Case Law Details
Case Name : Shri Sanjay Krishna Hegde, Kolkata Vs. Assistant Commissioner of Wealth Tax (ITAT Kolkata)
Appeal Number : W.T.A. No. 09/Kol/2009
Date of Judgement/Order : 21/02/2012
Related Assessment Year : 2001- 2002
Courts :
All ITAT ITAT Kolkata
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Word “building” has to be interpreted to mean a completely built structure having a roof, dwelling place, walls, doors, windows, electric and sanitary fittings etc. If one or more such components are lacking, then it cannot possibly be said that the building is a complete structure for the purpose of section 2(ea) of the Act. A residential house is an unit, which is complete for habitation having the minimum bare required facilities. The Legislative intent underlying the amended provisions of section 2(ea) is clear and implicit that the legislature sought to bring within the ambit of this section all those buildings, which are completed and ready for use of residential, commercial or guest house, as the case may be, as incomplete structure cannot be put to any such use. It is not a matter of dispute that the assessee started the construction in the month of February 2002, which was still incomplete at the period of relevant assessment year.
Explanation 1(b) defines “urban land” to mean the land situated in any area, which is comprised within the jurisdiction of a municipal corporation or committee, any area of committee within such distance, not being more than eight kilometers from the local limits of a municipality or cantonment board etc. but does not include the land occupied by any building, which has been constructed with the approval of the appropriate authority. Again, it is not a matter of dispute that the assessee is constructing the building after obtaining sanction from the appropriate authority. Therefore, we are of the considered view that the Incomplete building of the assessee neither falls within the definition of a building, as contemplated under section 2(ea) of the Act, nor within the purview of “urban land” as excluded by Explanation 1(b) of the Wealth Tax Act..
INCOME TAX APPELLATE TRIBUNAL, KOLKATA
W.T.A. No. 09/Kol/2009- Assessment Year: 2001- 2002
Shri Sanjay Krishna Hegde, Kolkata
Vs.
Assistant Commissioner of Wealth Tax
Date of Pronouncement: 21.02.2012
ORDER
Per Mahavir Singh, Judicial Member,
This appeal by assessee is arising out of order of CWT(A)-XXXVII, Kolkata in Appeal No.143/CIT(A)-XXXVII/WT Cir-54/07-08 dated 20.03.2009. Assessment was framed by ACWT, Circle-54, Kolkata u/s.17/16(3) of the Wealth Tax Act, 1957 (hereinafter referred to as “the Act”) for Assessment Year 2001-02 vide his order dated 29.12.2006.
2. The only issue in this appeal of assessee is against the order of CWT(A) in treating the incomplete flat as an asset within the meaning of section 2(ea) of the Act. For this, assessee has raised following ground:
(1) On the facts and circumstances of the case, the Commissioner of Wealth Tax (Appeals) has legally erred in holding incomplete and not habitable flat at Mumbai as an asset liable to wealth tax.
(2) Without prejudice to Ground No. 1 and in the alternative and on facts and circumstances of the case, the CWT(A) has legally erred in holding that the appellant is not entitled to exemption under section. 5(vi) of the Wealth Tax Act, 1957, though includible as an asset under section 2(ea) on an erroneous premise that the flat was habitable on the valuation date.
(3) Without prejudice to Grounds No. 1 & 2 above and only in the alternative and on the facts and the circumstances of the case the CWT(A) has legally erred in denying the amount of Rs.40 lacs being loan taken specifically for financing the alleged taxable asset.
2. Brief facts are that during the relevant financial year 2000-01, assessee purchased incomplete flat in a multi-storied building situated at Juhu Sai Darshan, 5th N.S. Ext. Road, JVPD Scheme, Mumbai-400 049 for a total consideration of Rs.64.65 lakhs from Jay Builders, Mumbai. The assessee before the Assessing Officer as well as before CIT(Appeals) claimed that the said flat was not in a habitable condition and during the year under consideration, it has spent a sum of Rs.43.65 lakhs and Rs.6.85 lakhs for assessment year 2001-02 and 2003-04 respectively. According to ld. counsel these facts have been noted by Assessing Officer in his assessment order that assessee has invested a sum of Rs. 43.65 lakhs in financial year 2001-02 and Rs.6.85 lakhs in financial year 2002- 03. But Assessing Officer treated this investment of Rs. 64.65 lakhs in urban land and in view of definition of section 2(ea)(v) of the Act including in net wealth the amount invested during the year at Rs. 64.65 lakhs and charged to wealth-tax.
