Income Tax Appellate Tribunal - Hyderabad
Smt. Pushpalata Kanodia vs Wto on 15 September, 2004
Equivalent citations: [2005]92ITD500(HYD), (2005)93TTJ(HYD)1045
ORDER
D. Manmohan, Judicial Member
1. These 5 appeals, filed at the instance of the assessee, pertain to the assessment years 1996-97 to 2000-2001. Issues involved in all these appeals being common, we proceed to dispose of the appeals by a combined order, for the sake of convenience.
2. Valuation of Jubilee Hills property and land at Miyapur, in the event of non-acceptance of the claim of exemption, are the issues in dispute before us. In respect of the assessment years under consideration, the assessee filed returns in response to the notice issued under Section 17 of the Wealth-tax Act, 1957, wherein the assessee claimed exemption Under Section 5(1)(vi) of the Act with regard to the property situated at Jubilee Hills, Hyderabad and also claimed exemption on the land situated at Miyapur on the ground that it is agricultural land. The AO as well as the CIT (A) rejected the contention the assessee, which led to the filing of appeals before us.
Property situated at Jubilee Hills:
3. The assessee owned a plot bearing Municipal No. 8-2-293/82/A/1014 at Jubilee Hills, Hyderabad. The plot was purchased in the year 1987 and construction of three storeyed building was commenced in the year 1995. Assessee invested a sum of Rs. 8 lakhs on the said property. The property was sold on 24-11-2000 for a total consideration of Rs. 38 lakhs to two parties i.e., Sri E.V.V. Satyanarayana and Smt. E. Saraswathi. As per the sale deed, the property consisted of ground, first and second floor unfinished. The AO observed that the construction of the building was not complete at the time of sale and it was not in a habitable condition. Therefore, AO denied the claim of exemption under Section 5(1)(vi) of the Act. The AO appears to have called for the evidence of payment of municipal taxes to support the claim that the building was actually completed and habitable, except producing the electricity bills for the months of February and March 1998, the assessee could not furnish any evidence to prove that the building was in a habitable condition. Thus, the AO computed the market value of the land by taking into consideration the prevailing rate as reflected in the records of --Sub-Registrar concerned and thus arrived at the value of 1,189 sq. yards land at Rs. 9,74,980 for the asst. year 1996-97. For the subsequent years also the AO adopted the value as per the records of Sub-Registrar. It is necessary to state here that the facts and circumstances being same, we refer to the facts concerning asst. year 1996-97 only. The AO did not, however, include the value of superstructure since liabilities were claimed against the said investment.
4. Before the CIT(A), it was contended that the property at Jubilee Hills is not an asset within the meaning of Section 2(ea) of the Act. Explaining further, it was submitted that though the construction of the building is not complete by the end of the previous year, it would fall within the meaning of expression 'house' for the purpose of claiming exemption under Section 5(1)(vi) of the Act. The permission from the M.C.H. was obtained and Identification Number was also granted to the property on 1-4-1998. Sri Manoj Kumar Kanodia, assessee's son, obtained passport by providing the said address and electricity bills for the period from 1-2-98 to 31-3-98. This also indicates that the property was habitable. An alternative contention was also raised stating that only urban vacant land or a house property is includible in the net wealth but incomplete building would neither fall within the definition of 'urban land' nor within the definition of 'building' and thus charging provisions are not attracted. It was also contended that the AO was not justified in taking into consideration the cost of the land as well as the cost of construction, ignoring the annual valuation arrived at on the basis of realisable rent.
5. Learned CIT(A) observed that the evidence furnished before him do not support the contention of the assessee that the building is complete or it was in a habitable condition. He observed that the construction of the property was not complete by 31-3-96 and municipal valuation of the property was not done on the valuation date. He also observed that the production of the electricity bills for the months of February and March, 98 Indicates/presupposes that there was no electricity connection up to Feb. 1998. Even otherwise, electricity connection does not mean that it was for day to day use of persons living in such a property since the electricity is 'required for construction of the property, lifting of water through pipes and lighting to the premises etc.; in fact the consumption of the electricity is meagre for two months. Therefore, the learned CIT(A) observed that the bills were raised for only minimum prescribed charges though no one lived there. It was also observed that the claim of the assessee that his son obtained passport by giving the address of the property at Jubilee Hills does not establish that he was living in the property at that time. Even as per the assessee's own admission, the property was constructed during the period from 1-4-95 to 31-3-96 for which expenditure of Rs. 8,13,526/- was incurred and there was no construction activity from 1-4-96 onwards. The expenditure incurred on construction per sq. ft., works out to Rs. 155/- which also indicates that the three storeyed building is not in a habitable condition. The site is 1189 sq. yards whereas the area occupied for construction was 344 sq. yards, which works out to 28% of the plot. Though the word 'house' was not defined in the Act, placing reliance on the following decisions, the learned CIT(A) observed that a house means a building fit for human habitation :-
i) 108 ITR 104 (All)- Shiv Narain Chaudhari v. CIT
ii) 130 ITR 393 (Orissa)-CIT v. K.B. Pradhan Learned CIT(A) observed that the land covered by incomplete construction, would fall within the meaning of term' urban land' as per the Section 2(ea) of the Act. He therefore concluded that the impugned property would fall within the expression 'urban land' and it cannot be considered as a 'house property' within the meaning of Section 5(1)(vi) of the Act.
