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TMI Blog2006 (9) TMI 118X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of this court in T.C.P. Nos. 202 to 205 of 97 dated September 8, 1998, for opinion of this court. The facts leading to the above tax cases are as under: The assessee is a company in which the public are substantially interested. It is a closely held company. The relevant assessment years are 1984-85 and 1985-86 and the corresponding valuation dates are March 31, 1984, and March 31, 1985. The issue involved in these references relates to the assessment of a multi-storeyed building belonging to the assessee-company. The property is at No. 26, Commander-in-Chief Road, Chennai, consisting of land to an extent of 26.65 grounds with a six storeyed building on a built-up area of 469 sq.m. There is also another old building of 818 sq.m. at the back. Of the total area of 26.65 grounds, an extent of 10.52 grounds had been taken as land appurtenant to the main building and the balance of 16.3 grounds was treated as vacant land. The building is partly used by the assessee-company for its own business and partly let out to various tenants. The Wealth-tax Officer excluded a part of the main building occupied by the assessee for its own business and assessed the rest of the property to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h judgment of this court consisting of Justice P.D. Dinakaran and Justice K. Raviraja Pandian dated September 22, 2004, in Tax Case Nos. 207 and 208 of 1999, now reported in CWT v. Fagun Estates P. Ltd. [2005] 272 ITR 472, in the assessee's own case, for earlier assessment years. However, when the present case came up for hearing before another Division Bench consisting of Justice N.V. Balasubramanian and Justice P.K. Misra, they expressed a doubt as to the correctness of the earlier Bench decision reported in CWT v. Fagun Estates P. Ltd. [2005] 272 ITR 472 and therefore they requested the hon'ble the Chief Justice to refer the matter to a larger Bench, which reads as follows: "2. We are of the view, the decision requires reconsideration as the facts of the instant case show that the main business of the assessee was letting out its premises, and in the course of its business, the assessee has let out a portion of the building. We are of the view, there are no acceptable reasons why the assessee should be denied the benefit only because it let out a portion of the building for business purpose. In our view, the classification of income under the Income-tax Act under various heads ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding that the assets are commercial assets and also the same is used for leasing business and hence, the assessee cannot be subjected to wealth-tax at all. Learned counsel further submitted that once it is a commercial asset, it is not subject to the Wealth-tax Act and it is not necessary that the assets should come within the exclusionary clause of section 40(3)(vi) of the Finance Act. He relied on the Bombay High Court judgment reported in CWT v. Cema P. Ltd. [2001] 248 ITR 629. Learned counsel further submitted that while interpreting the provision, the court must ascertain the intent of the Legislature and for doing so, the speech made by the Finance Minister in Parliament is relevant. However, it was stated that the purpose of introducing the provision is to levy wealth-tax only on unproductive assets held by closely-held companies. In the present case, the assets are commercial assets and hence no wealth-tax is leviable. Heard both counsel. It is useful to know the background of the introduction of section 40 of the Finance Act of 1983. Earlier, wealth-tax was leviable on companies under section 3 of the Wealth-tax Act. Section 13 of the Finance Act, 1960 provided that wea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Wealth-tax Act, 1957 (27 of 1957) (hereinafter referred to as the Wealth-tax Act), wealth-tax shall be charged under the Wealth-tax Act for every assessment year commencing on and from the 1st day of April, 1984, in respect of the net wealth on the corresponding valuation date of every company, not being a company in which the public are substantially interested, at the rate of two per cent, of such net wealth. Explanation.- For the purposes of this sub-section, 'company in which the public are substantially interested' shall have the meaning assigned to it in clause (18) of section 2 of the Income-tax Act. (2) For the purposes of sub-section (1), the net wealth of a company shall be the amount by which the aggregate value of all the assets referred to in sub-section (3), wherever located, belonging to the company on the valuation date is in excess of the aggregate value of all the debts owed by the company on the valuation date which are secured on, or which have been incurred in relation to, the said assets: Provided that where any debt secured on any asset belonging to the assessee is incurred for, or enures to, the benefit of any other person, or is not represented by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning provisions of that Act shall be construed so as to be in conformity with the provisions of this section. (6) Nothing in this section shall apply to any institution, association or body, whether incorporated or not and whether Indian or non-Indian, which the Central Government may, having regard to the nature and object of such institution, association or body, specify by notification in the Official Gazette and every notification issued under this sub-section shall be laid, as soon as may be after it is issued, before each House of Parliament. (7) Subject to the provisions of sub-section (5), this section shall be construed as one with the Wealth-tax Act." We are concerned with section 40(3)(vi) of the Finance Act. The said clause was later amended with effect from April 1, 1989, which reads as under: "Building or land appurtenant thereto, other than building or part thereof used by the assessee as factory, godown, warehouse, cinema house, hotel or office for the purposes of its business or as a hospital, creche, school, canteen, library, recreational centre, shelter, rest-room or lunch room mainly used for the welfare of its employees or used as residential accommodat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Clause (vi) of sub-section (3) of section 40 of the Finance Act, specifically excludes buildings or part thereof used by the assessee as factory, godown, warehouse, cinema house, hotel or office for the purposes of its business or as residential accommodation for its employees and it also provides for exclusion of buildings or part thereof used as a hospital, creche, school, canteen, library, recreational centre, shelter, rest-room or lunch room mainly for the welfare of its employees and the land appurtenant to such building or part. Unless and until the assets are used by the assessee as factory, godown, warehouse, hotel or office, the assessee cannot claim exemption under the provision. These specified assets alone are excluded from taxation. The assets other than the specified assets in the exclusionary clause, are not entitled for exemption. The assessee, in this case, let out a portion of the building to various tenants. The let out portions are not coming under any of the specified assets mentioned earlier. The business of the assessee is leasing out the assets and