Income Tax Appellate Tribunal - Bangalore
M/S Shastha Pharma Laboratories Pvt Ltd ... vs Wealth Tax Officer Ward-12(2), ... on 16 December, 2020
IN THE INCOME TAX APPELLATE TRIBUNAL
BANGALORE BENCHES " B " BENCH: BANGALORE
BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT
AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
WTA No.58/Bang/2018
(Assessment Year: 1997-98)
M/s. Shastha Pharma Laboratories Pvt. Ltd.,
16/2, O V H Road, Basavanagudi,
Bangalore - 560 004 ....Appellant
PAN AAFCS 6484C
Vs.
Wealth Tax Officer,
Ward 12(2), Bangalore. ......Respondent.
Assessee By: Shri H. Anil Kumar, C.A.
Revenue By: Shri Priyadarshi Mishra, JCIT (D.R)
Date of Hearing : 08.12.2020.
Date of Pronouncement : 16.12.2020.
ORDER
PER SHRI CHANDRA POOJARI, A.M. :
This appeal by the assessee is directed against the order of CIT (Appeals), Bangalore-6 Dt.23.03.2018 for the Assessment Year 1997-98.
2. The assessee has raised the following grounds :
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1. " The order of the Commissioner of Wealth Tax, Bengaluru [Appellate Officer] in dismissing the appeal for the year is against law, facts of the case and weight of evidences.
2. The learned appellate officer has erred in holding the factory of the appellant at Site No. 8 of Koramangala Industrial Layout, Bengaluru is liable to wealth tax for A. Y. 1997-98 since the appellant has rented it to a sister concern Recon Ltd. along with its Plant & Machinery holding that intention of the assessee is to only earn income from the property directly and not to put it any industrial use of its own.
3. The learned Appellate Officer has failed to appreciate the submission of the appellant that as per Town Planning Authority - no commercial building existed as on 31.03.1997 in Site No. 8 of Koramangala Industrial Layout.
Hence not an asset liable to Wealth Tax.
4. Conceding for arguments sake the appellant has rented the "factory" for earning the income directly the said property cannot be treated as an "asset" liable to wealth tax for A. Y. 1997-98 and A. Y. 1998-99 as per the decision of the Karnataka High Court in CIT-A, Hubli vs Shankaranarayana Industries & Plantation (P) Ltd. [2010] 194 Taxman 189 (Karnataka)
5. The learned CIT-A has failed to appreciate, under interpretation of taxing statutes provision imposing charge of tax must be construed strictly and in the type of building liable to wealth tax from 01.04.1997 the Parliament has left out Industrial Building put up on Industrial land and as such the immovable property owned by appellant let out to tenant for manufacture of pharmaceuticals is not a taxable asset.
[Ajax Products Ltd Vs CIT (1965) 55 ITR 741]
6. a) Conceding for arguments sake the Factory Building is "a commercial building" the determination of the M.V. at Rs. 3,53,84,188 /- without reducing the value of the exempted industrial land included in it is bad in law.
b) The A.O. may kindly be directed to reduce from figure of Rs. 3,53,84,185 /- the estimated market value of industrial land as on 31.3.1997.
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7. The determination of the Net Maintainable rent at Rs. 28,30,735 /- by calculating 15% return on other amounts due to tenant is not proper. Hence the same be reduced by Rs. 13,18,135 /- ( 15,38,982 - 2,20,847).
8. The appellant prays that it may be permitted to adduce further evidence at the time of hearing of this appeal."
3. The facts of the case are that the assessee-company owned a property of land and factory building in an industrial area formed by KIADB in Koramangala which was used as factory premises for the manufacturing of pharmaceutical products. The assessee has given this property of land and factory building on lease to M/s.Recon Limited and the tenant used as a factory building for manufacture of pharmaceutical products. Therefore no activity of a commercial nature was being carried out in the said property. The said property was sold for a consideration of Rs.6.60 Crores during F.Y. 1998-99. In response to the notice received from Department, the assessee filed its wealth tax return declaring the property as an asset. The assessee informed the Assessing Officer during the assessment proceedings that the property owned by the assessee is not an asset as per provisions of Section 2(ea) of the Act, as it is an industrial property consisting of land and factory building. The Assessing Officer rejected the plea of the assessee stating that every type of property should be considered as covered by the definition clause (i) of Section 2(ea) of the Act. On appeal, the CWT (Appeals) confirmed the view of the Assessing Officer. He held that, the factory building, 4 WTA No.58/Bang/2018 whether it is an industrial asst or not, was meant for commercial exploitation and was, therefore, taxable as a commercial asset. On further appeal before the Tribunal, the Tribunal held that the property owned by the assessee neither falls u/s.2(ea)(i)(2) nor under sub-clause (5), it has to be treated as an asset under the definition clause. Later the assessee filed an appeal before the Hon'ble High Court of Karnataka and the Hon'ble High Court set aside the order of the Tribunal and remitted the matter to the file of Assessing Officer for fresh consideration. The Assessing Officer once again observed that the land held as commercial property and liable for wealth tax and computed the Market Value of the Property (MVP) as per proviso 3 to Expln. 1 of Rule 5 Schedule 3 of the Wealth Tax Rules, 1957 as follows :
i) Actual Rent Rs. 6,00,000
ii) 15% on Rs.80,00,000 Rs.12,00,000
iii) 15% on the credit balance of the 'Other A/c. Rs.15,38,982
worked out on month to month basis.
