TaxTMI 
TaxTMI 
2018 (9) TMI 239
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....t of the Assessment Year. The levy of Wealth-Tax has been discontinued from the Assessment Year 2016-17, as amended by Finance Bill of 2015. The A.Y.1999-2000 to A.Y. 2004-05 involved in the present appeals are prior to its discontinuation. 2. The definition of "Assets" underwent a drastic amendment with effect from 01/04/1993 and the word 'Assets' defined in Section 2 (ea) of the Act since 1st April 1993 comprises of six categories of Assets. This amendment was brought to encourage the Assets to be put to productive use and to levy tax under the said Act for the aforesaid avowed object of the enactment. INTRODUCTION OF CASE: 3. The present batch of Appeals filed by the Department raise the following Substantial Question of law which is required to be answered in the present set of appeals for the various assessment years, viz. A.Y.1999-2000 to A.Y.2004-05 is as follows:- Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the 28 Acres of 'urban land' comes under the ambit of the exemption clause of Section 2(ea) of the Wealth Tax Act, 1957? 4. The case pertains to urban land of the Respondent - Assessees who are sis....
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....Presidential assent, the aforesaid "Bangalore Palace (Acquisition and Transfer) Act, 1996" was enacted by the State Government and the appointed date under the said Act was notified to be 21/11/1996. 9. The constitutional validity and the vires of the said enactment came to be challenged by all the Assessees, the brother and the sisters, before this Court by Writ Petition No.32175/1996 and connected writ petitions, in which the interim Orders were passed by the learned Single Judge of this Court on 10/12/1996 in the first instance. However, these writ petitions came to be dismissed by the Division Bench of this Court by a detailed judgment on 31/03/1997 (M/s. Chamundi Hotel (P) Ltd., the Brother, Sri. Srikanta Datta Narasimharaja Wadiyar and the Assessee sisters herein Vs. The State of Karnataka and others) (reported in ILR 1997 Kar.1573) against which the appeals were preferred before the Hon'ble Supreme Court of India where also, the interim Orders were passed in favour of the Assessees and to which a little more detailed reference will be made hereinafter and the Appeals are said to be now pending adjudication before the Nine Judges' Bench of the Hon'ble Supreme Court of Indi....
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....t aspects of the controversy in hand in the four corners of the aforesaid Substantial Questions of law center round the three basic aspects of the matter. They are:- (a) The meaning of the words "belonging to" as employed in the definition of 'net wealth' defined in Section 2(m) of the Wealth Tax Act, 1957 read with the charging provisions of Section 3 of the Act; (b) The scope of taxability of "urban land" as defined in Section 2(ea)(v) with its Explanation and Exclusion Clause in the said Explanation; and (c) What is the scope and purport of 'Protective Assessments' made in the hands of the Respondent Assessees and whether the character of such 'Protective Assessments' changes by determination of nontaxability in the hands of higher Appellate Authorities under the Act deciding the Appeals on merits. RELEVANT STATUTORY PROVISIONS: 12. Before coming to the contentions raised at the Bar by both the parties, we would like to quote certain definitions in the Act relevant for our purposes in the present case as follows:- 13. Section 2(ea) substituted with effect from 01/04/1993 particularly Clause (v) defining "urban land" is quoted below:- "Section 2(ea): "assets"....
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....ncluding provisions for the levy of additional wealth-tax) contained in this Act], there shall be charged for every [assessment year] commencing on and from the first day of April, 1957 [but] before the 1st day of April, 1993], a tax (hereinafter referred to as wealth-tax) in respect of the net wealth on the corresponding valuation date of every individual, Hindu undivided family and company [at the rate or rates specified in Schedule-I]. (2) Subject to the other provisions contained in this Act, there shall be charged for every assessment year commencing on and from the 1st day of April, 1993, wealth-tax in respect of the net wealth on the corresponding valuation date of every individual, Hindu undivided family and company, at the rate of one per cent. of the amount by which the net wealth exceeds fifteen lakh rupees. Provided that in the case of every assessment year commencing on and from the 1st day of April 2010, the provisions of this section shall have effect as if for the words "fifteen lakh rupees", the words "thirty lakh rupees" had been substituted." "4. Net wealth to include certain assets. - (1) [In computing the net wealth- (a) of an individual, there s....
