Jaya Hind Sciaky v. DCIT (Bombay High Court)

The assessee was a closely-held company, subject to wealth tax in the relevant AYs under the Finance Act, 1983. The charge under s. 40 of the Finance Act, 1983 was on “assets… belonging to the assessee”, and ‘asset’ was further defined to include “land other than agricultural land… Provided that nothing in this clause shall apply to any unused land held by the assessee for industrial purposes for a period of two years from the date of its acquisition by him…” The assessee had taken land on lease from MIDC for a period of 95 years, with term for further renewal for another 95 years. This land was unused for a period of more than 2 years from the date of the lease-deed. The AO held that the land for all practical purposes belonged to the assessee and hence, as the same was chargeable to wealth tax. The CWT(A) ITAT affirmed the conclusion of the AO. The ITAT held itself bound by the observations of the Supreme Court in the case of Nawab Mir Osman Ali Khan v. CWT 162 ITR 888 to the effect ‘possession of an interest less than of full ownership could also be signified’ by the words ‘belonging to’. In appeal, the assessee contended that (a) ‘leasehold rights in land’ is a different asset from ‘land’ for the purposes of Section 40 of the Finance Act, 1983; and (b) the words ‘belonging to’ must be given the meaning ‘owned by’. Hence, as the land was not owned by the assessee, no wealth tax could be levied on it in terms of the Finance Act, 1983. Held, dismissing the appeal but for reasons different to those given by the ITAT:

(i) There can be no dispute that there is a difference between leasehold right and ownership right as is evident from the Transfer of Property Act. In this case, we are concerned with leasehold right. However, the absence of the words ‘property of every description’ movable or immovable in Section 40(3) of the Act by itself would not lead to the conclusion that only a property owned by an assessee would be covered and not property of any other kind. Be that as it may, so far as Section 40(3)(v) of the Act, which is the applicable provision, there is a proviso thereto which excludes unused land held by the assessee for an industrial purposes for a period in excess of two years from the date of its acquisition from the definition of asset. The Parliament has used the word held and not owned by the assessee in the proviso to cover a case of open land other than the agricultural land as an asset if the same is held for industrial purposes in excess of over two years. There is no need to compare and contrast the provisions of the Act with the provisions of the Wealth Tax Act, 1957, when there is sufficient indication in the Act itself to include the property in land to be an asset even if it is not owned… We hold that land other than agricultural land held unused in excess of two years from the date its acquisition is an asset as defined under Section 40(3) of the Act even if it is not owned…;

(ii) The Apex Court in (late) Nawab Sir Osman Ali (supra) after making the above observations, finally held itself bound by the restricted meaning to the word ‘belonging to’ i. e. possession coupled with legal ownership, even though it does observe that it may result in injustice… it concludes that the legal title is important in the Scheme of Wealth Tax Act as it stands and the legislature may consider the suitability of amendment. Therefore the observations of the Apex Court relied upon by the impugned order were only observations, at the highest in nature of obiter and though worthy of the highest respect will not displace the ratio of the decision viz. Possession coupled with legal ownership would alone amount to ‘belonging to’ in the facts before the Court. In these circumstances, the issue would appear to be concluded against the Revenue and in favour of the Appellant-assessee.

(iii) However the decision in the (Late) Nawab Sir Mir Osman Ali Khan (supra) may not ipso facto apply to the case at hand as there are factual differences… the assets i.e. open land though owned by the MIDC is in the possession of the Appellant under the lease deed for a period of 95 years which has been executed. This document of lease admittedly evidenced transfer of some interest. Further, the decision of the Apex Court in (Late) Nawab Sir Mir Osman Ali Khan (supra) dealt with a situation where there was no legal document, evidencing transfer of any interest which would entitle the vendee to claim some right and/or rights in respect of land in its possession so as to claim that the land belongs to him albeit not owned. Therefore, the facts in the present case are distinguishable.

(iv) We find that the word ‘belonging to the company’ has advisedly been used by the Parliament in Section 40 (2) of the Act. In case the Parliament sought to equate the word ‘belonging to’ mean ownership then in such a case, there would be no reason to use the word ‘belonging to’ and in stead use the word ‘owner of”. The intent in using the word ‘belonging to’ is to include within the provisions of the Act, assets in possession of the Company without full ownership, but sufficient domain over it, to exercise the powers which would otherwise normally vest in the owner on the valuation date. Therefore, the concept of less than full ownership is sought to be introduced by the use of the word ‘belonging to’. However whether the asset belong to an asessee or not would have to be determined on the facts of each case…;

(v) For the purposes of determining the relationship of the Appellant to the land, one would have to consider the terms of the lease deed in the context of the Act. A lease as ordinarily understood as defined in Section 105 of the Transfer of Property Act, 1882 to mean a transfer of right to enjoy immovable property for a certain time or in perpetuity for consideration of price paid or promised. A lease would by its very definition mean a transfer of right to enjoy the property along with right to possess till the lease expires and/or terminates. It is, therefore, different from transfer of ownership as it only transfer of rights to enjoy the property and not the transfer of ownership of the property in its entirety. A lease again by definition would differ from license, as a lease would necessarily create an interest in the property while a license only permits a person to use the property of another which continues to be in the legal possession of such other. A license does not create any interest or estate in the property to which the license is granted. Therefore, a lease by itself would establish that the relationship with the land is much more than a casual relationship but includes a right to possession and user subject to fulfillment of conditions of the lease on a continues basis on the part of lessee. Therefore, even if, the lessee is not the owner of the open plot of land, yet he would certainly have some interest in the open plot of land for the period of lease – in this case 95 years and certainly so on the date of valuation, for the purposes of the Act. However, the issue still is whether the interest is sufficient to satisfy the test of ‘belonging to’ to the lessee… The Appellant certainly has an interest in the property for a period of 95 years. This is sufficient to hold that on the valuation date, this land belongs to the Appellant, notwithstanding the fact that the ownership in the land would belong to MIDC.