Unused urban land held by assessee for industrial purposes not assessable to Wealth Tax for a period of two years from the date of acquisition

ITAT Mumbai Bench ‘Wealth Tax’

Mars Hotels & Resorts (P.) Ltd.

V/s.

Deputy Commissioner of Wealth Tax

WT Appeal Nos. 9 to 11 (Mum) of 2010

[Assessment Years 1996-97 to 1998-99]

May 9, 2012

ORDER

1. These appeals by the assessee are directed against the composite order dated 14.1.2010 of CWT(A) for the AYs 1996-97, 97-98 and 98-99 respectively.

2. Since the grounds taken in all the AYs are common; therefore, for the sake of convenience, the ground taken for the AY 1996-97 are reproduced hereunder:

(1)  The Commissioner of Wealth Tax (Appeals)- 17, Mumbai (herein after referred to as CWT (A)) erred in confirming that the property (i.e land) is liable to wealth tax for A.Y. 1996-97.

(2)  (a) The CWT(A) erred in confirming the value of the property (i.e land) at Rs. 3,76,69,525/- for A.Y. 1996-97.

(b) The CWT (A) erred in not adopting the Value of the Property at Rs. 56,45,721/- as per valuation Report dt 22.3.2004 of M/s. Shah & Shah, Valued by the Government Approved Valuer.

(c) The CWT (A) erred in not considering the deduction aggregating to Rs. 3,20,23,804/- as per valuation report dt 22.3.2004 of M/s Shah & Shah, the break up of which are as under:

3. This is the second round of litigation. Since the assessment was originally completed ex-parte, the Tribunal vide order dated 14.5.2007 set aside the assessment for the year under consideration and directed the Assessing Officer to frame the same de-novo as per law and after allowing opportunity of being heard to the assessee.

3.1 The brief facts leading to the controversy are that the assessee is a private limited company engaged in the business of hotel. There was a search and seizure operation at the premises of the Group companies on 7.11.2000. Since the assessee has not filed any return of wealth for the year under consideration; therefore, the assessment was completed u/s 16(5) r.w.s 17 of the Wealth Tax Act, which was set aside by the Tribunal and consequently, the Assessing Officer has completed the assessment u/s 16(3) r.w.s 24 of the WT Act.

3.2 The only property in dispute is the land situated at Municipal Corporation area. The said land was classified as reserved land and situated at Village. Marol, Sahar Andheri (E), Mumbai admeasuring 45104.70 sq.mtrs i.e. 12 acres. The assessee acquired the land in question vide Company Law Board order dated 30.1.1995 whereby the CLB has transferred the said land along with all rights in the land to the assessee.

3.3 The assessee claimed that the land in question at Sahar falls within the exception provided under the definition of ‘assets’ containing in sec. 2(ea) and not liable for wealth tax for the year under consideration.

3.4 The Assessing Officer did not accept the submission of the assessee for the reason that the land was unused and the purpose was unknown till it made an application to Municipal Corporation of Greater Bombay (MCGB) for obtaining development permission. As the permission has been given only in the FY 1998-99 and till that time, it cannot be said that the expenditure incurred by the assessee was for the purpose of hotel industry. Accordingly, the Assessing Officer turned down the contention of the assessee that the land in question is not assessable to wealth tax.

4. Alternatively, the assessee argued before the lower authorities that the market value of the property on the date of valuation for the purpose of determining the net wealth should be taken at Rs. 56,45,721/- after deducting 40% of the cost becauseof larger size of the land and further reducing the cost of development of garden area, construction of strom water drain, approach road and compound wall in garden area and 10% deduction on account of deferred value for 5 years as per the valuation report filed by the assessee.

4.1 The Assessing Officer assessed the wealth tax as per the valuation fixed by the Stamp Duty Authorities without allowing any deduction as claimed by the assessee.

5. On appeal, the CWT has confirmed the disallowance of deduction made by the Assessing Officer; however, directed the Assessing Officer to adopt the valuation of the property at Rs. 3,76,69,528/- for the AY 1996-97 which has also been given in the valuation report and with 5% incremental increase for the Assessment Year 1997-98 and 1998-99.

