A division bench of the Karnataka High Court consisting of Justices P.S. Dinesh Kumar and Anant Ramanath Hegde has held that the assessee was not liable to pay Wealth Tax with respect to a property, despite transferring possession of the said property to a developer under a Joint Development Agreement.
Overruling an order of the ITAT, Bangalore, the bench observed that the developer had physically obtained possession of the property and that under the Development Agreement, the developer had the power to alienate its portion of the property. Hence, the Court ruled that the order of the ITAT upholding the liability of the assessee to pay Wealth Tax on the said property cannot be sustained.
The Assessing Authority took up the case of the assessee, M/s. Noorani Properties (P) Ltd for scrutiny assessment and issued Notices under the Wealth Tax Act, 1957 for the relevant assessment years, in response to which the assessee filed a ‘NIL’ return. The Assessment Authority passed orders under the Wealth Tax Act determining the net wealth of the assessee for the relevant assessment years. Against this, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) (CIT(A)), who partly allowed the appeal. The assessee filed an appeal before the ITAT. The ITAT ruled that the assessee continued to be the owner of the said property/urban land under Section 2(ea) of the Wealth Tax Act and that there was no transfer of the said property/urban land by the assessee. The assessee filed an appeal before the Karnataka High Court against the order passed by the ITAT.
Allowing relief to the assessee, the High Court held that “a combined reading of Clause 10.1(g), Clause 13.1, 13.2 and Clause A(viii) of the Annexure-A together with the ‘No Objection’ under Chapter XX-C of the IT Act and the letter written by Shri. Dhingra prima facie demonstrates that the Developers did have power to alienate their portion of the property; and they had entered into the property. It is a different matter if the project did not progress further. A mere failure of the project does not undo the acts of the parties. Therefore, in our view, the impugned order passed by the ITAT is not sustainable and in the facts and circumstances of this case, it is just and appropriate for the ITAT to have a relook into the matter in the light of the contents of MDA, NOC issued under Chapter XX-C and the letter written by Shri. Dhingra.”
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