wealth tax
Querist :
Anonymous
(Querist) 02 November 2009
This query is : Resolved
Dear Experts,
What is the meaning and scope of "industrial purpose" under the Wealth Tax ?
pls help, its urgent.
Vineet
(Expert) 02 November 2009
In what reference the query is raised.
Querist :
Anonymous
(Querist) 02 November 2009
sir please check your inbox for PM.. i have enclosed my query therin..
A V Vishal
(Expert) 02 November 2009
Wealth Tax On Urban Lands (Industrial Use)
Wealth tax is chargeable on specified assets. For this purpose industrial building is not a specified asset whereas an urban land is a specified asset however excluding land held for industrial purpose for a period of two years from the date of acquisition. Often industrial plots of land are held by corporates for more than two years and one wonder if there is any escape from the levy of wealth tax even when such land is allotted and is specifically earmarked for the purpose of setting up of unit and for no other use or purposes whatsoever.
The Finance Act 1992 in an attempt to restructure taxation on wealth owned by the companies announced amendment in the definition of the word “asset†u/s 2(ea) of the relevant Act of 1957 with a view to stimulating investment in productive assets. Under the amended definition it (asset) includes guesthouse buildings and residential buildings including farmhouses but excludes buildings in the occupation of employees, buildings held as stock in trade, buildings occupied for the purpose of business, buildings under letting as well as commercial buildings. Besides the assets definition also includes urban lands other than unused lands held for industrial purpose for a period of two years from the date of acquisition. Such exclusions are made with a view to provide incentive for growth and modernization.
For the purpose of levy of wealth tax on specified assets the relevant section 2(ea) of the Wealth Tax Act read as under:
“(ea) "assets", in relation to the assessment year commencing on the 1st day of April, 1993, or any subsequent assessment year, means--
(i) any building or land appurtenant thereto (hereinafter referred to as house), whether used for residential or commercial purposes or for the purpose of maintaining a guest house or otherwise including a farm house situated within twenty-five kilometers from local limits of any municipality (whether known as Municipality, Municipal Corporation or by any other name) or a Cantonment Board, but does not include--
(1) a house meant exclusively for residential purposes and which is allotted by a company to an employee or an officer or a director who is in whole-time employment, having a gross annual salary of less than five lakh rupees ;
(2) any house for residential or commercial purposes which forms part of stock-in-trade;
(3) any house which the assessee may occupy for the purposes of any business or profession carried on by him ;
(4) any residential property that has been let-out for a minimum period of three hundred days in the previous year ;
(5) any property in the nature of commercial establishments or complexes.
(ii)------------etc.â€
The Privy Counsel in their decision in the case of in Corporation of the City of Victoria v. Bishop of Vancouver Island ((1) [1921] 2 A. C. 384, 389, 391 (P. C.) made a reference to a distinction between land and Building. In this case every building set apart and in use for the public worship of God was exempt from the municipal rates and taxes, whereas the land as such was liable to rates and taxes under that Act. The question that fell for determination before the House of Lords was, to state in the words of Lord Atkinson, as follows:
" The question for decision is, are the lands under the buildings set apart and used for the public worship of God dealt with in sub-s. 1 of this section also impliedly put outside the reach of those taxing powers? "
While answering this question, Lord Atkinson observed as follows:
" If one takes the first sub-section of this section 197 and asks oneself what idea do those words in their ordinary grammatical meaning convey to the mind, the answer must be, a building in which the public worship of God can be carried on. The words ' in actual use for ' necessarily convey that, and therefore that everything needed to have that worship carried on is comprised in the description of the edifice in which it is to be carried on.
The House of Lords held that the thing most necessary for the use of the cathedral as a place for public worship is that the congregation which frequents it should be able to stand or kneel upon the ground embraced within its walls and forming the floor of it, or sit upon chairs resting upon that floor. The use of the floor is infinitely more essential than the use of a roof. In fact, it is impossible to conceive the public worship of God being carried on in a building without the use of the land which it embraces within its walls, as it is impossible to conceive walls existing without the support, direct or indirect, of the soil of the earth. The conception of such things is not the less impossible because the legislature has by statute made the attempt fancifully to divide for the purpose of taxation concrete entities notionally into sections or portions which are presumably mutually exclusive and independent of each other. Their attempt will be abortive unless the language used be clear and plain. Should it not be so, one must judge by the meaning of the ordinary language used what is the nature of the thing to be dealt with as it is described in that language.
