2023 (7) TMI 1109 - AT - Wealth-tax

Tribunal Upholds Wealth Tax on Urban Land, Rejects Exclusion Claims

M/s. Triad Resorts and Hotels (P.) Ltd., M/s. Noorani Properties P. Ltd. ‘APARANTA’, M/s. Verde Developers P. Ltd. ‘APARANTA’ Versus WTO, Ward-12 (2) Bangalore

The Tribunal upheld the chargeability of wealth tax on urban land, dismissing the appeals and confirming the assessment orders. The Tribunal found the ... Wealth tax assessment - ownership of the impugned urban land - whether the assessee has transferred ownership of the impugned urban land to CIDL? - crux of the argument of the AR is that, as on the valuation date, the impugned urban land did not 'belong to' the assessee in view of the master development agreement - HELD THAT:- It is a fact that CIDL, the developer, did not develop the property except for constructing boundary walls along the property. (Even the construction of boundary is disputed, since the ‘cost of improvement’ for same was disallowed by the AO while computing LTCG when the same property was sold in AY 2008-09) This eventually led to the 'Settlement Agreement' between the parties whereby the master development agreement was terminated. In view of the above, there can be no doubt in holding that the requirements of section 53A of the Transfer of Property Act, 1882 have not been fulfilled. It is pertinent to mention that mere inclusion of the expression in the development agreement that the possession transferred shall be deemed to be in part performance of an agreement to sell for the purposes of section 53A of the Transfer of Property Act 1882, does not hold any significance. It is the conduct of the parties that determine the satisfaction or otherwise of the requirements of section 53A of the Transfer of Property Act 1882. Therefore, we are of the view that there is no transfer of ownership of the impugned urban land under the master development agreement. Effect of 'No objection certificate' issued under Chapter XX-C of the IT Act - Revenue right from the start of the controversy surrounding development agreements was always of the view that when the possession of land was handed over to the developer for development purposes, the transfer was effected. Legislature through the Memorandum to Finance Bill 2017, in the context of insertion of n/s 45(5A) to the Income-tax Act, 1961, clarified that the year in which the completion certificate has been issued by the competent authority shall be the year of transfer. In view of the conclusion drawn in Seshasayee's case (2019 (12) TMI 702 - SUPREME COURT] which was post insertion of section 45(5A), that the provisions of section 2(47)(v) would not be applicable if the development agreement merely grants a license to the developer to develop and sell the superstructure. Therefore, the 'no objection certificate' does not in our view hold significance. Chargeability of wealth tax - Land occupied by any building which has been constructed - In the present case, it is undisputed that only boundary walls have been constructed along the property. It is not brought on record as to whether there exists an approval of the appropriate authority for constructing any building on the land. Irrespective of such fact, the impugned urban land would not fall within the above clause for the following reason. The Hon’ble Karnataka High Court in Commissioner of Wealth Tax vs. Giridhar G Yadalam [2007 (3) TMI 334 - KARNATAKA HIGH COURT] has interpreted the said expression to mean a land on which complete building stands. It was held that a building in the process of construction cannot be construed as a 'building which has been constructed' as affirmed by Giridhar G Yadalam v Commissioner of Wealth Tax [2016 (1) TMI 826 - SUPREME COURT] - Therefore, in the absence of any building on the impugned urban land, this clause will not apply to the present case. Land held by the assessee as stock-in-trade - The assessee has not demonstrated that the lands were held as stock-in-trade. It is also pertinent to note that the assessee cannot take conflicting stands before the court -Therefore, on totality of facts of the case, this clause will not apply to the present case. In view of the aforesaid reasoning we hold that the assessees are liable for wealth tax for the respective assessment years. Decided against assessee. Issues Involved:1. Validity of Reopening u/s 17 of the W.T. Act, 1957.2. Classification of Land as Stock-in-Trade vs. Capital Asset.3. Applicability of Section 53A of the Transfer of Property Act, 1882.4. Chargeability of Wealth Tax on Urban Land.Summary:1. Validity of Reopening u/s 17 of the W.T. Act, 1957:The Tribunal initially quashed the wealth tax assessment order due to the lack of service of notice u/s 17 of the W.T. Act. However, upon remand by the Hon'ble Karnataka High Court, the Tribunal reconsidered the matter, noting that the assessee did not raise any contentions regarding the validity of reopening u/s 17 during the fresh proceedings.2. Classification of Land as Stock-in-Trade vs. Capital Asset:The assessee contended that the land was stock-in-trade and not liable to wealth tax. However, the AO and the first appellate authority rejected this contention, noting that the land was treated as a capital asset in the books of accounts and profits from its sale were offered under 'long term capital gains.' The Tribunal upheld this view, citing the lack of evidence to demonstrate that the land was held as stock-in-trade.3. Applicability of Section 53A of the Transfer of Property Act, 1882:The Tribunal examined whether the possession given to the developer under the Master Development Agreement (MDA) constituted a transfer under Section 53A. It concluded that the possession granted was merely a license for development purposes and did not equate to a transfer of ownership. This conclusion was supported by the Supreme Court's rulings in Balbir Singh Maini and Seshasayee Steels cases, which clarified that a license to enter land for development does not constitute a transfer under Section 53A.4. Chargeability of Wealth Tax on Urban Land:The Tribunal assessed whether the land fell under the exclusions from 'urban land' liable to wealth tax. It determined that the land did not qualify for exclusion as it was neither occupied by a constructed building nor held as stock-in-trade. The Tribunal referenced the Karnataka High Court and Supreme Court rulings, which stated that a building under construction does not exempt the land from wealth tax. Consequently, the Tribunal held that the land was liable for wealth tax for the respective assessment years.Conclusion:The appeals filed by the assessees were dismissed, and the Tribunal upheld the chargeability of wealth tax on the urban land, confirming the assessment orders. The Tribunal found no merit in the arguments presented by the assessee regarding the classification of the land and the applicability of Section 53A.