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TMI Blog2016 (5) TMI 1056X X X X Extracts X X X X X X X X Extracts X X X X ..... s. The subject mentioned property which has been let out would not fall within the ambit of taxable asset u/s 2(ea) of the Act - Decided in favor of assessee. Inclusion of jewellery without giving effect to debts owed in relation to jewellery - Held that:- During the year in which Jewellery was owned, there was no increase in share capital and reserves and surplus during those relevant assessment years - on the contrary, we find that the loan funds have increased - which enables us to safely conclude that the jewelleries have been obtained only out of borrowed funds and hence the same requires to be deducted from the value of jewelleries. - No addition. - Decided in favor of assessee. Valuation of motor Cars - Held that:- 80% of the insurance value of motor car should be considered as the market value in terms of Rule 20 of Schedule III of Wealth Tax Act. - Decided in favor of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... n 2(ea)(i) of the Act. 7. For that on the facts and in the circumstances of the case and in law, the CIT-(Appeals) as well as the AO failed to appreciate that both Jewellery and Motor Vehicle were fully financed out of borrowed funds and in view of Section 3(2) read with Section 2(m), both these assets were not assessable to wealth-tax. 8. For that on the facts and in the circumstances of the case and in law, the CIT-(Appeals) as well as the AO were unjustified in attributing own funds to the extent of 25.70% of the value of jewellery & motor car on pro-rata basis, although the appellant had sufficiently established that the assets were financed out of loan funds. 9. For that on the facts and in the circumstances of the case and in law and without prejudice to the Ground Nos. 7 & 8, the CIT (Appeals) as well as the AO erred in adopting the written down value of motor car instead of the 80% of the insured value of the motor car. 10. For that on the facts and in the circumstances of the case and in law and without prejudice to the Ground Nos. 7 & 8, the CIT- (Appeals) as well as the AO failed to value the Jewellery in accordance with Rules 18 & 19 of the Wealth tax Rules ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f regularization charges of ₹ 2,88,433/- on 29.12.2005 and the payment was tendered on the close of December 2005. Once the conditions prescribed in the Provisional Completion Certificate were complied with by end December 2005, the assessee applied to NDMC for issuing the final completion certificate. NDMC granted the final completion certificate on 26.4.2006. On obtaining completion certificate, the assessee also applied for determination of annual value of the property. By an order dated 27.4.2012, NDMC determined the annual value of the subject mentioned property at ₹ 1,80,15,700/-. As per rectification order dated 7.9.2012, the annual value of the said property was revised downwards to ₹ 1,16,83,790/- with effect from FY 2008- 09. It was therefore submitted by the assessee that as on 31.3.2006, the said property was not in the nature of a building and thereby not a taxable asset u/s 2(ea) of the Act. It was argued that the subject mentioned land under construction was not subjected to wealth tax upto Asst Year 2005-06 by the revenue and hence by adopting the principle of consistency, the value of land together with its construction in progress could not be br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He also found that the Learned AR had not furnished the annual value of said immovable property assessed by the Municipal Authority. 4.3. The Learned AO did not agree with the contentions of the assessee on the aspect of bringing the immovable property within the ambit of taxable asset u/s 2(ea) of the Act. The Learned AO adopted the cost of construction of the said property as its taxable value as per provision of Rule 3 (2nd proviso) of Schedule III to Wealth Tax Act, 1957 by adopting the ratio of own fund in the total assets as worked out below:- Share capital - ₹ 45,24,36,100/- Unsecured loan - ₹ 130,74,54,942/- ---------------------- ₹ 175,94,91,042/- Ratio of own fund = 45,24,36,100 / 175,94,91,042 = 0.257 Value of Land + Building + Electrical Equipments (44,62,40,300 + 36,30,21,796 + 40,81,92,382) = ₹ 121,74,54,478/- Therefore, ratio of own fund in the above value of ₹ 121,74,54,478/- = 0.257*121,74,54,478 = ₹ 31,28,85,801/- Accordingly, the Learned AO arrived at the taxable value of immovable property at ₹ 31,28,85,801/- as worked out above. 4.4. The assessee apart from reiterating the submissions made before the Lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dismiss the ground nos. 3,4 & 5 raised by the assessee. 5.1. We find that the Learned CIT(A) had categorically given his finding that the asset as on valuation date is in the form of a building which is let out. He held that the final completion certificate obtained in April 2006 does not change the character of the asset which has been let out from Jan 2006 onwards. The Learned AO also had treated the subject mentioned asset on the valuation date as 'building' which is let out. Hence the legality of the provisional certificate vis a vis the final completion certificate need not be adjudicated upon herein by us as the same is not in dispute . 