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.... which failed before the High Court and the matter is now pending before the Nine Judges' Bench of the Hon'ble Supreme Court of India, the said lands cannot be said to be 'owned' or 'belonging to' the Respondent Assessees on the respective 'Valuation Dates' for the Assessment Years in question and therefore, there is no question of imposition of any Wealth-Tax on them during the said Assessment Years. 17. The Preamble, Sections 4, 5 and Section 8 of the Bangalore Palace (Acquisition and Transfer) Act, 1996 are quoted below for ready reference:- "THE BANGALORE PALACE (ACQUISITION AND TRANSFER) ACT, 1996 (First published in the Karnataka Gazette, Extraordinary, dated 18th November, 1996) (Received the assent of the president on the Fifteenth day of November, 1996) An Act to provide for the acquisition and transfer of the Bangalore Palace and open space around it in the public interest and for its preservation and for matters connected therewith. Whereas, the Palace at Bangalore popularly known as the Bangalore Palace, Karnataka's unique and historical and architectural heritage, is singularly suited with its immediate surroundings, which no other Palace in the City of ....
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....nd all other rights and interest in or arising out of such property, as were immediately before the appointed day in the ownership, possession, power or control of the legal representative or heirs or other interested persons and all books of accounts, registers and other documents of whatever nature relating thereto. (2) All properties aforesaid, which have vested in the State Government under Section 4 shall, by virtue of such vesting be freed and discharged from any trust, obligation, mortgage, lease, charge, lien and all other encumbrances affecting them and attachment, injunction or decree or order of any Court or authority restricting the use of such property in any manner shall be deemed to have been withdrawn. (3) Every legal representative, heir or other person who has, on the appointed day, any right, title or interest in relation to the Palace shall have the right to prefer his claim in the prescribed manner before the Commissioner for payment of amount out of the amount specified in Section 8 and also out of the amount determined under Section 8. (4) Every mortgagee of any property which has vested under this Act in the State Government and every person holding....
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....ny law for the time being in force. [III] They submitted that not only the lands in question stood divested from the Respondent Assessees and vested in the State Government under Section 4 of the Act of 1996, with effect from 21/11/1996 but with the limited right of user given to the Assessees while maintaining the status-quo of their possession, by the Hon'ble Supreme Court under the interim Orders, to let-out the said properties for the events like marriages and other public functions to earn some income out of them, to meet the expenses of maintaining the said property, such vacant lands cannot be said to be 'urban lands' on which any construction is permitted and therefore, the lands would fall outside the tax net under the definition of 'urban land' as defined in Section 2(ea) of the Act with effect from 01/04/1993. They also referred and relied upon the provisions of the Karnataka Parks, Play Fields and Open Places (Preservation and Regulation) Act, 1985, under which the said land in question is notified to be protected green park area and no construction thereon is permitted under the Comprehensive Development Plan (CDP) of the Bangalore City, as would appear from the ....
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....oportionate Valuation accordingly can be assessed in the hands of the Assessees for 28 acres of land in question and not at high rate of Rs. 183.33 Crores (28 Acres x Rs. 1,500/- per sq.ft. X 43,650 Sq.ft.) as was done by the Assessing Authority in the impugned protective assessment orders, on the basis of the Guidance Value fixed by the State Government for this area. [VII] They further urged that in fact only a very small portion within 28 acres is allowed to be used for such events like marriages etc., which too is hedged with several conditions imposed by the Hon'ble Apex Court in the interim Order and such income is being regularly offered for income tax under the provisions of the Income Tax Act, 1961 and is being assessed by the Income Tax Authorities from time to time and income tax is being paid by the Assessees. [VIII] They also relied upon the decision of the Hon'ble Supreme Court in the case of S.N. Wadiyar (decd. through L.R.) Vs. Commissioner of Wealth-Tax [2015] 378 ITR 9 (SC), wherein under the provisions of the Urban Land Ceiling Act, the Hon'ble Apex Court has held that the compensation fixed under Urban Land Ceiling Act earlier was only Rs. 2.00 Lakhs for t....
