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2016 (4) TMI 896 - ITAT BANGALORE

2016 (4) TMI 896 - ITAT BANGALORE - TMI - Computation of net wealth of the assessee-company - whether the lands, which are undisputedly urban land within the meaning of provisions of 2(e)(a) of the Act, which are subject matter of JDA can be included in the net wealth of the assessee-company ? - Held that:- It is settled principle of law that the finding in income-tax proceedings is not relevant for the purpose of wealth-tax proceedings but the crucial facts to be noticed in this case is that th .....

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d title of the property had not been passed on to the company, cannot be included in the taxable wealth of a company. In light of the abovementioned legal position, we hold that the assessee-company continues to be owner of the lands and is liable to wealth-tax.

With regard to the claim of the assessee-company that refundable deposits received from M/s.Classic Enterprises in terms of the development agreement should be allowed as a deduction from the value of the assets computed, it i .....

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Shri Sanjay Kumar, CIT (DR) ORDER Per Bench These appeals by three assessees are directed against the respective orders of the learned Commissioner of Wealth tax ( Appeals) [CWT(A)] for the assessment years 2002-03 to 2007-08. 2. Since common issues are involved in all these appeals, we dispose of the same by a common and consolidated order for the sake of convenience. Facts in all the cases are similar and identical. However, facts in M/s.Triad Resorts & Hotels P.Ltd. for the assessment yea .....

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imit. She ought to have annulled the assessment as done by her in the case of the sister concern of the appellant on identical facts and circumstances. b) The learned CWT(Appeals) failed to appreciate that there was no documentary evidence with the Assessing Officer for having issued within the statutory time limit the impugned notice u/s.17 of the Wealth Tax Act, 1957, nor was there any evidence for service of such notice. Consequently, she erred in upholding the assumption of jurisdiction u/s .....

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1957 despite the fact that the urban land held by the appellant was deemed to be stock in trade as on the valuation date in terms of subclause (ii) of Clause (b) of Explanation 1 to section 2(ea) of the Wealth Tax Act, 1957. She ought to annulled the impugned assessment. b) The learned CWT(Appeals) failed to appreciate that during the currency of the joint development agreement entered into by the appellant with the developer the impugned asset with regard to which wealth tax had been charged h .....

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7 also the impugned asset had to be deemed as stockin- trade as on the valuation date namely 31stMarch 2002. Consequently,she erred in confirming the assessment. d) The learned CWT(Appeals) failed to appreciate that the doctrine of 'approbate and reprobate' is a species of the law of estoppel and does not operate against law. It operates only against facts. Consequently, she erred in upholding the assessment as valid. 4) Without prejudice to ground No.3: The learned CWT(Appeals) failed t .....

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before or at the time of hearing of the appeal, if it is considered necessary. 4. Briefly, the facts of the case are as under: The assessee is a company, incorporated under the provisions of the Companies Act, 1956 in which public are not substantially interested. It is engaged in the business of running of hotels and service apartments. Since no wealth-tax returns were filed, the Assessing Officer (AO) issued notice u/s 17 of the Wealth-tax Act, 1957 [ the Act for short] on 21/7/2008. The asse .....

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ax under the head capital gains for the assessment year 2008-09. Taking into consideration these facts, the AO had issued notice proposing to re-assess the wealth which escaped tax. 5. During the course of assessment proceedings, it was contended before the AO that Joint Development Agreement [JDA)] was entered into with M/s.Classic Infrastructure Development Ltd., on 5/12/2000 for development of property and therefore, the property ceased to be a capital asset and is only stock-in-trade which i .....

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sed the appeal. It was contended, inter alia, before the ld.CWT(A) that no notice u/s 17 of the Act was served on the assessee-company and further reiterated the same contentions as advanced before the AO that the land was held as stock-in-trade and not as an asset, therefore, out of the purview provisions of the Act. It was further contended that the deposit of ₹ 11.3 crores received pursuant to JDA with M/s.Classic Infrastructure Development Ltd., should be reduced from the value adopted .....

