Saktijit Dey, Judicial Member - These two appeals filed by the assessee are against two separate orders, both dated 08-02-2013, of the Ld. Commissioner of Income Tax(Appeals)-III, Hyderabad pertaining to AY. 2003-04 and 2004-05.
2. The only common issue arising in both the appeals relate to the decision of the Assessing Officer (AO) and Ld.CIT(A) in treating the immoveable property at 8-3-949/1, Punjagutta, Hyderabad as 'urban land' and subjecting it to Wealth Tax.
3. Briefly, the facts relating to the above said issue are the assessee is a company. Earlier, it was engaged in the business of manufacturing and sale of soft drinks which continued till the year 1998 when the business was sold to Bharat Coca Cola Bottling South East (P) Ltd. However, the land along with the building continued to remain under the ownership and possession of the assessee. As observed by the AO in the assessment order, during the assessment proceedings for the AY.2005-06, it was noticed that the assessee was in possession of vacant land admeasuring 7,236 sq. yards at Ameerpet which was sold for a consideration of Rs. 13 Crores during the FY.2004-05 relevant to the AY.2005-06. However, it was noticed by the AO that the assessee has not filed any Wealth Tax return for the AY. 2003-04 and 2004-05. The AO being of the view that vacant urban land is subject to Wealth Tax and since the value of such asset is more than the minimum prescribed limit liable to Wealth Tax, he formed an opinion that wealth chargeable to tax has escaped assessment and accordingly issued a notice u/s. 17 of the Wealth Tax Act both for the AYs. 2003-04 and 2004-05. During the assessment proceedings, when the AO called upon the assessee to explain why the vacant land should not be treated as asset u/s. 2(ea) and subjected to Wealth Tax, it was submitted by the assessee that the property consisted of factory buildings, godowns and office wherein the assessee was carrying on the business of manufacture and sale of soft drinks. It was submitted that even after sale of the soft drink business, the building continued to exist there and assessee was looking into opportunities for setting up a new business in the said premises. However, when the assessee failed to set up a suitable business in the said premises, property was given to a developer for commercial development on as is where is condition. The assessee submitted that as per the terms of the agreement with developer, the old building was to be demolished by the assessee and in its place a new commercial complex is to be developed by the developer and construction area would be shared between the developer and the assessee on 50:50 basis. The assessee submitted that as per the terms of the agreement the existing structure was demolished and the development work commenced in April, 2002. The assessee submitted that since the property in question is not a vacant land but there was a building under construction over the said land, it cannot be treated as urban land u/s. 2(ea)(v) of the Wealth Tax Act. The AO after considering the submissions of the assessee vis-à-vis the facts and material on record observed that the documentary evidences available on record do not indicate that what has been sold by the assessee is land along with building appurtenant thereto. He observed that the explanation of the assessee that for the purpose of reducing the stamp duty, the property was described as land in the agreement is not acceptable. Thus, the AO concluded that as the assessee has failed to establish the fact by furnishing adequate documentary evidence that there was a building constructed over the land, the property in question has to be treated as urban land as mentioned u/s. 2(ea)(v) of the Wealth Tax Act and accordingly assessed the value of the said property to Wealth Tax in both the impugned assessment years.
4. Being aggrieved of such assessment, assessee preferred appeals before the Ld.CIT(A). Before the First Appellate Authority, assessee made elaborate submissions to substantiate its claim that the property is not a vacant land but there was a structure constructed over the said land. In support, assessee also furnished certain documentary evidences. On the basis of the submissions made by the assessee, Ld.CIT(A) called for a Remand Report from the AO. After perusing the Remand Report submitted by the AO, Ld.CIT(A) found that though there was an old building over the subject land, however, the same was demolished in the year 2002 and construction of a new building was started without obtaining any approval from the competent authority. Since the construction made without approval was illegal, the same was demolished by the competent authorities on 02-05-2002. From the aforesaid facts, Ld.CIT(A) concluded that though originally there was a building over the said property, but the same was demolished in the year 2001-02 and the land became vacant land. The further illegal constructions made over the said land was also demolished by the municipal authorities which indicates that there is no structure standing over the land during the relevant period. Thus, the vacant land has to be treated as urban land as per the provisions contained u/s. 2(ea)(v) of the Wealth Tax Act. The Ld.CIT(A) further observed, even if assessee's claim that there was a building under construction is accepted, then also, it will not help the assessee because the land in question must contain a finished building which is ready for commercial use. Thus, on the aforesaid basis, Ld.CIT(A), upheld the view expressed by the AO in treating the property as a vacant land and assessing it to wealth tax.
