Income Tax Appellate Tribunal - Ahmedabad
National Dairy Development Board vs Deputy Commissioner Of Income Tax on 7 December, 1999
Equivalent citations: [2000]75ITD447(AHD)
ORDER
R. K. Bali, A.M.
1. These four appeals by the assessee involve common points and are, therefore, disposed of by this common order for the sake of convenience.
2. The assessee National Dairy Development Board (in short NDDB) filed its return of wealth for asst. yr. 1993-94 declaring wealth of Rs. 1,13,78,200 on 24th December, 1993. The same was processed under s. 16(1)(a) of the WT Act, 1957 on 29th April, 1994 and a refund of Rs. 80,208 was calculated as due to the assessee. The case was then taken up for scrutiny under s. 16(3) of the Act and during the course of assessment proceedings the assessee-company vide its letters, dt. 30th January, 1995 and 30th August, 1995, claimed that the wealth of the assessee was exempt under s. 5(1) of the Act. It was pleaded before the AO that considering the character and the function of the NDDB, the Parliament has exempted the income of NDDB from income-tax under s. 44 of the National Dairy Development Board Act. It was claimed that the hostels owned by the NDDB are meant for the training of the staff of co-operative union/federation which is one of the objectives of the NDDB. Accordingly it was claimed that the assets owned by the NDDB in the form of Hostels were used for achieving overall objects mandated by the Parliament and as such they were the business assets and not liable to wealth-tax. The wealth as per the return filed by the assessee for asst. yr. 1993-94 comprised of the following :
Rs.
Immovable assets
(i) Value of Guest House Bldg. 33,18,200
(ii) Hostel Buildings 80,20,649
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1,13,38,849
Movable assets
Motor Car/Vehicles 80,60,000
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1,93,98,849
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3. The AO after considering the submissions of the assessee held that the Parliament has only exempted the income of NDDB from income-tax but the wealth of the NDDB has not been exempted from the wealth-tax and since the property held by the NDDB which has status of a company for the purpose of WT Act, is not under trust or other legal obligation for any public purpose of charitable or religious nature in India and as such the value of those properties are not exempted under s. 5(1). The AO accordingly assessed the wealth of the assessee at Rs. 1,93,99,000 as against the declared wealth of Rs. 1,13,78,200.
4. The assessee appealed to the CWT(A) and claimed inter alia (i) that the assessee-company is not liable to wealth-tax at all; and (ii) that the assessee is entitled to exemption in respect of value of hostel buildings which are meant for training of the staff of co-operative union/federation which is one of the objectives of creation of NDDB by an Act of Parliament and as such the hostels cannot be subjected to wealth-tax as per the amended definition of section 2(ea)(i) which was introduced w.e.f. 1st April, 1993. The CWT(A) however, upheld the action of the AO and held that the assessee-company was liable to wealth-tax as the same was not exempted by the NDDB Act and the hostel buildings owned by the NDDB are liable to wealth-tax in view of the specific provisions of s. 2(ea)(i) introduced by the amendment to the definition of assets by the Finance Act, 1992 w.e.f. 1st April, 1993.
5. Similarly for asst. yrs. 1994-95, 1995-96 and 1996-97, the AO passed an order under s. 16(1)(a) by making prima facie adjustments by adding the value of hostel buildings owned by the assessee in the computation of total wealth. It is pertinent to point out that no additional tax was levied by the AO while making prima facie adjustments for asst. yr. 1994-95 and 1995-96 while making the addition of the value of the hostel buildings in the total wealth of the assessee but for asst. yr. 1996-97 the AO also imposed additional tax.
6. The CWT(A) upheld the action of the AO for asst. yrs. 1994-95 to 1996-97 mainly relying on his order for asst. yr. 1993-94.
