Connected Matters The Commissioner Of Income Tax & Anr v. Since Dead By Legal Heirs Of Respondent

1/113 IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 30 DAY OF AUGUST 2018 PRESENT THE HON'BLE Dr.JUSTICE VINEET KOTHARI AND THE HON’BLE Mrs.JUSTICE S.SUJATHA W.T.A.No.1/2015 C/W W.T.A.No.2/2015, W.T.A.No.3/2015, W.T.A.No.4/2015, W.T.A.No.5/2015, W.T.A.No.6/2015, W.T.A.No.3/2014, W.T.A.No.1/2014 & W.T.A.No.2/2014 W.T.A. No.1/2015 Between: 1.The Commissioner of Income Tax C.R. Building, Queens Road Bangalore-560001. C.R. Building, Queens Road Bangalore-560001. 2.Wealth Tax Officer Ward-7(1), Bangalore. Ward-7(1), Bangalore. (By Mr. E.I. Sanmathi, Advocate) …Appellants And: 1.Smt. Meenakshi Devi Avaru No.56, Dreams Meadows Next to Ryan International School Brookfield, Bangalore-560066 Brookfield, Bangalore-560066 PAN: ABIPD 3260 G. & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another 2/113 Since dead by legal heirs of Respondent No.1 1(a). Smt. Jayapalashri Anil D/o Smt. Meenakshi Devi Avaru Aged about 39 years No.56, Dreams Meadows Next to Ryan International School Brookfield, Bangalore-56066. D/o Smt. Meenakshi Devi Avaru Aged about 39 years No.56, Dreams Meadows Next to Ryan International School Brookfield, Bangalore-56066. 1(b) M.L. Vacrchusvin S.S. Raje Urs S/o Smt. Meenakshi Devi Avaru Aged about 34 years Residing at No.56, Dreams Meadows Next to Ryan International School Brookfield, Bangalore-560066. …Respondents (By Mr. S. Parthasarathi, A/W M s. Jinita Chatterjee, Advocates) This W.T.A. is filed under Section 27-A of the Wealth Tax Act 1957, praying to decide the foregoing question of law and/or such other questions of law as may be formulated by the Hon’ble Court as deemed fit. Set aside the appellate order dated 01/12/2014 passed by the Income Tax Appellate Tribunal, ‘B’ Bench, Bangalore, in WTA No.9/Bang/2013 as sought for, in the respondent-assessee’s case, in appeal proceedings WTA No.9/Bang/2013 for Assessment year 1999-2000 & etc. W.T.A. No.2/2015 Between: 1. The Commissioner of Income Tax C.R. Building, Queens Road Bangalore-560001. C.R. Building, Queens Road Bangalore-560001. Date of Judgment 30-08-2018 W.T.A.No.1/2015 & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another 3/113 2. Wealth Tax Officer Ward-7(1), Bangalore. Ward-7(1), Bangalore. (By Mr. E.I. Sanmathi, Advocate) And: …Appellants 1. Smt. Meenakshi Devi Avaru No.56, Dreams Meadows Next to Ryan International School Brookfield, Bangalore-560066 PAN: ABIPD 3260 G. Next to Ryan International School Brookfield, Bangalore-560066 PAN: ABIPD 3260 G. Since dead by legal heirs of Respondent No.1 (1) Smt. Jayapalashri Anil D/o Smt. Meenakshi Devi Avaru Aged about 39 years D/o Smt. Meenakshi Devi Avaru Aged about 39 years No.56, Dreams Meadows Next to Ryan International School Brookfield, Bangalore-56066. Next to Ryan International School Brookfield, Bangalore-56066. (2) M.L. Vacrchusvin S.S. Raje Urs S/o Smt. Meenakshi Devi Avaru S/o Smt. Meenakshi Devi Avaru Aged about 34 years Residing at No.56, Dreams Meadows Next to Ryan International School Brookfield, Bangalore-560066. …Respondents (By Mr. S. Parthasarathi, A/W M s. Jinita Chatterjee, Advocates) This W.T.A. is filed under Section 27-A of the Wealth Tax Act 1957, praying to decide the foregoing question of law and/or such other questions of law as may be formulated by the Hon’ble Court as deemed fit. Set aside the appellate order dated 01/12/2014 passed by the Income Tax Appellate Tribunal, ‘B’ Bench, Bangalore as sought for, in the respondent-assessee’s case, in appeal proceedings WTA No.10/Bang/2013 for Assessment year 2000-01 & etc. (2) M.L. Vacrchusvin S.S. Raje Urs S/o Smt. Meenakshi Devi Avaru S/o Smt. Meenakshi Devi Avaru Aged about 34 years Residing at No.56, Dreams Meadows Next to Ryan International School Brookfield, Bangalore-560066. …Respondents (By Mr. S. Parthasarathi, A/W M s. Jinita Chatterjee, Advocates) This W.T.A. is filed under Section 27-A of the Wealth Tax Act 1957, praying to decide the foregoing question of law and/or such other questions of law as may be formulated by the Hon’ble Court as deemed fit. Set aside the appellate order dated 01/12/2014 passed by the Income Tax Appellate Tribunal, ‘B’ Bench, Bangalore as sought for, in the respondent-assessee’s case, in appeal proceedings WTA No.10/Bang/2013 for Assessment year 2000-01 & etc. Date of Judgment 30-08-2018 W.T.A.No.1/2015 & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another 4/113 W.T.A. No.3/2015 Between: 1. The Commissioner of Income Tax C.R. Building, Queens Road Bangalore-560001. C.R. Building, Queens Road Bangalore-560001. 2. Wealth Tax Officer Ward-7(1), Bangalore. (By Mr. E.I. Sanmathi, Advocate) …Appellants And: 1. Smt. Meenakshi Devi Avaru No.56, Dreams Meadows Next to Ryan International School Brookfield, Bangalore-560066 PAN: ABIPD 3260 G. Next to Ryan International School Brookfield, Bangalore-560066 PAN: ABIPD 3260 G. Since dead by legal heirs of Respondent No.1 1(a). Smt. Jayapalashri Anil D/o Smt. Meenakshi Devi Avaru Aged about 39 years No.56, Dreams Meadows Next to Ryan International School Brookfield, Bangalore-56066. D/o Smt. Meenakshi Devi Avaru Aged about 39 years No.56, Dreams Meadows Next to Ryan International School Brookfield, Bangalore-56066. 