Case Law Details
Shri S. Peter Vs Asst. Commissioner of Wealth Tax (ITAT Chennai)
The solitary issue that came up for our consideration from the given facts and circumstances of this case is, whether the lands owned by the assessee and leased to trusts comes under the definition of ‘asset’, as defined u/s.2(ea) of the WT Act, or the assets held by him under the trusts or legal obligation for any public purpose of a charitable or religious nature in India, which is exempt u/s.5(i) of the WT Act. The term ‘asset’ has been defined u/s.2(ea) of the WT Act, as per which, assets includes property of every description movable or immovable, but does not include such lands occupied by any building, which had been constructed with the approval of appropriate authority. From plain reading of section 2(ea) of WT Act, it is very clear that any land on which building has been constructed with the approval of appropriate authority, then such lands are outside the scope of the term ‘assets’ as defined u/s.2(ea) of the WT Act. In this case, on perusal of various details filed by the assessee, it is abundantly clear that the lands on which Wealth Tax was levied by the AO are not vacant urban lands, because those lands are leased out to trusts for 99 years and the trusts have constructed buildings on said lands for running various educational institutions. Therefore, once lands on which any buildings are constructed with the approval of competent authority, then it cannot be said that said lands are vacant urban lands, so as to levy Wealth Tax. The purpose and intent of the legislature is to tax certain assets which are non-productive or idle assets. This fact is very clearly spelt out in the budget speech of 1992-93 dated 29.02.1992, where the Finance Minister have made a categorical statement that “The Chelliah Committee had suggested that, in order to encourage the taxpayers to invest in productive assets such as shares and other financial assets, exemption was granted from Wealth Tax. Therefore, an amendment has been brought in, u/s.2(ea) of the WT Act, to levy tax on individuals, HUFs and all companies only in respect of non-productive assets such as residential houses including farm houses, urban land, etc. Thus, from the above, it is evident that the legislative intent was to tax only the nonproductive assets.
We are of the considered view that the AO as well as the CIT(A) were erred in levying taxes on lands owned by the assessee and given on lease for 99 years, even though, the assessee has proved with necessary evidences that the trusts have constructed buildings on the impugned lands with the approval of appropriate authority. We, further noted that the only requirement that needs to be seen is whether the lands in question were urban vacant lands or lands on which building was constructed with the approval of appropriate authority. In this case, evidences filed by the assessee clearly proves that these are not urban vacant lands, but lands on which buildings are constructed with the approval of appropriate authority and hence, in our considered view these lands cannot be brought to tax as urban lands within the meaning of asset, as defined u/s. 2(ea) of the WT Act. Therefore, we are of the considered opinion that the assessee is also entitled for exemption u/s.5(i) of the WT Act, because the lands are held by him under a trust for charitable purpose because said lands were given on lease to a trust and the trust has used the lands for running various educational institutions, which comes under the definition of charitable purpose. Therefore, for all reasons the impugned lands are outside the scope of the Wealth Tax. But, the fact remains that certain additional evidences filed by the assessee including copies of sanction plan, copies of approval letters issued for running educational institutions are not submitted before the AO. Therefore, for limited purpose of verification of additional evidences filed by the assessee, the matter has been set aside to the file of the AO and direct him to verify the additional evidences filed by the assessee and allow appropriate relief to the assessee.
In the result, the appeals filed by the assessee for assessment years 2012-13 to 2014-15 are allowed for statistical purpose.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This bunch of 33 appeals filed by different assessees are directed against separate, but identical orders of the learned Commissioner of Income Tax (Appeals)-19, Chennai, dated 25.06.2019 and pertains to the assessment years 2011-12 to 2015-16. Since, the facts are identical and issues are common, for the sake of convenience, these appeals are heard together and are being disposed off by this consolidated order.
2. All the assessees have filed more or less common grounds of appeal for all assessment years. Therefore, for the sake of brevity, grounds of appeal filed in the case of Shri S.Peter for the assessment year 2012-13 are reproduced as under:-
1. The order of the Learned CIT (A) and Assessing officer is contrary to law and facts of the case.
2. The Ld. CIT(A) erred in importing a very narrow and restricted meaning to the word “Property” used in the sections 2 and 5 of the Wealth Tax Act, 1957.
3. The Ld. CIT(A)’s understanding that the word ‘property’ in section 5(i) is restricted only to immovable property being building and no other properties is erroneous and bad in law.
4. The Ld. CIT(A) failed to appreciate that restricting the word ‘property’ used in section 5(i) of the Wealth Tax Act, 1957 to ‘building’ alone is not in the spirit of the provisions of the law and would lead to distorted implications.
