2016 (1) TMI 826 - SC - Wealth-tax

Exigibility of 'Urban Land' to wealth tax - whether the land would be excluded from the 'urban land' only when building is completely constructed thereupon or it would be covered by the aforesaid clause even if the building activity is started and the building is not yet complete? - HC held that the building has to be completely erected on the land in order to get it covered by exclusion clause - Held that - The view taken by the High Court 2007 (3) TMI 334 - KARNATAKA HIGH COURT is the correct view in law. On the plain language of the provision in question, the benefit of the said clause would be applicable only in respect of the building 'which has been constructed'. The expression 'has been constructed' obviously cannot include within its sweep a building which is not fully constructed or in the process of construction. The opening words of clause (ii) also become important in this behalf, where it is stated that 'the land occupied by any building'. The land cannot be treated to be occupied by a building where it is still under construction. If the contention of assessee is accepted, an assessee would become entitled to the benefit of the said clause, at that very moment, the commencement of construction even with construction the moment one brick is laid. It would be too far fetch, in such a situation, to say that the land stands occupied by a building that has been constructed thereon. Even assessee was candid in accepting that when the construction of building is still going on and is not completed, literally speaking, it cannot be said that the building 'has been constructed'. It is for this reason that he wanted us to give the benefit of this provision even in such cases by reading the expression to mean the same as 'is being constructed'. His submission was that the moment construction starts the urban land is put to 'productive use' and that entitles the land from exemption of wealth-tax. This argument of giving so called purposive interpretation has to be rejected We do not agree with the submission of assessee that the situation when building is fully constructed has been covered by Section 2(e)(a)(v) read with Explanation 1(b) as it would fall under Section 2(e)(a)(i). We have already reproduced the aforesaid Section and find that it deals with altogether different situations. As pointed out above, Explanation (1) thereof excludes certain categories of 'Urban Land' and we are concerned herewith clause (ii) of this Explanation. By 1992 amendment, Section 2(e)(a) was added which contains the definition of 'asset'. Clause (v) thereof includes urban land. Thus, urban land is to be included as an 'asset' for the purpose of giving extended meaning to it. Urban Land is defined in Explanation 1 Clause (b) to Section 2(e)(a). - Decided against assessee.

Summary

Issues Involved:
1. Interpretation of Explanation 1(b) to Section 2(ea)(v) of the Wealth Tax Act, 1957.
2. Whether land would be excluded from 'urban land' only when a building is completely constructed or even if the building activity has started but is not yet complete.

Issue-wise Detailed Analysis:

1. Interpretation of Explanation 1(b) to Section 2(ea)(v) of the Wealth Tax Act, 1957:

The Supreme Court was tasked with interpreting the provisions of Explanation 1(b) to Section 2(ea)(v) of the Wealth Tax Act, 1957, which defines 'urban land'. Urban land is subject to wealth tax under the Act, but certain categories of land are excluded from this definition. Specifically, the Court needed to interpret clause (ii) of Explanation 1(b), which states that 'urban land' does not include "the land occupied by any building which has been constructed with the approval of the appropriate authority."

2. Whether land would be excluded from 'urban land' only when a building is completely constructed or even if the building activity has started but is not yet complete:

The core question was whether the land would be excluded from 'urban land' only when the building is completely constructed or if it could be excluded even if the building activity has started but is not yet complete.

- Arguments by the Assessee:
The assessee argued that the term "has been constructed" should be interpreted to include land where construction activity has begun. The rationale was that the legislative intent behind the amendment was to stimulate investment in productive assets. The assessee contended that once construction starts, the land is put to productive use, thus changing its character from 'urban land' to land under productive use.

- Arguments by the Revenue:
The Revenue countered that the language of the statute is clear and unambiguous, and the benefit of the clause should only apply to land where the building is fully constructed. They emphasized that a strict interpretation should be given to exemption provisions in taxing statutes, and the onus is on the assessee to prove that they fall within the exemption.

Judgment:

The Supreme Court sided with the interpretation that the benefit of the clause would apply only when the building is fully constructed. The Court held that the plain language of the provision indicates that the land must be occupied by a building that "has been constructed" to avail the exemption. The Court rejected the assessee's argument for a purposive interpretation, stating that in taxing statutes, the language of the provision must be given its plain meaning unless it leads to absurd results, which was not the case here.

The Court noted that if the legislature intended to include land where construction had merely started, it would have explicitly stated so. The Court also pointed out the potential absurdity of granting an exemption when construction starts but is later abandoned.

Conclusion:

The Supreme Court upheld the Karnataka High Court's view that the land must have a fully constructed building to be excluded from 'urban land' under Explanation 1(b) to Section 2(ea)(v) of the Wealth Tax Act. The judgments of the Kerala and Madras High Courts, which had taken a contrary view, were set aside. The appeals by the assessee were dismissed, and those by the Revenue were allowed, with each party bearing its own costs.