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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 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 als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1997-98 since the appellant has rented it to a sister concern Recon Ltd. along with its Plant Machinery holding that intention of the assessee is to only earn income from the property directly 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) nor under sub-clause (5), it has to be treated as an asset under the definition clause. Later the assessee filed an appeal before the Hon'ble High Court of Karnataka and the Hon'ble High Court set aside the order 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 ₹ 6,00,000 ii) 15% on ₹ 80,00,000 ₹ 12,00,000 iii) 15% on the credit balance of the Other A/c. worked out on month to month basis. ₹ 15,38,982 Gross maintainable rent ₹ 33,38,982 Less : Municipal Taxes 7,400 15% of GMR 5,00,847 ₹ 5,08,247 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) a house meant exclusively residential purposes and which is allotted by a company to an employee or an officer or a director who is in whole time employment, having a gross annual salary of less than five lakh rupees; (2) any house for residential or commercial purposes 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. The Finance Minister in his budget speech while introducing the Finance Bill 1996 in the Parliament has given the following reasons for the amendment: 96. I find it unreasonable that commercial properties, not used by the assessee as his business, office or factory premises, should be outside the levy of Wealth Tax. Accordingly I propose to plug this loophole and levy wealth tax on such commercial properties. Hence it is clear that the intention behind the amendment was to levy wealth tax on commercial properties if it is not used by the assessee for his business, office or factory premises. However it does not imply that the F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that documentation has been furnished under lease cum sale agreement dt.28.04.1979 with BDA. On 20.1.1992 Sale Deed was executed by BDA on compliance by the assessee of construction of a factory building on said land. He submitted that the building on said land is a factory building and is not a commercial building. The activity of manufacture of pharmaceutical products cannot be carried out in a zone marked by BDA as a commercial zone. He contended that the building is an industrial building and not a commercial building. The ld. AR submitted that the disputed property is not at all used for residential or commercial purpose and it cannot be considered as an asset as defined in Section 2(e) of the Act so as to fasten the liability of wealth tax. He relied on the order of the co-ordinate Bench of the Tribunal of Pune Bench in the case of Satvinder Singh Kalra Vs. DCIT 109 ITD 241 (Pune-Trib). The ld.AR submitted that subject property is not residential or commercial property liable for wealth tax. It is only an industrial property which is not liable to be taxed under Wealth Tax. 5. On the other hand, the ld. DR submitted that the impugned property was used for commercial explo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) to (5) of cl. (i) of sub-s. (ea) of s. 2 of the WT Act. In other words, sub-cls. (1) to (5) carve certain properties or houses out of the main enacting provision. It is thus clear that all buildings or land appurtenant thereto, which are whether used for residential or commercial purposes, may not come within the definition of asset as defined under cl. (i) of sub-s. (ea) of s. 2 of the WT Act if any one of them is found to be covered by cls. (1) to (5) below s. 2(ea)(i) of the Act. Sub-cls. (1) to (5) qualify the generality of the main enactment by providing an exception and taking out from the main provision a portion which but for the exception provided in sub-cls. (1) to (5) would be the part of the main provision. The properties or the houses of a nature specified in sub-cls. (1) to (5) below cl. (i) of sub-s. (ea) of s. 2 are an exception to the main provision. The exception provided in sub-cls. (1) to (5) must, therefore, be considered in relation to the main or principal enactment of cl. (i) of sub-s. (ea) of s. 2 of the WT Act to which these sub-cls. (1) to (5) stand as an exception. The properties or houses enumerated in these sub-cls. (1) to (5) must not be read a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tablishment means an organization, building, construction, shop, store, concern or corporation. Thus, commercial establishment means some kind of place or building or shop or store where business or trade is carried on. The word complex means composite, compounded, multiple, manifold, multi-complex or something composed of or made of many interrelated parts, as for example, a multi-purpose building. Thus, the words commercial complex mean the commercial multi-purpose building composed and made of inter-relating parts in contrast to a single commercial establishment. In the case of commercial establishment, it is not necessary that it should be composed of or made of interrelated parts. In the case of a property in the nature of commercial establishment, it is not necessary that it should be also in the nature of commercial complex. The legislature has excluded both commercial establishment as well as commercial complexes from the definition of asset for the purpose of chargeability to tax under the WT Act. Therefore, for the purpose of sub-cl. (5) of cl. (i) of sub-s. (ea), property must be of commercial complex or establishment in nature where business or trade is being car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otherwise including a farmhouse situated within twenty-four kilometers from local limits of any municipality, municipal corporation or by any other name; or a cantonment 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 purpose of any business or profession carried on by him. The above definition was in force between 1st April, 1997 to 31st March, 1999. The definition of assets u/s. 2(ea) of WT Act underwent an amendment w.e.f. 1st April, 1999 and it was provided as under: (i) Any building or land appurtenant thereto (hereinafter referred to as house ), whether used for residential or commercial purpose or for the purpose of maintaining or otherwise including a farmhouse situated within twenty-five kilometers from the local limits of any municipality (whether known as municipality, municipal corporation or by any other name or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Departmental Circular No. 762 dated 18th February, 1998, which elaborates the scope and effect of the substitution of section 2(ea) by the Finance (No. 2) Act, 1999 as under: 57.1 Amendment of the term assets The term assets on which tax is to be levied is defined in cl. (ea) of s. 2. This definition includes any guest house and any residential house (including a farm house situated within 25 kms. of the local limits of any municipality) except the assets mentioned in sub-cl. (1) and (2) of this clause. If the residential houses have been taken as assets, there seems to be no reason why commercial properties, other than those used by the assesses wholly and exclusively in his business or profession, should also be not taken as assets. By an amendment, commercial buildings, which are not occupied by the assessee for the purpose of his business or profession, other than the business of letting out properties, shall be brought to tax under the WT Act, 1957. 