Land on which construction has started is not Asset for Wealth Tax Purposes

CA Kanhaiya Kumar Agarwal

Brief Facts of the Case and Question of Law:

Brief Facts

The assessee held a plot of land and had progressively constructed the Complex on it. This fact is evident from the expenditure shown under work-in-progress on construction as per the audited accounts. The complex was under construction from assessment year 2004-05 to assessment year 2007-08.The assessee has been given permission to start construction of these plots vide sanctioned letter dated 18.02.2004 and the assessee awarded the soil investigation contract to Drillco Engineers on 21.02.2004 and the said firm completed its soil testing on 27.07.2004. The assessee paid an advance to the architect M/s. Agarwal & Agarwal on 31.03.2006 and had incurred expenditure to the extent of Rs. 46,00,000/- for the year ended 31.03.2006 and in the year ended 31.03.2007 Rs.392.54 lakh.

Question of Law

Whether land on which construction has started be treated as Urban Land within the meaning of Explanation 1(b) of section 2(ea) of the Wealth Tax Act, 1957.

Contention of the Revenue

The revenue was not satisfied with the order of the CIT(A) wherein it had stated that the plots held by the assesee cannot be regarded as Urban Land within the meaning of Section 2(ea) of the Wealth Tax Act, 1957.

Contention of the Assessee

The Assessee contended that Plot on which construction has started cannot be treated as Urban Land within the meaning of Section 2(ea) of the Wealth Tax Act, 1957.

Held by ITAT

It cannot be said that the land owned by the assessee was a vacant land. The character of the land has changed and it was no more plot of the land. Urban land, no doubt, is subject to the tax under the Wealth Tax Act, but, in our opinion, it will cover only the vacant land. The land which is occupied by any building with the approval of the appropriate authority is exempt from the purview of the tax and, therefore, the urban land which is utilized for construction of a building with the approval of the prescribed authority cannot remain as urban land.

The Hon’ble ITAT held that the plots held by the assessee in each of the assessment years cannot no longer be regarded to be the urban land within the meaning of section 2(ea).

Case Laws referred by Hon’ble ITAT

Apollo Tyres Limited (325 ITR 528) before Hon’ble Kerala High Court

Meera Jacob reported (14 SOT 486) before ITAT Cochin

NF