3. Before us also, the assessee’s main contention is that the above mentioned property is an incomplete flat in a multi-storied building and it does not fall within the purview of definition of asset under section 2(ea)(v) of the Act. We find that the flat acquired by the assessee at Juhu Sai Darshan, Mumbai was not fit for habitation as on 31.03.2001 and the fact that the house did not even have basic facilities like plumbing, civil work, electrical work etc. as on 31.03.2001. In view of work undertaken during financial year 2002-03 and bills raised by Ark Designs Private Limited as enclosed in assessee’s paper book at pages 2 & 3 it is an admitted fact that the building is not complete.
4. Ld. counsel for the assessee relied on the decision of the Hon’ble Punjab & Haryana High Court in the case of CIT (Central), Ludhiana –vs.- Smt. Neena Jain reported in [2010] 230 CTR 554 (P&H), wherein the Hon’ble Punjab & Haryana High Court held as under :-
“The contention of the learned counsel for the revenue that any building would fall within the definition of assets, is not only devoid of merit but misplaced as well, because the word “any building” cannot possibly be read in isolation and it has harmoniously to be construed with the remaining portion of section 2(ea) of the Act, i.e. whether the building used for residential or commercial purposes or for the purpose of maintaining a guest house, because incomplete building, as in the present case of the assessee, cannot possibly either be used for residential or commercial purposes or for purposes of maintaining a guest house. Therefore, the word “building” has to be interpreted to mean a completely built structure having a roof, dwelling place, walls, doors, windows, electric and sanitary fittings etc. If one or more such components are lacking, then it cannot possibly be said that the building is a complete structure for the purpose of section 2(ea) of the Act. A residential house is an unit, which is complete for habitation having the minimum bare required facilities. The Legislative intent underlying the amended provisions of section 2(ea) is clear and implicit that the legislature sought to bring within the ambit of this section all those buildings, which are completed and ready for use of residential, commercial or guest house, as the case may be, as incomplete structure cannot be put to any such use. It is not a matter of dispute that the assessee started the construction in the month of February 2002, which was still incomplete at the period of relevant assessment year.
The next argument of learned counsel for the revenue that if the incomplete building does not fall within the ambit of assets under section 2(ea) of the Act, then the incomplete building of the assessee is liable to wealth tax under the definition of “urban land”, again has no force, because
Explanation 1(b) defines “urban land” to mean the land situated in any area, which is comprised within the jurisdiction of a municipal corporation or committee, any area of committee within such distance, not being more than eight kilometres from the local limits of a municipality or cantonment board etc. but does not include the land occupied by any building, which has been constructed with the approval of the appropriate authority. Again, it is not a matter of dispute that the assessee is constructing the building after obtaining sanction from the appropriate authority. Therefore, we are of the considered view that the incomplete building of the assessee neither falls within the definition of a building, as contemplated under section 2(ea) of the Act, nor within the purview of “urban land” as excluded by Explanation 1(b) of the Act”.
We find from the above facts and circumstances and case law of Hon’ble P&H High Court in the case of Smt. Neena Jain (supra), we allow the claim of assessee and this issue is decided against the revenue. Appeal of assessee is allowed.
ORDER PRONOUNCED IN THE OPEN COURT ON 21/02/2012.
NF
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To dilate:
In the tribunal case, the assessee is purchaser of a unit (flat) in a building the construction of which has remained to be completed. The issue is whether it is includible in his taxable wealth as a property namely, ‘building’ within its legal meaning. The view the tribunal has taken is ‘No’.
In the write-up above, the ideas and thoughts put across for consideration pertain to the inevitable question, – what is the point in time when the property in a unit of a building (flat or apartment) has to be taken as the date of final conveyance; in other words, when he exactly he becomes its ‘owner’, in its absolute sense. For deciding, the varying problematic circumstances purchaser of unit of a building (called ‘apartment’, as distinct from ‘flat’) commonly known to be faced with, especially in Bangalore, have been focused on; albeit from a different angle, not taxation.
