Income Tax Appellate Tribunal - Hyderabad
Impact Metals Limited, Medak Dist, ... vs Assessee on 22 January, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "B", HYDERABAD
BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER
AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
WTA Nos. 2 & 3 /Hyd/2015
Assessment Years : 2006-07 & 2007-08
Impact Metals Ltd., Dy. Commissioner of Wealth
Medak District. Tax, Circle - 2(1), Hyderabad.
PAN - AAACI4546A
(Appellant) (Respondent)
Assessee by Shri Mohd. Afzal
Revenue by Smt. Mythili Rani
Date of hearing 14-01-2016
Date of pronouncement 22-01-2016
O RDE R
PER B. RAMAKOTAIAH, A.M.:
These two appeals are filed by assessee against the orders of CIT-II, Hyderabad, u/s 25 of the Wealth Tax Act, dated, 11/12/20145 for the Assessment Years 2006-07 & 2007-08.
2. At the outset, w e find that these appeals were filed with a delay of 45 days. It was submitted by way of an affidavit that the order of CIT was received on 25/12/14 and the appeal should have been filed on or before 23/02/2015 and the same was filed on 09/04/15 with a delay of 45 days. The delay is on account of financial difficulties of the company, which has taken complete attention of the Executive Director, who could not prefer the appeal at the relevant point of time. It was explained that assessee company's turnover has come down from above 20 crores to Rs. 2.7 crores and due to financial difficulties 2 WTA Nos. 2& 3/Hyd/2015 Impact Metals Ltd.
there was pileup of salaries and electricity bills etc. The Recovery Officer of EPF Organization issued a show cause notice and in the month of March'15, the PF authorities visited assessee's premises and drawn a Panchanama and attached properties worth Rs. 75 lakhs for enforcement arrears. Further, the ICICI Bank, who has advanced loan to assessee also issued a public notice-cum-auction notice for sale of secured assets in the month of February'15. Even though the order was served on Executive Director, due to the financial difficulties and day-to-day management of running the establishment, the Executive Director missed preferring an appeal. However, the accountant of the company appeared for the proceedings of AY 2012- 13 and came to know about the order. Immediately steps were taken to file the appeal. It was submitted that the delay is not an intentional one and not with a contumacious conduct.
2.1 After considering the detailed submissions of the learned counsel for the assessee and objections raised by the ld. DR, we are of the opinion that the assessee has sufficient reasons why the appeal could not be filed in time. Considering the facts as stated above, we condone the delay and admit the appeals for adjudication.
3. Briefly stated facts are, assessee is a company and has not filed its WT returns for the impugned assessment years. Therefore, a notice u/s 17 of the WT Act was issued on 21/11/2011. Consequent to this, assessee filed the returns of wealth of Rs. 10,00,000/- and Rs. 13,89,500/- on 27/03/2013 respectively for AYs 2006-07 and 2007-08. Assessments u/s 16(3) were completed by the AO accepting the wealth admitted by the assessee on 27/03/2013.
4. Thereafter, ld. CIT-II, issued notices u/s 25 of the WT Act assuming that the AO has omitted to consider the value of the property leased to M/s BHEL Gas Turbine Services (P) Ltd. for the purpose of WT and initiated proceedings u/s 25 considering that the 3 WTA Nos. 2& 3/Hyd/2015 Impact Metals Ltd.
orders of the AO as erroneous and prejudicial to the interests of revenue.
5. Consequent to the show cause notice, it was submitted by the assessee that the property which is leased to M/s BHEL Gas Turbine Services (P) Ltd. is 'commercial establishment' and not subjected to the provisions of WT. In support, it was contended that the property was developed according to the specifications of the lessee and a monthly rent was received at Rs. 2,56,000/- from August, 2000, which was being offered and accepted/assessed as business income. The ld. CIT, however, has not accepted the contention and opined that the assessee leased out the property to a third party and did not use it for its business purposes. Accordingly, ld. CIT set aside the order of the AO and directed to consider the value of the building/property for the purpose of WT. His finding in para 5 of his order is as under:
"5. The explanation filed by the AR of the assessee is examined and the explanation is not accepted. The argument of the AR that the lease property is a commercial establishment which is not in the purview of the asset is not correct. During the year, the assessee leased out the property to another company on lease basis and did not use for his business purpose. Income on such activity will become income from house property though the assessee has treated the income as business income in his return of income. The property development according to the requirements of the assessee with necessary equipment will not become a commercial establishment. Relying on the decisions in the case of T.P. Roychoudhury & Co. Ltd., Vs. DCWT (ITAT, Cal.) 69 ITD 135 and CWT Vs. Indian Ware Housing India Ltd. (Mad.) 269 ITR 203, it is decided that the building leased out to M/s BHEL Gas Turbine Pvt. Ltd. is treated as wealth considered for the purpose of wealth tax. Further reference is also made to ITAT, Mumbai Bench - Bernhard Shulte Shipping India (P) Ltd. wherein it was clearly held that if the assessee is not in the business of letting out of properties, premises let out for business purposes are taxable under the Wealth Tax Act."4
WTA Nos. 2& 3/Hyd/2015 Impact Metals Ltd.
