Income Tax Appellate Tribunal - Mumbai
Hastiraj Premises Ltd., Mumbai vs Department Of Income Tax on 30 November, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES "WT", MUMBAI
Before Shri R.S.Syal, AM and Shri N.V.Vasudevan, JM
WTA Nos.19, 20, 21, 22, 23 and 24/Mum/2009
A.Yrs 1998-1999, 1999-2000, 2000-2001, 2001-2002, 2002-2003 & 2003-2004
The Wealth Tax Officer M/s.Hastiraj Premises Limited
Ward 2(1)(4) 509 Gundecha Chambers,
Mumbai. N.M.Road, Mumbai - 400 023.
Vs.
PAN : AAACH0406J.
(Appellant) (Respondent)
Appellant by : Shri Parthsarthi Naik.
Respondent by : Shri Vimal Punmiya
Date of Hearing : 28.11.2011 Date of Pronouncement : 30.11.2011
ORDER
Per Bench:
These six appeals by the Revenue relate to assessment years 1998-99 to 2003-2004. Since all these appeals are based on similar facts and common grounds of appeal, we are, therefore, disposing them off by this consolidated order for the sake of convenience.
Assessment Year 1998-1999
2. Briefly stated the facts of the case are that the assessee did not furnish its return of wealth. Notice u/s 17 was issued. Thereafter return was furnished by the assessee declaring net wealth of `48,000. In this return the assessee showed lease rent received at `6,000 p.a. for the leasehold plot of land. It was also claimed that the assessee had paid lease rent of `1,200 per annum. The excess of rent received over paid as multiplied by ten was shown as the value of plot. On being called upon to furnish the details of purchase of leasehold plots, copy of agreement for purchase etc., the assessee stated that an agreement was 2 WTA Nos.19 to 24/Mum/2009 M/s.Hastiraj Premises Limited.
entered on 28th June, 1982 between West Coast Resorts Private Limited (the Vendor) and the assessee ( the Purchaser) for a consideration of `88 lakh towards the purchase of land together with the structure standing thereon at Juhu Tara Road, Mumbai and at the time of entering into the agreement, the assessee paid `25,000 to the vendor as earnest money. It was explained that on the next day i.e. 29th June, 1982 one tripartite agreement was entered into between the assessee, the vendor and M/s.Poonam Enterprises (the Sub- purchaser) under which the sub-purchaser agreed to purchase the property by paying `87.75 lakh to the vendor and `25,000 to the assessee which was earlier paid by it to the vendor. M/s. Poonam Enterprises leased out a portion of the said property, being a piece of land admeasuring 1,200 sq.mtrs. to the assessee for 98 years on rent of `1,200 per annum. The assessee subleased the said area of 1,200 sq.mtrs. to M/s Sea Princes Hotels & Properties Private Limited by way of an agreement dated 01.06.1984 at a rent of `500 per month. The Assessing Officer noted that the lease of 1,200 sq.mtrs. to the assessee, out of total area of land together with structure standing thereon of 4,229 sq.mtrs., resulted into the assessee becoming owner to that extent u/s 27(iiib) r.w.s. 269UA(f) of the Income-tax Act, 1961. Applying the proportion of `88 lakh as relatable to 1,200 sq.mtrs., the Assessing Officer opined that the value of leasehold land was required to be taken at `25 lakh. On being show caused in this regard, the assessee stated that the valuation of leasehold property should be done as per Rules 3, 4 and 5 of Schedule III to Wealth-tax Act, 1957. Accordingly the assessee gave a calculation of the value of leasehold land in its hands at `48,000 by reducing lease rent paid of `1,200 per annum from the lease rent received from Sea Princes Hotels & Properties Private Limited at `6,000 per annum as multiplied by factor of 10. The A.O. observed that in the above calculation the annual value assessed by the local authority i.e. BMC for the purpose of levy of property tax on the plot of land was not given. Information was called for from the office of Assessor and Collector, BMC.
3 WTA Nos.19 to 24/Mum/2009M/s.Hastiraj Premises Limited.
Rate of valuation of the plot of land in a zone in which the subject plot of land was situated was given at `2,900 per sq.mtr. for the assessment of annual value for levy of property tax. The Assessing Officer applied this rate and worked out gross maintainable rent as per Rule 5 at `34,80,000 by multiplying `.2,900 with 1,200 sq.mtrs. After allowing statutory deduction of 15% under Rule 4, the A.O. determined the net maintainable rent at `29,58,000. By applying Rule 3, he multiplied net maintainable rent with factor 10 and determined the value of plot of land at `2,95,80,000. After allowing exemption of `15 lakh, tax on total wealth at 1% was worked out at `2,80,800.
