Wealth Tax on Incomplete or under Construction Building?

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1. vswami says:

   @ vswami
   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.

     Reply

   March 1, 2012 at 11:20 pm
2. vswami says:

   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.

     Reply

   March 1, 2012 at 12:47 pm