Income Tax Appellate Tribunal - Hyderabad
Assistant Commissioner Of Wealth-Tax vs Hyderabad Industries Ltd. on 31 August, 2005
Equivalent citations: [2006]98ITD357(HYD), [2006]281ITR31(HYD), (2006)101TTJ(HYD)486
ORDER
D. Manmohan, Judicial Member
1. These appeals filed at the instance of the Revenue pertain to the assessment years 1994-95 to 1998-99. Since the issue involved in all these appeals is common, we proceed to dispose of these appeals by a combined order for the sake of convenience.
2. Whether the vacant land at Banjara Hills, Hyderabad is assessable to wealth-tax in the hands of the assessee-company, is the subject-matter of dispute before us.
3. The assessee-company purchased 53,941 sq. metres of land in road No. 13, Banjara Hills, Hyderabad in 1962. A portion of that land was covered with building. In 1975, the assessee-company handed over the said land to the Asbestos Centre Recreation Club. The resolution passed by the board of directors of the company on July 26, 1975, to this effect, is placed at page 1 of the assessee's paper book. The entire land was handed over to Asbestos Centre through an irrevocable power of attorney with the object of utilising it for the welfare activities of the employees and partly as guest house to the visiting officials. According to the assessee, the premises did not belong to it and thus fall outside the purview of definition of "assets", under Section 2(ea) of the Act. It may be relevant to mention here that wealth-tax was not leviable "orr assets held by the company but for the introduction of Section 40 of the Finance Act, 1983. The said section was omitted by the Finance Act, 1992, with effect from April 1, 1993, but the levy of tax on companies continued by making suitable amendments in the Wealth-tax Act, whereby a company was made an assessable entity. Section 3, Section 2(m) and Section 2(ea) make it clear that assets belonging to a company are assessable to wealth-tax subject to certain exceptions. Certain assets are treated as productive assets on which no tax is leviable. We are now concerned with Section 2(ea) of the Act. Admittedly, the vacant land as well as the land occupied by buildings was not used by the company for the specific purposes mentioned in Section 2(ea). In other words, the impugned assets do not fall in any of the exceptions provided in clauses 1 to 5 of Section 2(ea)(i) of the Act. Section 2(ea)(v) read with Explanation (b) which defines "urban land".
4. The Assessing Officer noticed that out of the total land, the constructed area is of 11,931 sq. metres only, whereas the extent of vacant land is 42,013 sq. metres. Since the land belongs to the assessee-company, the Assessing Officer was of the opinion that the value of the said land is assessable to tax in the hands of the assessee-company. For that purpose, he referred the matter to the valuation cell to determine the value of the property as on the respective valuation dates. As per the report of the Valuation Officer the value of the said land was brought to tax.
5. Aggrieved, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals) contending, inter alia, that the property having been transferred to Asbestos Centre, it does not belong to the assessee and thus it is not an "asset" within the meaning of Section 2(ea) of the Wealth-tax Act. The contention of the assessee was that the property was irretrievably handed over to Asbestos Centre vide resolutions dated October 28, 1975, and July 26, 1975, and, in fact, Asbestos Centre was recognised as the "holder" of the property under the ULCA proceedings and thus the property cannot vest back with Hyderabad Industries Limited, so as to treat the same as an asset assessable to tax in the hands of the company. It was also submitted that the property was determined as excess land in an order under the Urban Land Regulation Act (order dated December 8, 1995) and thus the value of the land cannot be beyond the ceiling limit prescribed under the Act and thus only a sum of Rs. 2 lakhs can be added. It was also submitted that the property having been utilised exclusively for the welfare activities of the employees of the company, it has to be treated as "productive asset" and thus falls outside the purview of Section 2(ea) of the Wealth-tax Act.
6. The learned Commissioner of Income-tax (Appeals) observed that the impugned property was determined as excess land under the ULCA and consequently such excess land vests with the Government automatically and the assessee's title thereon ceases to exist. If at all there is any value, the assessee would be entitled to receive monetary compensation for vesting all the vacant land to the Government and only such value can be taken into consideration. Hence, the land cannot be treated as "urban land" for the purpose of wealth-tax assessment, in view of the restrictions contained in Explanation (b) to Section 2(ea) of the Act.