Gross maintainable rent Rs.33,38,982
Less : Municipal Taxes 7,400
15% of GMR 5,00,847 Rs.5,08,247
Therefore value of the immovable property =
NMR x 12.5 i.e. 28,30,735 x 12.5 Rs.3,53,84,188
Less : Debts incurred in relation to the asset Rs.2,23,06,893
Gross Taxable Wealth Rs.1,30,77,295
Less : Basic exemption Rs.15,00,000
Net taxable wealth : Rs.1,15,77,295
Thereafter he has given deduction towards debt as follows :
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Rs.
i. Actual Rent 6,00,000
ii. 15% on Rs.80,00,000 12.00.000
iii. 15% on the credit balance of the Other A/c., 15,38,982
worked out on month to month basis.
Gross maintainable rent 33,38,982
Less : Municipal Taxes 7,400
15% of GMR 5,00,847 5,08,247
Net maintainable rent 28,30,735
He computed the value of the land under taxable wealth as at Rs.1,15,77,295. On appeal, the Wealth Tax Commission (Appeals) confirmed the order of the Assessing Officer. Aggrieved by the assessee, the assessee is in appeal before us.
4. The learned Authorised Representative drew our attention to the definition of asset as in Section 2(ea) of the Act in the assessment under consideration and submitted that the clause was amended w.e.f. 1.4.1997 a follows :
(ea) "assets", in relation to the assessment year commencing on the 1st day of April 1993, or any subsequent assessment year, means -
(ea) (i) any building or land appurtenant thereto (hereinafter referred to as house), whether used for residential or commercial purpose or for the purpose of maintaining a guest house or otherwise including a farm house situated within twenty-five kilometers 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 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 purposes which forms part of stock-in-
trade;
6WTA No.58/Bang/2018 (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.
The Finance Minister in his budget speech while introducing the Finance Bill 1996 in the Parliament has given the following reasons for the amendment:
" 96. I find it unreasonable that commercial properties, not used by the assessee as his business, office or factory premises, should be outside the levy of Wealth Tax. Accordingly I propose to plug this loophole and levy wealth tax on such commercial properties."
Hence it is clear that the intention behind the amendment was to levy wealth tax on "
commercial properties" if it is not used by the assessee for his business, office or factory premises. However it does not imply that the Finance Minister intended to tax commercial properties not used by the assessee and let out as factories. What is sought to be brought under the ambit of asset, is only such building not used by the assessee for his business, office or factory premises and being used for commercial purposes. Attention is also drawn to the exemption available under said clause 2 (ea) for land held for industrial purposes from the definition of urban land for a period of two years from the date of acquisition without any requirement that the industrial building built on such land should be run by the assessee. However in the assessee's case the subsequent discussion will show that neither is the property a "commercial property used as a factory" nor was it a " building used for commercial purposes"
as on the valuation date.
1. The term "property used for commercial purposes" is not defined in the Wealth Tax Act. Said definition taken colour from popular usage. The definition of "commercial building" as found in Wikipedia is that a commercial building is a building that is used for commercial use. Types can include office buildings, warehouses or retail. As per the said dictionary commerce can be considered as a second component of business which includes all activities, functions, and institution in transferring goods from producers to consumer. Said definition is in alignment with definition of "business" under Clause (13) of Section 2 of the IT Act viz "business" includes any trade, commerce, or manufacture or any adventure or concern in the nature of trade, commerce, or manufacture. Oxford Dictionary defines the term "commercial" to mean 7 WTA No.58/Bang/2018 concerned with or engaged in "commerce." The term "commerce" refers to the "activity of buying and selling especially on a large scale." Hence both Wikipedia and the Oxford Dictionary consider "commerce" regular buying and selling by which goods move from producers to consumers and infrastructure (including building) associated with such activity would be a "commercial building" and a building is which such an activity is carried on to would meet the definition of building used for commercial purposes. Hence activity of manufacture is considered separate from commerce both in common parlance as also law including the Income Tax Act. This is also supported by the Webster's Dictionary referred by the Tribunal. Further it was submitted that documentation has been furnished under lease cum sale agreement dt.28.04.1979 with BDA. On 20.1.1992 Sale Deed was executed by BDA on compliance by the assessee of construction of a factory building on said land. He submitted that the building on said land is a factory building and is not a commercial building. The activity of manufacture of pharmaceutical products cannot be carried out in a zone marked by BDA as a commercial zone. He contended that the building is an industrial building and not a commercial building. The ld. AR submitted that the disputed property is not at all used for residential or commercial purpose and it cannot be considered as an asset as defined in Section 2(e) of the Act so as to fasten the liability of wealth tax. He relied on the order of the co-ordinate Bench of the Tribunal of Pune Bench in the case of Satvinder Singh Kalra Vs. DCIT 109 ITD 241 (Pune-Trib). The ld.AR submitted that subject property is not residential or commercial property liable for 8 WTA No.58/Bang/2018 wealth tax. It is only an industrial property which is not liable to be taxed under Wealth Tax.