6. As. regards the contention of the assessee that, while arriving at the value of the land, rent capitalization method should have been adopted by the AO, the learned CIT(A) observed that the property was neither let out nor capable of being let out and there is no municipal valuation on the valuation date. There is no evidence to show that the assessee's son actually lived in the said property. Therefore, the question of adoption of rent capitalization method does not arise.
7. Further aggrieved, assessee is in appeal before us. Learned counsel appearing on behalf of the assessee reiterated the contentious before the Tribunal and also raised an additional ground, which reads as under.
"Whether, on the facts and circumstances of the case, the Wealth Tax Officer was correct in law, enhancing the values of the immovable properties exceeding, 1/3rd, without invoking the provisions of Section 16A of the Wealth Tax Act."
Placing reliance on the decision of Hon'ble Punjab & Haryana High Court in the case of Raj Paul Oswal v. CWT, 171' ITR 489, learned counsel submitted that If the difference between the declared figure and assessed figure exceeds Rs. 50,000/- reference to the valuation Officer is compulsory whereas the AO has not adopted such mandatory procedure and thus the addition made without reference to the Valuation Officer is bad in law. Learned counsel has filed a paper book consisting of 10 pages. In particular he has referred to pages 15 to 10 to submit that the passports of Smt. Namita Kanodia and Sri Manoj Kumar Kanodia bear the address of their residence as Plot No. 1014, Road No. 45/46; Jubilee Hills, Hyderabad. The electricity bills and the permission obtained from the M.C.H. for the ' construction, of the house also indicate that the construction of the property commenced in the year 1995 and construction of two floors was complete; merely because second floor was unfinished; it cannot be said, that the building is not in a habitable condition. Learned counsel submitted that in the light of the decision of the ITAT, Hyderabad Benches in the case of WTO v. Mootha Gopalakrishna (20 ITD 199), any property with four walls and roof would fall within the meaning of the term 'house' and it is not necessary that it should have; all the modern facilities for comfortable living. It was thus contended that the assessee is entitled to exemption under Section 5(1)(vi) of the Act. In the alternative, it was contended that if the constructed portion is not treated as a 'house' or a 'building' it would have to be considered as an incomplete building in which event it cannot be considered as an 'asset' within the meaning of Section 2(ea) of the Act inasmuch as the definition covers either 'building' or an 'urban land' but not a land covered by a 'building under construction'. In other words, the moment construction is commenced on an open land, it looses the character of 'urban land' and till such time the building is complete, it could not fall within the meaning of the term 'house' under Section 2(ea)(i) of the Act.
8. On the other hand, the learned departmental representative submitted that reference to the Valuation Officer is not mandatory in view of the expression 'may' used in Section 16A of Wealth-tax Act. He further submitted that even as per Rule 3 the reference to the Valuation Officer can at, best be made mandatory only in a case where the assessee declared some value to the asset which in the opinion of the AO is less than the market Value, whereas, in the instant case, the assessee has not declared any taxable wealth in so far as the Jubilee Hills Property is concerned since exemption is claimed on the said asset. Thus, in a case where no value is returned, it is not mandatory on the part of the AO to refer the matter to the Valuation Officer. Reference was also made to the decision of Hon'ble Delhi 'High Court in the case of Sharbati Devi Jhalani (159 ITR 549 at 560) wherein the Court observed that in a case which falls under Section 16A(1)(b)(ii) of Wealth-tax Act, there is a discretion to the AO to refer the matter to the Valuation Officer. It was submitted that Sections 16A(1)(a) and (b)(i) refers to, a situation where the assessee declared some value for wealth-tax purposes whereas in the instant case the assessee has not declared any value and claimed it as exempt, it was also submitted that in fact the assessee never raised this issue before the tax authorities and thus it should not be entertained at this belated stage.