6. Before us, the ld. Authorised Representative of the assessee has submitted that the land in question is an Urban land but falling in the non-development zone and therefore, there is restriction on the construction of the land in question as per Maharashtra Regional Town Planning Act, 1966 (MRTP- 1966). The ld. Authorised Representative has referred section 43 of the MRTP Act and submitted that there is a restriction of development of land which falls in the notified area. He has further submitted that in the year 1992, the State Government vide its notification dated 12.11.1992 has withdrawn 50% of reservation on the land in question and included in C-I Zone only for the purpose of hotel industry subject to the condition that the assessee should develop and maintain park and keep it open for general public before undertaking the development of the hotel. Thus, the Government has allowed 50% of the land to be developed for hotel purpose with the condition that the remaining 50% should be developed and maintained as a park for public and keep it open for the general public.

6.1 The ld. Authorised Representative has further submitted that after the said notification of the State Government, the assessee has taken up the matter with the concerned authorities for getting permission for development of the hotel and finally vide letter dated 3.7.1998, BMC has granted the permission. Thus, the ld. Authorised Representative has submitted that before the permission was granted on 3.7.98, the land in question was in the category of reservation land and could not be developed and therefore, was not assessable to wealth tax as per the provisions of sec. 2(ea) and clause (b) of Explanation 1 thereto.

6.1 The ld. Authorised Representative further submitted that as per clause (b) of Explanation 1, the land in question falls under the exception because the construction of the building was not permissible under any law till the permission was granted by the BMC. Therefore, as per definition of Urban Land provided in the Explanation 1 to sec. 2(ea) of W T, the land in question falls under the exception, which cannot be included in the definition of Urban land for the purpose of wealth tax. The ld. Authorised Representative has further submitted that the assessee acquired this land in 1995 which was to be developed only for the purpose of hotel and the assessee has also applied for development of the land for hotel industry. Therefore, as per the exception as provided under clause (b) of Explanation 1, the unused land held by the assessee for industry purpose for a period of 2 years from the date of acquisition cannot be included. In support of his contention, the ld. Authorised Representative has referred the budget speak of the Finance Minister on the Financial Bill 1992. He has also referred the definition of Industry concern as provided under section 3(c) (iv) of Industrial Development Bank of India Act 1964 and submitted that the hotel is considered as Industrial concern under the said Act.

6.2 Alternatively, the ld. Authorised Representative has submitted that the valuation of the land in question should be taken as per the valuation report dt 22.3.2004 after allowing deduction of 40% on account of larger size of the land in question. In support of his contention, the ld. Authorised Representative has relied upon the decision of the Hon’ble Supreme Court in the case of K Vasundara Devi v. Revenue Divisional Officer (LAO) in 1995 AIR 2481 and submitted that in the similar circumstances when the issue came up before the Hon’ble Supreme Court for determining the market value for compensation against the acquisition of the land, the Hon’ble Supreme Court upheld the view of the Hon’ble High Court for deduction on account of large track of land in comparison to the transactions relate to smaller extent of land. The ld AR has submitted that the Hon’ble High Court has granted 40% deduction in the said case which was upheld by the Hon’ble Supreme Court. In the case of the assessee, the land in question is having larger area of 45104.70 sq.mtr (i.e. 12 acres), and the rate adopted as per the Stamp Duty Valuation Authorities is for the smaller piece of land; therefore, the assessee is entitled for deduction on this account.

6.3 Apart from this, the Id AR has further contended that the assessee has incurred Rs. 1,35,00,000 towards development work of garden area; construction of storm water drain; approach road and compound wall in garden area; therefore, the same should be allowed as deduction for computation of value of the land.

6.4 On the other hand, the Id DR has submitted that once notification was issued by the State Government, there was no prohibition on the development of the land in question and therefore, the property does not fall under the exception as provided in the Explanation 1 (b) of section 2(ea) of the Wealth Tax Act. He has relied upon the order of the Assessing Officer and CWT(A). The Id DR has further submitted that the decision of the Hon’ble Supreme Court in the case of K Vasundara Devi (supra) is not applicable on the facts of the present case because the said decision is on different parameters and purpose and not for valuation under wealth tax. Act.