6. The ld. counsel for the assessee submitted that the case law relied on by the revenue are prior to 01/04/89 wherein the provisions of WT Act are entirely different. The definition of 'asset' under the WT Act has been substantially modified and this aspect was considered by the coordinate bench of ITAT, Pune in the case of Satvinder Singh Vs. DCWT, [2007] 109 ITD 241 (Pune). He also relied on the decision of the Hon'ble Gujarat High Court in the case of CIT Vs. Vasumati ben Chhaganlal Virani [2013] Tax Pub(DT) 2980 (Guj-HC). On the issue of whether the order of AO is erroneous and prejudicial to the interests of revenue, it was submitted that the AO has issued a show cause letter dated 29/05/12 specifically seeking the details of building leased to M/s BHEL Gas Turbine Services (P) Ltd. and the amount offered to WT u/s 2(ea). The assessee vide reply letters dated 25/03/13 filed respectively for both the years, has explained as under:
"In respect of property in survey No.587[part] and 588[part] admeasuring Acres 304 Guntas toqether with structures standing thereon, situated at Dundigal (Vi), Kuthbullapur (M), R.R. District is given on lease to the BHEL GE Gas Turbine Services Pvt. Ltd, by erecting the structure with necessary equipments as designed by the structural engineers of the lessee for the specific purpose of the lessee company for locating the Service Center for the purpose of storing spare parts of the Gas Turbine, servicing and repairing of gas turbines, components and all other related activities. The rent received from the lessee was for the land and building and plant, machinery and other fittings. The income was admitted as business income for the all assessment years and accepted. Therefore, this property cannot be a asset as defined in section 2[ea] of the VVT Act. At the most this is a commercial establishment. Therefore, not liable for WT Act."
It was submitted that after the explanation was given, the AO has accepted the same and did not make any addition, which shows that he has applied his mind, therefore, the CIT is prevented by taking a different opinion under the provisions of section 25, as held by the Hon'ble Delhi High Court in the case of CIT Vs. Sunbeam Auto Ltd., 5 WTA Nos. 2& 3/Hyd/2015 Impact Metals Ltd.
332 ITR 167. It was submitted that it is not a case where the AO has not enquired and framed the assessment, but, the AO has enquired and accepted assessee's contention and formed opinion and, therefore, CIT is not empowered to revise the assessment order. Ld. counsel also relied on the decision of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. Vs. CIT, 234 ITR 83 (SC) to submit that CIT cannot substitute his opinion on an issue in the proceedings u/s 25 of the Act. Since the provisions of section 25 WT Act are in paripassu to the provisions of section 263 of IT Act, therefore, these principles will equally apply to the facts of the case. The ld. counsel further on merits submitted that the property is 'commercial property' and incomes of which were offered and accepted as business and is revenue yielding asset. Consequently, the CIT cannot direct levy of wealth tax on the building, both on facts as well as on law and as the action of CIT cannot be justified, requested for setting aside the order.
7. The ld. DR, however, relied on the orders of CIT to submit that assessee has not used the property for its own business, consequently, levy of wealth tax is warranted.
8. We have considered the issue and examined the rival contentions. As far as the facts of the properties are concerned, it is assessee's own property on which buildings were constructed as per the specifications of the lessee and leased out to M/s BHEL Gas Turbine Services Pvt. Ltd. for the purpose of running service centre. It is also a fact that assessee is offering the income as business income and the same is also accepted in all the years, except AY 2007-08. In that year also, the AO treated the same as 'income from house property', but, on appeal assessee's contentions were accepted and therefore there is no dispute on the fact that incomes were on this property is being offered under the head 'income from 6 WTA Nos. 2& 3/Hyd/2015 Impact Metals Ltd.
business' only. It is also a fact that the property is not a residential house, but, a commercial property.
