1967 (7) TMI 18 - HC - Wealth-tax

Whether the value of the residential quarters aggregating to Rs. 51, 81, 559 was allowable as a deduction u/s 2(e)(ii) of the WT Act 1957 in the computation of the net wealth of the assessee as on the valuation date - Held no

Issues Involved:
1. Deduction of the value of residential quarters under section 2(e)(ii) of the Wealth-tax Act.
2. Deduction of the value of electrical machinery (non-factory) under section 5(1)(ix) of the Wealth-tax Act.
3. Deduction of taxation liability under section 2(m) of the Wealth-tax Act.
4. Rejection of the department's petition under section 24(5) of the Wealth-tax Act for enhancement by the sum of Rs. 3,58,996.

Issue-Wise Detailed Analysis:

1. Deduction of the Value of Residential Quarters under Section 2(e)(ii) of the Wealth-tax Act:

The first issue pertains to whether the value of residential quarters amounting to Rs. 51,81,559 is allowable as a deduction under section 2(e)(ii) of the Wealth-tax Act, 1957. The court analyzed section 2(e)(ii), which excludes any building owned or occupied by a cultivator or receiver of rent or revenue out of agricultural land, provided the building is on or in the immediate vicinity of the land and required as a dwelling-house, store-house, or out-house.

The court noted that the assessee, an incorporated company, does not fit the description of a cultivator as it cannot cultivate by itself or with family members. The court referenced the case of Calcutta Stock Exchange Association Ltd., In re, which interpreted "residence" to mean a place where a human being eats, drinks, and sleeps. The court concluded that an incorporated company does not require a dwelling-house in the same sense as a natural person. Therefore, the residential quarters built for the company's employees do not qualify as the company's dwelling-house. The court answered this question in the negative and against the assessee.

2. Deduction of the Value of Electrical Machinery (Non-Factory) under Section 5(1)(ix) of the Wealth-tax Act:

The second issue involved whether the value of electrical machinery (non-factory) at Rs. 11,93,222 is allowable as a deduction from the net wealth of the assessee under section 5(1)(ix) of the Wealth-tax Act. The court examined section 5(1)(ix), which exempts tools and implements used for raising agricultural produce.

The court discussed the definition of "implements" and concluded that modern mechanized implements, such as electrical transformers and switchgears, used for raising agricultural produce, qualify as tools and implements. However, the court noted that the machinery in question was used for both agricultural and non-agricultural operations. Since the machinery was not exclusively used for raising agricultural produce, it did not qualify for exemption. The court answered this question in the negative and against the assessee.

3. Deduction of Taxation Liability under Section 2(m) of the Wealth-tax Act:

The third issue was whether the sum of Rs. 76,22,011, representing taxation liability not assessed before the valuation date, was allowable as a deduction under section 2(m) of the Wealth-tax Act. The court referenced the Supreme Court decision in Keshoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax, which established that such liabilities are deductible. The court answered this question in the affirmative and in favor of the assessee.

4. Rejection of the Department's Petition under Section 24(5) of the Wealth-tax Act for Enhancement by Rs. 3,58,996:

The final issue concerned the Tribunal's rejection of the department's petition to include Rs. 3,58,996 in the taxable assets of the assessee. The court noted that the revenue did not appeal against the Appellate Assistant Commissioner's order but filed a petition shortly before the hearing. The court cited section 24(5) of the Wealth-tax Act and relevant case law, concluding that the Tribunal's power is confined to the subject matter of the appeal. Since the appeal did not cover the point raised by the department, the Tribunal was correct in rejecting the application. The court answered this question in the affirmative and in favor of the assessee.

Conclusion:

The court answered questions 1 and 2 in the negative and against the assessee, question 3 in the affirmative and in favor of the assessee, and the question raised by the Commissioner of Wealth-tax in the affirmative and in favor of the assessee. No order as to costs was made due to divided success.

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