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....rned counsel for the Revenue further urged that the litmus term "belonging to" is much wider term than the term "ownership" of the property and as construed by various judgments that such term is of wider import, the levy of tax on such assets in the hands of the assessees cannot be defeated. [III] He submitted that the lands in question are undoubtedly 'urban lands' falling within the Municipal Corporation limits and rather the same being in the heart of the Bengaluru City, cannot be said to be excluded from the tax net merely because some conditions are imposed for user of such lands for leasing them out from time to time for functions like marriages and other public functions from which huge income is generated and therefore, the said 'urban lands' cannot be said to be unproductive assets and being income yielding assets in the hands of the Respondent Assessees, cannot be exempted from the taxability under the provisions of the Wealth-Tax Act. [IV] The learned counsel for the Revenue further urged that merely because the lands in question are under the cloud of litigation which has been initiated by the Respondent Assessees themselves, they cannot claim the benefit of the ....
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....sees and we are of the opinion that the lands in question are assessable to Wealth-Tax as 'urban lands' in the hands of the Respondent Assessees. The ITAT and Income Tax (Appeals) have erred in holding these "assets" to be exempt from the WealthTax in the hands of the Assessees. 21. We make it clear that we are not going into the aspect of 'Valuation' on the basis of which the Wealth-Tax can be finally imposed on the Respondent Assessees in the course of substantive assessments, because we are of the opinion that only 'Protective Assessments' have been made by the Assessing Authorities awaiting the final decision from the Hon'ble Apex Court as to whether the "Bangalore Palace (Acquisition and Transfer) Act, 1996" itself is constitutionally valid or not. A clear position about the 'ownership' would then emerge for the Respondent Assessees and the cloud over the 'ownership' of the Assets would also be removed, but the question before us as of now is in a different context about the taxability of the Assets during this period when the question of its 'ownership' is under the cloud of litigation and that is, as to whether in the context of the term "Assets" belonging to the Assessee....
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....d aircrafts and urban land and cash in hand. 26. The Explanation of the term "urban land" with which we are presently concerned demarcates the 'urban lands' in any area which is comprised within the jurisdiction of the Municipal Corporations or in any area within 8 kms. from the local limits of any Municipality. The only exclusion is, where the construction of a Building is not permissible under any law for the time being in force or it is used as industrial land or is used as Stock-in-trade. 27. We are of the opinion that the lands in question belonging to the Respondent Assessees owned and possessed by them through out the period in question cannot be said to be the lands on which the construction of a Building is absolutely prohibited. The said exclusion terms 'construction of a building' does not prohibit construction of temporary or semipermanent structures made of wood or iron or sheds which are constructed from time to time for such public functions or some of them may be even almost permanently standing over the said lands, which are permitted to the Assessees under the interim Orders of the Hon'ble Apex Court. The lands in question are not absolutely barren vacant la....
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....t under the Wealth-Tax Act, 1957. 29. The contention of the Assessees is that they are the 'owners' of the lands and the matters are pending before the Hon'ble Apex Court, as would be clear from the Memorandum of their Appeals before the Hon'ble Supreme Court of India and they even claim that the valuation of the entire Bangalore Palace and the appurtenant lands thereto was around Rs. 3,000.00 Crores and that also shows that even though prima facie and without any doubt the Valuation of the assets is much higher than the cap of Rs. 11.00 crores claimed by the learned counsel for the assessees. In any case, we are not expressing any opinion on the 'Valuation' aspect as already indicated, but the fact remains that highly valued 'urban lands' and the 'urban lands' yielding income subject to the regulations and conditions imposed by the Courts of law or Government Regulations are not intended to be exempted from the levy of Wealth-Tax with effect from 01/04/1993, particularly, when the narrower concept of 'ownership' is not the crucial basis or sole determinative factor for levy in the Wealth-Tax Act but, allowing the Assessees to be covered by the tax net for the assets "belonging ....
