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2016 (5) TMI 841 - DELHI HIGH COURT

2016 (5) TMI 841 - DELHI HIGH COURT - [2016] 387 ITR 252 - Property included in net wealth - Held that:- In a situation like the present one where the possession and control of the property vests with the Assessee to the exclusion of everyone else and it is the Assessee who is exploiting the property for its own purposes, it is not open to the Assessee to contend that the property in question does not belong to it. Consequently the question framed is answered in the negative, i.e., in favour of .....

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. Anup Kesari, Advocate. For the Respondent: Mr. V.P.Gupta and Mr. Anuj Bansal, Advocates. J U D G E M E N T Dr. S. Muralidhar, J.: 1. These appeals by the Revenue are directed against a common judgment dated 29th September 2003 passed by the Income Tax Appellate Tribunal ( ITAT ) in WTA Nos. 180, 181, 431 and 691/Del/96 for the Assessment Years ( AYs ) 1989-90, 1990-91, 1991-92 and 1985-86, as well as WTA No. 286/Del/98 for AY 1992-93. 2. At the outset, it must be noticed that the impugned comm .....

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8 and 9, Zamrudpur Community Centre, Kailash Colony, New Delhi. During the assessment proceedings, the Assessing Officer ( AO ) noted that the Assessee had not disclosed the value of the property in its total taxable wealth. In response to a query raised by the AO in that regard, the Assessee stated that the property in question had not been registered in its name and therefore in terms of the Wealth Tax Act, 1957 ( WT Act ) the value of the said property could not be added in computing the net .....

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oned properties and remanded the matter to the AO for a fresh determination. Upon remand, the AO referred the issue concerning the fair market value of both the properties to the valuation officer. By report dated 28th March, 1994 the valuation officer of the Income Tax Department determined the value of the property at 8 and 9, Zamrudpur Community Centre, Kailash Colony, New Delhi at ₹ 1,49,50,600. This value formed the basis for computation of the net wealth of the Assessee. The valuatio .....

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uation the Assessee was not yet the legal owner of the property as the lease deed had not been executed by the DDA in favour of the Assessee. Therefore it was not an 'asset' under Section 40 (3) of the Finance Act 1983. The CIT (A) accepted the above plea and held that the value of the land at 8 and 9, Zamrudpur Community Centre, Kailash Colony, New Delhi was not liable to be included in the net wealth of the Assessee as on the relevant date the lease deed had not been executed in favour .....

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t applicable in the facts of the case. It was further held that the building in any case was covered by Section 40 (3) (vi) of the Finance Act 1983 and the Assessee was its real owner. 8. As far as AY 1990-91 is concerned, the AO passed an order on 17th March 1993 again determining the value of property as per Schedule III of WTA at ₹ 4,19,45,260. 9. The Assessee's appeals for both AYs 1989-90 and 1990-91 were disposed of by the CIT(A) by a common order dated 30th November 1995. The CI .....

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istered in the name of the Assessee, it cannot be said to be belonging to the Assessee." Appeals were filed by the Revenue before the ITAT against the aforementioned common order of the CIT(A). 10. As far as AY 1991-92 is concerned, the AO passed the assessment order on 17th March 1994, determining the value of the property at ₹ 1,14,32,574. The contention of the Assessee that the value of the property was not liable to wealth tax since it was not registered in the name of the Assesse .....

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he assessment order on 14th March 1995, computing the value of the property at ₹ 27,03,031. In the appeal filed against the said order, the CIT(A) passed an order dated 31st July 1998 accepting the case of the Assessee that the premises were used by the Assessee for its office and therefore its value was not to be included in the net wealth. The additions made by the AO were deleted. 12. As already noted, against the above orders of the CIT (A), the Revenue filed appeals before the ITAT wh .....

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or all the AYs in question. WTA 8/2004 for AY 1985-86 13. At the outset, it is pointed out by Mr. V.P. Gupta, learned counsel for the Assessee that the appeal for AY 1985-86 viz., WTA 8 of 2004, was not maintainable. He submitted that as far as AY 1985-86 is concerned, it was governed by Section 40 of the Finance Act 1983 as it stood prior to the amendment to Section 2 (m) of the WT Act with effect from 1st April 1988. The position as regards AYs 1986-87 and 1987-88 was no different. The decisio .....

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. Therefore the assessments for the AYs prior to AY 1988-89 had to merit the same treatment on the principle of consistency as far as the Revenue was concerned. As already noticed, the decision of the CIT (A) for AYs 1986-87 and 1987-88, subsequent to AY 1985-86, has been accepted by the Revenue. In fact, even for AY 1988-89, the decision of the ITAT holding that the value of neither the land nor the building can be included in the net wealth of the Assessee, notwithstanding the amendment to Sec .....

