2016 (5) TMI 1056 - AT - Wealth-tax

Scope of Assets u/s 2(ea) of Wealth Tax Act, 1957 - inclusion of residential building let out and only for brief period the property was vacant - Letting out period is less than 300 days - Held that - It could be appreciated that the asset which was taxed u/s 2(ea)(i) of the Act was legally in existence only for a period of 92 days during FY 2005-06. In the circumstances, it was not possible to let the said property for period of at least 300 days in FY 2005-06 so as to qualify for exemption provided in section 2(ea)(i)(4) of the Act. In view of the aforesaid findings and adopting purposive interpretation of the legal provisions of the Act in consonance with the Explanatory Memorandum to Finance (No.2) Bill, 1998 , residential property let out being a productive asset, we deem it fit to grant benefit of exemption envisaged by clause (4) since for the entire duration of the previous year during which the property was in legal existence, was let for residential purposes. The subject mentioned property which has been let out would not fall within the ambit of taxable asset u/s 2(ea) of the Act - Decided in favor of assessee. Inclusion of jewellery without giving effect to debts owed in relation to jewellery - Held that - During the year in which Jewellery was owned, there was no increase in share capital and reserves and surplus during those relevant assessment years - on the contrary, we find that the loan funds have increased - which enables us to safely conclude that the jewelleries have been obtained only out of borrowed funds and hence the same requires to be deducted from the value of jewelleries. - No addition. - Decided in favor of assessee. Valuation of motor Cars - Held that - 80% of the insurance value of motor car should be considered as the market value in terms of Rule 20 of Schedule III of Wealth Tax Act. - Decided in favor of assessee.

Issues Involved:
1. Validity of reassessment proceedings initiated u/s 17 of the Wealth Tax Act, 1957.
2. Whether the immovable property at New Delhi qualifies as an 'asset' within the meaning of Section 2(ea)(i) of the Wealth Tax Act, 1957.
3. Valuation of jewellery and whether debts owed in relation to jewellery should be deducted.
4. Valuation of motor vehicle and whether debts owed in relation to the motor vehicle should be deducted.

Detailed Analysis:

1. Validity of Reassessment Proceedings:
The assessee initially raised concerns about the legal aspect of framing reassessment u/s 17 of the Act without disposing of the objections by a separate speaking order. However, during the course of the hearing, the assessee's representative stated that the legal grounds were not pressed before the tribunal. Consequently, the tribunal dismissed ground nos. 1 & 2 as not pressed.

2. Immovable Property at New Delhi as an 'Asset':
The primary issue was whether the property at Aurangazeb Road, New Delhi, qualified as a taxable asset under Section 2(ea) of the Act. The tribunal examined the facts that the property was under construction until March 2005 and received a provisional completion certificate on 22.11.2005, followed by a final completion certificate on 26.4.2006. The property was let out from 1.1.2006, generating rental income.

The tribunal referenced the Hon’ble Apex Court decision in Giridhar G. Yadalam vs CWT, which held that a building under construction falls under the ambit of wealth tax. Therefore, the tribunal dismissed the assessee's grounds 3, 4, and 5.

However, the tribunal adopted a purposive interpretation of Section 2(ea)(i)(4) of the Act, emphasizing that the legislature intended to exempt productive assets from wealth tax. Since the property was let out from January 2006 and was productive, the tribunal concluded that it should not be subject to wealth tax. Consequently, ground no. 6 raised by the assessee was allowed.

3. Valuation of Jewellery:
The assessee disclosed the value of jewellery at ?4,93,73,084/- and provided a valuation report from a registered valuer. The AO increased the value by 20% based on market trends, resulting in a taxable value of ?2,25,63,500/-.

The tribunal noted that the valuation of jewellery should be governed by Rule 18 of Schedule III to the Wealth Tax Act, which requires a valuation report from a registered valuer. The tribunal found that the AO did not refer the valuation to a valuation officer despite having doubts about the valuation report submitted by the assessee. Additionally, the tribunal observed that the jewellery was acquired using borrowed funds, which should be deducted from the asset's value.

Therefore, the tribunal held that no addition could be made towards jewellery as a taxable asset u/s 2(ea) of the Act, allowing the assessee's ground on this issue.

4. Valuation of Motor Vehicle:
The AO adopted the book value of the Mercedes Benz at ?66,63,177/- for wealth tax purposes. The assessee argued that the value should be 80% of the insured value, as per Rule 20 of Schedule III of the Wealth Tax Act.

The tribunal referenced the decision of the Pune Tribunal in Thermax Ltd vs DCWT, which held that the market value of motor cars could be reasonably estimated at 80% of their insurance value. The tribunal directed the AO to adopt 80% of the insurance value as the market value and to grant deductions for debts owed in relation to the motor car.

Thus, the tribunal allowed the ground raised by the assessee on the issue of the motor vehicle for statistical purposes.

Conclusion:
The tribunal partly allowed the appeal of the assessee for statistical purposes, addressing the issues of the immovable property, jewellery, and motor vehicle in detail. The tribunal emphasized the importance of purposive interpretation and adherence to the Wealth Tax Act's provisions and relevant legal precedents.

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