1992 (5) TMI 83 - AT - Wealth-tax

Summary

Issues Involved:
1. Entitlement to exemption from wealth-tax on buildings used for business purposes under clause (vi) of sub-section (3) of section 40 of the Finance Act, 1983.

Detailed Analysis:

Entitlement to Exemption from Wealth-Tax:
The main issue in these appeals is whether the assessee is entitled to claim exemption from wealth-tax on the value of buildings owned by it, located at D. Nos. 17, 18, and 19, East Chitrai St., Madurai, under clause (vi) of sub-section (3) of section 40 of the Finance Act, 1983. The appeals pertain to the assessment years 1984-85 to 1988-89.

The assessee, a private limited company in the textile business, entered into franchise agreements with six partnership concerns to carry on business in its buildings. These concerns paid a commission to the assessee for using its trade emblem and other services.

The Wealth Tax Officer (WTO) rejected the assessee's claim for exemption, stating that the buildings were not used by the assessee for its own business but by separate entities. Consequently, the WTO allowed exemption only for 1/10th of the building used as the assessee's office and assessed the remaining 9/10th for wealth-tax.

On appeal, the Commissioner of Wealth Tax (Appeals) [CWT(A)] allowed the exemption, holding that the buildings were used by the assessee for its business of franchising, thus qualifying for exemption under clause (vi) of sub-section (3) of section 40 of the Finance Act, 1983. The CWT(A) emphasized that the income earned from the franchise business was mainly through providing expertise and the building.

The Revenue contended that the buildings were not used by the assessee for its own business, as the franchisees were distinct entities. They argued that the franchise agreements were a means to avoid tax.

The Tribunal examined the definition of "business" and concluded that the franchise business falls within its scope. The franchise agreements allowed the franchisees to use the assessee's trade emblem and expertise, with the assessee maintaining control over the business conducted in its buildings. The Tribunal found that the buildings were used by the assessee for its own business purposes, as the franchisees operated on a leave and license basis without paying separate rent.

The Tribunal upheld the CWT(A)'s decision, confirming that the buildings were used for the assessee's business and thus exempt from wealth-tax under clause (vi) of sub-section (3) of section 40 of the Finance Act, 1983.

Conclusion:
The Tribunal dismissed the Revenue's appeals, affirming that the buildings at D. Nos. 17, 18, and 19, East Chitrai St., Madurai, are exempt from wealth-tax as they were used by the assessee for its business purposes under the relevant provisions of the Finance Act, 1983.