The Privy Counsel observed that to hold that the ground upon which the cathedral stands is exempt from taxation though not by express words is only to do what to avoid gross absurdity must be done in the case of the buildings mentioned in sub-ss. 3, 6 and 7 of this very section 197. In the case of a building set apart and solely used as a hospital, the land adjoining thereto and actually used therewith, not exceeding 20 acres in the case of a public hospital and 3 acres in the case of a private hospital, is expressly exempted from taxation, but the ground upon which the hospital stands is not expressly exempted, though it necessarily contributes more to the services of suffering mankind than does the adjoining land. The only rational explanation of that provision is that the latter lands are impliedly exempted, because the word ' building ', as used in ordinary language, comprises not only the fabric of the building, but the land upon which it stands.
It further observed that if in these sub-Ss. the ordinary and natural meaning be given to the word ' building ', as including fabric and the ground on which it stands, the legislation is rational. If to that word be given the meaning of fabric without the ground upon which it stands the results are absurd. But if, to make sense, this comprehensive meaning be given to the word ' building ' as used in sub-ss. 3, 6 and 7, it would be contrary to every sound principle of construction to create an antagonism and inconsistency between these sub-sections and the first sub-section by not giving to the word ' building ' in the first the same comprehensive meaning it bears in the others, especially as the purposes for which the building is to be used go strongly to show that it should get the comprehensive meaning, and there is no provision to show it should get the restricted one. Taking section 197 by itself, their Lordships are clearly of opinion that, if rationally and justly construed, the word ' building ' must receive the same meaning in sub-ss. 1, 3, 6 and 7, that is its natural and ordinary meaning, including the fabric of which it is composed, the ground upon which its walls stand, and the ground embraced within those walls. "
Further in referring to the Corpus Juris Secundum, volume 12, at page 380, it observed that the term ' building ' is not always limited to the structure itself, it sometimes includes the land on which the building stands, and the land within the enclosure belonging to the building and appropriate to its use ". It is, therefore, obvious that the word " building " will have to be construed in the context of the statute in which it is used. In one context, as observed above, the " building " may include not only the land underneath it but the land which is necessary for its enjoyment; in the other context, it may not include the land which adjoins it but may include the land which is underneath it; and still in the other context it may not even include the land which is underneath it. It is this problem which has to be solved in the present case.
Following the meaning of the word “building†pronounced by the House of Lords in the aforesaid case it would be logical to hold that the industrial lands under occupation of such companies fall in the exclusion category ‘3’ being strongly retained for commercial and business purposes and not for investment purposes so as to reap benefit of any capital appreciation. Also when such building site is situated in an Industrial belt the same shall be regarded as industrial premises. They would thus remain outside the purview of levy of wealth tax.
Further the moment such companies begin construction on the subject sites it would escape wealth tax liability as in that case they would neither be described as complete buildings nor bear the character of vacant unused lands.
Before the Delhi High Court in the case of Commissioner of Wealth-tax Vs. Prem Nath Motors Pvt. Ltd.(238ITR414) there was a question whether the investment of Rs. 14,91,874 in an incomplete and unfinished factory
building is not liable to be included in the wealth of the assessee-com-
pany. In this case the assessee was constructing a building. The value of investment in the incomplete and unfinished factory building was sought to be included in the assessable wealth of the assessee under clause (vi) of section 40(3).
Section 40(3)(vi), as was relevant in this case reads as
under:
“(3) The assets referred to in sub-section (2) shall be following,
namely :—. . .
(vi) building or land appurtenant thereto, other than building or
part thereof used by the assessee as factory, godown, warehouse, hotel or office for the purposes of its business, or as residential accommodation for its employees or as a hospital, crèche, school, canteen, library, recreational center, shelter, rest-room or lunch room mainly for the welfare of its employees and the land appurtenant to such building or part ;â€
The Court held that to attract the applicability of the above said clause the building or part thereof must be capable of being used by the assessee. The Court in appreciating the facts of the case observed that the investment was in an incomplete and unfinished factory building, the construction whereof was still in progress. The Court held that it is not the case that the building or part thereof as it stood in the relevant assessment year was capable of being subjected to any use by the assessee and hence held that neither the land nor the work in progree is liable to any wealth tax.
