2008 (1) TMI 315 - HC - Wealth-tax

Wealth tax appellants were allotted a flat in the building which was a tenant co-partnership society - Once assessee is admitted to membership and allotted a building or part of the building it is an asset hence it is chargeable to tax - words having a gross annual salary of less than Rs.2/- lakhs in Section-2(ea)(i)(1) would also apply to employee & officer, and not only to director - assessee has given the property on rent and therefore, Section 7(2) is not applicable

Summary

Issues:
1. Interpretation of Section-2(ea)(i)(1) of the Wealth Tax Act, 1957 regarding the gross annual salary criteria for house allotment.
2. Determining whether a flat in a tenant co-partnership society constitutes an "asset" under Section 2(ea)(i)(1) of the Act.
3. Analysis of whether a house let out for residential purposes falls under Section 7(2) of the Wealth Tax Act, 1957.

Interpretation of Section-2(ea)(i)(1) of the Wealth Tax Act:
The appellant contested the interpretation of the provision regarding the gross annual salary criterion for house allotment under Section-2(ea)(i)(1) of the Wealth Tax Act, 1957. The court emphasized that the provision includes all persons in full-time employment, such as employees, officers, or directors, who are allotted a house for residential purposes. The judges clarified that the provision uses the terms disjunctively and aims to cover all individuals in full-time employment. Therefore, the court upheld the Tribunal's interpretation, stating that the expression "having a gross annual salary of less than two lakhs rupees" applies to all categories of individuals in full-time employment, not just directors.

Definition of "Asset" in Section 2(ea)(i)(1) of the Act:
The court addressed whether a flat in a tenant co-partnership society qualifies as an "asset" under Section 2(ea)(i)(1) of the Act. It was established that as long as the flat falls within the ambit of Section 4(7) of the Wealth Tax Act, being allotted to a member of a cooperative society, it constitutes an asset. The judges clarified that the term "building" under the Act should be understood in its ordinary sense, encompassing a flat in a building. The court affirmed the decisions of the Commissioner (Appeal) and ITAT, emphasizing that the flat in a tenant co-partnership society is considered a building and, therefore, an asset under the Act.

Application of Section 7(2) of the Wealth Tax Act:
The court examined whether Section 7(2) of the Wealth Tax Act, 1957 is applicable to a house let out for residential purposes. Section 7(2) mandates that the house must belong to the assessee and be exclusively used for residential purposes for twelve months preceding the valuation date. The court noted that if the property is given on rent, Section 7(2) does not apply. Consequently, the court dismissed the contention that Section 7(2) should be invoked, as the property in question was rented out. Therefore, the court concluded that Section 7(2) of the Wealth Tax Act, 1957 does not apply in this scenario, leading to the dismissal of the appeal.

In conclusion, the High Court of Bombay addressed various issues related to the interpretation of provisions under the Wealth Tax Act, 1957. The judgment provided detailed analyses of the criteria for house allotment, the definition of assets, and the application of specific sections of the Act. The court's thorough examination and interpretation of the legal provisions led to the dismissal of the appeal, highlighting the importance of precise legal understanding in tax matters.