2016 (5) TMI 659 - AT - Wealth-tax

Treatment to cars used in the business of the assessee as assets for wealth tax purpose - Held that - There is no doubt the cars were used in the business, which are essential to run the business, which are applied in the business similar to plant and machinery . The intent of the legislature to exclude the cars which are used in the business for running them on hire. Here, these are excluded because the cars are used as plant and machinery , simply to generate revenue. Similarly in the assessee s case, the cars are used as plant and machinery . In our considered view, when the cars are used in the business which are productive will have the same meaning as running them on hire. The rule laid down by the Hon ble Supreme Court in the cases of CIT Vs. Kulu Valley Transport Co. P. Lyd. 1970 (4) TMI 14 - SUPREME Court and Mysore Minerals Ltd. Vs. CIT, 1999 (9) TMI 1 - SUPREME Court , when the situation demands and there is no clarity, the interpretation which is beneficial to the assessee must be adopted. In the given situation, there is no doubt the cars were utilized in the business to complement the revenue generation. The legislature intends to exclude these assets, as they are productive. In the given situation, the cars are productive, hence, these cars have to be excluded from the definition of assets as specified exclusion. In view of the above discussion and interpretation, the cars used in the business are considered as productive and should be treated similar to plant and machinery . In our view, these cars are not assets u/s 2(ea)(ii) of the Wealth Tax Act. Accordingly, we direct the AO to exclude these cars from the list of assets for wealth tax purpose.

Issues Involved:
1. Whether cars used by the assessee in their business activities are considered as 'assets' under Section 2(ea) of the Wealth Tax Act.
2. Whether the notice issued under Section 17 of the Wealth Tax Act was justified.
3. Interpretation of provisions of the Wealth Tax Act in favor of the assessee.

Detailed Analysis:

1. Whether cars used by the assessee in their business activities are considered as 'assets' under Section 2(ea) of the Wealth Tax Act:

The assessee, a company dealing with Maruti Udyog Ltd. cars, did not file a wealth tax return. The Assessing Officer (AO) issued a notice under Section 17 after noticing that the written down value (WDV) of the assessee's cars exceeded the exemption limit. The assessee claimed exemption for these cars, arguing they were used for business purposes such as demonstrations, training, customer service, and other business needs, making them integral to their operations. The AO rejected this claim, stating that under Section 2(ea) of the Wealth Tax Act, only cars used for running on hire or as stock-in-trade are excluded from the definition of 'assets'. The CIT(A) upheld the AO's decision but allowed for the deduction of liabilities related to these cars.

Upon appeal, the Tribunal noted that the cars were indeed used in the assessee's business, akin to 'plant and machinery', and were essential for generating revenue. The Tribunal emphasized that the legislative intent, as reflected in the Finance Minister's Budget speech and the Chelliah Committee's recommendations, was to exclude productive assets used in business from wealth tax. Therefore, the Tribunal concluded that the cars should not be considered 'assets' under Section 2(ea) and directed the AO to exclude them from the wealth tax assessment.

2. Whether the notice issued under Section 17 of the Wealth Tax Act was justified:

The assessee argued that the notice under Section 17 was unwarranted as there was no escapement of wealth. They contended that the AO's treatment of cars as taxable wealth in the years under consideration was a change of opinion, not justified by the Wealth Tax Act. The Tribunal did not specifically address this issue in isolation but focused on the broader interpretation of the assets under Section 2(ea), ultimately ruling in favor of the assessee.

3. Interpretation of provisions of the Wealth Tax Act in favor of the assessee:

The assessee argued that in cases of ambiguity or multiple interpretations of tax law, the interpretation favoring the taxpayer should be adopted, citing Supreme Court rulings. The Tribunal agreed, referencing the principle that tax provisions should be interpreted in a manner that advances the cause of justice and aligns with legislative intent. The Tribunal reiterated that the cars used in the assessee's business were productive assets, akin to 'plant and machinery', and thus should not be taxed under the Wealth Tax Act.

Conclusion:

The Tribunal allowed the appeals, ruling that the cars used in the assessee's business should not be considered 'assets' under Section 2(ea) of the Wealth Tax Act and directed the AO to exclude these cars from the wealth tax assessment. The judgment emphasized the importance of legislative intent and the principle of interpreting tax provisions in favor of the taxpayer when ambiguities arise.

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