2022 (9) TMI 673 - AT - Wealth-tax

Land at Egattur classified as agricultural, not taxable. Velachery property not urban land for wealth tax. Interest charged per Wealth Tax Act.

The Income Tax Officer, International Taxation – 1 (2), Chennai Versus Shri Mafaz Mohammed

The Tribunal upheld the classification of land at Egattur as agricultural land, ruling that it was not a capital asset and gains from its sale were not ... Wealth tax assessment - land sold by the assessee was an agricultural land or capital asset - HELD THAT:- Respectfully following the decision of the Tribunal in assessee’s own case in income tax matter [2019 (1) TMI 1989 - ITAT CHENNAI] as well as amendment to sub-clause (b) of Explanation 1 to clause (ea) of the Wealth Tax Act, 1957, we are inclined to uphold the view of the ld. CIT(A) that the land sold by the assessee was an agricultural land and not a capital asset. Therefore, the gain on sale thereof was not exigible to tax. Thus, the ground raised by the Revenue is dismissed for all the assessment years under consideration. Assessing the property at Velachery as ‘Urban land’ liable to Wealth Tax - CIT(A) has observed that the land at Velachery cannot be construed as an “Urban land” under section 2(ea)(v) of the Wealth Tax Act for the reason that after obtaining proper planning permission, the building was constructed and the assessee has sold the built-up area from the assessment year 2010-11 to 2014-15. Therefore, the ld. CIT(A) directed the Assessing Officer to delete the addition made to wealth in the assessment year 2010-11. See GIRIDHAR G. YADALAM case [2016 (1) TMI 826 - SUPREME COURT] wherein it was held that when the property was given for development, unless the building is completed, it will not be construed as “building” and have liable for wealth tax as urban land. Charging of interest under section 17B of the Wealth Tax Act - Admittedly, in the present case, the assessee has not filed the wealth tax return under section 14 or 15 or under section 17 and moreover, the assessment was made for the first time. Hence, we reverse the order of the ld. CIT(A) on this issue and allow the ground raised by the Revenue. Issues Involved:1. Classification of land at Egattur as agricultural land.2. Wealth tax liability on Velachery property.3. Charging of interest under section 17B of the Wealth Tax Act.Issue-wise Detailed Analysis:1. Classification of Land at Egattur as Agricultural Land:The Revenue contested the classification of the land at Egattur held by the assessee, arguing that it should not be considered agricultural land and thus should be treated as a 'Capital Asset' under Sec. 2(14) of the Income Tax Act. The Revenue cited several Supreme Court decisions, including Smt. Sarifabibi (204 ITR 631-SC), Shri Giridhar Yedalam V CWT (384 ITR 52-SC), and G M Omer Khan (196 ITR 269), to support their argument that the land's classification in revenue records is not conclusive and that the land was situated in a developed area.The Tribunal, however, upheld the CIT(A)'s decision, which followed the Tribunal's earlier decision in the assessee's own case for the assessment year 2010-11. The Tribunal emphasized that the primary requirement is the classification of land as agricultural in adangal records and that development in nearby areas does not change the agricultural character of the land. The Tribunal also considered the amendment to sub-clause (b) of Explanation 1 to clause (ea) of the Wealth Tax Act, 1957, which clarified that land classified as agricultural in government records and used for agricultural purposes is exempt from wealth tax. Consequently, the Tribunal concluded that the land sold by the assessee was agricultural land and not a capital asset, and thus, the gains on its sale were not taxable.2. Wealth Tax Liability on Velachery Property:The Revenue argued that the property at Velachery should be treated as 'urban land' liable to wealth tax. The Assessing Officer had determined the value of the property and brought it to tax, relying on the Supreme Court's decision in Giridhar Yedalam v. CWT & Another (384 ITR 52-SC), which held that land under construction cannot be excluded from the definition of 'urban land' for wealth tax purposes.The Tribunal, however, upheld the CIT(A)'s decision, which relied on the same Supreme Court judgment but interpreted it to mean that once a building is constructed and the property is used for commercial purposes, it cannot be considered 'urban land' for wealth tax purposes. The Tribunal noted that the property was developed and sold from the assessment year 2010-11 onwards, and thus, it did not qualify as 'urban land' under section 2(ea)(v) of the Wealth Tax Act. Therefore, the Tribunal dismissed the Revenue's appeal on this ground.3. Charging of Interest under Section 17B of the Wealth Tax Act:The Revenue contended that the CIT(A) erred in directing the Assessing Officer to recalculate the interest under section 17B(3) of the Wealth Tax Act. The Revenue argued that this section applies only when a notice under section 17(1) is issued after the determination of net wealth under sections 16(1), 16(3), 16(5), or section 17. Since the assessee had not filed a wealth tax return under sections 14, 15, or 17, and the assessment was made for the first time, the interest should be calculated under section 17B(1).The Tribunal agreed with the Revenue, citing the ITAT Bangalore's decision in Smt. M.R. Prabhavathy v. ACIT (2002) 80 ITD 520 (Bang.), which held that interest under section 17B is mandatory and applies when the return is filed late or not at all before the completion of the assessment. Therefore, the Tribunal reversed the CIT(A)'s order on this issue and restored the Assessing Officer's decision to levy interest from the original due date of filing the wealth tax return.Conclusion:The Tribunal dismissed the Revenue's appeals regarding the classification of the land at Egattur and the wealth tax liability on the Velachery property, upholding the CIT(A)'s decisions. However, it allowed the Revenue's appeal on the issue of charging interest under section 17B of the Wealth Tax Act, reversing the CIT(A)'s order and restoring the Assessing Officer's decision.