5. The Ld. AR more or less reiterating the submissions made before the Departmental authorities submitted that during the relevant previous year i.e., 2003-04 and 2004-05, there was a building being constructed over the said land by the developer with whom the assessee has entered into a development agreement.
6. Ld. AR drawing our attention to the written submissions filed before the First Appellate Authority submitted that facts have been clearly laid out before the CIT(A) to the affect that after demolition of the old building standing over the property, construction of a new commercial complex has started after April 2002 itself. The Ld. AR strongly contesting the observations made by the CIT(A) that the illegal constructions made over the said property without obtaining the approval from the competent authority was demolished submitted that when the property was sold, there was a building under construction over the said land and the construction work is still going on. For substantiating its claim, the Ld. AR referred to the application made by the assessee before the competent authority seeking permission for construction of the commercial complex. Thus, the Ld. AR submitted since there is a building under construction over the said land during the relevant previous years, it cannot be subjected to Wealth Tax by treating it as urban land. In support of such contention, the assessee relied upon the decision of the ITAT Cochin bench in the case of Smt. Meera Jacob v.WTO [2007] 14 SOT 486 wherein it is held that a land on which a building is under construction cannot be treated as urban land.
7. The Ld. DR on the other hand strongly relying upon the findings of Ld.CIT(A) submitted that since the assessee failed to submit any documentary evidence to prove the fact that there was a building standing over the said land during the relevant period, assessment of the property treating it as urban land is justified. Ld. DR submitted, even assuming that there was a building under construction, still assessee will not get exemption as the building is not complete. In this context, Ld. DR relied upon the following decisions:
| i. |
|
CWT v. Giridhar G. Yadalam [2010] 325 ITR 233/[2007] 163 Taxman 372 (Kar.); |
ii. |
|
CWT v. Sanjay Krishna Hegde [2013] 35 taxmann.com 173 (Cal.) |
8. We have considered the submissions of the parties and perused the materials on record. The issue in dispute lies within a very narrow compass i.e., whether the property subjected to Wealth Tax is an 'urban land' as per Section 2(ea)(v) of the Act. Before examining the merits of rival contentions, it is worth taking note of the relevant statutory provisions. As per clause-(v) of Section 2(ea), urban land is included within the definition of 'assets' subject to Wealth Tax. Explanation 1(b) to Section 2(ea) defines urban land. The same is extracted here under for convenience:
'(b) "urban land" means land situate—
(i) in any area which is comprised within the jurisdiction of a 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 and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the valuation date; or
(ii) in any area within such distance, not being more than eight kilometres from the local limits of any municipality or cantonment board referred to in sub-clause (i), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette, [but does not include land classified as agricultural land in the records of the Government and used for agricultural purposes or 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 [or any land held by the assessee as stock-in-trade for a period of ten years from the date of its acquisition by him]';
9. A plain reading of the aforesaid provision makes it clear that any area comprised within the jurisdiction of a municipality or Cantonment Board which has a population not less than 10,000 according to the land census or in any area which is within such distance not being more than 8 KMs from the local limits of any municipality or Cantonment Board as notified by the Central Government shall be treated as urban land. However, the said provisions also excludes certain categories of land from being treated as urban land if they satisfy conditions mentioned therein. One of them being, land occupied by any building which has been constructed with the approval of the appropriate authority. In the appeal before us, there is no dispute to the fact that the land in question otherwise comes within the definition of 'urban land' as provided under explanation 1(b). However, the assessee seeks exclusion of the property from being treated as 'urban land' on the plea that there is a building constructed over the said land. Keeping in view the aforesaid statutory provision, it is to be decided whether assessee's claim is acceptable? As we have stated earlier, the assessee itself has submitted not only before us but also before the Departmental authorities that the old building standing over the subject land was demolished in April 2002 and the developer started construction of a commercial complex over the land. It is also admitted by the assessee that