“The encroached property cannot be considered as an asset”: ITAT

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Tax must be paid even on illegally encroached property, as it would be considered “income from other sources,” although it would not be considered a “capital asset,” according to a court ruling.

A Mumbai bench of the Income Tax Appeal Tribunal (ITAT) ruled that property unlawfully encroached upon by an appraised person cannot be considered capital property under section 2 (14) of the Income tax law and, therefore, the gains resulting from the transfer of this property cannot be assessed as capital gains, but as income from other sources.

In the case, the appraised one Bhagwan T Fatnani had no legal rights to the disputed property in Ulhasnagar near the megalopolis, and the land was illegally encroached by the appraised for the 2008 appraisal year. -09.

The court, composed of judicial member Joginder Singh and accountant member D Karunakara Rao, ruled in a recent judgment that since the appraised had no right or legal title to the property, there was no question of owning a fixed asset. and, therefore, there was no question of any sale or transfer of fixed assets to claim the capital gains.

The tax service was represented by its commissioner Vijay Kumar Bora in the case.

The appraiser was neither the legal owner of the property nor had any document demonstrating a right or title to the illegally encroached upon land which was intended for a primary school in the city.

The appraisee argued that the word used is good of some kind. The court denied the appraised’s proposal and ruled that the intent of the legislation is any property that is legally acquired, otherwise anyone could own the Gateway to India in Mumbai or of the Red Fort in New Delhi showing these properties on their balance sheet and will claim capital gains.

The court blasted Fatnani for the sale of illegally acquired school land and compared whether the Red Fort and the India Gate can be sold on paper.

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