Judgment:
1. This appeal has been filed by the revenue against the order of Commissioner of Wealth Tax (Appeal), Central-III, Mumbai, dated 28-2-2005 under Section 23(5) of the Wealth Tax Act, 1957.
On the facts and in the circumstances of the case and in law, the learned Commissioner of Wealth Tax (Appeal) erred in deleting the addition to net wealth made on acquisition of land and its related development rights by the assessee.
3. Mr. Ankur Garg, Departmental Representative appeared for the revenue and Mr. K.K. Lalkaka, learned Authorised Representative appeared for the assessee.
4. The brief facts of the case are that the assessee was the owner of a plot of land bearing No. 24/25 in Marol Co-operative Industrial Estate Ltd., wherein it was carrying on its industrial activity. The assessee acquired the development rights of the adjacent plot of land in the form of Floor Space Index (FSI) from Marol Co-operative Industrial Estate Ltd. for a consideration of Rs. 18.00 lakhs. The assessee was allowed to build 4000 sq. ft. on existing adjacent building and was also allowed to develop the said portion as a garden along with open parking space. The assessee was specifically prohibited from constructing any structure on the said plot of land. The assessing officer included the FSI amount of Rs. 18.00 lakhs as wealth in the hands of the assessee as according to him the FSI is an integral part of the said plot of land and the assessee in its books of account had shown the same under the head 'Land'.
5. The Commissioner of Wealth Tax (Appeal) observed that the developmental rights on the plot cannot be equated with the urban land.
Further, he observed that the definition of urban land does not include the developmental rights over the urban land. The value of the developmental rights amounting to Rs. 18.00 lakhs cannot be included in the definition of assets under Section 2(ea) of the Wealth Tax Act.
Thus, the Commissioner of Wealth Tax (Appeal) deleted the value of developmental rights included by the assessing officer in the net wealth of the assessee. The revenue is aggrieved and hence this appeal.
6. The learned Departmental Representative vehemently argued that the assessee is the owner of an industrial undertaking and during the year under consideration had acquired the adjacent land with a condition that the FSI will be added to the FSI on the old plot of land, and on the allotted land garden was to be developed and parking of cars was permitted by the Marol Co-operative Industrial Estate Ltd. For acquisition of the developmental rights, the assessee had paid Rs. 18 lakhs to Marol Co-operative Industrial Estate Ltd. and after payment of the said sum the assessee became the owner of the said plot of land, which is urban land as defined in Explanation 1(b) of Section 2(ea) of the Wealth Tax Act. The learned Departmental Representative conceded that the industrial plot owned by the assessee is exempt under Section 2(ea) of the Wealth Tax Act, but the plot of land for which development rights have been acquired during the year under consideration is includable as wealth in the hands of the assessee. Regarding exemption for two years of unused land held by the assessee for industrial purposes for a period of two years under Explanation 1(b) to Section 2(ea) of the Wealth Tax Act, the learned Departmental Representative pointed out that land acquired by the assessee is riot to be utilized for the purpose of industrial undertaking, as such the said provisions are riot applicable to the facts of the present case.
7. The learned Authorised Representative for the assessee stated that the FSI is a right to develop the property and assessee acquired the FSI rights by payment of Rs. 18 lakhs to Marol Co-operative Industrial Estate Ltd. on the plot of land which is adjacent to the existing plot No. 24/25 in Marol Co-operative Industrial Estate Ltd. owned by the assessee. The assessee was allowed to build 4,000 sq. ft. on the existing building but it was not permitted to sell the structure to any person except for its own use. The assessee acquired only development rights in the adjacent plot of land and no urban land was acquired by the assessee. For acquiring urban land, registration of the documents is must and in the absence of any registration in the present case, the claim of the assessee that it had acquired development rights is proved. Under the said rights, the assessee had only the right to develop the plot of land as a garden and to make space for parking of cars. In the alternative he submitted that in case the said land is held to be urban land then the same is outside the purview of Wealth Tax Act as the said urban land has been allotted for industrial purposes and has remained unused for a period of two years from the date of its acquisition and as such outside the purview of definition of urban land as per Explanation 1(b) to Section 2(ea) of the Wealth Tax Act.
