G.Baskar, Adv. for the Petitioner. G.Johnson, Addl.CIT for the Respondent.

1. This bunch of four Wealth Tax appeals filed by two different assessee’s are directed against separate, but identical orders of the Commissioner of Wealth Tax (Appeals)-4, Chennai dated 10.08.2018 and pertains to the assessment years 2008-09 and 2009-10. Since facts are identical and issues are common, for the sake of convenience these appeals are heard together and are being disposed of by this consolidated order.

2. Both the assessee’s have raised common grounds of appeal in their respective memorandum of appeal. Therefore for the sake of brevity, grounds of appeal filed in WTA No.104/CHNY/2018 for the assessment year 2008-09 are reproduced as under:-

1. The Order of Commissioner of Wealth-Tax (Appeals) upholding the order of assessment is arbitrary and opposed to law and is liable to be set aside.

2.1 The Commissioner of Wealth-Tax (Appeals) erred in holding that the land is vacant land as on the valuation date.

2.2 The Commissioner of Wealth-Tax (Appeals) went wrong in not considering the submissions made before him in the proper perspective.

2.3 The Commissioner of Wealth-Tax (Appeals) went wrong in observing that no documentary evidence have been produced before him to prove that the land was not vacant on the valuation date. The joint development agreements and power of attorneys executed clearly show that the building was demolished only between April 2009 and March 2010.

3.1 The Commissioner of Wealth-Tax (Appeals) erred in confirming the levy of interest u/s. 17B of the wealth tax act.

3.2 The Commissioner of Wealth-Tax (Appeals) failed to note that the assessee was under no obligation either to file the return or to pay wealth tax.

3. The brief facts of the case are that during Income Tax assessment proceedings, it was observed that the assessee’s were holding immovable asset, the value of which during the financial year 2007-08 relevant to assessment year 2008-09 would be more than Rs.15 lakhs. The assessee had not filed return of wealth for the assessment year 2008-09. Therefore, the assessment has been reopened u/s.16(3) of the Wealth Tax Act, 1957 (hereinafter ‘the Act’) for the reasons recorded as per which income chargeable to tax had been escaped assessment and hence notice u/s.17 of the Act was issued on 30.03.2015. In response to the notice, the assessee has filed return of wealth on 28.04.2015. The case was selected for scrutiny and during the course of assessment proceedings, the AO noticed that the assessee is the owner of an asset at Rutland Gate, Chennai, in which a residential house was originally existed. In February 2008, the assessee was entered into a Joint Development Agreement with M/s. Sabari Foundations and as a consequence, the building was demolished and the asset becomes vacant land as on 31.03.2008 and 31.03.2009. Accordingly, the AO called upon the assessee to explain as to why vacant urban land shall not be included within the definition of asset as defined u/s. 2(ea) of the Wealth tax Act, 1957. In response, the assessee submitted that there was a building in the land as on the valuation date i.e., on 31.03.2008 and 31.03.2009 and only after the Joint Development Agreement with M/s. Sabari Foundations, the building was demolished between April 2009 to March 2010.

Therefore, there was a building in the land as on 31-03-2008 and 31-03-2009 and hence, land cannot be included in the definition of asset as defined u/s.2(ea) of the Act. The AO was not convinced with the explanation furnished by the assessee and according to him, in pursuant to Joint Development Agreement with M/s. Sabari Foundations, the building originally existed in the impugned land was demolished and thus, as on the date of valuation of the asset, the land becomes urban vacant land and fall within the ambit of Section 2(ea) of the Act. The AO further was of the opinion that an incomplete building stands is as good as vacant and thus, would fall within the ambit of Section 2(ea) of the Act and therefore, opined that the land sought to be assessed would fall within the ambit of assets as defined u/s.2(ea) of the Act and thus assessed the land for wealth tax by taking the guideline value of the property as per the Tamilnadu Registration Website and determined net taxable wealth of Rs.14,61,21,900/.-

4. Being aggrieved by the assessment order, the assessee preferred an appeal before the CWT(A). Before the CWT(A), the assessee has challenged reassessment on the ground that notice issued u/s.17 of the Act is wholly bad in law, barred by limitation and liable to be cancelled as bereft of jurisdiction.