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1992-93, Mr Gupta pointed out that the CIT(A) returned a factual finding that the building on the property at 8 and 9 Zamrudpur Community Centre and consequently the land appurtenant thereto was being used for the purposes of running the Assessee's office. Therefore, in terms of Section 40 (3) (vi) of the Finance Act 1983, the value of the building could not be included in the net wealth. Mr Gupta further points out that the Revenue did not question this factual finding in its appeal in thi .....

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The Court is unable to agree with the submission of Mr. Rahul Chaudhary, learned Senior Standing counsel for the Revenue, that merely because a question was not framed in that regard by this Court while admitting the appeal WTA 7 of 2004, the Revenue ought not be precluded from questioning the above finding of fact at the stage of final hearing. 18. The following question was framed in the present appeals, including WTA 7 of 2004, by the Court way back on 27th August 2004: Whether ITAT was corr .....

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ay have arisen. The fact remains that the Revenue has accepted the above finding of fact for AY 1992-93 that the building in question was used for the purposes of office. If the building was being used for office purpose, the land appurtenant thereto was also being used for the same purpose. Therefore the value of neither the land nor the building could, in terms of Section 40 (3) (vi) of the Finance Act, 1983, be included in the Assessee's net wealth. 20. As far as AY 1992-93 is concerned t .....

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otwithstanding anything contained in WT Act no tax shall be charged in respect of the net wealth of a company for any financial year commencing on or after 1st April 1960 . This position changed with the Finance Act, 1983. Section 30 of the said statute provided for the revival of the levy of wealth tax in the case of closely held companies. This underwent further changes by the Finance Act, 1988 with effect from 1st April 1989. Section 40 as it stands with effect from 1st April 1989 reads as un .....

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ublic are substantially interested, at the rate of two per cent of such net wealth. Provided that the amount of wealth-tax computed in accordance with the provisions of this sub-section shall, in relation to the assessment year commencing on the 1st day of April, 1988, be increased by a surcharge calculated at the rate of ten percent of such wealth-tax. Explanation- For the purposes of this sub-section, "company in which the public are substantially interested" shall have the meaning a .....

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ebt secured on any asset belonging to the Assessee is incurred for, or ensures to, the benefit of any other person, or is not represented by any asset belonging to the Assessee, the value of such debt shall not be taken into account in computing the net wealth of the Assessee. (3) The assets referred to in sub-section (2) shall be the following, namely: - (i) gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals[not being any such precious .....

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d, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals; (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 acquisition by him;] (vi) building or land appurtenant thereto, other than building or part thereof used by the Assessee as factory, godown, warehouse, hotel or office for the purposes of its. .....

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such building used as residential accommodation by any director, manager, secretary or any other employee of the Assessee, such employee holding not less than one per cent of the equity share of the Assessee or by ay relative of any person who holds not less than one per cent of the equity share of the Assessee. Explanation: For the purposes of this clause, relative shall have the meaning assigned to it in clause (b) of Explanation 1 to Section 80F of the Income tax Act] (vii) motorcars, and (v .....

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or-cars on hire carried on by the Assessee. Explanation: Where any question arises as to whether all or any of the assets referred to in clause (i), (ii), (iii) or (iv) are held by the Assessee as stock in trade in a business carried on by it, the question shall be decided in accordance with such directions as the Board may, by general or special order, issue for the guidance of the Assessing Officer, having regard to the ratio which the yearly turnover of a business of trading in such assets be .....

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t, in but sequence 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 Ad 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. (6) Nothing in this section shall apply to any institution, association or body, whether incorporated or not and whether Indian or non- Indian, .....

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ction 40(2) of the Finance Act, 1983 as amended by the Finance Act, 1988. Under Section 40(3) (vi) the assets shall include building or land appurtenant thereto, as well as land appurtenant to such building or part . It is inconceivable that while a building may form part of an asset, the land appurtenant thereto will not. In the present case it is not in dispute that the building has been constructed on the land in question and the building belongs to the Assessee. It is not possible that the A .....

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the WT Act, the word assets‟ includes property of every description both "movable or immovable". The negative list only excludes agricultural land, livestock animals or a property in which the Assessee has a limited interest for a period not exceeding six years or a building owned or occupied by a cultivator. Under Section 2(m) of the WT Act, the expression 'net wealth' is defined as the aggregate values of all the assets, wherever located, "belonging to the Assessee .....

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ression transfer‟ to include any disposition, settlement, trust, covenant, agreement or arrangement . Further Explanation (c) defines property as including any interest in any property, movable or immovable . 26. This much is clear that the legislative intent is to bring within the ambit of the expression "asset" and therefore within the expression 'net wealth' all kinds of property including any interest in such property both movable and immovable, which stands transferr .....