5. On the other hand, the ld. DR submitted that the impugned property was used for commercial exploitation and this being industrial land has to be treated as a commercial property liable for wealth tax. He relied on the orders of the authorities below.
6. We have heard the rival contentions, perused and carefully considered the material on record. In this case, as per the impugned provisions of Section 2(ea) of the Act, the assets as per Section 2(ea) - Assessment Year 1997-98, in relation to the assessment year commencing on the 1st day of April, 1993, or any subsequent assessment year, means -
(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 kilometers from the local limits of any municipality (whether known as municipality, municipal corporation or by any other name) or a cantonment board, but does not include -
9WTA No.58/Bang/2018 (1) a house meant exclusively for residential purposes and which is allotted by a company to an employee or an officer or director who is in whole time employment, having a gross annual salary of less than two lakh rupees; (2) any house for residential or commercial purpose 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.
6.1 Now the contention of the assessee is that the impugned property which is subject to wealth tax by the Assessing Officer is not residential or commercial property and it is an industrial property not liable for wealth tax. For this purpose, the AR relied on the co-ordinate bench of this Tribunal of Pune Bench in the case of Satvinder Singh Kalra Vs. DCWT (supra) wherein the Bench made following observations at paras 17, 19 & 20 as under :
" 17. On reading of the main enacting provision of cl. (i) of sub-s. (ea) of s. 2, as substituted by the Finance (No. 2) Act, 1996 w.e.f. 1st April, 1997 and by the Finance Act, 1998 w.e.f. 1st April, 1999, it is clear that any building or land appurtenant thereto whether used for residential or commercial purposes falls within the meaning of "assets", however, subject to the exceptions provided thereunder. Some of the buildings or land appurtenant thereto whether used for residential or commercial purposes have been taken out from the main provision as envisaged under sub-cls. (1) to (5) of cl. (i) of sub-s. (ea) of s. 2 of the WT Act. In other words, sub-cls. (1) to (5) carve certain properties or houses out of the main enacting provision. It is thus clear that all buildings or land appurtenant thereto, which are whether used for residential or commercial purposes, may not come within the definition of "asset" as defined under cl. (i) of sub-s. (ea) of s. 2 of the WT Act if any one of them is found to be covered by cls. (1) to (5) below s. 2(ea)(i) of the Act. Sub-cls. (1) to (5) qualify the generality of the main enactment by providing an exception and taking out from the 10 WTA No.58/Bang/2018 main provision a portion which but for the exception provided in sub-cls. (1) to (5) would be the part of the main provision. The properties or the houses of a nature specified in sub-cls.
(1) to (5) below cl. (i) of sub-s. (ea) of s. 2 are an exception to the main provision. The exception provided in sub-cls. (1) to (5) must, therefore, be considered in relation to the main or principal enactment of cl. (i) of sub-s. (ea) of s. 2 of the WT Act to which these sub- cls. (1) to (5) stand as an exception. The properties or houses enumerated in these sub-cls. (1) to (5) must not be read as alien to the main provision. In this view of the matter, we, therefore, do not find any conflict between the main enactment of cl. (i) and the exceptions provided in sub-cls. (1) to (5) thereto. In the light of the main enactment provided in cl. (i) and the exception provided thereto by way of excluding the properties or the houses enumerated in the sub-cls. (1) to (5) from the main enactment, the intention of the legislature becomes clear that the legislature did not intend to bring all buildings or land appurtenant thereto whether used for residential or commercial purposes within the ambit of "assets" chargeable to tax under the WT Act. Thus, the question of rendering the cl. (i) being redundant does not arise.
19. On the other hand, sub-cl. (5) covers any property in the nature of commercial establishments or complexes. In order to cover a case under sub-cl. (5), it is not necessary that the property in the nature of commercial establishments or complexes should be occupied by the assessee for the purpose of any business or profession carried on by him as in the case covered by sub-cl. (3). Here, the nature and purpose of use of the property is material irrespective of the fact whether it is used or occupied either by the assessee himself or anybody else for the purpose of any business or profession carried on by them, as the case may be.
