2016 (7) TMI 422 - AT - Wealth-tax

Nature of land - whether the land held by the assessee is an urban land coming within the definition of asset as per section 2(ea) of the Act or is a stock in trade, which is kept outside the definition of asset? - Held that - The assessee has filed a statement of affairs before the assessing officer and claimed that the impugned land is an immovable property. Just because land is under Joint Development, it cannot be considered that the asset is held for the purpose of commercial exploitation thereby it is classified as stock-in-trade. The assessee has failed to prove that the impugned land is stock-in-trade with any evidences. On the other hand, the income tax return filed for the assessment year 2009-10 in ITR form-2 which is meant for individual and HUFs not having income from business or profession, abundantly proves that the assessee is not involved in any business. By his conduct, the assessee proved that he is not into the business either in the past or in the future. If the JDA is entered for development of the property, it is for the builder who comes under the activity of business but not the assessee. The assessee has purchased the land as an investor, consequently any gains from the land would be assessable under the head income from capital gains. Therefore, we are of the view that the assessee has failed to prove that the impugned land held by him is stock-in-trade. In the present case on hand, admittedly the land held by the assessee is an urban land. However, by virtue of a injunction order from the court, status quo should be maintained on the impugned land therefore, land on which construction of a building is not permissible under any law for the time being in force is not an urban land within the meaning of asset u/s 2(ea) of the Act. Therefore, we are of the view that the asset held by the assessee is not urban land, coming within the definition of assets as defined u/s 2(ea) of the Act. Therefore, we set aside the order of CIT(A) and direct the A.O. to delete the impugned land from the definition of assets for the purpose of wealth tax. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the land held by the assessee is liable for Wealth Tax under section 2(ea) of the Wealth Tax Act, 1957.
2. Whether the land held by the assessee qualifies as stock-in-trade and thus is exempt from Wealth Tax.
3. The impact of a court injunction on the classification of the land as an asset under section 2(ea) of the Act.

Detailed Analysis:

1. Liability of Land for Wealth Tax under Section 2(ea):
The primary issue is whether the land held by the assessee constitutes an asset under section 2(ea) of the Wealth Tax Act, 1957. The assessee purchased the land on 30.7.2007 and entered into a Joint Development Agreement (JDA) the next day. The Assessing Officer (A.O.) classified the land as "urban land" under section 2(ea) of the Act, thereby making it liable for Wealth Tax. The A.O. argued that the land was purchased as an investment, as evidenced by the assessee's conduct and the classification of the land as an immovable property in the statement of affairs filed before the department.

2. Classification of Land as Stock-in-Trade:
The assessee contended that the land should be classified as stock-in-trade, which is exempt from Wealth Tax for a period of 10 years from the date of purchase. The assessee argued that the land was purchased for commercial exploitation, supported by the JDA entered into with a developer. However, the A.O. and the Commissioner of Wealth Tax (Appeals) [CWT(A)] did not accept this contention, stating that the assessee had not provided sufficient evidence to prove that the land was held as stock-in-trade. The assessee's income tax return for the assessment year 2009-10, filed in ITR form-2 meant for individuals and HUFs not having income from business or profession, further supported the A.O.'s view that the assessee was not involved in any business activities.

3. Impact of Court Injunction on Land Classification:
The assessee also argued that the land should not be classified as an asset under section 2(ea) due to a court injunction preventing any construction activity on the land. The City Civil Court, Hyderabad, issued an injunction order on 23.7.2003, which was in effect until the final decree on 13.10.2015. The assessee cited the Bombay High Court decision in Prabhakar Keshav Kunde and Others Vs. CIT, which held that land on which construction is not permissible under any law is not considered urban land for Wealth Tax purposes. The Tribunal found merit in this argument, noting that the land was under a court injunction, making construction activity impermissible. Consequently, the land did not qualify as an asset under section 2(ea) of the Act.

Conclusion:
The Tribunal concluded that the land held by the assessee is not an urban land within the meaning of section 2(ea) of the Wealth Tax Act due to the court injunction preventing construction. Therefore, the land is not liable for Wealth Tax. The Tribunal set aside the order of the CWT(A) and directed the A.O. to exclude the land from the definition of assets for Wealth Tax purposes. The appeal filed by the assessee was allowed.

Judgment:
The appeal filed by the assessee is allowed, and the A.O. is directed to delete the impugned land from the definition of assets for the purpose of Wealth Tax. The order was pronounced in the open court on 10th June 2016.