Income Tax Appellate Tribunal - Mumbai
Reliance Consolidated Enterprises ... vs Acwt [Alongwith Wealth Tax Appeal No. ... on 13 September, 2004
Equivalent citations: [2005]92ITD394(MUM), (2005)93TTJ(MUM)726
ORDER
A.D. Jain, J.M.
1. The common effective grounds raised in these appeals, are as follows:
1. The learned CWT (A) erred in confirming the value of immovable properties at Rs. 8,06,58,346/- as against Rs. 3,91,57,207/- (in ITA No. 361/M/2000) and Rs. 3,89,40,727/- as against Rs. 2,34,09,276/- (in ITA No. 360/M/2000), returned by the appellants, respectively.
2. The learned CWT (A) erred in holding that the value of immovable property shall be increased by 15% of the deposit received by the appellants as per Schedule III, Part B, Clause 5 of the Wealth Tax Act, 1957.
2. For convenience, facts in ITA No. 361 /M/2000 are being taken up.
3. The assessee-company had given its property on leave and license to another company. Reliance Petro Chemicals Ltd.. after having given to various intermediary tenants. Alone with the said leave and license agreement, another agreement was entered into, as per which, an option for provisional pre-emptory purchase was kept for the licensee, provided the licensee kept certain deposit with the assessee. A reduction in the price was to be given. The assessee having received such deposit. the AO found that the assessee had not increased the annul rent by 15% of the deposit as required by proviso 3 to Explanation I of Rule of 5 of Schedule III, for determining the value of the property. The assessee was put to show cause why the annual rent should not be so increased by 15% of the deposits. The assessee's stand was that in terms gross maintainable rent and annual rent, it is the rent and deposit received by the owner which is required to be considered for computing the annual rent and consequential gross maintainable rent. The deposition question was not in respect of letting out of property, but regarding confirment of a preemptive right. The AO did not agree. The learned CWT (A) held that the AO had rightly observed that the deposit received by the assessee could not be said to be in consideration of any pre-emptive right conferred upon the tenant for the right to purchase the property at market rate as and when the assessee chose to sell the property. Aggrieved by this, the assessees are in appeal before us.
4. Section 4 of the Wealth Tax Act 1957 detail the assets to be included in the net wealth of an assessee. As per Section 4 (8) (b) of the Wealth Tax Act, a person who acquires any rights in or with respect to any building or part thereof by virtue of any transaction as referred to in Section 269 UA (f) of the Income Tax Act 1961, shall be deemed to be the owner of that building or part thereof and the value of such building or part shall be included in computing the net wealth of such person. Rights by way of a lease from month to month or for a period not exceeding one year, have specifically been excluded from the said section. For the sake of convenience Section 4(8)(b) of the Wealth Tax Act. 1957, is reproduced below :
Section 4(8)
(a) .........
(b) who acquires any rights (excluding any rights by way of a lease from months to month or for a period not exceeding on year) in or with respect to any building or part thereof by virtue of any transaction as is referred to in Clause (f) of Section 269UA Section 269UA(f) of the Income Tax Act 1961.
shall be deemed to be the owner of that building or part thereof and the value of such building or part shall be included in computing the net wealth of such person.
Explanation (a) :- to 4(8) - the expression "transfer" includes any disposition, settlement, trust, covenant, agreement or arrangement"...
4.1 As per Explanation (a) to Section 4 (8). the expression "transfer" include any disposition, settlement, trust, covenant, agreement or arrangement.
4.2 As per Section 269 UA (f) (ii) of the Income Tax Act, 1961, "transfer", in relation to an immovable property being any rights in or with respect to any land or any building or a part of a building, whether or not including any machinery, plant, furniture, fittings or other things therein, which has been constructed or which is to be constructed, accruing or arising from any transaction other than sale, exchange or lease of such land, building or part of a building, means the doing of anything which has the effect of transferring or enabling enjoyment of such property. For the sake of convenience Section 269UA(f)(ii) of the Income Tax, 1961 is reproduced below :
(f) "transfer".--
(i) ..........
(ii) in relation to any immovable property of the nature referred to in Sub-clause (ii) of Clause (d), means the doing of anything (whether by way of admitting as a member of or by wav of transfer of shares in a co-operative society or company or other association of persons or by wav of any agreement or arrangement or in any other manner whatsoever) which has the effect of transferring or enabling the enjoyment of such property.
4.3 To out it simply, Section 269 UA (f) (ii) provides that any action done, by virtue of which, any right in. inter-alia, land or building or part of a building stands transferred or by virtue of which enjoyment of such right is enabled, amounts to a transfer.
