2006 (8) TMI 235 - AT - Wealth-tax

Summary

Issues Involved:
1. Whether the cash recorded in the books of account and held in the business of the assessees as on the valuation date is an asset within the meaning of Section 2(ea) of the Wealth Tax (WT) Act.
2. Inclusion of the value of motor cars in computing the net wealth.
3. Directions of the Commissioner of Wealth Tax (Appeals) [CWT(A)] to value cash in hand under Rule 14 of Schedule III to the WT Act.
4. Directions of the CWT(A) to grant exemption to the assessee under Section 5(vi) of the WT Act in respect of the land and building at Thevally.

Issue-wise Detailed Analysis:

1. Cash in Hand as an Asset:
The primary issue was whether cash recorded in the books of account and held in the business of the assessees as on the valuation date is an asset under Section 2(ea) of the WT Act. The assessees argued that the cash was part of their business assets and should not be considered an asset for wealth tax purposes, citing the Finance Minister's speech and CBDT Circular No. 636, which emphasized non-productive assets. The Tribunal agreed with the assessees, stating that cash in hand duly recorded in the books of account is not an asset for wealth tax purposes, even for individuals and HUFs. The Tribunal emphasized that the legislative intent was to tax non-productive assets and that cash used in business should be considered a productive asset. Consequently, the Tribunal directed the AO to delete the cash in hand from the net wealth computation.

2. Inclusion of Motor Cars in Net Wealth:
The second issue concerned the inclusion of motor cars in computing the net wealth. The assessees contended that the cars were used in their business and should be considered productive assets. However, the Tribunal found that the legislative language in Section 2(ea)(ii) clearly included motor cars as assets unless they were used for running on hire or held as stock-in-trade. Since the assessees did not meet these conditions, the Tribunal upheld the inclusion of motor cars in the net wealth computation, deciding against the assessees.

3. Directions to Value Cash in Hand under Rule 14:
The Revenue's appeals included an issue regarding the CWT(A)'s directions to value cash in hand under Rule 14 of Schedule III to the WT Act. Given the Tribunal's decision that cash in hand recorded in the books of account is not an asset, this issue became moot. The Tribunal rejected the relevant grounds taken by the Revenue.

4. Exemption under Section 5(vi) for Land and Building at Thevally:
The final issue involved the CWT(A)'s directions to grant exemption under Section 5(vi) of the WT Act for the land and building at Thevally. The AO had included the market value of the property in the net wealth computation, but the CWT(A) directed exemption, noting that the property was indivisible and consisted of a building. The Tribunal agreed with the CWT(A), confirming that the property was not vacant land and qualified for exemption under Section 5(vi). The Tribunal found no evidence from the Revenue to prove otherwise and upheld the CWT(A)'s findings.

Conclusion:
The Tribunal allowed the assessees' appeals regarding the cash in hand and partly allowed appeals regarding the exemption for the property at Thevally. The Tribunal dismissed all the Revenue's appeals, concluding that the cash in hand recorded in the books of account is not an asset under the WT Act and confirming the exemption for the property at Thevally. The inclusion of motor cars in the net wealth was upheld.