9. With regard to the contention of the assessee that the impugned property should, fall within the meaning of house as provided in Section 5(1)(vi) of the Act, the learned DR submitted that the term 'house' refers to a completed house which is fit for human habitation whereas in the instant case, the sale deed between the assessee and the vendees clearly suggests -- that it is an incomplete building. He referred to page-12 of the Departmental paper book to submit that as per Annexure 1A, the building was still under construction and out of total extent of 6,700 sq. ft., area only 3350 sq. ft., is under construction, it was also submitted that there was no evidence to show that the house was fit and actually used for habitation. The learned DR. referred to the order of the CIT(A) to submit that the electricity bills were only for two months and that too showing minimum bill which indicate that the electricity was not used for living in the house but for only construction of the house. Similarly, Municipal Number can be allotted even to a vacant plot and thus it cannot be said that the allotment of municipal number is a criterion to consider that the unfinished building is fit for human habitation. Similarly, in the passport issued, it was mentioned as plot No. 1014, but in one passport, Road No. 46 was mentioned whereas on the other, road No. 45 was mentioned, which indicate that no verification was done by the passport authorities as to whether the persons concerned have actually lived there or not. Learned DR relied upon the following decisions in support of his. contention that the property at Jubilee Hills cannot be considered as a house for the purposes of availing exemption under Section 5(1)(vi) of the Act:-
i) 108 ITR 104 (All)- Shiv Narain Chaudhari v. CIT.
ii) 130 ITR 380 (Orissa)- CWT v. K.D. Pradhan
iii) 238 ITR 414 (Del)- CIT v. Prem Nath Motors Pvt. Limited.
He also strongly submitted that the valuation adopted by the AO is reasonable having regard to the fact that Sub-Registrar's value is taken into consideration.
10. We have carefully considered rival submissions and perused the record. While introducing Finance Bill for the year 1992-93, the Hon'ble Finance Minister in his speech had addressed on the need-to change the definition of 'asset' under the Wealth-tax Act, 1957, and in paragraph 67 of his speech [194 ITR 21 (St.)] stated as under:-
"Wealth Tax should be levied on Individuals, Hindu undivided families and all Companies only in respect of non-productive assets such as residential houses and urban land, Jewellery, bullion, Motor Cars, planes, boats, yachts which are not used for commercial purposes. "
11. Section 2(ea) of the Wealth-tax Act was inserted by the Finance Act, 1992, with effect from 1-4-1993 which defines 'assets'. We are concerned with the definition contained in Clauses (i) and (v) of Section 2(ea) and Explanation (b) thereto, which are extracted for immediate reference:-
2(ea) "assets", in relation to the assessment year commencing on the 1st day of April, 1993, or any subsequent assessment year, means-
(i) any quest house and any residential house [including a farm house situated within twenty-five kilometers from the local limits of any municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee or by any other name) or a cantonment board], but does not include -
(1) a house meant exclusively for residential purposes and which is allotted by a company to an employee or an officer or a director who is in whole-time employment, having a gross annual salary of less than two lakh rupees;
(2) any house for residential purposes which forms part of stock-in-trade;
(v) urban land;"
... ... ... ... Explanation; - For the purposes of this clause, - ... ... ... ... (b) "urban land" means land situate-
(i) in any area which is comprised within the jurisdiction of a municipality... ...; or
(ii) ... ... ... ...
but does not include land on which construction of a building is not permissible under any law for the time being in force in the area in which such land is situated or the land occupied by any building which has been constructed with the approval of the appropriate authority or any unused land held by the assessee for industrial purposes for a period of two years from the date of its acquisition by him;"
One more exception has been provided in the Finance Act, 1993, which reads as under:-
"or any land held by the assessee as stock-in-trade for period of three years from the date of its acquisition by him"
Period of holding was subsequently increased from three years to five years and then to ten years. But for these changes, there is no major change in the definition of 'urban land'. However, the definition of 'asset' in Section 2(ea)(1) has undergone several changes to bring it in tune with the intention of the legislature, i.e. to tax any unproductive asset. By the Finance (No. 2) Act, 1996, with effect from 1-4-1997, the said clause was substituted as under:-
(i) any building or land appurtenant thereto (hereinafter referred to as "house") whether used for residential or commercial purposes or for the purpose of maintaining a guest house or otherwise including a farm house situated" within twenty-five kilometres from local limits of any municipality (whether known as Municipality, Municipal Corporation or by any other name) or a Cantonment Board, but does not include (1) a house meant exclusively for residential purposes and which is allotted by a company to an employee or an officer or a director who is in whole-time employment, having a gross annual salary of less than five lakh rupees;
(2) any house for residential or commercial purposes which forms part of stock-in-trade;
(3) any house which the assessee may occupy for the purposes of any business or profession carried on by him;"
By Finance(No. 2) Act, 1998, with effect from 1-4-1999, two more exceptions were provided by numbering them as (4) and (5) which are as follows:
"(4) any residential property that has been let-out for a minimum period of three hundred days in the previous year;
(4) any property in the nature of commercial establishments or complexes;"
In the Budget Speech of the Hon'ble Finance Minister - 1996-97, it was stated as follows :-
"I find it unreasonable that commercial properties, not used by the assessee as his business, office or factory premises, should be outside the levy of wealth-tax. Accordingly, I propose to plug this unintended loophole and levy wealth-tax on such commercial properties."
