Income Tax Appellate Tribunal - Delhi
Mohan Exports (I)(P.) Ltd. vs Assistant Commissioner Of Wealth-Tax on 29 November, 1996
Equivalent citations: [1997]60ITD473(DELHI)
ORDER
Gandhi, J.M.
1. This appeal by the assessee for assessment year 1988-89 is directed against order of CWT(Appeals) upholding assessment of a building in the hands of the assessee under sections 40 of WT Act.
2. The facts of the case are the assessee was given on lease a plot of land at 8 & 9, Zamrudpur Community Centre, New Delhi on which it constructed a building. The building has been given on rent. The value of above building was claimed to be not includible in the wealth as DDA had not executed any lease deed in favour of the assessee. The assessee claimed to be a licencee and contended that section 40 of Finance Act, 1983 was not applicable in his case. The assessee also relied upon decision of Hon'ble Supreme Court in the case of Nawab Sir Mir Usman Ali Khan v. CWT [1986] 162 ITR 888/28 Taxman 641 wherein it was held that for purposes of charging to wealth tax, the asset must 'belong to the assessee'. The Assessing Officer rejected this contention and brought the building to charge under the Wealth-tax Act.
3. The CWT (Appeals) accepted above contention in assessment years 1986-87 & 1987-88. However, for assessment year 1988-89, he found that the Wealth-tax Act was amended and Explanation 1 to section 2 of W.T. Act was inserted w.e.f. 1-4-1988. In view of above Explanation, the assessee-company would be deemed to be owner of the building even if title is not registered deed in its name. The CWT (Appeals) drew support from clause (b) of sub-section (5) of section 40 of the Finance Act, 1983. Thus, levy of wealth-tax on land and structure in possession of assessee was upheld. The matter was remanded to the WTO for determining value of the asset.
4. The assessee is aggrieved and has come up in appeal. We have heard the submissions of both the parties. The Ld. Counsel for the assessee placed strong reliance on decisions of ITAT, Pune Bench in the case of Rajathdri Hotel (P.) Ltd. v. WTO [1995] 54 ITD 579 and of Calcutta Bench 'E' in the case of Asstt. CWT v. Park Hotel (P.) Ltd. [1992] 41 ITD 501.
5. The closely-held company were brought under the umbrella of wealth-tax through introduction of section 40 of the Finance Act, 1983. The said section has been omitted through Finance Act, 1992 w.e.f. 1-4-1993. When in operation, the scheme of the section as reflected in various sub-sections of section 40 was that closely-held company were liable to pay tax on aggregate value of assets minus debts as specified in sub-section (3) of section 40.
Sub-section (1) was the charging section whereas sub-section (2) defined 'net wealth' of a company. For our present purpose, we have taken into sub-section (2), clauses (vi) of sub-section (3) and clause (b) of sub-section (5) alongwith sub-section (7). For ready reference, these provisions are reproduced below :
'1(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 (this proviso is not relevant) 1(3)(vi) 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 of lunch room mainly used for the welfare of its employees or used as residential accommodations, except as provided in clauses (via) and (vib) and the land appurtenant to such building or part :
1(5) For the purposes of the levy of wealth-tax under the Wealth-tax Act, in pursuance of the provisions of this section -
(b) the remaining provisions of that Act shall be construed so as to be in conformity with the provisions of this section.
1(7) Subject to the provisions of sub-section (5), this section shall be construed as one with the Wealth-tax Act."
6. It is clear from above that all assets of a company are not subject to wealth-tax, or and made part of chargeable net wealth. Only aggregate value of assets belonging to a company on the 'valuation date' specified in sub-section (3) are part of net wealth. Under sub-section (7) of section 40, this section has to be construed as one of the sections of the WT Act. This sub-section is made subject to sub-section (5) which as per clause (b) provides that remaining provision of WT Act, shall be construed so as to be in conformity with the provisions of this section. When purpose of section 40 is kept in view and above two sub-sections are read harmoniously it becomes clear that for matters (like procedure of assessment etc.) not provided in section 40, provisions of the WT Act can be applied construing this section as part of the Wealth-tax Act. But applications of other provisions must conform to provision of this section. Such application cannot extend or limit the scope of section 40. Sub-section (7) has above purpose to serve, but above sub-section is subject to sub-section (5). For any matter specifically provided in section 40, other provisions of the Wealth-tax Act are to be ignored and the matter decided in confirmity with section 40. In other words in case of a conflict between other sections and section 40, the provision of section 40 must prevail. Thus, sub-section recognises well accepted provision of construction of a statute that a special provision must prevail over general provision. There can hardly be any argument that section 40 is a special provision made applicable to certain type of companies and to certain assets. Therefore, above referred clause (b) would exclude application of any provision of the Wealth-tax Act which do not confirm to provision of section 40. The whole-sale import of provision of Wealth-tax Act in section 40 is prohibited under above mentioned clause (b). This view is fully supported by decision quoted by Ld. Counsel for the assessee.
7. Having regard to above interpretation, the building or land pertinent thereto (other than used as factory, godown, office etc.) can be charged to tax if such building 'belongs to the company on the valuation date". In case of Nawab Sir Mir Usman Ali Khan (supra), their Lordships specifically held that 'belong' to the assessee means owned by the assessee. The property leased by the DDA in the present case does not belong to the assessee as no registered lease deed on the valuation date stood executed in favour of the assessee. This position is accepted by both the parties as CIT (Appeals) did not apply section 40 to the assessee in similar circumstances in assessment years 1986-87 & 1987-88. But, in the assessment year 1988-89, he applied section 40 in view of introduction of Explanation 1 to section 2 of Wealth-tax Act introduced w.e.f. 1-4-1988. Under the above Explanation, a person is deemed owner of a building or a part thereof, if he is in a possession of the same and his case is covered under section 53A of the Transfer of Property Act. The said Explanation is admittedly applicable to the persons to whom Wealth-tax Act is applicable. The Explanation appears to have been introduced to override decision of Hon'ble Supreme Court in the case of Nawab Sir Mir Usman Ali Khan (supra) and to bring in to the wealth-tax net those cases where title was imperfect due to non-execution of a registered sale-deed. But, no such Explanation was introduced in section 40 of Finance Act, 1983. The definition of net wealth remained unchanged and only aggregate value of assets referred to in sub-section (3) 'belonging to the company' could only be included in assessable net wealth. There is no reason why without any change, the decision of Nawab Sir Mir Usman Ali Khan's case (supra) would not govern such a situation. By applying above Explanation I to the case in hand, the revenue is not deciding the matter in conformity with provisions of section 40 and doing what is specifically prohibited under clause (b) of sub-section (5) referred to above. The provisions of Wealth-tax Act have been applied otherwise than in conformity with provisions of section 40 of Finance Act, 1983. As the land and properties did not belong to the assessee, their value could not be charged to tax under section 40. Sub-clause (b) of sub-section (5) thus, support the case of the assessee instead of going against it. For the aforesaid reasons. We accept arguments advanced on behalf of the assessee and hold that building and land possessed by the assessee cannot be charged to tax under section 40 of Finance Act, 1983.
8. In the result, the appeal of the assessee is allowed.