COMMISSIONER OF INCOME-TAX VS VITHALBHAI P. PATEL, 2000 PTD-GUJARAT-HIGH-COURT-INDIA 2516 (1998)

Income-tax---

----Capital gain---Assessee selling lands coming to his share on partition and filing return showing capital gains on such sale ---ITO finding that assessee had sold 105 plots and working out capital gains and adding same to total income of assessee---Sale ab initio null and void as per order of Collector in view of S.4 of Gujarat Vacant Lands in Urban Areas (Prohibition of Alienation) Act, 1972---Order of Collector not challenged---No transaction of sale in eye of law---Sale not liable to tax on capital gains---Indian Income Tax Act, 1961; S.45.

In respect of the previous year relevant to the assessment year 1974-75, the assessee filed a return on October 31, 1974, and a revised return on January 28, 1977, and claimed that he had sold lands coming to his share on partition and included the capital gains on such sale in his return. The Income-tax Officer found that during the year under consideration, the assessee had sold 105 plots out of Survey No.23 and working out the long term capital gain at Rs.32,533 added the same in the total income of the assessee. The Appellate Assistant Commissioner held that as per the order, dated March 27, 1975, of the Collector of Surat the said sale was null and void, in view of the provision of section 4 of the Gujarat Vacant Lands in Urban Area (Prohibition of Alienation) Act, 1972, which prohibited alienation of land in any "vacant area' after the commencement of the Act, by way of sale, gift, exchange, etc., and that when the sale was void, there was no transfer and hence, no capital gains arose out of any transfer. The Tribunal affirmed the order of the Appellate Assistant Commissioner. On a reference:

Held, that the sale was null and void under the provisions of section 4 of the Gujarat Vacant Lands in Urban Areas (Prohibition of Alienation) Act, 1972. The transaction in question was void ab initio and it was so declared by the Collector by his order, dated March 29,1975. The order of the Collector declaring that the sale transaction was null and void, was not challenged. Thus, as there was no sale transaction in the eye of law, there could be no capital gain arising out of a null and void transfer of such land. Therefore, the Tribunal was right in coming to the conclusion that no capital gain had accrued to the assessee.

Mihir Joshi, B. B. Nayak with Manish R. Bhatt for the Commissioner.

Manish J. Shah for the Assessee.

JUDGMENT

R. K. ABICHANDANI, J.---The Income-tax Appellate Tribunal, Ahmedabad, has referred the following question for the opinion of this Court under section 256(1) of the Income Tax Act, 1961:

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that no capital gains had accrued to the assessee merely by reason of the fact that the Collector of Surat had- declared the sale to be void?"

The relevant assessment year is 1974-75. The return of income was filed by the assessee on October 31, 1974, and a revised return on January 28, 1977, in respect of the relevant previous year. The assessee claimed that he owned 29 guntas of land of survey No.23,, which were partitioned on January 5, 1972. He, therefore, filed a return in respect of the capital gain on sale of land coming to his share. The Income-tax Officer found that during the year under consideration, the assessee had sold 105 plots out of survey No.23 and working out the long-term capital gain at Rs.32,533 added the same in the total income of the assessee. The Appellate Assistant Commissioner held that, as per the order dated March 27, 19975, of the Collector of Surat the said sale was null and void, in view of the provisions of section 4 of the Gujarat Vacant Lands in Urban Areas (Prohibition of Alienation) Act, 1972, which prohibited alienation of land in any "vacant area" after the commencement of the Act, by way of sale, gift, exchange, etc. It. was held that when the sale was void, there was no transfer and hence, no capital gains arose out of any transfer. The Tribunal taking note of the fact that the sale of land in question was null and void, which fact was not disputed, held that since there was no sale of land in question in the eye of law, there could be no capital gain arising out of a transfer. The order of the Appellate Assistant Commissioner deleting the addition was, therefore, upheld.

Admittedly, the purported sale was null and void under the provisions of section 4 of the Gujarat Vacant Land in Urban Areas (Prohibition of Alienation) Act, 1972. Under section 4 of that Act, it was provided that no person who owned any vacant land, shall on or after the appointed day, alienate such land by way of sale, gift, exchange, mortgage other than simple mortgage, lease or otherwise or effect a partition or create a trust of such land and any alienation made or partition effected or trust created in contravention of the said provision, shall be null and void. Therefore, the transaction in question was void ab initio and it was so declared by an order of the Collector made on March 29, 1975. Admittedly, the order of the Collector declaring that the sale transaction was null and void, was not challenged. Thus, since in the facts of this case as there was no sale transaction in the eye of law, there could be no capital gain arising out of a null and void transfer of such land. In this view of the matter, the Tribunal was right in coming to the conclusion that no capital gain had accrued to the assessee. The question is accordingly answered in the affirmative against the Revenue. The reference stands disposed of with no order as to costs.

M.B.A./4185/FCOrder accordingly.