High Court of Madras
Case Law Search
Commissioner of Wealth Tax v. Shri E. Udayakumar - Tax Case(A) No.985 of 2005  RD-TN 751 (26 October 2005)
In the High Court of Judicature at Madras
The Hon'ble Mr.Justice P.D.DINAKARAN
The Hon'ble Mr.Justice N.KANNADASAN
Tax Case(A) No.985 of 2005
and Tax Case (A) No. 986 of2005
Commissioner of Wealth Tax
Madurai .... Appellant in both appeals
Shri E. Udayakumar .... Respondent in both appeals
Tax Case Appeals under Section 260A of the Income Tax Act 1961 against
the order of the Income Tax Appellate Tribunal, Madras `C' Bench dated
07.03.2005 in WTA No.12 & 13/Mds/2004 for the assessment years 1997-98 &
For appellant : Mr.J.Naresh Kumar
For Respondent : ---
:C O M M O N J U D G M E N T
(The Judgment of the Court was delivered by P.D.DINAKARAN,J.) The above tax case appeals are directed against the order of the Income-tax Appellate Tribunal in WTA.Nos.12& 13/Mds/2004, dated 07.03.20 05.
2. The Revenue is the appellant. The assessment years involved are 1997-98 and 1998-99. The assessee filed returns of wealth admitting the wealth of Rs.15,000/- and Rs.25,000/-. He owns 2.25 acres of agricultural land within the corporation of Tirunelveli and its value is Rs.78,75,000/-. The assessee claimed exemption under Section 2(ea) of the Wealth Tax Act (herein after referred to as 'The Act') on the ground that those lands are agricultural la nds and construction of building thereon is not permissible under the Urban Land Ceiling Act. The assessing officer found that the land has the potential to be used for non-agricultural purposes subject to prior permission from the concerned authorities. The assessing officer also found that a hospital building has been constructed on the adjacent land. Therefore the assessing officer decided to assess the said land also for taxable purpose and brought the value of Rs.78,75,000/- to tax.
3. Aggrieved by the assessment order dated 07.02.2001, the assessee filed appeal before the Commissioner of Income Tax (Appeal) contending that on the date of valuation, the land was not put to commercial use and no construction had taken place on that date and as such, the assessing officer ought to have excluded the value of the land for both assessment years. The Commissioner of Income Tax (Appeal) found that the stand taken by the assessing officer is not correct, since as on the relevant valuation date, the assessee had not permitted to construct any building and as such, the land is clearly outside the purview of the urban land and therefore, he is not liable to wealth tax. Accordingly, the Commissioner of Income Tax (Appeal) directed the assessing officer to exclude the said valuation for the purpose of assessment under Wealth Tax Act.
4. On further appeal to the Income Tax Appellate Tribunal by the Revenue, the Tribunal found that it is the discretion of the assessee to use the land in the way he likes and the assessing officer cannot recommend the user of the land, which was owned by the assessee to a particular use. The Tribunal also found that admittedly, the land in question is an agricultural land, as on the date of valuation, it was not put to commercial use and there was no construction at all and dismissed the appeal.
5. Aggrieved against the same, the Revenue has preferred these appeals raising the following substantial question of law: "Whether in the facts and circumstances of the case, the Tribunal was right in holding that the value of 2.25 acres of the land situated within the Corporation limit of Tirunelveli is exempt from the wealth tax as agricultural land, contrary to the provisions of Sec.2(ea) explanation b of the Wealth Tax Act?"
6. It is seen from the records that for the assessment years 1997-9 8 and 1998-99, the assessee filed returns of wealth on 9.2.98 and 21.8.98 admitting wealth of Rs.15,000/- and Rs.25,000/- and the returns were accepted under Section 16(1) of the Act on 27.3.98 and 26.7.99 respectively. As the assessing officer had reason to believe that wealth had escaped assessment for that assessment years, initiated proceedings under Section 17 of the Act. Notice was also served on the assessee and the assessee requested to treat the returns filed already. Again the assessee was directed to file returns and the assessee filed returns again on 29.12.2000 admitting the wealth of Rs.15,000/- and Rs.25,000/- respectively. Thereafter, notice under Section 16(2) of the Act was issued on 29.12.2000 and the assesse's accountant was present. The assessing officer found that the assessee had 2.25 acres of land within the Tirunelveli Corporation limits and he sought to include the value of the land for wealth tax assessment. On an appeal, the Commissioner of Income Tax (Appeal) found that as on the date of valuation, the assessee was not permitted to construct any building and as such the land is clearly outside the purview of the urban land. The Income Tax Appellate Tribunal has also accepted the view taken by the Commissioner of Income Tax (Appeal) in excluding the value of the land in the Wealth Tax Assessment of the assessee for the relevant assessment years.
7. From the plain reading of Section 54B of the Income Tax Act, 196 1, it is clear that to claim the benefit of this provision, the following conditions are required to be satisfied:(i) the capital gain must arise from the transfer of land which, in the two years immediately preceding the date on which the transfer took place, was being used by the assessee or his parent for agricultural purposes; and (ii) the assessee must have purchased the land within a period of two years after the sale of the above land for being used for agricultural purposes.
8. It is well settled in the case of Commissioner of Income Tax V. Smt.Savita Rani (Punjab and Haryana High court) reported in 270 ITR 40 , wherein it is held that the land being located in a commercial area or the land having been partially utilised for non-agricultural purposes or that the vendees had also purchased it for non-agricultural purposes, were totally irrevalant consideration for the purposes of application of Section 54B.
9. In the above said case, the assessee an individual sold 15 karnals 18 marias of land out of her share in 23 karnals 17 marias land during the financial year 1990-91, relevant to the assessment year 1991-92. The sale was effected by three registered sale deeds. While filing her return of income, she claimed exemption from levy of capital gains under Section 54B of the Act on the ground that the land sold by her was agricultural land and the sale proceeds were invested in the purchase of agricultural and within two years. The assessing officer rejected the claim of the assessee holding that the land sold by the assessee was not agricultural land and this was upheld by the Commissioner (Appeals). On further appeal, the Tribunal accepted the claim of the assessee holding that the transaction in question duly fulfilled the conditions specified for relief. On further appeal to the High Court, the Punjab and Haryana High Court found that the land had been used for agricultural purposes was based on cogent and relevant material. The Revenue record supported the claim. Even the records of the income tax department showed that the a ssessee had declared agricultural income from this land in her returns of the preceding two years. The land being located in a commercial area or the land having been partially utilised for non-agricultural purposes or that the vendees had also purchased it for non-agricultural purposes, were totally irrevalant consideration for the purposes of application of Section 54B.
10. It is seen from the aforesaid decision that the agricultural land sold by the assessee with an intent to purchase another land within two years had also been permitted to claim exempt under Section 54 B of Income Tax Act 1961. In the instant case, even though there was no sale as such, the assessee owned agricultural land within the limits of Tirunelveli Corporation and he had not put up any construction thereon, the assessee is entitled to claim exemption from Wealth Tax Act for the assessment of Wealth Tax. The land in question is adjacent to the hospital is totally irrevalant.
11. Hence, applying the above said ratio, we do not see any merit in these appeals and the same are dismissed.
1. The Assistant Registrar,
Income-tax Appellate Tribunal,
Rajaji Bhavan, Besant Nagar,
Chennai 600 090 (five copies with records)
2. The Secretary,
Central Board of Direct Taxes, New Delhi (3 copies) 3. The Commissioner of Income-tax (Appeals),
4. The Joint Commissioner of Income-tax,
Spl.Range VIII, Madras.
Double Click on any word for its dictionary meaning or to get reference material on it.