TMI Blog2006 (2) TMI 504X X X X Extracts X X X X X X X X Extracts X X X X ..... e that emerges for our adjudication in all the appeals filed by the assessees, challenging the impugned order of the Commissioner of Income-tax (Appeals) is whether the Commissioner of Income-tax (Appeals) was justified in confirming the action of the Assessing Officer in treating the land owned by these assessees in Elamkulam, as asset for the purpose of Wealth-tax Act for the assessment year 1993-94 to assessment year 1999-2000. 4. The brief facts relating to these appeals can be stated as under. The assessees are the co-owners of non-agricultural land at Elamkulam, which is within the limits of Cochin Corporation. The main dispute in all these appeals for all the assessment years revolves around the said property, whether from the assessment year 1993-94 if the said land is put to commercial exploitation, can it be treated as an asset under section 2( ea ) for the purpose of computing the net wealth, and alternatively, if the assessees have ceased with the possession of said land in part performance of contract as per provisions of section 53A of the Transfer of Property Act, then whether the Assessing Officer can still hold that the said land belong to the assessees fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... propriate authority. The words "has been constructed" has got a wider meaning. The construction of the building is not one single activity just like a purchase of a building. The construction of the building requires the application to the local authority, approval of the design and plan, site preparation, digging of the foundation and construction of building in stages. The construction includes normally, constructing flooring, plumbing, electrification and all other incidental matters require for making the building suitable for residence. Construction involves a large number of steps in serial order, which requires time and which is spread into a longer period. Hence construction means a part construction, the commencement of construction and stages of construction till it is completed. Both under section 54 and under section 54F of the Income-tax Act, the word constructed is used in respect of capital gains. In both the cases, the amount invested within a period of 3 years is allowed as exemption. Here, the word constructed means part construction also. The same meaning applies to Wealth-tax also." 6. In short, it was the contention of all the assessees that the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er party by way of registration, remains asset owned by the appellant which will come within the domain of chargeability under Wealth Tax Act. 6. The appellant has also raised common objection claiming that the land located at Elamkulam village is not urban land as mentioned in section 2( ea )( v ) of Wealth Tax Act. According to the appellant, the alleged land is not falling within the definition of urban land in view of Explanation ( b ) to section 2 (assessee) of W.T. Act. The appellant argued that the word "has been transferred" appearing in Explanation ( b ) to section 2( ea ) of W.T. Act has got a wider meaning, which includes under construction also. It was further added by the appellant that once the construction has been started or commenced on the urban land, it is to be construed as construction of the building on the urban land for the purpose of the definition given in Explanation ( b ) to section 2( a ). Further, the appellant also tried to derive strength from the section 54 of the I.T. Act where the word constructed is used in respect or capital gain and the word constructed also means part construction. In this way, the appellant has tried to make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax taxation has undergone change w.e.f. asst. year 1993-94, i.e., the taxability of wealth tax on the basis of the asset kept idle. Unless the building was fully constructed on the land, which was exempted to wealth tax, it cannot escape from the taxability of wealth tax. Unless the building was fully constructed, the land is to be construed as urban land only. The appellant s argument that the part construction is also to be taken as construction as envisaged in sections 54 and 54F cannot be imparted for the purpose of Wealth-tax as the provision for sections 54 and 54F of Income-tax Act altogether stand on different footing and the purpose was altogether different. It is relevant to mention the observation of the Supreme Court in the following case, namely Keshvaji Ravji Co. v. CIT 183 ITR 1 (SC), which is reproduced as under : "Artificial and unduly latitudinarian rules of construction which with their general tendency to "give the tax payer breaks" are out of place where legislation had a fiscal mission". Further, Their Lordships also observed in the case of Hindrive Finance Ltd. v. Appropriate Authority (Del.) 249 ITR 34 "It is well-settled position of law that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of Property Act, the said land was not belonging to the assessees and hence, the Assessing Officer as well as the Commissioner of Income-tax (Appeals) were not justified in including the value of the said land while working out the net wealth of the assessee. 