THE COMMISSIONER OF WEALTH TAX,CALICUT vs. K.T.C.HOTELS LTD.,CALICUT

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WTA/40/2009HC KeralaKLHC01080059200907 November 2017Bench: HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU,HONOURABLE THE ACTING CHIEF JUSTICE MR.ANTONY DOMINIC5 pages
AI SummaryDismissed

What did the High Court hold?

The Tribunal held that Section 40(3)(vi) of the Finance Act, 1983, taxes a building or land appurtenant thereto, excluding buildings used as a factory, godown, or warehouse. The levy is on the building itself. The Revenue's case was that the building was under construction, meaning there was no completed building to attract wealth tax. The Tribunal found that since the building was only under construction, it did not attract the levy of wealth tax under Section 40(3)(vi) of the Finance Act, 1983. This view was found to be without illegality. Consequently, the questions of law were answered in favour of the assessee and against the Revenue. The appeals were dismissed.

What were the facts?

The Revenue, Commissioner of Wealth Tax, Calicut, filed these appeals against a common order of the Income Tax Appellate Tribunal (ITAT), Cochin Bench. The ITAT had upheld the order of the 1st Appellate Authority, which allowed the assessee's (K.T.C Hotels Ltd.) appeal. The core of the dispute concerns assessment years 1989-1990 to 1992-1993. The assessee contended that a building under construction did not attract wealth tax. The Revenue challenged the ITAT's decision to uphold this exemption, arguing that the building, even under construction, should be subject to wealth tax.

What were the issues?

The Tribunal had to decide the following questions of law: 1. Whether the assessee used the building as a hotel for business purposes as contemplated under Section 40 of the Finance Act 1983 to claim exemption under the Wealth Tax Act? 2. Whether, on an interpretation of Section 40 of the Finance Act, 1983, the assessee is entitled to exemption for a building constructed or to be completed under the Wealth Tax Act? 3. Whether the Tribunal was right in affirming the finding that the land and building go out of the purview of taxable asset when construction activities commenced and the building is not yet complete? 4. Whether the Tribunal was right in affirming the finding that a building under construction is not a taxable asset and that the land ceased to be vacant land upon commencement of construction? Assessee's Contentions: The assessee argued that a building under construction does not attract wealth tax. The judgment does not explicitly detail the assessee's arguments beyond this core point. Revenue's Contentions: The Revenue argued that the Tribunal should have independently considered that the building under construction attracted the levy under Section 40(3)(vi) of the Finance Act, 1983, read with the Wealth Tax Act, 1957, instead of relying on its previous orders. The Revenue's primary contention was that the building, even if under construction, should be taxable.

Which sections of the Income-tax Act were involved?

Section 40,Section 40(3)(vi)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE THE ACTING CHIEF JUSTICE MR.ANTONY DOMINIC & THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU TUESDAY, THE 7TH DAY OF NOVEMBER 2017/16TH KARTHIKA, 1939 WTA.No. 40 of 2009 ------------------- AGAINST THE ORDER IN WTA 18/2001 of I.T.A.TRIBUNAL,COCHIN BENCH, DATED 29-10-2003 APPELLANT: ---------- THE COMMISSIONER OF WEALTH TAX, CALICUT.

BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT: ----------- K.T.C HOTELS LTD., P.T.USHA ROAD, CALICUT.

R, R1 BY ADV. SRI.P.BALAKRISHNAN (E)

THIS WEALTH TAX APPEAL HAVING BEEN FINALLY HEARD ON 07-11-2017 ALONG WITH W.T.A.NOS.42, 45 & 50/09, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ANTONY DOMINIC, Ag.C.J. & DAMA SESHADRI NAIDU, J. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - W.T.A.Nos.40, 42, 45 & 50 of 2009 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 7th day of November, 2017 JUDGMENT Antony Dominic, Ag.C.J. These are appeals filed by the Revenue impugning the common order passed by the Income Tax Appellate Tribunal, Cochin Bench, in W.T.A.Nos.16 to 19 of 2001 concerning the assessment years 1989-1990 to 1992-1993. By the said order, the appeals filed by the Wealth Tax Officer impugning the 1st Appellate Authority's order allowing the appeal of the assessee and holding that as the building was only under construction, it did not attract levy of wealth tax was upheld. 2. The following questions of law are raised for consideration of this court: “1. Whether, on the facts and in the circumstances of the case, did the assessee use the building as a hotel for the purposes of its business as contemplated under section 40 of the Finance Act 1983 to claim exemption under the Wealth Tax Act?

W.T.A.Nos.40, 42, 45 & 50 of 2009 : 2 : 2. Whether, on the facts and in the circumstances of the case, and on an interpretation of Section 40 of the Finance Act, 1983, the assessee is entitled to exemption for the building constructed or to be completed under the Wealth Tax Act? 3. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact in affirming the finding of the Commissioner of Wealth Tax (Appeals) that the land and building goes out of the purview of taxable asset when the project is implemented by commencing construction activities and is not the finding and the affirmation of the same against law and the provision relied on? 4. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact in affirming the finding of the Commissioner of Wealth Tax (Appeals) that “Building under construction is not a taxable asset and as the construction has commenced, the land ceased to be a vacant land”and is not the finding and the affirmation of the same wrong against law unwarranted and also beside the point?” 3. We heard the Senior Counsel for the Revenue and the learned counsel appearing for the assessee. 4. On going through the order passed by the Tribunal, we find that to sustain the order passed by the 1st Appellate Authority the Tribunal has relied on its own previous order in WTA No.45 to

W.T.A.Nos.40, 42, 45 & 50 of 2009 : 3 : 47/96 and 58/96. However, it was argued by the learned Senior Counsel appearing for the Revenue that instead of having placed reliance on its own previous orders the Tribunal should have independently considered that the building under construction attracted levy of Section 40(3)(vi) of the Finance Act, 1983 read with the Wealth Tax Act, 1957. 5. We have considered the submissions and we find that under Section 40(3)(vi) of the Finance Act, 1983 what is liable to be taxed, is a building or land appurtenant thereto, other than building or part thereof used by the assessee as factory, godown, warehouse etc. Therefore, what attracts levy is the building. Insofar as these cases are concerned, the case of the Revenue is that the building was only under construction. In other words, there was no building in question to attract levy of wealth tax. 6. If that be so, the view taken by the Tribunal that since the building was only under construction it did not attract levy of tax

W.T.A.Nos.40, 42, 45 & 50 of 2009 : 4 : under Section 40(3)(vi) of the Finance Act, 1983 does not suffer from any illegality for interference. In that view of the matter, answering the questions of law framed in favour of the assessee and against the Revenue, appeals are dismissed. Sd/- ANTONY DOMINIC,

ACTING CHIEF JUSTICE Sd/- DAMA SESHADRI NAIDU, JUDGE jes

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