7. We have considered the rival contention and carefully perused the relevant material on record. It is not disputed that the land in question was initially under the category of reserved land and the development and construction was barred under the provisions of Maharashtra Regional Town Planning Act, 1966. The section 43 of MRTPA 1966 which restricts the development of land is quoted as under:

“43. Restrictions on development of land

After the date on which the declaration of intention to prepare a Development Plan for any area is published in the Official Gazette ‘[or after the date on which a notification specilring any undeveloped area as a notified area, or any area designated as a site for a new town, is published in the Official Gazette,] no person shall institute or change the use of any land or carry out any development of land without the permission in writing of the Planning Authority:”_

Provided ………………………………………………..

7.1 If any area notified as un-developed area or designated as a site for new town, the change of land used or any development of land is not permitted without any permission in writing of the Planning Authorities.

7.2 Vide notification dated 12.11.1992 under the MRPA 1966, the land in question was reserved to the extent of 50% for park and the remaining 50% of the land to be deleted and included in C-I zone for specific purpose of development of hotel subject to the conditions that the parties should develop and maintain the park and shall keep them for general public during restricted hours.

7.3 Thus, vide the said notification, 50% land was kept as reserved for park to be developed and maintained by the assessee and subject to the said conditions, the remaining 50% of the land was deleted from the reserved category and allowed to be developed for hotel. It is to be noted that the assessee acquired the land in question vide order of the Company Law Board dated 30.1.1995 which means that the assessee acquired the land in question after the notification dated 30.11.1992 and therefore, the prohibition against the development and construction of the land in question was not in existence when the assessee acquired the land in question.

7.4 The assessee contended that until and unless the approval and commencement certificate is granted by the Municipal Corporation of Greater Bombay (MCGB) dated 3.7.1998, the assessee could not develop the property in question and therefore, the same cannot be assessed to wealth tax as falls under the exception provided in Explanation 1 to sec 2(ea). We do not agree with the contention of the assessee because the prohibition for development and construction of the land was only upto 12.11.1992 and once the 50% of the land was released from the reserved category for development of hotel, then it was upto the assessee to comply with the conditions as prescribed under the said notification for development and construction of the hotel. Therefore, there was no prohibition against the development of the land under any law time being in force after the said notification dated 12.11.1992. We quote section 2(ea) of the Wealth Tax hereunder:

2(ea) “assets”, in relation to the assessment year commencing on the 1st day of April 1993, or any subsequent assessment year, means—

²⁰[(i) any building or land appurtenant thereto (hereinafter referred to as “house”), whether used for residential or commercial purposes or for the purpose of maintaining a guest house or otherwise including a farm house situated within twenty-five kilometres from local limits of any municipality (whether known as Municipality, Municipal Corporation or by any other name) or a Cantonment Board, but does not include—

 (1)  a house meant exclusively for residential purposes and which is allotted by a company to an employee or an officer or a director who is in whole-time employment, having a gross annual salary of less than five lakh rupees;

 (2)  any house for residential or commercial purposes which forms part of stock-in-trade;

 (3)  any house which the assessee may occupy for the purposes of any business or profession carried on by him;

 (4)  any residential property that has been let-out for a minimum period of three hundred days in the previous year;

 (5)  any property in the nature of commercial establishments or complexes;]

(ii) motor cars (other than those used by the assessee in the business of running them on hire or as stock-in-trade);

(iii) jewellery, bullion, furniture, utensils or any other article made wholly or partly of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals :

Provided that where any of the said assets is used by the assessee as stock-in-trade, such asset shall be deemed as excluded from the assets specified in this sub-clause;

(iv) yachts, boats and aircrafts (other than those used by the assessee for commercial purposes);

(v) urban land;

(vi) cash in hand, in excess of fifty thousand rupees, of individuals and Hindu undivided families and in the case of other persons any amount not recorded in the books of account.

