2004 (9) TMI 587 - AT - Wealth-tax

Summary

Issues Involved:
1. Whether the two flats (NCPA Flat and Embassy Flat) are used for the purpose of business and consequently not chargeable to wealth tax.
2. Whether the immovable properties (NCPA Flat and Embassy Flat) are assets chargeable to tax under section 2(ea) of the Wealth-tax Act, 1957.
3. Whether the assessment to wealth tax in respect of the value of NCPA Flat and Embassy Flat is justified.

Issue-wise Detailed Analysis:

1. Business Use of the Flats:
The assessee contended that the NCPA and Embassy flats were used for business purposes and thus should be exempt from wealth tax under section 2(ea)(3) of the Wealth-tax Act, 1957. The Assessing Officer (AO) rejected this claim, stating that the assessee failed to provide sufficient evidence, such as details of meetings, participants, agendas, minutes, electricity, and telephone bills, to substantiate the business use of the flats. The AO noted that the assessee did not have any staff occupying the flats for business purposes and referenced a similar case (Standard Distilleries & Breweries (P) Ltd.) where the decision was against the assessee.

2. Chargeability under Section 2(ea) of the Wealth-tax Act:
The AO argued that the flats were not exempt under section 2(ea) because the assessee did not prove continuous occupation for business purposes. The CIT(Appeals) upheld the AO's decision, emphasizing the need for "substantive occupation" for business purposes to qualify for exemption. The assessee argued that the term "occupy" in section 2(ea)(3) should include keeping the flats ready for business use, not necessarily continuous occupation.

3. Justification of Wealth Tax Assessment:
The assessee contended that the flats were used for business meetings, and expenses related to the flats (telephone, electricity, maintenance, insurance, house taxes) were allowed as business expenditures in income tax assessments. The Tribunal noted that the AO had allowed depreciation for the flats in income tax proceedings, indicating their use for business purposes. The Tribunal also referenced the case of National Dairy Development Board v. Dy. CIT, where a property used for temporary accommodation during training was treated as a business asset.

Conclusion:
The Tribunal concluded that the assessee had discharged the primary onus of proving the business use of the flats. The term "occupy" in section 2(ea)(3) does not require continuous unbroken usage. The Tribunal found that the flats were used for business meetings, and the expenses were allowed as business expenditures in income tax assessments. Therefore, the flats should be considered business assets and exempt from wealth tax. The appeals by the assessee were allowed.