9. The ld.CA further submitted that presuming that as there was no valid registration for transferring the title of the land, otherwise also in view of the amendment to the Wealth-tax Act in respect of the new definition of asset brought on the statute book, more particularly section 2( ea ) of the Wealth-tax Act, the land which is the subject-matter of wealth-tax assessments cannot be treated as an asset. It was further contended that the Legislature has excluded any land which is put to construction and in the case of the land under consideration the appropriate permission from the Corporation authorities had been obtained on 26-2-1993. It was further contended that once the plans furnished by the assessee are approved by the Corporation and permission is granted, then certainly that land cannot be treated as open land. He further contended that we have to see the Legislative intent in replacing the existing definiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land on which construction of building is not permissible under any law, or urban land which is occupied by any building which has been constructed with the approval of the appropriate authority, or unused land for industrial purpose for the period of two years. The ld.DR vehemently submitted that in the case of the assessee as per the copy of the agreement filed, which was entered into with Chakolas Habitat (P.) Ltd., the said agreement is dated 30-3-1993 and valuation date of the assessee for the assessment year 1993-94 is 31-3-1993. So, it is an undisputed fact that as far as assessment year 1993-94 is concerned, there was not even the commencement of any construction activity by the said builder on the land of the assessees. It was further submitted by him that unless and until the buildings are constructed and completed, that cannot be treated as a productive asset and hence the Assessing Officer as well as the Commissioner of Income-tax (Appeals) have rightly held that the said land is liable for wealth-tax. The ld. DR further submitted that in respect of the alternative contention of the assessees that the assessees had entered into agreement with the prospective buyers and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the assessee on the valuation date, including assets required to be included in his net wealth as on that date under this Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than ( i )debts which under section 6 are not to be taken into account; ( ii )debts which are secured on, or which have been incurred in relation to, any property in respect of which wealth tax is not chargeable under this Act, and ( iii )the amount of the tax, penalty or interest payable in consequence of any order passed under or in pursuance of this Act or any law relating to taxation of income or profits, or the Estate Duty Act, 1953 (34 of 1953), the Expenditure Tax Act, 1957 (29 of 1957), or the Gift-tax Act, 1958 (18 of 1958), ( a )which is outstanding on the valuation date and is claimed by the assessee in appeal, revision or other proceedings as not being payable by him, or ( b )which, although not claimed by the assessee as not being payable by him is nevertheless outstanding for a period of more than twelve months on the valuation date;" 12. In sum and substance, what is charged under the Wealth-tax Act is the value of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see any substance in the contention of the assessee that on receipt of part of the sale price and parting with possession of the property the assessee ceased to be the owner of the property." 13. The principles laid down by the Hon ble Gujarat High Court were approved by the Apex Court in the case of Nawab Sir Mir Osman Ali Khan ( supra ) : "It may be said that the Legislature having designedly used the expression "belonging to" and not the expression "owned by" had perhaps expected judicial statesmanship in the interpretation of this expression as leading to an interpretation that in a situation like this, it should not be treated as belonging to the assessee but, as said before, times are not yet ripe and in spite of some hesitation, I have persuaded myself to come to the conclusion that for all legal purposes, the property must be treated as belonging to the assessee and perhaps the Legislature would remedy the hardship of the assessee in such cases if it wants. Even though the assessee had a mere husk of title and as against the vendee no reality of title, as against the world he was still the legal owner and the real owner. As has been observed by this Court in CWT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the backdrop of the legal principles in the cases cited supra . In the result, the said contention of the assessees is rejected. 