1(b). M.L. Vacrchusvin S.S. Raje Urs S/o Smt. Meenakshi Devi Avaru Aged about 34 years Residing at No.56, Dreams Meadows Next to Ryan International School Brookfield, Bangalore-560066. …Respondents (By Mr. S. Parthasarathi, A/W M s. Jinita Chatterjee, Advocates) Date of Judgment 30-08-2018 W.T.A.No.1/2015 & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another 5/113 This W.T.A. is filed under Section 27-A of the Wealth Tax Act 1957, praying to decide the foregoing question of law and/or such other questions of law as may be formulated by the Hon’ble Court as deemed fit. Set aside the appellate order dated 01/12/2014 passed by the Income Tax Appellate Tribunal, ‘B’ Bench, Bangalore as sought for, in the respondent-assessee’s case, in appeal proceedings WTA No.11/Bang/2013 for Assessment year 2001-02 & etc. W.T.A. No.4/2015 Between: 1. The Commissioner of Income Tax C.R. Building, Queens Road Bangalore-560001. 2. Wealth Tax Officer Ward-7(1), Bangalore. (By Mr. E.I. Sanmathi, Advocate) …Appellants And: 1. Smt. Meenakshi Devi Avaru No.56, Dreams Meadows Next to Ryan International School Brookfield, Bangalore-560066 Brookfield, Bangalore-560066 PAN: ABIPD 3260 G. Since dead by legal heirs of Respondent No.1 1(a). Smt. Jayapalashri Anil D/o Smt. Meenakshi Devi Avaru Aged about 39 years No.56, Dreams Meadows Next to Ryan International School Brookfield, Bangalore-56066. Date of Judgment 30-08-2018 W.T.A.No.1/2015 & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another 6/113 1(b). M.L. Vacrchusvin S.S. Raje Urs S/o Smt. Meenakshi Devi Avaru Aged about 34 years Residing at No.56, Dreams Meadows Next to Ryan International School Brookfield, Bangalore-560066. …Respondents (By Mr. S. Parthasarathi, A/W M s. Jinita Chatterjee, Advocates) No.56, Dreams Meadows Next to Ryan International School Brookfield, Bangalore-560066 Brookfield, Bangalore-560066 PAN: ABIPD 3260 G. Since dead by legal heirs of Respondent No.1 1(a). Smt. Jayapalashri Anil D/o Smt. Meenakshi Devi Avaru Aged about 39 years No.56, Dreams Meadows Next to Ryan International School Brookfield, Bangalore-56066. Date of Judgment 30-08-2018 W.T.A.No.1/2015 & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another 6/113 1(b). M.L. Vacrchusvin S.S. Raje Urs S/o Smt. Meenakshi Devi Avaru Aged about 34 years Residing at No.56, Dreams Meadows Next to Ryan International School Brookfield, Bangalore-560066. …Respondents (By Mr. S. Parthasarathi, A/W M s. Jinita Chatterjee, Advocates) This W.T.A. is filed under Section 27-A of the Wealth Tax Act 1957, praying to decide the foregoing question of law and/or such other questions of law as may be formulated by the Hon’ble Court as deemed fit. Set aside the appellate order dated 01/12/2014 passed by the Income Tax Appellate Tribunal, ‘B’ Bench, Bangalore as sought for, in the respondent-assessee’s case, in appeal proceedings WTA No.12/Bang/2013 for Assessment year 2002-03 & etc. W.T.A. No.5/2015 Between: 1. The Commissioner of Income Tax C.R. Building, Queens Road Bangalore-560001. 2. Wealth Tax Officer Ward-7(1), Bangalore. (By Mr. E.I. Sanmathi, Advocate) …Appellants And: 1. Smt. Meenakshi Devi Avaru No.56, Dreams Meadows No.56, Dreams Meadows Next to Ryan International School Brookfield, Bangalore-560066 PAN: ABIPD 3260 G. & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another Since dead by legal heirs of Respondent No.1 1(a). Smt. Jayapalashri Anil D/o Smt. Meenakshi Devi Avaru Aged about 39 years No.56, Dreams Meadows Next to Ryan International School Brookfield, Bangalore-56066. 1(b). M.L. Vacrchusvin S.S. Raje Urs S/o Smt. Meenakshi Devi Avaru Aged about 34 years Residing at No.56, Dreams Meadows Next to Ryan International School Brookfield, Bangalore-560066. …Respondents (By Mr. S. Parthasarathi, A/W M s. Jinita Chatterjee, Advocates) This W.T.A. is filed under Section 27-A of the Wealth Tax Act 1957, praying to decide the foregoing question of law and/or such other questions of law as may be formulated by the Hon’ble Court as deemed fit. Set aside the appellate order dated 01/12/2014 passed by the Income Tax Appellate Tribunal, ‘B’ Bench, Bangalore as sought for, in the respondent-assessee’s case, in appeal proceedings WTA No.13/Bang/2013 for Assessment year 2003-04 & etc. W.T.A. No.6/2015 Between: 1. The Commissioner of Income Tax C.R. Building, Queens Road Bangalore-560001. 2. Wealth Tax Officer Ward-7(1), Bangalore. (By Mr. E.I. Sanmathi, Advocate) …Appellants Date of Judgment 30-08-2018 W.T.A.No.1/2015 & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another 8/113 And: 1. Smt. Meenakshi Devi Avaru No.56, Dreams Meadows Next to Ryan International School Brookfield, Bangalore-560066 PAN: ABIPD 3260 G. Since dead by legal heirs of Respondent No.1 1(a). Smt. Jayapalashri Anil D/o Smt. Meenakshi Devi Avaru Aged about 39 years No.56, Dreams Meadows Next to Ryan International School Brookfield, Bangalore-560066. 