Income Tax Appellate Tribunal - Kolkata
Happy Homes & Resorts Pvt Ltd, Kolkata vs Department Of Income Tax on 23 September, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH "C", KOLKATA
[Before Shri Mahavir Singh, JM & Shri M.Balaganesh, AM]
WTA Nos.22 & 23/Kol/2013
Assessment Years : 2001-02 & 2002-03
(APPELLANT ) (RESPONDENT)
I.T.O., Ward-3(1), -versus- Happy Homes & Resorts Pvt.Ltd.
Kolkata Kolkata
(PAN:AAACH 9536 R)
For the Appellant : Shri D.Banerjee, JCIT
For the Respondent : Shri S.Choudhury, Advocate.
Date of Hearing : 21.09.2015.
Date of Pronouncement : 23.09.2015.
ORDER
Per Shri M.Balaganesh, AM
1. These appeals of the revenue arises out of the order of the Learned C.W.T.(A) in Appeal No. 188/CIT(A)-I/3(1)/2007-08 dated 29.01.2013 passed against the orders of assessment for the Asst Years 2001-02 & 2002-03 framed by the Learned AO u/s 16(3) of the Wealth Tax Act, 1957 (hereinafter referred to as the 'Act'). As the issues involved are identical in both the years , they are disposed off together by a common order for the sake of convenience.
2. Shri.Soumitra Choudhury, Advocate, the Learned AR argued on behalf of the assessee and Shri.D.Banerjee, JCIT, the Learned DR argued on behalf of the revenue.
3. The only issue to be decided in these appeals are that whether the land held for business purposes would be liable for wealth tax.
4. The brief facts of this issue is that the assessee purchased land for the purpose of setting up a four star hotel complex. The land was put in use for the purpose by land filling, leveling , earth filling, soil testing etc for the purpose of construction of hotel building. The assessee had also incurred a sum of RS. 1,10,341/- towards construction of hotel building which was duly disclosed in the balance sheet of the assessee. The 2 WTA Nos.22&23/Kol/2013 Happy Homes & Resorts Pvt. Ltd..
A.Yrs.2001-02 & 2002-03 assessee got the land from Sri Ram Niranjan Kajaria (HUF) by way of an agreement dated 29.8.1998. As per the agreement, the owner (i.e Sri Ram Niranjan Kajaria (HUF)) permits the assessee (developer) to construct a star category hotel at the said lands at the cost and expense of the developer and to have and to hold the said hotel for a period of 30 years commencing from the date of completion of said hotel complex in all respects subject to payments of amounts, benefits and royalty. The assessee had right to enter upon the land pursuant to an agreement dated 29.8.1998 and start construction of star hotel thereon and to have and to hold the said hotel for a period of 30 years on a consideration agreed in the form of royalty payable to the owner of land @ 10% of gross revneue of the hotel plus a fixed amount not less than Rs. 1,00,000/- per annum. The owner and its nominee had also subscribed to the equity capital of the developer to the tune of Rs. 1,00,08,100/-. The assessee started the development activities commencing from Asst Year 1999-2000 onwards and also stated the reasons for slow progress in the development work thereon due to Kamtapuri Liberation Front Agitation, other unrest and threats from terrorists in that locality. The Learned AO ignoring all these basic facts brought the said urban land to wealth tax as it was neither an unused land held for industrial purposes thereby exempt for two years nor it is held as stock in trade thereby exempt for 10 years. On first appeal, the addition was deleted by the Learned CWT (A) who held that the subject mentioned land utilized for development of hotel could be exempt u/s 2(ea) of the Wealth Tax Act, 1957 as it is in the nature of commercial complex and is also a business asset and also stated that the constructed hotel started functioning from Asst Year 2005-06 onwards. Aggrieved, the revenue is in appeal before us on the following ground:-
"1. That the Ld. CIT(A) erred in law as well as in facts by treating the land of the assessee company as business asset instead of asset as per sec 2(ea)(v) of the W.T.Act'1957."