7. The learned Commissioner of Income-tax (Appeals) further observed that the "Asbestos Centre" has been formed by the employees of the assessee-company as a purely recreational and welfare centre for the employees, their family members and touring officials and thus it was for the benefit of the company to promote belongingness, and mutual welfare of the employees. Therefore, it would be prudent to view the assets as a "productive asset". She further observed that irrevocable power of attorney was executed in 1975 and the property cannot vest back under any circumstance. Therefore, having regard to the ground realities and having regard to the meaning assigned to the term "owner" under the Income-tax Act, since Asbestos Centre is receiving income from the impugned property in its own right, transfer of title per se falls into insignificance and for all practical purposes the Asbestos Centre has to be treated as the owner. Accordingly, the addition made by the Assessing Officer was deleted.
8. Aggrieved, the Revenue is in appeal before the Tribunal. The learned Departmental Representative vehemently contended that the assessee-company is the owner of the vacant land and adverted our attention to page 17 of the assessee's paper book wherein the first para, reads as under :
Whereas Hyderabad Asbestos is the owner of all those two plots of land bearing survey No. 129/75 and 129/75/2 measuring in the aggregate 13 acres and 13 guntas more or less, more particularly described in Part A of the Schedule hereunder written.
9. It was further submitted that other clauses in the said deed also go to show that the assessee-company continued to be the owner of the property and taxes etc., were to be paid by the company. He submitted that the assessee-company allowed the recreation centre to utilise the property under the board's resolution but, in law, the property was never transferred to the society. Placing reliance upon the decision of the apex court in the case of Late Nawab Sir Mir Osman Ali Khan v. CWT , the learned Departmental Representative submitted that by merely permitting the Asbestos Centre to utilise the property the ownership does not pale into insignificance. He also pointed out that under the Wealth-tax Act, value of a property belonging to that person is taxable unlike the Income-tax Act, where Section 22 of the Act recognises an "owner" of the property. It may be relevant to extract the observations of the apex court in :
... We have discussed the cases where the distinction between 'belonging to' and 'ownership' has been considered. The following facts emerge here : (1) the assessee has parted with the possession which is one of the essentials of ownership ; (2) the assessee was disentitled to recover possession from the vendee and the assessee alone until the document of title is executed was entitled to sue for possession against others, i.e., other than the vendee in possession in this case. The title in rem vested in the assessee ; (3) the vendee was in rightful possession against the vendor ; (4) the legal title, however, belonged to the vendor ; and (5) the assessee had not totality of the rights that constitute title but a mere husk of it and a very important element of the husk.
The position is that though all statutes including the statute in question should be equitably interpreted, there is no place for equity as such in taxation laws. The concept of reality in implementing a fiscal provision is relevant and the Legislature in this case has not significantly used the expression 'owner' but used the expression 'belonging to'. The property in question legally, however, cannot be said to belong to the vendee. The vendee is in rightful possession only against the vendor. Speaking for myself, I have deliberated long on the question whether in interpreting the expression 'belonging to' in the Act, we should not import the maxim that 'equity looks upon a thing as done which ought to have been done' and though the conveyance had not been executed in favour of the vendee, and the legal title vested with the vendor, the property should be treated as belonging to the vendee and not to the assessee. I had occasion to discuss thoroughly this aspect of the matter with my learned brother and since in view of the position that legal title still vests with the assessee and the authorities, we have noted, are preponderantly in favour of the view that the property should be treated as belonging to the assessee in such circumstances, I shall not permit my doubts to prevail upon me to take the view that the property belongs to the vendee and not to the assessee. I am conscious that it will work some amount of injustice in such a situation because the assessees would be made liable to bear the tax burden in such situations without having the enjoyment of the property in question. But times perhaps are yet not ripe to transmute equity on this aspect in the interpretation of law-much as I would have personally liked to do that. As Benjamin Car-dozo has said, The judge, even when he be free, is not wholly free'. The judge cannot innovate at pleasure . . .
. . . We are conscious that if a person has the user and is in the enjoyment of the property, it is he who should be made liable for the property in question under the Act ; yet the legal title is important and the Legislature might consider the suitability of an amendment if it is so inclined.
10. In the case of Podar Cement P. Ltd. the court was concerned with the expression "owner" and in that context observed that income from house property is assessable to tax in the hands of the beneficial owner whereas under the Wealth-tax Act, if the property belongs to the assessee, the value of such property is taxable. He has adverted our attention to page 136 of the assessee's paper book to highlight that the rights in the said property still vest with the assessee-company since Asbestos Centre has no right to dispose of or transfer the property of others. In other words, it was not an irrevocable transfer.