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refundable deposit of ₹ 11.3 crores should be reduced from the value adopted was negative by the ld.CWT(A) by holding that it is not a debt incurred in connection with acquiring the asset. 7. Being aggrieved, assessee-company is before us with the present appeals. 7.1 Learned counsel for the assessee urged before us that once the lands in question are subject matter of JDA, property should be treated only as stock-in-trade. Findings in income-tax proceedings are not relevant in the wealth .....

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sum and substance of his argument is that by virtue of JDA, assessee-company ceased to be owner of the land and therefore, value of the land cannot be included while computing net wealth of the assessee. 7.2 On the other hand, ld.CIT(DR) vehemently opposed the above arguments. He filed written submissions drawing our attention to certain paragraphs of ld.CWT(A) s order and highlighted the treatment given by assessee-company in the books of account. He further submitted that JDA does not create a .....

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the assessee-company. Undisputed facts are that in the books of account, these lands were shown as investments. The lands were purchased in the year 1996 and JDA was entered for development of the property on 5/12/2000 with M/s. Classic Infrastructure Development Ltd. Subsequently JDA was cancelled and the lands were ultimately sold in the month of August 2007 to ITC Ltd. When the lands were sold, profits arising thereon were shown as capital gain, the benefit of indexation of cost acquisition w .....

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included in computing net wealth of the assessee-company. 8.1 We shall now first deal with first limb of the arguments, viz., whether the lands are stock-in-trade, as claimed by the assessee-company? Undisputedly, assessee-company has been showing these lands as investment in the books of account regularly maintained by it. Even in income-tax proceedings, lands were shown as capital asset and profit arising in subsequent sale of land to M/s. ITC Ltd. was shown under the head capital gains and b .....

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e, we are unable to agree with the assessee-company that the lands are held as stock-in-trade. 9. Now, we shall advert to second limb of his argument that whether the assessee-company ceased to be a owner of the land in question once the lands are subject matter of JDA and possession of the property was handed over to the developer. Even without going into veracity of the claim, whether possession of land was given to the developer in terms of JDA, it is settled principle of law that by virtue o .....

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tries Pvt. Ltd. vs. State of Haryana (340 ITR 1) vide para.20 of the judgment had dealt with the scope of the Power of Attorney as follows: A power of attorney is not an instrument of transfer in regard to any right, title or interest in an immovable property. The power of attorney is creation of an agency whereby the grantor authorizes the grantee to do the acts specified therein, on behalf of grantor, which when executed will be binding on the grantor as if done by him (see section 1A and sect .....

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al in one transaction or a series of transactions or to manage the affairs of the principal generally conferring necessary authority upon another person. A deed of power of attorney is executed by the principal in favour of the agent. The agent derives a right to use his name and all acts, deeds and things done by him and subject to the limitations contained in the said deed, the same shall be read as if done by the donor. A power of attorney is, as is well known, a document of convenience. Exec .....

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use the power of attorney for his own benefit. He acts in a fiduciary capacity. Any act of infidelity or breach of trust is a matter between the donor and the donee." An attorney holder may however execute a deed of conveyance in exercise of the power granted under the power of attorney and convey title on behalf of the grantor. and finally concluded that the GPA do not convey title and do not amount to transfer nor can they be recognized as a valid mode of transfer of immovable property o .....

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interest in an immovable property. They cannot be recognized as deeds of title, except to the limited extent of section 53A of the TP Act. Such transactions cannot be relied upon or made the basis for mutations in Municipal or Revenue Records. What is stated above will apply not only to deeds of conveyance in regard to freehold property but also to transfer of leasehold property. A lease can be validly transferred only under a registered Assignment of Lease. It is time that an end is put to the .....

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and Anr. (1977) 3 SCC 247, observed: A contract of sale does not of itself create any interest in, or charge on, the property. This is expressly declared in Section 54 of the Transfer of Property Act. See Rambaran Prosad v. Ram Mohit Hazra [1967]1 SCR; AIR 1967 SC 744. The fiduciary character of the personal obligation created by a contract for sale is recognised in Section 3 of the Specific Relief Act, 1963, and in Section 91 of the Trusts Act. The personal obligation created by a contract of .....

