Wealth Tax Appeal No.17 of 2005 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH 1. Wealth Tax Appeal No.17 of 2005 The Commissioner of Wealth-tax, Panchkula ...Appellant VERSUS M/s Haryana Warehousing Corporation, Bay No.15-18, Sector-2, Panchkula ...Respondent 2. Wealth Tax Appeal No.18 of 2005 The Commissioner of Wealth-tax, Panchkula ...Appellant VERSUS M/s Haryana Warehousing Corporation, Bay No.15-18, Sector-2, Panchkula ...Respondent Date of Decision:- January 20, 2010 CORAM: HON'BLE MR. JUSTICE ASHUTOSH MOHUNTA HON'BLE MR. JUSTICE MEHINDER SINGH SULLAR Present: Mr.Yogesh Putney , Advocate for the appellant-Revenue Mr.Rajesh Garg, Advocate for the respondent. MEHINDER SINGH SULLAR, J. As common questions of law and facts are involved in both the appeals filed by the Commissioner of Wealth-tax, Panchkula-appellant-Revenue against the M/s Haryana Warehousing Corporation-assessee (for brevity "the assessee-Corporation"), pertaining to the assessment years 1996-97 and 1997- 98, therefore, we propose to dispose of the same, vide this judgment in order to avoid the repetition of facts. 2. The relevant facts, barely needed for disposal of present appeals, are that the assessee-Corporation is carrying a systematic activity of procuring and storing the foodgrains. In the wake of the notice, the assessee-Corporation filed its returns for the assessment years 1996-97 and 1997-98, declaring its net wealth as Nil. During the course of processing of the returns for the relevant Wealth Tax Appeal No.17 of 2005 2 years, it revealed that the assessee-Corporation has purchased commercial plot on 11.1.1996 for Rs.2,14,86,283/- from Haryana Urban Development Authority (hereinafter to be referred as ‘HUDA’), situated within the area of Municipal Committee of Rewari. The assessee-Corporation was asked to explain, as to why the value of the plot was not included in the net wealth of the relevant years. The assessee-Corporation explained that the land was purchased on 11.1.1996 and the construction of land was started on 22.12.1997 i.e. within two years of its purchase. Therefore, this land was exempted from wealth tax, in view of the explanation to Section 2(ea) of the Act. The submission of the assessee- Corporation did not find favour with the authorities. The Assessing Officer included the value of the plot and levied wealth tax accordingly vide impugned order dated 11.12.2000 (Annexure A-1). The appeals filed by the assessee- Corporation were also dismissed by the Commissioner of Income Tax (A), vide order dated 28.11.2001 (Annexure A-2). 3. However, aggrieved by the impugned orders Annexures A-1 and A- 2, the assessee-Corporation filed the appeals, which were partly accepted by the Income Tax Appellate Tribunal, Chandigarh, vide order dated 23.2.2005 (Annexure A-3), operative part of which is as under:- “We, after considering the above facts and circumstances of the case and going through the relevant provisions of law, are of the view that the intention of the legislature in levying tax was to tax those land which were vacant and not being used by the assessee for business and there was no intention to tax the property which was used for the purpose of business. Since in the instant case, the warehousing activity was held to be industrial by the apex court and the jurisdictional High Court and the assessee has duly constructed godown within two years of the allotment of land for warehousing activity, the action of the AO in including the same in net wealth ignoring the above facts was not justified. Therefore, in our considered opinion, the CWT(A) was also not justified in confirming his action. Accordingly, we set aside the order of the CWT(A) in sustaining the action of the AO and accept the ground raised by the assessee in both the years.” Wealth Tax Appeal No.17 of 2005 3 4. The Revenue did not feel satisfied with the impugned order Annexure A-3 and filed the instant appeals, invoking the provisions of Section 27-A of the Wealth Tax Act, 1957 (hereinafter to be referred as “the Act”). The appeals were admitted to determine the following substantial questions of law:- i) Whether on the facts and circumstances of the case the assessee corporation which derives its income from providing storage facilities for agricultural produce, procurement of wheat for central pool, interest income from bank deposits can be termed to be an industrial undertaking within the meaning of section 2(ea) of the Wealth Tax Act? ii) Whether on the facts and circumstances of the case the urban plot purchased by the assessee and not used for any industrial purpose within a period of two years of purchase is liable to be taxed under the Wealth Tax Act? 5. We have heard the learned counsel for the parties and have gone through the record and relevant provisions of the Act with their valuable assistance. 