5.2. It is not in dispute that the said property was let out to Sri Lakshmi Niwas Mittal from Jan 2006 onwards. It is not in dispute that the assessee had duly offered the rental income from the subject mentioned property from Jan 2006 onwards as its income from house property which is stated to have been accepted by the Learned AO in the Income Tax Proceedings. 5.3. We find that the Finance Act 1992 brought about structural and conceptual changes in levy of Wealth Tax by amending the provisions of the Wealth Tax Act, 1057. The legislature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be levied on such residential property that has been let out. Therefore, while construing the meaning of sub-clause (4) of section 2(ea)(i) of the Act, it has to be kept in mind that the intention of legislature is that wealth tax is not to be levied on productive assets. 5.4. We find from the memorandum explaining the provisions of Finance (No.2) Bill, 1998, it will be apparent that in the legislature's opinion, the Wealth tax was not to be levied on productive assets as also in the legislative opinion , let out properties were in the nature of productive assets hence did not qualify for being taxed as unproductive assets. However, the legislature intent was to grant exemption only if the residential property was let out for predominant part of the previous year preceding the valuation date and not if property was sparingly let out for residential purposes. In the opinion of the legislature, the exemption was available only if the property was let out for a period of minimum 300 days out of 365 days comprised in a calendar year which preceded the valuation date. The memorandum explaining the provision of the Finance Bill thus show that the said exemption was granted on the basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company received the completion certificate only in the month of April 2006. During the major portion of the assessment year under appeal, the property was under-construction. Accordingly, it was not possible for the assessee to let out the same for a minimum period of 300 days in a year. It is not the case of the revenue that the property was vacant during the aforesaid assessment year. The property has been rented during the entire period from the date from which it was ready to be occupied. The following list of dates and gist would prove the facts better:- 21.11.2005 - Date of issuing provisional completion certificate by New Delhi Municipal Council (enclosed in page 21 of paper book) directing the Assessee to fulfill certain conditions. 29.12.2005 - Letter by assessee to New Delhi Municipal Council intimating them Of complying with the conditions stipulated vide letter dated 22.11.2005 and requesting them to release the plans / drawings (enclosed in page 22 of paper book) 1.1.2006 - Date from which property was let out by the assessee to Sri Lakshmi Niwas Mittal on a monthly rent of ₹ 5 lakhs plus ₹ 1 lakh service Charges 18.1.2006 - Letter by assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature while enacting clause (4) was capable of being interpreted only in one manner and there was no scope for any intendment while interpreting the exemption provision of the Act. We hold that having regard to the peculiar facts and circumstances of the case involved in the year under appeal (i.e AY 2006-07) , it is necessary to adopt a purposive interpretation or construction of the statute because the literal interpretation leads to result which is manifestly contrary to the legislative intent according to which value of productive asets are not liable for levy of wealth tax. The facts on record shows that the residential building which is considered as an 'aset' u/s 2(ea)(i) by the Learned AO came into existence on 30.12.2005 and as such the property in question was an 'asset' for an overall period of 92 days in FY 2005-06. Out of the period of 92 days, the property was let out for residential purposes for a period of 90 days ( i.e 1.1.2006 to 31.3.2006). Hence it could be safely concluded that the assessee had substantively complied with the provisions contemplated in sub-clause (4) of section 2(ea)(i) of the Act. We also find that expecting the assessee to let out the propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pands and contracts. In interpreting the words of the statute, the setting in which such words are placed may be taken into consideration. Where the language used by the legislature presents a choice of two or more meanings equally tenable, it is admissible within certain limits to have resort to the aid of all extraneous considerations and certainly to the context of the statute itself, in order to discover which meaning is most palpably intended. The legislature have the power to decide what the policy of the law shall be, and if has intimated, that 'will' should be recognized and obeyed. It is accepted proposition that general words cannot be read in isolation, their colour and content must be derived from the context in which used and for such