20. Sub-cl. (5) below cl. (i) of sub-s. (ea) of s. 2 of the WT Act reads as under :
"(5) any property in the nature of commercial establishments or complexes;"
On its plain reading, it appears that any property in the nature of commercial establishments or complexes is not included within the definition of "assets" for the purpose of WT Act. To claim benefit of the aforesaid sub-cl. (5), one must prove and establish that the property claimed to be excluded from the definition of "assets", should be in the nature of commercial establishments or complexes. In other words, the property should not be of any nature other than the nature of commercial establishments or complexes. In this sub-cl. (5), "complexes or establishments" are qualified with an adjective 'commercial' establishment or complex, therefore, must be of a commercial in nature. The word 'commercial' means something which is used in or related to, a business or a trade. Commercial means relating to or engaged in or used for commerce. The word 'establishment' means an organization, building, construction, shop, store, concern or corporation. Thus, commercial establishment means some kind of place or building or shop or store where business or trade is carried on. The word "complex" means composite, compounded, multiple, manifold, multi-complex or something composed of or made of many interrelated parts, as for example, a multi-purpose building. Thus, the words 'commercial complex' mean the commercial multi-purpose building composed and made of inter-relating parts in contrast to a single commercial establishment. In the case of commercial establishment, it is not necessary that it should be composed of or made of interrelated parts. In the case of a property in the nature of commercial establishment, it is not necessary that it should be also in the nature of commercial complex. The legislature has excluded both commercial establishment as well as commercial complexes from the definition of "asset" for the purpose of chargeability to tax under the WT Act. Therefore, for the purpose of sub-cl. (5) of cl. (i) of sub-s. (ea), property must be of commercial complex 11 WTA No.58/Bang/2018 or establishment in nature where business or trade is being carried on and the property must also be used for the purpose of any business or trade as well. A property cannot only by its very nature be classified as a 'commercial establishment' or complex unless the same is also used in a business and nothing else. Hence, the words 'commercial establishment or complex', as the case may be, appear to be used in the sense must be in the nature of commercial property and the same must also be used for the purpose of trade or business and nothing else. In this sense of the term, we may, therefore, say that if any property though used for commercial purposes, but is not in the nature of commercial property, the same would not fall within the term 'commercial establishment or complex' used in sub-cl. (5) below cl. (i) of sub-s. (ea) of s. 2 of the WT Act. Having regard to the object and purpose of the said cl. (i) with exception thereto, any building though used for commercial purposes, but is not in the nature of commercial property or establishment, shall not be covered by expression "any property in the nature of commercial establishment or complexes" as used in sub-cl. (5) below cl. (i) of sub-s. (ea) of s. 2 of the Act, For the purpose of the aforesaid clause, the property must be of commercial nature implying thereby that the very nature of the property must be commercial and at the same time it must be used in a business or trade and nothing else."
7. The assessee owned property consisting of land and flat building situated in an industrial area covered by KDABI in Koramangala which was used as factory premises for the manufacture of pharmaceutical products. In the assessment year under consideration the assessee leased the factory premises along with plant and machinery to M/s. Recon Ltd. on monthly rent. The rental income from the said property was treated as income from house property. According to the assessee, it is not an asset liable for wealth tax. On the other hand, the Assessing Officer treated it as an asset liable for wealth tax.
8. Under the provisions of WT Act, wealth tax is inevitable on assets owned by assessee. The definition of 'assets' is provided/s. 2(ea) of the WT Act which is as under (at the relevant time):
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"i) any building or land appurtenant thereto(hereinafter referred to as house'), whether used for residential or commercial purpose or for the purpose of maintaining a guest house or otherwise including a farmhouse situated within twenty-four kilometers from local limits of any municipality, municipal corporation or by any other name; or a cantonment board, but does not include:
(1) a house meant exclusively for residential purpose and which is allotted by a company to an employee or an officer or director who is in whole-time employment, having a gross annual salary of less than two lakh rupees.
(2) any house for residential or commercial purpose which forms part of stock-in-trade.
(3) any house which the assessee may occupy for the purpose of any business or profession carried on by him.
The above definition was in force between 1st April, 1997 to 31st March, 1999. The definition of assets u/s. 2(ea) of WT Act underwent an amendment w.e.f. 1 st April, 1999 and it was provided as under:
"(i) Any building or land appurtenant thereto (hereinafter referred to as 'house'), whether used for residential or commercial purpose or for the purpose of maintaining or otherwise including a farmhouse situated within twenty-five kilometers from the 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 purpose and which is allotted by a company to an employee or an officer or director who is in whole-time employment, having a gross annual salary of less than two lakh rupees:
(2) any house for residential or commercial purpose which forms part of stock-in-trade.13 WTA No.58/Bang/2018
(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.