6. As indicated earlier, the assessee-Corporation is a creation of statute and is carrying a systematic activity of procuring and storing the foodgrains. It is not a matter of dispute that the assessee-Corporation purchased a plot for commercial purpose on 11.1.1996 from HUDA, vide allotment letter dated 11.1.1996 and the construction on it has already started on 22.12.1997 i.e. within two years of its purchase. According to the Revenue, the wealth tax is leviable on the value of the plot in question. On the contrary, the assessee- Corporation claimed that it is exempted from wealth tax, in view of explanation to Section 2(ea) of the Act. Thus, it would be seen that the facts of the case are neither intricate nor much disputed. Now, the short and significant question that arises for determination in these appeals is whether the value of the plot purchased for commercial/industrial purpose is exigible or not? 7. The celebrated argument of the learned counsel appearing on behalf of the Revenue that since the assessee-Corporation derives its income from providing storage facilities for agricultural produce, procurement of wheat Wealth Tax Appeal No.17 of 2005 4 for central pool cannot be termed as an industrial undertaking, so the assessee- Corporation cannot take the benefit of exemption as contemplated under Section 2(ea) of the Act, is not only devoid of merit, but misplaced as well. The “assets” were defined under Section 2(e) of the original Act. Subsequently, the Act was amended and Section 2(ea) was inserted w.e.f. 1.4.1993, which is as under:- "2.(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 kilometres 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) …………….. (2) …………….. (3) …………….. (4) …………….. (5) any property in the nature of commercial establishments or complexes. 8. Thus, it would be seen that as per sub-clause (5) of section 2(ea) of the Act that any property in the nature of commercial establishments or complexes are not assets and are not liable to wealth tax. As indicated earlier, admittedly, the assessee-Corporation has purchased the plot for commercial purpose, vide allotment letter dated 11.1.1996, therefore, it is not leviable to wealth tax, in this context. 9. There is another aspect of the matter, which can be viewed from a different angle. Explanation added to section 2 (ea) of the Act is reproduced as follows:- Wealth Tax Appeal No.17 of 2005 5 "Explanation 1: For the purposes of this clause,- (a) ……………. (b) "urban land" means land situate – (i) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the valuation date; or (ii) in any area within such distance, not being more than eight kilometres from the local limits of any municipality or cantonment board referred to in sub-clause (i), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette, but does not include land on which construction of a building is not permissible under any law for the time being in force in the area in which such land is situated or the land occupied by any building which has been constructed with the approval of the appropriate authority or any unused land held by the assessee for industrial purposes for a period of two years from the date of its acquisition by him [or any land held by the assessee as stock-in- trade for a period of ten years from the date of its acquisition by him]." 10. Assuming for the sake of argument, the assessee-Corporation purchased the plot for industrial purpose on 11.1.1996 and since it has already started its construction on 22.12.1997 within two years of its purchase, even then the assessee-Corporation is not liable to pay the wealth tax, because as per Explanation to section 2 (ea) of the Act that any unused land held by the assessee for industrial purposes for a period of two years from the date of its acquisition by him would not be included in the definition of 'urban land', therefore, such plots are exempted from wealth tax for two years of its acquisition. In some what similar circumstances, this Court in case Wealth Tax Appeal No.6 of 2004 titled "M/s Rockman Cycle Industries Ltd., Ludhiana Wealth Tax Appeal No.17 of 2005 6 versus Commissioner of Wealth Tax (Appeals) (Central), Ludhiana and another", decided on 13.1.2010, has observed that "there is no manner of doubt that the legislative intent underlying while incorporating the provisions of Explanation to section 2 (ea) of the Act is clear and implicit that the unused land for industrial purposes is not liable to be taxed for two years from the date of its acquisition. 11. As is evident from the record, the plot in question was purchased on 11.1.1996 and assessee-Corporation has already started construction on 22.12.1997, i.e. within stipulated period of two years of its purchase, therefore, the assessee-Corporation is otherwise entitled to the exemption from the wealth tax, for the relevant assessment years. Meaning thereby, the land held by the assessee-Corporation for industrial purpose for the period of two years from the date of its acquisition is exempted from the wealth tax. 12. In the light of the aforesaid reasons, thus, seen from any angle, we are of the view that the value of the plot purchased by the assessee- Corporation, either for commercial purpose or industrial purpose, is not liable to wealth tax during the period of relevant assessment years. Hence, the questions of law are accordingly answered against the Revenue. 13. For the reasons recorded hereinabove, the appeals are dismissed with no order as to costs. (MEHINDER SINGH SULLAR) JUDGE January 20, 2010 (ASHUTOSH MOHUNTA) Vt/AS JUDGE Whether to be referred to reporter? Yes/No