7. Aggrieved with the orders of the CWT(A) for all the four years the assessee has filed these appeals. The learned authorised representative of the assessee submitted that the common question which is required to be adjudicated in these appeals is "whether, the hostels owned by the NDDB and used by the trainees sent by various dairies in the country during the course of their training for dairy development are falling within the definition of assets as given in s. 2(ea)(i) and, therefore, the wealth-tax is payable thereon ?" It was pleaded that the said provision was brought into the wealth-tax by the Finance Act, 1992 to impose wealth-tax on non-productive assets. The learned authorised representative of the assessee referred to speech of the Finance Minister reported in (1992) 194 ITR (St) 21 para 67 in this regard which clearly indicated that the wealth-tax should be levied only in respect of non-productive assets such as residential houses including farm houses which are not used for commercial purpose. It was pleaded that the hostels owned by the NDDB are productive assets used for commercial purpose of Dairy Development. From the above, the learned authorised representative of the assessee pleaded that the object and purpose of the insertion of s. 2(ea) defining the assets was not to tax a productive asset or a commercial asset. It was pleaded that the hostels are meant for temporary stay of trainees who are mostly farmers who come to the development door for getting training in Animal Husbandary including upkeep of cattles and other related fields of Dairy Development so as to promote a white revolution in the country. It was submitted that the Departmental authorities have taken a very narrow view of the definition of the assets given in s. 2(ea)(i) so as to construe hostels as residential houses. Accordingly it was pleaded that the hostels owned by the NDDB are outside the purview of definition of s. 2(ea)(i) as these are neither guest houses nor residential houses nor farm houses but they are commercial assets meant for the training of farmers and others engaged in the spread of Dairy Development culture through co-operative movement. It was further submitted that as far as asst. yrs. 1994-95, 1995-96 and 1996-97 are concerned, the AO was not at all justified in making prima facie adjustment by adding the value of hostels in the wealth of the assessee in view of the decision of the Bombay High Court in the case of Khatau Junkar Ltd. vs. K. S. Pathania (1992) 196 ITR 55 (Bom) as well as the decision of the Rajasthan High Court in the case of JKs Employees' Welfare Fund vs. ITO (1993) 199 ITR 765 (Raj). Accordingly it was pleaded that the Tribunal may be pleased to hold :
(i) that the assessee is not liable to wealth-tax in any of the concerned assessment years from 1993-94 to 1996-97 as the assessee is neither an individual nor an HUF nor a company as required by s. 3 of the WT Act. It was argued that assuming that the assessee is a company, even then it should not be held liable to wealth-tax because NDDB, Act, 1987 by s. 44 laid down that the income of NDDB will not be liable to income-tax. It was pleaded that in 1987 there was no wealth-tax of company and as such the non-levy of wealth-tax is not specifically mentioned in s. 44 of the NDDB Act, 1987;
(ii) for asst. yr. 1993-94 it should be held that the hostels are not residential houses liable to wealth-tax in the hands of the assessee; and
(iii) in asst. yrs. 1994-95 to 1996-97 which are appeals relating to the action of the AO in passing orders under s. 16(1)(a), the claim of the assessee that hostels are not assets within the definition thereof in s. 2(ea)(i), is not prima facie inadmissible.
8. The learned Departmental Representative supported the orders of the AO as well as the CWT(A) and further submitted that the assessee itself has filed its return for asst. yr. 1993-94 wherein it had included the value of hostels in the computation of total wealth and also paid the tax on the wealth represented by the value of hostels. It was submitted that it was only by way of a note that the assessee claimed that the value of hostels is not liable to wealth-tax. It was pleaded that the provisions of s. 2(ea)(i) are quite clear in this regard and the Departmental authorities were justified in levying the tax on the value of hostels included in the total wealth of the assessee. He accordingly supported the orders of the AO as well as CWT(A).
9. We have considered the rival submissions and have also gone through the orders of the AO as well as CWT(A). The first point on which we are expected to give our decision is as to whether the assessee is liable to wealth-tax or not. As per the provisions of s. 5 of the WT Act, 1957, wealth-tax is liable to be charged in respect of net wealth on the corresponding valuation date of every individual, HUF and company at the rate or rates specified in Schedule I. Thus, a company is liable to wealth-tax in terms of charging s. 3 of the Act. The assessee, NDDB has been constituted by an Act of Parliament called the NDDB Act, 1987 and it was formed by merger of two bodies viz. erstwhile NDDB which was a society registered under the Societies Registration Act, 1860 and the Bombay Public Trust Act, 1950 and Indian Dairy Corporation which was a company registered under s. 25 of the Companies Act, 1956 as being a company set up for public purposes for promoting public objects. As per s. 4(1) of the NDDB Act, 1987 the NDDB is hereby constituted a body corporate by the same name, and as such body corporate, it shall have perpetual succession and a common seal with power, subject to the provisions of this Act, to acquire, hold and dispose of property and to contract, and shall, by that name, sue and be sued. Thus, it is clear that in terms of s. 4(1) the NDDB is a body corporate and thus a company which is liable to wealth-tax in terms of s. 3 of the WT Act, 1957. The contention of the assessee that it should be considered as a company registered under s. 25 of the Companies Act, 1956 is untenable because admittedly the NDDB has not been registered as a company under s. 25 of the Companies Act, 1956 but it has been constituted under an Act of Parliament which in its wisdom has thought only to exempt it from the payment of income-tax by virtue of s. 44 of the NDDB Act and not from the wealth-tax. No doubt, the companies were not liable to wealth-tax from asst. yr. 1960-61 onwards by virtue of s. 13 of the Finance Act, 1960. The wealth-tax was made applicable in the case of closely held companies for asst. yrs. 1984-85 to 1992-93 by virtue of s. 40 of the Finance Act, 1983. Consequent to insertion of s. 3(2) of the Finance Act, 1992, wealth-tax levy has been revived for and from asst. yr. 1993-94 on all the companies. Thus, the assessee will be liable to wealth-tax from asst. yr. 1993-94 onwards unless the Parliament by amendment to the NDDB Act make it exempt from wealth-tax also. Since admittedly it has not been done, we hold that the assessee will be liable to wealth-tax.
