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TMI Blog2020 (12) TMI 750X X X X Extracts X X X X X X X X Extracts X X X X ..... y and not to put it any industrial use of its own. 3. The learned Appellate Officer has failed to appreciate the submission of the appellant that as per Town Planning Authority - no commercial building existed as on 31.03.1997 in Site No. 8 of Koramangala Industrial Layout. Hence not an asset liable to Wealth Tax. 4. Conceding for arguments sake the appellant has rented the "factory" for earning the income directly the said property cannot be treated as an "asset" liable to wealth tax for A. Y. 1997-98 and A. Y. 1998-99 as per the decision of the Karnataka High Court in CIT-A, Hubli vs Shankaranarayana Industries & Plantation (P) Ltd. [2010] 194 Taxman 189 (Karnataka) 5. The learned CIT-A has failed to appreciate, under interpretation of taxing statutes provision imposing charge of tax must be construed strictly and in the type of building liable to wealth tax from 01.04.1997 the Parliament has left out Industrial Building put up on Industrial land and as such the immovable property owned by appellant let out to tenant for manufacture of pharmaceuticals is not a taxable asset. [Ajax Products Ltd Vs CIT (1965) 55 ITR 741] 6. a) Conceding for arguments sake the Factory Buil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Tribunal and remitted the matter to the file of Assessing Officer for fresh consideration. The Assessing Officer once again observed that the land held as commercial property and liable for wealth tax and computed the Market Value of the Property (MVP) as per proviso 3 to Expln. 1 of Rule 5 Schedule 3 of the Wealth Tax Rules, 1957 as follows : i) Actual Rent Rs. 6,00,000 ii) 15% on Rs. 80,00,000 Rs. 12,00,000 iii) 15% on the credit balance of the 'Other A/c. worked out on month to month basis. Rs. 15,38,982 Gross maintainable rent Rs. 33,38,982 Less : Municipal Taxes 7,400 15% of GMR 5,00,847 Rs. 5,08,247 Therefore value of the immovable property = NMR x 12.5 i.e. 28,30,735 x 12.5 Rs. 3,53,84,188 Less : Debts incurred in relation to the asset Rs. 2,23,06,893 Gross Taxable Wealth Rs. 1,30,77,295 Less : Basic exemption Rs. 15,00,000 Net taxable wealth : Rs. 1,15,77,295 Thereafter he has given deduction towards debt as follows : Rs. i. Actual Rent 6,00,000 ii. 15% on Rs. 80,00,000 12.00.000 iii. 15% on the credit balance of the Other A/c., worked out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not imply that the Finance Minister intended to tax commercial properties not used by the assessee and let out as factories. What is sought to be brought under the ambit of asset, is only such building not used by the assessee for his business, office or factory premises and being used for commercial purposes. Attention is also drawn to the exemption available under said clause 2 (ea) for land held for industrial purposes from the definition of urban land for a period of two years from the date of acquisition without any requirement that the industrial building built on such land should be run by the assessee. However in the assessee's case the subsequent discussion will show that neither is the property a "commercial property used as a factory" nor was it a " building used for commercial purposes" as on the valuation date. 1. The term "property used for commercial purposes" is not defined in the Wealth Tax Act. Said definition taken colour from popular usage. The definition of "commercial building" as found in Wikipedia is that a commercial building is a building that is used for commercial use. Types can include office buildings, warehouses or retail. As per the said dicti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r commercial exploitation and this being industrial land has to be treated as a commercial property liable for wealth tax. He relied on the orders of the authorities below. 6. We have heard the rival contentions, perused and carefully considered the material on record. In this case, as per the impugned provisions of Section 2(ea) of the Act, the assets as per Section 2(ea) - Assessment Year 1997-98, in relation to the assessment year commencing on the 1st day of April, 1993, or any subsequent assessment year, means - (i) any building or land appurtenant thereto (hereinafter referred to as 'house'), whether used for residential or commercial purposes or for the purpose of maintaining a guest house or otherwise including a farm house situated within twenty five kilometers from the local limits of any municipality (whether known as municipality, municipal corporation or by any other name) or a cantonment board, but does not include - (1) a house meant exclusively for residential purposes and which is allotted by a company to an employee or an officer or director who is in whole time employment, having a gross annual salary of less than two lakh rupees; (2) any house for residen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be read as alien to the main provision. In this view of the matter, we, therefore, do not find any conflict between the main enactment of cl. (i) and the exceptions provided in sub-cls. (1) to (5) thereto. In the light of the main enactment provided in cl. (i) and the exception provided thereto by way of excluding the properties or the houses enumerated in the sub-cls. (1) to (5) from the main enactment, the intention of the legislature becomes clear that the legislature did not intend to bring all buildings or land appurtenant thereto whether used for residential or commercial purposes within the ambit of "assets" chargeable to tax under the WT Act. Thus, the question of rendering the cl. (i) being redundant does not arise. 19. On the other hand, sub-cl. (5) covers any property in the nature of commercial establishments or complexes. In order to cover a case under sub-cl. (5), it is not necessary that the property in the nature of commercial establishments or complexes should be occupied by the assessee for the purpose of any business or profession carried on by him as in the case covered by sub-cl. (3). Here, the nature and purpose of use of the property is material irrespectiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g carried on and the property must also be used for the purpose of any business or trade as well. A property cannot only by its very nature be classified as a 'commercial establishment' or complex unless the same is also used in a business and nothing else. Hence, the words 'commercial establishment or complex', as the case may be, appear to be used in the sense must be in the nature of commercial property and the same must also be used for the purpose of trade or business and nothing else. In this sense of the term, we may, therefore, say that if any property though used for commercial purposes, but is not in the nature of commercial property, the same would not fall within the term 'commercial establishment or complex' used in sub-cl. (5) below cl. (i) of sub-s. (ea) of s. 2 of the WT Act. Having regard to the object and purpose of the said cl. (i) with exception thereto, any building though used for commercial purposes, but is not in the nature of commercial property or establishment, shall not be covered by expression "any property in the nature of commercial establishment or complexes" as used in sub-cl. (5) below cl. (i) of sub-s. (ea) of s. 2 of the Act, For the purpose of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nment board, but does not include: (1) a house meant exclusively for residential purpose and which is allotted by a company to an employee or an officer or director who is in whole-time employment, having a gross annual salary of less than two lakh rupees: (2) any house for residential or commercial purpose which forms part of stock-in-trade. (3) any house which the assessee may occupy for the purposes of any business or profession carried on by him; (4) any residential property that has been let out for a minimum period of three hundred days in the previous year; (5) any property in the nature of commercial establishments or complexes. 