`Money Wadia received for land not taxable'
C Unnikrishnan, TNN | Dec 4, 2011, 05.15AM IST
MUMBAI: The Income Tax Appellate Tribunal has said the amount received by textile and real estate baron Nusli Wadia for development of land in his control is not taxable. Wadia is the administrator of around 600 acres of land that once belonged to late E F Dinshaw.
The trust that owns the land has paid tax for the money received from developers. If Wadia, also a beneficiary, received a part of it, he cannot be taxed again, the tribunal said.
The tax demand pertains to around 110 acres along Goregaon-Malad Link Road developed by the Raheja brothers, who have set up commercial premises, including Mindspace and Inorbit Mall. Wadia had given Rahejas the right to develop it in 1995. The trust was entitled to 12% of the money realized and 88 % went to the developer. In 2003-04, of the sale proceeds, Wadia received Rs 72.71 crore as advance from Ivory Properties and Ferani Hotels, the Raheja companies developing the land. The I-T department slapped a tax claim of Rs 31.43 cr from Wadia on this transaction.
A month before he died in March 1970, Dinshaw in his will bequeathed all income from his property to his sister, Bachoobai Woronzow. But the will said that after Woronzow's death, the property would go to two New York-based charities. Jehangir Dubash, a lawyer, was appointed to administer the property. Subsequently, Dubash moved the Bombay high court, asking it to appoint Nusli Wadia as the administrator of the property. In December 1972, the high court passed an order by which Wadia became the administrator of the property. As administrator, Wadia struck a deal with the Rahejas in 1995 to develop the land. In 2000, Wadia moved the high court challenging the validity of Dinshaw's will, claiming it to be null and void under the Indian Succession Act.
Before the court decided the issue, Wadia and his four companies paid Woronzow Rs 20 lakh and signed an agreement in September 2001, buying her right to the income from the property. A year later, the high court held that Dinshaw's will was invalid and ruled in Wadia's favour. The two Amercian charities challenged the high court order, but subequently withdrew it. Woronzow died in August 2003.
The Tribunal said that the advance amount received from developers cannot be treated as income earned by the trust till the sales take place. Thus, money distributed to Wadia from the advance amount also cannot be treated as his income. The I-T dept maintained that Wadia was liable to pay the tax, being the de facto owner of the land. But he said that he was merely the administrator of the land and not the owner. In his earlier appeals also, Wadia said the Rs 72 crore he received is akin to a "gift'' arising out of the agreement with Woronzow and hence should not be taxed.
The department had said that Wadia knew that the bequeathal of the properties to American charities may be held invalid by the HC. Therefore, he invested a small sum of Rs 20 lakh and entered into an agreement with Woronzow to make a big fortune. But the tribunal said, "Woronzow had total confidence in the assessee (Wadia) and treated him like her son." Woronzow knew Wadia could make huge gains. Wadia's rights on the properties started only after her death. "The other circumstance, like Woronzow bequeathing her personal properties to the sons of the assessee, also shows that no commercial angle was involved," the tribunal said.
The Tribunal said that mere receipt of sale proceeds by Wadia from the trust would not amount to end of his rights. Since there is no transfer of capital asset, it does not attract capital gains, the Tribunal said.
C Unnikrishnan, TNN | Dec 4, 2011, 05.15AM IST
MUMBAI: The Income Tax Appellate Tribunal has said the amount received by textile and real estate baron Nusli Wadia for development of land in his control is not taxable. Wadia is the administrator of around 600 acres of land that once belonged to late E F Dinshaw.
The trust that owns the land has paid tax for the money received from developers. If Wadia, also a beneficiary, received a part of it, he cannot be taxed again, the tribunal said.
The tax demand pertains to around 110 acres along Goregaon-Malad Link Road developed by the Raheja brothers, who have set up commercial premises, including Mindspace and Inorbit Mall. Wadia had given Rahejas the right to develop it in 1995. The trust was entitled to 12% of the money realized and 88 % went to the developer. In 2003-04, of the sale proceeds, Wadia received Rs 72.71 crore as advance from Ivory Properties and Ferani Hotels, the Raheja companies developing the land. The I-T department slapped a tax claim of Rs 31.43 cr from Wadia on this transaction.
A month before he died in March 1970, Dinshaw in his will bequeathed all income from his property to his sister, Bachoobai Woronzow. But the will said that after Woronzow's death, the property would go to two New York-based charities. Jehangir Dubash, a lawyer, was appointed to administer the property. Subsequently, Dubash moved the Bombay high court, asking it to appoint Nusli Wadia as the administrator of the property. In December 1972, the high court passed an order by which Wadia became the administrator of the property. As administrator, Wadia struck a deal with the Rahejas in 1995 to develop the land. In 2000, Wadia moved the high court challenging the validity of Dinshaw's will, claiming it to be null and void under the Indian Succession Act.
Before the court decided the issue, Wadia and his four companies paid Woronzow Rs 20 lakh and signed an agreement in September 2001, buying her right to the income from the property. A year later, the high court held that Dinshaw's will was invalid and ruled in Wadia's favour. The two Amercian charities challenged the high court order, but subequently withdrew it. Woronzow died in August 2003.
The Tribunal said that the advance amount received from developers cannot be treated as income earned by the trust till the sales take place. Thus, money distributed to Wadia from the advance amount also cannot be treated as his income. The I-T dept maintained that Wadia was liable to pay the tax, being the de facto owner of the land. But he said that he was merely the administrator of the land and not the owner. In his earlier appeals also, Wadia said the Rs 72 crore he received is akin to a "gift'' arising out of the agreement with Woronzow and hence should not be taxed.
The department had said that Wadia knew that the bequeathal of the properties to American charities may be held invalid by the HC. Therefore, he invested a small sum of Rs 20 lakh and entered into an agreement with Woronzow to make a big fortune. But the tribunal said, "Woronzow had total confidence in the assessee (Wadia) and treated him like her son." Woronzow knew Wadia could make huge gains. Wadia's rights on the properties started only after her death. "The other circumstance, like Woronzow bequeathing her personal properties to the sons of the assessee, also shows that no commercial angle was involved," the tribunal said.
The Tribunal said that mere receipt of sale proceeds by Wadia from the trust would not amount to end of his rights. Since there is no transfer of capital asset, it does not attract capital gains, the Tribunal said.
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