2015 (3) TMI 771 - SC - Wealth-tax

Valuation of net worth of assessee company - whether under Section 40(3)(vi) of the Finance Act, 1983, the building is used by the assessee as a factory for the purpose of its business - Held that - No doubt, M/s Dior International P. Ltd. was manufacturing the garments for the assessee but it was charging the price for the same from the assessee and assessee was charging rent for the use of the premises. Therefore, the only relationship between the parties was that of the lessor and lessee and nothing else. Therefore, the contention of the assessee that M/s. Dior International was manufacturing the garments for the assessee, in our opinion, would not advance the case of the assessee and is, therefore, rejected. In view of the above discussion, it is held that a portion of the building belonging to assessee was in fact used by M/s. Dior International for its own use of manufacturing activity and consequently, it cannot be said that such portion of building was used by the assessee for the purpose of its own business of manufacturing as factory. Therefore, such portion of the building was rightly included by the lower authorities in the net wealth of the assessee company. - Decided against assesseee.

Issues Involved:
1. Whether the building used by the subsidiary company qualifies for exemption under Section 40(3)(vi) of the Finance Act, 1983.
2. Interpretation of the term "used by the assessee as factory" under Section 40(3)(vi).
3. Applicability of precedents and judgments cited by the appellant.

Issue-wise Detailed Analysis:

1. Whether the building used by the subsidiary company qualifies for exemption under Section 40(3)(vi) of the Finance Act, 1983:
The primary issue revolves around whether the portion of the building given on license to M/s Dior International Pvt. Ltd., a subsidiary of the appellant, qualifies for exemption under Section 40(3)(vi) of the Finance Act, 1983. The appellant contends that since the building is used for the purpose of its business, it should be exempt from wealth tax. However, the assessing authority, Commissioner of Income Tax (Appeals), and the Income Tax Appellate Tribunal all held that the building portion given on license is not used by the assessee for its own business, thus not qualifying for exemption.

2. Interpretation of the term "used by the assessee as factory" under Section 40(3)(vi):
The crux of the dispute lies in the interpretation of the phrase "used by the assessee as factory" under Section 40(3)(vi). The Tribunal emphasized that the building or part of it must be used by the assessee itself as a factory for its business. The Tribunal noted, "The expression 'used by the assessee as factory...for the purpose of its business'...clearly shows that the building...must be used by the assessee as factory for the purpose of its own business." The Tribunal further clarified that even though M/s Dior International Pvt. Ltd. is a subsidiary, it is a separate legal entity conducting its own business, and the relationship between the appellant and the subsidiary is that of lessor and lessee.

3. Applicability of precedents and judgments cited by the appellant:
The appellant cited several judgments to support its case. The appellant's counsel argued that the object of Section 40 should be considered, pointing out that wealth tax aims to tax non-productive assets, and the building in question is a productive asset used for the appellant's business. However, the Tribunal and the High Court found that the plain language of the statute must be followed. The Tribunal stated, "It is only in cases of ambiguity that one can construe the language in accord with the object sought to be achieved." The Tribunal and the High Court concluded that the building must be used by the assessee itself for its business. The cited judgments, including those in 53 ITR 140 (SC) and 20 ITR 451 (SC), were found to be distinguishable on facts or not directly applicable to the present case.

Conclusion:
The Supreme Court upheld the decisions of the lower authorities, emphasizing the clear language of the statute. The Court noted that although the building is used productively, it is not used by the assessee itself but by its subsidiary, which is a separate legal entity. The Court concluded, "We, therefore, dismiss the appeal, agreeing with the reasoning of the appellate tribunal, which has found favour with the High Court." The appeal was dismissed, affirming that the portion of the building used by the subsidiary does not qualify for exemption under Section 40(3)(vi) of the Finance Act, 1983.

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