The assessee has also challenged computation of net wealth on the impugned land by stating that the land in question was not vacant as on the date of valuation, which is evident from various evidences filed by the assessee including Joint Development Agreement with M/s. Sabari Foundations, where it was categorically stated that the developer should commence construction of building after demolition of existing structure on the land. Therefore the observation of the AO that the land was vacant as on the valuation date is incorrect. The ld.CWT(A) after considering relevant submissions of the assessee has rejected legal ground taken challenging reopening of assessment by holding that the reasons recorded for reopening of assessment clearly establishes the fact of escapement of wealth chargeable to tax and thus, there is no merit in the arguments of the assessee that reopening of assessment is bad in law and barred by limitation and accordingly rejected legal grounds taken by the assessee.

5. As regards merits of the issue, the ld.CWT(A) discussed the issue at length in light of various facts brought out by the AO along with judicial precedents including the decision of the Hon’ble jurisdiction High Court in the case of CIT vs. Rohini Hotels (Madras) Ltd., TCA Nos.557 and 558 of 2005 dated 21.09.2011, and held that the contention of the assessee that there existed an old structure on the impugned land is found not tenable, because as per various clauses of Joint Development Agreement dated 21.02.2008 and subsequent agreement dated 04.07.2009 executed by the assessee in favour of CMDA, it was very clear that the assessee after receipt of necessary permission from the Corporation of Chennai vide letter dated 06.08.2007 has demolished the existing building, so as to enable the developer to start construction of new building and hence the argument of the ld.AR for the assessee that there existed an old building in the land is incorrect.

6. As regards another argument of the ld. AR for the assessee that there existed incomplete or under construction building on the impugned land, the ld.CWT(A) in light of the decision of the Hon’ble High Court of Karnataka in the case of Giridhar G. Yadalam vs. CWT in Civil Appeal No.728 to 739 & 741 to 780 of 2011 & SLP(Civil) Nos.19011 & 19012 of 2012, dated 24.07.2015, held that even if an incomplete or unfinished building existed in that land, the same cannot be considered as building which has been completely erected on the land in order to get it covered by exclusion from the definition of asset as defined u/s.2(ea) of the Act. The CWT(A) has also distinguished the jurisdiction High Court decision in the case of CWT vs. Rohini Hotels (Madras) Ltd., and held that in order to apply the ratio of the jurisdiction High Court, it requires to be ascertained whether any such construction was there on the impugned land. On perusal of details filed by the assessee including Joint Development Agreement, it was very clear that there was no building as on the valuation date and hence the alternative contention of the assessee that there existed incomplete or semi-finished building is not supported by any evidence and accordingly rejected the arguments of the assessee and confirmed the additions made by the AO towards urban land.

7. The ld.AR for the assessee submitted that the ld.CWT(A) erred in confirming the additions made by the AO towards land within the definition of asset as defined u/s.2(ea) of the Act, ignoring various evidences filed by the assessee to prove that there was a building in the impugned land and such building was demolished only between April 2009 and March 2010. The ld.AR for the assessee referring to Joint Development Agreement between assessee and M/s. Sabari Foundations dated 04.07.2009 submitted that the clauses very clearly state that the primary objective of the agreement between the parties is for constructing building in the scheduled property after demolishing the existing structures thereon, which clearly indicate that there was a building in the land and said building was subsequently demolished for construction of building. The ld.AR further submitted that although the assessee has received permission from the Corporation of Chennai on 06.08.2007, but demolition was carried out after executing the development agreement with the developer and the said demolition work has been undertaken during financial year 2009-10. Therefore, it is incorrect on the part of the AO as well as CWT(A) to arrive at a conclusion that the building was demolished before entering into Joint Development Agreement. The ld.AR further submitted that the assessee has filed all evidences before the authorities to prove that the land in question was not a vacant land and which does not comes under the definition of asset as comes u/s.2(ea) of the Act, but the AO as well as CWT(A) has ignored all evidences filed by the assessee and made additions towards the impugned property only on the basis of a letter of City Commissioner of Chennai, even though said evidence is not conclusive to arrive at a conclusion that the building was demolished immediately after receipt of approval from the authorities.

