GIRODHAR G.YADALAM Vs COMMR.OF WEALTH TAX
Bench: A.K. SIKRI,ROHINTON FALI NARIMAN
Case number: C.A. No.-000728-000728 / 2011
Diary number: 19837 / 2007
Advocates: NANDINI GORE Vs
B. V. BALARAM DAS
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REPORTABLE
IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 728 OF 2011
GIRIDHAR G. YADALAM .....APPELLANT(S)
VERSUS
COMMISSIONER OF WEALTH TAX & ANR.
.....RESPONDENT(S)
W I T H
CIVIL APPEAL NO. 729 OF 2011
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SLP (CIVIL) NO. 19011 OF 2012
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A N D
SLP (CIVIL) NO. 19012 OF 2012
J U D G M E N T
A.K. SIKRI, J.
Leave granted in SLPs.
In these cases, we are concerned with the interpretation that is to
be accorded to the provisions of Explanation 1(b) to Section 2(ea)(v) of
the Wealth Tax Act, 1957 (hereinafter referred to as the 'Act'). This
Explanation defines 'Urban Land'. Urban land is exigible to wealth tax
under the aforesaid Act. However, the definition of 'urban land' in
explanation 1(b) excludes certain category of lands. As per Explanation
1(b) to Section 2(ea)(v), 'urban land' to mean land situate – but does not
includes:-
(i) land classified as 'agricultural land' in the records of the Government and
used for agricultural purposes or 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
(ii) the land occupied by any building which has been constructed with the
approval of the appropriate authority; or
(iii) 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
(iv) any land held by the assessee as 'stock-in-trade' for a period of ten
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years from the date of its acquisition.
2. To put it pithily, what calls for interpretation is clause (ii) above, namely,
what is the meaning that is to be attributed to the expression “the land
occupied by any building which has been constructed with the approval
of the appropriate authority.”
3. In the context of these appeals the question is as to whether the land
would be excluded from the 'urban land' only when building is
completely constructed thereupon or it would be covered by the
aforesaid clause even if the building activity is started and the building is
not yet complete.
4. Civil Appeal No.728/2011 has arisen from the judgment of Karnataka
High Court which has been filed by the appellant/assessee (hereinafter
referred to as the 'assessee'). It has taken the view that from the plain
language of the aforesaid clause, the building has to be completely
erected on the land in order to get it covered by exclusion clause.
5. In the appeals which are filed by the Revenue, challenge is to the orders
passed by the Madras High Court which has taken a contrary view.
From this narration, it becomes clear that there is one common issue
and that was the reason for hearing of these appeals together.
6. Mr. Gopal Jain, learned senior counsel appeared for the assessee in the
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lead matter i.e. Civil Appeal No.728/2011. For the sake of brevity we
would take note of the facts from this appeal:
Assessee herein is the HUF which is the co-owner of a land measuring
30,663.04 sq. metres, situated at Survey No.67/2, 67/3, 67/4 and 67/5 of
Adugodi Village and a portion of Survey No. 151 of Kornamangala
Village of Begur Hobli of Bangalore South Taluq, Bangalore District,
bearing City Survey No. CTS/2. The assessee entered into various
development agreements with one M/s. Prestige Estates Properties
Private Ltd. for construction of residential flats. The development
agreement was considered by the assessing officer in the course of
assessment proceedings. Assessee claimed that it had retained
ownership of the land until flats are fully constructed and possession of
the assessee's share was handed over to it. The development
agreement constituted only permissive possession according to the
assessee for the limited purpose of construction of flats. Assessee
contended that assessee continues to be the owner of the land for the
Financial Years 1995-96 and subsequent years till the sale of flats.
Notice under Section 17 of the Act was issued to the assessee and he
filed return of wealth of Rs.8,48,000/- on 20.08.2003. After considering
the contention to treat the property as urban land and brought it to tax
under an order dated 31.03.2005, an appeal was filed before the
Assistant Commissioner of Wealth Tax (Appeals), Bangalore. The
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appeal stood allowed in the light of an earlier order of the Tribunal.
Revenue thereafter filed an appeal to the Tribunal. The Tribunal
following its decision in WTA No. 4-5/B/03 dated 22.03.2004 dismissed
the appeal filed by the Revenue. The Revenue took up the matter in
further appeals before the High Court of Karnataka. The High Court has
upset the order of the ITAT holding that the assessee is not entitled to
the benefit of clause (ii) of Explanation 1(b) to Section 2(e)(a)(v) of the
Act, as the building had not been constructed and was still under
construction during the Assessment Year.
