2012 (6) TMI 167 - HC - Wealth-tax

Assets under wealth tax - Assets was allotted to the assessee but was not transferred in favor of assessee during the period - Whether ITAT was right in holding that the land was occupied by the assessee itself, particularly when it had shown substantial amounts of rental income as derived from the leasing of sheds constructed on the land in question - Held that - assessee, in the present case, was allotted the land by the State Government. It constructed shops thereupon and rented out the same and derived income therefrom. The sheds were therefore under the domain and control of the assessee. Even if legal ownership had not passed to the assessee the property in question belonged to it. The assessee was deriving rental income and collecting the same which itself shows that it was the assessee to whom the property belonged. assets in question should be deemed to belong to the assessee and these assets are liable to be included in the assets by the assessee. Clause (iii) of Section 2(ea) indicate that the house to be exempt must be in the occupation of the assessee for the purpose of any business or profession carried on by him. Keeping in view the language of the Section it cannot be said that the assessee was in possession through the tenants. Decided in favour of the Revenue and against the Assessee.

Issues:
1. Whether the land was occupied by the assessee itself despite showing rental income from leasing sheds on the land.
2. Whether the ITAT was right in deleting the addition on the ground that no wealth tax was levied in the preceding and succeeding years.
3. Whether the ITAT was right in equating occupation of the asset with ownership or holding.

Detailed Analysis:

Issue 1: Occupation of Land by the Assessee
The primary question was whether the land and sheds constructed thereon were occupied by the assessee itself, despite the assessee showing substantial rental income from leasing these sheds. The court noted that the assessee, a State Small Industries and Export Corporation, had been allotted land by the State, constructed sheds, and rented them out to industrialists. The income from these sheds was included in the assessee's annual income but not shown as 'assets' in the wealth tax return. The Assessing Officer added the value of this property to the wealth tax assets of the assessee, a decision upheld by the Commissioner (Appeals). The ITAT, however, held that the property could not be treated as the assessee's assets since it was only transferred to the assessee in 2003. The court, referring to Sections 2(ea) and 4(1a) of the Wealth Tax Act, 1957, emphasized that the term 'belonging' has a broader connotation than ownership, implying that the property should be deemed to belong to the assessee even if the legal title was transferred later. The court concluded that the sheds were under the domain and control of the assessee, and thus, belonged to it.

Issue 2: Deletion of Addition Based on Preceding and Succeeding Years
The second issue was whether the ITAT was correct in deleting the addition on the grounds that no wealth tax was levied in the preceding and succeeding years, especially considering the principle of res judicata does not apply to income tax proceedings. The court highlighted that the ITAT's reliance on the absence of wealth tax in other years was misplaced. The court referenced the judgment in Nawab Sir Mir Osman Ali Khan v. Commissioner of Wealth Tax, which clarified that legal ownership is crucial for deeming an asset to belong to the assessee. However, in this case, the court found that the property was under the assessee's control and domain, and thus, should be included in the wealth tax assets, regardless of the tax treatment in other years.

Issue 3: Equating Occupation with Ownership
The third issue was whether the ITAT was correct in equating the occupation of the asset with ownership or holding. The court noted that the term 'belonging to' in the Wealth Tax Act has a wider meaning than ownership. The court referred to the Full Bench judgment of the Andhra Pradesh High Court in Nawab Mir Barkat Ali Khan v. Commissioner of Wealth Tax, which interpreted 'belonging to' as including properties under the domain and control of the assessee, even if legal ownership had not been transferred. The court also cited the Supreme Court's judgment in CIT v. Podar Cement (P.) Ltd., which distinguished between legal ownership and practical control for tax purposes. The court concluded that the property, being under the assessee's domain and generating rental income, belonged to the assessee and should be included in the wealth tax assets.

Conclusion:
The court answered all questions in favor of the Revenue and against the assessee. It set aside the ITAT's order and restored the Assessing Officer's order as confirmed by the Commissioner (Appeals). The court emphasized that the property in question belonged to the assessee and should be included in the wealth tax assets, irrespective of the legal title transfer date or the tax treatment in other years.

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