3. In the first appeal it was argued on behalf of the assessee that it was prohibited from constructing commercial / residential units on the leasehold plot of land and hence the plot was not an `asset' chargeable to wealth tax. The learned CIT(A) rejected this contention on going through clause 4 of agreement dated 29.06.1982 which provided that the lessee i.e. the assessee had the right to construct structure or structures on aggregate area of 1000 sq.mtrs. only. In the absence of the assessee furnishing any evidence to show that the FSI on the land had ceased to exist on account of utilization of FSI by Poonam Enterprises, the learned CIT(A) held that the assessee was liable to wealth-tax for the plot of land held by it which was covered u/s 2(ea)(v) of Wealth-tax Act. As regards the valuation it was held that Rule 3 of Schedule III was not applicable to the assessee's case as the land was vacant. By adopting "Net yield method" based on the rental value of the property, the learned CIT(A) held that the value declared by the assessee at `48,000 was correct and hence deleted the addition made by the AO. The Revenue is in appeal against this finding.
4. We have heard the rival submissions and perused the relevant material on record. It is observed from the facts noted above that initially the assessee entered into an agreement with West Coast Resorts Private Limited for 4 WTA Nos.19 to 24/Mum/2009 M/s.Hastiraj Premises Limited.
purchase of "land together with the structures standing thereon" for a consideration of `88 lakh. Thereafter a tripartite agreement was entered into by which M/s. Poonam Enterprises entered the scene purchasing 4,229 sq.mtrs. for the same consideration. Out of this total area of 4,229 sq.mtrs., a portion of land admeasuring 1,200 sq.mtrs. was leased out to assessee for 98 years on a rent of `1,200 per annum. The assessee further leased out such portion to M/s Sea Princes Hotels & Properties Private Limited on a rent of `6,000 per annum. Here it is important to note that apart from West Coast Resorts Private Limited, all the entities namely the assessee, M/s.Poonam Enterprises and M/s Sea Princes Hotels & Properties Private Limited are group concerns. By acquiring lease rights for 98 years on the portion of land admeasuring 1200 sq.mtrs., the assessee became its owner as per the mandate of section 27(iiib) r.w.s. 269 UA(f) of the Income-tax Act, 1961. With the assessee becoming owner, M/s.Poonam Enterprises was divested its ownership on 1200 sq.mtrs. The contention of the assessee that it was not entitled to make construction on 1200 sq.mtrs. of the plot of land has been found out by the learned CIT(A) to be devoid of merits for the reasons discussed above. There is no appeal by the assessee on this issue. Resultantly this finding has acquired finality that the assessee is owner of 1200 sq.mtrs. of plot of land on which it is entitled to make construction.
5. Now coming to the valuation aspect of the said plot it is seen that section 7 of the Wealth-tax Act deals provides mechanism for determining the value of assets. Sub-section (1) provides that subject to the provisions of sub-section (2), the value of any asset other than cash, for the purpose of this Act, shall be its value as on the valuation date determined in the manner laid down in Schedule III. Schedule III has been inserted by the Direct Tax Laws (Amendment) Act, 1989 with effect from 01.04.1989. Since plot of land is an immovable property, it becomes manifest that its valuation has to be done in accordance with 5 WTA Nos.19 to 24/Mum/2009 M/s.Hastiraj Premises Limited.