7. It is not in dispute that 'urban land' is to be included to calculate 'net
wealth' for the purpose of wealth tax under the Act. However, certain
lands are not to be treated as 'urban land' which are mentioned in
Explanation 1(b). But Section 2(e)(a) of the Act was inserted by the
Finance Act 1992 (Act No.18/1992) w.e.f. 01.04.1993. The purpose was
to exempt some of the lands from wealth tax with the objective of
stimulating investment in productive assets. It is in the context that the
land occupied by any building which has been constructed with the
approval of the appropriate authority is excluded from the definition of
urban land. On a plain reading of the said clause it becomes clear that in
order to avail the benefit, following conditions have to be satisfied:
(a) The land is occupied by any building;
(b) Such a building has been constructed;
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(c) The construction is done with the approval of the appropriate authority;
8. Notwithstanding the aforesaid plain language, an endeavour of Mr.
Gopal Jain is to impress upon us to read the said clause to include even
that land where the construction of building activity has been started.
He, thus, wants that the words 'has been constructed' is to be read as 'is
being constructed'. His attempt to persuade us is predicated on the
following premise.
Mr. Jain argued that the clause added purposes interpretation i.e. the
objective for which this clause was added, namely, to stimulate
investment in productive assets, has to be kept in mind. In this behalf,
he argued that Explanation 1(b) has carved out exceptions/exemptions
based on the object and purpose of the amendment to the Wealth Tax
Act in 1992. These exceptions have to be construed in line with the
legislative intent at the time which Section 2(ea) was inserted, which
was to stimulate investment in productive and non-productive assets
and only specified assets were subject to wealth tax. On that premise,
he emphasised that in each of the aforesaid clauses this objective was
kept in the forefront. Qua Exception (I) he stressed that where land is
classified as 'agricultural' and used for agricultural purposes, it will not
fall within the definition of 'urban land' and is exempted from wealth tax.
Agricultural land, although vacant, if put to agricultural use (i.e.
productive) is exempt from wealth-tax. He argued that this exception is
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with reference to land which is vacant for the reason that construction is
not permissible under any law. As the reason for non-construction of a
building cannot be attributed to the assessee, an exception has been
made on account of which it will not be considered as an asset and is
exempted from wealth tax.
9. Mr. Jain further argued that in this very hue, exception (ii) also needed to
be interpreted. His submission was that the word 'constructed' is used
in the context of exempting a land “occupied by any building which is
being constructed with the approval of appropriate authority”. With the
commencement of construction of a building, land ceases to be
identifiable as 'urban land' due to constructive utilization of vacant land.
When a building is under construction, it is 'work-in-
progress'/construction activity is on-going but spills over. However, the
character of land has changed – it is being put to use and, therefore, it
ceases to be urban land during the period of conversion.
10. According to Mr. Jain, if a building is constructed and construction is
complete, the asset will go out of the definition of 'urban land' contained
in Section 2(ea)(v) read with Explanation 1(b) as it would fall under
Section 2(ea)(i) which covers buildings. Section 2(ea)(i) reads as
follows:
“(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
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a guest house or otherwise including a farm house situated with twenty-five kilometers 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) a house meant exclusively for residential purposes and which is allotted by a company to an employee or an officer or a director who is in whole-time employment, having a gross annual salary of less than ten lakh rupees;
(2) any house for residential or commercial purposes which forms part of stock-in-trade;
(3) any house which the assessee may occupy for the purposes of any business or profession carried on by him;
(4) any residential property that has been let-out for a minimum period of three hundred days in the previous year;
(5) any property in the nature of commercial establishments or complexes;”
11. Mr. Jain also submitted that the stand of the respondent that only
completed buildings are to be brought into the ambit of the word 'has
been constructed' is not tenable since completed buildings fall under a
different clause i.e. clause (ea)(i). According to him, if that is accepted
then in such cases, Section 2 (ea)(v) read with Explanation 1(b) would
not be required at all since a completed building is covered
independently in Section 2(ea)(i). He, thus, submitted that seen in this
context, the expression 'has been constructed' must be read as 'is being
constructed' in order to give effect to the legislative intent. He relied
upon the decision of this Court in the case of M. Nizamuden v.
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Chemplast Sanmar Limited and Others1, wherein it is held that:
“It is well settled that if exception has been added to remedy the mischief or defect, it should be so construed that remedies the mischief and not in a manner which frustrates the very purpose. Purposive construction has often been employed to avoid a lacuna and to suppress the mischief and advance the remedy. It is again a settled rule that if the language used is capable of bearing more than one construction and if construction is employed that results in absurdity or anomaly, such construction has to be rejected and preference should be given to such a construction that brings it into harmony with its purpose and avoids absurdity or anomaly as it may always be presumed that while employing a particular language in the provision absurdity or anomaly was never intended.”
12. Taking his argument further, Mr. Jain submitted that likewise, exception
(iii) is with reference to 'unused land' held by the assessee for industrial
purposes. The exemption from wealth tax for such land is for a period of
two years from the date of its acquisition by the assessee. After two
years, such land, if unused is amenable to wealth tax. However, if an
assessee starts construction of either a factory or any building for
industrial purpose within a period of two years and construction spills
over beyond the exempted period, the exemption would still continue
irrespective of whether the construction is completed within two years.
Similarly, land held as 'stock-in-trade' is exempt from wealth tax for a
period of ten years since, though vacant, it is held for business
1
(2010) 4 SCC 240
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purposes.
