2018 (10) TMI 749 - AT - Wealth-tax

Asset chargeable to wealth tax - Exemption u/s 2(ea)(i)(3) of Wealth Tax Act on share of property - commercial asset - whether asset has not fulfilled the conditions to be categorized as commercial establishment? - assessee and other co-owner had purchased a Cinema Theatre with the land and buildings appurtenant thereto - Held that - As long as the assessee owns the commercial asset, which is capable of being put to productive use, the said commercial asset is not exigible to Wealth Tax. In this case, the assessee along with two other companies owns the theatre but could not run the theatre due to various reasons but that does not mean that the property has lost its character. Hence, we are satisfied that it is in the nature of commercial establishment, and the exclusion provided in section 2(ea)(i)(3) would be applicable. Therefore, we see no reason to interfere with the order of the CIT (A) which is on similar lines. - Decided against revenue.

Summary

Issues:
Revenue's appeal against CIT (A)'s order for A.Y 2007-08 and 2008-09.

Analysis:
1. The Revenue raised grounds of appeal against CIT (A)'s order, contending that the share of property valued at ?2,13,50,000 was wrongly exempted under section 2(ea)(i)(3) of the Wealth Tax Act, claiming the asset did not meet the conditions to be considered a commercial establishment.

2. The assessee company, along with two other group companies, purchased a property comprising a Cinema Theatre in Visakhapatnam for ?6,40,50,000. The AO issued a notice for wealth tax return, considering the property as an asset chargeable to tax under section 2(ea) of the Wealth Tax Act.

3. The assessee declared its share of the property at ?2,13,50,000 as exempt under section 2(ea)(i)(3), stating it was a commercial establishment. The AO requested additional documentation, including permissions for commercial activity on the property, to which the assessee responded that no activity was carried out due to business constraints.

4. The AO assessed the property at ?2,41,20,000 for wealth tax, as the assessee failed to prove commercial use. The CIT (A) allowed the appeal, considering the property as a commercial asset purchased for commercial activity, thus exempt from wealth tax.

5. The Revenue appealed, with the DR supporting the AO's decision and the assessee's counsel backing the CIT (A)'s order.

6. The Tribunal found that the property was purchased for a commercial venture but was not operational during the relevant assessment years due to renovation. The asset being a commercial establishment, the wealth tax exemption applied.

7. The CIT (A) accepted the appellant's contention that the property was intended for commercial use, considering the nature of the business and financial records. The DR's arguments were not sufficient to counter the CIT (A)'s findings.

8. The Tribunal referenced similar judgments and held that as long as the commercial asset remained capable of productive use, it was not liable for wealth tax. Despite the theatre's inactivity, the property retained its commercial nature, justifying the exemption under section 2(ea)(i)(3).

9. Citing various decisions, the Tribunal concluded that the property, although not operational, was a commercial establishment and thus upheld the CIT (A)'s decision to reject the Revenue's appeals for both assessment years.