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2015 (12) TMI 1223 - BOMBAY HIGH COURT

2015 (12) TMI 1223 - BOMBAY HIGH COURT - [2016] 383 ITR 25 - Determination of net wealth - Inclusion of leasehold interest - whether the open land admeasuring 2175 sq.mtr of the said plot taken on lease by the Appellant is an asset under Section 40(3) of the Act - whether it is belonging to the Appellant for the purposes of determining its net asset chargeable to Wealth Tax under the Act - Held that:- The absence of the words 'property of every description' movable or immovable in Section 40(3) .....

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e assessee in the proviso to cover a case of open land other than the agricultural land as an asset if the same is held for industrial purposes in excess of over two years. There is no need to compare and contrast the provisions of the Act with the provisions of the Wealth Tax Act, 1957, when there is sufficient indication in the Act itself to include the property in land to be an asset even if it is not owned.

Under Section 2(m) of the Wealth Tax Act, 1957, net wealth as defined does .....

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ncludable under the Act. Section 40(5) of the Act may apply in cases where an issue has not specifically provided for under the Act; - leasehold interest in open land will for purposes of Section 40 of the Act would be an asset as on the valuation date for A. Y. 1998-99.

Various clauses of the terms of lease deed relied upon by the Appellant such as obligation of the Appellant to pay rent to the MIDC; a prohibition from extracting any part of the said demised land, the prohibition t .....

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is not the owner of the premises and the interest, if any, are very limited. This, however, does not in any way detract and/or negate from the fact that the lease deed dated 29th September, 1978 is a lease of the plot of land. Various clauses of the agreement does not in any manner detract from the agreement being a lease. In fact, the terms of the lease deed establishes that the Appellant has a right to use the property provided the terms and conditions of the lease, are adhered to by the Appel .....

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ms of Section 7 read with Schedule III part (b) of the Wealth Tax Act, 1957. Thus, the value of the leasehold interest in land has to be included for in determining the net wealth under the Act. - Decided against the assessee. - WEALTH TAX APPEAL NO. 33 OF 2001 - Dated:- 18-12-2015 - M.S.SANKLECHA, AND G.S.KULKARNI, JJ. For The Appellant : Mr. Mihir Naniwadekar For The Respondent : Mr. Suresh Kumar JUDGMENT (Per M. S. Sanklecha,J.): This appeal under Section 27A of the Wealth Tax Act, 1957 (th .....

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Act 1983, the expression land will include any interest in land also? (b) Whether on a fair interpretation of the lease deed dated 29/9/1978 the tribunal was right in law in holding that the demised land belongs to the appellant on the valuation date so as to be includible in its net wealth? 3 Briefly, the facts leading to the present appeal are as under:( a) The appellantassessee is closely held company i.e. a company in which the public are not substantially interested. Therefore, for the subj .....

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actory building, leaving a balance area of 2175 sq. mtrs. of the said plot as open land; (c) During subject Assessment Year, the AppellantCompany filed its Wealth Tax Returns under Section 40 of the Act, returning a net wealth of ₹ 13 lacs. In its return of Wealth, the Appellant had in computing its net wealth, not taken into account its leasehold interest in the said plot or any part thereof. However, the Assessing Officer in his order dated 30th March, 1992 held that the Respondent is li .....

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at in substance and for all practical purposes, the open land was an asset belonging to the Appellantassessee and an amount of ₹ 2.17 lakhs was included as the value of open land to compute net wealth. This resulted in order dated 30 March 1992 of the Assessing Officer enhancing the net wealth from ₹ 13 lakhs as declared to ₹ 15 lakhs; (d) Being aggrieved, the Appellantassessee preferred an appeal to the Commissioner of Wealth Tax (Appeals). By an order dated 5th February, 1994 .....

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elonging to the Company and not assets owned by the Company. Therefore the order dated 30 March 1992 of the Wealth Tax Officer was sustained; and (e) Being aggrieved, the Appellantassessee carried the issue in appeal to the Tribunal. By order dated 26th July, 2000, the Tribunal dismissed the Appellant's appeal. The impugned order holds that even though the legal ownership of the open land in the plot is vested in MIDC, yet it also belonged to the appellant as the lease hold rights therein fo .....

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icultural land which when read with Section 40(2) of the Act have to belong to the company. This is contrasted with the definition of assets as provided at the relevant time in Section 2(e) of the Wealth Tax Act 1957 which defines assets to mean property of every description movable or immovable. Thus, a lease hold right or any other right in a property would be considered to an asset under the Wealth Tax Act 1957 but not so under the Act. This difference in language is with the purpose of givin .....

