2006 (7) TMI 525 - AT - Wealth-tax

Summary

Issues Involved:
1. Exemption of two separate residential flats as a single house under section 5(1)(vi) of the Wealth-tax Act.
2. Exemption of the assessee's flat at Jaipur under the Wealth-tax Act for business purposes.
3. Exemption of the assessee's flat and shop at Pearl Heights, Mumbai under the Wealth-tax Act for business purposes.

Issue-wise Detailed Analysis:

1. Exemption of Two Separate Residential Flats:
The primary issue was whether two separate residential flats with individual kitchens, bathrooms, and bedrooms could be treated as a single house for the purpose of exemption under section 5(1)(vi) of the Wealth-tax Act. The Assessing Officer contended that only one flat could be exempted, and the value of the second flat should be taxed. The assessee argued that both flats were used as a single residential unit by the family, relying on the precedent set by Shiv Narain Chaudhari v. CWT [1977] 108 ITR 104 (All.). The CIT(A) agreed, considering the two flats as a single house eligible for exemption under section 5(1)(vi). The Tribunal upheld this view, emphasizing that adjacent and connected flats used as a common residence by the family should be treated as one house, thus exempting both flats from wealth tax.

2. Exemption of Assessee's Flat at Jaipur:
The second issue pertained to the exemption of a flat in Jaipur, claimed to be used for business purposes. The assessee had claimed depreciation on this flat under section 32 of the Income-tax Act, which was allowed by the income-tax authorities, thereby affirming it as a business asset. The CIT(A) noted that the Assessing Officer disallowed the exemption without providing specific reasons. The Tribunal confirmed that the flat was used for business activities and, as such, qualified for exemption under section 2(ea)(1)(3) of the Wealth-tax Act.

3. Exemption of Assessee's Flat and Shop at Pearl Heights, Mumbai:
The third issue involved the exemption of a flat and shop at Pearl Heights, Mumbai, also claimed to be used for business purposes. Similar to the Jaipur flat, the assessee had claimed and was allowed depreciation under section 32 of the Income-tax Act, confirming it as a business asset. The Tribunal, following its reasoning in the previous issue, upheld that the flat and shop were business assets and thus exempt from wealth tax under section 2(ea)(1)(3) of the Wealth-tax Act.

Conclusion:
The Tribunal dismissed all six appeals filed by the revenue, affirming the CIT(A)'s decisions. It held that:
- The two adjacent flats used as a single residential unit by the assessee's family qualified as one house for exemption under section 5(1)(vi).
- The flat at Jaipur and the flat and shop at Pearl Heights, Mumbai, were used for business purposes and thus exempt from wealth tax under section 2(ea)(1)(3).