Clause 54 of Memorandum Explaining Provisions in Finance (No.2) Bill, 1990 - reads as follows [220 ITR (Statutes) 248 at 282]:-
"Amendment of the term "assets"
The term "assets", on which tax is to be levied, is defined in Clause (ea) of Section 2. This definition includes any guest house and any residential house (including a farm house situated within 25 kms of the local limits of any municipality) for levy of tax, except the exclusions made in items (1) and (2) of Sub-clause (i) of this clause. If residential houses have been taken as assets, there seems to be no reason why commercial properties, other than those' used by the assessees wholly and exclusively in his business or profession, should also be not taken as assets. It is. therefore, proposed to tax commercial buildings, which are not used by the assessee in his business or profession, other than the business of letting out of properties."
12. A plain reading of the definition of the term 'assets', as amended from time to time, and as explained in the budget speeches as well as Memo explaining- the amendments, indicates that the tax is sought to be levied only on unproductive assets and not on productive assets. The legislature . has used three different expressions, viz. building, house and property, at different place. It has to be assumed that the scope of each such expression fits into a specified slot though one expression may encompass or include the other expression. For example, a 'house' may be a property, but every property may not be called a 'house'. The term 'property' may encompass 'house', 'building' or urban land etc. Similarly, every 'house' may qualify to be considered as building, but every building may not fall within the expression 'house', e.g., factory building, cinema hall etc. [See 264 ITR 482 at 484 (All).] Under the A.P. Urban Area (Development) Act, 1975, 'building' has been defined as under:-
" 'building' includes -
a house, outhouse, stable, latrine, godown, shed, hut; wall (other than a boundary wall) and any other structure whether of masonry, bricks, mud, wood, metal or any other material whatsoever."
Section 2(ea) uses the expression 'building' whereas Section 5(1)(vi) uses the expression 'house', which has a narrow connotation. The term 'building' is not defined under the Wealth-tax Act and hence one has to gather the meaning of this term by looking into other enactments. As could be seen from the definition given in the A.P. Urban Areas (Development) Act, 1975, even a wall could fall within the meaning of the term 'building'. In the case before us, the ground and first floor portions were complete and only the second floor was incomplete as on the valuation dates. Thus, at least more than one floor is covered with walls and roof in which event it can be classified as 'building' under Section 2(ea)(i) of the Act.
13. Having held that the property under consideration falls within the expression 'building', the next question that arises for consideration is whether the assessee is entitled to exemption under Section 5(1)(vi) of the Act. Section 5(1)(vi) reads as under:-
"5(1) Wealth-tax shall not be payable by an assessee in respect of the following assets, and such assets shall not be included in the net wealth of the assessee -
... ... ... ...
(vi) one house or part of a house or a plot of land belonging to an individual or a Hindu undivided family:"
As could be seen from the above clause, exemption is available not only for a complete house but also for a 'part of a house'. The term 'house' is also not defined under the Wealth-tax Act. Courts and Tribunals have, therefore, sought to give a rational meaning to the term 'house' used in Section 5(1)(vi).
In the case of WTO v. Mootha Gopalakrishna, 20 ITD 199 (Hyd), the issue was whether a godown could be regarded as a house for the purpose of granting exemption under the Wealth-tax Act and it was held that godown Would come within the description of 'house"', The Bench extracted the observation of the Hon'ble Supreme Court in the case of Tata Engg. & Locomotive Co. Ltd. v. Grarn Panchayat, AIR 1976 SC 2463, which are as under-
"It may be stated generally that the word 'house' is a structure of a permanent character. It is structurally severed from other tenements. It is not necessary that a house if adapted for residential purposes should be actually dwelt in."
