Income Tax Appellate Tribunal - Mumbai
Mafatlal Industries Limited vs The Wealth Tax Officer on 28 September, 2004
Equivalent citations: (2005)95TTJ(MUM)723
ORDER
Mukul Shrawat, Judicial Member
1. This is an appeal filed by the assessee arising out of the order of CWT(A), XXVI, Mumbai dated 18/12/2003. The grounds raised are narrative and descriptive however, the issue raised as per grounds are decided as follows.
2. Through first ground the issue raised is in respect of reopening of assessment and validity of order passed Under Section 16(3) r.w.s. 17 of IT Act.
3. Originally a return of wealth was filed on 28/11/97 declaring net wealth of Rs. 17,05,70,639/- and the same was assessed Under Section 16(3) of WT Act with a little marginal difference and assessed at Rs. 17,34,44,200/-. Subsequently it was noticed by Revenue Authorities that the assessee has not included the value of properties known as "Mafatlal House" and another property "Mafatlal Centre" in the statement of wealth. It was also noticed that the assessee was declaring the rental income from these two properties as per IT Returns under the head "house property income". Due to this reason, thereafter, a notice Under Section 17 of WT Act was issued asking the assessee to explain why the value of these buildings should not be treated as specified assets to be taxed for wealth tax purpose. In compliance it was stated that a note was annexed with the statement of wealth filed along with the wealth tax return wherein it was stated that letting out of property being part of the business of the company hence not liable to wealth tax. For ready reference reproduced below.
"The assessee owns the Building "Mafatlal House" & "Mafatlal Centre" which are part of the Property Division of the Company. Part of each of the premises has been let out. It is submitted that as letting out of Property is the part of the Business of the company the portions of the premises which are let out are not liable to Wealth Tax in view of Section 2(ea)(i)(3) of the Wealth Tax Act particularly as a portion of the buildings are occupied for the purposes of its other business."
It was contended that Article of Association has specified the businesses activities of the company which included leasing, letting or assigning of properties . Further it was mentioned that the company occupied the premises for the purpose of business as one of the business of the company being leasing, hence claimed as not liable to wealth tax. Regarding a question as to why the income from the said properties was disclosed as "income from house property" instead of "income from business", the reply of the company was that since in Income-tax specific head of income is provided, therefore, the income there from has to be assessed under the specific head. For Income-tax purpose even if a company incorporated with the sole object of promoting and developing markets has to be assessed under income from house property and not under business income in respect of rental income of market shops and stalls and the assessee has relied upon the decision of Hon'ble Supreme Court in the case of East India Housing & Land Development Trust, 42 ITR 49. After reproducing the reply of the assessee, the A.O has furnished the details of rental income earned by the assessee for the year under consideration i.e. A.Y 1997-98 as follows:
Nature of property Gross Rent Income from house property (i) Mafatlal Centre 79,10,309 36,11,004 (ii) Mafatfal House 12,96,444 (-) 15,09,195
Whether a rental income is to be taxed as income from house property he has cited a decision in the case of Lakshmi Venkateswara Kalayana Mandapam, 50 ITD 546. So in the light of this decision the A.O has mentioned that the lease rent from the said properties had been correctly taxed as income from house property A.O has also reproduced the definition of "asset" defined in Section 2(ea)(i). So he has observed that any building which is used for residence or commercial purposes situated within 25 Kms from local limits is an asset to be charged to wealth tax. In his opinion the building belonging to the assessee were commercial properties leased out to various companies with the purpose of earning lease rental income, therefore, taxed as income from house property. In the assessment order certain case laws have also been discussed cited from the side of the assessee and the A.O has also drawn certain distinctions. With a view to keep a consistency with the income tax proceedings it was held that for wealth tax purpose the properties were "assets" and valued the same in accordance with Part-B, Schedule-III of WT Act, 1957. Being aggrieved this issue was carried by the assessee before the first appellate authority.
4. As far as the reopening and the validity of notice Under Section 17 is concerned, the observation of ld. CIT (A) was that there was no change of opinion on the basis of which the case was reopened as the A.O had found that the assessee has not included the value of two immovable properties in its wealth tax return, therefore, the A.O had reason to believe that the wealth has escaped assessment so issued notice Under Section 17 of WT Act. A finding was also given that the reasons recorded were deemed to have been communicated because number of letters were submitted during the course of Wealth Tax proceedings by the assessee wherein the issue was discussed and no where in any such letter A.O was asked to supply the reasons recorded. The appellant was made known to the reasons for reopening as the assessee was very well aware of all the reasons for which the case was reopened. With these observations this plea was dismissed.