13. Learned senior counsel also extensively read the judgment of the Kerala
High Court wherein the interpretation suggested by him has been
accepted and the benefit of exemption from wealth tax in respect of such
a land where the building is still under construction has been extended.
14. Mr. Rupesh Kumar, learned counsel appearing for the Revenue
emphatically countered the aforesaid submissions of Mr. Jain. He
submitted that the cardinal principle of interpreting taxing statute was to
give literal construction to the language used therein. He further
submitted that the provision in question was in the nature of 'exemption
provision' where again strict interpretation is to be accorded and onus is
upon the assessee to show that he falls within the four corners of the
exempted clause. He also submitted that when the language of the
statute was unambiguous and clear, question of giving purposive
interpretation does not arise in the matters pertaining to taxing statutes.
15. After giving our due consideration to the submissions of the learned
counsel for both the parties and after going through the judgments of
different High Courts, we are of the opinion that the view taken by the
High Court of Karnataka in its judgment dated 21.03.2007 is the correct
view in law and the contrary view taken by the Kerala and Madras High
Courts is erroneous and is liable to be set aside.
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16. We have already pointed out that on the plain language of the provision
in question, the benefit of the said clause would be applicable only in
respect of the building 'which has been constructed'. The expression
'has been constructed' obviously cannot include within its sweep a
building which is not fully constructed or in the process of construction.
The opening words of clause (ii) also become important in this behalf,
where it is stated that 'the land occupied by any building'. The land
cannot be treated to be occupied by a building where it is still under
construction. If the contention of Mr. Jain is accepted, an assessee
would become entitled to the benefit of the said clause, at that very
moment, the commencement of construction even with construction the
moment one brick is laid. It would be too far fetch, in such a situation, to
say that the land stands occupied by a building that has been
constructed thereon. Even Mr. Jain was candid in accepting that when
the construction of building is still going on and is not completed, literally
speaking, it cannot be said that the building 'has been constructed'. It is
for this reason that he wanted us to give the benefit of this provision
even in such cases by reading the expression to mean the same as 'is
being constructed'. His submission was that the moment construction
starts the urban land is put to 'productive use' and that entitles the land
from exemption of wealth-tax. This argument of giving so called
purposive interpretation has to be rejected for more than one reasons.
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These are:
(i) In taxing statute, it is the plain language of the provision that has to be
preferred where language is plain and is capable of one definite
meaning.
(ii) Strict interpretation to the exemption provision is to be accorded, which
is the case at hand.
(iii) The purposive interpretation can be given only when there is some
ambiguity in the language of the statutory provision or it leads to absurd
results. We do not find it to be so in the present case.
17. No doubt, the purpose and objective of introducing Section 2(e)(a) in the
Act was to stimulate productive assets. However, the event when such
a provision is to be attracted is also mentioned in Explanation 1(b) itself
carving out those situations when the land is not to be treated urban
land. The Legislature in its wisdom conferred the benefit of exemption in
respect of urban vacant land only when the building is fully constructed
and not when the construction activity has merely started. On the
contrary, if the argument of the assessee is accepted, that would lead to
absurd results in certain cases. For example, what would be the
position if the construction of the building starts but the said construction
is abandoned mid way? If we accept the argument of the assessee, in
such a case, assessee would be given the exemption from payment of
wealth tax in the initial years and the same benefit would be denied in
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the year when it is found that construction was abandoned and,
therefore, not complete. It would result in granting of benefit in the
previous year(s), though that was not admissible. Such a situation
cannot be countenanced. Presumably, because of this reason, the
Legislature wanted to treat only that land to be excluded from the
definition of 'urban land' at the stage when the building has been fully
constructed on the said land.
18. We do not agree with the submission of Mr. Jain that the situation when
building is fully constructed has been covered by Section 2(e)(a)(v) read
with Explanation 1(b) as it would fall under Section 2(e)(a)(i). We have
already reproduced the aforesaid Section and find that it deals with
altogether different situations. As pointed out above, Explanation (1)
thereof excludes certain categories of 'Urban Land' and we are
concerned herewith clause (ii) of this Explanation. By 1992 amendment,
Section 2(e)(a) was added which contains the definition of 'asset'.
Clause (v) thereof includes urban land. Thus, urban land is to be
included as an 'asset' for the purpose of giving extended meaning to it.
Urban Land is defined in Explanation 1 Clause (b) to Section 2(e)(a).
19. The Kerala High Court as well as Madras High Court have been
influenced by the arguments premised on purposeful construction which
was the argument of Mr. Jain and has not been accepted by us.
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20. The appeals of the assessee are accordingly dismissed and those
appeals which are preferred by the Department against the judgments of
the High Court of Madras are hereby allowed. The parties are left to
bear their own costs.
.............................................J. (A.K. SIKRI)
.............................................J. (ROHINTON FALI NARIMAN)
NEW DELHI; JULY 24, 2015.