9. In addition to the above, following assets are also includible as assets for the purpose of computation of net wealth as per the provisions of s. 2(ea) of the Act:
"(ii) Motor car other than those used in the business of running on hire or stock-in-trade;
(iii) Jewellery including utensils made of precious metals;
(iv) Yachts, boats and aircrafts, other than those used for commercial purposes;
(v) Urban land;
(vi) Cash in hand, in excess of Rs.50,000 of individuals and HUF and in case of other persons, any amount not recorded in the books of account."
10. The definition of 'assets' in section 2(ea) of WT Act is an exhaustive definition, which was introduced w.e.f. 1st April, 1993 and prior to amendment w.e.f. 1st April, 1997 by Finance (No. 2) Act, 1996, the buildings used for business or commercial purpose did not fall within the ambit of definition of 'asset'. For the period 1st April, 1993 to 31st March, 1997, the definition of 'asset' u/s. 2(ea) of WT Act was:
14WTA No.58/Bang/2018
"(i) Any guest house and any residential house (including a farm house situated within twenty-five kilometers from the 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 purpose and which is allotted by a company to an employee or an officer or director who is in whole-time employment, having a gross annual salary of less than two lakh rupees:
(2) any house for residential or commercial purpose which forms part of stock-in-trade.
11. The Finance (No. 2) Act, 1996 amended the definition of assets u/s. 2(ea) and the necessity for amendment was explained by way of Departmental Circular No. 762 dated 18th February, 1998, which elaborates the scope and effect of the substitution of section 2(ea) by the Finance (No. 2) Act, 1999 as under:
"57.1 Amendment of the term 'assets' - The term 'assets' on which tax is to be levied is defined in cl. (ea) of s. 2. This definition includes any guest house and any residential house (including a farm house situated within 25 kms. of the local limits of any municipality) except the assets mentioned in sub-cl. (1) and (2) of this clause. If the residential houses have been taken as assets, there seems to be no reason why commercial properties, other than those used by the assesses wholly and exclusively in his business or profession, should also be not taken as assets. By an amendment, commercial buildings, which are not occupied by the assessee for the purpose of his business or profession, other than the business of letting out properties, shall be brought to tax under the WT Act, 1957.
57.2 This provision will take effect from the 1st day of April, 1997 and, accordingly, will apply in relation to the asst. yr. 1997-98 and subsequent years."15
WTA No.58/Bang/2018
12. Taking into consideration the series of amendments made to the definition of 'assets' u/s. 2(ea) of the WT Act, the following position involves w.e.f. 1 st April, 1993 to 31st March, 1997. Wealth tax was chargeable only on the guest house and residential house including farm houses subject to exclusion of certain properties. The amendment was made w.e.f. 1st April, 1997, wherein commercial properties were included as part of the assets with an exclusion clause of ((3):
"any house which the assessee may occupy for the purposes of any business or profession carried on by him (s. 2(ea)(i)."
13. The clause was also inserted by the Finance (No.2) Act, 1996. By virtue of this inclusion and also exclusion clause, the scope and effect of the substitution was that the commercial properties were to be included as an asset for the purpose computing the net wealth of the person, except the properties which are being used for the purpose of any business or profession carried on by the said person. The Departmental Circular No. 762 dated 18th February, 1998 very clearly elaborated the scope of the insertion and clarified that the commercial properties other than those used by the assessee only and exclusively in his business or profession should not be included as assets. It was further clarified that the commercial buildings which are not occupied by the assessee for the purpose of his business or profession other than the business of letting out of the properties shall be brought to tax under the provisions of WT Act.
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14. The definition of assets was further amended w.e.f. 1st April, 1991 and two more exclusion clauses were inserted -
"3. Any residential property that has been let out for a minimum period of three hundred days in the previous year;
4. Any property in the nature of commercial establishments or complexes."
15. The Finance (No. 2) Act, 1998 introduced the amendment to the definition of assets u/s. 2(ea) of the WT Act and the scope and effect of the substitution was clarified by the Department Circular No. 792 dated 23rd December, 1998 which clarified that the Finance (No.2) Act, 1998 also amends the said section so as to provide for exemptions from wealth tax in respect of any residential property that has been let out for a minimum period of 300 days in the previous year and also any property in the nature of commercial establishment or complexes.