Schedule III to the Wealth-tax Act, 1957. The assessee itself admitted before the Assessing Officer vide its letter dated 22.03.2006 that the valuation of the plot, being the leasehold immovable property should be done as per Rules 3, 4 and 5 of Schedule III to the Wealth-tax Act. Part B of Schedule III deals with the valuation of immovable property. Admittedly the piece of land acquired by the assessee is an immovable property whose valuation is required to be done under Part B of Schedule III. Rule 3 of Schedule III provides that the value of any immovable property "being a building, land appurtenant thereto or part thereof" shall be the amount arrived at by multiplying the net maintainable rent with a multiplier ranging from 8 to 12.5. In case where the unexpired period of lease of land is 50 years or more, the multiplier has been given at 10. Rule 4 provides that for the purposes of Rule 3, the net maintainable rent in relation to an immovable property shall be the amount of gross maintainable rent as reduced by amount of tax levied by local authority and statutory deduction of 15% of the gross maintainable rent. Rule 5 deals with computation of gross maintainable rent. It provides that for the purposes of Rule 4, gross maintainable rent in relation to any immovable property referred to in Rule 3 means "(i) where the property is let, the amount received or receivable by the owner as annual rent or the annual value assessed by the local authority in whose area the property is situated for the purposes of levy of property tax or any other tax on the basis of such assessment, whichever is higher". We are not concerned with clause (ii) of Rule 5 which deals with the property not let out. A bare perusal of clause (i) of Rule 5 fairly indicates that where the property is let, the higher of the amount received or receivable by the owner as annual rent or the annual value assessed by the local authority in whose area the property is situated for the purposes of levy of property tax, shall be treated as gross maintainable rent. In other words, one needs to take the actual amount of rent received or receivable in respect of property let out and also the value assessed by local authority. Higher of the two is considered as gross maintainable rent.
6 WTA Nos.19 to 24/Mum/2009M/s.Hastiraj Premises Limited.
6. Adverting to the facts of the instant case it is noticed that BMC is local authority insofar as this plot is concerned. As against the rent received or receivable by the assessee at `6,000 per annum, the "valuation of the plot of land" in a zone in which the subject plot of land is situated was given by BMC at `2,900 per sq.mtr. Such amount comes at `34,80,000. Naturally this amount, being higher than `6,000, shall constitute gross maintainable rent in respect of the plot of land. The Assessing Officer has given statutory deduction of 15% of the gross maintainable rent and thereafter applied multiplier of 10 applicable to lease of land having unexpired period of more than 50 years to determine the value of plot of land at `2.95 crore under Rule 3. In our considered opinion, the learned CIT(A) was not justified in overturning the action of the Assessing Officer in this regard. When section 7 requires the determination of the value of assets as per Schedule III and the value of immovable properties is covered by Rule 3 to 8, in our considered opinion, the learned CIT(A) ought not to have ignored the mandate of Schedule III and applied "Net yield method" on the basis of rental value of the property. As per Rule 5 it is apparent that higher of actual rent received or receivable or the value determined by the local authority is to be considered for the purposes of valuing immovable property. The learned CIT(A) by adopting net rent of `4,800 per annum and then multiplying it by the multiplier of 10 completely lost sight of the fact that the value assessed by the local authority in this case was much higher and he was supposed to apply higher of these two for determining the gross maintainable rent.
7. The learned A.R. vehemently argued that the plot of land of 1200 sq.mtrs. acquired by the assessee on leasehold basis is the one on which construction of building was impermissible. In that view of the matter he argued that section 2(ea) defining `Urban land' would apply and as per its exception clause if any part of the urban land is such on which construction of building is 7 WTA Nos.19 to 24/Mum/2009 M/s.Hastiraj Premises Limited.
not permissible for the time being in force, then it shall stand excluded from the definition of `urban land'. We are not convinced with this submission. Section 2(ea) defines "assets" in respect of which wealth-tax is chargeable. There are six clauses of this provision which are liable to be considered for computing net wealth of the asset. Clause (b) is "urban land". The "Urban land"
has been defined in Explanation (1)(b) to this provision which excludes land on which construction of building is not permissible under any law for the time being in force in the area in which such land is situated. Thus it follows that even if the asset is an urban land but construction is not permissible on that, such urban land would stand excluded from the ambit of "assets".
8. Adverting to the facts of the instant case it is observed that the contention raised before the learned CIT(A) that construction on such land was impermissible came to be rejected vide para 6 of the impugned order. In reaching this conclusion, the learned CIT(A) went through various clauses of agreement dated 29.06.1982, which provide in unequivocal terms that the assessee had acquired the right of construction of commercial / residential units to the extent of 1000 sq.mtrs. FSI. Thus this argument raised on behalf of the assessee was jettisoned. By not filing any appeal against this finding, the assessee impliedly accepted this part of the impugned order. Therefore, it emerges that the urban land in question does not fall in the exception clause to the definition of `Urban land' under Explanation 1(b) to section 2(ea) of the Wealth-tax Act as it is not one on which there is no permission to construct. In that view of the matter this contention raised by the assessee cannot be accepted.
