2018 (9) TMI 239 - HC - Wealth-tax

Exemption from wealth tax - whether 28 Acres of urban land comes under the ambit of the exemption clause of Section 2(ea) of the Wealth Tax Act, 1957? - person to be the owner - protective assessment - Held that - The words belonging to are of wider import and more flexible than the narrower term of ownership . Sub-section (8) of Section 4 also permits the assets to be taxed in the hands of the Assessee, even if the asset is not yet fully de jure transferred to him and invoking the provisions of Section 53-A of the Transfer of Property Act, 1882, the Assessee retains the possession of such property in part performance of the contract. Section 8 deems such a person to be the owner of that building or property and allows taxability in his hands even though the title in favour of the Assessees is not yet crystallized. The intention of the Legislature is, therefore, obvious i.e. to throw the tax net under the provisions of the Wealth-Tax a little wider and not to cover only the owners of the assets stricto sensu. In this perspective, we find ourselves fortified in taking the view that the assets in question namely urban lands belonging to Assessees for which they are not only claiming ownership through litigation but are undoubtedly in possession, dominion and control but also in user of the land yielding income therefrom, they cannot be held to be outside the tax net under the Wealth-Tax Act, 1957. 'Protective Assessments - Held that - As already noted above that the demands in question have been raised under the Protective Assessments only framed by the Assessing Authority and the recovery on the basis of the same is not enforceable as of now and therefore, the appellate Orders by the Appellate Tribunal and the Commissioner of Wealth-Tax (Appeals) even though decided the Questions on merits would remain in the character of the Protective Assessments only, but since the Tribunal has decided the question of law also, that is why it has given rise to the aforesaid Substantial Questions of law which we are called upon to decide. Question No.1 is answered in favour of the Revenue and against the Respondent Assessees and we hold that the Income Tax Appellate Tribunal (ITAT) was not justified in law in holding that 28 Acres of land located within the Corporation limits of the Bangalore City does not fall within the definition of Assets in Section 2 (ea)(b) of the Wealth-Tax Act, 1957 and no Wealth Tax on these lands is chargeable. We hold that the Wealth Tax would be chargeable for these Assessment Years in question in the hands of the Respondent Assessees as the urban lands in question belonged to the Assessees on the respective Valuation Dates relevant to A.Y. 1999-2000 to A.Y. 2004-05 in question. Question of law No.2 also in favour of the Revenue and against the Assessees and hold that there was no total prohibition against raising of any sort of construction of a Building on the lands in question either under the interim Orders of the Hon ble Supreme Court or by virtue of Karnataka Parks, Play Fields and Open Places (Preservation and Regulation) Act, 1985 and in view of the fact that temporary or semi-permanent constructions were raised from time to time on these lands in question, the urban lands in question belonging to the Assessees could not fall in the Exclusion Clause (b) of Explanation to Section 2 (ea) of the Wealth-Tax Act, defining the term Assets . Question of law No.3 in favour of the Revenue and against the Assessees and hold that the Income Tax Appellate Tribunal (ITAT) was not justified in setting aside the Protective Assessments made by the Assessing Authority for the Assessment Years A.Y. 1999-2000 to A.Y. 2004-05 in question. The Assessing Authority would be free to now proceed to make substantive assessments in the hands of the Respondent Assessee.

Issues Involved:

1. Whether the Tribunal was justified in holding that the 28 Acres of 'urban land' comes under the exemption clause of Section 2(ea) of the Wealth Tax Act, 1957?
2. Whether the Tribunal was justified in holding that the above land falls within the exemption clause of Section 2(ea)(b) without appreciating that the land was not totally prohibited for putting up any construction under Karnataka Parks, Play Fields and Open Spaces Regulation Act, 1985?
3. Whether the learned C.I.T (Appeals) and Tribunal were justified in setting aside the protective assessment made by the Assessing Authority for the assessment year in question?

Detailed Analysis:

1. Interpretation of 'Urban Land' and Exemption Clause:

The primary issue was whether the 28 acres of 'urban land' held by the Respondent Assessees fell under the exemption clause of Section 2(ea) of the Wealth Tax Act, 1957. The court examined the definition of 'urban land' under Section 2(ea)(v) and its Explanation, which excludes land on which construction of a building is not permissible under any law for the time being in force. The court noted that the lands in question, though not allowed for permanent constructions, were used for temporary or semi-permanent structures for public functions, generating income for the Assessees. Therefore, the lands could not be considered as falling under the exclusion clause since they were productive and income-yielding assets. Thus, the Tribunal erred in holding that the lands were exempt from Wealth Tax.

2. Construction Prohibition and Applicability of Karnataka Parks Act:

The second issue addressed whether the Tribunal was justified in holding that the land fell within the exemption clause of Section 2(ea)(b) without considering that the land was not entirely prohibited for construction under the Karnataka Parks, Play Fields and Open Spaces Regulation Act, 1985. The court found that the land was not absolutely barren and that temporary or semi-permanent structures were permitted and used for income-generating activities. Hence, the land did not fall within the exclusion clause of the Wealth Tax Act, and the Tribunal's decision was incorrect.

3. Justification of Protective Assessments:

The third issue was whether the protective assessments made by the Assessing Authority were justified. The court explained that protective assessments are permissible to avoid the failure of levy in cases of doubt about the ownership or title of the assets. Given the ongoing litigation regarding the Bangalore Palace (Acquisition and Transfer) Act, 1996, and the interim orders allowing the Assessees to use the land, the protective assessments were justified. The Tribunal and C.I.T (Appeals) erred in setting aside these assessments.

Conclusion:

The court concluded that the lands in question were assessable to Wealth Tax as 'urban lands' in the hands of the Respondent Assessees. The words "belonging to" in the Wealth Tax Act have a wider import than the narrower concept of "ownership." The Assessees' possession, dominion, and control over the lands, along with income generation from these lands, indicated that the lands belonged to them for Wealth Tax purposes. The court answered all the substantial questions of law in favor of the Revenue and against the Respondent Assessees, allowing the Revenue's appeals. The Assessing Authority was permitted to proceed with substantive assessments in the hands of the Respondent Assessees.

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