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P & H High Court answers this interesting question in favour of the taxpayer! 

                   What would be the position regarding the taxability under Wealth-tax in respect of a building under construction? Can the Department tax the value of construction incurred for the incomplete building or contend that the value of such land on which the building is under construction is liable to Wealth-tax?

                    The above questions raise a very interesting point for consideration. Infact, an identical situation arose before the Punjab and Haryana High Court in the case of ‘CIT v. Smt. Neena Jain’ 189 Taxman 308, wherein the amount spent by the taxpayer in construction of the house was not shown in her Wealth-tax return, as according to her, residential house being under construction did not fall within the definition of ‘assets’ in section 2(ea). The Assessing Officer, however, held that incomplete house of the taxpayer very much fell within the purview of assets in section 2(ea) and, as such, it was liable to Wealth-tax.

                    The Hon’ble Court after due consideration held that the Revenue’s contention to the effect that ‘any building’ would fall within the definition of assets, was not only devoid of merit but misplaced as well, because the words ‘any building’ cannot possibly be read in isolation and it has harmoniously to be construed with the remaining portion of section 2(ea), i.e., whether the building is used for residential or commercial purposes or for the purpose of maintaining a guest house, because incomplete building, as in the case of the taxpayer, cannot, possibly, either be used for residential or commercial purposes or for purposes of maintaining a guest house.

                    The Court went on to hold that the word ‘building’ has to be interpreted to mean a completely built structure having a roof, dwelling place, walls, doors, windows, electric and sanitary fittings, etc. If one or more of such components are lacking, then it cannot possibly be said that the building is a complete structure for the purpose of section 2(ea). The residential house is a unit, which is complete for habitation having the minimum/bare required facilities. The legislative intent underlying the amended provisions of section 2(ea) is clear and implicit that the Legislature sought to bring within the ambit of this section all those buildings, which are complete and ready for use as residential, commercial or guest house, as the case may be, as incomplete structure cannot be put to any such use.


                    In this judgment the Court also held that the other argument of the Revenue that if the incomplete building does not fall within the ambit of ‘assets’ under section 2(ea), then the incomplete building of the taxpayer was liable to Wealth-tax under the definition of ‘urban land’, again had no force because the Explanation 1(b) defines ‘urban land’ to mean the land situated in any area, which is comprised within the jurisdiction of a municipal corporation or committee, any area of committee within such distance, not being more than eight kilometres from the local limits of a municipality or cantonment board, etc., but does not include the land occupied by any building, which has been constructed with the approval of the appropriate authority. Again, it was not a matter of dispute that the taxpayer was constructing the building after obtaining sanction from the appropriate authority. Therefore, the incomplete building of the taxpayer neither fell within the definition of a ‘building’, as contemplated under section 2(ea) nor within the purview of ‘urban land’ as excluded by the Explanation 1(b).

                   Keeping in view the above, it can be logically contended that the value of a building under construction including investment in the land on which such building is being constructed is not liable to Wealth-tax.

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