2014 (1) TMI 317 - AT - Wealth-tax

Valuation of property - Enhancement in valuation - Land converted from small scale industrial use to 20% residential use - Whether converted land is liable for wealth tax - Held that - there is no need to tax 20% of the property as taxable asset. Admittedly, the land owned by Assessee company admeasuring 29015.77 sq.mts. is not free land and it consisted of 18 buildings, which are being utilized by Assessee for its offices/ business purposes for many years. Just because, Assessee obtained permission from Govt. of Karnataka for change of land use and subsequently entered into agreement for development cannot be considered as change in nature of property. Obviously till the old buildings are demolished or any new buildings came up on the land, Assessee was continuing to use the building and the land for the purposes of office/business purposes. Therefore, considering 20% of the proposed conversion of land use cannot be taken as an asset under the definition of asset in the Wealth Tax Act. Since the property is being used for Assessee s business, it is certainly exempt from Wealth Tax - agricultural land being used for Assessee s business operations cannot be brought to tax as only unused urban land can be brought to tax for the Wealth Tax purposes as per the Explanation (1)(b) of section 2(ea) of the WT Act - Decided against Revenue.

Summary

Issues:
1. Valuation of land at Bangalore and residential flats for wealth tax purposes.
2. Exclusion of properties used for business purposes from wealth tax assessment.
3. Valuation of agricultural land for wealth tax assessment.

Analysis:
1. Valuation of Land at Bangalore and Residential Flats:
- The Assessee, a company engaged in manufacturing and trading, contested the additions made by the Assessing Officer (AO) regarding the value of land at Bangalore and residential flats for the assessment years 2002-03 and 2003-04.
- Regarding the land at Bangalore, the Assessee had sought permission for conversion from industrial to residential/commercial use. The AO included 20% of the land's value for wealth tax assessment, which the Assessee challenged, arguing that the property was used for business purposes and should be exempt.
- The Appellate Tribunal agreed with the Assessee, stating that until the property's nature changed significantly, it should not be considered a taxable asset. The Tribunal directed the exclusion of the property from wealth tax assessment.
- Similarly, the Tribunal ruled in favor of the Assessee regarding the valuation of residential flats, stating that properties used for business purposes or let out should be excluded from wealth tax assessment.

2. Exclusion of Properties Used for Business Purposes:
- The Tribunal examined various properties owned by the Assessee in different locations, some of which were let out or used for commercial purposes. The Assessee argued that these properties were integral to its business operations and should not be subject to wealth tax.
- The Tribunal agreed with the Assessee, emphasizing that properties used for business activities or let out and disclosed in income tax returns should not be considered for wealth tax assessment.
- The Tribunal overturned the AO's decision to include certain properties in the wealth tax assessment, highlighting that these properties were utilized for the Assessee's business needs.

3. Valuation of Agricultural Land:
- The Tribunal addressed the valuation of agricultural land owned by the Assessee for floriculture operations. The AO assessed the land as urban land for wealth tax purposes, leading to a dispute.
- The Assessee argued that the land, though generating exempt income, was used solely for agricultural purposes and should not be considered urban land for wealth tax assessment.
- The Tribunal agreed with the Assessee, ruling that agricultural land used for business operations should not be subject to wealth tax. The Tribunal directed the exclusion of the agricultural land from the wealth tax assessment.

In conclusion, the Appellate Tribunal allowed the Assessee's appeals for the assessment years 2002-03 and 2003-04, while dismissing the Revenue's appeals. The Tribunal emphasized the exclusion of properties used for business purposes from wealth tax assessment and upheld the Assessee's contentions regarding the valuation of various properties.