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vour of the vendee could be included in the Assessee's net wealth. The Wealth Tax Officer (WTO) had held that the Assessee still owned those properties and therefore the value thereof had to be included in his net wealth. The Supreme Court agreed with the High Court that in the eyes of law the purchasers cannot be and are not treated as legal owners of the property in question . It was pointed out that the expression belonging to' in Section 2(m) of the WT Act indicates something over wh .....

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g an absolute title, it was nevertheless not confined to connoting that sense. Full possession of an interest less than that of full ownership could also be signified by that expression . It was held that even though an Assessee had a mere husk of title and as against the vendee the Assessee had no reality of title but as against the world, he was still the legal owner and real owner . It was further observed: We are conscious that if a person has the user and is in the enjoyment of the property .....

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as whether the income derived by the Assessee from flats in a building in Bombay was taxable under the head income from other sources under Section 56 of the IT Act and not income from house property under Section 22 of the IT Act. The flats had been purchased by the Assessee and it had also taken possession thereof. However, it was not the real owner since the title to the four flats had not been formally conveyed. A three -judge bench of the Supreme Court posed the question and answered it as .....

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come being the Assessee only having an absolute and exclusive control over the property without any let or hindrance on the part of the so-called vendor which, indeed, under law it was not entitled to do, as we shall presently show, shall be immune from the taxing provision in Section 22 of the Act? The answer in our view is clearly in the negative. The reason is simple. The consideration money has been paid in full. The Assessee has been put in exclusive and absolute possession of the property. .....

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39;X', 'A' cannot escape his liability. Secondly, there can be a partnership where the partners have contributed the property and the property has become the partner-ship property, then no registration is required, the income in such a case has to be assessed in the hands of the partnership-firm and not the individuals who have contributed the property. Thirdly, the transferee who has received the income has already been assessed in respect of income derived from such property as inc .....

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pe liability of tax. Fifthly, if it is considered that the registered owner alone is liable to pay tax while the income is received by the transferee, the transferee would enjoy the income but the tax will be levied from the registered owner who may or may not be in a position to make the payment of tax. Sixthly, there could be diversion of income by overriding title as was considered in the case of Savita Mohan, (1985) 154 ITR 449 (Raj.), seventhly, if the property is in the name of a trust and .....

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that for all practical purposes owner is a person who is entitled to receive income from the property in his own right." Significantly, in arriving at the above conclusion, the Supreme Court distinguished the decision in Nawab Sir Mir Osman Ali Khan (supra) on the ground that it was rendered in the context of the WT Act, the language of which was different. In this context, it requires to be noticed that while Section 22 of the IT Act uses the expression 'owner', both Section 40 (2 .....

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ion of the Full Bench of the Andhra Pradesh High Court in Nawab Mir Barkat Ali Khan v. Commissioner of Wealth Tax [1997] 226 ITR 654. The Full Bench considered the decision in Nawab Sir Mir Osman Ali Khan (supra) and pointed out that the Supreme Court had, in rendering the said decision not considered the scope of Section 4 of the WT Act. The Full Bench observed: "It is worth noticing here that the provisions of section 4 of the Act were not brought to the notice of the Supreme Court and we .....

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IT [1988] 171 ITR 541 and CIT v. Sahney Steel and Press Works (P.) Ltd. [1987] 168 ITR 811, will not be of much assistance much less will they be binding authorities on the interpretation of the expression belonging to in section 2(m) of the Act for the term considered in those income-tax cases was owner within the meaning of section 9 of the 1922 Indian Income-tax Act (section 22 of the 1961 Income-tax Act)." 30.2 The Full Bench of the Andhra Pradesh High Court in Nawab Mir Barkat Ali Khan .....

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ust, covenant, even an agreement or arrangement will cease to belong to him and cannot be brought within the fold of "belonging to" under section 2(m) of the Act and it is for that purpose that section 4 of the Act specifically provides that the properties held by persons enumerated in clause (a) of sub-section (1) under such inchoate transfer shall be included as belonging to that individual. Therefore, it follows that in the case of a transfer as defined in the Explanation to section .....

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f which there was no formal transfer of legal ownership in favour of the Assessee could be said to 'belong' to the Assessee for the purposes of Section 4(1)(a) of the WT Act. The Court after referring to the decisions in Nawab Sir Mir Osman Ali Khan (supra) Poddar Cement (supra) and the decision of the Full Bench of the Andhra Pradesh High Court in Nawab Mir Barkat Ali Khan (supra) held: 11.....The Assessee, in the present case, was allotted the land by the State Government. It construct .....

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