1993 (1) TMI 111 - AT - Wealth-tax

Summary

Issues Involved:
1. Determination of the value of Naaz Cinema building for wealth-tax purposes.
2. Applicability of section 40(3) of the Finance Act, 1983, and section 2(e)(v) of the Wealth-tax Act, 1957.
3. Retrospective applicability of the Finance Act, 1988.
4. Classification of cinema building as 'plant and machinery'.
5. Impact of the lease status on the valuation of the property.

Detailed Analysis:

1. Determination of the Value of Naaz Cinema Building for Wealth-tax Purposes:
The assessee contested the valuation of Naaz Cinema building determined by the Commissioner of Wealth-tax (Appeals), who had partially upheld the Assessing Officer's valuation of Rs. 85,57,400 based on the rent capitalization method. The assessee argued for a lower valuation based on the yield method, which had been declared at Rs. 3.57 lakhs.

2. Applicability of Section 40(3) of the Finance Act, 1983, and Section 2(e)(v) of the Wealth-tax Act, 1957:
The assessee raised an additional ground, asserting that the inclusion of Naaz Cinema building in the wealth-tax assessment contravened section 40(3) of the Finance Act, 1983. The assessee argued that the provisions of section 2(e)(v) of the Wealth-tax Act, 1957, could not override the specific provisions of section 40(4) of the Finance Act, 1983. It was argued that the cinema building should be exempt as 'plant and machinery' under section 40(3)(vi).

3. Retrospective Applicability of the Finance Act, 1988:
The assessee contended that the amendment brought by the Finance Act, 1988, which included the term "Cinema House" in section 40(3)(vi), should be applied retrospectively. This amendment aimed to remove unintended hardship and provide incentives for growth and modernization.

4. Classification of Cinema Building as 'Plant and Machinery':
The assessee argued that the cinema building should be classified as 'plant and machinery' and thus be exempt from wealth-tax. This argument was supported by various judicial precedents, including decisions in the cases of Prakash Talkies (P) Ltd., Shashi Theatre (P) Ltd., and others, which held that cinema buildings used for film exhibitions qualify as 'plant' for tax purposes.

5. Impact of the Lease Status on the Valuation of the Property:
The lease of the land on which Naaz Cinema was constructed had expired in 1978, and the matter of granting a perpetual lease was pending before the Delhi High Court. The assessee argued that, due to the precarious nature of the tenancy, the property should not be considered an asset under section 2(e) of the Wealth-tax Act. This argument was supported by the Supreme Court's decision in F.S. Gandhi v. CWT, which held that a tenancy from month to month, which could be terminated at any time, did not constitute an asset for wealth-tax purposes.

Judgment:
The Tribunal considered the arguments and judicial precedents and concluded that the cinema building should be classified as 'plant and machinery' and thus be exempt from wealth-tax under section 40(3)(vi) of the Finance Act, 1983. Additionally, due to the lease's precarious nature and the pending legal proceedings, the property could not be considered an asset under section 2(e) of the Wealth-tax Act.

The Tribunal set aside the order of the Commissioner of Wealth-tax (Appeals) and allowed the appeal, ruling that the value of the cinema building should not be included in the net wealth of the assessee. The appeal was allowed on the legal point, confirming that the cinema-house, being plant and machinery, is not chargeable to tax as per the relevant provisions.