The daughters of the last Maharaja of Mysore Sr. Jayachamaraja Wadiyar may have to pay hundreds of crores of rupees as wealth tax on the land around the famous Bangalore Palace for the assessment years from 1999 to 2005.
The Karnataka High Court on Thursday held that the land held by the daughters through partition deeds attract wealth tax for the assessment period irrespective of the pending litigation over the validity of the law on acquisition of the palace and land appurtenant.
A division bench comprising Justice Vineet Kothari and Justice S. Sujatha delivered the verdict while allowing two appeals by the Income-Tax Department questioning the December 2014 order of the I-T Appellate Tribunal (ITAT).
The ITAT had quashed the ‘protective assessment’ of the wealth made by the department with respect to 28 acres each held by Meenakshi Devi (who died in 2015 and is now represented by her two children) and Kamakshi Devi. The tribunal had held that these ‘urban lands’ do not fall within the definition of ‘assets’ under Section 2 (ea)(b) of the Wealth-Tax Act, 1957 and hence were excluded from the wealth tax ambit.
Though the department had made only ‘protective assessment’, it had not demanded immediate payment of wealth tax in view of the pendency of litigations in the Supreme Court over the validity of the Bangalore Palace (Acquisition and Transfer) Act, 1996, the High Court has now held that assessees are liable to pay wealth tax for these assessment years as the lands still ‘belonging to’ them despite pending litigation, as the assessees are in possession, and are earning income from these lands.
The bench also made it clear that the department is now free to proceed to make substantive assessment as the possession, dominion and control over these lands remained with the assessees despite restriction, imposed by the apex court, on the use of these lands. The department had made the ‘protective assessment’ of wealth tax with respect to all the five daughters, who had received around 28 acres each through partition deed in 1984.
“...the assets in question namely ‘urban lands’ belonging to assessees for which they are not only claiming ‘ownership’ through litigation [before the apex court] but are undoubtedly in possession, dominion and control but also in user of the land yielding income therefrom, they cannot be held to be outside the tax net under the Wealth Tax Act, 1957,” the Bench held.
The bench also noted that assessees, who had claimed in their pleas before the High Court that they are ‘divested’ of the land in view of the BPAT Act, had claimed themselves as ‘owners’ of these lands in the pending litigation before the apex court as well as in certain agreements signed for leasing out the land for marriages and other activities.
“Such diagonally opposite stand of assessees in courts of law to serve their purposes is legally not permissible. They cannot approbate and reprobate in the same breath,” the bench observed.
