2016 (2) TMI 29 - AT - Wealth-tax

Inclusion of wealth - whether the commercial building i.e. shop is falling within the scope section 2(ea)(i) of the wealth tax Act or not. - Held that - these assets are commercial purposes which form part of stock-in-trade and these three assets have been noted as part of the stock-in-trade and acquired for the purpose of construction of flats, the nature of business of assessee is purchase and sale of immovable properties the assessee had undertaken construction of premises - These premises were purchased and the assessee disposed off the flats after construction. All the above noted three properties being the business assets which cannot form part of taxable wealth. - Decided in favor of assessee.

Summary

Issues Involved:
1. Validity of the order under Section 25(2) of the Wealth Tax Act, 1957.
2. Inclusion of the value of a shop in Lucknow in the taxable wealth of the assessee.
3. Treatment of certain properties as assets under Section 2(ea) of the Wealth Tax Act.

Detailed Analysis:

1. Validity of the Order under Section 25(2) of the Wealth Tax Act, 1957:
The assessee challenged the order of the Commissioner of Wealth Tax (CWT) under Section 25(2) of the Wealth Tax Act, 1957, which set aside the assessment framed by the Assessing Officer (AO) under Section 16(3)/17 of the Act. The assessee argued that the CWT's assumption of jurisdiction was based on a proposal made by the AO without independently examining the records, thus rendering the proceedings invalid. Additionally, the assessee contended that they were not given an opportunity to be heard, which violated the principles of natural justice.

2. Inclusion of the Value of a Shop in Lucknow in the Taxable Wealth:
The original wealth tax assessment for the assessment year 2006-07 was completed under Section 16(3)/17 of the Act. The CWT, upon examination, found that the value of a shop in Lucknow amounting to Rs. 32,28,000 was not included in the taxable wealth, despite it being included in the previous assessment year. The CWT directed the AO to include this value, stating that the shop, being a commercial building, falls within the definition of assets liable for wealth tax as per Section 2(ea)(i) of the Act. The CWT noted that the shop was vacant during the relevant financial year and was leased out only from the next financial year, thus qualifying as an asset liable to wealth tax.

The Tribunal referred to the decision in WTO Vs. Ferrolite Products Ltd., which clarified that commercial establishments or complexes are exempt from wealth tax. The Tribunal concluded that the shop in question, being a commercial establishment, should not be included in the taxable wealth, thereby allowing the assessee's appeal.

3. Treatment of Certain Properties as Assets under Section 2(ea) of the Wealth Tax Act:
The Revenue appealed against the CWT(A)'s decision that certain properties were not assets under Section 2(ea) of the Act. The AO had included properties located at various addresses in Kolkata in the taxable wealth. However, the CWT(A) observed that these properties were part of the stock-in-trade, acquired for the purpose of constructing flats for sale, and thus exempt from wealth tax as per Section 2(ea). The CWT(A) also noted that an advance given for one of the properties, which was later returned, could not be considered an asset.

The Tribunal upheld the CWT(A)'s decision, stating that the properties in question were indeed part of the stock-in-trade and used for business purposes, thus not forming part of the taxable wealth. The Tribunal confirmed that these properties were correctly treated as business assets and dismissed the Revenue's appeal.

Conclusion:
The Tribunal allowed the assessee's appeal, confirming that the shop in Lucknow should not be included in the taxable wealth as it qualifies as a commercial establishment. The Tribunal also dismissed the Revenue's appeal, upholding the CWT(A)'s decision that the properties in question were part of the stock-in-trade and exempt from wealth tax. The order was pronounced in the open court on 14 August 2015.