2006 (2) TMI 504 - AT - Wealth-tax

Summary

Issues Involved:
1. Whether the Commissioner of Income-tax (Appeals) was justified in confirming the action of the Assessing Officer in treating the land owned by the assessees as an asset for the purpose of the Wealth-tax Act for the assessment years 1993-94 to 1999-2000.
2. Whether the advances given by the prospective buyers of the flats should be deducted from the total wealth of the assessees as liabilities charged on the land.

Issue-Wise Detailed Analysis:

1. Treatment of Land as an Asset for Wealth-Tax Purposes:

a. Background Facts:
The assessees, co-owners of non-agricultural land in Elamkulam within Cochin Corporation limits, were involved in constructing a multi-storeyed residential complex on the property. The primary dispute was whether the land, from assessment year 1993-94 onwards, could be treated as an asset under section 2(ea) of the Wealth-tax Act.

b. Assessees' Contentions:
The assessees argued that the land was not an asset under section 2(ea), Explanation (b)(i) of the Wealth-tax Act because:
- They had entered into an agreement with a company for commercial exploitation of the land.
- Possession of the land was given to the company and prospective buyers under section 53A of the Transfer of Property Act.
- The land was under construction, and hence, should not be considered as an urban land for wealth-tax purposes.

c. Commissioner of Income-tax (Appeals) Decision:
The Commissioner of Income-tax (Appeals) rejected the assessees' contentions, stating:
- The land remained an asset until it was legally transferred through registration.
- The term "constructed" in the Wealth-tax Act implies a fully constructed building, not partially constructed or under construction.
- The land was urban land and subject to wealth-tax until a building was fully constructed on it.

d. Tribunal's Analysis:
The Tribunal examined the legal principles regarding ownership and possession under section 53A of the Transfer of Property Act and concluded:
- The doctrine of part performance does not divest the owner of the title.
- The land under construction does not qualify as a non-productive asset exempt from wealth-tax.
- For assessment years 1994-95 to 1999-2000, the land was under construction and thus excluded from the definition of "asset" under section 2(ea) of the Wealth-tax Act.
- For assessment year 1993-94, no construction activity had commenced before the valuation date, and hence, the land was rightly included in the net wealth.

e. Conclusion:
The Tribunal directed the Assessing Officer to exclude the value of the land from the net wealth for assessment years 1994-95 to 1999-2000 but upheld the inclusion for assessment year 1993-94.

2. Deduction of Advances Given by Prospective Buyers:

a. Background Facts:
The Revenue filed appeals challenging the Commissioner of Income-tax (Appeals)'s decision to deduct advances given by prospective buyers from the total wealth of the assessees.

b. Assessees' Contentions:
The assessees argued that the advances should be considered as liabilities charged on the land and deducted from the total wealth.

c. Revenue's Contentions:
The Revenue contended that the advances should not be deducted as they do not constitute liabilities for wealth-tax purposes.

d. Tribunal's Analysis:
The Tribunal considered the CBDT's Circular No. 2/2005, which set a monetary limit for filing appeals, and the decision of the Hon'ble Bombay High Court in CIT v. Pithwa Engg. Works, which stated that the circular applies to pending cases.

e. Conclusion:
The Tribunal dismissed the Revenue's appeals on the ground that the tax effect involved was below the monetary limit set by the CBDT's circular, making the appeals not maintainable.

Final Order:
- Assessees' appeals for assessment year 1993-94 were dismissed.
- Assessees' appeals for assessment years 1994-95 to 1999-2000 were partly allowed.
- Revenue's appeals were dismissed as not maintainable.