8. The ld.DR on the other hand strongly supporting order of the CWT(A) submitted that the CWT(A) has arrived at clear finding in light of various evidences filed by the assessee that the land in question was a vacant urban land which comes under the definition of asset as defined u/s.2(ea) of the Act and hence, there is no merit in the arguments of the assessee that there existed a building as on the date of valuation of the asset.

9. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. Section 2(ea) of the Wealth Tax Act, defines the term ‘assets’ as per which assets include urban land. There is no dispute with regard to the fact that the land in question was an urban land. The only dispute is with regard to whether the impugned land was a vacant urban land or there existed any building. The AO as well as CWT(A) has brought out various reasons to come to the conclusion that the land in question was a vacant urban land and there was no structure in the impugned land as on the date of valuation of asset. It was the contention of the assessee before the lower authorities is that as on the date of valuation of asset there existed an old structure in the impugned land and thus the land is outside the purview of asset as defined u/s. 2(ea) of the Act. We have gone through the relevant assessment order along with various evidences filed by the assessee including Joint Development Agreement dated 04.07.2009. On perusal of details filed by the assessee including Joint Development Agreement, we find that Joint Development Agreement dated 4-7-2009 has clearly spelt out the main purpose of agreement and as per which, the sole object of agreement is for construction of building after demolition of existing building. Therefore, from the above it is very clear that at the time of signing joint development agreement there was a building on the impugned land. Unless, there is building, then the question of specifying a condition for demolition of existing building does not arise. Further, the JDA agreement was entered into on 4-7-2009 and said date falls within the financial year 2008-09 relevant to assessment year 2009-10. From the above, it is undoubtedly clear that there was a building up to the end of financial year 31-03-2008 and thus, for the impugned Asst. years 2007-08 and 2008-09 the land was a vacant urban land and the existing building was demolished is not supported by any evidence.

10. We further noted that the sole basis and evidence for the lower authorities to draw an adverse inference against the assessee is copy of letter from the Corporation of Chennai dated 06.08.2007 where permission has been given for demolition of old structure. The AO as well as the ld. CWT(A), on the basis of above letter assumed that the assessee must have demolished existing building immediately after receipt of permission and at the time of entering joint development agreement, the land was vacant. But, in our considered view said finding is not supported by any evidence, but purely on suspicion and conjectures. Unless, the AO brings on record any evidence to prove that there was a structure, we cannot concur with findings of the AO only on the basis of letter of Corporation of Chennai that the assessee has demolished the building before entering into joint development agreement, more particularly, when JDA dated 4-7-2009 is specifically mentioned about existing structure on the land. Since, the JDA dated 4-7-2009 is clearly mentioned about existing building and demolition of said building before commencement of construction, we cannot agree with the findings of the ld. AO and ld. CWT(A). We, therefore are of the considered view that the findings recorded by the lower authorities to conclude that said land is urban vacant land and which comes under the definition of asset as defined u/s 2(ea) of the wealth tax Act, 1957 is incorrect.

11. As regards alternative argument taken by the assessee that there existed incomplete or semi-finished building on the impugned land on the date of valuation and thus the said land fall outside the definition of asset for the purpose of Wealth Tax Act, we find that the ld.CWT(A) has recorded categorical finding in light of various evidences filed by the assessee including Joint Development Agreement dated 04.07.2009 and subsequent Gift Deed dated 25.04.2009 executed by the assessee in favour of CMDA, that all evidences clearly establishes the fact that till the date of execution of second Joint Development Agreement on 04.07.2009, there was no approval etc from the authorities for construction of building on the impugned land. Further assessee has failed to furnish any evidences including sanction plan issued by CMDA for construction of building. In absence of any evidence to prove that the assessee has necessary permission from the authorities to commence construction of building and further any evidence to prove that there existed a semi-finished building on the impugned land as on the date of valuation, the arguments of the assessee that there existed a semi-finished building as on the date of valuation cannot be accepted. This fact is further strengthened by the Gift Deed dated 25.04.2009 executed by the assessee and other co-owners in favour of CMDA where it was clearly indicated the fact that there was no approval from the authorities for construction of building.

