Interest in leasehold property includible in net wealth of assessee

Case Law Citation: Jay Hind Sciaky Limited vs. DCIT (Bobmbay High Court), Wealth Tax Appeal No.-33/2001, Date of Pronouncement -18.12.2015

Brief of the case:

• The Hon’ble Bombay High Court in the case of Jaya Hind Sciaky Limited held that the words “belonging to” as used in sec 40(2) of the Act would include 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.
• Further, it was held that a lease giving right to assessee to use the premises during lease period subject to complying with the terms & conditions as set out in the lease agreement. It create a sufficient interest of the assessee in the leasehold property to hold that the assets held by the assessee belongs to it.

Facts of the case:

• The assessee company had taken on lease a plot of land in Pimpri Industrial Area, village – Akrudi for a period of 95 years from Maharashtra Industrial Development Corporation (MIDC) having a total area 9605sq meters as per the lease deed. Assessee constructed a factory building, leaving a balance area of 2175 sq. meters. of the said plot as open land.
• Assessee filed its return of wealth declaring net wealth of Rs. 13 lacs which did not include the interest in lease hold open land. However, as per the AO the said land should form the part of wealth as the open land taken on lease by the assessee was an asset belonging to the Appellant in terms of Section 40(2) and (3) of the Act to be included to determine the net wealth chargeable to Wealth Tax under the Act.

• Commissioner of Wealth Tax (Appeals) upheld the order of AO by holding that the open land in which the assessee has lease hold rights over the next 95 years, is chargeable to wealth tax, as for all practical purposes, it belongs to the assessee within the meaning of expression “belonging to” used in Sec 40(2).Tribunal also concurred with the order of Commissioner (Appeals) on the same footing and dismissed the appeal of assessee.
• Aggrieved assessee is in appeal before the High Court.

Contention of the Assessee:

• It was submitted that leasehold interest cannot be included as an asset under Section 40(3) of the Act as it is not ‘property of every description’ which is defined as an asset u/s 2(e) of the Act . Further, it was also submitted that the word ‘belonging to’ as used in Section 40(2) of the Act covers only the legal ownership of the assets and cannot be extended to cover beneficial ownership coupled with terms & conditions as agreed. In his support reliance was placed on the decision of this high court in the case of CIT v/s. O. P. Monga 162 ITR 224 wherein the court held that the lessee not being beneficial owner not entitled to depreciation as per Sec 32.
• Even further, the assessee claimed that if at all it is assumed that the charge of wealth tax extend to beneficial ownership , given the strict conditions to be complied with in the lease agreement it could not be hold that assessee has sufficient interest in the leasehold property so that the same could assessed as belonging to him.

Contention of the Revenue:

• The learned counsel for the revenue placed reliance on the decision of Apex Court in the case of Nawab Sir Mir Osman Ali Khan v/s. Commissioner of Wealth Tax – 162 ITR 888 wherein the court held that though the expression ‘belonging to’ no doubt was capable of denoting an absolute title, it was nevertheless not confined to connoting that sense. Full possession of an interest less than of full ownership could also be signified by that expression.

• It was also submitted that the lease is for a period of 95 years, subject to further renewal, the assessee has a conditional right to use to the said property provided the terms & conditions as set out in the lease agreement are complied with. Such arrangement is sufficient enough to conclude that the open land is belonging to the assessee.

Held by the High Court:

• In the present case the court is concerned with the leasehold right in the property. As per proviso to Sec 40(3)(v) of the Act 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 because in the provision the words “held” and not the word “owned “ has been used Therefore, 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.

• As regards ,examining whether such asset is belonging to the assessee , the court relied on the decision of Supreme Court in the case of Raja Mohammad Amir Ahmed Khan v/s. Municipal Board of Sitapur wherein the court held that even possession of an interest less than that of full ownership could be signified by the word “belonging to”.
• Further, in Sec 40(2) the word “belonging to” has been used instead of the word “owned by” which makes the intention of parliament clear the concept of less than full ownership is sought to be introduced by the use of the word ‘’belonging to”.
• However, to determine whether the asset belong to an assessee or not would have to be determined on the facts of each case and in the present case the same would require examination of the lease deed.
• The terms of lease deed establishes that the Appellant has a right to use the property provided the terms and conditions of the lease, are adhered to by the assessee . This is a right though subject to terms & conditions as set out in lease deed is sufficient enough to hold that assessee has an interest in the property for a period of 95 years. Such interest in in turn is sufficient to hold that on the valuation date, this land belongs to the assessee, notwithstanding the fact that the ownership in the land would belong to MIDC .
• In result the assessee was liable to be assessed for the open land by it and appeal of the assessee was dismissed.

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