2012 (4) TMI 295 - HC - Wealth-tax

Exempting the property from the wealth-tax by ITAT ignoring section 40(3)(vib) - the assessee allotted the premises to the managing director for being used as residence Held that - any building and the land appurtenant to such building used as residential accommodation by any director, manager, secretary or any other employee of the assessee, such employee holding not less than one per cent. of the equity share of the assessee would be entitled to exemption - in case even the manager or secretary do not hold any share, nevertheless the assessee would be entitled to exemption of the above pro- vision- the claim of the assessee for exemption should be accepted Properties at Door Nos. 123 was leased out to the Tamilnadu Electricity Board and derived the benefits from the Board by way of installation of transformers Held that - as benefits forms part of business and, therefore, they are entitled to exemption from wealth-tax in terms of section 40(3)(vib) of the Finance Act. Properties at Door Nos. 123 - one of the business objects of the assessee is leasing out the properties, a portion of the factory premises was leased out to M/s. Lotus Inks, which also carries on the manufacture of inks Held that - fact holding that the leasing out the premises owned by a company is part of the company s business and, therefore, the asset itself having been commercially exploited, is not includible in the net wealth, the assessee is entitled to exemption in favour of assessee.

Summary

Issues:
1. Exemption of property at No. 20, Hunters Road, Madras from wealth-tax under section 40(3)(vib) of the Finance Act, 1983.
2. Inclusion of the value of the property at Door Nos. 123 and 124 in the assessee's net wealth.

Analysis:

1. The assessee, engaged in printing and property leasing, claimed exemption from wealth-tax for properties leased out and used for residential purposes. The Revenue rejected the exemption claim, leading to an assessment. The Commissioner of Income-tax accepted the exemption for the managing director's residence but remitted the matter of the other properties for further consideration. The Tribunal upheld the exemption for all properties. However, the High Court found that the provision for exemption under section 40(3)(vib) of the Finance Act was misinterpreted. The Court clarified that the equity shareholding requirement applies only to employees, not directors or managers. Therefore, the assessee was entitled to exemption for the managing director's residence.

2. Regarding the properties at Door Nos. 123 and 124, the Commissioner and Tribunal accepted the assessee's arguments based on the nature of the premises and commercial exploitation. The Court upheld these decisions, emphasizing that leasing out properties as part of the business activity entitles the assessee to exemption from wealth-tax. The Court dismissed the Revenue's appeals, ruling in favor of the assessee due to the insignificant tax effect in each case. Consequently, both substantial questions of law were answered against the Revenue and in favor of the assessee, leading to the dismissal of the appeals without costs.