Tuesday, March 28, 2017

Wealth Tax - Whether land occupied by building which is under construction appro

 

Wealth Tax - Whether land occupied by building which is under construction approved by municipal authority, is to be excluded for purpose of wealth tax, within the meaning to be given to urban land - NO, rules ITAT

MUMBAI, DEC 30, 2011: THE issue before the Bench is - Whether the land occupied by building which was under construction and development and approved by the municipal authority, can be excluded from wealth tax, in terms of the meaning to be given to urban land. And the answer is NO.

Facts of the case

The individual assessee, his late mother and his brother - each owned one-third share of a property, a vacant land, at Dahisar. A portion of this property had been given to realtors under a development agreement and construction activity was going on in the property. The realtors were constructing a building on the land owned by the assessee with the approval of the appropriate authority. Construction was in progress for the various assessment years.

The property was valued by the valuation officer for each of these assessment years. The assessee, without challenging the DVO's valuation, however, reduced the areas while computing the value of the assets in the computation of the wealth. As per the assessee's submission, according to the definition of urban land in the Wealth Tax Act, "land which was occupied by any building which had been constructed with the approval of the appropriate authority was not to be included as taxable urban land. Thus the assessee sought to exclude the areas of land occupied by the building which was under construction by the developers.

The WTO did not deal with the assessee's submission. Instead the AO imposed a penalty against the assessee for not furnishing the correct valuation of the property at Dahisar.

The WTO also noticed that the assessee had not disclosed in the return of wealth, the purchase of land at Andheri for investment. The assessee accepted its inclusion in the total value. But the WTO imposed a penalty on the land owned by the assessee at Andheri.

In the assessee's appeal, relating to the area of land to be considered as "asset" under the Wealth Tax Act, the CWT(A) rejected the assessee's contention. The CWT(A) held that "what could be excluded from `Urban Land' was the valuation of land on which the building had already been completed in the immediate past with the approval of the Appropriate Authority. In this case, the building was in progress and could not be said to be covered by the expression "has been constructed" and hence it could not be excluded from "urban land" for the purpose of exigibility to Wealth-tax. The CWT(A) also upheld the penalty imposed against the assessee.

In appeal by the assessee, the Tribunal held that,

++ the issue was no longer res-integra and had been considered and decided by the Karnataka High Court. In an identical case, the Karnataka High Court after referring to the definition of the term "Asset" and "Urban Land" as given in the Wealth Tax Act, 1957 held that building in the process of construction could not be understood as a building which had been constructed. Constructed would mean "fully constructed" If buildings under construction were to be excluded, then "neither the owner nor the builder nor the occupant would pay any tax to the Government in terms of the Wealth-tax Act." This High Court thus held that urban land would include "land occupied by any building which has been constructed", since that would fulfil the intention of the Legislature." The High Court had also referred to the decisions of the Orissa High Court and the apex court in which the apex court had ruled that "the word "buildings" had to be given its literal meaning as something, which was built, and the expression "belonging to assessee" was held to be equivalent to legal ownership. Thus the Karnataka High Court held that land on which building which was being constructed and not completed could not be excluded from the definition of "Urban Land";

++ following the decision of the Karnataka High Court, the CWT(A)'s decision was in accordance with the various decisions considered by the High Court and had to be upheld. The land continued to remain with the assessee's as the lawful owners on which the construction of the building was not completed. Therefore the claim of the assessees to exclude the land over which construction of the building was in progress by the developer could not be accepted. Consequently all the appeals by the assessees were dismissed;

++ regarding penalty in respect of valuation of property at Dahisar, the decision of the Karnataka High Court by its order dated March 2007, was later in point of time to the filing of return by the assessee. Thus, the view of the assessee was not an untenable view and could not be said to be totally unjustified. Therefore, the penalty could not be imposed on the assessee on the ground of suppression by incorrectly valuing property at Dahisar;

++ regarding penalty on the value of property at Andheri, the assessee's explanation that on being apprised of his purchase of rights in this property, he had accepted its inclusion in the total value, could not exonerate him from imposition of penalty. No valid reason had been assigned as to why this item of asset was not included in the net wealth by the assessee. The imposition of penalty in respect of this property was therefore justified.

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