2003 (1) TMI 671 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of the impugned order dated January 19, 1989, passed by the Divisional Level Committee, Meerut.
2. Eligibility for exemption under section 4-A of the U.P. Trade Tax Act, 1948.
3. Inclusion of investment in land and building in the capital investment for tax exemption purposes.
4. Applicability of the circular dated February 25, 1988, issued by the Commissioner, Trade Tax.

Detailed Analysis:

1. Validity of the Impugned Order:
The petitioner sought a writ of certiorari to quash the impugned order dated January 19, 1989, passed by the Divisional Level Committee, Meerut. The order rejected the petitioner's review application on the grounds that the investment in land and building could not be included in the capital investment since the land and building were on lease. The court found this reasoning erroneous, emphasizing that a person cannot lease property to themselves, especially when the land belongs to one of the partners of the firm.

2. Eligibility for Exemption under Section 4-A:
The petitioner, a partnership firm engaged in the manufacture and sale of medicines, applied for an exemption under section 4-A of the U.P. Trade Tax Act, 1948. The firm had constructed a building on land owned by one of its partners, investing Rs. 2,50,000 in the building and Rs. 1,44,628.79 in machinery. The Divisional Level Committee granted only a three-year exemption, excluding the building investment from the capital investment calculation. The court held that the investment in the building should have been considered, making the firm eligible for a five-year exemption.

3. Inclusion of Investment in Land and Building:
The core issue was whether the investment in land and building should be included in the capital investment for tax exemption purposes. The court observed that the building was constructed by the firm and the land belonged to one of the partners. It was noted that the firm had invested Rs. 2,50,550 in the building, as evidenced by the balance sheet and the Chartered Accountant's certificate. The court concluded that both the land and building investments should be included in the capital investment, thus exceeding the Rs. 3 lacs threshold required for a five-year exemption.

4. Applicability of the Circular Dated February 25, 1988:
The petitioner argued that the circular dated February 25, 1988, issued by the Commissioner, Trade Tax, which stated that investment in land and building should be considered even if not in the name of the industrial unit but in the name of the partner/proprietor/promoter, was binding. The court agreed, citing precedents that such circulars are binding on tax authorities. Consequently, the Divisional Level Committee erred in not considering this circular, which supported the petitioner's claim for a five-year exemption.

Conclusion:
The court modified the impugned orders dated January 19, 1989, and April 22, 1988, directing the Divisional Level Committee to grant a five-year exemption under section 4-A of the U.P. Trade Tax Act. The court emphasized that the investment in both land and building should be included in the capital investment calculation, and the circular dated February 25, 1988, should be considered. The petition was allowed with no order as to costs.