Income Tax Appellate Tribunal - Cochin
E V M Automobiles (Pvt) Ltd, Kochi vs The Ito, Kochi on 21 June, 2022
IN THE INCOME TAX APPELLATE TRIBUNAL
COCHIN BENCH, COCHIN
Before Shri George George K, JM & Shri Laxmi Prasad Sahu, AM
WTA No.01/Coch/2022 : Asst.Year 2011-2012
WTA No.02/Coch/2022 : Asst.Year 2012-2013
M/s. E V M Automobiles Pvt.Ltd. The Income Tax Officer
NH Byepass Maradu v. Corporation Ward 1(2)
Kannadikkadu Kochi.
Kochi - 682 304
PAN : AABCE5649R
(Appellant) (Respondent)
Appellant by : Sri.Mathew Joseph, CA
Respondent by : Smt.J.M.Jamunna Devi, Sr.DR
Date of
Date of Hearing : 21.06.2022 Pronouncement : 21.06.2022
ORDER
Per George George K, JM :
These appeals at the instance of the assessee are directed against consolidated order of the CIT(A) dated 01.02.2022. The relevant assessment years are 2011-2012 and 2012-2013.
2. Identical grounds are raised in both the appeals. They read as follows:-
"1. The assessing officer went wrong in levying Wealth Tax on Demo cars used for the business of the assessee ignoring the fact that these are productive assets which enable the assessee to earn income and hence not liable for wealth tax.
2. Any other ground that may be raised at the time of hearing."
3. The brief facts of the case are as follows:
2WTA Nos.01 & 02/Coch/2022.
M/s.E V M Automobiles Private Limited.
The assessee is a closely held company. The assessee is engaged in the business of sale and service of Nissan Vehicles. The assessee keeps certain demo vehicles, which are used in the business of the assessee. In the assessment made u/s 16(3) r.w.s. 17 of the Wealth-tax Act, 1957, the Wealth Tax Officer (WTO) charged the value of demo vehicles as chargeable asset within the meaning of section 2(ea)(ii) of the W.T.Act, 1957. The WTO, accordingly, determined the net wealth as on the valuation date and charged on the whole net wealth at 1% without reducing the basic exemption of Rs.30,00,000 for assessment year 2011-2012 and 2012-2013.
4. Aggrieved, the assessee filed appeals before the first appellate authority. The CIT(A) directed the WTO to allow the basic exemption. With regard to the issue of inclusion of value of demo vehicles in the chargeable wealth, the CIT(A) confirmed the WTO's order. The relevant finding of the CIT(A) reads as follows:-
"1. The above definition of the motor cars is plain and simple. No need arises for interpreting the above clear definition. The legislature sought ot tax non productive assets to wealth tax and in its wisdom, specifically excluded motor cars used in the business of running them on hire or the motor cars which form part of the stock in trade. Since specific exclusions are made, by categorical implication all other motor cars fall within the definition of motor cars which are chargeable assets within the meaning of section 2(ea). Any attempt to exclude an asset from the definition of chargeable assets, which is not specifically excluded by the legislature would amount to expanding the scope of definition of the chargeable asset. This is clearly the domain of the legislature.
2. In the present case, for the assessment years under consideration, the appellant was not in the business of running motor cars on hire. There is no dispute that during the 3 WTA Nos.01 & 02/Coch/2022.
M/s.E V M Automobiles Private Limited.
years under consideration, the said demo cars did not form part of the stock in trade. The said demo cars are not covered by the exemptions specified under section 5 of the Wealth Tax Act. Hence the said demo cars are chargeable assets. The argument that the said demo cars form part of the plant and machinery for the purpose of the Income Tax Act, does not have a bearing on the chargeability of the same under the Wealth Tax Act. The grounds of the appellant are rejected and the additions made are upheld."
5. Aggrieved by the order of the CIT(A), the assessee has filed these appeals before the Tribunal for assessment years 2011-2012 and 2012-2013. The learned AR reiterated the submissions made before the Wealth Tax Authorities and strongly relied on the Hyderabad Bench order of the ITAT in the case of RKS Motors Pvt. Ltd. v. DCIT in WTA Nos.9 & 10/Hyd/2016 and WTA No.43/Hyd/2015 (order dated 27.04.2016).
6. The learned Departmental Representative, on the other hand, supported the orders of the WTO and the CIT(A).
7. We have heard rival submissions and perused the material on record. The relevant provision, namely, section 2(ea)(ii) of the W.T.Act, which makes the "motor cars" as a chargeable asset reads as follows:-
"motor cars (other than those used by the assessee in the business of running them on hire or as stock-in-trade);"
7.1 The assessee, as mentioned earlier, is in the business of sales and services of Nissan Vehicles. As per the policy of Nissan Company, the assessee has to own and maintain demo vehicles for rendering services to customers like offering test 4 WTA Nos.01 & 02/Coch/2022.