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....led on for hearing toady. HON'BLE THE CHIEF JUSTICE HON'BLE MRS. JUSTICE SUJATH V. MANOHAR HON'BLE MR. JUSTICE B.N. KIRPAL For Petitioner (s) Ms. Indu Malhotra, Adv. For Respondent (s) Mr. P. Mahale, Adv. Mr. N. Ganpathy, Adv. ORDER List the matter on 30-4-97 There shall be stay of dispossession till 30-4-97. Sd/- Sd/- Court Master Court Master" 33. The Interim Order passed by the Hon'ble Apex Court on 30/04/1997 in SLP (Civil)No.8801/1997 (Sri. Srikanta D.N. Wadiyar Vs. State of Karnataka and others) reads thus:- "SUPREME COURT OF INDIA RECORD OF PROCEEDINGS Petition(s) for Special Leave to Appeal (Civil) No.8801/97 (From the Judgment and order dated 31/3/97 in WP32175/96 of The HIGH COURT OF KARNATAKA AT BANGALORE. SRI SRIKANTA D N WADIYAR VERSUS STATE OF KARNATAKA & ORS SLP (Civil) No.8850/97, SLP (Civil) No.8860/97, SLP (Civil) No.9031/97, SLP(Civil)No.9033/97, SLP (Civil) No.9125-9126/97 Date: 30/04/97 These Petitions were called on for hearing today. CORAM: DR. JUSTICE A.S. ANAND MR. JUSTICE S.P. BHARUCHA MR. JUSTICE K.S. PARIPOORNAN For Petitioner (s): Mrs. Nalini Chidambram, Sr. adv. in SLP 8801/97: Ms. Shruti Pandey,....
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....the purpose which are not inconsistent with the object of the Acquisition Act: iii) That the petitioners shall ensure and undertake that no trees shall be cut from the portion of the premises so let out nor any other damage is caused to the landscape or environment; iv) That the areas marked in Green in the plan, annexed hereto alone shall be so let out. The entire area marked in Green, we are informed by the petitioners, does not exceed 30 Acres; v) That rest of the land i.e., parks and open space shall not be let out for any purpose by the petitioners; vi) That the petitioners shall maintain an upto date account of the charges received by them in respect of letting out of the premises; vii) That prior intimation shall be given to the State Government, while seeking permission, of the purpose for which the premises are required to be let out along with the period for which the premises are to be so let out and the particulars of the concerned parties to whom the premises would be let out; viii) That the State Government shall not refuse permission to let out the premises, on the aforesaid terms, so long as the purpose for letti....
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.... deleterious effect upon the other structures, land and the greenery within the Palace property. 11. The application for permission sought for, shall be made at least one month prior to the proposed date of commencement of use. After consideration of each case on merits, the Government may grant permission or to decline the same, if in its opinion, such use is not to be permitted in the interest of preserving the heritage character of the property and ecological considerations. The Government shall be entitled to impose a condition that no tree in the Palace property shall be cut during the period of use and no other activity involving hazards to the surroundings, buildings, land and the greenery in the Palace property shall be committed. 12. Permission shall be granted only for a short term by way of a permissive license and no long term transaction shall be entered into by the appellant. The period of use shall be within the discretion of the Government of Karnataka. 13. The permissive use of the property granted to the licensee shall not be transferred or alienated to any one else under any condition. 14. The Appellant shall maintain uptodate accounts of the amounts ....
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....any actual or constructive control. Ownership rights are general, permanent and inheritable." "Ownership", in its most comprehensive signification, denotes the relation between a person and right that is vested in him. That which a man owns is in all cases a right, when, as is often the case, we speak of the ownership of a material object, this is merely a convenient figure of speech. To own a piece of land means in truth to own a particular kind of right in the land, namely, the fee simple of it." "Ownership" consists of innumerable rights over property, for example, the rights of exclusive enjoyment, of destruction, alteration and alienation, and of maintaining and recovering possession of the property from all other persons. Such rights are conceived not as separately existing, but as merged in one general right of ownership. "Ownership" means a right which avails against every one which is subject to the law conferring the right to put thing to user of indefinite nature." (Austin) "Ownership" is a plenary control over an object. An owner has three kinds of powers, namely, possession, enjoyment and ownership. (Holland) "Ownership" does not always mean absolute dom....
