TMI Blog2006 (6) TMI 469X X X X Extracts X X X X X X X X Extracts X X X X ..... nd and building belonged to the society and not to the assessee since it is merely an occupier of the flat. The Assessing Officer rejected the above contention. He held that the assessee being a member of a co-operative society, enjoys full power and transferable rights in the flat allotted to the assessee like any other member. Hence he held, the flat is exigible to tax and Rs. 47,33,745 was the acquisition value of the property as on March 15, 1990. Aggrieved by the above order, the assessee approached the first appellate authority. Before the Commissioner of Income-tax (Appeals), the assessee contended that the flat held by the assessee in the co-operative housing society is not an asset includible in the net wealth. The assessee relied upon the decisions in the case of Nowrosjee Wadia and Sons P. Ltd., in WTA No. 1885/Bom/1989 and WTA No. 2213 to 2215/Bom/1989 for the assessment years 1984-85 to 1986-87. The assessee also relied upon a connected case of an associate concern, M/s. Cyrus Investments Ltd. for the same proposition. The Commissioner of Income-tax (Appeals) held, even when a person is not the legal title holder of a property, but only acquires a right stated in se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en the Members constituting the Bench firstly, whether the matter is to be referred to a larger Bench as suggested by the learned Judicial Member (Vice-President) or whether the decision of the learned Accountant Member is to be upheld, wherein he has rejected the appeal by the assessee. The issue was referred to the Third Member and the Third Member upheld the view of the Judicial Member and held that the matter should be referred to a larger Bench. Before the Division Bench, learned counsel for the assessee had relied upon the decision of the Delhi Bench of the Tribunal in the case of Mohan Exports (I.) P. Ltd. v. Asst. CWT reported in [1997] 60 ITD 473 (Delhi), which in turn followed the decision of the apex court in the case of (Late) Nawab Sir Mir Osman Ali Khan v. CWT reported in [1986] 162 ITR 888 (SC), that property cannot be said to be belonging to the company unless it is owned by it. A contrary view taken by the Tribunal, Mumbai Bench, in the case of Tulsidas V. Patel P. Ltd. v. WTO reported in [1998] 65 ITD 287 was also noticed by the Bench. In that case, it was held by the learned Members constituting the Bench that leasehold rights held by the assesseecompany is ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their use. In accordance with the consent decree of the hon ble Bombay High Court dated October 3, 1984, the society became the absolute owner of the land and property situated thereupon and has continued to be the owner of the plot since then. On June 1, 1985, the assessee purchased five shares in Sterling Bay Co-operative Housing Society Limited. Under the bye-laws of the society, the assessee has the right to shares and interest in the capital and right to occupy Flat No. 7 located on the third floor of the premises. The ownership of Sterling Bay Co-operative Housing Society Limited in the property continued to belong to the society and being a registered society, in accordance with the Maharashtra Co-operative Societies Act, 1960, the property, i.e. land and building, is registered in the name of the society and not in the name of its members, including the assessee. The various provisions of the bye-laws of the society restrict the right of the members over the property belonging to Sterling Bay Co-operative Housing Society Limited, for e.g. Bye-laws 24, 34, 43, 45, 47, 52, etc., which provide for limitations for the rights of the members against the land and building belongin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ociety. Again relying upon the decision of the hon ble Supreme Court in the case of (Late) Nawab Sir Mir Osman Ali Khan [1986] 162 ITR 888, learned counsel submitted, after considering various issues including the definition of owner under the Income-tax Act and the concept of belonging under the Wealth-tax Act, their Lordships held that the word belonging must mean only the person who has the full legal title to the property and in whose name the property is registered. This is irrespective of whether the person has parted with the possession and agreed to sell the property, received the full consideration and even where he has put the intending purchaser in possession, who he cannot evict in view of the protection granted to the intending purchaser under section 53A of the Transfer of Property Act. Learned counsel submitted, as per the hon ble Supreme Court, the title of the legal owner is a mere husk , still only the legal owner can be treated as the person to whom the property belongs as liable to wealth-tax. Learned counsel submitted, as per the hon ble Supreme Court, the property can belong only to the person who exercises rights in rem and not rights in personam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harged only on assets belonging to the company. The contrary/deeming provision of section 4(7) was not incorporated in section 40 particularly since the exemption under section 5 for which section 4(7) was introduced was not granted to private limited companies. Learned counsel submitted, section 4(7) of the wealth-tax Act is contrary to the meaning of the word belonging as interpreted by the hon ble Supreme Court and also contrary to sub-section (2) of section 40 of the Finance Act and as a matter of law as laid down by the hon ble Supreme Court in the case of (Late) Nawab Sir Mir Osman Ali Khan [1986] 162 ITR 888. Learned counsel further submitted, under sub-section (5)(b) of section 40 of the Finance Act, 1983, section 4(7) of the Wealth-tax Act would not be in conformity with the charging provision, i.e., sub-section (2) of