4.4 In the present case, the licensee has acquired the right to foreclose the sale of the property to anyone other than such licensee, by having entered into the agreement with the assessee whereby the option of purchasing the property pre-emptively to the exclusion of all others upon depositing certain amount with the assessee. has been given to the licensee . Such licensee has been allotted the status of a deemed owner of the property under consideration, by Section 4 (8) of the Wealth Tax Act, and it has been specifically provided that the value of such property shall be included in computing the net wealth of such licensee/person.
4.5 As per the Explanation (a) to Section 4(8) of the Wealth Tax Act, "transfer" has been given an inclusive definition. Such an arrangement as the one at hand, has not been excluded from the purview of "transfer" as defined in the said Explanation.
4.6 The above discussion would show that the licensee is the deemed owner of the property. The value of he property has, therefore, to be included as an asset in the net wealth of the licensee rather than that of the assessee. That being so, the orders of the taxing authorities are not in accordance with the law.
5. Further, it is seen that M/s. Reliance Petro Chemicals Limited, the last user, was written a letter dated 5.2.1990, by the licensor Mac Investments Limited (the name Reliance Consolidated Enterprises was earlier known by). Copies of this letter have been placed on record. Mac Investments has stated, inter-alia, that in case they decide to sell, transfer, assign or otherwise dispose the residential premises given to Reliance Petro on rent, the same shall first be offered to Reliance Petro. before selling the same to a third party. In case the licensee Reliance Petro chooses to exercise their right to purchase the property, the same shall be sold at the market price prevailing at the time of sale. However, the said market price shall be reduced by an amount equal to 10% per annum of the deposit placed by Reliance Petro. Reliance Petro was required to place with Mac Investments, a deposit of Rs. 2.25 crores for acquiring pre-emptive rights for the purchase of the property. So, giving of the option to exercise the right of pre-emptory purchase, to the exclusion of all others, is evident.
5.1 Schedule III, Rule 5 deals with as to how the gross maintainable rent is to be computed, with regard to any immovable property, so as to arrive at the net maintainable rent thereon. Explanation (I) to Rule 5 of Schedule III defines "annual rent". Proviso (iii) to the said Explanation (I) to Rule 5, Schedule III provides that where the owner has accepted any amount as deposit, being advance payment towards the rent for a period of 3 months or less, the actual rent for the period let out, as dealt with in Explanation (I), by the amount calculated at the rate of 15% per annum on the amount of deposit outstanding from month to month, or a number of months, excluding part of a month, during which such deposit was held by the owner in the previous year.
5.2 It is the said proviso (iii) to Explanation (1) to Rule 5 of Schedule III of the Wealth Tax Act, which, in the first place, gives rise to the question of addition of an amount worked out at the rate of 15% per annum of the deposit received by the licensor. However, undeniably, the deposit received by the licensor in the present case is not a deposit contemplated under the said proviso (iii) to Explanation (1) to Rule 5 of Schedule III of the Act. The deposit which has been considered therein is not in consideration for a pre-emptive right such as the one offered for preferential purchase of property.
5.3 Therefore, the grouse of the assessee that Schedule III, Rule 5, Explanation (I), proviso (iii), being inapplicable, the taxing authorities have wrongly exercised jurisdiction to add the amount worked out at a rate of 15% per annum on the deposit received, is well founded. The impugned action is a result of misapplication of the provisions of Schedule III, Rule 5, Explanation (1), Proviso (iii) of the Wealth Tax Act.
6. Then, it has rightly been pointed out by the learned counsel for the assessee that the phrase "whether the property is let," in Rule 5 (i) of Schedule III, included to mean a property given out on lease. In 'B. Jamasji Mistry (P.) Ltd. v. ITO,' (1985), 12 ITD 546, the Mumbai Bench of the Tribunal was dealing with Section 23 (1) (b) of the Income Tax Act 1961, which provision is the verbatim equivalent of Rule 5 (i) of Schedule III of the Wealth Tax Act. It was held, inter-alia, that a licensee- occupied property was not the same as tenant-occupied building. Therefore, a licensee was held not covered by Section 23 (1) (b) of the Income Tax Act. The parallel drawn by the learned counsel for the assessee between the facts of the present case and those before the Tribunal in B. Jamasji Mistry (P.) Ltd. (supra), is apt. The legislature chooses its words carefully. When they are talking of a "let out property", surely, a licensee-occupied property is not being referred to. So, Rule 5 of Schedule III of the Wealth Tax Act is not attracted.
7. Having thus considered the matter from all angles, we do not find the orders of the learned CWT (A) to be sustainable. Undoubtedly, the deposits in question were received for granting pre-emptive rights and not as a part of letting out of property. Hence, interest on such deposits cannot be considered for determining the annual rent and consequent valuation of the property. The orders of the learned CWT (A) are cancelled qua the issue at hand.
8. Resultantly, both the appeals are allowed.