Play ground, approach road or internal road can be said to be a building for the purpose of claiming exemption from wealth tax

Section 40(3) [Now Section 2 read with Section 4 and Section 5] of the Wealth Tax Act, 1957 exempts building or part thereof used by the assessee as factory, godown, warehouse, hotel or office for the purposes of its business or as residential accommodation for its employees or as a hospital, creche, school, canteen, library, recreational centre, shelter, rest room or lunch room mainly for the welfare of its employees and the land appurtenant to such building or part.

In the instant case, the question raised before the honorable Supreme Court that certain vacant land such as Play ground, approach road or internal road should be exempt from wealth tax under section 40(3)

Brief Facts of the Case:

These details as shown by the assessee regarding were as follows:-

1. Buildings:-

2. Open land : Appurtenant to above building 5346.972 M2

3. Open land : Under internal roads & playgrounds 3720.00 M2

4. Open vacant : Land to be considered for this valuation 3334.130 M2

The assessing officer passed an order valuing the open land at Rs.18,59,715/- on the basis of value as determined for earlier assessment years 1988-89 and 1989-90.

In an appeal filed by the assessee before the CIT(A) it was contended that the Assessment Officer had not considered the grant of exemption from the wealth-tax in respect of land appurtenant, land reserved for play ground and other common services. CIT(A) partly allowed the appeal by granting relief in respect of the land appurtenent admeasuring 5346.972 but refused to grant exemption in respect of the open land admeasuring 3728.00 sq.mtrs. over which there were internal roads and a play ground. 

Both revenue as well as the assessee preferred an appeal before the ITAT and by its common judgment and order dated 26.2.1997, the ITAT dismissed the appeal of the assessee and allowed the appeal of the revenue to the limited extent of land admeasuring 313.155 sq.mtrs. said to have been surrendered to the Bombay Municipal Corporation. Being aggrieved by the judgment of the ITAT, the assessee therefore, requested for a reference and the questions already mentioned here-in-above have been therefore, referred.

Findings and Decisions by the Apex Court

On the issue of consideration of vacant land on which construction is not permitted - land used for internal roads of the factory and play ground for workers of the factory is taxable as wealth of the company.

Since his ownership of the plot in question is admitted, such ownership will include the ownership of the internal roads and approach roads which fall within the plot. It appears that the second question was referred on the basis of a contention raised by the assessee that he was not the owner because the municipal bye-laws required him to reserve a part of his land for approach roads and internal roads. In our view, such approach roads and internal roads even if required to be kept by municipal bye-laws, do not result in change of ownership of the land …………………….. Since the ownership of the asset is an independant facet which can be determined independantly of the Income Tax Act and as the applicant has categorically admitted his ownership over the plot of land, we do not find it necessary to answer issue.

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Motwane Manufacturing Co. Pvt. Ltd. Versus Commissioner of Wealth-tax Mumbai reported in 2009 -TMI - 32465 - BOMBAY HIGH COURT