Proposed changes in meaning of urban land for the purpose of Wealth-tax.
Urban land
Urban land is one of asset which is in taxable category for the purpose of levy of Wealth Tax. It is proposed to expand the meaning of urban land by covering more area from local limits of any municipality etc. A relation between population of municipal area and distance from local limit of municipal area is being prescribed. Higher the population, the extent of urban land is increased. For measuring such extent, aerial method has been proposed.
This can be tabulated as follows:
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Population of municipal area
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Extent up to which land is deemed ti be urban land.
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Not more than 10 thousand
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NIl
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more than ten thousand but not exceeding one lakh
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2 KM
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more than one lakh but not exceeding ten lakh;
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6 KM
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more than ten lakh,
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8 KM
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Whether a land in Grampanchayat area can be deemed as urban land:
In case of a municipal area which has population not exceeding ten thousand, any area beyond it is not deemed as urban land. However, in case of municipal area where population is more than ten thousand, even land beyond limits of municipal area is deemed as urban land, though it falls in a village area.
Land beyond local limits of municipal area will be land within a Grampanchayat. Land within area of a village governed by Grampanchayat is rural land. By including the land in area beyond local limits of municipal area, a deeming provision is existing whereby even rural land is deemed as urban land. Now with the proposed changes in meaning scope of deemed urban land will expanded. A piece of land which in reality is rural land and was not deemed as urban land will also be deemed as urban land, if it falls within distance now proposed.
Urban and Rural area:
One may find logic that if population of a municipal area is more than other municipality, then it is likely that some of indirect advantages of a larger municipality extends to longer area in comparison to the municipality of smaller population.
Analysis of existing and proposed meaning of urban land are tabulated below:
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Existing meaning
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Proposed meaning
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Remarks
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(b) urban land means land situate
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‘(b) “urban land” means land situate––
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Both are definite meanings with same language
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(i) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the valuation date; or
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(i) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee,
or by any other name) or a cantonment board and which has a population of not less than ten thousand; or
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Proposed clause read with proposed explanation has the same meaning. See green marked words.
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(ii) in any area within the distance, measured aerially,––
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Aerially measurement is proposed to find distance for coverage of urban land.
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(ii) in any area within such distance, not being more than eight kilometres from the local limits of any municipality or cantonment board referred to in sub-clause (i), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette,
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(I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in sub-clause (i) and which has a population of more than ten thousand but not exceeding one lakh; or
(II) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in sub-clause (i) and which has a population of more than one lakh but not exceeding ten lakh; or
(III) not being more than eight kilometres, from the local limits of any municipality or
cantonment board referred to in sub-clause (i) and which has a population of more than ten lakh,
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Distance has been extended with population. Greater the population of a municipal area, the extent of urban land get extended.
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but does not include land on which construction of a building is not permissible under any law for the time being in force in the area in which such land is situated or the land occupied by any building which has been constructed with the approval of the appropriate authority or any unused land held by the assessee for industrial purposes for a period of two years from the date of its acquisition by him 24[or any land held by the assessee as stock-in-trade for a period of 25[ten] years from the date of its acquisition by him.]
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but does not include land on which construction of a building is not permissible under any law for the
time being in force in the area in which such land is situated or the land occupied by any building
which has been constructed with the approval of the appropriate authority or any unused land held
by the assessee for industrial purposes for a period of two years from the date of its acquisition by
him or any land held by the assessee as stock-in-trade for a period of ten years from the date of its acquisition by him.
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Explanation.––For the purposes of clause (b) of Explanation 1, “population” means the population according to the last preceding census of which the relevant figures have been published before the
date of valuation.’.
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Explanatory note on proposal reads as follows(with highlights):
Amendment of section 2.
Wealth-tax
Clause 51 seeks to amend section 2 of the Wealth-tax Act relating to definitions.
The provisions contained in clause (ea) of section 2 define the term ‘assets’. Sub-clause (v) of the said clause (ea) includes ‘urban land’ in the definition of the term ‘assets’. Clause (b) of Explanation 1 to the said clause (ea) defines the term ‘urban land’.
It is proposed to amend clause (b) of Explanation 1 to clause (ea) of section 2 so as to provide that land situated in any area within the distance, measured aerially, (I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in clause (i) and which has a population of more than ten thousand but not exceeding one lakh; or (II) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in clause (i) and which has a population of more than one lakh but not exceeding ten lakh; or (III) not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in clause (i) and which has a population of more than ten lakh shall be classified as urban land. An Explanation has been inserted to clarify the expression “population”.
This amendment will take effect from 1st April, 2014, and will, accordingly, apply in relation to Assessment Year 2014-15 and subsequent assessment years.
Constitutional aspects:
As noted above any land beyond the local limit of municipal area will be village area and will fall in jurisdication of a Grampanchayat. Therefore, a question will arise as to whether the Central Government ahs right to impose tax on land which is beyond municipal area and falls in rural area.
Vide Article.243H of the Constitution the State Government may by law authorize Panchayat to levy and collect and appropriate taxes, duties, tools and fees etc. The clause reads as follows:
Article.243H. Powers to impose taxes by, and Funds of, the Panchayats.-
The Legislature of a State may, by law,-
(a) authorise a Panchayat to levy, collect and appropriate such taxes, duties, tolls and fees in accordance with such procedure and subject to such limits;
(b) assign to a Panchayat such taxes, duties, tolls and fees levied and collected by the State Government for such purposes and subject to such conditions and limits;
(c) provide for making such grants-in-aid to the Panchayats from the Consolidated Fund of the State; and
(d) provide for constitution of such Funds for crediting all moneys received, respectively, by or on behalf of the Panchayats and also for the withdrawal of such moneys therefrom, as may be specified in the law.
From VII-SCHEDULE.- SEVENTH SCHEDULE (Article 246)
list I : Union List
86. Taxes on the capital value of the assets, exclusive of agricultural land, of individuals and companies; taxes on the capital of companies.
List II - State List
45. Land revenue, including the assessment and collection of revenue, the maintenance of land records, survey for revenue purposes and records of rights, and alienation of revenues.
49. Taxes on lands and buildings.
Observations:
Wealth tax in relation to land can be considered as a tax on land. However, it can also be considered as tax on capital value of asset.
On reading of the above provisions from the Indian constitution we find that the Central Government is authorized to levy tax on capital value of assets but exclusive of agricultural land.
Wealth tax is a tax on capital value of assets. Therefore, wealth tax cannot be imposed on agricultural land, even if it is urban land or deemed to be urban land.
Furthermore, in respect of land in rural area, State government and / or Gram Panchayat imposes , assess and collect taxes on land including agricultural land.
Therefore, so far tax on agricultural land is concerned it may not be within the power of the central Government to impose a tax by way of wealth tax (being tax on capital value of asset) by deeming rural land as urban land, particularly when the land is agricultural land.
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