2016 (2) TMI 74 - AT - Wealth-tax

Inclusion of let out property in the wealth tax assessment - scope and ambit of wealth tax u/s 2(ea)(i)(5) - wealth tax escaped assessment u/s 17 - The assessee claimed that the said property was in the nature of commercial establishment as per section 2(ea)(i)(5) of the Act and thus it could not be included in the net wealth of assessee. - Held that - the subject mentioned property is a commercial complex and is a productive asset deriving rental income of ₹ 15,00,000/- per annum. It is well settled from the Memorandum explaining the provisions in the Finance No. 2, 1998 under the head incentives proposed under the wealth tax act that wealth tax is not to be levied on productive assets. - Decided in favor of assessee.

Summary

Issues:
1. Jurisdiction of Learned AO under section 17 of the Wealth Tax Act.
2. Categorization of property in Bangalore as a commercial establishment for wealth tax purposes.

Analysis:

Issue 1: Jurisdiction of Learned AO under section 17 of the Wealth Tax Act
The appeals arose from the order of the Learned CIT(A) concerning the assessment under the Wealth Tax Act for the assessment years 2006-07 and 2007-08. The primary issue was the assumption of jurisdiction by the Learned AO through the issuance of a notice under section 17 of the Act. The assessee contended that the AO erred in initiating proceedings under section 147 and assuming jurisdiction. However, the Tribunal found that the AO had validly invoked the reopening proceedings as there were reasons to believe that wealth had escaped assessment. The grounds challenging the assumption of jurisdiction were dismissed for both assessment years.

Issue 2: Categorization of property in Bangalore as a commercial establishment
The second issue revolved around whether the property in Bangalore, let out to a tenant, could be considered a commercial establishment and thus exempt from wealth tax under section 2(ea)(i)(5) of the Act. The property, utilized as godowns by the tenant for commercial purposes, generated an annual rent of Rs. 15,00,000. The assessee argued that the property was a commercial complex and relied on a tribunal decision supporting their stance. The Tribunal examined the facts and found that the property indeed qualified as a commercial complex, in line with the decision cited. The Tribunal emphasized that wealth tax is not levied on productive assets, as clarified in the Finance No. 2 Act, 1998. Therefore, the property was exempt under section 2(ea)(i)(5) of the Act, and the grounds raised by the assessee were allowed for both assessment years.

In conclusion, the Tribunal partly allowed the appeals of the assessee, confirming the exemption of the property in Bangalore from taxable wealth under the Wealth Tax Act.