16. The issue before us is relevant to the period of 1st April, 1997 to 31st March, 1998 wherein though the definition of asset was elaborated by including commercial properties within the ambit of definition of assets but the exclusion was limited to only in respect of any house which the assessee may occupy for carrying on his business or profession. The subsequent amendment w.e.f. 1st April, 1999 by excluding any property in the nature of commercial establishment or complexes in addition to a house which is being occupied for the purpose of carrying on of business or profession by the assessee enlarges the scope of 17 WTA No.58/Bang/2018 exclusion from the definition of asset u/s. 2(ea) of the WT Act. The amendments to section 2(ea) of the WT Act one after the other clearly explains the nature of assets to be included as part of definition u/s. 2(ea) of the WT Act. In the period between 1st April, 1997 to 31st March, 1999, the definition of asset was an enlarged definition wherein in addition to the residential properties, the commercial properties owned by the assessee were to be included as an asset for computing the net wealth subject to exclusion clause provided in sub cl. (1), (2) and (3) u/s. 2(ea)(i) of the WT Act.
17. As per cl. (3) to section 2(e) of the Act, exemption is provided to an immovable property from inclusion as part of net wealth, to a house which the assessee is occupying for the purpose of carrying on his business or profession. The provisions of the Act are clear and categoric that all immovable assets falling within the definitions are to be included as the wealth of the assessee unless the same are excluded by the exclusion clause.
18. On reconstruction of the definition clause, after amendment w.e.f 1 st April, 1997, commercial properties are to be included in the net wealth of the assessee and exemption is being allowed to such 'house' of the assessee which is occupied for carrying out his business or profession by assessee himself, as it is provided in the sub clause (3) to s. 2(ea)(i) of the Act, business or profession carried on by him. 18 WTA No.58/Bang/2018 The portion rented out by the assessee against which compensation has been received and assessed as business income is the portion in which tenant of the assessee is carrying out his business or profession. Mere assessment of the rent or compensation under the head 'business income' does not commensurate with the assessee carrying on his business or profession in the said property. In the facts of the present case, the assessee is not carrying on the business of letting out properties. In CIT vs. Ajax Products Ltd. (1965) 55 ITR 741 (SC), the Supreme Court at p. 747 had held:
"To put it other words, the subject is not to be taxed unless the charging provision clearly imposes the obligation. Equally important is the rule of construction that if the word of statute are precise and unambiguous they must be accepted as declaring the express intentions of the legislature."
19. The Delhi High Court in Kapri International (P) Ltd.'s case supra) had categorically held as under:
"Held, that it was not disputed that the petitioner company had let out a portion of the property to D and that portion was in fact used by D and not by the assessee. Therefore, the value of such portion of the building was rightly included in the wealth of the assessee company."
20. Accordingly, the portion of property which is occupied by the tenant is to be included as an asset within the definition provided in section 2(ea)(i) of the Act at the relevant time.
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21. Now, we have to consider certain case law cited from both the sides to determine whether property can be held as a business asset as claimed by the assessee. As far as the definition of "asset" is concerned, the claim of the assessee is that "another house which the assessee may occupy for the purpose of any business or profession carried on by him" does not include within the ambits of taxability. So, item No. (3) of sub-cl. (i) of s. 2(ea) has specified that though an asset includes any building or land appurtenant, whether used for residential or commercial purposes or for the purpose of maintaining a guest-house, but does not include any house if occupied for the purpose of business or profession carried on by an assessee. So, in other words, if an asset is used for the purpose of business or profession then it is not an "asset" for the purpose of taxability under WT Act. Therefore, to determine whether an asset is exempt or not one has to look into the nature of business of the assessee. In this context we have perused an order of Hon'ble apex Court in the case of S.G. Mercantile Corporation vs. CIT 1972 CTR (SC) 8 : (1972) 83 ITR 700 (SC) and have found that on the facts of that case, the taking of property on lease and sub-letting portion thereof was part of the business and trading activity of that assessee, so it was held that the income fell under the head business income. Therefore, the proposition laid down by the Hon'ble Court is that the facts of the case should lead to the uncontroversial position that leasing and sub-letting should be part of the business and trading activity of an assessee 20 WTA No.58/Bang/2018 then only the income arising from such an asset can be considered as business income. One more observation of the Hon'ble Court is worth quoting, i.e., "The residuary head of income can be restored to only if none of the specific heads is applicable to the income in question; it comes into operation only after the preceding heads are excluded". This proposition has to be allowed while finalising an assessment proceedings so as to arrive at the right head of income for the purpose of taxation and equally applies to wealth-tax proceedings. An another decision of Hon'ble apex Court is very much relevant in the present context pronounced in the case of East India Housing & Land Development Trust 42 ITR 49 (SC). The question before Their Lordships was whether the income realised from the tenants of the shops and stalls was liable to be taxed as "business income"