purpose, context includes the mischief which the statute intends to remedy. The meaning of the statute is not to be found so much in a strictly grammatical language but in the context of the object to be achieved by the statute. The expressions used in statute should ordinarily be understood in a sense in which they best harmonize with the object of the statute and which effectuate the object of the legislature. It is said that statute is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onist view of interpretation which required them to adopt the literal meaning of the language. The courts now adopt a purposive approach which seeks to give effect to the true purpose of legislation and are prepared to look as much extraneous material that bears upon the background against which legislation was enacted. 5.6.2. What the Parliament means and what it says can be two concepts. The intention of the legislature is all important though what it said may not express what it meant. The intention assimilates two aspects, in one aspect, it covers the "meaning" - i.e what the words mean , and in another aspect, it conveys "purpose and object" or the "reason or spirit" pervading through the statute. The purposive interpretation has now been judicially recognized by the Hon'ble Supreme Court. In Deepal G Soni vs United India Insurance Co (3 SCALE 546 (2004)) , the Hon'ble Apex Court emphasized that the object underlying the statute is required to be given effect by applying the principles of purposive construction. It has been held that the law consists of the word that the Parliament has enacted. It is however for the courts to construe that the words and court's duty in doing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the literal interpretation or construction of the statute produces manifestly absurd or undesired or unintended result not foreseen by the legislature at the time of framing the law. In this regard, we would like to make to the useful reference made to the observations made by Justice P.N.Bhagwati in the case of K.P.Varghese vs ITO reported in 131 ITR 597 (SC) :- "A statutory provision must be so considered, if possible, that absurdity and mischief may be avoided. Where the plain literal interpretation of a statutory provision produces a manifestly absurd and unjust result which could never have been intended by the legislature, the court may modify the language used by the legislature or even do some violence, to it so as to achieve the obvious intention of the legislature and produce a rationale construction." 5.6.4. The doctrine of purposive interpretation is well accepted and has been applied in India by the Hon'ble Apex Court following the English Law on the subject. Explaining as to what 'purposive construction' is , Lord Smith in R.(Haw) v.Secretary of State for the Home Department (2006) 3 ALL ER 428 at page 438 , in paragraph 42, observed: "A purposive constru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unworkable because in such case, the assessee shall be called upon to perform an impossibility to claim the exemption. It could be appreciated that the 'asset' which was taxed u/s 2(ea)(i) of the Act was legally in existence only for a period of 92 days during FY 2005-06. In the circumstances, it was not possible to let the said property for period of at least 300 days in FY 2005-06 so as to qualify for exemption provided in section 2(ea)(i)(4) of the Act. In view of the aforesaid findings and adopting purposive interpretation of the legal provisions of the Act in consonance with the Explanatory Memorandum to Finance (No.2) Bill, 1998 , residential property let out being a productive asset, we deem it fit to grant benefit of exemption envisaged by clause (4) since for the entire duration of the previous year during which the property was in legal existence, was let for residential purposes. 5.7. Without prejudice to the above, it was argued that for the purpose of computing the value of property, the Learned AO has held that the sum of ₹ 5 lakhs per month being the rental charged by the assessee cannot be taken as gross maintainable rent for the said property as th rental of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the cost disclosed by assessee at ₹ 4,93,73,084/- and thereafter added a sum of ₹ 98,74,617/- ( 20% of 4,93,73,084/-) and arrived at the taxable jewellery of ₹ 2,25,63,500/-. 6.2. Before the Learned CIT(A), it was argued by the assessee that the Learned AO erred in not recording any reasons for not accepting the valuation and the valuation report given by the assessee from a registered valuer for jewellery. The notional increase of 20% on estimated basis was also objected to before the Learned CIT(A). It was also argued that even assuming that the version of Learned AO is to be taken as correct, then deduction to the extent of loan funds utilized for jewellery which is 74.3% (100-25.7) according to Learned AO should have been reduced from ₹ 98,74,617/- by the Learned AO. It was argued that the valuation of Jewellery is governed by Rule 18 of Schedule III to Wealth Tax Act which provides that the value of jewellery shall be the estimated price which it would fetch if sold in the open market on the valuation date. It has been further provided that where the valuation exceeds ₹ 5 lakhs during a relevant assessment year, the assessee is required to pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed reliance on Rule 19 of Schedule III of Wealth Tax Act wherein the valuation report once obtained would hold good for subsequent four assessment years and accordingly the assessee not obtaining separate valuation report as on 31.3.2006 relevant to asst year 2006-07 (asst year under appeal) is justified and the argument of the Learned AO in this regard is rejected. 