section 40, as the meaning of belonging has a different meaning in law from the fiction contained in section 4(7) of the Wealth-tax Act. Therefore, there is no scope of introducing the said fiction into section 40. Further, when one considers the object for which the fiction was introduced under the Wealth-tax Act, viz., to entitle the assessees to cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbers transfer their rights in a co-operative housing society, it is not a capital receipt as the society does not transfer any of its rights in the land and building. When a member transfers his share and right to occupy the flat in the society, the rights of the society in the land and building are not changed in any manner. Learned counsel submitted, recently the hon ble Gujarat High Court in the case of Kishore B. Setalvad v. CWT reported in [2002] 256 ITR 637 in a case where there was a co-operative society owning land (and not the building), which in turn had allotted the land for its members, the hon ble High Court held that since the land did not belong to the members and further since the land was not covered by the deeming fiction in section 4(7) of the Wealth-tax Act, the land allotted to members cannot be included in the net wealth of the members as it was not land belonging to the members. Therefore, even under the Wealth-tax Act, unless there is a specific definition to the contrary overriding the term belonging only when one is the full legal owner it can be said that the land/building belongs to such member/person. On the facts of the present case, there is no lan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that legitimate field . Inviting our attention to paper book page 155, i.e. Board Circular No. 72 dated January 6, 1972, learned counsel submitted, co-operative societies are exempted from the rigours of wealth-tax. The net wealth of a co-operative society is excluded from the scope of assets includible for the purpose of the Wealth-tax Act. Paras. 98 and 99 of the Finance (No. 2) Act 1971, which is reproduced at page 156 and 157 of the paper book, read as under : 98. Co-operative housing societies are becoming increasingly popular amongst members of the middle and upper middle classes as these enable them to pool their resources and build houses or flats in multi-storeyed buildings, often with the aid of loans from State Governments, State Housing Boards and other financing bodies. Cooperative house building societies fall broadly into two classes, namely, (a) those in which the houses or flats legally belong to the members themselves, the society being only a means to secure the land, the necessary financial resources by way of loan or otherwise, arranging for the construction and attending to the maintenance of the houses or flats, (b) societies in which the building belong ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 5(b), it is clear that the provisions of the Finance Bill override the Wealth-tax Act, to the extent of being contrary or not, in conformity with the Wealth-tax Act. Therefore, it is necessary to come to the charging section of the Finance bill, 1983 and charging section 3 laid out the assets chargeable. It is very clear assets must belong to private limited company. Section 4(7) was introduced to overcome this belonging to a company. The Finance Act should get precedence over the Wealth-tax Act because some of the defects in the Wealth-tax Act were intended to be cured by these steps. Inviting our attention to the definition of net wealth and the word used in the section belonging , learned counsel submitted, the very object of bringing section 4(7) of the Wealth-tax Act was to help an individual. This is a beneficial section to the assessee and it helps the assessee to claim exemption under section 5. Therefore, learned counsel submitted, this is also to be read with section 40(5)(a) of the Finance Act. Learned counsel submitted, the members have no full right and the members right is not a right in rem. The right in rem is with the society, just like a shareholder o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchase of the flat or for liquidating the liability incurred by him for the said purpose by way of loan or advance from the employer of the member or from the Life Insurance Corporation of India or from a bank or the society or any other agency approved by the Commissioner for Cooperation and Registrar CSMS, Pune. Again bringing our attention to section 29 of the Maharashtra Co-operative Societies Act, 1960, which deals with restrictions on transfer or charge of share or interest, learned counsel submitted, the real right lies with the society and not with the assessee. Again he brought our attention to Chapter IV, which deals with incorporation, duties and privileges of societies, particularly section 36. It reads as under : 36. Societies to be bodies corporate. The registration of a society shall render it a body corporate by the name under which it is registered, with perpetual succession and a common seal, and with power to acquire, hold and dispose of property, to enter into contracts, to institute and defend suits and other legal proceedings and to do all such things as are necessary for the purpose for which it is constituted. Learned counsel submitted, by virtue o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted, when an asset is owned by an assessee for the purpose of section 22 of the Income-tax Act, it follows that it belongs to the assessee under the provisions of section 40 of the Finance Act, 1983 also. The learned Departmental Representative submitted, a harmonious construction is required to be given to the provisions of section 4(7) of the Wealth-tax Act and section 40 of the Finance Act 1983. He argued that when all the rights in the flat vests with the assessee, it is only a question of terminology or semantics to