15. The next contention of the assessees is that the Assessing Officer has wrongly included, the valuation of the land in the net wealth of the assessees, as the land is not the asset within the meaning of section 2( ea ), Explanation ( b )( i ) of the W.T. Act. The relevant facts pertaining to this issue are already stated herein above. From the assessment year 1993-94 definition of the term "asset" has been changed by introduction of section 2( ea ) to the W.T. Act. Newly introduced section 2( ea ) of the Act defines the term "assets" as under : "Section 2( ea ) "assets", in relation to the assessment year commencing on the 1st day of April, 1993, or any subsequent assessment year, means ( i )any guest house and any residential house (including a farm house situated within twenty five kilometers from the local limits of any 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, but does not include ( ii )motor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the levy of wealth-tax was restricted to certain specified assets. While introducing the amendment to the Wealth-tax Act, the Hon ble Finance Minister has stated that the liability for wealth-tax was proposed to be limited to the non-productive assets. Up to assessment year 1992-93 there was no distinction between productive and non-productive assets for the purpose of computing the net wealth, but different exemptions were given. As per the new definition, i.e., section 2( ea ), urban land is also included as an asset for the purpose of computing the net wealth as per section 2( m ) of the Act. The Explanation is also appended giving the definition of urban land . As far as the nature of the assessees land is concerned, it is not disputed that all the parameters for determining the nature of the land as urban land are fulfilled. But certain urban lands are excluded from the term "urban land" for the purpose of Wealth-tax Act, if the land on which the construction of any building is not permissible under any law, for the time being in force, in the area in which the land is situate, or the land occupied by any building which has been constructed with the approval of the appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... floor contains about 15,000 sq.ft. and parking area for each floor is earmarked and it is the case of the assessee that because of this parking area and other amenities to be provided as per the Municipal Rules, the entire land is to be treated as the land appurtenant to the building is to be accepted. However, we make it note that except oral submission, the plan or anything has not been placed before us. 16. The further observation of the Assessing Officer that was taken note of by the first appellate authority is that the transfer of the building etc. to M/s. Highland Plaza and subsequent transfer to Perumal Plantation is an attempt to escape the consequences of the transfer because the partners of the firms are mostly the same members who constituted the company. The revenue itself has accepted the transfer and the capital gains has been paid and accepted from both the firms. Therefore, the submission that it is only an attempt to avoidance or reduction of capital gain is a plea that is too late to be accepted. Accordingly in the light of the materials available on record and in the facts and circumstances of the case, we uphold the genuineness of the firm, M/s. Highland Plaz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hrough mutual fund then the assets should be exempted from wealth-tax. 18. In the light of the above facts and also for the reasons stated herein above, we are of the view that the order of the revenue authorities are liable to be set aside. We hold that the land on which the construction of the building was on, which is also reflected in the order of the Assessing Officer from the assessment year 1991-92 onwards, cannot be treated as urban land, which is liable to be treated as an asset for wealth-tax." This Tribunal was of the view that the land on which the construction of the building was on is outside the purview of the definition of "asset". 18. In the present case, it is not disputed that the construction activity was commenced on the said land from April 1993. We find substance in the argument of the ld. CA that once the construction activity starts on the land, then the said land looses its character of open urban land and that is outside the purview of the definition of "asset". As far as assessment year 1993-94 is concerned, after completion of the hearing, the assessees had filed an application stating that the assessees had some evidence in respect of the expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17/Coch./04 in respect of Shri Mathew L. Chakola, WTA No. 24/Coch./04, in respect of Shri John L. Chakola, and WTA No. 31/Coch./04 in respect of Shri Ouseph L. Chakola, are dismissed. 20. In the result, the assessees appeals in WTA Nos. 17, 24 and 31/Coch./2004 are dismissed. All other appeals of the assessees, more particularly WTA Nos. 18, 19, 20, 21, 22 and 23/Coch./2004 in respect of Shri Mathew L. Chakola, WTA Nos. 25, 26, 27, 28, 29 and 30/Coch./2004 in respect of Shri John L. Chakola, and WTA Nos. 32, 33, 34, 35, 36 and 37/Coch./2004 in respect of Shri Ouseph L. Chakola, are partly allowed. Order accordingly. 21. Now we are taking up the appeals filed by the Revenue in respect of all the three assessees. 22. The short issue, which is common in all these appeals, that emerges for our adjudication is whether the Commissioner of Income-tax (Appeals) erred in directing the Assessing Officer to deduct the advances given by the prospective buyers of the flats of the assessees from its total wealth considering the advances as liability, charged on the land in question. 23. We have heard the learned Departmental Representative, Shri K.K. John and the ld. 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