Madras High Court
K.N. Chari Rubber & Plastics Pvt. Ltd. vs The Commissioner Of Wealth Tax on 4 September, 2002
Author: R. Jayasimha Babu
Bench: R. Jayasimha Babu, K. Raviraja Pandian
ORDER R. Jayasimha Babu, J.
1. Three questions have been referred to us at the instance of the assessee. They are, " 1. Whether, the Tribunal was right in holding that the value of the Motor cars, land at Pallikaranai village and factory building at Avadi are includible in the net wealth of the appellant-company despite the fact that all of them were acquired out of own funds of the appellant company and such inclusion is against the intention of the legislature ?
2. Whether, the Tribunal was right in holding that the expression "Motor Cars" occuring in Section 40(3)(vii) of the Finance Act, 1983 leaves no ambiguity in interpretation and as such, motor cars forming part of plant and machinery in the block of assets for depreciation under Sec. 32 of the Income tax Act 1961 as part of the plant and machinery, should be construed as motor cars simpliciter as specified for the purpose of Section 40(3)(vii) of the Finance Act, 1983?
3. Whether, the Tribunal was right in holding that the factory building at Avadi cannot be treated as business asset used for the purpose of business of the appellant company as per interpretation of Section 40(3)(vi) of the Finance Act, 1983, in the facts and circumstances of the case ?"
The assessment years are 1986-87 to 1988-89.
2. The assessee which is a closely held private company, even at the time of its formation on 30.11.1985, was not carrying on any business in the factory. What it had acquired from the firm, whose assets it took over, was the right to receive the rent from a factory building which the firm K.N. Chari & Co. (Industries) had leased to Courtica Manufacturing (India) Pvt. Ltd. After the formation of the assessee company, it entered into a further agreement with the same lessee and renewed the lease for a further period of three years. All the machineries installed in the plant belonged to the lessee who was carrying on business. The assessee had also permitted the lessee to construct another building on the same property. The assessee also owned other lands and motor cars.
3. The assessing officer assessed all these items viz. the factory building, the motor cars as also the lands, which were not agricultural lands and which had never been claimed to be agricultural lands, to wealth tax which had been reintroduced so far as the closely held private companies were concerned with effect from 1.4.1984 by the Finance Act 1983.
4. Section 40 of the Finance Act 1983 which provides for the revival of levy of wealth tax in the case of closely held private companies. Sub section 3 of Section 40 specifies the assets in respect of which the wealth tax is to be paid by such companies. Sub clauses (v), (vi) and (vii) reads thus, " Section 40(3)
(v) land other than agricultural lands;
(vi) building or land appurtenant thereto, other than building or part thereof used by the assessee as factory, godown, warehouse, hotel or office for the purposes of its business or as residential accommodation for its employees or as a hospital, creche, school, canteen, library, recreational centre, rest room or lunch room mainly for the welfare of its employees and the land appurtenant to such building or part:
Provided that each such employee is an employee whose income (exclusive of the value of all benefits or amenities not provided for by way of monetary payment) chargeable under the head "Salaries" under the Income-tax Act does not exceed eighteen thousand rupees;
(vii) motor-cars"
Thus all lands other than agricultural lands as also motor cars form part of the taxable wealth and inclusion of the value of lands and motor cars was perfectly justified. The intention of the legislature is to be ascertained with reference to language employed in the legislation and the context. There is nothing in the text or context here which would warrant the exclusion of value of assets acquired by a closely held private company with it's own funds. Nor is there anything in the provision either expressly stated or implicit therein to warrant exclusion of motor cars on the ground that they form part of the Block of assets for depreciation under Section 32 of the Income-tax Act.
5. So far as the factory building is concerned it was submitted by the assessee that, that factory should be excluded from the assessable wealth as the memorandum of association of the company mentions the leasing of the properties of the company as one of it's objects. Sub clause (vi) of Section 43 of the Finance Act stipulates that what is to be excluded is a factory which is 'used by the assessee for the purpose of its business'. Here it cannot be said that the factory was being used by the assessee for the purposes of its business. All that the assessee had done was to rent out that factory building as, the assessee itself was not carrying on manufacturing and the building was being used as a factory by the lessee who had installed the machinery therein and was using the same for the manufacture of cork which was the business of the lessee. The use of the building as a factory and the business carried on therein was by the lessee of the assessee and not by the assessee. Moreover, even the assessee had accounted for the rental income from that property as income from other sources and not as business income.
6. We, therefore, do not find any error in the order of the Tribunal as also of the statutory authorities who have rightly held that the factory building was not to be excluded while considering the assets required to be valued for the purpose of wealth-tax.
7. All questions referred to us are, therefore answered in favour of the revenue and against the assessee.