9. Proper analysis of the definition of asset and the provisions of WT Act were done by the coordinate bench of ITAT Pune in the case of Satvinder Singh Vs. DCIT (supra) and the entire provisions are analysed as under:
13. In order to appreciate the issue, it is necessary to have a look at the definition of 'assets' defined under s. 2(ea) along with the amendments made from time to time therein. The definition of 'assets' in relation to assessment year commencing from the 1st day of April, 1993 or any subsequent assessment year before the same was substituted by Finance (No. 2) Act, 1996 w.e.f. 1st April, 1997, stood as under :
"(ea) 'assets', in relation to the assessment year commencing, on the 1st day of April, 1993, or any subsequent assessment year, means--
(i) any guest-house and any residential house (including a farmhouse situated within twenty-five kilometers 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 lakh rupees;
(2) any house for residential purposes which forms part of stock-in-trade.
(ii).............."
14. The aforesaid cl. (i) of sub-s. (ea) of s. 2 of the WT Act was substituted by the following cl. (i) by the Finance (No. 2) Act of 1996 with effect from 1st April, 1997 :
"(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 farmhouse 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 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;7
WTA Nos. 2& 3/Hyd/2015 Impact Metals Ltd.
(2) any house for residential or commercial purposes 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;"
15. The aforesaid cl. (i) substituted by the Finance (No. 2) Act, 1996 w.e.f. 1st April, 1997 has been further substituted by the Finance (No. 2) Act, 1998, w.e.f. 1st April, 1999, which reads as under :
"(ea) 'assets', 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 farmhouse 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 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 purposes 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."
16. The exception provided in sub-cls. (4) and (5) below cl. (i) of sub-s. (ea) of s. 2 has been inserted by the Finance (No. 2) Act w.e.f 1st April, 1999. In the Budget Speech of Minister of Finance, the Hon'ble Finance Minister has stated that housing is an area which requires our utmost attention, and, therefore, he proposed several incentives to encourage house building activity. Amongst several incentives to encourage house building activities, an exemption to certain specified properties like commercial complexes under the WT Act was provided [see para 100 of Finance Minister's Speech reported at (1998) 147 CTR (St) 28 : (1998) 231 ITR (St) 69]. In the Notes on Clauses on Finance Bill No. 2, 1998, it is stated that cl. 69 of the Finance Bill No. 2, 1998, seeks to amend s. 2 of the WT Act relating to definitions. Sub-cl. (b) of cl. (69) seeks to amend sub-s. (ea) of s. 2 of the WT Act relating to the definition of assets for the purpose of wealth-tax. Vide this clause, it was proposed to exclude let out residential properties from the definition of asset in case the property has been let out for a period of at least 300 days in a year. [Sub-cl. (4) to cl. (i) of sub-s. (ea) of s. 2 of the WT Act]. It was also proposed to exclude any property in the nature of commercial establishment or complex from the definition of 8 WTA Nos. 2& 3/Hyd/2015 Impact Metals Ltd.
asset and these amendments should take effect from the 1st day of April, 1999 and would accordingly apply in relation to the assessment year 1999- 2000 and subsequent years. In the memorandum explaining the provisions in the Finance No. 2 Bill, 1998 under the head "Incentives proposed under the WT Act", it is clarified that wealth-tax is not levied on productive assets. In view of this logic, it is proposed that wealth-tax would also not be levied on such residential properties that have been let out for a period of a minimum of three hundred days in a year, and, it is also proposed to exempt commercial establishments and complexes from the ambit of WT Act. It is, thus, clear that the legislature has adopted a logic that wealth-tax is not levied on productive assets, and in view of that logic, it was proposed that wealth-tax would not be levied on such residential property that has been let out for a period of minimum 300 days in a year and to exempt commercial establishments and complexes from the ambit of wealth-tax. Therefore, while construing the meaning to sub-cls. (4) and (5) inserted by the Finance (No. 2) Act, 1998 w.e.f. 1st April, 1989, the intention of the legislature that wealth-tax is not to be levied on productive assets is to be kept in mind.
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 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.
9WTA Nos. 2& 3/Hyd/2015 Impact Metals Ltd.