under s. 10 of the IT Act or as "income from property" under s. 9 of IT Act. It was held that the income derived by the company from the shops and stalls was income received from property and fell under the specific head described in s. 9. The character of that income was not altered because it was received by a company formed with the object of developing and setting up markets. So, this order definitely supports the view taken by the Revenue authorities. In the subsequent developments, Mumbai Benches have followed abovecited decision in the case of Super Leasing Ltd. vs. Asstt. CIT (1996) 56 TTJ (Mumbai) 258 and held that the income being derived on exercise of ownership rights so the rental income has to 21 WTA No.58/Bang/2018 be brought to tax under the head "House property". On the other hand, a decision of the Hon'ble Supreme Court in the case of Barendra Prasad Ray vs. ITO (1981) 22 CTR (SC) 157 : (1981) 129 ITR 295 (SC) was in support of the proposition that the expression "business" does not necessarily mean trade or manufacture only but includes within its scope profession or vocation because this term has a wide import which includes an activity carried on continuously and systematically by a person by the application of his skill with a view to earning an income. However, in the present appeal, though there is continuity in earning rental income systematically year after year, but that alone is not the criteria so as to apply the ratio laid down by the Hon'ble apex Court. For that purpose, one has to examine the nature of the activity carried on by an assessee whether the same is within the expression "business" or not. A distinction is required to be drawn between the two activities, i.e., letting out or commercial exploitation. The various heads for the purpose of taxation have prescribed either in WT Act or IT Act are mutually exclusive and each specific head covers specific asset or source. Regardless of any arguments if the fact indicates that the property is rented out then falls under the specific head and such property cannot be treated as business asset. This view gets support from an order of jurisdictional High Court in the case of Parekh Traders vs. CIT (1983) 37 CTR (Bom) 4 : (1984) 150 ITR 310 (Bom), wherein it was held that letting out the godown is to be assessed under the head "Income from house 22 WTA No.58/Bang/2018 property". In the instant appeal, we have examined the language of the statute applicable and have found that once item (3) of s. 2(ea) prescribes that the property is required to be used for the purpose of business or profession carried on, then in view of this specific provision, otherwise also, the asset in question cannot be held as a business asset because the assessee has not established that letting out of the properties is the business of the assessee. Nowhere it is claimed before lower authorities that the assessee is engaged in the business of letting out of properties. Facts of the case simply reveal that the property owned by the assessee was subject to letting year after year and the income arising therefrom has been taxed as "house property income". Further Hon'ble Madras High Court in the case of Madras Silk & Rayon Mills (P) Ltd. vs. ITO & Anr. (2004) 187 CTR (Mad) 487 : (2003) 262 ITR 122 (Mad) is also worth mentioning. It was held that the letting of company's property to various persons is not a business income and question raised before the Hon'ble Court in this regard being a mixed question of law, hence held that the income derived by the assessee by leasing out property would not be business income. One more aspect was also discussed by the Hon'ble Court that how an order passed in the wealth-tax proceedings has an effect on the income-tax proceedings. The Hon'ble Court was of the view that the concept of wealth-tax and income-tax would have to be definitely read separately. However, the Court has reached to the conclusion that even assuming that the property let out by the 23 WTA No.58/Bang/2018 assessee was a commercial property, the income from such letting out could not be said to be a business income. As far as concepts of two Acts are concerned, the same have to be read separately but if the question is in respect of the same proposition of law and the applied provisions of the two Acts have similarity, then both of them require consideration in consonance. In view of the detailed discussion, we hereby affirm the orders of the authorities below and hold that the properties were rightly taxed for wealth-tax purpose.
22. At this juncture, it is worth mentioning that whether it is permissible to take a stand in respect of an asset in the income-tax proceedings diametrically opposite to the stand taken in the wealth-tax proceedings. General presumption is that a taxpayer should not take inconsistent view and expected to be consistent with the view already taken. It is also expected that taxpayer should not change its stand as suits to its requirement and advantageous in different proceedings. At one hand, in income-tax proceedings assessee has taken the stand to declare the income as "house property income" so the advantage of deduction under s. 24 would be permissible, however, on the other hand, the assessee has treated the same property as business asset to claim exemption under s. 2(ea) of WT Act. So, in both the proceedings, i.e., income-tax as well in wealth-tax, the assessee has chosen the course advantageous to him so that the tax can be saved. In our humble opinion, this not permissible and the same view has also been taken by various Courts. In a 24 WTA No.58/Bang/2018 decision pronounced by Hon'ble Calcutta High Court in the case of CIT vs. Sun Jute Press (P) Ltd. (1994) 118 CTR (Cal) 236 : (1993) 203 ITR 350 (Cal) it was held, quote "that the Tribunal was mainly guided by the consideration that the Revenue having accepted the income from sub-letting as income of the business, could not take the inconsistent view that for the purpose of s. 40 of the Finance Act, 1983, the asset is an unproductive asset and not a business asset used by the assessee as a businessman. In view of the above cited precedent, a conclusion can safely be drawn that under the present set of circumstances, it not permissible to take two different stands, one in the income-tax proceedings and other in the wealth-tax proceedings.