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. It is submitted that the word 'belonging' in regard to open land means possession of the land along with a legal title to it; and (c) A reading of the MIDC Act along with the lease deed dated 29th September, 1978 obtained by the Appellant from MIDC would clearly establish that the open land of 2175 sq. mtrs, of the said plot taken on lease from MIDC does not belong to the Appellant. Thus, the value of open land could not be taken into account as its asset to determine the net wealth un .....

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0(3)(v) of the Act. The proviso includes as an asset any unused land held i.e. possessed by an assessee for a period in excess of two years from date of acquisition of the land. It does not speak of legal title but only of land being held by the Assessee; (b) In any view, it is submitted that by virtue of Section 40(5) of the Act, except the sections of the Wealth Tax Act 1957, specifically excluded therein, the other provisions are to be construed so as to be in conformity with the Act. On the .....

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the Company'. This with a view to include interest less than full ownership. Thus, a leasehold interest of the appellant for 95 years even if not accompanied by legal title, would belong to the company; and (d) On examination of the lease deed dated 29th September, 1978 entered into between the MIDC and the appellant would clearly establish that the open land of 2175 sq.mtrs of the said plot, that it belong to the Appellant. 6 Before dealing with the rival submissions, it may be necessary t .....

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esponding valuation date of every company, not being a company in which the public are substantially interested, at the rate of two per cent of such net wealth. Provided …. …. …. …. (2) For the purposes of subsection (1), the net wealth of a company shall be the amount by which the aggregate value of all the assets referred to in subsection (3), wherever located, belonging to the company on the valuation date which are secured on, or which have been incurred in relati .....

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) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semiprecious stone, and whether or not worked or sewn into any wearing apparel; (iv) …. …. …. …. (v) land other than agricultural land; Provided that nothing in this clause shall apply to any unused land held by the assessee for industrial purposes for a period of two years from the date of its ac .....

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rovisions of this section. (6) …. …. …. …. (7) Subject to the provisions of subsection (5), this section shall be construed as one with the Wealthtax Act. (B) The Wealth Tax Act, 1957 : 2(e) assets includes property of every description, movable or immovable but does not include:( 1) …. …. …. …. (2) in relation t the assessment year commencing on the 1st day of April, 1970, or any subsequent assessment year [but before the 1st day of April, .....

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( 1)(a) …. …. …. …. 2(m):' net wealth' means the amount by which the aggregate value computed 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 incurred in relation to the said assets. Section 4 Net wealth to include certain assets (1) In .....

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action as is referred to in clause (f) of section 269UA of the Income Tax Act. shall be deemed to be the owner of that building or part thereof and the value of such building or part shall be included in computing the net wealth of such person. Explanation:For the purposes of this section( a) the expression 'transfer' includes any disposition settlement, trust, covenant, agreement or arrangement; (aa) the expression 'child' includes a stepchild and an adopted child] (b) the expre .....

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n any way gives the transferor a right to reassume power, directly or indirectly, over the whole or any part of the assets or income therefrom; and (c) the expression 'property' includes any interest in any property, movable or immovable, the proceeds of sale thereof and any money or investment for the time being representing the proceeds of sale thereof and where the property is converted into any other property by any method, such property. 7 The charge of wealth tax under Section 40(1 .....

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Further, if it is an asset, whether it is belonging to the Appellant for the purposes of determining its net asset chargeable to Wealth Tax under the Act. 8 Question (a): (a) It is submitted on behalf of the Appellant a lease hold interest in open land is not includable in net wealth under Section 40(2) of the Act as it is not an asset in terms of Section 40(3) of the Act. Thus, it cannot be included for computing the net wealth under Section 40(2) of the Act. In support, attention is invited t .....

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ence between leasehold right and ownership right as is evident from the Transfer of Property Act. In this case, we are concerned with leasehold right. However, the absence of the words 'property of every description' movable or immovable in Section 40(3) of the Act by itself would not lead to the conclusion that only a property owned by an assessee would be covered and not property of any other kind. Be that as it may, so far as Section 40(3)(v) of the Act, which is the applicable provis .....

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ct with the provisions of the Wealth Tax Act, 1957, when there is sufficient indication in the Act itself to include the property in land to be an asset even if it is not owned; (c) Therefore, we do not find any merit in the above submission. We hold that land other than agricultural land held unused in excess of two years from the date its acquisition is an asset as defined under Section 40(3) of the Act even if it is not owned; (d) We may at this stage refer to the contention of the Revenue th .....