1(b). M.L. Vacrchusvin S.S. Raje Urs S/o Smt. Meenakshi Devi Avaru Aged about 34 years Residing at No.56, Dreams Meadows Next to Ryan International School Brookfield, Bangalore-560066. …Respondents (By Mr. S. Parthasarathi, A/W M s. Jinita Chatterjee, Advocates) 8/113 And: 1. Smt. Meenakshi Devi Avaru No.56, Dreams Meadows Next to Ryan International School Brookfield, Bangalore-560066 PAN: ABIPD 3260 G. Since dead by legal heirs of Respondent No.1 1(a). Smt. Jayapalashri Anil D/o Smt. Meenakshi Devi Avaru Aged about 39 years No.56, Dreams Meadows Next to Ryan International School Brookfield, Bangalore-560066. 1(b). M.L. Vacrchusvin S.S. Raje Urs S/o Smt. Meenakshi Devi Avaru Aged about 34 years Residing at No.56, Dreams Meadows Next to Ryan International School Brookfield, Bangalore-560066. …Respondents (By Mr. S. Parthasarathi, A/W M s. Jinita Chatterjee, Advocates) This W.T.A. is filed under Section 27-A of the Wealth Tax Act 1957, praying to decide the foregoing question of law and/or such other questions of law as may be formulated by the Hon’ble Court as deemed fit. Set aside the appellate order dated 01/12/2014 passed by the Income Tax Appellate Tribunal, ‘B’ Bench, Bangalore as sought for, in the respondent-assessee’s case, in appeal proceedings WTA No.14/Bang/2013 for Assessment year 2004-05 & etc. & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another 9/113 W.T.A. No.3/2014 Between: 1. The Commissioner of Income Tax-III C.R. Building, Queens Road Bangalore-560078. C.R. Building, Queens Road Bangalore-560078. 2. Wealth Tax Officer Ward-7(2), Bangalore. Ward-7(2), Bangalore. (By Mr. E.I. Sanmathi, Advocate) …Appellants And: Smt. Kamakshi Devi No.164, 5[th] Main Road Defence Colony, Bangalore-38. …Respondent (By Mr. Balaram R. Rao, Advocate) This W.T.A. is filed under Section 27-A of the Wealth Tax Act 1957, praying to decide the foregoing question of law and/or such other questions of law as may be formulated by the Hon’ble Court as deemed fit. Set aside the appellate order dated 31/07/2014 passed by the Income Tax Appellate Tribunal, ‘A’ Bench, Bangalore as sought for, in the respondent-assessee’s case, in appeal proceedings No. WTA No.8/Bang/2013 for Assessment year 2001-02 & etc. W.T.A. No.1/2014 Between: 1. The Commissioner of Income Tax-III C.R. Building, Queens Road Bangalore-560078. C.R. Building, Queens Road Bangalore-560078. Date of Judgment 30-08-2018 W.T.A.No.1/2015 & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another 10/113 2. Wealth Tax Officer Ward-7(2), Bangalore. (By Mr. E.I. Sanmathi, Advocate) …Appellants And: Smt. Kamakshi Devi No.164, 5[th] Main Road Defence Colony, Bangalore-38. …Respondent (By Mr. Balaram R. Rao, Advocate) This W.T.A. is filed under Section 27-A of the Wealth Tax Act 1957, praying to decide the foregoing question of law and/or such other questions of law as may be formulated by the Hon’ble Court as deemed fit. Set aside the appellate order dated 31/07/2014 passed by the Income Tax Appellate Tribunal, ‘A’ Bench, Bangalore as sought for, in the respondent-assessee’s case, in appeal proceedings No. WTA No.6/Bang/2013 for Assessment year 1999-2000 & etc. W.T.A. No.2/2014 Between: 1. The Commissioner of Income Tax-III C.R. Building, Queens Road C.R. Building, Queens Road Bangalore-560078. 2. Wealth Tax Officer Ward-7(2), Bangalore. (By Mr. E.I. Sanmathi, Advocate) …Appellants And: Smt. Kamakshi Devi No.164, 5[th] Main Road Date of Judgment 30-08-2018 W.T.A.No.1/2015 & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another 11/113 Defence Colony, Bangalore-38. …Respondent (By Mr. Balaram R. Rao, Advocate) W.T.A. No.2/2014 Between: 1. The Commissioner of Income Tax-III C.R. Building, Queens Road C.R. Building, Queens Road Bangalore-560078. 2. Wealth Tax Officer Ward-7(2), Bangalore. (By Mr. E.I. Sanmathi, Advocate) …Appellants And: Smt. Kamakshi Devi No.164, 5[th] Main Road Date of Judgment 30-08-2018 W.T.A.No.1/2015 & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another 11/113 Defence Colony, Bangalore-38. …Respondent (By Mr. Balaram R. Rao, Advocate) This Wealth Tax Appeal is filed under Section 27-A of the Wealth Tax Act 1957, praying to decide the foregoing question of law and/or such other questions of law as may be formulated by the Hon’ble Court as deemed fit; to set aside the appellate order dated 31/07/2014 passed by the Income Tax Appellate Tribunal, ‘A’ Bench, Bangalore as sought for, in the respondent-assessee’s case, in appeal proceedings No. WTA No.7/Bang/2013 for Assessment year 2000-01 & etc. These Wealth Tax Appeals having been heard and reserved on 02-08-2018, coming on for Pronouncement of Judgment, this day, Dr Vineet Kothari, J, delivered the following: J U D G M E N T Mr. E.I. Sanmathi, Adv. for Appellants - Revenue Mr. S. Parthasarathi, A/w Ms. Jinita Chatterjee, Advs. Mr. Balaram R. Rao, Adv. & Mr. A. Shankar, Adv. for Respondent - Assessee PREAMBLE: 1. ‘Wealth Tax” in India is levied under the provisions of the Wealth Tax Act, 1957 with effect from 01/04/1957 and the main object of this Legislation was to reduce the financial inequalities and to bridge Date of Judgment 30-08-2018 W.T.A.No.1/2015 & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another 12/113 the gap between the poor and the rich by imposing taxes on richer and wealthier people on their wealth exceeding a particular monetary limit on the net market value of the Assets held by them on the valuation date, i.e. the last date preceding the commencement of the Assessment Year. The levy of Wealth-Tax has been discontinued from the Assessment Year 2016-17, as amended by Finance Bill of 2015. The A.Y.1999-2000 to A.Y. 2004-05 involved in the present appeals are prior to its discontinuation. 