2020 (12) TMI 750 - AT - Wealth-tax

Wealth tax assessment - property which is subject to wealth tax by the AO is not residential or commercial property and it is an industrial property not liable for wealth tax - rental income from the said property was treated as income from house property. According to the assessee, it is not an asset liable for wealth tax - Assessing Officer treated it as an asset liable for wealth tax - HELD THAT - The provisions of the Act are clear and categoric that all immovable assets falling within the definitions are to be included as the wealth of the assessee unless the same are excluded by the exclusion clause. On reconstruction of the definition clause, after amendment w.e.f 1st April, 1997, commercial properties are to be included in the net wealth of the assessee and exemption is being allowed to such house of the assessee which is occupied for carrying out his business or profession by assessee himself, as it is provided in the sub clause (3) to s. 2(ea)(i) of the Act, business or profession carried on by him. The portion rented out by the assessee against which compensation has been received and assessed as business income is the portion in which tenant of the assessee is carrying out his business or profession. Mere assessment of the rent or compensation under the head business income does not commensurate with the assessee carrying on his business or profession in the said property. In the facts of the present case, the assessee is not carrying on the business of letting out properties. Accordingly, the portion of property which is occupied by the tenant is to be included as an asset within the definition provided in section 2(ea)(i) of the Act at the relevant time. If an asset is used for the purpose of business or profession then it is not an asset for the purpose of taxability under WT Act. Hon'ble Bombay High Court in the case of Parekh Traders 1983 (9) TMI 39 - BOMBAY HIGH COURT wherein it was held that property owned by the assessee subject to letting year to year, income on which taxed as income from house property so as to take advantage of deduction u/s.24 of the Act and treating the same property as business asset to claim exemption u/s.2(ea) of W T Act. In the present case also the assessee s income from letting out the property is assessed as income from house property and the assessee has availed deduction u/s.24 of the Act and for the purpose of wealth tax it cannot be considered as business asset so as to exempt from wealth tax. In our opinion, it is rightly to be considered as an asset liable for wealth tax. Value of industrial land to be reduced from value of the factory building so as to ascertain the net asset value - The assessee in this case not demonstrated that industrial land is not part of the factory building let out to the tenant. Being so, it should be considered as part of the factory building and to be included in the asset liable for wealth tax. Notional interest computed by AO on the deposit received by the assessee to be excluded from net maintainable rent - It is appropriate to consider the annual value considered by the Assessing Officer as per Section 23 of the Income Tax Act for the purpose of income tax assessment so as to determine the net maintainable rent for the purpose of wealth tax. The Assessing Officer in the same assessment year cannot consider one rent for determining the annual value for the purpose of Income Tax and different rent for wealth tax purpose. Accordingly, we direct the Assessing Officer to adopt the same annual value as per Section 23 of IT Act for determining the net maintainable rent. Accordingly, he determined the gross maintainable rent and correspondingly he shall give deduction towards municipal tax and G.M.R. It is ordered accordingly.

Issues Involved:
1. Liability of factory premises to wealth tax.
2. Nature of property as industrial or commercial.
3. Interpretation of Section 2(ea) of the Wealth Tax Act.
4. Determination of Market Value of Property (MVP).
5. Inclusion of notional interest in net maintainable rent.
6. Consistency in treatment of rental income for income tax and wealth tax purposes.

Detailed Analysis:

1. Liability of Factory Premises to Wealth Tax:
The core issue revolves around whether the factory premises leased to a sister concern should be considered a taxable asset under the Wealth Tax Act. The assessee argued that the property, being industrial, is exempt from wealth tax. However, the Tribunal upheld the Assessing Officer's view that the property is liable to wealth tax as it was rented out for commercial exploitation, not used by the assessee for its own industrial activities.

2. Nature of Property as Industrial or Commercial:
The Tribunal examined the nature of the property, noting that it was used as a factory for manufacturing pharmaceutical products. Despite being located in an industrial area, the property was leased out, and the rental income was treated as income from house property, not business income. The Tribunal held that the property should be considered commercial for wealth tax purposes, as it was not used by the assessee for its own industrial activities.

3. Interpretation of Section 2(ea) of the Wealth Tax Act:
The Tribunal analyzed Section 2(ea) of the Wealth Tax Act, which defines assets liable for wealth tax. The definition includes buildings used for residential or commercial purposes but excludes properties occupied by the assessee for business or profession. The Tribunal referenced previous judgments, including the Pune Bench's decision in Satvinder Singh Kalra and the Delhi High Court's ruling in Kapri International Pvt. Ltd., to conclude that the leased property falls within the definition of taxable assets under Section 2(ea).

4. Determination of Market Value of Property (MVP):
The Assessing Officer computed the Market Value of the Property (MVP) based on actual rent and notional interest on deposits. The Tribunal directed the Assessing Officer to adopt the annual value determined under Section 23 of the Income Tax Act for consistency. This approach ensures that the same rental value is used for both income tax and wealth tax assessments.

5. Inclusion of Notional Interest in Net Maintainable Rent:
The Tribunal addressed the inclusion of notional interest on deposits in the net maintainable rent calculation. The Assessing Officer had added 15% notional interest on an ?80 lakh deposit. The Tribunal found this approach inconsistent with the income tax assessment and directed the Assessing Officer to use the annual value determined under Section 23 of the Income Tax Act, excluding notional interest.

6. Consistency in Treatment of Rental Income:
The Tribunal emphasized the need for consistency in treating rental income for income tax and wealth tax purposes. The assessee had treated the rental income as income from house property for income tax purposes, claiming deductions under Section 24. The Tribunal held that the same treatment should apply for wealth tax purposes, and the property should be considered a taxable asset.

Conclusion:
The Tribunal partly allowed the assessee's appeal, directing the Assessing Officer to adopt the same annual value for determining net maintainable rent as used for income tax purposes and exclude notional interest. The property was held liable for wealth tax as a commercial asset, not exempt as an industrial property. The decision underscores the importance of consistent treatment of rental income across different tax assessments.

← Previous Next →