5. The Ld. CIT(A) and the Assessing Officer have erred in their understanding that the transfer of title deeds to the trust is necessary for the purpose of claiming exemption u/s 5 (i) of the Act.
6. The Ld. Assessing Officer and the Ld. CIT (A) have erred in not following the principles of consistency and have erred in not considering fact that in the assessment for previous years i.e. AY 2010-11 and 2011-12 exemption u/s 5(i) was allowed for the same property viz, urban lands for which exemption is being claimed in the year under consideration.
7. Appellant seeks your Hon’ble self’s leave to add, delete and modify any of the grounds during the course of the hearing.
3. The brief facts of the case extracted from WTA No. 60/Chny/2019 for assessment year 2012-13 in the case of Shri S. Peter, are that the petitioner is the Chairperson of M/s. Soosaiya Peter Educational Trust and M/s. LoordhuAmmal Educational Trust. Pursuant to a search action u/s.132 of the Income Tax Act, 1961 (hereinafter the ‘IT Act’) conducted on 17.07.2014, at the premises of the Trusts as well as the residential premises of the trustees, the assessee was also searched. Consequent to search, the cases were taken up for assessment and during the course of assessment proceedings, on verification of the return of income filed for the subject assessment year, the AO noticed that the assessee owned lands and buildings, however, no Wealth Tax return was filed. Hence, a notice u/s.16(1) r.w.s.17 of the Wealth Tax Act, 1957 (hereinafter the ‘WT Act’) was issued, calling for explanation / details. In response to notice, the assessee had filed details of various assets including lands, from time to time and argued that all lands are leased to two educational trusts and said trusts had constructed buildings for educational and charitable purposes and hence, contented that all assets are exempted u/s.5(i) of the WT Act, 1957. The ld.AO was however, not convinced with the explanations furnished by the assessee and according to him, although the lands were given on lease to two educational trusts, but the trusts voluntarily withdrew exemption u/s.11 for various violations of section 13(1)(c) of the IT Act, and thus, trusts itself admitted it to be assessed in the status of ‘AOP’ for the years under consideration. Hence, exemption u/s.5(i) of the WT Act is not available for the impugned assets. The AO further was of the opinion that there was no transfer of title itself, in favour of the trust and hence, the assets cannot be treated as assets owned by the trust for charitable or religious purpose in order to give the benefit of exemption u/s.5(i) of the WT Act. Accordingly, the AO computed Wealth Tax on various lands held by the assessee and given on lease for a period of 99 years to two educational trusts.
4. Being aggrieved by the assessment order, the assessee preferred an appeal before the ld.CIT(A). Before the ld.CIT(A), the assessee has reiterated his arguments taken before the AO and claimed the benefit of exemption u/s.5(i) of the WT Act on various lands owned and given on lease to two educational trusts. The assessee further submitted that the purpose of introduction of Wealth Tax is to tax the assets that are kept unproductive, non-essential and idle. There is no intention to levy wealth tax on productive and financial assets. Therefore, the assets owned by the assessee and given on lease to an educational trust and said trust used the impugned land for productive purpose cannot be considered as urban vacant land, so as to include within the definition of assets as defined u/s.2(ea) of the WT Act. The assessee has also contested the findings of the ld.AO in light of application filed before the Settlement Commission and argued that even if, there was some violations as referred to u/s.13(1)(c) of the IT Act, then it is a well settled principle of law that tax can only be levied in respect of the amount of income, which violates said provisions and consequently, if at all, Wealth Tax is applicable then the assets which were given on lease to a trust, which voluntarily withdrew exemption u/s.11 for violation of section 13(1)(c) of the IT Act, can be brought to tax but not whole assets.
5. The ld.CIT(A) after considering relevant submissions of the assessee and also taken note of various sections of WT Act, including section 5(i) of the WT Act, held that lands owned and leased to trusts are in the nature of vacant land, which are covered under the definition of the term ‘urban land’ as defined u/s.2(ea) of the WT Act. The ld.CIT(A), further observed that although the assets are leased out to the trusts, but on perusal of the lease deed, shows that the leases are in respect of vacant lands and hence, said assets are very much taxable within the meaning of assets as defined u/s.2(ea) of the WT Act. The ld.CIT(A), further noted that although section 5(i) of the WT Act, exempts assets held under trust or other legal obligations for any public purpose of a charitable or religious nature in India, but the claim of the assessee is untenable, because as per section 5(i), the term ‘property’ does not include urban land. Therefore, he opined that the term ‘property’ will have a restricted meaning viz-a-viz, the term ‘asset’. The term ‘property’ if we see u/s.2(ea)(i) of the WT Act, is in the context of building or residential property or commercial property, but the same cannot be extended or stretched to mean ‘urban land’ as the ‘urban land’ is a different asset altogether. Therefore, by following the decision of Hon’ble Supreme Court in the case of Giridhar Yadalam vs. CWT, [2016] 384 ITR 52, opined that urban land comes under the definition of asset as defined u/s.2(ea)(v) of the WT Act, and consequently, the same is not eligible for exemption u/s.5(i) of the WT Act. Accordingly, rejected arguments taken by the assessee and confirmed the findings of the AO to levy tax on lands owned by the assessee and given on lease to Trusts. Being aggrieved by the CIT(A) order, the assessee is in appeal before us.