2. The definition of “Assets” underwent a drastic amendment with effect from 01/04/1993 and the word ‘Assets’ defined in Section 2 (ea) of the Act since 1[st] April 1993 comprises of six categories of Assets. This amendment was brought to encourage the Assets to be put to productive use and to levy tax under the said Act for the aforesaid avowed object of the enactment. Date of Judgment 30-08-2018 W.T.A.No.1/2015 & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another 13/113 INTRODUCTION OF CASE: 3. The present batch of Appeals filed by the Department raise the following Substantial Question of law which is required to be answered in the present set of appeals for the various assessment years, viz. A.Y.1999-2000 to A.Y.2004-05 is as follows:- Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the 28 Acres of ‘urban land’ comes under the ambit of the exemption clause of Section 2(ea) of the Wealth Tax Act, 1957? 4. The case pertains to urban land of the Respondent - Assessees who are sisters of Sri. Srikantadutta Narasimharaja Wodeyar, Son of the Ex-Ruler of Mysuru, and the said entire property in question known as “Bangalore Palace and its lands appurtenant” including these lands in question came to be acquired by the State Government by enacting the Date of Judgment 30-08-2018 W.T.A.No.1/2015 & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another 14/113 legislation known as “Bangalore Palace (Acquisition and Transfer) Act, 1996” (‘BPAT Act’). 4. The case pertains to urban land of the Respondent - Assessees who are sisters of Sri. Srikantadutta Narasimharaja Wodeyar, Son of the Ex-Ruler of Mysuru, and the said entire property in question known as “Bangalore Palace and its lands appurtenant” including these lands in question came to be acquired by the State Government by enacting the Date of Judgment 30-08-2018 W.T.A.No.1/2015 & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another 14/113 legislation known as “Bangalore Palace (Acquisition and Transfer) Act, 1996” (‘BPAT Act’). 5. Prior to the said enactment, the family members had partitioned the entire property in question known as “Bangalore Palace and the lands appurtenant thereto” measuring about 472 Acres in the heart of the City of Bengaluru in the year 1984 and the Respondent Assessees, the five sisters, viz. Smt. Gayathri Devi, Smt. Meenakshi Devi, Smt. Kamakshi Devi, Smt. Indrakshi Devi and Smt. Vishalakshi Devi got approximately 28 Acres of land in the hands of each one of them and the present Appeals pertain to the exigibility of Wealth Tax in respect of these parcels of ‘urban lands’ in the hands of the Respondent Assessee sisters and the said Wealth Tax liability, needless to add, is vehemently opposed by the Assessees. 6. The litigative history of this property is long and chequered but the brief of which in so far as it Date of Judgment 30-08-2018 W.T.A.No.1/2015 & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another 15/113 relates to the controversy in hand can be stated to be as under. 7. The “Bangalore Palace” was initially owned by the Maharaja of Mysuru and on a Partition in the year 1984, the children of late His Highness Jayachamarajendra Wodeyar, the six children, viz. one brother - Srikantadatta Narasimharaja Wodeyar and five sisters, Smt. M.S. Gayathri Devi, Smt. M.S. Meenakshi Devi, Smt. M.S. Kamakshi Devi, Smt.M.S.Indrakshi Devi and Smt. M.S. Vishalakshi Devi got their respective shares in such partition in the year 1984 and each of the sisters got approximately 28 Acres of land appurtenant to “Bangalore Palace”, while the remaining land and the Building of the Palace itself fell in the share of the brother, Shri. Shrikantadatta Narasimharaja Wodeyar. There is no dispute inter-sebetween them in regard to this partition of 1984. 8. About 45 Acres of the remaining land came to be transferred to one M/s. Chamundi Hotels Private Date of Judgment 30-08-2018 W.T.A.No.1/2015 & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another 16/113 Limited, a closely held Limited Company of the same family. While prior to enactment of “Bangalore Palace (Acquisition and Transfer) Act, 1996”, the litigation under the Urban Land Ceiling law of 1976 was going on in respect of the said property, on 15/11/1996, with the Presidential assent, the aforesaid “Bangalore Palace (Acquisition and Transfer) Act, 1996” was enacted by the State Government and the appointed date under the said Act was notified to be 21/11/1996. 