18. On the reading of the aforesaid definition of 'assets' given under cl. (i) of sub-s. (ea) of s. 2 as it stood from time to time, it is clear that sub-cl. (3) below cl. (i) of sub-s. (ea) of s. 2 has been inserted by the Finance (No. 2) Act, 1996 w.e.f. 1st April, 1997 and sub-cls. (4) and (5) were subsequently inserted by the Finance (No. 2) Act, 1998 w.e.f. 1st April, 1999. The assessment years involved in these appeals are asst. yrs. 1999-2000 to 2002-03, and, as such, we are concerned with the definition of 'assets' as substituted by Finance (No. 2) Act, 1998 w.e.f. 1st April, 1999. In the light of the aforesaid definition of "assets" as it stood from time to time, any house which the assessee may occupy for the purposes of any business or profession carried on by him was not excluded from the purview of "asset" before the insertion of sub-cl. (3) by the Finance (No. 2) Act, 1996 w.e.f. 1st April, 1997. In other words, upto the asst. yr. 1996-97 any house which the assessee may occupy for the purpose of any business or profession carried on by him was treated to be a part of the asset. But, the same has now been excluded w.e.f. 1st April, 1997 vide sub-cl. (3) of cl. (i) of sub-s. (ea) providing thereby that any house which the assessee may occupy for the purpose of any business or profession carried on by him shall not be included within the definition of the "assets". It is further clear that only that house which the assessee may occupy for the purpose of any business or profession carried on by him is only excluded from the "asset" vide sub-cl. (3) below cl. (i) of sub-s. (ea) of s. 2 of the Act. Therefore, in order to claim benefit of this clause, the assessee has to prove that the house was being occupied by him for the purpose of any business or profession carried on by him only and nothing else. This condition is to be satisfied only in case the assessee wants to claim the exemption in respect of "any house" under sub- cl. (3). In sub-cl. (3), the word used is "any house" and not the 'house or property in the nature of commercial establishments or complexes'. In other words, any or all houses whether in the nature of commercial house or not but occupied by the assessee for the purpose of any business or profession carried on by him, would be covered by this sub-clause. In order to bring the case to be covered by this item, the only requirement is to prove that the house was occupied by the assessee for the purpose of any business or profession carried on by him. The nature of the house is not material. What is material is that the house must be occupied by the assessee for the purpose of any business or profession carried on by him. Thus, any house being not occupied by the assessee for the purpose of any business or profession carried on by him would not be covered by this sub-cl. (3) even though the same may be used for commercial purposes by any person other than the assessee.
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 :
10WTA Nos. 2& 3/Hyd/2015 Impact Metals Ltd.
"(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 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.
21. However, from the reading of the main provision contained in sub-cl. (i) of sub-s. (ea) of s. 2, which is appended above, it is clear that any building or land appurtenant thereto used for commercial purposes also comes 11 WTA Nos. 2& 3/Hyd/2015 Impact Metals Ltd.
within the definition of asset, subject to the items excluded, vide sub-cls. (1) to (5) thereto. In the main principal portion of cl. (i), the word used is "any building or land appurtenant thereto whether used for residential or commercial purpose", but it is always subject to the exceptions provided in sub-cls. (1) to (5) thereto. Sub-cl. (3) covers only those houses, which are occupied by the assessee for the purpose of any business or profession carried on by the assessee. Sub-cl. (5) covers all those properties which are in the nature of commercial establishment or complex meaning thereby that the property must be in the nature of commercial establishment or complex which in turn indicates that the property must also be actually used for the purpose of any business or trade carried on in those commercial establishments or complexes. This would mean that any house, which is not by its very nature in the nature of commercial establishment or complex, but is occupied for the purpose of any business or profession carried on, not by the assessee but by somebody else, shall be included in the definition of "asset" as would be clear from reading together the main provisions contained in cl. (i) together with exceptions provided in sub-cls. (3) and (5). Therefore, the CIT(A)'s observation that if the interpretation canvassed by the assessee is to be accepted it would make s. 2(ea)(i) inoperative because every building or part of building used for commercial purposes shall be claimed to be a part of commercial establishment or complex, is not correctly made out. Merely because any building or land appurtenant thereto is used for commercial purposes would not that by itself is sufficient to bring it within the ambit of commercial establishment or complex unless it is also established and proved that the said building by its very nature is in the nature of commercial establishment or complex. The correct meaning of sub-cl. (5) would thus be that any property which is merely used for commercial purposes would not by itself be sufficient enough to classify the same as commercial establishment or commercial complex unless it is also proved and established that the property by its very nature is also in the nature of commercial establishment or complex. Under sub-cl. (5), the legislature has excluded only the property in the nature of commercial establishment or complex from the definition of "asset" for the purpose of WT Act and not all the properties which are used for commercial purposes. For the purpose of sub-cl. (5), both the criterias of the nature and use of the property being of commercial must be fulfilled.
