NIRMAL CHAND SONI,KOLKATA vs. ACIT, CIRCLE - 44, KOLKATA, KOLKATA

3.3. The assessee also placed the copy of the orders of Ajmer Development Authority in favour of M/s Madanganj Ideal Corporation Pvt Ltd being Receiver allowing conversion of land from Agriculture to Residential on 8.11.2001 being Plot No. 23,24A,22,21,20 and 24 and on such conversion, the converted land was 788.33+937.77+755+804.16+768.05+568=4621.31 square yards and same area continued when the property was converted from residential to commercial on Assessment Year: 2007-08 Nirmal Chand Soni Assessment Year: 2007-08 Sushil Chand Soni 21.6.2006. The assessee also placed the evidence for payment of conversion charges by M/s Madanganj Ideal Corporation Pvt Ltd by cheque. The assessee placed the following documents before the ld AO :- a) Copy of agreement dated 7.9.2006 for the sale of Plot No. 20 to 24A measuring 4621.31 square yards between the Receiver as Vendor and the Purchaser ; b) Copy of the market rate chart of all properties as per Registration authority published on 24.5.2005 :- (i) ASC Road, Soni Colony, Anand Nagar, Vaisali Nagar Main Road being Plot No. 20 to 24 and 24A- Rs 3510/- (ii) Property at A.M.C. No. 8/278 = 6/283 , Karakka Chowk – Rs 2970/- (iii) Plot part of property at A.M.C. No. 2/500, Foy Sagar Road – Rs 900/- c) Copy of Deed of Sale of the said property registered on 8.1.2007 between M/s Madanganj Ideal Corporation Pvt Ltd who executed the sale deed as Vendor / Receiver ; d) Copy of Profit and Loss Account and Balance Sheet of Nirmal Chand and Sushil Chand Soni for 31.3.2005 wherein the property in question is not appearing ; e) Copy of ledger account of Estate of Bhagchand Soni in the books of M/s Madanganj Ideal Corporation Pvt Ltd for the year ending 31.3.2005, 31.3.2006 and 31.3.2007 ; f) Copy of the Deed of sale of property at A.M.C. No. 8/278=6/283, Karakka Chowk, Ajmer ; g) Copy of Deed of Sale of plot part of property at A.M.C. No. 2/500, Foy Sagar Road, Ajmer ; h) Valuation Report of property at A.M.C. No. 8/278=6/283, Karakka Chowk, Ajmer i) Valuation Report of plot part of property at A.M.C. No. 2/500, Foy Sagar Road, Ajmer 3.4. Based on the aforesaid facts and documents submitted, it was pleaded that the assessee cannot be invited with levy of wealth tax on the subject mentioned three properties as it was not having possession of the same nor having any control over the same as it had already got vested with M/s Madanganj Ideal Corporation Pvt Ltd pursuant to the court order dated 22.1.2001 as detailed supra. Hence the provisions of section 21(4) of the Wealth Tax Act, 1957, wherein wealth tax shall be levied only on M/s Madanganj Ideal Corporation Pvt Ltd and not on the assessees herein. The assessee stated that those 3 properties does not belong to the assessee as per the definition of ‘assets’ u/s 2(ea) of the Act.

3.5. The ld AO however concluded that since assessee had offered LTCG in his income tax returns for the Asst Year 2007-08 on the sale of the subject mentioned properties, that amounts to acceptance of ownership of the assessee and that those properties belonged to the assessee as on the valuation date i.e 31.3.2005 and accordingly subjected the 3 properties to wealth tax in the hands of the assessee. He held that the three properties were lying with M/s Madanganj Ideal Corporation Pvt Ltd to do the work i.e paying off the creditors as per directions of the court order. The ld AO further observed that the assessee had failed to substantiate its claim that the properties sold as mentioned above were not owned by him along with two other co-owners. The ld AO further observed that assessee was definitely under legal obligation for wealth tax liability as he was Assessment Year: 2007-08 Nirmal Chand Soni Assessment Year: 2007-08 Sushil Chand Soni always having interest in the properties and that is why capital gains has been declared by him on the sale of the same properties. The ld AO observed that a very moot question arises as to who had the interest then in the said properties if not the assessee and why it has been making efforts to deposit different kinds of taxes and other charges with the municipal council as well as improvement trust, Ajmer to convert land into commercial land, getting lease deeds from the authorities and getting approval for construction of a shopping mall on the said land and so many other activities.