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mpanies; (e) This submission ignores the difference in the definition of the net wealth as found in Section 40(2) of the Act and 2(m) of the Wealth Tax Act, 1957. Section 40(2) of the Act defines net wealth to mean all assets belonging to the Company on the valuation date in excess of the aggregate value of its debts. While Section 2(m) of the Wealth Tax Act, 1957 defines net wealth to mean an aggregate value of all assets belonging to the assessee including assets required to be included in his .....

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eeming provision of ownership. Therefore, the net wealth under the Act, has to be restricted in terms of the definition of assets as provided under the Act and cannot artificially include assets not includable under the Act. Section 40(5) of the Act may apply in cases where an issue has not specifically provided for under the Act; (f) Further, in any case, the Wealth Tax Act 1957 has to be read in conformity with the Act and not to destroy and/or restrict the meaning of Asset as given under the .....

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t leasehold interest in open land will for purposes of Section 40 of the Act would be an asset as on the valuation date for A. Y. 199899. 9 Question (b): (a) The primary submission on behalf of the appellant that we have to first determine is the meaning of the word 'belonging to' and thereafter to examine whether the meaning so determined is satisfied in the context of the lease deed dated 29th September, 1978. It is submitted that the word 'belonging to' as used in Section 40(2 .....

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een subject of consideration by the Courts. In support, learned Counsel draws our attention to the order of Supreme Court in Commissioner of Wealth Tax v/s. Bishwanath Chatterjee 103 ITR 536 - wherein the Commissioner of Wealth Tax sought to bring to tax under the Wealth Tax Act 1957 certain properties inherited by the heirs of an Hindu male and jointly possessed by them in its status as an Hindu Undivided Family governed by the Dayabhaga school of Hindu law. This on the ground that the inherite .....

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on 2(m) of the Wealth Tax 1957 and concluded that on the death of an Hindu male governed by the Mitakshara law his property devolved upon his heirs in definite shares and each coparcener was the owner of his share and therefore the property belonged to the individual members to the extent it was owned by the individual members and not to the Hindu Undivided Family. Thus in the context of the Dayabhaga School of Hindu law, it was held that the inherited property even if possessed jointly by all t .....

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in the backdrop of the Dayabhaga school of law where inherited property though possessed jointly was individually owned to the extent of a particular share by each coparcerner. On the facts before it, the Court took the view that mere possession of the property jointly by all the members of Hindu Undivided Family, without anything more, would not render the property as belonging to the Hindu Undivided Family. In the present facts the open land is not only possessed by the appellant but it is cou .....

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ld to the third parties. As against that, in the present case under consideration no party to the lease deed can exercise rights with regard to possession of the land unilaterally as it is to be decided/exercised only in terms of the lease deed. (c) Further, in support of his submission that the word belonging to has to mean owned, reliance is placed by Mr. Mihir Nanwadekar, upon the decision of this Court in CIT v/s. O. P. Monga 162 ITR 224 -wherein this Court was concerned with a claim for dep .....

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cision of this Court is distinguishable for the reason that the Court was concerned with the meaning of the word 'owned by' not so before us. The condition precedent to make a claim for depreciation is not only user of the assets but also the ownership thereof. It was in that context that this Court held after examination of the lease deed that the Respondent before it not being the owner of the asset was not entitled to depreciation. Therefore, this case would have no application to the .....

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l title. In this connection, the observations of this Court in Raja Mohammad Amir Ahmed Khan v/s. Municipal Board of Sitapur, AIR 1965 SC 1923. This Court observed in that case that though the expression 'belonging to' no doubt was capable of denoting an absolute title, it was nevertheless not confined to connoting that sense. Full possession of an interest less than of full ownership could also be signified by that expression. (emphasis supplied) (e) In fact, the Apex Court in (late) Na .....

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wealth tax in the hands of the assessee. This was because the registered sale deed with regard to the property had not been executed. On the aforesaid facts the Court was concerned with the meaning of the word 'belonging to' as found in Section 2 (m) of the Wealth Tax Act, 1957 which define net wealth. The Apex Court held that in the facts and circumstances of the case and in the eyes of the law, the purchaser cannot be and is not treated as legal owner of the property in question. To re .....