8. We have heard the rival submissions and perused the records. In the facts of the present case, the assessee was owning the plot No. 24/25 in Marol Co-operative Industrial Estate Ltd. and till as on date the assessee is running an Industrial unit. The assessee acquired the development rights by paying a sum of Rs. 18 lakhs to Marol Co-operative Industrial Estate Ltd. on the adjacent area to its existing plot of land. The assessee was allotted FSI of 4000 sq. ft. by the Marol Co-operative Industrial Estate Ltd. as per its letter dated 20-2-2004 which stipulates as under ... we would like to clarify the position regarding the utilization of the abovereferred to FSI. The sub-station plot attached to your plot No. 24/ 25 has been handed over to you and has to be developed as a garden along with open parking place for your vehicles. At no time any structure shall be built by you on this plot and as such the only structure thereon shall be of Society's water tank, power sub-station. The development rights of this plot (FSI) amounting to 4,000 sq. ft. has to be utilized by you only on your existing building on plot No. 24/25.
Please note that the above FSI is allotted to you and has to be exclusively used by you and under no circumstance, the Society will allow you to sell the same to any other matter.
9. The allotment of development rights was specifically made for the said area to be developed as a garden along with parking space for the vehicles of the assessee-company. It was specifically stipulated in the said allotment letter that no structure shall be built on the said plot of land and the development rights of this plot ie., FSI of 4000 sq.
ft. was allowed to be utilized by the assessee company only on the exiting building of plot No. 24/25 in Marol Co-operative Industrial Estate Ltd. In reply to the specific query raised by the Bench, the learned AR for the assessee clarified that the said additional 4,000 sq. ft. have not been constructed by the assessee company till date.
The allotment letter of the development rights also clearly provided that the FSI allotted by the said letter was to be exclusively used by the assessee company and under no circumstances, the same could be sold to any other person. By acquiring FSI rights in a plot of land, the assessee is acquiring certain rights of making additional construction to its existing building, but as far as the new plot of land is concerned, the total rights in the said portion of land are not transferred to the allottee. The allottee of such portion of land can utilize the same for the specific purpose ie., development of garden and open space for parking, but no rights of ownership in the land are acquired by way of this letter of allotment of FSI of 4000 sq. ft.
10. The Rules and Regulations of developments rights are governed by the Development Control Regulations for Greater Bombay, 1991, issued by the Government of Maharashtra, department of Urban Development. Clause 34 of the said regulations deals with transfer of development rights, which provides as under: In certain circumstances, the development potential of a plot of land may be separated from the land itself and may be made available to the owner of the land in the form of Transferable Development Rights (TOR)...." The perusal of the said Regulation categorically provides that while granting development rights, it has been provided that the development potential of the plot of land is to be separated from the land itself. Thus, by allotting the said development rights in any plot of land, the land in question is not transferred to the allottee. What the allottee acquires is only certain specified rights. Section 2(ea) of the Wealth Tax Act defines the assets, which are exigible to Wealth Tax Act. Urban land is an asset includable as wealth and exigible to Wealth-tax under Section 2(ea) of the Act. Clause (b) to Explanation (1) to Section 2(ea) of the Act defines urban land which means'land'. The basic condition for including the urban land as wealth of the assessee is the ownership of land. In the facts of the present case, the assessee is not the owner of any land; what he has acquired by way of allotment of FSI of 4,000 sq. ft. is only the development rights on the existing plot of land, which is exempt from wealth-tax. The assessee is not the owner of the new plot of land, but has the right to develop the said plot and for the acquisition of such rights, the assessee has paid Rs. 18 lakhs to Marol Co-op. Industrial Estate Ltd. The said sum of Rs. 18 lakhs is not includable in the Wealth of the assessee. Therefore, we confirm the order of the CWT(A) in this regard. In view of our decision', with regard to the definition of urban land, we are not dealing with the alternate plea raised by the assessee.