants of land to whom payments were made. In so far as second objection is concerned the assessee has furnished a copy of title of civil suit filed in the Civil Court, Jalgaon. A perusal of same shows that the suit was filed against 19 defendants, if the assessee has included the name of some more persons in the list of unauthorized occupants to whom the payments have allegedly been made and the same are not verifiable, the Assessing Officer could have made reasonable disallowance rather than rejecting the claim of assessee in toto. The third objection is that there is no formal agreement with the slum dwellers. The Assessing Officer has observed that the receipts produced by the assessee are cyclostyled bearing only name and amount. We are of the considered view that when payments are made to encroachers/illegal occupants for vacating the land no formal agreement is required to be executed. The prime object of the owner of land is to seek the possession of land and ensure that land is free from encumbrances and encroachments. The assessee has produced receipts signed by some of the persons to whom payments have been made. The objection of the Department that receipts are on cyclostyled paper and lacks information is unwarranted. When the possession of land is retrieved from unauthorized occupants especially when they are hutment dwellers against some payment the details such as area occupied by each one of them is not relevant. Thus, the objections raised by the Department in disallowing the entire payment made to encroachers for vacating the land are not justified.

The assessee had jointly purchased the land with Shri Narayan S. Khadake, though the assessee had major share in the land. As per assessee own admission, the assessee has paid ₹ 7.80 lakhs out of ₹ 10.00 lakhs paid to encroachers. The remaining sum of ₹ 2.20 lakhs was contributed by Shri Narayan S. Khadake. Taking into consideration the entirety of facts we are of considered opinion that no disallowance on account of payment of compensation is called for. Accordingly, ground assessee is allowed.

Treating the profit from sale of land - Long Term Capital Gain or business income - Held that:- The documents on record show that the assessee has not indulged in sale-purchase of land/property. The assessee has purchased some properties over period of time starting from 1985 onwards. Except from the land in question the Revenue has not been able to show that the assessee has sold any other property or was dealing in land/property. The ld. DR has not been able to controvert the findings of the first appellate authority. In our opinion the findings of Commissioner of Income Tax (Appeals) are well reasoned and justified. We concur with the same. No other issue has been raised by the Department in appeal. Accordingly, the appeal of the Revenue is dismissed.

Article referred: Tax Management India.com

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