IN THE HIGH COURT OF KERALA AT ERNAKULAM
WTA.No. 152 of 2009()
1. THE COMMISSIONER OF WEALTH TAX,
1. GALFAR (INDIA) PVT.LTD.,
For Petitioner :SRI.JOSE JOSEPH, SC, FOR INCOME TAX For Respondent :SRI.JOSEPH KODIANTHARA
The Hon'ble the Acting Chief Justice MR.P.R.RAMAN The Hon'ble MR. Justice C.N.RAMACHANDRAN NAIR Dated :15/03/2010
O R D E R
P.R.RAMAN, AG. C.J. &
C.N.RAMACHANDRAN NAIR, J.
.................................................................... W.T. Appeal Nos.152 & 98 of 2009
.................................................................... Dated this the 15th day of March, 2010.
Ramachandran Nair, J.
The connected Wealth Tax Appeals are filed by the Revenue challenging the orders of the Tribunal holding that respondent-assessee is entitled to exemption in respect of the "urban land" held by them under Explanation (b) to Section 2(ea) of the Wealth Tax Act, 1957 (hereinafter called "the Act"). We have heard Senior Standing Counsel Sri.P.K.R.Menon appearing for the appellant-Revenue and Sri.Joseph Markose, counsel appearing for the respondent-assessee.
2. The facts leading to the controversy are the following. The assessee-company systematically acquired 16 acres of land within Cochin Corporation which falls within the description of "urban land" as defined under clause (b) of Explanation to clause (ea) of Section 2 of the Act defining "assets". The factual finding of the lower W.T.A. 152 & 98/2009 2
authorities including the Tribunal is that the land was acquired by the assessee progressively in pieces and in the previous year relevant for the assessment year 1997-98, assessee leased out the property with semi-constructed building to another company namely, M-Far Hotels Limited which constructed a Convention Centre and a Five Star Hotel in the said land. In the wealth tax assessments for the assessment years 1997-98 and 1998-99, the Wealth Tax Officer assessed the value of the urban land stating that the same does not fall within the exception contained in clause (b) of Section 2(ea) of the Act. However, in first appeal, the first appellate authority held that urban land meant for industrial purposes is entitled to tax exemption for two years from the date of acquisition when it remains unused and thereafter if it is used for industrial purposes, it ceases to be urban land and therefore cannot be assessed. The Tribunal confirmed the findings on facts and the conclusions on exemption available to the assessee by the first appellate authority against which these appeals are filed.
3. The main question of law raised by the Senior Standing Counsel appearing for the Revenue is that the use of the land by the W.T.A. 152 & 98/2009 3
lessee for industrial purposes will not entitle the assessee for exemption because what the assessee has leased out is urban land which is assessable under Section 2(e) of the Act as it falls under the definition of "assets" in the hands of the assessee. However, counsel appearing for the respondent contended that in view of the clear finding on facts by the two appellate authorities that during the previous year relevant for the assessment year 1997-98 the construction of the Convention Centre was going on which forms part of the industrial complex consisting of Five Star Hotel and Convention Centre, the conclusion on exemption arrived at by the lower authorities cannot be interfered with. Even though counsel for the Revenue has relied on decision of this court in COMMISSIONER OF WEALTH TAX V. MALABAR AND PIONEER HOSIERY P. LTD. reported in (2006) 280 ITR 260, we do not find that the decision relates to liability for wealth tax of urban land, but it relates to only building and so much so, the decision has no relevance. The relevant definition clauses are extracted hereunder for easy reference:
"S.2(ea) "assets", in relation to the assessment year commencing on the 1st day of April, 1993, or any W.T.A. 152 & 98/2009 4
subsequent assessment year, means--
(v) urban land;
Explanation 1:- For the purposes of this clause,-- (a) ...........
(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 municipality 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 notification 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 W.T.A. 152 & 98/2009 5
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 or any land held by the assessee as stock-in-trade for a period of ten years from the date of its acquisition by him."
There is no dispute that "urban land" forms part of assets assessable for wealth tax. However, it is clear from the exception clause contained in clause (b) above that "urban land" held by the assessee for industrial purposes enjoys tax holiday from wealth tax for two years from the date of it's acquisition. There is no case for the department that after the acquisition of the required land for construction of the Convention Centre and the Five Star Hotel, the assessee or the lessee left it unused for more than two years. On the other hand, the finding is that construction was started in the previous year relevant for the assessment year 1997-98 itself and so much so, construction of the Convention Centre and later the Five Star Hotel complex commenced during the previous years relevant for the two assessment years involved. It is clear from clause (b) of Section 2(ea) that land occupied by any building if the same is constructed with the approval of the appropriate authority, is outside the definition of "urban land". W.T.A. 152 & 98/2009 6
Therefore, what is clear from the findings of the first appellate authority and the Tribunal is that within two years from the date of acquisition of land construction of the Convention Centre and later the Five Star Hotel commenced and in the course of time the land was occupied by the Convention Centre and Hotel Complex. This court has in a similar case vide judgment in APOLLO TYRES LTD. VS. THE ASST. COMMISSIONER OF INCOME TAX (W.T.A. No.197/2009 dated 7.12.2009) held that commencement of construction of commercial building will entitle the urban land for exemption because the Act does not intend to levy wealth tax during the period of conversion of a non-productive asset to a productive asset. In fact, this court has considered in detail the scope of amendment to the Wealth Tax Act based on Dr.Raja Chelliah Committee's recommendations which categorised the assets between productive and non-productive and simultaneously retained wealth tax liability only on non-productive assets. In our view, by making the assessment the department has called upon the assessee to pay tax during the period of construction of the Convention Centre and Hotel Complex which are admittedly W.T.A. 152 & 98/2009 7
productive assets to be categorised under the head "industry" which is not intended to be assessed under the statute.
4. The next contention raised by the counsel for the Revenue that the assessee being lessor is not entitled to exemption for the urban land used by the lessee for industrial purposes also lacks any merit because irrespective of whether the person holding the asset is lessor or lessee, the question to be considered is whether the asset is a productive asset and if it is found so, it will go outside the tax net. In view of the finding of the lower authorities that land was converted during the previous years to productive asset namely, the Hotel, which falls within the meaning of "industry" and following the reasonings in the judgment of this court abovereferred, we do not find any merit in the appeals and, therefore, we dismiss the same. P.R.RAMAN
Acting Chief Justice