6. The ld.AR for the assessee referring to additional grounds of appeal filed, submitted that the lower authorities went on to decide the issue in a narrow compass on the basis of arguments advanced by the assessee that the lands are held under the trusts for charitable purpose without considering the fact, that the lands owned by the assessee were given on lease to trusts, where the trusts have constructed buildings with the permission of appropriate authority and further, once the land is occupied by any building, which has been constructed with the approval of appropriate authority, then said land is outside the purview of definition of ‘urban land’ for the purpose of Wealth Tax. The ld.AR further submitted that the assessee has leased out lands to trusts for 99 years and the trusts have constructed buildings on the said land with the approval of the appropriate authority and this fact has not been disputed by the AO, because the AO himself has allowed exemption wherever the lease deeds are registered but exemption was denied u/s.5(i) of the WT Act, wherever the lease deeds are not registered. The ld.AR further submitted that once the AO has accepted the fact that the lands are held under the trusts for public charitable or educational purpose, then whether or not the lease deeds are registered, the benefit of exemption u/s.5(i) of the WT Act, cannot be denied, more particularly when lands were given on lease for public charitable purpose and trusts have constructed buildings on said lands.
7. The ld.AR further submitted that even u/s.5(i) of the WT Act, the assessee is entitled for exemption because all lands were given on long term lease for trusts and trusts have used the lands for productive purpose by constructing buildings on said lands. He further submitted that the intent of the legislature to tax only non-productive assets, is to encourage the taxpayers to invest in productive assets, such as shares, securities, bonds, etc., and also to promote investments through financial assets by giving exemption from Wealth Tax. If we go by true spirit of the intent of the legislature then any asset which are used for productive purpose cannot be brought to tax u/s.2(ea) of the WT Act. In this case, although the assessee owns the lands but said lands were given on long term lease to a trust for public charitable or religious purpose and the trusts have constructed the buildings for running educational institutions and hence, all assets are used for productive purpose. He further submitted that for inclusion of the property in the net wealth, what is relevant is, to whom the property belongs and not who owns it. In this case, the impugned lands are leased to trusts for a period of 99 years and thus, even though the lands are legally owned by the assessee but actually belong to the trusts, and are used by the trusts for educational purpose. Therefore, the impugned lands are very much eligible for exemption u/s.5(i) of the WT Act.
8. The ld.DR, on the other hand strongly supporting order of the CIT(A), submitted that in order to give benefit of exemption u/s.5(i) of the WT Act, the land should be held under the trusts or other legal obligation for any public purpose of a charitable or religious nature in India. In this case, the lands are owned by the assessee but given on lease to trusts. Although, the trusts have constructed building on leased lands but the trusts itself had withdrew exemption claimed u/s.11 of the IT Act, for various violations as referred to u/s.13(1)(c) of the IT Act and thus assessed itself as an ‘AOP’ and hence, the arguments of the assessee that the lands are held under the trusts for charitable purpose is incorrect. The ld.DR submitted that the ld.CIT(A) after considering relevant submissions has rightly held that lands are not eligible for exemption u/s.5(i) of the WT Act and therefore, his order should be upheld.
9. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The solitary issue that came up for our consideration from the given facts and circumstances of this case is, whether the lands owned by the assessee and leased to trusts comes under the definition of ‘asset’, as defined u/s.2(ea) of the WT Act, or the assets held by him under the trusts or legal obligation for any public purpose of a charitable or religious nature in India, which is exempt u/s.5(i) of the WT Act. The term ‘asset’ has been defined u/s.2(ea) of the WT Act, as per which, assets includes property of every description movable or immovable, but does not include such lands occupied by any building, which had been constructed with the approval of appropriate authority. From plain reading of section 2(ea) of WT Act, it is very clear that any land on which building has been constructed with the approval of appropriate authority, then such lands are outside the scope of the term ‘assets’ as defined u/s.2(ea) of the WT Act. In this case, on perusal of various details filed by the assessee, it is abundantly clear that the lands on which Wealth Tax was levied by the AO are not vacant urban lands, because those lands are leased out to trusts for 99 years and the trusts have constructed buildings on said lands for running various educational institutions. Therefore, once lands on which any buildings are constructed with the approval of competent authority, then it cannot be said that said lands are vacant urban lands, so as to levy Wealth Tax. The purpose and intent of the legislature is to tax certain assets which are non-productive or idle assets. This fact is very clearly spelt out in the budget speech of 1992-93 dated 29.02.1992, where the Finance Minister have made a categorical statement that “The Chelliah Committee had suggested that, in order to encourage the taxpayers to invest in productive assets such as shares and other financial assets, exemption was granted from Wealth Tax. Therefore, an amendment has been brought in, u/s.2(ea) of the WT Act, to levy tax on individuals, HUFs and all companies only in respect of non-productive assets such as residential houses including farm houses, urban land, etc. Thus, from the above, it is evident that the legislative intent was to tax only the nonproductive assets.
10. In the present case, the lands are leased to trusts and trusts utilized the lands by constructing buildings on which educational institutions are running. Hence, by no stretch of imagination, the said lands can be construed as non-productive assets. Even, the Hon’ble Supreme Court in the case of Giridhar Yadalam vs. CWT, supra, which was relied upon by the CIT(A), though on a different footing in para No.7 observed that section 2(ea) of the WT Act was inserted by the Finance Act, 1992 and the purpose was to exempt some of the assets from Wealth Tax with the objective of stimulating investments in productive assets.It is in this context that the lands occupied by any building which has been constructed with the approval of appropriate authority is excluded from the definition of ‘urban land’ and on plain reading of the said clause, it is clear that in order to avail the benefit, only condition required to be satisfied is, land is occupied by any building and such building has been constructed with the approval of appropriate authority. In the present case, the impugned lands are occupied by buildings and said construction was approved by appropriate authority. In this regard, assessee has filed various additional evidences including copy of approvals for construction of building and copy of approval for running educational institutions, copy of each building plan, etc. Therefore, we are of the considered view that lands on which any building is constructed with the approval of appropriate authority cannot be considered as urban land, which comes under the definition of asset as defined u/s.2(ea) of WT Act. But, the assessee has taken this argument in light of various additional evidences for the first time before us and further, the AO had no occasion to verify the facts with regard to the arguments of the assessee in light of the definition of section 2(ea) of the WT Act. Hence, we are of the considered view that for the limited purpose of verification of facts with regard to additional evidences filed by the assessee to prove that buildings were constructed on the land with the approval of appropriate authority, the issue has been set aside to the AO and direct him to verify additional evidences filed by the assessee, to ascertain the facts whether building has been constructed with the approval of appropriate authority or not.
In case, the AO finds that on the impugned lands any building was constructed with the approval of appropriate authority, then the AO is directed to exclude those lands for the purpose of Wealth Tax.
11. Coming back to the first argument of the assessee, in light of the provisions of section 5(i) of the WT Act. The provisions of section 5(i) of the WT Act provides exemptions for certain assets including property held by an assessee under a trust or other legal obligation for any public purpose of a charitable or religious nature in India. A plain reading of section 5(i) of the WT Act and proviso provided thereto, the word ‘property’ not only encompasses building, residential and commercial properties alone but even other immovable and movable properties also. In this case, although the properties were legally owned by the assessee but actually the lands were held under a trust for charitable purpose, which is evident from the fact that all lands were given on lease for 15 to 99 years and the trust has constructed buildings on the impugned lands with the approval of appropriate authority and further various charitable activities including imparting education was provided on the impugned lands. Therefore, once lands are held under a trust for public purpose of charitable or religious nature in India, then such lands are outside the purview of Wealth Tax, as per section 5(i) of the WT Act. Further, exemption provided u/s.5(i) of the WT Act, cannot be denied merely for the reason that lands were legally