2015 (2) TMI 997 - AT - Wealth-tax

Exclusion of values of land and house property from net wealth - renting out of property - commercial establishment or complex - assets are situated in urban area and have been shown under separate block in the audited accounts - Held that - The facts emerges are that total area of land consists of 20164 sft out of which area is 10771 sft namely the factory building courtyard electrical substation labour quarters office and godown etc. The assessee rented out this premises to M. S. Dalmia 12 lakh per annum and this rent was assessed under the head Income from House Property . From the very reading of Sub-clause (5) it is clear that this covers all those properties which are in the nature of commercial establishment or complex meaning thereby that the property must be in the nature of commercial establishment or complex which in turn indicates that the property must also be actually used for the purpose of any business or trade carried on in those commercial establishments or complexes. We are of the view that this Sub-clause (5) complexes or establishments are qualified with an adjective commercial . Establishment or complex therefore must be of a commercial in nature. The word commercial means something which is used in or related to a business or a trade. Commercial means relates to or engaged in or used for commerce or trade. The word establishment means an organization building construction shop store concern or corporation. Thus commercial establishment means some kind of place or building or shop or store where business or trade is carried on. Further the Memorandum explaining the provisions in the Finance No. 2 Bill 1998 under the head Incentives proposed under the Wealth-tax Act it is clarified that wealth-tax is not levied on productive assets. In view of this logic it is proposed that wealth tax would also not be levied on such residential properties that have been let out for a period of a minimum of three hundred days in a year and it is also proposed to exempt commercial establishments and complexes from the ambit of Wealth-tax Act. It is thus clear that the Legislature has adopted a logic that wealth-tax is not levied on productive assets and in view of that logic it was proposed that wealth-tax would not be levied on such residential property that has been let out for a period of minimum 300 days in a year and to exempt commercial establishments and complexes from the ambit of wealth-tax. Therefore while construing the meaning to Sub-clauses (4) and (5) inserted by the Finance No. 2 Act 1998 with effect from 1.4.89. the intention of Legislature is that wealth-tax is not to be levied on productive assets and that is to be kept in mind. In view of the facts of this case and discussion in view of insertion of Sub-clause (5) as inserted by the Finance No. 2 Act 1998 with effect from 1.4.89 wealth-tax is not to be levied on productive assets. Hence in view of reasoning given above we confirm the order of CIT(A) and dismiss both appeals of revenue. - Decided against Revenue.

Summary

Issues Involved:
1. Whether the value of land and building should be included in the net wealth of the assessee under the Wealth-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Exclusion of Land and Building from Net Wealth:

The primary issue in these appeals was whether the value of land and building should be included in the net wealth of the assessee. The assessee had declared land and building separately in its Balance Sheet filed with the return of income. The land and building were rented out to a company for a rent of Rs. 12 lakh per annum, which was assessed under the head 'Income from House Property'. The Assessing Officer (AO) treated the value of land and building as taxable wealth under section 2(ea) of the Wealth-tax Act, 1961. However, the assessee contended that the property was in the nature of a commercial establishment or complex and thus should be excluded from the net wealth under section 2(ea)(i)(5) of the Act.

The CIT(A) accepted the assessee's contention, noting that the uncovered land would fall in the category of land appurtenant to the building and factory shed and could not be considered for separate valuation as urban land. The CIT(A) further observed that the building was used for commercial purposes, housing a factory shed, courtyard, electrical substation, labour quarters, office, and godown, and thus fell under the exception of "any property in the nature of commercial establishments or complexes" as per section 2(ea)(i)(5) of the Wealth-tax Act.

2. Legal Precedents and Interpretation:

The Tribunal referred to the case of Satvinder Singh v. Dy. CWT (2007) 109 ITD 241 (Pune), where it was held that wealth-tax is not levied on productive assets. The Tribunal emphasized that the legislative intent behind section 2(ea)(i)(5) was to exclude commercial establishments and complexes from the ambit of wealth-tax, as wealth-tax is not levied on productive assets. The Tribunal noted that the property in question was used for commercial purposes and was in the nature of a commercial establishment, thus falling under the exception provided in section 2(ea)(i)(5).

3. Conclusion and Tribunal's Decision:

The Tribunal concluded that the property in question, being in the nature of a commercial establishment and used for productive purposes, should not be included in the net wealth of the assessee. The Tribunal upheld the CIT(A)'s order and dismissed the revenue's appeals, confirming that the value of the land and building should be excluded from the net wealth of the assessee.

Final Judgment:

The appeals of the revenue were dismissed, and the order of the CIT(A) was confirmed. The Tribunal reiterated that wealth-tax is not levied on productive assets, and the property in question, being a commercial establishment, was rightly excluded from the net wealth of the assessee.

Order Pronouncement:

The order was pronounced in the open court on 06.02.2015.