Girdhar G. Yadalam vs. CWT (2016) 384 ITR 52 (SC)
The assessee, a Hindu undivided family which was the coowner of a land measuring 30,663.04 sq. metres, situated at survey No.67/2, 67/3, 67/4 and 67/5 of Adugodi Village and a portion of survey No.151 of Kornamangala Village of Begur Hobli of Bangalore South Taluq, Bangalore District, bearing City Survey No.CTS/2. The assessee entered into various development agreements with one M/s. Prestige Estates Properties Private Ltd. for construction of residential flats. The assessee claimed that it had retained ownership of the land until flats are fully constructed and possession of the assessee’s share was handed over to it. The development agreement constituted only permissive possession according to the assessee for the limited purpose of construction of flats. The assessee contended that the assessee continued to be the owner of the land for the financial years 1995-96 and subsequent years till the sale of flats. Notice u/s. 17 of the Act was issued to the assessee and he filed return of wealth of Rs.8,48,000 on August 20, 2003. After considering the contention to not to treat the property as urban land, the Assessing Officer brought it to tax under an order dated March 31, 2005. An appeal was filed before the Assistant Commissioner of Income Tax (Appeals), Bangalore. The appeal stood allowed in the light of an earlier order of the Tribunal. The Revenue thereafter filed an appeal to the Tribunal. The Tribunal following its earlier decision dismissed the appeal filed by the Revenue. The Revenue took up the matter in further appeals before the High Court of Karnataka. The High Court upset the order of the Income-tax Appellate Tribunal holding that the assessee was not entitled to the benefit of clause (ii) of Explanation 1(b) to section 2 (ea)(v) of the Act, as the building had not been constructed and was still under construction during the assessment year.
The Supreme Court at the outset noted that in the present case it was concerned with the interpretation that is to be accorded to the provisions of Explanation 1(b) to section 2(ea)(v) of the Wealth-tax Act, 1957. This Explanation defines “urban land”.
The Supreme Court observed that it was not in dispute that “urban land” is to be included to calculate “net wealth” for the purpose of wealth tax under the Act. However, certain lands are not to be treated as “urban land” which are mentioned in Explanation 1(b). But section 2(ea) of the Act was inserted by the Finance Act 1992 (Act No.18 of 1992), with effect from April 1, 1993. The purpose was to exempt some of the lands from wealth-tax with the objective of stimulating investment in productive assets. It is in that context that the land occupied by any building which has been constructed with the approval of the appropriate authority is excluded from the definition of urban land. On a plain reading of the said clause it becomes clear that in order to avail of the benefit, the following conditions have to be satisfied:
(a) The land is occupied by any building;
(b) Such a building has been constructed;
(c) The construction is done with the approval of the appropriate authority.
The Supreme Court noted that notwithstanding the aforesaid plain language; an endeavour of the Counsel for the assessee was to impress upon the Court to read the said clause to include even that land where the construction of building activity has been started. He, thus, wanted that the words “has been constructed” is to be read as “is being constructed”.
The Supreme Court held that on the plain language of the provision in question, the benefit of the said clause would be applicable only in respect of the building “which has been constructed”. The expression “has been constructed” obviously cannot include within its sweep a building which is not fully constructed or in the process of construction. The opening words of clause (ii) also become important in this behalf, where it is stated that “the land occupied by any building”. The land cannot be treated to be occupied by a building where it is still under construction.
No doubt, the purpose and objective of introducing section 2(ea) in the Act was to stimulate productive assets. However, the event when such a provision is to be attracted is also mentioned in Explanation 1(b) itself carving out those situations when the land is not to be treated urban land. The Legislature in its wisdom conferred the benefit of exemption in respect of urban vacant land only when the building is fully constructed and not when the construction activity has merely started.