No doubt, an enlarged meaning of the term 'house' by including in its sphere cinema house, factory building etc., was not accepted by some courts. Here Is a case where the assessee proceeded to construct a residential building and two floors; i.e. ground floor and first floor, were almost finished since the walls and the roof were ready. The sale deed and surrounding circumstances indicate that the two floors can at least be used as a godown . for keeping building material required for the second floor, if not fit for human habitation. It may be necessary to state that in order to certify that a house is fit for human habitation, it is not necessary to expect all modern amenities that are required for posh and luxurious living. The commonly accepted meaning of the term 'house', looking from the view-point of a majority of the population/is a room covered by walls and a roof. Applying this criterion, it has to be accepted that in the instant case, construction of ground floor and first floor having been completed to a large extent, the assessee is justified in claiming exemption under Section 5(1)(vi) of the Act.
14. The claim of the assessee that there was electricity connection and Shri Manoj Kumar Kanodia and Smt. Namita Kanodia lived in that house, based on the address given in their respective, passports, is contrary to the facts admitted by the assessee. Though the plot was purchased in the year 1987, as per the assessee's own admission, the construction the three-storeyed building was commenced in the year 1995 whereas the passports issued on 29-9-1994 and 7-9-1994 mention the impugned property as the permanent address of the parties which indicates that the passport authorities had no occasion to cross-verify the facts stated by the assessee with regard to permanent address. At any rate, in view of the assessee's admission that the construction commenced in 1995, the mere address given in the passport cannot be an indicator to contend that the assessee actually lived in that house. However, it is not necessary to dwell further on this aspect, inasmuch as we are of the view that the impugned property qualifies to be termed as a 'part of a house' for the purpose of exemption under Section 5(1)(vi) of the Act.
15. The learned counsel for the assessee also submitted that the valuation of the property without reference to the Valuation Officer is bad in law. This aspect also need not be gone into in view of our finding that the assessee is entitled to exemption, under Section 5(1)(vi) of the Act in respect of the impugned property.
16. The next issue pertains to the inclusion of the value of 1,000 sq.yds. of land situated at Miyapur. The assessee purchased this land in the year 1980 from a society known as Shri Matrusree Co-operative House Building Society Ltd. for a consideration of Rs. 6,000. The said plot was surrounded by 25 ft. road on one side and three adjacent plots on the other sides. Under these circumstances, the AO rejected the claim of the assessee that the land was agricultural in nature and valued the same at the rate of Rs. 200 per sq. yd. as on 31-3-1996, based on the rates obtained from the office of the District Registrar, Ranga Reddy District. Aggrieved, the assessee contended before-the CIT (A) that the title of the property was under dispute and hence the ownership was not free from encumbrance. It was also-contended that the land was agricultural in nature. The learned CIT (A) rejected the contention of the assessee by observing that the land being a house site and a part of the scheme/lay-out framed by a co-operative society, it could not be treated as an agricultural land. He further observed that the computation of the value of such land was not disputed before the AO. Even otherwise, In the absence of any interim injunction of any court restraining the assessee from having complete ownership rights, the value of the land adopted by the AO was reasonable.
17. further aggrieved, the assessee is in appeal before us. The learned counsel for assessee strongly submitted that the AO ought to have taken the cost of the land as the market value keeping in view the legal disputes with regard to the title to the property, it was also submitted that the assessee is entitled to exemption by treating the land as an agricultural land. On the other hand; the learned departmental representative strongly supported the orders of the tax authorities.
18. We have, carefully considered the rival submissions and perused the record. There is no evidence on record to suggest that the piece of land purchased by the assessee is an agricultural land. On the other hand, there is sufficient evidence to indicate that it is a non-agricultural land. Therefore, we reject the contention of the assessee that the value of the land is exempt.
19. With regard to the value adopted by the AO, the case of the assessee is that the legal disputes with regard to the title of the property, were not taken into consideration while arriving at the market value and that whenever the value returned by the assessee is less than its fair market value, in the opinion of the AO, the matter of valuation has to be referred to the Valuation Officer, whereas in the instant case, the AO failed to refer the matter to the Valuation Officer. In this regard, reliance was placed upon the decision of the Hon'ble Punjab and Haryana High Court in the case of Raj Paul Oswal v. CWT, 171 ITR 489.
20. Considering the circumstances of the case and in the light of the decision of the Hon'ble Punjab and Haryana High Court (supra), we set aside the issue, to the file of the AO and direct him to refer to the matter to the Valuation Officer for ascertaining the correct value. The AO is directed accordingly.
21. In the result, the appeals filed by the assessee are partly allowed.