11. The learned Departmental Representative further submitted that the property in question does not cease to be an "asset" merely because a notice is issued under the ULC Act and the proceedings were not complete under Section 10(3) of the ULC Act. The learned Departmental Representative adverted our attention to pages 41, 59, 60 of the assessee's paper book and the provisions of the ULC Act to submit that after the service of statement under Section 9 of the Act, the competent authority has to cause a notification giving the particulars of vacant land and upon publication of notification, it can be declared to be excess land and till such time the value as per ULC Act cannot be applied. "Urban Land" is explained in Section 2(ea) wherein it was stated that if land on which construction of a building under any law is not permissible, it goes outside the purview of the definition of the urban land whereas, in the instant case, there was no restriction on construction--only elimination of property was not permitted. In this regard, he has referred to page 9 of the departmental paper book to highlight that proceedings have not reached the state of application of Section 10(3) of the ULC Act. In fact, the assessee preferred an appeal under Section 33 of the ULC Act before the concerned officer who, by his order dated February 4, 2004, was pleased to remand the issue to the file of the competent authority.
12. With regard to the contention of the assessee that it is a "productive asset", the learned Departmental Representative adverted our attention to pages 102, 134 of the assessee's paper book to highlight that only about 11,000 sq. metres., was used by recreation centre and the balance land continued to be vacant. Referring to the decision of the hon'ble Andhra Pradesh High Court in the case of CIT v. Zaibunnissa Begum of the learned Departmental Representative submitted that the vacant land is in excess of the appurtenant land which can be kept vacant and thus the Assessing Officer was justified in bringing to tax, the value of the impugned property, under the Wealth-tax Act.
13. On the other hand learned Counsel Mr. Ravi submitted that the contention of the learned Departmental Representative Mr. B. G. Reddy is factually incorrect. Referring to pages 124 to 148 of the assessee's paper book learned Counsel submitted that land admeasuring 11,000 sq. metres cannot be used and thus the useful area is only to the extent of 42,144 sq. metres. Adverting our attention to the irrevocable power of attorney dated October 28, 1975, learned Counsel submitted that possession was given to Asbestos Centre in 1975 and it was in the adverse possession of Asbestos Centre for more than 12 years and, in fact, the assessee-company has to pay room rent to Asbestos Centre to avail of the lodging facility. Thus, under articles 64 and 65 of the Limitation Act the assessee-company has no valid title over the property after 1987 and hence the property cannot be treated as "belonging" to the assessee-company.
14. Learned Counsel also referred to page 23 of the assessee's paper book to submit that out of the total extent of land admeasuring 53,944 sq. metres., only 42,013 sq. metres., can be said to be excess land on which construction is not permissible and hence falls outside the ambit of "urban land" as defined in Section 2(ea) of the Wealth-tax Act. He further submitted that Sections 11, 22, 26, 27 of the ULC Act not only prohibits transfer of property but also puts a ceiling on compensation by fixing the maximum compensation payable at Rs. 2 lakhs only. He thus reiterated the contentions made before the learned Commissioner of Income-tax (Appeals).
15. Joining issue, the learned Departmental Representative submitted that the excess land was determined but notification under Section 10(3) having not been published, the ceiling of Rs. 2 lakhs towards value of excess land is not applicable herein. He has referred to pages 56, 58 and 60 of the assessee's paper book to submit that the assessee continued to be the owner of the property and the provisions under the Limitation Act concerning adverse possession* have no application to the instant case. He has also referred to Section 10(14) of the ULC Act to submit that restriction on sale/transfer of excess land is only after publication of notification whereas, in the instant case, the proceedings have not reached that stage. With regard to the permission for construction, the learned Department Representative submitted that any construction, irrespective of the extent of land requires permission from the MCH and thus it cannot be prematurely presumed that the assessee will not be given permission for construction on the vacant land. He thus supported the order of the Assessing Officer.