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thing which he owns. He may not necessarily have possession. Secondly, the owner normally has the right to use and enjoy the thing owned: the right to manage it, i.e. the right to decide how it shall be used; and the right to he income from it. Thirdly, the owner has the right to consume, destroy or alienate in duration. Fourthly, ownership has the characteristic of being indeterminate in duration. The position of an owner differs from that of a nonowner in possession in that the latter's in .....

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ts embedded in the concept of ownership of Salmond cannot strictly be applied either to the purchasers or the assessee in the instant case. In the instant appeal, however, we are concerned with the expression belonging to and not with the expression owner . (f) The Apex Court thereafter observes that the property in question legally cannot be said to belong to the buyer/vendee. The vendee has rightful possession only against vendor. In the circumstances, the property should be treated as belongi .....

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though worthy of the highest respect will not displace the ratio of the decision viz. Possession coupled with legal ownership would alone amount to 'belonging to' in the facts before the Court. In these circumstances, the issue would appear to be concluded against the Revenue and in favour of the Appellantassessee. (g) However the decision in the (Late) Nawab Sir Mir Osman Ali Khan (supra) may not ipso facto apply to the case at hand as there are factual differences as pointed out herein .....

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ights in respect of land in its possession so as to claim that the land belongs to him albeit not owned. Therefore, the facts in the present case are distinguishable as the Appellant on the basis of document executed by the lessor - (MIDC) can claim interest in the open land which may be less than full ownership to be covered by the expression 'belonging to' subject to the terms of the lease deed. Further the decision to tax the land in the hands of the vendor i.e. the (Late) Nawab Sir M .....

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SC 1923 had occasion to consider the word 'belonging' in the context of a contractual document and held that : Though the word 'belonging' no doubt is capable of denoting an absolute tittle, is nevertheless not confined to connoting that sense. Even possession of an interest less than that of full ownership could be signified by that word. In Webster belong to is explained as meaning inter alia to be owned by, be the possession of . The precise sense which the word was meant to b .....

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hich it occurs. An identical test would satisfy the laws of interpretation of statutes i.e. to read the statute as a whole and interpret its provisions in the context in which it occurs to determine the meaning of the word 'belonging to' in Section 40(2) of the Act. (i) We find that the word 'belonging to the company' has advisedly been used by the Parliament in Section 40 (2) of the Act. In case the Parliament sought to equate the word 'belonging to' mean ownership then .....

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e use of the word 'belonging to'. However whether the asset belong to an asessee or not would have to be determined on the facts of each case, depending upon the documents executed and the nature of domain the lessee exercises over the asset. The determination of the same in the present facts would require examination of the lease deed. Of course, the occasion to examine the same would only arise when there is some right more than mere possession, even if it is not full ownership. It is .....

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asis of the various clauses in the lease deed dated 29th September,1978 under which the Appellant is in possession of the land. (k) The various clauses of the lease deed dated 29th September, 1978 have to be examined for the purposes of determining whether these would establish such a relationship of the Appellant to the open land as is sufficient to conclude that it is belonging to the Appellant on the valuation date. For the purposes of determining the relationship of the Appellant to the land .....

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from transfer of ownership as it only transfer of rights to enjoy the property and not the transfer of ownership of the property in its entirety. A lease again by definition would differ from license, as a lease would necessarily create an interest in the property while a license only permits a person to use the property of another which continues to be in the legal possession of such other. A license does not create any interest or estate in the property to which the license is granted. Therefo .....

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of the Act. However, the issue still is whether the interest is sufficient to satisfy the test of 'belonging to' to the lessee. (l) The question as framed for our consideration is whether in terms of the lease deed,it could be said that the open land of 2175 sq.mtrs. of the said plot was belonging to the Appellant. Therefore, the lease deed is to be examined in the context of determining whether the clauses indicate that a lease in fact was created in the land or not in the so called le .....

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er determination thereof to hand over the leased premises to MIDC and the Appellant not to sub let or part with possession of the leased premises or any part thereof without previous written consent of the MIDC. On the other hand, the lessor has full rights to enter upon the plot and inspect the same with proper notice. If any breach of the clauses contained in the lease deed is committed, the lessor would have a right to reenter upon the leased premises and the lease granted shall come to an en .....

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wable for a period of 95 years under the deed. All this according to the Respondent would indicate that the open land is belonging to the Appellant. (o) We find that various clauses of the terms of lease deed relied upon by the Appellant such as - obligation of the Appellant to pay rent to the MIDC; a prohibition from extracting any part of the said demised land, the prohibition to make any alternations to the building without a previous approval of the MIDC; the right of MIDC to enter and inspe .....

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