5. The Learned DR argued that the Learned CIT(A) had not given any finding as to what is wrong in the order of the Learned AO. He further argued that the wealth tax is levied for Asst Years 2001-02 & 2002-03 whereas the hotel activities had started only from Asst Year 2005-06 onwards. Hence he pleaded that the action of the Learned 3 WTA Nos.22&23/Kol/2013 Happy Homes & Resorts Pvt. Ltd..
A.Yrs.2001-02 & 2002-03 AO be upheld. In response to this, the Learned AR vehemently supported the order of the Learned CIT(A).
6. We have heard the rival submissions and perused the materials available on record. We find that when the land is given for construction, then it loses the character of land and on that count itself, it is outside the ambit of wealth tax. The construction activity had started from Asst Year 1999-2000 onwards and hence it falls under the ambit of incomplete building. It is well settled that Incomplete building does not fall within the ambit of assets as defined u/s 2(ea) of the Act as it does not fall within the definition of 'building' , nor does it fall within the purview of 'urban land'. Reliance in this regard is placed on the decision of Punjab & Haryana High Court in the case of CWT vs Smt.Neena Jain reported in (2011) 330 ITR 157 (P&H).
"Held, dismissing the appeals, that the contention of the revenue that "any building"
would fall within the definition of assets, was not only devoid of merit but misplaced as well, because the word "any building" could not possibly be read in isolation and it had harmoniously to be construed with the remaining portion of section 2(ea) of the Act, i.e. whether the building was used for residential or commercial purposes or for the purpose of maintaining a guest house, because an incomplete building could not possibly either be used for residential or commercial purposes or for purposes of maintaining a guest house. Therefore, the word "building" had to be interpreted to mean a completely built structure having a roof, dwelling place, walls, doors, windows, electric and sanitary fittings etc. If one or more such components were lacking, then it could not possibly be said that the building was a complete structure for the purpose of section 2(ea) of the Act. The assessee was constructing the building after obtaining sanction from the appropriate authority. Therefore, the incomplete building of the assessee neither fell within the definition of a building, as contemplated under section 2(ea) of the Act, nor within the purview of "urban land" as excluded by Explanation 1(b) of the Act. The perusal of the scheme of the Act posits that it was not always that any building or land appurtenant thereto was straightaway liable to wealth tax. There was an exclusion clause contained in Explanation 1(b) of the Act, in regard to urban land as well. In that eventuality, the burden of proof was on the Revenue and the adjudicating authority was required to record a categorical finding that the building of the assessee was actually exigible to wealth-tax which was lacking in the case of the assessee. Thus the Tribunal was justified and correctly negative the claim of the Revenue and was thus right in holding that the value of house under construction including investment on construction was not liable to wealth-tax."
It is also well settled that once the land is utilized for construction purposes with approval of prescribed authority, it ceases to have its identity as vacant land and it cannot be independently valued ; there is no merit in contention that value of urban land could be assessed to wealth tax until completion of construction of building and 4 WTA Nos.22&23/Kol/2013 Happy Homes & Resorts Pvt. Ltd..
A.Yrs.2001-02 & 2002-03 until commencement of use of such building for commercial or industrial purpose. Reference in this regard may be made to the decision of Kerala High Court in the case of Apollo Tyres Ltd vs ACIT reported in (2010) 189 Taxman 225 (Ker.).