16. We have given careful consideration to the rival submissions, the facts on record and also perused the case law relied upon by the parties. The first point to be addressed is with regard to the rights transferred by the asses-see-company to Asbestos Centre and the impact of such right with regard to the assessability of the said assets in the hands of the assessee. The case of the assessee rests upon the irrevocable power of attorney dated October 28, 1975, and copy of the board's resolution dated July 26, 1975, whereby the Asbestos Centre was allowed to hold and occupy and also to utilise the impugned property of the company for the purpose of carrying on welfare activities for the employees of the company. No doubt the expenditure on modifications, repairs, etc., has to be incurred by the Asbestos Centre but clauses 5 in the irrevocable power of attorney specified that the assessee-company has to pay municipal taxes and levies applicable in respect of the said properties or any portion thereof. Hyderabad Asbestos has also undertaken to pay to the respective lessors of the premises described in Parts B and C of the Schedule, monthly or yearly rent as per the lease agreements. The rights transferred to Asbestos Centre are limited to enjoyment of the property in various ways but there is no right to dispose of or transmit the property to others (page 136 of the assessee's paper book). In this factual matrix, on an application of decision of the apex court in the case of Late Nawab Sir Mir Osman Ali Khan (reiterated in the case of Smt. Badhurani Deepinder Kaur , we are of the considered opinion that even though the Asbestos Centre had the benefit of enjoyment of the property, the legal title vests with the assessee and thus the impugned property "belongs" to the assessee and is assessable to tax under the Wealth-tax Act.
17. Learned Counsel relied upon the provisions of the Limitation Act and in particular Sections 64 and 65 of the Act to submit that the property being under exclusive possession of Asbestos Centre since 1975, the assessee-company has no valid title over the property after 1987. A careful perusal of the provisions and also the judgments of the apex court on this issue show that a person whose possession was permissible cannot claim title on the basis of adverse possession unless they show specific overt act and assertion on their part that they disclaimed the title of true owner ; it is for that party to prove as to when and under what circumstances their possession became adverse. There is nothing on record to suggest that Asbestos Centre has claimed itself as absolute owner of the property. Under the circumstances, we are of the considered opinion that the title over the property was not transferred merely on account of lapse of time, reckoned from the date of execution of power of attorney.
18. In fact in the instant case, the assessee continued to pay the taxes to various bodies and lease rent to the lessors which would show that the assessee has merely given license to the Asbestos Centre to utilise the property for specified purposes and jn accordance with agreement the assessee might have also paid rent for utilising the guest house facility. The decision of the learned Commissioner of Income-tax (Appeals) was obviously rendered without reference to the decision of the apex court under the Wealth-tax Act. The learned Commissioner of Income-tax (Appeals) observed that the technical requirement of transfer of title per se pales into insignificance at the appellant-company is not the owner of the property impugned properly for all practical purposes ; with respect, the view expressed by the learned Commissioner of Income-tax (Appeals) is contrary to the view taken by the apex court in the case of Late Nawab Sir Mir Osman Ali Khan , the relevant portions of the observations of the judgment are extracted in para. 9 of our judgment.
19. Similarly, the learned Commissioner of Income-tax (Appeals) observed that the impugned property was determined as excess land under the ULC Act. With great respect it may be noticed that the provisions of Section 10(3) and other provisions under the ULC Act were not considered by the learned Commissioner of Income-tax (Appeals) in the correct perspective. The facts as brought to our notice clearly and categorically indicate that Asbestos Centre has never acted as the owner of the impugned property. On the contrary the proceedings of the Special Officer and competent authority, ULC, Hyderabad, were against the assessee-company and such proceedings did not reach the stage of publication of the notification (which is mandatory under Section 10(3) of the Act) and thus such land cannot be deemed to have vested absolutely with the State Government. In other words, till the date of publication of notification under Section 10(3) of the ULC Act, the property does not vest with the Government and the impugned property continue to belong to the assessee. It may also be noticed that the assessee preferred an appeal against the final orders passed by the Special Officer and competent authority and the said appeal, filed under Section 33 of the ULC Act, was disposed of by the Commissioner of Income-tax (Appeals) on February 4, 2004, whereby the order of the competent authority, was set aside to reconsider the issue in accordance with law. Even in these proceedings the assessee-company was the sole appellant and the Asbestos Centre has not joined as a party even though the assessee claims that it has no right over the said property and all the rights are possessed by Asbestos Centre. Admittedly, no notification was published as required under Section 10(3) of the ULC Act. Consequently, Section 11(1) of the Act does not come into operation at that stage. Therefore, it cannot be said that the assessee is entitled