6.4.1. It was further stated that from the list of jewelleries, predominant portion pertains only to diamonds. We find that the assessee also submitted the valuation report from the same registered valuer as on 31.3.2006 before the Learned CITA who valued the same at ₹ 4,18,14,417/- which was also much below the cost of acquisition of the assessee. The assessee explained before the Learned CITA that though the price of gold has increased over the years, the value of diamonds comprising of stones generally depreciates over the years. Strangely , we find that the Learned CITA having admitted the additional evidence in the form of valuation report from a registered valuer as on 31.3.2006 had sought to obtain a remand report from the Learned AO on the same , but later had held in his appellate order that the addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the valuation of motor vehicle made by the Learned AO and without giving effect to debts owed in relation to motor vehicle could be brought to wealth tax in the facts and circumstances of the case. 7.1. The brief facts of this issue are that the assessee disclosed the value of Mercedes Benz in the return of wealth and claimed the corresponding liability attributed to it. The Learned AO adopted the value of vehicle at the book profit of ₹ 66,63,177/- and added the same to the net wealth. On first appeal, the assessee submitted that the motor car was funded out of loan funds which requires to be deducted from the asset. It was argued that the Learned AO should have considered 80% of the insured value of the motor car as the value for the purposes of determining the net wealth. It was argued that Rule 20 of Schedule III of Wealth Tax Act provides for the method for determining the value of assets which is not specifically prescribed. As per the said Rule, the value should be determined at the price which the asset would fetch if sold in open market. Therefore, it was contended that the book value adopted by the Learned AO is not in accordance with the market value of the car. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose. When this position of stand as taken by the respected co-ordinate bench was addressed to the Ld. A.R., then he has requested to give the necessary direction, so that the correct value of the vehicles can be determined. From the side of the revenue, Ld. D.R. also had no reservation against this proposition. We have considered their submissions, however, for the sake of ready reference, hereby reproduce the relevant portion from the head-notes of the decision of Samarth Knitters Pvt. Ltd., 60 ITD 657 as follows: Rule 14 of Schedule III applies only in the case when a global valuation of the assets of the business as a whole are to be computed, whereas in the instant case only the motor cars were subjected to wealth-tax and wereunder valuation and not the business of the assessee as a whole. Therefore, this rule per se had no application to the facts and circumstances of the case. Clause (a) to rule 14(2) no doubt provides that value of the asset as disclosed in the balance sheet shall be taken to be written down value in 'the case of an asset on which depreciation is admissible, but this sub-clause is subject to Clause (b). This clause provides that if the value of any su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n market value of the motor cars. It is true that the value may not be determinative of the fact that the insurance is done for other things as well, but the basic premium is determined for the damage of the car, the value of which is taken on the basis of market trends. In these circumstances, the value of motor cars shown in their insurance policy was rightly taken as the basis for determining the market value. However, looking to the fact that the insurance company would also take other things into consideration in arriving at a particular value for the purposes of insurance, market value of motor cars could be reasonably estimated at 80 per cent of their insurance value. So, in the interest of justice, we refer this issue back to the stage of A.O to redetermine the value of the vehicles as laid down in the above cited case. Resultantly, this ground of the assessee may be treated as partly allowed for both the years that too only for statistical purposes. " 10. In the result, these appeals are partly allowed. 7.3.1. It is not in dispute that the motor car has been acquired by the assessee for ₹ 66,63,177/- during the Asst Year 2006-07. We find that during the Asst Y ..... X X X X Extracts X X X X X X X X Extracts X X X X
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