not transferred to the trust. For a assessee to claim exemption u/s.5(i), the only condition that needs to be satisfied is that the said property is used for public charitable or religious purpose in India. In the present case, there is no doubt for whatsoever with regard to the fact that the impugned lands are held by trusts for charitable purpose. Although, the AO has assigned a reason to deny the exemption that the trust has voluntarily withdrew exemption claimed u/s.11 of the IT Act, but fact remains that even if exemption is denied u/s.11 for various reasons including violation of section 13(1)(c) of the IT Act, but tax can be levied only on the portion of income that violates provisions of section 13(1)(c) of the IT Act, but not on whole income. However, that does not take away the right of the assessee to claim exemption u/s.5(i) of the WT Act, in respect of those assets which are held under the trusts for charitable purpose. We, further noted that although the AO has granted benefit of exemption to the assessee, wherever the trust deeds are registered but the ld.CIT(A) has denied exemption in respect of lands, by holding that in order to be eligible for exemption u/s.5(i) of the WT Act, then the trusts should own land and building or commercial properties but such exemption cannot be given to vacant land. We do not ourselves subscribe to the findings of the ld.CIT(A), because nowhere in the provisions of section 5(i), it says that exemption is available in respect of only land or building or commercial properties. The provision is very clear, as per which property held by the assessee under a trust or other legal obligation for any public purpose of charitable or religious nature in India. Therefore, we are of the considered view that lands are not taken away from the scope of section 5(i) of the WT Act. This position is supported by the decision of ITAT, Delhi Benches in the case of WTO vs. J P Agarwal (HUF), where it was held that merely because the property was not registered in the name of the trust, the assessee cannot be denied of exemption u/s.5(i) of the WT Act. The Hon’ble Karnataka High Court in the case of CWT vs. Manipal Hotel & Restaurant Management College Trust, [2011] 15 taxmann.com 279, held that exemption u/s.5(i) of the Act, cannot be denied though the ownership of the asset was not transferred to the trust. In fact, the AO himself has allowed the exemption u/s.5(i) for some of the assessment years wherever the trust deeds are registered, but the ld.CIT(A) has rejected the exemptions only on the ground that the impugned lands are vacant urban lands. But, fact remains that the lands in question as on the date of valuation are not a vacant urban lands but lands on which building was constructed with the approval of competent authority. Therefore, once any land on which building was constructed with the approval of appropriate authority, the same cannot be considered as vacant land. Therefore, even on this count, exemption claimed by the assessee on lands is in accordance with provisions of section 5(i) of the WT Act.
12. In this view of the matter and considering facts and circumstances of this case, we are of the considered view that the AO as well as the CIT(A) were erred in levying taxes on lands owned by the assessee and given on lease for 99 years, even though, the assessee has proved with necessary evidences that the trusts have constructed buildings on the impugned lands with the approval of appropriate authority. We, further noted that the only requirement that needs to be seen is whether the lands in question were urban vacant lands or lands on which building was constructed with the approval of appropriate authority. In this case, evidences filed by the assessee clearly proves that these are not urban vacant lands, but lands on which buildings are constructed with the approval of appropriate authority and hence, in our considered view these lands cannot be brought to tax as urban lands within the meaning of asset, as defined u/s. 2(ea) of the WT Act. Therefore, we are of the considered opinion that the assessee is also entitled for exemption u/s.5(i) of the WT Act, because the lands are held by him under a trust for charitable purpose because said lands were given on lease to a trust and the trust has used the lands for running various educational institutions, which comes under the definition of charitable purpose. Therefore, for all reasons the impugned lands are outside the scope of the Wealth Tax. But, the fact remains that certain additional evidences filed by the assessee including copies of sanction plan, copies of approval letters issued for running educational institutions are not submitted before the AO. Therefore, for limited purpose of verification of additional evidences filed by the assessee, the matter has been set aside to the file of the AO and direct him to verify the additional evidences filed by the assessee and allow appropriate relief to the assessee.
13. In the result, the appeals filed by the assessee for assessment years 2012-13 to 2014-15 are allowed for statistical purpose.
WTA No. 63/Chny/2019 & WTA Nos.16 to 44/Chny/2020
14. The facts and issues involved in these appeals are identical to the facts and issues which we had considered in the case of Shri S. Peter in WTA No.60/Chny/2019 for assessment year 2012-13. The reasons given by us in preceding paras shall mutatis mutandis apply to these appeals as well. Therefore for similar reasons, we set aside the appeals to the file of the AO and direct him to verify additional evidences filed by the assessees and allow relief in accordance with law.
SP Nos. 197 to 229/Chny/2020:-
15. Since, the appeals filed by the assessees have been disposed off, the stay petitions filed by the assessees for stay of demand become infructuous and the same have been disposed off as not-maintainable.
16. In the result, all the appeals filed by the assessees in WTA Nos.60 to 63/Chny/2019 and WTA Nos.16 to 44/Chny/2020 are allowed for statistical purposes and the stay petitions filed by the assessees in SP Nos.197 to 229/Chny/2020 are dismissed.
Order pronounced in the court on 1st March, 2021 at Chennai.
