1996 (11) TMI 108 - AT - Wealth-tax

Tribunal rules in favor of assessee in tax dispute, citing ownership distinction and statutory interpretation

The Tribunal allowed the assessee's appeal, holding that the building and land in possession of the assessee could not be taxed under section 40 of the ... Assessment Year, Supreme Court Issues:Assessment of a building under section 40 of WT Act based on ownership and possession.Analysis:The appeal concerned the assessment of a building in the hands of the assessee under section 40 of the Wealth Tax Act. The assessee had constructed a building on a leased plot of land and claimed that the value of the building should not be included in their wealth as the lease deed was not executed by the Delhi Development Authority (DDA) in their favor. The assessee argued that they were a licensee and cited a Supreme Court decision stating that for wealth tax purposes, the asset must 'belong to the assessee.' However, the Assessing Officer rejected this contention and brought the building under the wealth tax charge.The Commissioner of Wealth Tax (CWT) Appeals initially accepted the assessee's contention for assessment years 1986-87 & 1987-88. Still, for the assessment year 1988-89, with the insertion of Explanation 1 to section 2 of the Wealth Tax Act, the assessee was deemed the owner of the building even without a registered deed in their name. The CWT (Appeals) upheld the levy of wealth tax on the land and structure in possession of the assessee, citing provisions of the Finance Act, 1983. The matter was remanded to the Wealth Tax Officer (WTO) for determining the value of the asset.The assessee appealed the decision, relying on decisions from ITAT Pune Bench and Calcutta Bench. The scheme of section 40 of the Finance Act, 1983, which brought closely-held companies under the wealth tax net, was discussed. The section specified that only the aggregate value of assets belonging to the company on the valuation date could be part of the net wealth. It was emphasized that section 40 was a special provision applicable to certain types of companies and assets, and any provision of the Wealth Tax Act not conforming to section 40 would be excluded.The Tribunal interpreted that for a building or land to be charged to tax under section 40, it must 'belong to the company on the valuation date,' meaning it must be owned by the assessee. The introduction of Explanation 1 to the Wealth Tax Act in 1988 deemed a person the owner of a building in possession under certain conditions. However, the Tribunal held that applying this explanation to the case was not in conformity with section 40 of the Finance Act, 1983, as it went against the decision in the Nawab Sir Mir Usman Ali Khan case. As the land and properties did not belong to the assessee, their value could not be charged to tax under section 40. The Tribunal allowed the appeal of the assessee, concluding that the building and land possessed by the assessee could not be taxed under section 40 of the Finance Act, 1983.