9. The constitutional validity and the vires of the said enactment came to be challenged by all the Assessees, the brother and the sisters, before this Court by Writ Petition No.32175/1996 and connected writ petitions, in which the interim Orders were passed by the learned Single Judge of this Court on 10/12/1996in the first instance. However, these writ petitions came to be dismissed by the Division Bench of this Court by a detailed judgment on 31/03/1997 (M/s. Chamundi Hotel (P) Ltd., the Brother, Sri. Srikanta Datta Date of Judgment 30-08-2018 W.T.A.No.1/2015 & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another 17/113 Narasimharaja Wadiyar and the Assessee sisters Date of Judgment 30-08-2018 W.T.A.No.1/2015 & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another 17/113 Narasimharaja Wadiyar and the Assessee sisters herein Vs. The State of Karnataka and others) (reported in ILR 1997 Kar.1573) against which the appeals were preferred before the Hon’ble Supreme Court of India where also, the interim Orders were passed in favour of the Assessees and to which a little more detailed reference will be made hereinafter and the Appeals are said to be now pending adjudication before the Nine Judges’ Bench of the Hon’ble Supreme Court of India, viz. Civil Appeal No.3305/1997 [SLP (Civil) No.8650/1997 & connected appeals]. 10. The Assessing Authority under the Wealth Tax Act, 1957 passed the ‘protective Assessments’ in the hands of the Respondent Assessee – sisters, imposing Wealth Tax on the ‘Urban Land’ falling in their share measuring about 28 Acres determining its market value, however, the demand raised under the protective Assessments, as is well known, is not enforceable and recoverable from the Assessees, still, Date of Judgment 30-08-2018 W.T.A.No.1/2015 & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another 18/113 the Assessees preferred Appeals under the provisions of the said Act before the first Appellate Authority, who decided the Appeals in favour of the Assessees and the Revenue’s Appeals before the Income Tax Appellate Tribunal also came to be dismissed by the ITAT and against which the Revenue has preferred these Appeals before this Court raising the aforesaid Substantial Question of law and therefore, at the level of the Appellate Authorities under the Act, the determination of liability to pay the Wealth Tax stood decided in favour of the Assessees that the lands in question are not taxable as ‘urban lands’ in their hands, but, the Revenue has challenged the said findings and the decision of the Appellate Authorities below before this Court by raising the aforementioned Substantial Question of law, but we have re-framed the following Substantial Questions of law and lengthy arguments were heard on both sides on these questions involved in these Appeals filed by the Revenue. & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another SUBSTANTIAL QUESTIONS OF LAW: “1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the 28 acres of land located within the corporation limit of Bengaluru City clearly falls within the exemption clause of Section 2(ea)(b) in the years of valuation and hence, no Wealth Tax on this land is chargeable? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the above land falls within the exemption clause of Section 2(ea)(b) without appreciating that the land was not totally prohibited for putting up any construction under Karnataka Parks, Play Fields and Open Spaces Regulation Act, 1985?” 3. Whether the learned C.I.T(Appeals) and Tribunal were justified in setting aside the protective assessment Date of Judgment 30-08-2018 W.T.A.No.1/2015 & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another 20/113 made by the Assessing Authority for the assessment year in question?” 11. The important aspects of the controversy in hand in the four corners of the aforesaid Substantial Questions of law center round the three basic aspects of the matter. They are:- (a) The meaning of the words “belonging to” as employed in the definition of ‘net wealth’ defined in Section 2(m) of the Wealth Tax Act, 1957 read with the charging provisions of Section 3 of the Act; (b) The scope of taxability of “urban land” as defined in Section 2(ea)(v) with its Explanation and Exclusion Clause in the said Explanation; and (c) What is the scope and purport of ‘Protective & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another 20/113 made by the Assessing Authority for the assessment year in question?” 11. The important aspects of the controversy in hand in the four corners of the aforesaid Substantial Questions of law center round the three basic aspects of the matter. They are:- (a) The meaning of the words “belonging to” as employed in the definition of ‘net wealth’ defined in Section 2(m) of the Wealth Tax Act, 1957 read with the charging provisions of Section 3 of the Act; (b) The scope of taxability of “urban land” as defined in Section 2(ea)(v) with its Explanation and Exclusion Clause in the said Explanation; and (c) What is the scope and purport of ‘Protective Assessments’ made in the hands of the Respondent Assessees and whether the character of such ‘Protective Assessments’ changes by determination of non- Date of Judgment 30-08-2018 W.T.A.No.1/2015 & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another 21/113 taxability in the hands of higher