22. We may, therefore, summarize the proposition with regard to the building used for commercial purposes as under :
(1) That any building or land appurtenant thereto used for commercial purposes shall not be excluded from the "asset" as defined under sub-s. (ea) of s. 2 of the WT Act, unless (i) any house is occupied by the assessee for the purpose of any business or profession carried on by him [sub-cl. (3)], or (ii) the property by its very nature is in the nature of commercial establishment or commercial complex, being used in a business or trade carried on in the said premises [sub-cl. (5)], or (iii) the house for commercial purposes which forms part of stock-in-trade [sub-cl. (2)].
Therefore, for the purpose of item No. (3), any house may not necessarily be required to be in the nature of commercial establishment or complex, if it is occupied by the assessee for the purpose of any business or profession carried on by him, and in that case, the same shall stand excluded from the purview of assets defined under s. 2(ea) of the Act. Further, any property which satisfies the criteria of its being in the nature of commercial establishment or complex and also used in a business or trade carried 12 WTA Nos. 2& 3/Hyd/2015 Impact Metals Ltd.
thereon shall be covered by sub-cl. (5) below s. 2(ea)(i) of the Act. Furthermore, any house used for commercial purposes forming part of stock-in-trade also stand excluded from the purview of asset vide exception provided in sub-clause below s. 2(ea)(i) of the Act. In this sense, we may, therefore, state that merely because of the fact that any building or land appurtenant thereto is used for commercial purposes would not come within the ambit of sub-cls. (2), (3) and (5) unless for the purpose of sub-cl. (2), it forms part of stock-in-trade, for the purpose of sub-cl. (3) it is satisfied that the house was occupied by the assessee himself for the purpose of any business or profession carried on by him and for the purpose of sub-cl. (5) property itself was in the nature of commercial establishment or complex and used in a business or trade carried thereon."
In view of the detailed analysis of the provisions as above, we are of the opinion that the commercial building leased out by the assessee gets exemption under sub-clause 5 of the provision to section 2(ea)(i).
10. Not only that the Hon'ble Gujarat High Court in the case of CIT Vs. Vasumati ben Chhaganlal Virani (supra) also held that "section 2(ea)(i) nowhere requires that a commercial establishment or a complex could not be established in a house property but only provides that any property in the nature of commercial establishment or complex shall be excluded from deemed asset as defined in clause 1 of section 2(ea). Further, it nowhere provides that only commercial establishment or complex is occupied by owner, then, only the exception shall take effect". In view of the above, we are of the opinion that the impugned property is not covered by the definition of 'asset' so as to bring to tax under the WT Act. We also notice that CIT has relied on the case laws which were given in the context of the then existing provisions, prior to 01/04/89 wherein the WT was levied on all the assets of assessee. Case law relied upon by the CIT pertained to those assets and the same are not applicable to the present provisions of WT Act.
11. In addition to the above, we are also of the opinion that the order of the AO cannot be considered as 'erroneous and prejudicial to 13 WTA Nos. 2& 3/Hyd/2015 Impact Metals Ltd.
the interests of revenue' as the AO has examined the taxability of the impugned property by issuing show cause notice and the assessee has explained the nature of the property in detail as extracted above. Therefore, it can be safely concluded that the AO formed an opinion in not bringing the property to tax and the same cannot be substituted by the CIT in the proceedings u/s 25(2) of the Act, as held by the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. (supra). Therefore, we are satisfied that the orders of the AO are neither 'erroneous nor prejudicial to the interests of revenue'. In view of this, the impugned orders of CIT for both the AYs under consideration are set aside and the orders of the AO are restored.
12. In the result, both the appeals under consideration are allowed.
Pronounced in the open court on 22 nd January, 2016.
Sd/- Sd/-
(P. MADHAVI DEVI) (B. RAMAKOTAIAH)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated: 22 nd January 2016
kv
Copy to:-
1) Impact Metals Ltd., C/o Mohd. Afzal, Advocate, 11-5-465, Sherson's Residency, Flat No. 402, Criminal Court Road, Red Hills, Hyderabad - 500 004.
2) DCWT, Circle - 2(1), Hyderabad
3) CIT - II, Hyderabad.
4) Addl. CIT, Range - 2, Hyderabad
5) The Departmental Representative, I.T.A.T., Hyderabad.