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.... v, D.C.Patel, AIR 1953 SC 16, 21 The word 'belonging to', though capable of denoting an absolute title, can also signify of even possession of an interest less than that of full ownership. The words 'belonging to me' do not amount to a disclaimer of the tenancy and a repudiation of the landlord's title. Mohd. Amir v. Municipal Board. Sitapur. AIR 1965 SC 1923, 1929. Stroud's English Dictionary BELONG; BELONGING. (1) Property "belonging " to a person, has two general meanings, (1) ownership, (2) the absolute right of user. (2) A thing, or right, which is said to "belong" to a PERSON, connotes either ownership or the absolute right of user but if it is said to "belong" to some other thing or right, that connotes that it is held or used along with that other thing or right of which it is a part. (3).... (4) Property legally vested in a person, does not "belong" to him if he only holds it in trust for someone else, nor can it be said to be his "property" (Heritable Reversionary Co. v. Millar [1892] A.C. 598) (5)... (6).. (7) Lands "belong" to a vicarage even though the vicar has let them (Wiltshire County Valuation Committee v. Boyce [1948] 2 K.B. 125) (8....
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.... 'urban lands' belonging to Assessees for which they are not only claiming 'ownership' through litigation but are undoubtedly in possession, dominion and control but also in user of the land yielding income therefrom, they cannot be held to be outside the tax net under the Wealth-Tax Act, 1957. 45. We may add here that the words 'urban land' by definition only is required to geographically fall within the Municipal limits and there is no dispute on this issue in the present case and the issue is raised only with reference to Clause (b) exclusion in the Explanation on account of the so called 'no construction allowed thereon' under any law, which we find to be not totally prohibited. The temporary or even semi-permanent constructions on such lands also would take it away from the said exclusion in Clause (b) of the Explanation. As far as it being 'green park area', under 1985 State enactment is concerned, there is no material evidence on record nor any case of its full prohibition with the provisions of such Act is brought out in the present case. DISCUSSION OF CASE LAWS CITED AT THE BAR: 46. Let us now refer to the relevant case laws which support the aforesaid view taken ....
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....s not necessary to decide, in that case, whether a Dayabhaga family could be considered as a Hindu undivided family within the meaning of section 3 of the Act. That decision is Commissioner of Wealth-tax v. Gauri Shankar Bhar. In the case before us, it is not in dispute that the property in question was the individual property of Bireswar Chatterjee and that it devolved on his heirs according to the provisions of the Hindu Succession Act, 1956. It will be recalled that a suit for partition was filed on June 21, 1957, and a preliminary decree was passed on July 4, 1959. For reasons already stated, the coparcenary had unity of possession but not unity of ownership on the property. Each coparcener, therefore, took a defined share in the property and was the owner of his share. Each such defined share thus "belonged" to the coparcener. It was his "net wealth" within the meaning of section 2(m) of the Act and was liable to wealthtax as such under section 3. The High Court was, therefore, right in answering the reframed question in the negative, and as we find no force in the argument of Mr.Desai, the appeal fails and is dismissed with costs." 50. The said judgment in its peculiar ....
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....perties in respect of which registered sale deeds had not been executed but consideration for sale of which had been received and possession in respect of which had been handed over the purchasers belong to the assessee for the purpose of inclusion in his net wealth? Section 53A of the Transfer of Property Act gives the party in possession, in those circumstances, the right to retain possession. Where a contract has been executed in terms mentioned herein before and full consideration has been paid by the purchasers to the vendor and where the purchasers have been put in possession by the vendor, the vendees have the right to retain that possession and resist any suit for eviction. The purchasers can also enforce a suit for specific performance for execution of a formal registered deed if the vendor was unwilling to do so. But, in the eye of the law, the purchasers cannot be and are not treated as legal owners of the property in question. It is not necessary, in our opinion, for the purpose of this case to be tied down with the controversy whether in India there is any concept of legal ownership apart from equitable ownership or not or whether under sections 9 and 10 of the Indian ....
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....t for the purpose of section 9 of the Indian Income-tax Act, 1922, the owner must be the person who can exercise the rights of the owner, not on behalf of the owner but his own right. An assessee whose property remained vested in the Custodian of Evacuee Property was not the owner of the property. This again, as observed, dealt with the expression of section 9 of the Indian Income-tax Act, 1922. At page 575 of the report, certain observations were relied upon in order to stress the point that these observations were in consonance with the observations of the Gujarat High Court which we shall presently notice. We are, however, not concerned in this controversy at the present moment. It has to be borne in mind that in interpreting the liability for wealth-tax, normally equitable considerations are irrelevant. But it is well to remember that in the scheme of the administration of justice, tax law like any other laws will have to be interpreted reasonably and whenever possible in consonance with equity and justice. Therefore, the fact that the Legislature has deliberately and significantly not used the expression "assets owned by the assessee" but "assets belonging to the assessee"'....
