VALIDITY OF RE-OPENING OF WEALTH TAX ASSESSMENT

[Mr. M. GOVINDARAJAN]

In ‘SRI D.U. MALLIKARJUNA, SMT. GOWRI MALLIKARJUNA VERSUS ACIT OF WEALTH TAX CENTRAL CIRCLE-2 (3) BENGALURU [2020 (10) TMI 858 - ITAT BANGALORE],  search and seizure operations were conducted in the hands of Sri D.U. Mallikarjuna on 15.3.2016 under section 132  of the Income tax Act.  During the search it was noticed that assessees have not filed return of wealth.  Therefore the Wealth Tax Officer reopened the assessment of the year under consideration in the hands of both the assessees by issuing notice under section  17 of the Wealth Tax Act.

The Authorities, during the course of assessment, noticed that the assessee did not include an asset located at Jayanagar 8th block, Bengaluru. The said property is the present residence of the assessees at that time.  The assessees submitted that the same is residential house and hence exempt. However, the Assessing Officer noticed that the said building was under construction during the financial year relevant to AY 2010-11, i.e., during the year under consideration.

The Assessing Officer took the view that the building under construction cannot be considered as residential house.  The land on which a building is under construction would constitute urban land only.    The Assessing Officer assessed the value of plot and also assessed the value of construction in equal proportions between both the assessees as detailed below-

• Value of Site – ₹ 1,27,50,000 * 50% -    Rs.   63,75,000
• Cost of construction as admitted – 50% -   ₹ 1,31,71,032

Total            -   ₹ 1,95,46,032

The Assessing Officer rounded off the same to ₹ 2 lakhs and made assessment.

Aggrieved against the order of the Assessing Officer, the assessees filed an appeal before Commissioner of Income Tax (Appeals).  The appellants contended before the Commissioner (Appeals) that they did not receive the reasons for reopening of assessment.  It was prayed that the Assessing Officer may be directed to furnish the reasons recorded by him for making effective representation.  The Commissioner (Appeals) found that the Assessing Officer has mentioned in the assessment order that the reasons have been furnished.  Therefore Commissioner (Appeals) rejected the contentions of the appellant and observed that the Assessing Officer has duly followed the procedure prescribed in this regard.    In the absence of any other contrary material, the observation of the Assessing Officer has to be considered as true since the assessee did not furnish any material to disprove the observations made by the Assessing Officer.

Commissioner (Appeals) also observed that . the addition of ₹ 2.00 crores made by the AO consisted of two items, viz., the value of plot and the value of construction under progress.  The Commissioner (Appeals) was of the view that the value of building under construction is not exigible to Wealth tax.  The Commissioner (Appeals) held that the value of plot alone is liable to be taxed.

With regard to the value of plot, the assessee submitted before Commissioner (Appeals) that the size of the impugned residential site is 4250 Sq.ft., i.e., less than 500 sq. mts. It was submitted that no wealth tax is payable in respect of plot of lot, where the area is less than 500 sq. mts., as per the proviso below sec. 5(vi) of the Wealth tax Act.  The Commissioner (Appeals) inclined to agree with the appellant’s view since, the provisions of section 5(vi) of the Wealth tax Act, exempts one house or part of a house or plot of land belonging to individual or HUF from tax and hence, the proviso under the said subsection also relates only to the one house or part thereof.    The proper construction of these provisions would reveal that Wealth tax is payable in respect of a plot of land in excess of 500 Sq. mts., and no exemption can be claimed u/s 5(vi) because the proviso restricts exemption to only a plot of land which is 500 sq. mtrs., or less. Hence, the appellant’s contentions in this regard fails.

Aggrieved against the order of Commissioner (Appeals) the appellants filed appeals before the Income Tax Appellate Tribunal.    The appellants submitted the following before the Tribunal-

• the plot of land having an extent of less than 500 Sq.mts. is exempt from payment of wealth tax in accordance with section 5(vi) of Wealth Tax Act;
• the plot of land held by the assessees is having an extent of less than 500 sq. mts., and hence the Ld CIT(A) was not justified in holding that the same is assessable to wealth tax.

The Revenue contended that the exemption u/s 5(vi) is given to either one house or part of house or a plot of land. If an assessee has claimed exemption of a house, then no exemption shall be available for plot of land.

The Tribunal considered the submissions of both the parties.  The Tribunal observed that under the scheme of Wealth tax Act, the wealth tax is payable on the value of those assets specified in sec. 2(ea) of the Wealth tax Act. However, section 5 of the Wealth tax Act provides exemption from payment of wealth tax from amongst the assets so specified u/s 2(ea), i.e., even if the assets fall under the category of specified assets, still no wealth tax is payable on the value of assets specified in sec. 5 of the Wealth tax Act.  As per the said provision wealth-tax shall not be payable by an assessee in respect of the following assets and such assets shall not be included in the net wealth of the assessee, viz.,

(vi) one house or part of a house or a plot of land belonging to an individual or a Hindu undivided family :

Provided that wealth-tax shall not be payable by an assessee in respect of an asset being a plot of land comprising an area of five hundred square metres or less.

The appellant has already claimed exemption under section 5(1)(vi) of the Act in respect of one house.   A careful reading of the provisions of sec.5 (1) (vi) would show that it provides exemption of one house or part of a house or a plot of land. Hence exemption shall be available only for any one of the items mentioned in sec.5 (1) (vi) of the Act, i.e., either for one house or for part of house or for a plot of land. If the assessees have already claimed exemption of one house, then, in our view, they cannot claim exemption for plot of land separately in addition to the house.

The Tribunal held that the contention of the assessee that the proviso should be read independently is against settled principle of interpretation of a proviso. The settled proposition is that a proviso qualifies the generality of the main enactment by providing an exception and taking out from the main provision, a portion, which, but for the proviso would be part of main provision.   A proviso is not a separate or independent enactment;  it should be read along with the main provision as a whole.   A proviso must, therefore, be considered in relation to the principal matter to which it stands as a proviso. 

The Tribunal held that the assessee cannot avail exemption for a plot of land, even if it is having an area of less than 500 sq. mts or less, if he had already claimed exemption of one house u/s 5(vi) of the Act. If the assessees have not claimed exemption of house, then they are entitled to claim exemption of either one house or part of a house or plot of land.

The Tribunal dismissed the appeals filed by the appellants.