9. There is one more reason for which the value of leasehold plot must be included in the net wealth of the assessee. The ld. AR argued that the construction on the plot in question was not permissible and for that reason it 8 WTA Nos.19 to 24/Mum/2009 M/s.Hastiraj Premises Limited.
should be excluded from the definition of asset and resultantly from the ambit of wealth tax. In an earlier para we have noted that this contention of the assessee is sans merits for the reasons adduced by the ld. CIT(A), which could not be controverted on behalf of the assessee. Even if we presume for a moment without agreeing that this contention raised on behalf of the assessee is correct that the assessee is debarred from constructing on it, still the value of plot is required to be added. It has been noticed above that the assessee initially agreed to purchase the property consisting of total area of 4,229 sq.mtrs. from West Coast Resorts Private Limited. On the very next day, M/s. Poonam Enterprises was brought into, who agreed to purchase the same property from West Coast Resorts Private Limited for the same amount. The property purchased has been described as "land together with structures standing thereon". M/s.Poonam Enterprises after purchasing the property of 4,229 sq.mtrs., transferred 1200 sq.mtrs., being portion of land to the assessee for 98 years, which in turn was sub-leased by the assessee to M/s Sea Princes Hotels & Properties Private Limited. It shows that the portion on which structures were standing was retained by M/s Poonam Enterprises. The learned A.R. has fairly admitted that the assessee, M/s.Poonam Enterprises and M/s Sea Princes Hotels & Properties Private Limited are all group concerns. Out of the total property of 4229 sq.mtrs., M/s.Poonam Enterprises parted with ownership of 1200 sq.mtrs. to the assessee which represented land out of the total property comprising of land together with structures standing thereon. When M/s.Poonam Enterprises parted with ownership of 1200 sq.mtrs., naturally it remained owner of 3029 sq.mtrs. (4229 - 1200) and going by the prescription of section 2(ea) of the Wealth-tax Act must have offered the value of only that part in its return of wealth. The remaining area of 1200 sq.mtrs., completely escaped wealth tax. In fact it is one common property of 4229 sq.mtrs. the value of which ought to have been considered for the payment of wealth-tax. It is not open to the assessee to argue that what it acquired was only a piece of land on which 9 WTA Nos.19 to 24/Mum/2009 M/s.Hastiraj Premises Limited.
construction was not permissible. Here it is important to note that the piece of land of which the assessee is owner, is a part of one composite property which comprised land and building thereon. When we go to Rule 3 to Schedule III it becomes manifest that valuation of immovable property has been referred to as that of "a building or land appurtenant thereto, or a part thereof". The law enjoins that not only the building but the land appurtenant thereto should also be considered for the purposes of inclusion in the definition of assets u/s 2(ea) of the Act. We cannot lose sight of the fact that the assessee and M/s Poonam Enterprises are concerns of the same group. In such a situation, it is impermissible to enter into any make-believe arrangement aimed at reducing the incidence of tax. By showing the leasing of 1200 sq.mtrs. of land to the assessee at a token amount of rent, which, in fact, is a land appurtenant to 3029 sq.mtrs. of the building (structure part), the group concerns devised a way to reduce the genuine wealth-tax liability on the valuation of composite property as one unit. Such an attempt cannot be allowed to succeed when the facts are apparent even to the naked eyes.
10. In our considered opinion, the learned CIT(A) was not justified in reversing the action of the Assessing Officer making the addition on this score. We, therefore, set aside the impugned order and restore the assessment order on this point by holding that the value of `2.59 crore representing the value of lease hold property is required to be included in the total wealth of the assessee.
11. Both the sides are in agreement that the facts and circumstances of the case for assessment years 1999-2000 to 2003-2004 are mutatis mutandis similar to those of assessment year 1998-1999. As a matter of fact, no separate submission was advanced by the either side in relation to such later years. Following the view taken in A.Y. 1998-99, we overturn the impugned orders for these years as well.
10 WTA Nos.19 to 24/Mum/2009M/s.Hastiraj Premises Limited.
11. In the result, all the appeals of the Revenue are allowed.
Order pronounced on this 30th day of November, 2011.
Sd/- Sd/-
(N.V.Vasudevan) (R.S.Syal)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai : 30th November, 2011.
Devdas*
Copy to :
1. The Appellant.
2. The Respondent.
3. The CWT concerned
4. The CWT(A)-II, Mumbai.
5. The DR/ITAT, Mumbai.
6. Guard File.
TRUE COPY.
By Order
Assistant Registrar, ITAT, Mumbai.