the construction was still in progress and not completed at the time of sale of the property. In spite of such factual position, assessee still claims exemption contending that even a half constructed/semi finished building standing over a plot of land will take it away from the purview of 'urban land'. For such proposition Ld. AR has relied upon a decision of ITAT Cochin Bench (supra) wherein it is held that a building under construction also qualifies for exemption under explanation 1(b) of Section 2(ea)(v) of the Act. However, the expression 'land occupied by any building' which has been constructed as provided in explanation 1(b) of Section 2(ea)(v) came up for interpretation by the Hon'ble Karnataka High Court in the case of Giridhar G.Yadalam (supra). The Hon'ble Karnataka High Court held that the expression 'any building which has been constructed' would mean a fully constructed building and not a semi-constructed building or a building under construction. The observation of the Hon'ble High Court is extracted here under for convenience:
"7. The said definition of urban land would show that certain lands are not includible for the purpose of 'urban land'. We are concerned in the case on hand with regard to the lands occupied by any building which has been constructed with the approval of the appropriate authority. Approval by appropriate authority is not disputed. What is argued before us is that since the building is being constructed, the same is exempt for the purpose of wealth-tax in terms of the meaning to be given to urban land. A careful reading of the said definition would show that what is excluded is the land occupied by any building which has been constructed (italicized, in print, supplied). Admittedly, in the case on hand, the building is not fully constructed. It is in the process of construction. Building in the process of construction cannot be understood as a building which has been constructed as sought to be argued before us. Courts have to interpret any definition in a reasonable manner for the purpose of fulfilling the object of the Act. Courts cannot interpret a term in such an unreasonable manner making thereby unworkable of the Act as sought to be argued before us. Constructed has its own meaning. Constructed would mean 'fully constructed' as understood in the common parlance. The Tribunal unfortunately, without noticing the intention of the legislature and the specific wordings in the section has chosen to blindly follow its earlier order. If the order of the Tribunal is accepted then neither the owner nor the builder nor the occupant would pay any tax to the Government in terms of the WT Act. In these circumstances, we are unable to accept that argument advanced by the learned counsel for the appellant. On the other hand, we would accept the reasonable argument of the learned counsel for the Department in the matter of the proper understanding of the words 'land occupied by any building which has been constructed', since that would fulfil the intention of legislature".
The Hon'ble Calcutta High Court following the aforesaid decision also expressed the same view in case of Sanjay Krishna Hegde (supra)
10. Thus, when decisions of the superior judicial authority i.e., Hon'ble High Courts are available wherein it is held that any building constructed over the land would mean a fully constructed building, the view expressed by the Hon'ble High Courts would certainly get precedence over the decision of ITAT Cochin Bench relied upon by assessee. That being the case, the structure standing over the land during the relevant period being a half/semi-finished one cannot come within the exclusionary clause so as to take it out from the ambit of urban land. Therefore, respectfully following the principle laid down by the Hon'ble High Courts referred to above, assessee's claim of exemption cannot be accepted.
11. There is one more reason also for not accepting assessee's claim of exemption. As stated earlier, Explanation 1(b) of Section 2(ea) excludes land occupied by any building which has been constructed with the approval of the appropriate authority from the purview of 'urban land'. Therefore, the condition imposed is the building constructed must be with the approval of the appropriate authority. In the present case, even accepting assessee's claim that there was a building under construction over the land during the relevant time, but no documentary evidence has been brought on record to indicate approval of the appropriate authority for such construction. In course of hearing when the Ld. AR was specifically asked whether there is an approval of the appropriate authority for the construction, he admitted that there is no such approval. That being the case, the conditions of clause-1(b) to Section 2(ea) is not satisfied for claiming exemption from Wealth Tax. In the aforesaid view of the matter, we do not find any merit in the contention of the assessee. Accordingly, we uphold the orders of the Ld.CIT(A) by dismissing the grounds raised by assessee.
12. In the result, both the appeals of assessee are dismissed.