2024 (11) TMI 606 - HC - VAT / Sales Tax

Property owner cannot escape luxury tax by transferring portions to relatives while retaining actual control and use

Kerala HC dismissed a writ petition challenging luxury tax liability under Kerala Building Tax Act, 1975. Petitioner owned a residential building ... Levy of luxury tax under Kerala Building Tax Act, 1975 - transfer of ownership of a portion of a residential building - HELD THAT:- The petitioner has not made out any case for grant of relief. It is not disputed before me that the residential building of the petitioner as it originally stood had an area in excess of the limits specified in Section 5A of the 1975 Act, and thus it was liable to the levy of luxury tax under that provision. The building was also duly assessed to luxury tax. According to the petitioner, the petitioner has also discharged the liability towards luxury tax, and in the year 2018 he transferred/settled a portion of the building in favour of his wife, therefore, the petitioner is no longer liable to pay luxury tax. This contention of the petitioner cannot be accepted. As rightly pointed out by the learned Senior Government Pleader, if the contention of the learned counsel for the petitioner is accepted, any person who is liable to pay luxury tax under the provisions of Section 5A of the 1975 Act could escape from the liability by transferring a portion of the building to his/her spouse or a near relative. The fact remains that the entire building continues to be in the occupation and enjoyment of the petitioner, and such a device would amount to evasion of tax as distinguished from tax planning. The device adopted by the petitioner was not an effort at tax planning; it was clearly an attempt to evade tax. The petitioner is not entitled to the reliefs sought in the writ petition. The writ petition fails, and it is accordingly dismissed. Issues:Challenge to levy of luxury tax under Kerala Building Tax Act, 1975 based on transfer of ownership of a portion of a residential building.Analysis:The petitioner contested the imposition of luxury tax under the Kerala Building Tax Act, 1975, arguing that after transferring ownership of a portion of the residential building to his wife, the area in his possession fell below the threshold for luxury tax liability. The petitioner sought relief from paying luxury tax and a refund of taxes paid post-transfer.The petitioner's counsel relied on Section 5A of the 1975 Act, contending that the petitioner's liability for luxury tax is contingent upon possessing a residential building meeting the specified area limit. The transfer of a portion of the building to the petitioner's wife allegedly reduced the area under the petitioner's ownership below the taxable limit, absolving him of luxury tax liability.The Senior Government Pleader opposed the petitioner's claim, asserting that transferring ownership post-tax assessment to evade tax is impermissible. Allowing such practices would enable individuals to avoid luxury tax obligations by transferring parts of their buildings to relatives, undermining the tax regime's integrity.The Court found the petitioner's argument untenable, emphasizing that the original building exceeded the area limit for luxury tax liability and was duly assessed and taxed. The subsequent transfer of a portion to the petitioner's wife did not absolve him of tax liability as the entire building remained under his occupation. The Court rejected the petitioner's attempt to evade tax through such transfers, distinguishing between legitimate tax planning and impermissible tax evasion.Citing legal precedents, the Court highlighted the adverse effects of tax avoidance on public revenue, economic stability, and ethical considerations. The judgment underscored the judiciary's role in preventing tax evasion schemes and upholding tax laws' integrity. The Court dismissed the petitioner's writ petition, ruling that the transfer to the petitioner's wife was a clear attempt at tax evasion, not legitimate tax planning.In conclusion, the Court held that the petitioner was not entitled to the requested reliefs, as the transfer of ownership to evade luxury tax was deemed impermissible. The writ petition was dismissed, affirming the petitioner's continued liability for luxury tax on the entire residential building.