FEDERAL BANK LTD. v. JOINT COMMISSIONER OF WEALTH-TAX
[Citation -2005-LL-1130-12]

Citation 2005-LL-1130-12
Appellant Name FEDERAL BANK LTD.
Respondent Name JOINT COMMISSIONER OF WEALTH-TAX
Court ITAT
Relevant Act Wealth-tax
Date of Order 30/11/2005
Assessment Year 1996-97
Judgment View Judgment
Keyword Tags industrial undertaking • construction activity • legislative intention • commercial purpose • public interest • wealth-tax act • head office • urban land • net wealth
Bot Summary: The assessee contended before the CWT(Appeals) that the assessee was contemplating the construction of its office building immediately after purchase of the plot of land, but could not proceed further in the light of a Public Interest Litigation filed before the High Court of Kerala by which the assessee-bank was restrained from proceeding further in the matter of construction. As soon as the matter was disposed of by the High Court in favour of the assessee-bank, the construction was resumed and the building was completed, and in such circumstances, the land should be considered as meant for industrial purpose, and as per the provisions of law such land could not be treated as vacant land for the initial period of two years. Once the construction of the building is completed and the building has become functional, the dispute relating to the nature of the land should cease to exist. The most important question is whether during the interregnum period when the building was not completed or construction was only to be started, what would be the position of the land, as far as its nature is concerned, for the purpose of wealth-tax The construction of huge buildings could not be completed during a particular previous year. The argument of the revenue that the nature of the land ceases to be vacant land only when the building has been fully constructed and become functional is fallacious. Theoretically speaking, even if a single brick is laid on the vacant land as initiation of the construction of the building and the building is constructed thereafter, the land ceases to be a vacant land from the date of laying down of the first brick on the land. The character of the land has ceased to be vacant land for the purpose of wealth-tax; even though literally speaking, the physical character of the land could still be held as vacant land.


This is appeal filed by assessee. relevant assessment year is 1996-97. appeal is directed against order of CWT(Appeals)-V, Hyderabad, Camp: Kochi, passed on 16-3-2005 and arises out of assessment completed under section 16(3)of Wealth-tax Act, 1957. 2. appellant in this case is Scheduled Bank having its Registered and Head Office in Kerala. assessee-bank had acquired plot of land in city of Ernakulam at Marine Drive. land was purchased by assessee- bank during previous year relevant to assessment year under appeal 1996-97. While filing return of wealth, assessee had admitted value of urban land at Marine Drive, Ernakulam at Rs. 7,93,65,120. Later on, assessee filed before Assessing Officer letter stating that said urban land was not used for constructing its office building and such property kept vacant for period of two years could not be included in taxable wealth, in terms of section 2(ea). Therefore, assessee submitted that net wealth of assessee should be reduced by amount of Rs. 7,93,65,120, being value of vacant plot of land at Marine Drive, Ernakulam. 3. above contention was rejected by assessing authority. m t t e r was taken in first appeal. assessee contended before CWT(Appeals) that assessee was contemplating construction of its office building immediately after purchase of plot of land, but could not proceed further in light of Public Interest Litigation filed before High Court of Kerala by which assessee-bank was restrained from proceeding further in matter of construction. As soon as matter was disposed of by High Court in favour of assessee-bank, construction was resumed and building was completed, and in such circumstances, land should be considered as meant for "industrial purpose", and as per provisions of law such land could not be treated as vacant land for initial period of two years. assessee has also raised number of supporting grounds before CWT(Appeals). After carrying out detailed discussions, CWT(Appeals) held that assessee-undertaking could not be treated as industrial undertaking and, therefore, purpose contemplated by assessee also could not be treated as industrial purpose and, therefore, initial exemption for two years could not be extended to assessee. ground of assessee was rejected and appeal was dismissed. Therefore, second appeal before us. 4. We have heard Shri R. Rajasekharan, learned Chartered Accountant appearing for assessee-bank and Smt. T.R. Indira, learned Departmental Representative appearing for revenue. 5. assessee-bank has produced before us copy of order passed by High Court of Kerala in OP No. 18097/1995-D dated 16-7-1997. perusal of said order of Hon'ble High Court supports arguments of assessee-bank that construction of building in Marine Drive was initially blocked for sometime because of litigation pending before High Court. Therefore, contention of assessee-bank, as matter of fact, has to be accepted that bank was restrained from executing construction work for reasons beyond its control. It must be held that construction work could not be proceeded for supervening impossibility caused by pending litigation before High Court, for which assessee could not be held liable. In such circumstances, avowed object of assessee-bank to construct its office building in said vacant plot of land at Marine Drive could not be held as unaccomplished and could not be treated as abandoned. object of assessee still subsisted during interregnum period during which construction was restrained by Court proceedings. 6. In such circumstances, it is to be held that there was constructive utilization of vacant land by assessee to convert plot into business asset. scheme of Wealth-tax, as it stands on day of assessment, is to exclude all productive assets from ambit of net wealth and to levy tax only on non-productive assets. This legislative intention has been made clear in concept of "asset" encapsulated in section 2(ea) of Wealth-tax Act, 1957. As far as assessee-bank is concerned, even though as on 31-3-1996 particular land was lying physically vacant, it was in process of being converted into building complex meant for purpose accommodating office of assessee-bank. Once construction of building is completed and building has become functional, dispute relating to nature of land should cease to exist. most important question is whether during interregnum period when building was not completed or construction was only to be started, what would be position of land, as far as its nature is concerned, for purpose of wealth-tax? construction of huge buildings could not be completed during particular previous year. construction activity may spill over period of more than one previous year. Therefore, during such period when building was under construction but could not be fully completed, it is not possible to hold that land was vacant. land has already been utilized for business purposes even though building proposed to be constructed did not become fully functional. Therefore, utilization of land for commencing construction and utilization of proposed building after construction has to be suitably differentiated. utilization of vacant land should not be confused with ultimate enjoyment of building proposed to be completed. Even though building has not been completed, still utilization of land has become complete. Therefore, argument of revenue that nature of land ceases to be vacant land only when building has been fully constructed and become functional is fallacious. That argument is against spirit of law. 7. whole confusion is caused because of fact that distinction between utilization of land and completion of construction of building is not differentiated. So, theoretically speaking, even if single brick is laid on vacant land as initiation of construction of building and building is constructed thereafter, land ceases to be vacant land from date of laying down of first brick on land. character of land has ceased to be vacant land for purpose of wealth-tax; even though literally speaking, physical character of land could still be held as vacant land. 8. When this distinction is borne in mind and fact that assessee- bank was constrained for short period to stall construction of its building, it is clear that land acquired by assessee-bank at Marine Drive, Ernakulam was constructively used for commercial purpose of assessee-bank and, therefore, said piece of land could not be treated as urban vacant land liable to be taxed under provisions of Wealth-tax Act, 1957. 9. As issue has been decided on facts of case itself, there is no necessity in further examining whether assessee is industrial undertaking, or purpose for which land was purchased was for industrial purposes, as those discussions would only become academic. 10. assessing authority is directed to exclude value of Marine Drive land of Rs. 7,93,65,120 from net wealth of assessee-bank. 11. In result, this appeal filed by assessee is allowed. *** FEDERAL BANK LTD. v. JOINT COMMISSIONER OF WEALTH-TAX
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