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In Rambhau Namdeo Gajre v. Narayan Bapuji Dhotra [2004 (8) SCC 614] this Court held: "Protection provided under Section 53A of the Act to the proposed transferee is a shield only against the transferor. It disentitles the transferor from disturbing the possession of the proposed transferee who is put in possession in pursuance to such an agreement. It has nothing to do with the ownership of the proposed transferor who remains full owner of the property till it is legally conveyed by executi .....

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, in the case of Wipro Ltd. vs. DCIT reported in 282 CTR (Kar) 346 had dealt with the scope of Power of Attorney executed in the context of development of properties. The Hon ble High Court, after considering the judgment of the Hon ble Supreme Court in the case of Suraj Lamp & Industries (P) Ltd. (supra) had held that by virtue of GPA, it does not have the affect of transferring or enabling enjoyment of any immovable property. Therefore, it would not amount to transfer as envisaged within t .....

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strument of transfer in regard to any right, title or interest in an immovable property. A power of attorney is creation of an agency whereby the grantor authorises the grantee to do the acts specified therein, on behalf of grantor, which when executed will be binding on the grantor as if done by him (Sec. lA and 2 of Power of Attorney Act, 1882). It is revocable or terminable at any time unless it is made irrevocable in a manner known to law. Even an irrevocable attorney does not have the effec .....

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ed of power of attorney is executed by the principal in favour of the agent. The agent derives a right to use his name and all acts, deeds and things done by him and subject to the limitations contained in the said deed. the same shall be read as if done by the donor. A power of attorney is as is well known, a document of convenience". 142. A deed of power of attorney is executed by the principal in favour of the agent. The agent derives a right to use his name and all acts, deeds and thing .....

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on has the effect of transferring or enabling the enjoyment of any immovable property, it would not amount to a transfer. 144. In the instant case. assessee executed a power of attorney after entering into an agreement of sale for the purposes mentioned therein. It is in pursuance of the power so conferred, coupled with the terms f the agreement of sale, the power of attorney holder has to develop the property, identify the purchasers and sell the undivided share of land as well as the built are .....

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ent and acknowledged the same in the books of account and showed it in the balance sheet, that by itself did not confer the power of transferring the stock-in-trade in favour of the power of attorney holder or in favour of the purchasers unless he has executed the sale deed on behalf of the purchasers. Therefore, In view of s. 45(2) of the Act, the capital gains is not chargeable on receipt of the consideration in the year in which that consideration was received under s. 45(2). The income-tax i .....

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ent of sale was received and virtue of the power of attorney, the power of attorney holder is authorized to develop the property, to sell the property and to receive the consideration, It amounts to the stock-in-trade being otherwise transferred leading to the said income being chargeable to Income-tax in the previous year in which the power of attorney is executed is without any substance. As the stock-in-trade is sold by way of a registered deed, there is no intention to avoid payment of capit .....

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rty. Furthermore, provisions of section 4 use the expression belonging to an individual . The term belonging had come up for interpretation before the Hon ble Supreme Court in the case of CWT vs. Bishwanath Chatterjee (103 ITR 536) and late Nawab Sir Mir Osman Ali Khan (162 ITR 888) wherein the Hon ble Supreme Court held as under: The apex court in the case of Bishwanath Chattejee [1976] 103 ITR 536 (page 539): "The expression 'belong' has been defined as follows in the Oxford Engli .....

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#39;belonging' to the assessee." The apex court in the case of (Late) Naivab Sir Mir Osman All Khan [1986] 162 ITR 888 has observed (page 899): "In all these cases, as was reiterated by the Calcutta High Court in S. B. (House and Land) P. Ltd. v. CIT [1979] 119 ITR 785 the question of ownership had to be considered only in the light of the particular facts of a case. The Patna High Court in Addl. CIT v. Sahay Properties and Investment Co. P. Ltd. [1983] 144 JTR 357 was concerned wi .....

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registered in its name, the assessee was not the owner of the property. In the circumstances, it was held that the assessee must be deemed to be the owner of the property within the meaning of section 22 of the Income-tax Act, 1961, and was assessable as such on the income from the property." Even the Hon'ble jurisdictional High Court in the case of Vysya Bank Ltd. vs. DCWT (299 ITR 335), after considering the abovementioned two Supreme Court judgments held that an asset, which was not .....

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