say that the ownership does not vest with the assessee. The learned Departmental Representative further submitted, the decision relied on by learned counsel in the case of Sri Tarkeshwar Sio Thakur Jiu v. Dar Dass Dey and Co. reported in [1979] 3 SCC 106, is not relevant for the issue before the Bench. This was a case under West Bengal Estate Acquisition Act, 1953 and the question before the court was whether section 6 or section 28 of the Acquisition Act governed the case. The facts in that case were that the plaintiff had given a piece of land to the defendant for extraction of sand and the issue for consideration before the court was whether the deal was a leas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order of the hon ble Supreme Court in the case of Raja Mohammad Amir Ahmad Khan v. Municipal Board of Sitapur, AIR 1965 SC 1923, wherein their Lordships discussed the dictionary meaning of belonging to . The learned Departmental Representative submitted, as per this definition, belonging to has two meanings, i.e. (i) ownership; and (ii) absolute right of the user. It has been held that less than absolute title is also covered by the term belonging to . In short, he supported the discussion in the dissenting order of the Accountant Member. The learned Departmental Representative submitted, in fact, transfer of a share is nothing but transfer of the right itself. In reply to the above, learned counsel for the assessee submitted, the decision in the case of Hanuman Vitamin Foods P. Ltd. v. State of Maharashtra [2000] 102 Comp Cas 6 ; 8 JT 65 (SC) was in a different context and it was under the Bombay Stamp Act and that the decision is not applicable in the instant case of the assessee. Learned counsel submitted, the society under consideration was tenant co-partnership society and in that context the court observed. Therefore, when a member of such a co-operative housing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gistered, with perpetual succession and a common seal, and with power to acquit, hold and dispose of property, to enter into contracts, to institute and defend suits and other legal proceedings and to do all such things as are necessary for the purpose for which it is constituted. The perusal of the above shows that once the society is registered, such society will have a perpetual succession and a common seal. Further, it can acquire, hold and dispose of any property in its own name. The society acts through the committee for the management with rest of its authority being in general body of members in the meeting. The assessee has produced a copy of water bill, electricity bill, insurance policy, lift bill, etc. to indicate that all these are issued in the name of the society and not in the name of individual members, whether corporate body like the assessee or not. On the other hand, the right of a member of such society is to occupy the flat allotted to him so long as he holds the share as a member of the society. This is apparent from clause 26 of the bye-laws which reads as under: A member shall have a right to occupy the flat allotted to him subject to the terms and co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he share capital of a society shall be subject to such conditions as may be prescribed. (2) A member shall not transfer any share held by him or his interest in the capital or property of any society, or any part thereof, unless, (a) he has held such share or interest for not less than one year; (b) the transfer is made to a member of the society or to a person whose application for membership has been accepted by the society, or to a person whose appeal under section 23 of the Act has been allowed by the Registrar, or to a person who is deemed to be a member under sub-section (1A) of section 23. (3) Notwithstanding anything contained in sub-sections (1) and (2), where a member is allowed to resign, or is expelled, or ceases to be a member on account of his being disqualified by this Act or by the rules made thereunder or by the bye-laws of the society, the society may acquire the share or interest of such member in the share capital by paying for it at the value determined in the manner prescribed provided that the total payment of share capital of a society in any financial year for such purposes does not exceed ten per cent. of the paid-up share capital of the society ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he subject-matter of his ownership. It consists of a complex of rights, all of which are rights in rem, being good against all the world and not merely against specific persons . Their Lordships observed, an owner may not necessarily have possession. Secondly, the owner normally has the right to use and enjoy the thing he owned, the right to manage it, i.e. the right to decide how it shall be used; and the right to the income from it. Thirdly, the owner has the right to consume, destroy or alienate the thing. Fourthly, ownership has the characteristic of being indeterminate in duration. The position of an owner differs from that of a non-owner in possession in that the latter s interest is subject to be determined at some future time. Fifthly, ownership has a residuary character . Of course, even the Revenue had no case that the assessee in the instant case is having all its rights. The Revenue s case is that though the assessee is not fully the owner but it belongs to. Their Lordships again discussed the issue in the light of their own decision in the case of CWT v. Bishwanath Chatterjee reported in [1976] 103 ITR 536 (SC). In this case, the Nizam had received full consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned with the concept of ownership in terms of sections 22 and 27 of the Income-tax Act, 1961, which is quite different from the expression belonging to appearing in section 2(m) of the Wealth-tax Act, 1957, as well as