hence the assets are commercial one. Even though the assets used are commercial assets, still the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as an aid to interpretation when the language of the operative provisions of the Act is clear and unambiguous. The Supreme Court judgment reported in P.V. Narasimha Rao v. State (CBI/SPE) AIR 1998 SC 2120, held that the speech of the Minister should not be looked into, except for the limited purpose of ascertaining the mischief which the Act seeks to remedy. Normally, the courts will not rely on the statement of the minister or explanatory notes on the clauses of a Bill for construing the provision except in cases where the language is vague, capable of different interpretations. When the statute is ambiguous, uncertain, clouded or has more than one meaning, the external lights if any, which the statute was intended to remedy or of the circumstances that led to the passing of the statute may be looked into for the purposes of ascertaining the object which the Legislature had in view in using the words in question. A statutory provision must be construed, if possible, to see that absurdity and mischief should 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 Legislatu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the commercial asset by letting it out. Hence, the property used should be considered to be used in the assessee's business and therefore it was not liable for levy under the wealth-tax. The court rejected the contention and held that section 40 of the Finance Act, 1983 covers not only unproductive assets like gold, silver, platinum, stones, ornaments, utensils but also other properties like land and the building appurtenant thereto and motor cars. Hence, the commercial complex owned by the assessee, namely, building with the land appurtenant thereto, fell within clause (vi) of sub-section (3) of section 40 of the Finance Act, 1983 and it did not fall within any of tin1 excluded items mentioned in section 40(3)(vi) of the Finance Act. There fore, it was held that the assessee was liable to be taxed on the value of the commercial complex under section 40(3). Merely because the assets are commercial assets, it does not mean that the assets are exempt from wealth-tax. The view expressed by the above judgment is in accordance with law and we fully agree with the said judgment. It is also held in the said judgment as follows: "The next question that arises is whether the assessee is e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment year 1985-86 which clearly indicate that even under the Income-tax Act, the assessee has been given the benefit of depreciation and the income received by the assessee has been treated as income from business. Taking into account the above facts and circumstances of the case, we are of the view that a pure finding of fact has been recorded by the Tribunal. Hence, no interference is called for. Appeal dismissed." With great respect, we are unable to agree with the view of the Bombay High Court judgment cited supra. They have not considered the scope of section 40 of the Finance Act, 1983. The reasons given in the said Bombay High Court judgment that the assets are not includible in the net wealth of the assessee are: (a) It is a commercial asset. (b) The assessee was given the benefit of depreciation. (c) Income received by the assessee by letting out of the commercial asset had been treated as income from business. The above reasons are not at all relevant for wealth-tax purposes. The computation under the income-tax and the wealth-tax are different. Under the Income-tax Act, there are five heads of income and the income has to be computed on the basis of the heads ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest therein, and any rights over or connected with lands so situated and to turn the same to account as many seem expedient and in particular by preparing building sites and by constructing, reconstructing, altering, improving, decorating, furnishing and maintaining offices, flats, houses, hotels, restaurants, shops, factories, warehouses, wharves buildings works and conveniences of all kinds and by consolidating or connecting or sub-dividing properties and by leasing and disposing of the same." From the object, it is clear that the assessee is carrying on leasing business. No doubt the assets are used in the leasing business. Section 40 of the Finance Act levies tax on the assets as enumerated under the provision and only the assets that are excluded under the exclusionary clause alone will be entitled to the exemption. If the leasing company let out factory, building or warehouse as stated in the exclusionary clause, the assessee is certainly entitled to the relief. All the leased assets are not entitled to exemption unless the same come under any of the specified assets, for example, if the assessee lets out the specified assets like factory, godown or warehouse in the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... machinery were used for the purpose of the leasing business and the income derived from leasing out, was assessed under the head "Income from business". As the conditions enumerated in section 32A of the Income-tax Act were satisfied, the Supreme Court granted investment allowance. Section 32A of the Income-tax Act reads as follows: "32A.(1) In respect of a ship or an aircraft or machinery or plant specified in sub-section (2), which is owned by the assessee and is wholly used for the purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of this section, be allowed a deduction, in respect of the previous year in which the ship or aircraft was acquired or the machinery or plant was installed or, if the ship, aircraft, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year, of a sum by way of investment allowance, equal to twenty-five per cent, of the actual cost of the ship, aircraft, machinery or plant to the assessee:" In the Finance Act, the relevant provision in section 40(3), reads as follows: "(vi) building or land appurtenant thereto, other than buildi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court judgment cited supra. Hence, we are unable to agree with the Division Bench judgments reported in K.N. Chari Rubber and Plastics P. Ltd. v. CWT [2003] 260 ITR 164 (Mad) and CWT v. Indian Warehousing Industries Ltd. [2004] 269 ITR 203 (Mad). In the present case, the let out portions are not coming in any of the specified assets. Hence, the earlier judgment reported in CWT v. Fagun Estates P. Ltd. [2005] 272 ITR 472 (Mad) is correctly decided. The remaining judgments relied on by learned standing counsel for the Revenue are not relevant to the facts of the present case and hence we are not referring to the same. Hence, we are of the view that since the case of the assessee does not fall within the exclusionary clause mentioned in section 40(3)(vi) of the Finance Act, 1983, the assessee is liable to be taxed on the value of the tenanted portion of the building under section 40 of the Finance Act, 1983. In view of the foregoing reasons, question No. 1 referred to us is answered in favour of the Revenue and against the assessee. Questions Nos. 2 and 3 are referred back to the Division Bench as they are not the subject-matter of the Full Bench. No costs. - - TaxTMI - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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