Therefore on this count also the arguments of the assessee that there existed a semi-finished or under construction building on the impugned land is incorrect. Further reliance of the assessee on the decision of the jurisdiction High Court in the case of Rohini Hotels Pvt. Ltd. vs. CWT has no application to the facts of the present case, because in the case before the Hon’ble High Court, the evidences clearly prove that the foundation was laid for building a hotel on the impugned land as on the valuation date and under those facts, the Hon’ble High Court came to a conclusion that land on which foundation was laid for building a hotel should be treated as business asset not exigible to wealth tax. On the other hand, the reliance of the AO as well as the CWT(A) on the decision of Hon’ble Karnataka High Court in the case of Giridhar G. Yadalam vs. CWT, clearly held that semi-finished structure or a building under construction cannot be called as building and therefore till the construction is complete, the character of asset remains a vacant land. Therefore, we are of the considered view that there is no merit in the alternative arguments of the ld. AR for the assessee that there exists a semi-finished building on the impugned land.

12. Be that as it may, in order to exclude any assets from the definition of asset as defined u/s 2(ea) of the Act, those assets should come within the exceptions provided under the Act, but not only on the basis of a particular land is vacant land or land is having building. Further, the fact needs to be considered for exclusion of a particular asset within the definition of asset is whether the asset is a building or land appurtenant thereto and if so, it is fit for habitation and used for habitation or not. This is because, to ascertain whether a particular land is a vacant land or a building or a land appurtenant thereto, the condition of building is very much relevant. In case, even if there is building in the land but, if such building is not fit for habitation or it was not used for any habitation for long period, then it cannot be said that there is a building in the land and such land is not vacant land for wealth tax purpose. Further, as per the definition of asset as defined u/s.2(ea) of the Act, any building or land appurtenant thereto is included in the definition of asset, but exemption has been provided to certain assets including any house used for own residential purpose and any residential house that has been let out for a minimum period of 300 days in the previous year and also any property in the nature of commercial establishment or complexes. In case, the assessee had more than one house for residential purpose then only one residential house is considered for exemption from wealth tax. Similarly, if a residential property is let-out, but it has not been let out for more than 300 days in a year, then the same cannot be excluded for wealth tax. Likewise, any commercial establishments or complexes are outside the purview of wealth tax. In this case, the whole argument of the assessee stands on the pretext of the land in question was not a vacant land because there was a building or structure in the land as on the date of valuation. Even, the AO has not gone in to the aspect of whether the building is used for own residential purpose or business purpose or the same has been let out during the relevant previous year. Unless these facts are examined, simply on the ground that there was a building in the impugned land, the same cannot be excluded from the ambit of wealth tax. We, therefore are of the considered view that the AO needs to verify above facts before coming to the conclusion that whether particular asset comes under the definition of asset as defined u/s.2(ea) of the Act or not.

13. In this view of the matter and considering facts and circumstances of the case, we are of the considered view that the appeals filed by the assessee go back to the file of the AO. Hence, we set aside appeals to the file of AO and direct him to re-examine the issue in light of our findings given hereinabove, in accordance with law.

14. In the result appeal filed by the assessee for both assessment years are treated as allowed for statistical purpose.

15. WTA Nos.106 & 107/CHNY/2008

The facts and issues involved in these two appeals are identical to the facts and issues which we had considered in WTA No.104 and 105/CHNY/2008 in the case of M/s. Giridhari Govindas (HUF) for the assessment year 2008-09 and 2009-10. The reasons given by us in preceding paras in WTA No.104 and 105/CHNY/2008 shall mutatis mutandis apply to these appeals as well. Therefore for similar reasons, we set aside appeals filed by the assessee for the assessment years 2008-09 & 2009-10.

13. In the result, the appeals filed by both the assessee’s for the assessment years 2008-09 & 2009-10 are treated as allowed for statistical purpose.

Order pronounced on 20 January, 2021 at Chennai.

Sd/- Sd/-

(Justice. P. P. Bhatt)

President

(G. Manjunatha)

Accountant Member