Appellate Authorities under the Act deciding the Appeals on merits. RELEVANT STATUTORY PROVISIONS: 12. Before coming to the contentions raised at the Bar by both the parties, we would like to quote certain definitions in the Act relevant for our purposes in the present case as follows:- 13. Section 2(ea) substituted with effect from 01/04/1993 particularly Clause (v) defining “urban land” is quoted below:- “Section 2(ea):“assets” in relation to the assessment year commencing on the 1[st]day of April, 1993, or any subsequent assessment year, means- (i) to (iv)…… “(v): “urban land” (vi)…. … … Explanation 1:…. (a)… … … Date of Judgment 30-08-2018 W.T.A.No.1/2015 & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another 22/113 (i)… … … (ii)…… … (b) “urban land” means land situate— (i) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the valuation date; or (ii) in any area within such distance, not being more than eight kilometers from the local limits of any municipality or cantonment board referred to in sub-clause (i), as the Central Government may, having regard to the extent of and scope for, urbanization of that area and other relevant considerations, specify in Date of Judgment 30-08-2018 W.T.A.No.1/2015 & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another 23/113 this behalf by notification in the official Gazette, but does not include 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 the land occupied by any building which has been constructed with the approval of the appropriate authority or 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 any land held by the assessee as stock-in-trade for a period of ten years from the date of its acquisition by him.” ‘Net Wealth’ is defined in Section 2(m) of the Act as follows:- “net wealth” means the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets, wherever located, belonging to the assessee Date of Judgment 30-08-2018 W.T.A.No.1/2015 & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another 24/113 ‘Net Wealth’ is defined in Section 2(m) of the Act as follows:- “net wealth” means the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets, wherever located, belonging to the assessee Date of Judgment 30-08-2018 W.T.A.No.1/2015 & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another 24/113 on the valuation date, including assets required to be included in his net wealth as on that date under this Act, is in excess of the aggregate value of all the debts owed by the assessee [on the valuation date which have been incurred in relation to the said assets]; 14. The relevant portion of Chapter II - Charge of Wealth-Tax and Assets subject to such Charge is extracted below:- CHAPTER II CHARGE OF WEALTH-TAX AND ASSETS SUBJECT TO SUCH CHARGE “3. Charge of wealth-tax. – (1) [Subject to the other provisions (including provisions for the levy of additional wealth-tax) contained in this Act], there shall be charged for every [assessment year] commencing on and from the first day of April, 1957 [but] before the 1[st]day of April, 1993], a tax (hereinafter referred to as wealth-tax) in respect of the net wealth on the corresponding valuation date of every individual, Hindu undivided family and Date of Judgment 30-08-2018 W.T.A.No.1/2015 & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another 25/113 company [at the rate or rates specified in Schedule-I]. (2) Subject to the other provisions contained in this Act, there shall be charged for every assessment year commencing on and from the 1[st] day of April, 1993, wealth-tax in respect of the net wealth on the corresponding valuation date of every individual, Hindu undivided family and company, at the rate of one per cent. of the amount by which the net wealth exceeds fifteen lakh rupees. Provided that in the case of every assessment year commencing on and from the 1[st] day of April 2010, the provisions of this section shall have effect as if for the words “fifteen lakh rupees”, the words “thirty lakh rupees” had been substituted.” “4. Net wealth to include certain assets. – (1) [In computing the net wealth- (a) of an individual, there shall be included, as belonging to that individual, the value Date of Judgment 30-08-2018 W.T.A.No.1/2015 & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another 26/113 of assets which on the valuation date are held- (i) by the spouse of such individual to whom such assets have been transferred by the individual, directly or indirectly, otherwise than for adequate consideration or in connection with an agreement to live apart, or (ii) by a minor child, not being [a minor child suffering from any disability of the nature specified in section 80U of the Income-tax Act or] a married daughter, of such individual, 11[***], or (iii)….. 