2017 (9) TMI 1607 - HC - Wealth-tax

Nature of land - whether property of the assessee at Shaikpet is an urban land is not an asset within the meaning of Section 2(ea) of the Wealth Tax Act 1957? - Held that - In an agreement for joint development of a property the owner merely agrees to part with 50% or whatever of his undivided share in the land so as to enable the builder to put up construction and handover an agreed percentage of super built area. Agreements for joint construction are not akin to agreement of sale though they may also contain conditions of sale. For the applicability of Section 53A of the Transfer of Property Act the act of handing over possession should have taken place in furtherance of the agreement of sale. The provisions of Section 53A are very clear. In cases of joint development neither the builder nor the owner can claim benefit of Section 53A of the Transfer of Property Act. Therefore Section 4(8)(a) of the Wealth Tax Act would have no application to the facts on hand. Hence the questions of law are answered in favour of the appellant/revenue.

Summary

Issues:
1. Whether the property at Shaikpet, Hyderabad, qualifies as an asset under Section 2(ea) of the Wealth Tax Act, 1957?
2. Whether the Tribunal correctly concluded that the property held by the assessee is not urban land as defined under Section 2(ea) based on an injunction order?

Analysis:

1. The respondent-assessee filed a wealth tax return for the Assessment Year 2009-2010, declaring a net wealth of ?1,86,620. The Assessing Officer determined the total wealth at ?7,34,12,780, considering market values of properties. The Commissioner of Wealth Tax (Appeals) partly allowed the appeal, confirming the wealth tax liability for a property at Shaikpet. The assessee appealed to the Income Tax Appellate Tribunal, claiming the property was stock-in-trade. The Tribunal disagreed, citing a prohibitory order preventing construction, leading to the current appeal.

2. Section 2(ea) of the Act defines "assets," including urban land. The definition excludes land where building construction is impermissible under current laws. In this case, a civil suit led to an interim order for status quo, barring construction. The Tribunal erred in assuming such orders fall under the exclusion clause. The Tribunal's decision was incorrect, and the property should be considered an asset under Section 2(ea).

3. The counsel for the assessee argued the property was stock-in-trade, but since the assessee did not appeal, this argument was not considered. Referring to a Gujarat High Court decision, the counsel claimed the appellate authority could pass orders beyond the grounds raised. However, this argument was deemed inapplicable to a second appeal under the Wealth Tax Act, limiting the scope of consideration akin to Section 100 of the Code.

4. The counsel further contended that under Section 4(8)(a) of the Wealth Tax Act, a person in possession of a building under a contract should be deemed the owner. However, in joint development agreements, possession does not confer ownership as in Section 53A of the Transfer of Property Act. Joint development agreements differ from sale agreements, and Section 53A does not apply in such cases. Therefore, the property in question remains an asset of the assessee, and the appeal is decided in favor of the Revenue.

5. Consequently, the Tribunal's decision was overturned, and the property at Shaikpet was deemed an asset under Section 2(ea) of the Wealth Tax Act. The miscellaneous petitions related to the case were closed, with no order on costs.