23. The learned Authorised Representative submitted that judgment of Hon'ble Karnataka High Court in the case of CIT(A) Vs. Shankar Narayan Industries and Planatations Pvt. Ltd. 344 ITR 613 (Kar) is applicable to the facts of the case and since the assessee has rented out the factory building, it is a business asset and not liable for wealth tax. We have carefully perused the judgment of Hon'ble Karnataka High Court cited supra. In that case, the assessee let out the commercial property for rent and the income of the assessee has been assessed as 'income from business' since the assessee is in the business of letting out the properties. The said commercial property was not included as an asset for the purpose of wealth tax. However, the revenue authorities considered the said 25 WTA No.58/Bang/2018 property as an asset for the purpose of wealth tax and brought to tax. On appeal, before the Hon'ble High Court it was held that the assessee being in the business of letting out properties and the income has been assessed as 'income from business.' The said commercial property cannot be assessed for the purpose of wealth tax. This judgment of Hon'ble Karnataka High Court cited supra in the case of Shankar Narayan Industries and Plantations Pvt. Ltd. is not applicable to the facts of present case as the income of the assessee is assessed as "Income from House Property."
24. The learned Authorised Representative placed much reliance on the decision of ITAT, Pune Bench in the case of Satvinder Singh Kalra cited supra to say that industrial property would not fall under the definition of residential and commercial property as mentioned in Section 2(ea) of the Act. There was passing reference in the said order to say that commercial properties is not synonymous to industrial properties. The ld. AR also placed reliance on Oxford Dictionary Wikipedia for the definition of 'commercial and industrial property'. In our opinion, this meaning in the Dictionary cannot over ride the provisions of Section 2(ea) of Wealth Tax Act or ratio laid down by High Court or Supreme Court. More so, it was decided by the Hon'ble Delhi High Court in the case of Kapri International Pvt. Ltd. Vs. Commissioner of Wealth Tax 258 ITR 656 that when the assessee let out the building and income from house property should be included as an asset for the purpose of Wealth Tax. Same view has been taken by 26 WTA No.58/Bang/2018 Hon'ble Bombay High Court in the case of Parekh Traders Vs. CIT (Bom) wherein it was held that property owned by the assessee subject to letting year to year, income on which taxed as "income from house property" so as to take advantage of deduction u/s.24 of the Act and treating the same property as business asset to claim exemption u/s.2(ea) of W T Act. This is not permissible. It is not possible to take two different stands one in income tax proceedings and other in wealth tax proceedings. A distinction is required to be drawn between the two activities i.e. let out or commercial exploitation. If the fact indicate that the property is rented out then it falls under the specific head and such property cannot be treated as business asset. In the present case also the assessee's income from letting out the property is assessed as income from house property and the assessee has availed deduction u/s.24 of the Act and for the purpose of wealth tax it cannot be considered as business asset so as to exempt from wealth tax. In our opinion, it is rightly to be considered as an asset liable for wealth tax.
25. The next argument by the learned Authorised Representative is the value of industrial land to be reduced from value of the factory building so as to ascertain the net asset value. The assessee in this case not demonstrated that industrial land is not part of the factory building let out to the tenant. Being so, it should be considered as part of the factory building and to be included in the asset liable for wealth tax.
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26. The next argument by the ld. AR is that the notional interest computed by the Assessing Officer on the deposit received by the assessee to be excluded from net maintainable rent. The Assessing Officer considered the notional rent receivable at 15% on Rs.80 lakhs so as to determine the net maintainable rent in addition to the annual rent of Rs.6 lakhs. In our opinion, it is appropriate to consider the annual value considered by the Assessing Officer as per Section 23 of the Income Tax Act for the purpose of income tax assessment so as to determine the net maintainable rent for the purpose of wealth tax. The Assessing Officer in the same assessment year cannot consider one rent for determining the annual value for the purpose of Income Tax and different rent for wealth tax purpose. Accordingly, we direct the Assessing Officer to adopt the same annual value as per Section 23 of IT Act for determining the net maintainable rent. Accordingly, he determined the gross maintainable rent and correspondingly he shall give deduction towards municipal tax and G.M.R. It is ordered accordingly.
27. In the result, the assessee's appeal is partly allowed.
Pronounced in the open court on the date mentioned on the caption page.
Sd/- Sd/-
(N.V. VASUDEVAN) (CHANDRA POOJARI)
VICE PRESIDENT ACCOUNTANT MEMBER
Dated: 16.12.2020.
*Reddy GP
28
WTA No.58/Bang/2018
Copy to
1. The appellant
2. The Respondent
3. CIT (A)
4. Pr. CIT
5. DR, ITAT, Bangalore.
6. Guard File
By order
Assistant Registrar
Income-tax Appellate Tribunal
Bangalore