2012 (8) TMI 563 - AT - Wealth-tax

Validity of the issuance of notice u/s 17 of the Wealth Tax Act reopening of assessment income escape assessment Held that - Information and material found during course of assessment proceedings under section 143(3) of Income-tax Act, 1961 constitute a tangible material for forming a belief that net wealth of assessee assessable to tax has escaped assessment - reopening of the assessment by issuing notice us/ 17 of W T Act is valid and as per law Addition of net wealth in respect of office premises Held that - assessee in the instant case has let out a part of its business premises and since the assessee is not in the business of letting out properties, therefore, the said property, in our opinion, is not exempt either u/s. 2(ea)(i)(3) or 2(ea)(i)(5) of the Wealth Tax Act - premises in question being an office let out by the assessee would not fall in the category of commercial establishment or complex as per the provisions of sec. 2(ea)(i)(5) of the W T Act and consequently the same is assessable to wealth tax - appeal filed by the assessee is dismissed.

Issues Involved:
1. Validity of the issuance of notice under Section 17 of the Wealth Tax Act.
2. Addition of Rs. 5,00,91,438 to the net wealth of the assessee.

Issue-wise Detailed Analysis:

1. Validity of the Issuance of Notice under Section 17 of the Wealth Tax Act:

The first ground of appeal concerns the validity of the notice issued under Section 17 of the Wealth Tax Act for reopening the assessment. The assessee did not file a return of wealth under Section 14(1) of the Wealth Tax Act. However, during the income tax assessment proceedings under Section 143(3) of the Income Tax Act, it was discovered that the assessee had received rental income by letting out office premises. Consequently, notice under Section 17 of the Wealth Tax Act was issued on 24.3.2010. The assessee filed its return of net wealth on 27.4.2010, declaring net wealth of Rs. 15,10,300, but the Assessing Officer computed the net wealth at Rs. 5,16,01,721.

The assessee contended that the reassessment was invalid as it was based on the income tax assessment without any new material or information. The assessee relied on the Supreme Court's decision in ITO v. Lakhmani Mewal Das [1976] 103 ITR 437, arguing that there was no new tangible material to show that the net wealth assessable to tax had escaped assessment.

The tribunal, however, noted that there was no original assessment prior to the issuance of the notice under Section 17, as the assessee had not filed any return of net wealth. The tribunal held that the information and material gathered during the income tax assessment proceedings constituted tangible material for forming a belief that the net wealth assessable to tax had escaped assessment. Citing the Bombay High Court's decision in Multi-screen Media (P.) Ltd v. Union of India [2010] 324 ITR 54, the tribunal upheld the validity of the reopening of the assessment under Section 17 of the Wealth Tax Act.

2. Addition of Rs. 5,00,91,438 to the Net Wealth of the Assessee:

The second ground of appeal pertains to the addition of Rs. 5,00,91,438 to the net wealth of the assessee. The assessee had let out the office premises and argued that the premises were commercial property and not liable to wealth tax under Section 2(ea)(i)(5) of the Wealth Tax Act. The Assessing Officer, however, held that the property could not be considered a commercial complex or establishment because it was previously used by the assessee as an office and was now let out. The property was valued based on the rent capitalization method under Section 7 and Schedule III of the Wealth Tax Act.

The tribunal considered whether the premises fell under the category of commercial establishments or complexes as stipulated under Section 2(ea)(i)(5) of the Wealth Tax Act. The tribunal noted that the term "commercial establishments or complexes" refers to a building comprising more than one establishment meant for commercial purposes, including necessary infrastructure and services. The tribunal referred to the Pune Bench's decision in Satvinder Singh v. Dy. CWT [2007] 109 ITD 241, which held that a property used for business purposes and let out for such purposes could be classified as a commercial establishment.

However, the tribunal distinguished the present case, noting that the assessee had let out only an office premises and the rental income was assessed as income from house property. The tribunal held that the property did not fall under the exception provided in Section 2(ea)(i)(5) of the Wealth Tax Act. The tribunal further cited the Karnataka High Court's decision in Shankaranarayana Industries & Plantations (P) Ltd., which held that commercial properties not used for the assessee's business are taxable under the Wealth Tax Act.

The tribunal concluded that since the assessee was not in the business of leasing out properties and the rental income was treated as income from house property, the property did not qualify as a commercial establishment or complex under Section 2(ea)(i)(5) of the Wealth Tax Act. Consequently, the addition to the net wealth was upheld.

Conclusion:

The appeal filed by the assessee was dismissed, affirming the validity of the notice issued under Section 17 of the Wealth Tax Act and the addition of Rs. 5,00,91,438 to the net wealth of the assessee.

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