"The Wealth-tax Act, 1957, was drastically amended with effect from April 1, 1995. After the amendment only specified assets are subjected to charge towards tax and all other assets are outside the tax net. Under the provisions of the amended Act, tax is levied only on non-productive assets such as residential house, urban land, jewellery, bullion, motor cars, etc. Urban land is specifically covered by the definition clause of "asset" and is subject to wealth-tax. However, urban land acquired for industrial purpose enjoys tax holiday from wealth-tax for two years from the date of acquisition by the assessee. If the land is not utilized for industrial purpose within two years, the value of such urban land will be subject to wealth-tax from the year following. Urban land that is subject to tax under the definition of "asset" generally covers only vacant land. In fact, under the exception clause "the land occupied by any building which has been constructed with the approval of the appropriate authority" is exempt from the purview of tax. This provision makes it clear that when urban land is utilized for construction of a building with the approval of the prescribed authority, the land ceases to be identifiable as urban land. Building under construction which is work-in-progress is not brought within the definition of "asset" for the purpose of levy of wealth-tax. As and when construction of building is complete on the urban land, there can be no separate assessment of urban land, but assessment is only on the value of the building, if it is not exempted from tax. The commencement of construction is use of the land for industrial purpose. However, this does not mean that part construction and abandoning further construction will entitle the assessee for exemption because part construction without completion of construction of the building cannot be said to be use of the land for commercial or industrial purpose. In view of the exemption available to productive assets, there is no scope for levy of tax during the period of construction of the productive asset, namely, commercial building by utilizing the urban land. In other words, once a non-productive asset like urban land is converted to a productive asset like a building which qualifies for exemption, then the assessee can start availing of exemption even during the period of conversion of such non-productive asset to productive asset.
The assesee was allotted a plot at Gurgaon earmarked for institutions by the Haryana Urban Development Authority on December29,1995. The assessee commenced construction of a commercial building in the plot in November 1997, completed the construction of a four storeyed building with basement and started occupying it from March 29, 2000. In the course of assessment for the assessment year 1988-89 the Wealth-tax Officer assessed the value of the land treating it as urban land. This was upheld by the Tribunal. On appeal to the High Court :
Held, allowing the appeal, that there was no dispute that the land was allotted for commercial purposes which covered industrial use as well. The assessee progressively completed construction of a four storeyed building with basement and started using it within the course of two years from the valuation date. The assessee could not be expected to complete construction of a four storeyed massive building in the course of two years which is the period provided in Explanation 1(b) to section 2(ea). The assessee was entitled to exemption from wealth-tax in the assessment year 1998-99 in respect of the land."5
WTA Nos.22&23/Kol/2013 Happy Homes & Resorts Pvt. Ltd..
A.Yrs.2001-02 & 2002-03 In the instant case, the assessee had held the unused urban land for its hotel industry purposes and started construction activities thereon commencing from Asst Year 1999-2000 onwards after carrying out the activities of land filling, leveling , earth filling, soil testing etc for the purpose of construction of hotel building. It is also observed that the assesee had duly stated the reasons for slow progress in the development work thereon due to Kamtapuri Liberation Front Agitation, other unrest and threats from terrorists in that locality. These facts are not disputed by the Learned AO. The approval for construction of hotel building was obtained by the assessee and ultimately the hotel business had commenced in Asst Year 2005-06. The subsequent conduct of the assessee of finally completing the construction of hotel strengthens its original stand of urban land meant to be utilized for the purpose of hotel business. Hence the intention of the assessee to utilize the urban land only for the purpose of its hotel business is proved beyond doubt by the subsequent activities of the assessee.
In view of the aforesaid facts and judicial precedents relied upon, we hold that the urban land is not liable for wealth tax . Hence we are not inclined to interfere with the findings of the Learned CWT(A). Accordingly, the grounds raised by the revenue are dismissed.
In the result, the appeals of the revenue are dismissed.
Order pronounced in the court on 23.09.2015.
Sd/- Sd/-
[Mahavir Singh] [M.Balaganesh]
Judicial Member Accountant Member
Date: 23.09.2015.
R.G.(.P.S.)
6
WTA Nos.22&23/Kol/2013
Happy Homes & Resorts Pvt. Ltd..
A.Yrs.2001-02 & 2002-03
Copy of the order forwarded to:
1. Happy Homes & Resorts Pvt. Ltd., 11, Crooked Lane, Kolkata-700069.
2 I.T.O., Ward-3(1), Kolkata.
3. The CIT-I, Kolkata, 4. The CIT(A)-I, Kolkata.
5. DR, Kolkata Benches, Kolkata True Copy, By order, Deputy /Asst. Registrar, ITAT, Kolkata Benches