1. This appeal relates to the claim of exemption in respect of a factory site.
2. The assessee is a company. On 24-2-1988 it entered into a 99-year lease with SIPCOT (State Industries Promotion Corporation of Tamilnadu Limited) for acquiring a factory site at the industrial complex at Gummidipoondi. The assessee immediately started laying the foundation.
As on the valuation date 31-3-1988, the construction of the factory building was in progress. It was completed only after the valuation date. On these facts, the Wealth-tax Officer was of the opinion that the property not being used as a factory on the valuation date it was not exempt and he brought to tax the value of this property at Rs. 1,00,000. On appeal, the CWT(Appeals) noted that the Finance Act, 1988 had brought an amendment to the effect mat unused land held for industrial purpose for a period of 2 years from the date of its acquisition shall not be included in the net wealth. However, he was of the view that since this amendment took effect only from 1-4-1989 the assessee cannot have the benefit of the same and, therefore, the land in question had to be assessed to tax.
3. In the further appeal before us it was contended on behalf of the assessee that the authorities below were in error in treating the land as an unused land when in fact construction of the factory was in progress. On the other hand, the revenue supported the orders of the authorities below by contending that the assessee must be treated as a land other than agricultural land in Section 40(3)(v) of Finance Act, 1983 and, therefore, it was liable to tax.
4. On a consideration of the rival submissions, we are of the opinion that the assessee is entitled to succeed. Section 40 of the Finance Act, 1983 revived the levy of wealth-tax in the case of closely held companies. Sub-section (2) stated that the net wealth shall be the amount by which the aggregate value referred to in Sub-section (3) is in excess of the aggregate value of all the debts owed by the company on the valuation date which are secured on the said assets. Sub-section (3) lists the various assets liable to tax. Item (v) thereof is "land other than agricultural land". Item (vi) is building or land appurtenant thereto used by the assessee as a factory or business premises. The contention of the revenue is that the asset in the present case, viz., factory site acquired by the assessee should be treated as falling within the item "land other than agricultural land" and therefore taxable. The contention of the assessee is that since construction of the building has started, it cannot be treated as a vacant land falling under Clause (v) but must be treated as building or land appurtenant thereto used as a factory or business premises. It is in this context that the proviso introduced to item (v) becomes significant. That proviso states that nothing in 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. The memorandum explaining this proviso states (170ITR Statutes at 204): The rationale underlying the revival of levy of wealth-tax on companies was to curb the tendency of avoidance of personal wealth-tax liability by forming closely held companies and transferring the unproductive assets like real estate, jewellery etc. to such companies.
Under the existing provisions, wealth-tax is leviable even incases, where the assets specified in the section are held as stock-in-trade or are used for industrial purposes.
With a view to remove this unintended hardship and provide incentive for growth and modernisation, it is proposed to amend this section to provide that the following assets shall not form part of the net wealth for the purposes of levy of wealth-tax under the section :- (ii) Land other than agricultural land proposed to be utilised for industrial purposes, for a period of two years from the date of its acquisition; This indicates that item (v) was intended to refer to unused land lying vacant and was not intended to land put to use for business purposes.
Even though the proviso may be prospective it clarifies the meaning of the expression "land other than agricultural land" as vacant land lying unused. The present asset in question cannot be described as such a vacant land lying unused because construction of the factory was in progress. It must be remembered that the land was acquired in February and the valuation date is March and in between the construction has started and foundation has been laid. In these circumstances, even though a building as such has not come up so as to take this asset into the next item of building or land appurtenant used as a factory it would not also be a vacant land lying unused falling under item (v). A purposive construction of these entries particularly with reference to the Memorandum explaining the proviso to item (v) clearly indicates that it was never the intention of the Legislature to tax the land on which a factory is being constructed as on the valuation date. We are, therefore, convinced that the asset being a land on which factory was under construction is not an asset falling under either item (v) or under the exception to item (vi), i.e., building not used for business purpose so as to be taxed under Section 40 of the Finance Act, 1983.
The assessment is therefore annulled. The appeal is allowed.