15. Sub-section (8) of Section 4 of the Wealth-Tax Act reads as follows:- “(8) A person- (a) who is allowed to take or retain possession of any building or part thereof in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1982); Date of Judgment 30-08-2018 W.T.A.No.1/2015 & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another 27/113 (b) who acquires any rights (excluding any rights by way of a lease from month to month or for a period not exceeding one year) in or with respect to any building or part thereof by virtue of any such transaction as is referred to in clause (f) of section 269UA of the Income-tax Act, shall be deemed to be the owner of that building or part thereof and the value of such building or part shall be included in computing the net wealth of such person. 6[c) the expression “property” includes Date of Judgment 30-08-2018 W.T.A.No.1/2015 & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another 27/113 (b) who acquires any rights (excluding any rights by way of a lease from month to month or for a period not exceeding one year) in or with respect to any building or part thereof by virtue of any such transaction as is referred to in clause (f) of section 269UA of the Income-tax Act, shall be deemed to be the owner of that building or part thereof and the value of such building or part shall be included in computing the net wealth of such person. 6[c) the expression “property” includes any interest in any property, movable or immovable, the proceeds of sale thereof and any money or investment for the time being representing the proceeds of sale thereof and where the property is converted into any other property by any method, such other property.” The Contentions of the Respondent - Assessees 16. Mr. A. Shankar, learned counsel, Mr. S. Parthasarathy, Senior Advocate, Ms. Jinita Chatterjee Date of Judgment 30-08-2018 W.T.A.No.1/2015 & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another 28/113 and Mr. Balaram R. Rao, learned counsels appearing for the Respondent Assessees raised the following contentions before the Court:- [I] That with the Bangalore Palace (Acquisition and Transfer) Act, 1996 enacted by the State of Karnataka and the ‘Appointed Date’ notified of the said Act on 21/11/1996 by virtue of Section 4 of the said Act, the entire “Bangalore palace and the lands appurtenant thereto” including the lands in question held and possessed by the Respondent Assessee - Sisters, stood vested in the State Government and therefore, irrespective of the challenge to the said enactment by the Assessees before the Court of law which failed before the High Court and the matter is now pending before the Nine Judges’ Bench of the Hon’ble Supreme Court of India, the said lands cannot be said to be ‘owned’ or ‘belonging to’ the Respondent Assessees on the respective ‘Valuation Dates’ for the Date of Judgment 30-08-2018 W.T.A.No.1/2015 & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another 29/113 Assessment Years in question and therefore, there is no question of imposition of any Wealth-Tax on them during the said Assessment Years. 17. The Preamble, Sections 4, 5 and Section 8 of the Bangalore Palace (Acquisition and Transfer) Act, 1996 are quoted below for ready reference:- “THE BANGALORE PALACE (ACQUISITION AND TRANSFER) ACT, 1996 (First published in the Karnataka Gazette, Extraordinary, dated 18[th] November, 1996) (Received the assent of the president on the Fifteenth day of November, 1996) An Act to provide for the acquisition and transfer of the Bangalore Palace and open space around it in the public interest and for its preservation and for matters connected therewith. Whereas, the Palace at Bangalore popularly known as the Bangalore Palace, Karnataka’s unique and historical and Date of Judgment 30-08-2018 W.T.A.No.1/2015 & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another 30/113 architectural heritage, is singularly suited with its immediate surroundings, which no other Palace in the City of Bangalore does possess, and thereby deserving in its own majesty, in public interest to be preserved as a monument with the surrounding open space developed to serve public purpose, into an exclusive Botanical Museum and Horticultural Garden and Tree Part and to serve also the acutely affected ecological needs of Bangalore City which in its course of rapid growth has become highly deficient in lung-space and park areas and therefore to provide for its acquisition and transfer by law. Date of Judgment 30-08-2018 W.T.A.No.1/2015 & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another 30/113 architectural heritage, is singularly suited with its immediate surroundings, which no other Palace in the City of Bangalore does possess, and thereby deserving in its own majesty, in public interest to be preserved as a monument with the surrounding open space developed to serve public purpose, into an exclusive Botanical Museum and Horticultural Garden and Tree Part and to serve also the acutely affected ecological needs of Bangalore City which in its course of rapid growth has become highly deficient in lung-space and park areas and therefore to provide for its acquisition and transfer by law. Whereas, the Competent Authority under the Urban Land (Ceiling and Regulation) Act, 1976 has held that the Bangalore Palace and surrounding land came within the regulation of the said Act and has passed an order declaring substantial portion of the land surrounding Bangalore Palace as surplus land to be & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another 