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....y right depending upon the fate of litigation pending before the Hon'ble Supreme Court and the Assessees have no vested right in view of the BPAT Act, 1996 over the lands in question and therefore the taxability in their hands does not arise. 60. The contention raised is that the words "belonging to" have three facets, viz. i] vested right; ii] contingency right; and iii] spes successionis (hope to succeed viz. in the case of a Will becoming operative). 61. We cannot accept this submission. The words "belonging to Assessee" are referable to dominion, control and possession over the property and even when such rights of the "owner" are under a cloud of litigation, it does not render their right as contingent or spes succession is (hope to succeed). The Assessees may not even have a vested right in the property and even if the dominion, control and possession of the property continues to be with them during the period of litigation, the taxability under the Wealth-Tax Act is attracted and therefore, the rights over the 'urban lands' with the Assessees, in the present case cannot be said to be a mere spes successionis (hope to succeed) or a contingent right. 62. In the case o....
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....n the present case, was allotted the land by the State Government. It constructed shops thereupon and rented out the same and derived income there from. The sheds were therefore under the domain and control of the assessee. Even if legal ownership had not passed to the assessee the property in question belonged to it. The assessee was deriving rental income and collecting the same which itself shows that it was the assessee to whom the property belonged." 65. The aforesaid judgment, in our opinion, also supports the view which we are taking as aforesaid and since the assessee in the present case also is in the domain and control of the 'urban lands' in question, therefore, even though the question of ownership is subject to litigation, they should be held to be liable to pay the Wealth-Tax for the Assessment Years in question. 66. The learned counsel for the assessee also relied upon the decision of the Delhi High Court in the case of Commissioner of Wealth Tax Vs. D.C.M. Ltd. [2007] 290 ITR 0615 (Del), in which the Division Bench of the Delhi High Court held in peculiar facts as under: "The first appellate authority had proceeded on the assumption that now orders of Supre....
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....Tax Act/Wealth-Tax Act nowhere provides that a protective or precautionary assessment can be raised in respect of one and the same income/wealth on two different persons. A departmental practice that has however gained judicial recognition is that, in certain circumstances, where it appears to the Income-Tax Authorities that certain income has been received during the relevant assessment year but it is not clear who has received that income and prima facie it appears that the income may have been received either by A or B or by both together, it would be open to the relevant Income-Tax Authorities to determine the said question by taking appropriate proceedings both against A and B. This is done so that such income/wealth may not escape taxation altogether. This has been held to be quite sensible because the Revenue has to be protected against the bar of limitation. If the Income-Tax Authorities are precluded from making an alternative assessment, then by the time the disputes are over, the real assessment would be barred. But while "protective assessment" is permitted, protective recovery is not allowed. It is one thing to say that the Authorities are merely making an assessment a....
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....s struck down, the clear title and 'ownership' of the Assessees would emerge further fortifying their liability to pay Wealth-Tax on such 'urban lands' as 'owners', even though during the period of their litigation, their Wealth-Tax liability is still enforceable upon substantive Assessments as the said 'urban land' continues to 'belong to' them, irrespective of litigation, on the respective Valuation Dates relevant to these Assessment Years. 75. Therefore on the basis of the aforesaid analysis of the facts and law, we proceed to answer the aforesaid Substantial Questions of law in favour of the Revenue and against the Respondent Assessees in the following manner:- ANSWERS TO THE SUBSTANTIAL QUESTIONS OF LAW: 76. Question No.1 is answered in favour of the Revenue and against the Respondent Assessees and we hold that the Income Tax Appellate Tribunal (ITAT) was not justified in law in holding that 28 Acres of land located within the Corporation limits of the Bangalore City does not fall within the definition of 'Assets' in Section 2 (ea)(b) of the Wealth-Tax Act, 1957 and no Wealth Tax on these lands is chargeable. We hold that the Wealth Tax would be chargeable for these A....