The intricate point for study, as has been hinted at in the comment, may be briefly explained thus: Case for examination is where seller has remained as yet to fulfill / comply with anyone or more of the several mandatory requirements. The view one considers tenable, in any case reasonably arguable, is that, as such, seller is in no position to, as envisaged by law, effectively convey ‘the property’, with clear ‘marketable title’, to a Flat owners’ ‘Society’ or “Apartment Owners’ Association”, as the case may be. On that premise, the poser is, whether, in such a situation, in respect of any such unit (Flat or Apartment), its value can rightly be charged to wealth tax in the hands of its purchaser.
On the first blush it may seem mindboggling. Nonetheless, one feels that the proposition cannot be rejected outright, to be without substance or bereft of sound logic. An insightful study of the matter might be worthwhile, at least from an academic point of view.
Sporadic Comments:
>Here is a recent ITAT decision on the subject., a first of its kind it would appear.
Going by the text of the ITAT Order, it is noted that the ruling has been rendered on the basis of the facts as simply stated and admitted by both sides; no more. Nonetheless, it seems worthwhile a study as to what view would have been taken had a taxpayer advanced its case based on the premises as brought out hereunder, from a differednt angle (already put
up in public domain, elsewhere): :
1. There is no gainsaying that difficult questions arise in cases where promoter/seller has blatantly failed, with impunity or otherwise, to comply with/contravened (deliberately or otherwise) the mandatory requirements of the law.
2. To list some of them ostensible but of a vital nature, >
Deviations/violations of the construction regulations;
Non-payment of so called ‘development’ / ‘improvement’ charges, being debt principally due / owed by him to the BBMP:
Not procuring a ‘master’ khata for the entire property (land and buildings), after its completion and the obtaining by him of a OC or CC from BBMP, so as to facilitate the obtaining of the ‘individual’ khatas in the names of the purchasers;
Not procuring OC or CC from the competent authority (which is now BBMP for all areas, including those earlier fell under different authorities such as, – BDA, etc.) before individual conveyances, in any event, before the final conveyance of the entire property to the Owners’ Association;
AND furnishing to the purchasers/Owners’ Association , among others, the two most essential documents namely, Advocate’s Certificate and Architect’s Certificate ,so as to evidence his title also its /marketability’ (this is what is compendiously referred to /covered in the legal concept of “MARKETABLE TITLE”, so on running into a long list.
3. For useful clues, one has to look at the applicable clinching provisions of the law ; in particular, Rules 9 and 10 of the KAR.OWNERSHIP FLATS (REGN, etc.,) RULES , 1975. What require to be specially and incisively noted there from are these:-
According to a close reading of the extant two interrelated Acts (Flats Act and Apartment Act), the said Rules are of equal application to, not only ‘Flats’ but also ‘ Apartments’, as well.
Further,they are seen to make it more than adequately clear on the following:
> (1) It is the promoter/vendor, and he alone, who is solely responsible for fulfilment / completion of all the above referred mandates of the law;
>(2) He continues to be so responsible and answerable in law, to the purchasers, until such time he has fulfilled / completed all his obligations; particularly, in case of apartments, including the forming an “Owners’ Association” and due registration thereof with the statutorily appointed competent authority being the ROCS (in short); AND
>(3) Unto the point in time when he has, after having performed duly and strictly all his statutory obligations, to the satisfaction of all the purchasers as a body, finally fulfils his obligation to convey the whole of the property (including land and building(s)), significantly, though symbolically, by the act of formal handing over of all the requisite documentations to the registered Owners’ Association.
To narrate, proceeding on the foregoing premises, in one’s conviction, the purchasers could not be regarded to be left with no remedy ; but could be entitled to, in exercise of their lawful rights and interests , enforce them by resort to suitable course(s) of action. May be, in a manner of ( legally and strictly ) speaking, it could be validly urged, that they are entitled to do so, even after the final stage of conveyance as aforementioned ; especially in those cases where purchasers could rightly and validly urge, on the ground that the cause of action arose, as legally understood, after that stage of final conveyance.
The above discussion , though made wprt the law in force in Karnataka, could be relevant even for other States
e.g. Mumbai where the law on Flats and Apartments do not seem to be different in material respects.