31/113 surrendered to the State Government and the said order is upheld in appeal before the Karnataka Appellate Tribunal. Whereas, the legal representatives and heirs and transferors of late Jayachamarajendra Wadeyar have in some writ petitions questioned the legality of the order passed by the Appellate Authority, and these writ petitions are pending hearing before the High Court of Karnataka. It has become necessary to pass a law different from the provisions of the Land Acquisition Act, 1894and to make provision for appointment of a Commissioner of Payment to pass appropriate orders in conformity with the final decision in the above writ petitions in determining the amount payable in respect of the entire holding and; Whereas, for the purpose hereinbefore stated it is expedient to provide for the acquisition and transfer of the Bangalore Palace and the open space around it by legislation. Date of Judgment 30-08-2018 W.T.A.No.1/2015 & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another 32/113 CHAPTER II Transfer and vesting of the Bangalore Palace Section 4. Transfer and vesting of the palace in the State Government. – On the appointed day, the Bangalore Palace (hereinafter referred to as the “Palace”) and the right, title and interest of the legal representatives or heirs or other persons in relation to the Palace, shall by virtue of this Act stand transferred to, and shall vest absolutely in the State Government. Section 5. General effect of vesting. – (1) The Palace shall be deemed to include all assets, rights, leaseholds, powers, authorities and privileges and all property, moveable and immoveable, including buildings, regalia, painting, art works, sculptures and all other rights and interest in or arising out of such property, as were immediately before the appointed day in the ownership, possession, power or control of the legal representative or heirs or other interested persons and all books of accounts, Date of Judgment 30-08-2018 W.T.A.No.1/2015 & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another 33/113 registers and other documents of whatever nature relating thereto. (2) All properties aforesaid, which have vested in the State Government under Section 4 shall, by virtue of such vesting be freed and discharged from any trust, obligation, mortgage, lease, charge, lien and all other encumbrances affecting them and attachment, injunction or decree or order of any Court or authority restricting the use of such property in any manner shall be deemed to have been withdrawn. Date of Judgment 30-08-2018 W.T.A.No.1/2015 & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another 33/113 registers and other documents of whatever nature relating thereto. (2) All properties aforesaid, which have vested in the State Government under Section 4 shall, by virtue of such vesting be freed and discharged from any trust, obligation, mortgage, lease, charge, lien and all other encumbrances affecting them and attachment, injunction or decree or order of any Court or authority restricting the use of such property in any manner shall be deemed to have been withdrawn. (3) Every legal representative, heir or other person who has, on the appointed day, any right, title or interest in relation to the Palace shall have the right to prefer his claim in the prescribed manner before the Commissioner for payment of amount out of the amount specified in Section 8 and also out of the amount determined under Section 8. (4) Every mortgagee of any property which has vested under this Act in the State Date of Judgment 30-08-2018 W.T.A.No.1/2015 & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another 34/113 Government and every person holding any charge, lease, lien or other interest in, or in relation to any such property shall give, within such time and in such manner as may be prescribed, an intimation to the Commissioner of such mortgage, lease, lien or other interest. (5) For the removal of doubts, it is hereby declared that the mortgage of any property referred to in sub-section (4) or other person holding any charge, lease, lien or other interest in or in relation, to any such property shall be entitled to claim in accordance with his rights or interest, payment of the mortgage money or other dues in whole or in part out of the amount specified in Section 8, and also out of amount determined under Section 9, but no such mortgage, charge, lien or other interest shall be enforceable against any property which has vested in the State Government. (6) If, as on the appointed day, any suit, appeal or other proceeding of Date of Judgment 30-08-2018 W.T.A.No.1/2015 & Connected Matters The Commissioner of Income Tax & Anr. Vs. Smt. Meenakshi Devi Avaru through LRs. and Another 35/113 whatever nature, in relation to any property which has vested in the State Government under Section 4, instituted or preferred by or against the legal representatives or heirs or other interested persons, is pending, the same shall not abate, be discontinued, or in anyway prejudicially affected by reason of the transfer of the Palace or anything contained in this Act, but th