Explanation ²¹[1].—For the purposes of this clause,—

 (a)  “jewellery” includes—

 (i)  ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stones, and whether or not worked or sewn into any wearing apparel;

(ii)  precious or semi-precious stones, whether or not set in any furniture, utensils or other article or worked or sewn into any wearing apparel;

 (b)  “urban land” means land situate—

 (i)  in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the valuation date ; or

(ii)  in any area within such distance, not being more than eight kilometres from the local limits of any munici-pality or cantonment board referred to in sub-clause (i), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification²² in the Official Gazette,

but does not include land on which construction of a building is not permissible under any law for the time being in force in the area in which such land is situated or the land occupied by any building which has been constructed with the approval of the appropriate authority or any unused land held by the assessee for industrial purposes for a period of two years from the date of its acquisition by him ²³[or any land held by the assessee as stock-in-trade for a period of ²⁴[ten] years from the date of its acquisition by him.]

²⁵[Explanation 2.—For the removal of doubts, it is hereby declared that “jewellery” does not include the Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 notified by the Central Government;]

(f) “Board” means the ²⁶[Central Board of Direct Taxes constituted under the Central Boards of Revenue Act, 1963 (54 of 1963)];

(g) ²⁷[***]

(gg) ²⁸[***]

²⁹[(h) “company” shall have the meaning assigned to it in clause (17) of section 2 of the Income-tax Act;]

³⁰[(ha) “co-operative society” means a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies;]”

7.5 As per clause (b) of Explanation 1, if any land on which construction of a building is not permissible under any law for time being in force, the same cannot be included in the definition of the Urban Land. The conditions as provided in the notification are not in the nature of prohibition of development and construction of the land, rather the notification permits the development of the land subject to fulfilment of certain conditions as prescribed in the notification. Therefore, in our opinion, the said notification, which permits the development of the land subject to certain conditions, it would not render the land in question under the exception as enumerated under clause (b) of Explanation 1 of sec. 2(ea) of the W T Act. Accordingly, we do not find any merit in the contentions of the Id AR of the assessee.

8. The second contention of the Id AR of the assessee is that the assessee acquired this land for specific purpose of development of hotel, which is for industrial purpose; therefore, the same is not assessable to wealth tax for the first two years from the date of acquisition as per the second exception provided in clause (b) of Explanation 1.

8.1 We find that the notification has permitted the development of the land only for hotel; therefore, after the said notification, the land in question cannot be developed other than hotel and there is no dispute on this point that the land was finally developed by constructing the hotel by the assessee. Even, the MCGB vide its letter dated 10.6.1994 has acknowledged this fact that 50% of the land in question is reserved for recreation ground and the remaining 50% is deleted from the reservation and placed in Local Commercial Zone (C-I) for specific purpose of Hotel projects only. Thus, there is no ambiguity on this point that the land could be developed only for hotel project and as relied upon by the Id AR of the assessee that the connotation of terms Industry as per the Industrial Development Bank of India Act 1964, the hotel comes under the definition of Industry. Nothing has been brought before us to controvert this position that the hotel project falls under the terms ‘industrial concern’ as provided u/s 3 (c) of the Industrial Development Bank of India Act, 1964.

8.2 Having accepted that the Hotel is an industry, assessee’s claim falls under the exception as provided under clause (b) of Explanation 1 and consequently the land in question is not assessable to wealth tax for the Assessment Year 1996-97 being falls within two years from the date of acquisition on 30.11.1995.

9. Now, we turn to the next contention of the Id AR of the assessee that since the land in question is larger area of 12 acres; therefore, while taking the stamp duty rate for determining the market value of the land, 40% of deduction should be allowed. There is no dispute about the valuation as per the Stamp Duty Authorities whereby the rate of land in question was taken at Rs. 2,476/- per sq.mt.

