2015 (12) TMI 1223 - HC - Wealth-tax

Court affirms Revenue's inclusion of leasehold interest in net wealth. Leasehold interest deemed asset under Wealth Tax Act.

Jaya Hind Sciaky Limited Versus Dy. Commissioner of Income tax, Special Range 4, Pune

The court ruled in favor of the Revenue, affirming the inclusion of the appellant's leasehold interest in the open land in its net wealth under Section 40 ... Determination of net wealth - Inclusion of leasehold interest - whether the open land admeasuring 2175 sq.mtr of the said plot taken on lease by the Appellant is an asset under Section 40(3) of the Act - whether it is belonging to the Appellant for the purposes of determining its net asset chargeable to Wealth Tax under the Act - Held that:- The absence of the words 'property of every description' movable or immovable in Section 40(3) of the Act by itself would not lead to the conclusion that only a property owned by an assessee would be covered and not property of any other kind. Be that as it may, so far as Section 40(3)(v) of the Act, which is the applicable provision, there is a proviso thereto which excludes unused land held by the assessee for an industrial purposes for a period in excess of two years from the date of its acquisition from the definition of asset. The Parliament has used the word held and not owned by the assessee in the proviso to cover a case of open land other than the agricultural land as an asset if the same is held for industrial purposes in excess of over two years. There is no need to compare and contrast the provisions of the Act with the provisions of the Wealth Tax Act, 1957, when there is sufficient indication in the Act itself to include the property in land to be an asset even if it is not owned. Under Section 2(m) of the Wealth Tax Act, 1957, net wealth as defined does not only mean asset belonging to the assessee but by an inclusive definition includes all assets which are set out in Section 4 of the Wealth Tax Act, 1957 which invokes a lessee in excess of one year the deemed owner. There is no such inclusive provision found in Section 40(2) of the Act nor any deeming provision of ownership. Therefore, the net wealth under the Act, has to be restricted in terms of the definition of assets as provided under the Act and cannot artificially include assets not includable under the Act. Section 40(5) of the Act may apply in cases where an issue has not specifically provided for under the Act; - leasehold interest in open land will for purposes of Section 40 of the Act would be an asset as on the valuation date for A. Y. 1998-99. Various clauses of the terms of lease deed relied upon by the Appellant such as – obligation of the Appellant to pay rent to the MIDC; a prohibition from extracting any part of the said demised land, the prohibition to make any alternations to the building without a previous approval of the MIDC; the right of MIDC to enter and inspect the demised premises; after giving one week's previous notice to the Appellant. Further, user of the premises is only for the purposes of a particular type of factory. There is a prohibition on the Appellant to assign or part with the possession of the demised premises without the previous written consent of the MIDC. All this according to the Appellant, would indicate that it is not the owner of the premises and the interest, if any, are very limited. This, however, does not in any way detract and/or negate from the fact that the lease deed dated 29th September, 1978 is a lease of the plot of land. Various clauses of the agreement does not in any manner detract from the agreement being a lease. In fact, the terms of the lease deed establishes that the Appellant has a right to use the property provided the terms and conditions of the lease, are adhered to by the Appellant. Much was said on behalf of the Appellant that lease is only for 95 years with rights of a single renewal. This according to us, would have no impact in holding. Appellant certainly has an interest in the property for a period of 95 years. This is sufficient to hold that on the valuation date, this land belongs to the Appellant, notwithstanding the fact that the ownership in the land would belong to MIDC. For this purpose, the valuation of the leasehold land is as computed in terms of Section 7 read with Schedule III – part (b) of the Wealth Tax Act, 1957. Thus, the value of the leasehold interest in land has to be included for in determining the net wealth under the Act. - Decided against the assessee. Issues Involved:1. Interpretation of 'land' under Section 40 of the Finance Act, 1983.2. Inclusion of leasehold interest in land in the net wealth of the appellant.Issue-wise Detailed Analysis:1. Interpretation of 'land' under Section 40 of the Finance Act, 1983:The primary issue was whether the term 'land' under Section 40 of the Finance Act, 1983 includes leasehold interests. The appellant argued that leasehold interests are not included as assets under Section 40(3) of the Act, contrasting it with Section 2(e) of the Wealth Tax Act, 1957, which defines assets to include property of every description. The appellant contended that the absence of such inclusive language in Section 40(3) indicates a restricted meaning of assets.However, the court noted that the proviso to Section 40(3)(v) uses the term 'held' rather than 'owned,' suggesting that even possession without legal title can be considered an asset. The court concluded that land held unused for industrial purposes for over two years is an asset under Section 40(3), even if not owned. The court also dismissed the relevance of the Wealth Tax Act, 1957 provisions, emphasizing the need to interpret the Finance Act, 1983 independently.2. Inclusion of leasehold interest in land in the net wealth of the appellant:The second issue was whether the leasehold interest in the open land of 2175 sq. mtrs. should be included in the appellant's net wealth. The appellant argued that 'belonging to' implies possession with legal title, referencing Supreme Court and High Court cases to support this interpretation.The court examined the lease deed dated 29th September 1978, which granted the appellant a 95-year lease from MIDC. The court distinguished the present case from previous cases, noting that the appellant's leasehold interest, including possession and rights under the lease, was more than mere possession. The court referred to the Supreme Court's observation in Nawab Sir Mir Osman Ali Khan's case that 'belonging to' can denote an interest less than full ownership.The court analyzed the lease deed's terms, including the appellant's obligations and rights, concluding that the lease created sufficient interest in the land for it to be considered 'belonging to' the appellant. The court held that the appellant's leasehold interest in the open land should be included in its net wealth for the assessment year 1988-89, valued as per the Wealth Tax Act, 1957 provisions.Conclusion:The court answered both substantial questions of law in favor of the Revenue, affirming the inclusion of the leasehold interest in the appellant's net wealth under Section 40 of the Finance Act, 1983. The appeal was disposed of with no order as to costs.