Madras High Court
The Commissioner Of Wealth Tax vs Fagun Estates Pvt. Ltd. on 22 September, 2004
Equivalent citations: (2005)195CTR(MAD)280, [2005]272ITR472(MAD)
Author: K. Raviraja Pandian
Bench: P.D. Dinakaran, K. Raviraja Pandian
JUDGMENT K. Raviraja Pandian, J.
1. Pursuant to the order of this Court dated 11.3.1998 made in Tax Case Petition Nos.406 and 407 of 1967, the Tribunal drew up a statement of case and referred the following question of law for our opinion:
"Whether on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the land and building, a portion of which was let out and a portion of which was occupied by the assessee are to be treated as the assets of the assessee's business and hence, not hit by the provisions of Section 40 of the Finanace Act, 1983?"
2. The assessee is a domestic company carrying on business of dealing in real estates, constructing, selling and letting out buildings on hire. The basement portion of the building to an extent of 1500 sq.ft. was let out to Indian Bank and the balance portion was used by the assessee for its business purpose. Though the assessee had returned the value of the building and land, it contended before the Assessing Officer that in terms of Section 40 of the Finance Act, 1983, as a portion of the basement portion was used by the assessee as office premises, the value of the building cannot be assessed for Wealth Tax. The Assessing Officer rejected the contention of the assessee on the ground that the substantial portion of the basement has been leased out to Indian Bank as long term lease. However, on appeal, the Tribunal, by following its earlier order in the case of Varadaraja Theatres (P) Ltd. (29 ITD 29), held that no part of the assets of the assessee company in the form of land and building can be treated as exigible to wealth tax as it was used by the assessee as office premises and thus reversed the assessment order. The revenue sought for a reference as stated above and on that basis the above said question of law has been referred to us.
3. The learned counsel appearing for the revenue submitted that a plain reading of the provisions clearly makes it manifest that the building which has been used by the assessee for office purpose of its business is only excluded from the inclusion of wealth-tax valuation, but the facts of the assessee's case is that a portion of the basement has been let out to the Indian Bank on long term lease, and when the property has been leased out and income has been derived, automatically the property would come out of exemption under Section 40 of the Finance Act, 1983 and as such the Tribunal erred in granting relief in favour of the assessee.
4. The learned counsel for the revenue further contended that the reliance of the order of the Tribunal in the case of Varadaraja Theatres (P) Ltd., for coming to the conclusion that no part of the assets of the assessee company in the form of land and building can be treated as exigible to wealth tax is uncalled for, and even assuming that the Tribunal's decision is applicable to the facts of the present case, the Tribunal failed to note that the said decision of the Tribunal has been reversed in C.W.T. v. VARADHARAJA THEATRES PVT. LTD., [2001] 250 ITR 523 by this Court.
5. So far as the building is concerned, it is the contention of the learned counsel for the assessee that a part of the building has been used as a office for its official purpose. There are no details as to what is the nature of the lease or what is the extent which has been leased out. Whether the act of granting lease of the property by the assessee comes within the purview of the object clause of the assessee company or not has to be found out. But, the Tribunal failed in that exercise. The learned counsel relied on the decision of this Court in C.W.T. v. SRI MEENAKSHI SUNDARESWARAR FINANCE, [2003] 262 ITR 129 to contend that in the absence of any details as to the period of lease and the extent of lease and as to the object of the assessee company, the matter has to be remanded back to the Assessing Officer so as to gather the facts.
6. We heard the argument of either side and perused the materials on record.
7. Section 40 of the Finance Act, 1983 provides for the revival of levy of wealth tax in the case of closely held private companies. Sub-section (3) of Section 40 specifies the assets in respect of which the wealth-tax is to be paid by such companies. Clauses (v) and (vi) read thus:
"40.(3)(v) land other than agricultural land;
(vi) building or land appurtenant thereto, other than building or part thereof used by the assessee as factory, godown, warehouse, hotel or office for the purposes of its business or as residential accommodation for its employees or as a hospital, creche, school, canteen, library, recreational centre, rest room or lunch room mainly for the welfare of its employees and the land appurtenant to such building or part:
Provided that each such employee is an employee whose income (exclusive of the value of all benefits or amenities not provided for by way of monetary payment) chargeable under the head 'Salaries' under the Income Tax Act does not exceed eighteen thousand rupees."
Thus all lands other than agricultural lands form part of the taxable wealth and inclusion of the value of lands is perfectly justified. The intention of the legislature is to be ascertained with reference to the language employed in the legislation and the context. There is nothing in the text or context here which would warrant the exclusion of value of assets, which is not given within the exclusion clause as stated above.
8. It is a case in which the assessing officer has given a clear finding that a substantial portion of the basement, namely an extent of 1500 sq.ft. has been leased out to Indian Bank on a long term lease. The income from the leasing out of the property has also been assessed by the assessee as 'income from house property' under the provisions of the Income Tax Act. Further, no depreciation has also been claimed by the assessee in respect of the building and it is evident from such conduct of the assessee that the building does not constitute the business asset. In respect of the term of lease, the ultimate fact finding authority, the Tribunal, has stated that it is a long term lease. Clause (vi) to Section 40(3) of the Finance Act stipulates that what is to be excluded is the building which has been used by the assessee as office for the purpose of its business. It is admitted that the entire building has not been used by the assessee as office and a portion has been leased out to the Indian Bank, and the income from the same is assessed under the Income Tax Act as 'income from house property'. The portion under the possession of the assessee has been exempted.
9. In the above said facts, we are of the view that the Tribunal has committed a grave error in reversing the order of the Assessing Officer by granting the relief which is erroneous and against the statute. Useful reference can be had to the decision of this Court in K.N.CHARI RUBBER AND PLASTICS P. LTD. v. COMMISSIONER OF WEALTH TAX, [2003] 260 ITR 164.
10. The earlier decision in C.W.T. v. SRI MEENAKSHI SUNDARESWARAR FINANCE, [2003] 262 ITR 129 relied on by Mr.R.Meenakshisundaram, learned counsel for the assessee, for the purpose of remitting the matter to the Tribunal is not applicable to the facts of the case as the necessary material as to the nature of the lease and also how the lease has been treated by the assessee were very much available in the assessment order itself.
Hence, necessarily the question has to be answered in negative, in favour of the revenue and against the assessee. Accordingly, the question is answered in negative and in favour of the revenue.