in section 40 of the Finance Act, 1983. This fact has been noted by their Lordships at page-646 of 226 ITR. Therefore, this judgment does not help the Revenue. Further, the judgment of the apex court in the case of Raja Mohammad Amir Ahmad Khan v. Municipal Board of Sitapur, AIR 1965 SC 1923, relied upon by the Revenue for the proposition that the expression belonging to need not confine to absolute title also does not help the Revenue since this judgment was considered by the apex court in the case of Nawab Sir Mir Osman Ali Khan (Late) [1986] 162 ITR 888 but it was still held that for the purpose of section 2(m) of the Wealth-tax Act, 1957, the expression belonging to would denote only an absolute title in rem. Hence, the aforesaid judgment stands distinguished by the apex court itself. The judgment of the hon ble Supreme Court in the case of Hanuman Vitamin Foods P. Ltd. v. State of Maharashtra [2000] 102 Comp Cas 6 ; 8 JT 65, relied upon by the learned Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 57) (hereinafter referred to as the wealth-tax Act), no tax shall be charged in respect of the net wealth of a company for any financial year commencing on or after the 1st day of April, 1960 . This led to a disparity under the Wealth-tax Act, a member of a co-operative housing society cannot be said to have any land or building belonging to him as it belonged to the society. The impact of sections introduced by the Finance (No. 2) Act, 1971, with effect from April 1, 1972 has been explained and mentioned vide Circular No. 72 dated January 6, 1972. Section 4(7) was introduced, as explained above, so as to remedy the disparity that exemption contained in section 5(1)(iv) of the Wealth-tax Act that was available for one type of members of the co-operative housing society while to the other it was not. In this context, we have to agree with the learned counsel s contention, particularly keeping in view the above explanatory note on section 40 of the Finance Act, 1983. Wealth-tax was revived in an extremely limited manner for private limited companies and it was charged only on assets belonging to the company. The deeming provision of section 4(7) was not incorporated into section 40 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e levied under this Act in respect of the net wealth of any co-operative society by virtue of section 5(1)(xxviii). The contention of the Revenue was that as per the provisions of the charging section, i.e., section 3 of the Act, wealth-tax is chargeable in respect of the net wealth of every individual. Net wealth is defined by section 2(m), i.e. to say, as the amount by which the aggregate value of all the assets belonging to the assessee on the valuation date is in excess of the aggregate value of all the debts owed by the assessee on the valuation date except certain specified categories of debts. Section 2(e) defines assets as including property of every description, movable or immovable and interest in the property where the interest available to an assessee for a period exceeding six years. Discussing the issue, the hon ble High Court held, in section 4(7) which came into effect from April 1, 1972, the expression used is building or part thereof and not property. Property has an expression of wide amplitude, whereas building or part thereof is much narrower. It does not include plot or land. Discussing the issue, the hon ble High Court held that in a case where a co-o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... puted in accordance with the provisions of this Act of all the assets, wherever located, belonging to 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. Section 40 (2) For the purposes of sub-section (1), the net wealth of a company shall be the amount by which the aggregate value of all the assets referred to in sub-section (3), wherever located, belonging to the company on the valuation date is in excess of the aggregate value of all the debts owed by the company on the valuation date which are secured on, or which have been incurred in relation to, the said assets : A comparative study of both the definitions shows that under section 2(m) of the Wealth-tax Act, net wealth includes two types of properties, i.e. (i) assets belonging to the assessee and (ii) assets required to be included in the net wealth of the assessee while under section 40(2) of the Finance Act, 1983, net wealth includes only assets belonging to the assessee. So, there is deliberate departure by the Legislature. The assets required to be included are menti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the net wealth of the assessee under section 2(m) of the Wealth-tax Act, 1957, but there is no such provision under section 40 of the Finance Act, 1983. Thus, assets falling under section 4 of the Wealth-tax Act, 1957 cannot, by any logic, be brought within the ambit of section 40 of the Finance Act, 1983. Reliance has been placed on the provisions of sub-sections (5) and (7) of section 40 of the Finance Act, 1983, which provide as under. 5 For the purposes of the levy of wealth-tax under the Wealth-tax Act, in pursuance of the provisions of this section, (a) section 5, clause (a) of sub-section (2) of section 7 and clause (d) of section 45 of that Act and Part-II of Schedule I to that Act shall not apply and shall have no effect, (b) the remaining provisions of that Act shall be construed so as to be in conformity with the provisions of this section. 7. Subject to the provisions of sub-section (5), this section shall be construed as one with the Wealth-tax Act. It has been contended that by virtue of these provisions. Section 4 would be applicable in the case of a company. We are unable to accept the contention of the Revenue for the reasons given in the preced ..... X X X X Extracts X X X X X X X X Extracts X X X X
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