2012 (7) TMI 634 - AT - Wealth-tax

Liability to Wealth tax on land as an asset within the meaning of section 2(ea) of the Wealth tax Act,1957 - assessee contested that the land along with the superstructure can be considered as residential house and therefore can be considered to be an exempted asset u/s. 5(vi) - that the assessee had purchased land measuring 3059.50 sq. mts. from five different parties and consolidated into one single final plot for commencing construction of residential house - Held that - On reading the provisions of Sec. 5(1)(vi), it becomes evident that exemption from wealth tax u/s. 5(1)(vi) is available in respect of one house or part of a house belonging to an individual or and Hindu Undivided Family. Exemption from wealth tax is also available to a plot of land comprising an area of 500 sq. mts or less as it is not considered as an asset within the meaning of section 2(ea). In the present case, the assessee is not entitled to exemption u/s. 5(1)(vi) of the Wealth Tax Act,1957, for the reasons that the house is not habitable in view of the fact that plastering, flooring, drainage and electricity is not done, doors and windows are not installed, the ceilings are in damaged condition. Even the English translated copy of the sales deed which has been signed by both, the sellers and the buyer, states that to use the house for residence, entire fresh construction will have to be put up. Thus present condition of the house in which it exists cannot be considered to be a habitable house. Since in the present case, the area of land is 3059.50 mts. which is in excess of the prescribed limit of 500 sq. mts and the house is incomplete, the assessee will not be entitled to deduction on the incomplete construction and accordingly the assessee would be liable to wealth tax on value of plot exceeding 500 sq.mts along with the cost of incomplete construction. The A.O. is directed to recompute the net wealth of the assessee accordingly. Thus this ground of the assessee is partly allowed. Challenge the authority of the A.O. to value the taxable asset - Held that - That the assessee has not filed valuation report along with the return nor was it made available to the WTO during the course of assessment. In such a situation the W.T.O. was left with no other option but to estimate the net wealth based on the material on record, thus the estimate made by the WTO is reasonable - against assessee.

Summary

Issues Involved:
1. Classification of the property as "vacant urban land" or "residential house" under Section 2(ea) of the Wealth Tax Act.
2. Eligibility for exemption under Section 5(vi) of the Wealth Tax Act.
3. Validity of the valuation by the Wealth Tax Officer (WTO).
4. Reference to the District Valuation Officer.

Detailed Analysis:

1. Classification of the Property:
The primary issue was whether the residential bungalow and the land in question should be classified as "vacant urban land" or as a "residential house" under Section 2(ea) of the Wealth Tax Act. The assessee argued that the property was a residential house, having constructed a ground floor and paid house tax since 1995-96. The WTO, however, assessed the property as land with incomplete construction, liable to tax under Section 2(ea) of the Wealth Tax Act. The Tribunal noted that the construction was not habitable, with no plastering, flooring, drainage, or electricity, and doors and windows not installed. Consequently, the property could not be considered a "residential house."

2. Eligibility for Exemption:
The assessee claimed exemption under Section 5(vi) of the Wealth Tax Act, which exempts one house or part of a house. The Tribunal, however, found that the property was not habitable, referencing the sale deed which described the property as "non-agricultural land" with incomplete construction. The Tribunal concluded that the property did not qualify for exemption as a residential house. However, it noted that if the building is under construction on land exceeding 500 sq. meters, the assessee is only entitled to exemption on the value of 500 sq. meters. The excess land and incomplete construction are not exempt.

3. Validity of Valuation by WTO:
The WTO had estimated the net wealth based on the material on record, as the assessee did not file a valuation report. The Tribunal upheld the WTO's valuation, stating it was reasonable given the circumstances. The valuation was based on a 15% appreciation in land value, which the Tribunal found to be a fair estimation.

4. Reference to District Valuation Officer:
The assessee challenged the authority of the WTO to value the taxable asset. The Tribunal noted that the value of an asset must be declared as of the relevant valuation date, and the WTO is required to estimate the net wealth if the assessee fails to comply with notice requirements. Since the assessee did not provide a valuation report, the WTO's estimate was deemed appropriate.

Conclusion:
The appeals were partly allowed. For assessment years 1999-00, 2000-01, and 2001-02, the Tribunal directed the AO to recompute the net wealth, considering the exemption for land up to 500 sq. meters and including the value of the incomplete construction. For assessment year 2003-04, the addition to wealth tax was deleted as the asset was sold during the year. The AO was instructed to examine whether the sale proceeds fell under the exempted category on the valuation date.