to claim maximum compensation of Rs. 2 lakhs only. As regards other sections referred to by the learned Counsel with regard to the right of the competent authority to transfer the land or prohibit the assessee from selling the land etc., we may notice that the competent authority has to necessarily publish the notification under Section 10(3) of the Act before contemplating any act, such as transfer of the property etc. Though there is limited restriction on the sale of property by the assessee, the provisions of ULC Act show that there is no absolute prohibition and the Act merely imposes an obligation on the assessee to inform the competent authority and to obtain permission by following certain parameters. Even under the Hyderabad Municipal Corporation Act before embarking upon construction on a vacant land every assessee has to submit plans etc., and obtain the clearance. The only additional requirement in this case is to obtain clearance certificate from the ULC authority. Such formalities cannot by themselves be treated as impediments for construction of the building on such land ; so long as the vacant land is in the name of the assessee-company, it cannot be said that the property does not belong to the assessee. Explanation (b) to Section 2(ea) of the Act defines "urban land" and excludes from its ambit only such land on which construction of a building is not permissible under any law for time being in force. The expression "not permissible" denotes a situation where there is a statutory prohibition. Where a specified authority is authorised to permit construction of a building and, in a given case, such authority refuses to grant permission, it can be said to be a case where construction is not permissible. In other words before making an application to a concerned authority for permission to construct a building, it cannot be concluded that construction would not be permitted on such land. In the instant case, either under the ULC Act or under the MCH Act, there is no specific order denying the assessee permission to construct a building on the land. Therefore it cannot be said to be a case falling under the exceptions provided in Explanation (b) to Section 2(ea) of the Act.
20. Another argument raised by learned Counsel is based upon the intention of the Legislature. According to learned Counsel, the object of bringing to tax an urban vacant land is to ensure that such a land is put to productive use and not kept idle. Since welfare of the employees has to be taken care of by the assessee-company, for smooth running of the industry, land given to the Asbestos Centre can be said to have been put to productive use. This argument of learned Counsel does not commend acceptance, on a plain reading of Section 2(ea) of the Act. In consonance with the object of exempting from tax any vacant land, which is put to productive use, the Legislature in its wisdom, listed out exhaustively various assets and the required nature of use. With regard to "urban land" the Legislature excluded from the ambit of taxation any land situated in a town etc., which has a population of less than 10,000 and any other land which is not within 8 km. from the local limits of any municipality or Cantonment Boards. The impugned property does not satisfy this test and thus it falls within the definition of "urban land" assessable to tax. Even under Explanation (b) to Section 2(ea) of the Act the following exceptions are provided :
(a) a land on which construction of a building is not permissible ;
(b) land occupied by any building which has been constructed with the approval of the appropriate authority ;
(c) unused land held for industrial purposes for a period of two years from the date of its acquisition ;
(d) land held by the assessee as stock in trade for a period of 10 years from the date of its acquisition.
21. It is necessary to bear in mind that the land used for welfare activities of its employees is not included in the list of exceptions. On the contrary the Legislature intended to exempt from levy of tax on unused land only in a case where it was held for industrial purposes and the outer limit is only two years. The other exception is that it should be held as stock-in-trade, which is not the case of the assessee herein. The term "industrial purpose" is not defined under the Wealth-tax Act. However, the question as to whether permission given by the assessee to the Asbestos Centre to utilise the property for welfare activities is for industrial purpose or not, was not addressed from this angle. At any rate, the facts on record shows that a large chunk of property was vacant and record does not suggest that the open area was utilised by the employees for their recreational activities. Thus, permitting Asbestos Centre to utilise the property cannot be said to be utilisation of the property for industrial purpose. Even otherwise, vacant land intended for industrial use will be treated as a taxable asset if building/ sheds are not constructed for more than two years. In the instant case, the land remained vacant for more than 20 years.
22. The other two exceptions provided in Explanation (b) to Section 2(ea) are also not applicable in the instant case, inasmuch as, it is not proved by the assessee that the construction of the building is not permissible under law on the vacant land. It is also not the case of the assessee that the entire land is occupied by any building. It cannot even be considered as "appurtenant land". Under these circumstances, we are of the view that the property cannot be said to have been put to "productive use", so as to take the case outside the sweep of the definition "urban land".
23. For the above reasons, we set aside the orders passed by the Commissioner of Income-tax (Appeals), Hyderabad and allow the appeals filed by the Revenue.