57.2 This provision will take effect from the 1st day of April, 1997 and, accordingly, will apply in relation to the asst. yr. 1997-98 and subsequent years. 12. Taking into consideration the series of amendments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the period of 1st April, 1997 to 31st March, 1998 wherein though the definition of asset was elaborated by including commercial properties within the ambit of definition of assets but the exclusion was limited to only in respect of any house which the assessee may occupy for carrying on his business or profession. The subsequent amendment w.e.f. 1st April, 1999 by excluding any property in the nature of commercial establishment or complexes in addition to a house which is being occupied for the purpose of carrying on of business or profession by the assessee enlarges the scope of exclusion from the definition of asset u/s. 2(ea) of the WT Act. The amendments to section 2(ea) of the WT Act one after the other clearly explains the nature of assets to be included as part of definition u/s. 2(ea) of the WT Act. In the period between 1st April, 1997 to 31st March, 1999, the definition of asset was an enlarged definition wherein in addition to the residential properties, the commercial properties owned by the assessee were to be included as an asset for computing the net wealth subject to exclusion clause provided in sub cl. (1), (2) and (3) u/s. 2(ea)(i) of the WT Act. 17. As per c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o determine whether property can be held as a business asset as claimed by the assessee. As far as the definition of asset is concerned, the claim of the assessee is that another house which the assessee may occupy for the purpose of any business or profession carried on by him does not include within the ambits of taxability. So, item No. (3) of sub-cl. (i) of s. 2(ea) has specified that though an asset includes any building or land appurtenant, whether used for residential or commercial purposes or for the purpose of maintaining a guest-house, but does not include any house if occupied for the purpose of business or profession carried on by an assessee. So, in other words, 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. Therefore, to determine whether an asset is exempt or not one has to look into the nature of business of the assessee. In this context we have perused an order of Hon ble apex Court in the case of S.G. Mercantile Corporation vs. CIT 1972 CTR (SC) 8 : (1972) 83 ITR 700 (SC) and have found that on the facts of that case, the taking of property on lease and sub-letting portion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... continuously and systematically by a person by the application of his skill with a view to earning an income. However, in the present appeal, though there is continuity in earning rental income systematically year after year, but that alone is not the criteria so as to apply the ratio laid down by the Hon ble apex Court. For that purpose, one has to examine the nature of the activity carried on by an assessee whether the same is within the expression business or not. A distinction is required to be drawn between the two activities, i.e., letting out or commercial exploitation. The various heads for the purpose of taxation have prescribed either in WT Act or IT Act are mutually exclusive and each specific head covers specific asset or source. Regardless of any arguments if the fact indicates that the property is rented out then falls under the specific head and such property cannot be treated as business asset. This view gets support from an order of jurisdictional High Court in the case of Parekh Traders vs. CIT (1983) 37 CTR (Bom) 4 : (1984) 150 ITR 310 (Bom), wherein it was held that letting out the godown is to be assessed under the head Income from house property . In the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should not take inconsistent view and expected to be consistent with the view already taken. It is also expected that taxpayer should not change its stand as suits to its requirement and advantageous in different proceedings. At one hand, in income-tax proceedings assessee has taken the stand to declare the income as house property income so the advantage of deduction under s. 24 would be permissible, however, on the other hand, the assessee has treated the same property as business asset to claim exemption under s. 2(ea) of WT Act. So, in both the proceedings, i.e., income-tax as well in wealth-tax, the assessee has chosen the course advantageous to him so that the tax can be saved. In our humble opinion, this not permissible and the same view has also been taken by various Courts. In a decision pronounced by Hon ble Calcutta High Court in the case of CIT vs. Sun Jute Press (P) Ltd. (1994) 118 CTR (Cal) 236 : (1993) 203 ITR 350 (Cal) it was held, quote that the Tribunal was mainly guided by the consideration that the Revenue having accepted the income from sub-letting as income of the business, could not take the inconsistent view that for the purpose of s. 40 of the Finance Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ratio laid down by High Court or Supreme Court. More so, it was decided by the Hon'ble Delhi High Court in the case of Kapri International Pvt. Ltd. Vs. Commissioner of Wealth Tax 258 ITR 656 that when the assessee let out the building and income from house property should be included as an asset for the purpose of Wealth Tax. Same view has been taken by Hon'ble Bombay High Court in the case of Parekh Traders Vs. CIT (Bom) 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. This is not permissible. It is not possible to take two different stands one in income tax proceedings and other in wealth tax proceedings. A distinction is required to be drawn between the two activities i.e. let out or commercial exploitation. If the fact indicate that the property is rented out then it falls under the specific head and such property cannot be treated as business asset. In the present case also the assessee s income from letting out the property is a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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