9. In addition to the above, following assets are also includible as assets for the purpose of computation of net wealth as per the provisions of s. 2(ea) of the Act: "(ii) Motor car other than those used in the business of running on hire or stock-in-trade; (iii) Jewellery including utensils made of precious metals; (iv) Yachts, boats and aircrafts, other than those used for commercial purposes; (v) Urban land; (vi) Cash in hand, in excess of Rs. 50,000 of individuals and HUF and in case of other persons, any amount not recorde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ' u/s. 2(ea) of the WT Act, the following position involves w.e.f. 1st April, 1993 to 31st March, 1997. Wealth tax was chargeable only on the guest house and residential house including farm houses subject to exclusion of certain properties. The amendment was made w.e.f. 1st April, 1997, wherein commercial properties were included as part of the assets with an exclusion clause of ((3): "any house which the assessee may occupy for the purposes of any business or profession carried on by him (s. 2(ea)(i)." 13. The clause was also inserted by the Finance (No.2) Act, 1996. By virtue of this inclusion and also exclusion clause, the scope and effect of the substitution was that the commercial properties were to be included as an asset for the purpose computing the net wealth of the person, except the properties which are being used for the purpose of any business or profession carried on by the said person. The Departmental Circular No. 762 dated 18th February, 1998 very clearly elaborated the scope of the insertion and clarified that the commercial properties other than those used by the assessee only and exclusively in his business or profession should not be included as assets. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided to an immovable property from inclusion as part of net wealth, to a house which the assessee is occupying for the purpose of carrying on his business or profession. 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. 18. 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 fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee, so it was held that the income fell under the head business income. Therefore, the proposition laid down by the Hon'ble Court is that the facts of the case should lead to the uncontroversial position that leasing and sub-letting should be part of the business and trading activity of an assessee then only the income arising from such an asset can be considered as business income. One more observation of the Hon'ble Court is worth quoting, i.e., "The residuary head of income can be restored to only if none of the specific heads is applicable to the income in question; it comes into operation only after the preceding heads are excluded". This proposition has to be allowed while finalising an assessment proceedings so as to arrive at the right head of income for the purpose of taxation and equally applies to wealth-tax proceedings. An another decision of Hon'ble apex Court is very much relevant in the present context pronounced in the case of East India Housing & Land Development Trust 42 ITR 49 (SC). The question before Their Lordships was whether the income realised from the tenants of the shops and stalls was liable to be taxed as "business income" under s. 10 of the IT Act o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cable and have found that once item (3) of s. 2(ea) prescribes that the property is required to be used for the purpose of business or profession carried on, then in view of this specific provision, otherwise also, the asset in question cannot be held as a business asset because the assessee has not established that letting out of the properties is the business of the assessee. Nowhere it is claimed before lower authorities that the assessee is engaged in the business of letting out of properties. Facts of the case simply reveal that the property owned by the assessee was subject to letting year after year and the income arising therefrom has been taxed as "house property income". Further Hon'ble Madras High Court in the case of Madras Silk & Rayon Mills (P) Ltd. vs. ITO & Anr. (2004) 187 CTR (Mad) 487 : (2003) 262 ITR 122 (Mad) is also worth mentioning. It was held that the letting of company's property to various persons is not a business income and question raised before the Hon'ble Court in this regard being a mixed question of law, hence held that the income derived by the assessee by leasing out property would not be business income. One more aspect was also discussed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t used by the assessee as a businessman. In view of the above cited precedent, a conclusion can safely be drawn that under the present set of circumstances, it not permissible to take two different stands, one in the income-tax proceedings and other in the wealth-tax proceedings. 23. The learned Authorised Representative submitted that judgment of Hon'ble Karnataka High Court in the case of CIT(A) Vs. Shankar Narayan Industries and Planatations Pvt. Ltd. 344 ITR 613 (Kar) is applicable to the facts of the case and since the assessee has rented out the factory building, it is a business asset and not liable for wealth tax. We have carefully perused the judgment of Hon'ble Karnataka High Court cited supra. In that case, the assessee let out the commercial property for rent and the income of the assessee has been assessed as 'income from business' since the assessee is in the business of letting out the properties. The said commercial property was not included as an asset for the purpose of wealth tax. However, the revenue authorities considered the said property as an asset for the purpose of wealth tax and brought to tax. On appeal, before the Hon'ble High Court it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 25. The next argument by the learned Authorised Representative is the 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. 26. The next argument by the ld. AR is that the notional interest computed by the Assessing Officer on the deposit received by the assessee to be excluded from net maintainable rent. The Assessing Officer considered the notional rent receivable at 15% on Rs. 80 lakhs so as to determine the net maintainable rent in addition to the annual rent of Rs. 6 lakhs. In our opinion, 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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