Before the Ahemadabad Bench of the Tribunal in the case of Assistant Commissioner of Wealth-tax vs. Anjaria Estate (P.) Ltd. (55ITD53) the commercial complex was under construction. The assessee’s counsel argued that though the land and building are chargeable to wealth-tax as they are specified assets, the construction work-in-progress cannot be considered as either land or building. The revenue declined such plea of the assessee.
On appeal, the CWT (A) held that incomplete structure was not a building and, therefore, not chargeable to wealth-tax in the hands of the assessee which is a closely held company. He further held that the land under incomplete construction was no longer a plot of land and it could not be subjected to assessment in the hands of the assessee.
In referring to the relevant proviso to item (v) of section 40(3) of the Finance Act, 1983 it observed that nothing in clause shall apply to any unused land held by the assessee for industrial purposes for a period of two years from the date of its acquisition. The memorandum explaining this proviso indicates that item (v) was intended to refer to unused land lying vacant and was not intended to refer to land put to use for business purposes. Therefore, the asset being a land on which factory was under construction was not an asset falling under either item (iv) or under the exception to item (v), that is, building not used for business purpose so as to be taxed under section 40."
The Tribunal observed that there is no dispute that commercial complex was under construction on the land. A building under construction, i.e., incomplete structure cannot be equated with a 'building'. As also an incomplete structure does not possess the characteristics of land. Nor can it be said a building. A building means a completely built-structure having roof, dwelling place, walls, doors, windows, etc. While one or more of its aspects may be lacking in the incomplete structure. Besides, a completed structure or building can be resided in or used for some purposes. But an incomplete structure is simply a mass of materials accumulated and partly used. An incomplete structure is neither usable nor saleable in the manner one can sell land or building.
The Tribunal held that neither the work-in-progress nor the land is liable to tax under the provisions of section 40 of the Finance Act, 1988 which is a self-contained and separate code by itself. The Tribunal in this case followed Madras Bench ruling in the case of Nartan Electrical Industries (P.) Ltd.(36ITD448) wherein it has been held as under:
"It must be remembered that the land was acquired in February and the valuation date was March in between the construction had started and foundation had been laid. In these circumstances, even though a building as such had not come up so as take this asset into the next item, i.e., 'building or land appurtenant used as a factory', it would not also be a vacant land lying unused falling under item (v). Therefore, the asset being a land on which factory was under construction was not an asset falling under either item (iv) or under the exception to item (v), that is, building not used for business purpose so as to be taxed under section 40."
Further reliance was placed on the decision of Delhi Bench of the Tribunal in the case of Priya Holding (P.) Ltd. (29ITD641) where the Tribunal has categorically held that "cost of construction in relation to uncompleted building could not be termed as building"
Thus the industrial sites are as well exempt from the levy of wealth tax even after their being held for more than two years and remaining vacant on the valuation date.
Querist :
Anonymous
(Querist) 02 November 2009
i have already reffered to this article in the past sir... i need more suitable cases or articles, if you can guide me with any...
Vineet
(Expert) 02 November 2009
The definition is very simple. Above artcle pertains to a case where the land remains vacant even after 2 years.
"Industrial Purpose" in this case has to be construed in plain english. The land which has been acquired for undertaking an industrial activity on the same. The Wealth Tax exempts such urban land from the definition of Asset for two years, however the onus is on the assessee to prove that the land was acquired and held for ultimate use in Industrial activity. Failure to do so may result in withdrawal of exemption for initial two years also.
In practical terms the Industrial use of land may go beyond actual erection of building or plant on the same. It may also be utilised for storage, yard, cultivation or processing incidental to industrial activity etc.
Raj Kumar Makkad
(Expert) 02 November 2009
"Industrial Purpose" in this case has to be construed in plain english. The land which has been acquired for undertaking an industrial activity on the same. The Wealth Tax exempts such urban land from the definition of Asset for two years, however the onus is on the assessee to prove that the land was acquired and held for ultimate use in Industrial activity. Failure to do so may result in withdrawal of exemption for initial two years also.