M/s.E V M Automobiles Private Limited.
drives / demonstrations and using them for mobile services / pick up cars for repairs etc. Undisputedly, these services are integral part of the assessee's business, which is a major factor in contributing to the turnover. There is no dispute in regard to the aforesaid use of the demo vehicles, which are imperative in the assessee's business. Hence, the demo vehicles are being used as productive asset in the business similar to plant and machinery. The assets in the form of plant and machinery, motor cars used in the business of hiring and motor car which are forming part of the stock-in-trade of the business are not chargeable to wealth-tax. Hence, levy of wealth tax on demo vehicles is not justifiable. On identical facts, the Hyderabad Bench of the Tribunal in the case of RKS Motors Pvt. Ltd. v. DCIT (supra) had decided the issue in favour of the assessee. The Hyderabad Bench of the Tribunal had quoted the budget speech of the Hon'ble Finance Minister when the definition of the assets was amended in the Finance Bill 1992, wherein the intention of the Finance Minister was to charge wealth tax only on the unproductive assets as per the recommendations of the Chelliah Committee. The relevant finding of the Co-ordinate Bench order of the Hyderabad Bench, reads as follows:-
"7. Considering the submissions of both the counsels and material facts on record, it is observed that there is no doubt from the assessment order that the assessee uses the cars in his business for rendering services to customers like offering test drives/ demonstrations, providing car for learning (driving) purpose and using them for mobile services/pick up cars for repairs. These services are integral part of assessee's business and which are complimentary to increase the business. AO has accepted this peculiar services, which are imperative in the assessee's business. The AO and CIT(A) have considered the cars used in the business of the 5 WTA Nos.01 & 02/Coch/2022.
M/s.E V M Automobiles Private Limited.
assessee as assets for wealth tax purpose due to the fact that section 2(ea) of the Act has not explicitly sanctioned the exclusion of cars in the given situation. Let us analyse the section 2(ea)(ii) of the Act. "Motor cars (other than those used by the assessee in the business of running them on hire or as stock-in-trade):. From the plain reading of this subsection gives clarity that the intent of the Legislature to eliminate those cars which are used in the business and which are productive in running the business. This is the reason statute has explicitly allowed the cars which are applied in the business of running on hire or as stock-in-trade. The intention of the legislature is very clear and it should be interpreted harmoniously and with complete meaning. From the plain reading, it is "absoluta sentential expositore non indigent". The language used by the legislature best declares its intention and must be accepted as decisive of it. We must interpret the provisions of the statute in a manner that will achieve the object of the provision, advance the cause of justice and provide the remedy intended by the statute. While referring to Finance Minister's Budget speech, when the definition of the assets were amended in the Finance Budget, 1992, the intention of the Finance Minister is to charge Wealth tax only on the unproductive assets as per the recommendations of the Chelliah Committee and the extract of the budget speech is given below for clarity:
"67. The Wealth-tax Act, 1957 ................... There is also no distinction at present between productive and non-productive assets. The Chelliah Committee has suggested that, in order to encourage the taxpayers to invest in productive assets such as shares, securities, bonds, bank deposits, etc. and also to promote investments through Mutual Funds, these financial assets should be exempted from wealth tax. Wealth tax should be levied on individuals, Hindu undivided families and all companies only in respect of nonproductive assets such as residential houses including farm houses and urban land, jewelry, bullion, motor cars, planes, boats and yachts which are not used for commercial purposes."
7.1 In the given situation, there is no doubt the cars were used in the business, which are essential to run the business, which are applied in the business similar to 'plant and machinery'. The intent of the legislature to exclude the cars which are used in the business for running them on hire. Here, these are excluded because the cars are used as 'plant and machinery', simply to generate revenue. Similarly in the assessee's case, the cars are used as 'plant and machinery'. In our considered view, when the cars are used in the business which are productive will have the same meaning as running them on hire.
7.2 The rule laid down by the Hon'ble Supreme Court in the cases of CIT Vs. Kulu Valley Transport Co. P. Lyd., 77 ITR 518 and Mysore Minerals Ltd. Vs. CIT, 239 ITR 775, when the situation demands and there is no clarity, the interpretation which is beneficial to the assessee must be adopted. In the given situation, there is no doubt the cars were utilized in 6 WTA Nos.01 & 02/Coch/2022.
M/s.E V M Automobiles Private Limited.
the business to complement the revenue generation. The legislature intends to exclude these assets, as they are productive. In the given situation, the cars are productive, hence, these cars have to be excluded from the definition of assets as specified exclusion.
7.3 In view of the above discussion and interpretation, the cars used in the business are considered as productive and should be treated similar to 'plant and machinery'. In our view, these cars are not assets u/s 2(ea)(ii) of the Wealth Tax Act. Accordingly, we direct the AO to exclude these cars from the list of assets for wealth tax purpose."
7.2 In view of the aforesaid reasoning and the order of the Hyderabad Bench of the Tribunal, which is identical to the facts of the instant case, we direct the WTO to exclude the demo cars from the list of assets for the purpose of computing the net wealth. It is ordered accordingly.
8. In the result, the appeals filed by the assessee are allowed.
Order pronounced on this 21st day of June, 2022.
Sd/- Sd/-
(Laxmi Prasad Sahu) (George George K)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Bangalore; Dated : 21st June, 2022.
Devadas G*
Copy to :
1. The Appellant.
2. The Respondent.
3. The CIT(A)-3, Kochi.
4. The Pr.CIT (Central), Cochin.
5. The DR, ITAT, Cochin.
6. Guard File.
Asst.Registrar/ITAT, Cochin