10. Coming to the other plea of the assessee that the wealth of the assessee should be held as exempt under s. 5(1) of the WT Act, which exempts all the properties held under trust or legal obligations for any public purpose of a charitable or religious nature in India, the same is not applicable because the properties owned by the NDDB are not held under a trust or legal obligations and also for a public purpose of charitable nature. Unless both these ingredients are satisfied the assessee is not entitled to exemption in respect of assets held by it because under the WT Act, holding of assets itself rendered the person liable for tax and if such asset is held for a public purpose which was both charitable and non-charitable in nature, the assets held by the assessee are liable for tax irrespective of whether it is applied solely for charitable purpose or for non-charitable purpose. Reference in this connection may be made to the decision of the Hon'ble Andhra Pradesh High Court in the case of CWT vs. Hyderabad Race Club (1978) 115 ITR 453 (AP). The decision of the Hon'ble Supreme Court in the case of CIT vs. Ellisbridge Gymkhana (1998) 229 ITR 1 (SC) rather supports the case of the Revenue because in the case of Ellisbridge Gymkhana (supra) it was not a company but an AOP/BOI. Thus, taking into consideration the totality of the facts and circumstances of the case and in particular s. 44 of the NDDB Act which exempts the income of NDDB from income-tax only, we are of the opinion that the Departmental authorities were justified in rejecting the claim of the assessee for exemption from WT Act completely. It is also pertinent to note that the assessee itself submitted to the jurisdiction of the AO by voluntarily filing its wealth-tax return for asst. yr. 1993-94 onwards and claimed exemption only in respect of hostel buildings owned by it from liability to wealth-tax claiming that these were commercial properties used by the assessee for its business of dairy development for imparting training to various farmers and other representatives of co-operative societies engaged in the business of dairy development throughout the country which approach NDDB for imparting training to their workers/employees in the field of dairy development and allied subjects. Accordingly we will adjudicate issue No. 1 with regard to the liability to wealth-tax for the assessment years under consideration, in favour of the Revenue and against the assessee.
11. As regards the second and third issues which are interrelated, we accept the plea of the assessee that the hostels are not residential houses in terms of s. 2(ea)(i) as was in operation between 1st April, 1993 to 1st April, 1997 because between this period, s. 2(ea)(i) reads as under :
"(i) any guest house and any residential house [including a farm house situated within twenty-five kilometres from the local limits of any municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, 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 a director who is in whole-time employment, having a gross annual salary of less than two lakhs rupees;
(2) any house for residential purposes which forms part of stock-in-trade;"
12. The above definition was subsequently enlarged by the Finance (No. 2) Act, 1996 w.e.f. 1st April, 1997 as under :
"(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 kilometres from 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 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 proposes 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."
13. From the above it is clear that for asst. yr. 1993-94 to 1996-97 a residential unit used for a commercial purpose was not liable to wealth-tax. In the case before us the hostels owned by the assessee are meant to be used for the residence of farmers and other representatives of various co-operative societies who attend various courses/workshops organised by NDDB. The number of participants in various programmes in some courses will vary from 100 to 1000 and the hostels were meant to accommodate the participants during the course of training programmes which were carried on in furtherance to the objectives of NDDB as enumerated in the various provisions of NDDB Act, 1987. Thus, we are of the opinion that the hostels owned by the NDDB are not meant for the residence of any employees on a permanent basis but were used to provide temporary accommodation for the duration of the training programmes to the various employees of Dairy Corporations and farmers who come to NDDB to attend their courses and as such the hostels are productive commercial assets which will not be liable for wealth-tax in terms of the speech of the Finance Minister as reported in para 67 at p. 21 of 194 ITR statute section because the intention of the legislature in the Finance Act, 1992 was to impose wealth-tax on non-productive assets and in the case of the assessee before us the hostels owned by the NDDB are productive assets used for the commercial purpose of dairy development. Accordingly we direct the AO to exclude the value of hostel buildings from charging of wealth-tax and adjudicate this issue in favour of the assessee and against the Revenue.
14. Since we have held that the hostels buildings belonging to the assessee are not liable to wealth-tax in terms of s. 2(ea)(i), the same could not be added to the total wealth under s. 16(1)(a) by way of prima facie adjustments for asst. yrs. 1994-95 to 1996-97. Accordingly all the appeals are partly allowed.