9.1 We find force in the contention of the Id AR of the assessee on this point because when the area of land in question is 12 acres and the rate as per the Stamp Duty Authorities are taken as per sq. mtrs; therefore, the rate of per sq.mtr cannot be directly adopted for a larger area of land of 12 acres. The Hon’ble Supreme Court in the case of K Vasundara Devi (supra) has observed as under:

“In view of this finding, the High Court had taken into consideration not only the requirements towards (developmental charges but also when reliance is placed by the Court in Ex. X-1 to X-3, admittedly smaller extents of one guntha each which had fetched a market value at the rate of Rs. 1,20,000/-, necessary deduction need to be given. Taking these two factors into consideration, ultimately it deducted 40%, though loosely termed as “towards developmental charges”. This Court in Administrator General of West Bengal v. Collector. Varanasi. [AIR 1988 SC 943], has applied the twin tests and held that 50% of the deduction should I be made when the sale transaction relate to smaller extent of the lands were found to be genuine and relied on to determine the market value of a large track of land and and 50% deduction was found to be reasonable in that case. The State did not file appeal against enhanced compensation or deduction.

In Bhagwathula Samanna and Others v. Special Tahsildar and Land Acquisition Officer, Vishakapatnam Municipality, [AIR 1992 SC 2298], this Court had held that since lands are in developed area, no deduction towards developmental charges be made. In Vijay Kumar Motil Lal’s and Mangal Gauri cases [supra], the only question was regarding deduction for developmental charges. Sales relating to smaller pieces of land when found to be germane Gujarat High Court deducted 60% of the value, this Court in M/s. Hasanali Khanbhai & Sons & Ors. v. State of Gujarat [C.A. No. 3263/79] dated July 26, 1995, upheld the deduction of 60% by the High Court. When genuine and reliable sale deeds of small extents were considered to determine market value, the same will not form sole basis to determine market value of large track of lands. Sufficient deduction should be made to arrive at the just and fair market value of large track of land. In that view of the law, we are of the considered opinion that ratio in the cases in which it was dealt with only about deduction of developmental charges of undeveloped large extent of land does not render any assistance in deciding the principle followed by the High Court in this matter. In view of the judgment of this Court in Administrator General of West Bengal’s case [supra] and all subsequent decisions, we do not think that it is a proper case for interference.”

9.2 Accordingly, in view of the decision of the Hon’ble Supreme Court in the case of K Vasundara Devi (supra), we allow the deduction of 40% while computing the fair market value of the land in question on account of large track of the land.

10. Next contention of the Id AR of the assessee is regarding allowability of deduction of the expenditure incurred by the assessee for development, construction of park, construction of strom water drain of the garden, which is mandatory conditions for carry out the development of hotel project.

10.1 As it is clear from the facts and circumstances of the case that the development of the land in question was allowed to the extent of 50% subject to the conditions that the assessee should develop a park on the 50% of the land which shall be opened for the public. The Municipal Corporation has also sanctioned the development plan as well as commencement certificate subject to these conditions. Therefore, the permission for development vide notification dated 12.11.1992 attached some infirmity and defects to the land in question, which were to be removed by the assessee by developing the public park.

10.2 It is to be noted that the net wealth has been computed on the land and the value of the land is directly connected with the potentiality of the land for development of hotel. The infirmity attached to the land in question has an direct effect on the value of the land in comparison to the land free from any such infirmity. Therefore, such an infirmity would certainly deflate the value (market value) of the land in comparison to the value of other normal land. In that view of the matter, the assessee has incurred the expenditure for removing all the defects/hurdles attached to the property in question prior to its development; therefore, the expenditure incurred by the assessee for removing of the infirmity/defects, This expenditure incurred by the assessee in developing the public park as a pre-condition is to clear the way for development of land. Further the valuation date of the land in question is prior to development of the hotel at the land in question. Accordingly, the expenditure, which is incurred for exploiting the potential development of the land, is an allowable deduction for computation of fair market value while determining the net wealth. Accordingly, we allow the expenditure incurred by the assessee on development of park including construction of park, construction of strom water drain, compound wall in the garden area etc.

11. As regards the deduction on account of deferment value, nothing has been argued and no material has been brought to substantiate this claim of the assessee; therefore, we do not find any basis for the said claim of the assessee and accordingly, the same is rejected.

12. In the result, the appeals filed by the assessee are partly allowed.