2011 (9) TMI 1210 - HC - Wealth-tax

Summary

Issues Involved:

1. Whether the land on which the foundation is laid for building a hotel should be treated as a business asset not exigible to Wealth Tax u/s 40A(3) of the Finance Act.

Summary:

Issue 1: Treatment of Land as Business Asset Not Exigible to Wealth Tax u/s 40A(3) of the Finance Act

The Revenue appealed against the Tribunal's order under the Wealth Tax Act, questioning whether the land with a hotel foundation should be treated as a business asset not exigible to Wealth Tax u/s 40A(3) of the Finance Act. The assessment years in question were 1996-97 and 1997-98. The assessee, a hotel business, purchased lands in 1993-94 and 1996-97, obtained construction permission in 1995, and commenced construction in January 1996. The Assessing Officer determined the net wealth of Rs. 16,84,600/- before basic exemption, arguing that the land was not put to use and thus taxable. The Commissioner of Wealth Tax (Appeals) dismissed the appeals for 1995-96, 1996-97, and 1997-98 but allowed the appeal for 1998-99, excluding the asset from Wealth Tax.

The Tribunal held that since construction commenced before the valuation dates 31.3.1996 and 31.3.1997, the land qualified for exclusion under Section 2(ea) of the Wealth Tax Act. The Revenue argued that the exclusion applied only if the land was put to productive use within two years, which the assessee failed to do. The Revenue cited several cases, including CWT v. GIRIDHAR G.YADALAM and CWT v. HOTEL ORNATE (NILGIRI) P. LTD, to support their stance.

The assessee's counsel relied on the Kerala High Court's decision in APOLLO TYRES LTD., v. ASST. CIT, arguing that the land used for construction with approval should be excluded from 'urban land' under Section 2(ea). The Court noted that the definition of 'asset' under Section 2(ea) and 'urban land' in Explanation [1] excludes land occupied by any building constructed with approval. The Kerala High Court's decision in APOLLO TYRES LTD., v. ASST. CIT, supported the view that land used for construction ceases to be 'urban land'.

The Court disagreed with the Karnataka High Court's decision in CWT v. GIRIDHAR G.YADALAM, which required a fully constructed building for exclusion. The Court emphasized that the intention and steps taken by the assessee to construct a hotel qualified the land for exclusion under Section 2(ea)(i)(3) of the Wealth Tax Act. The Court concluded that the asset in question was excluded from chargeability under the Wealth Tax Act, agreeing with the Kerala High Court's decision in APOLLO TYRES LTD., v. ASST. CIT.

The Tax Case (Appeals) filed by the Revenue were dismissed, confirming the Tribunal's order.