4.1. After hearing rival submissions at para 5 page 10, the Tribunal held as follows:- “5. We have heard the rival submissions and perused the materials available on record including the paper book of the ld AR . We find that there is no dispute on the fact that the aforesaid three properties were vested with M/s Madanganj Ideal Corporation Pvt Ltd pursuant to the order of the Court dated 22.1.2001. It is not in dispute that the assessee along with two other heirs, would be entitled only for the residue remaining, if any, on sale of properties and such sale consideration being utilized for paying off the creditors of Estate of Seth Bhagchand Soni. In other words, the assessee would be entitled only for some cash left over, after distribution of sale consideration to the creditors of Estate of Seth Bhagchand Soni. It is not in dispute that M/s Madanganj Ideal Corporation Pvt Ltd had taken responsibility to discharge all the creditors of Estate of Seth Bhagchand Soni and for that purpose only, it has been vested with the properties of the said Estate as per the directions of the Court vide order dated 22.1.2001. Since the properties are vested under the control of M/s Madanganj Ideal Corporation Pvt Ltd and in view of the fact that the assessee along with other co- owners does not have any hold/ control / dominion over the subject mentioned three properties or cannot dictate terms on the negotiation of the sale considerations for three properties, it cannot be said that the said properties belonged to the assessee as on the valuation date so as to fall within the definition of ‘net wealth’ u/s 2(m) of the Act. In this regard, the provisions of section 28 of The Provincial Insolvency Act, 1920 would be relevant for our discussion and the same is reproduced below:-

(2) On the making of an order of adjudication, the whole of the property of the insolvent shall vest in the Court or in a receiver as hereinafter provided, and shall become divisible among the creditors, and thereafter, except as provided by this Act, no creditor to whom the insolvent is indebted in respect of any debt provable under this Act shall during the pendency of the insolvency proceedings have any remedy against the property of the insolvent in respect of the debt, or commence any suit or other legal proceeding, except with the leave of the Court and on such terms as the Court may impose.

Assessment Year: 2007-08 Nirmal Chand Soni Assessment Year: 2007-08 Sushil Chand Soni (3) For the purposes of sub-section (2), all goods being at the date of the presentation of the petition on which the order is made, in the possession, order or disposition of the insolvent in his trade or business, by the consent and permission of the true owner, under such circumstances that he is the reputed owner thereof, shall be deemed to be the property of the insolvent.

(4) All property which is acquired by or devolves on the insolvent after the date of an order of adjudication and before his discharge shall forthwith vest in the Court or receiver, and the provisions of sub-section (2) shall apply in respect thereof.

(5) The property of the insolvent for the purposes of this section shall not include any property (not being books of account) which is exempted by the Code of Civil Procedure, 1908 (5 of 1908), or by any other enactment for the time being in force from liability to attachment and sale in execution of a decree.

(6) Nothing in this section shall affect the power of any secured creditor to realise or otherwise deal with his security, in the same manner as he would have been entitled to realise or deal with it if this section had not been passed.

(7) An order of adjudication shall relate back to, and take effect from the date of the presentation of the petition on which it is made.

Hence it could be safely concluded that the assessee may end up having an asset u/s 2(ea) of the Act on the residue left over, if any, which would be in the form of cash and moreover, there was no guarantee as to whether the same would remain as such on the valuation date. The ld AO had treated the abovementioned three properties as an immovable property and held that the same constitutes assets u/s 2(ea) of the Act. But we find that the character of the asset (if at all any residue is received) , if any, completely changes from immovable property into cash and hence it could be safely concluded that the asset does not remain as immovable property as on the valuation date and hence on that count also , the same cannot be brought within the ambit of wealth tax.”

4.2. In regard to provisions to Section 21 of the Wealth Tax Act, 1957, the Tribunal held as follows:- “Hence the above provisions of the Act are very clear that the wealth tax shall be levied only on the administrators, trustees , managers, etc when they are holding the assets on behalf of any other person. In the instant case, M/s Madanganj Ideal Corporation Pvt Ltd is the administrator and manager of the three properties. Hence the wealth tax , if any, on the subject mentioned three properties, could be levied only in the hands of M/s Madanganj Ideal Corporation Pvt Ltd and not on the assessees

Assessment Year: 2007-08 Nirmal Chand Soni Assessment Year: 2007-08 Sushil Chand Soni herein. In our considered opinion, the provisions of section 21 of the Act have been introduced in the statute only to take care of these type of situations.”

4.3. The Tribunal concluded as follows:- “Hence respectfully following the aforesaid judgement of Hon’ble AP High Court, we hold that the wealth tax could be assessed only in the hands of M/s Madanganj Ideal Corporation Pvt Ltd and not in the hands of the assessees herein. Hence we direct the ld AO to remove the value of subject mentioned three properties from the wealth tax assessment of assessees herein. Accordingly the Ground No.2 raised by the assessees herein is allowed.”