2008 (2) TMI 409 - HC - Wealth-tax

Stock in Trade Exemption from Wealth Tax - The contention of the assessee that this property fell to his share after the partnership firm, in which this property was held as stock-in-trade, was dissolved. It was contended by him that even though the firm has dissolved, but it is pertinent to note that the said firm all through held it as stock-in-trade. Consequently, on its dissolution, the same would continue in the same status, but in the hands of the assessee. AO held that said property can not be held as stock in trade in the hands of the assessee after dissolution ITAT held that said property can be held as stock in trade since the same treatment was being by the firm held that order of tribunal requires reconsideration and matter remitted to AO.

Summary

Issues:
Appeal against order of the Income-tax Appellate Tribunal for the assessment year 1998-99 - Whether property should be treated as stock-in-trade of the assessee and exempted from wealth-tax.

Analysis:
The appeal before the Karnataka High Court stemmed from a dispute regarding the treatment of a property located at Richmond Road, Bangalore, for the assessment year 1998-99. The Revenue challenged the order of the Income-tax Appellate Tribunal, which had ruled in favor of the assessee, considering the property as stock-in-trade and thus exempt from wealth-tax. The key question for the court was whether the property, acquired by the assessee from a dissolved partnership firm, should be classified as stock-in-trade and hence exempt from wealth-tax.

The assessee, being assessed as an individual, owned properties in various locations. The Revenue contended that these properties constituted wealth under the Wealth-tax Act, 1957, and issued notices for wealth tax assessment. The dispute primarily revolved around the property at Richmond Road, Bangalore, which the Assessing Officer deemed taxable despite the assessee's claim that it was acquired as stock-in-trade from a dissolved firm. The Tribunal had previously ruled in favor of the assessee, leading to the Revenue's appeal before the High Court.

The High Court, after hearing arguments from both sides, found that the Tribunal's order lacked a specific finding on whether the assessee had become the absolute owner of the property upon the firm's dissolution. Due to insufficient evidence presented by the assessee on this crucial aspect, the court concluded that the Tribunal's decision was flawed. As a result, the High Court set aside the Tribunal's order and remitted the matter back to the Assessing Officer for a determination on the ownership status of the property post the firm's dissolution.

Furthermore, the High Court highlighted the importance of allowing the assessee to exercise the option provided under section 5(vi) of the Wealth-tax Act, which pertains to the exemption of certain assets from wealth tax. Since this option was not considered due to the unresolved ownership issue, the court refrained from addressing the substantial legal question raised in the appeal. Ultimately, the High Court disposed of the appeal by remitting the matter to the Assessing Officer for a fresh decision based on a clear finding regarding the ownership of the disputed property.