5. On the issue of reopening we have heard both the sides in the light of the orders of the authorities below. The question of change of opinion while issuing a notice Under Section 17 of WT Act has also been examined by us. In the case of Kelvinator of India Ltd., 256 ITR 1(Del)(F.B) a Circular No. 549 dated 31/10/89 was discussed wherein it was made it clear that the amendments in Section 147 made w.e.f. 1/4/1989 had been carried out with a view to allay fears that the omission of the "expression reason to believe" would give arbitrary powers to the A.O to reopen an assessment on a mere change opinion. So it was observed that even according to CBDT a mere change of opinion cannot form the basis for reopening a completed assessment. We have examined the facts of this case in the light of this decision. On careful perusal of the records in our view there was no change of opinion because at the first instance no opinion at all was formed by the A.O as far as the valuation of these two properties and Wealth Tax liability over the same was concerned. An assessment Under Section 16(3) dated 28/3/2000 was made for the assessment year under consideration i.e. A.Y 1997-98. This order is brief and cryptic and the value of moveable and immovable properties as disclosed by the assessee was assessed as such however, there was a variation only in respect of value of motor cars. In other words, the value of immovable properties as disclosed by the assessee were assessed without any discussion in the wealth tax assessment order and there was no discussion with regard to "Mafatlal House" and "Manfatlal Centre". So it is not correct to say that an opinion was formed by the A.O in respect of these two properties which was later on changed. An another decision of Hon'ble Delhi High Court in the case of Jindal Photo Films, 234 ITR 170, as cited by the assessee, is also worth mentioning. The ITO in that case has reopened the assessment and withdrawn the deduction Under Section 80-I granted earlier. The Hon'ble Court has observed that between the date of order of assessment sought to be reopened and date of forming of opinion by the ITO nothing new has happened and no new material came on record, hence it was held that reopening is not permissible depending upon the changing moods of assessing authorities. On the other hand, in the instant appeal a categorical finding of fact is on record that the assessee has declared income under the head "house property" in income tax proceedings in respect of these two properties which has not taken into account at the time of framing of original assessment. This is not the case of changing of moods rather depended upon the new material as well as new information came to the notice of the A.O on the basis of which reopening proceedings were initiated. As far as the case of WTO v. Bobita Choraria, 56 ITD 182 is concerned the factual position was that the A.O has made the reference to the Valuation Officer subsequent to the completion of the assessment. So it was held that the A.O had no power to refer the matter to V.O after completion of the assessment. Consequently, the report of the V.O held not to be made the basis for reopening. What we have observed that nothing of this nature happened in the instant appeal and the material already available on record i.e. the income tax record was very much before the A.O which has escaped his attention and also escaped the assessment of these two properties due to which the assessment was reopened. Certain other precedents have also been cited however, the same are distinguishable on facts as well on law but the assessee has heavily placed reliance on an order of Hon'ble Apex Court in the case of CIT v. Foramer France, 264 ITR 566. In that appeal also a finding on fact was that the notices were based upon change of opinion hence bad in law. On the other hand, during the course of hearing ld. D.R has stressed that the reopening was very much within the powers of the A.O and it was done lawfully because at the time of framing of original assessment the taxable wealth had escaped from the assessment. Ld. D.R has also argued that the question of reopening was not challenged by the assessee before the A.O during the assessment proceedings. From the above discussion we hereby draw a conclusion that this is not the case of mere change of opinion and the case was rightly reopened on the basis of the material information gathered by the A.O based there upon had a reason to believe that the wealth has escaped assessment. With the result we hereby uphold the reopening of assessment and dismiss the ground raised in this regard.
6. The next issue raised in the ground is in respect of inclusion of value of two properties "Mafatlal House" & "Mafatlal Centre" in the net wealth of the appellant. In the ground it was claimed that the said two properties were exempt from Wealth Tax under item (3) of Clause 2(ea)(i).
7. Relevant facts in this regard have already been discussed in the above paras while considering the observations of the A.O. The issue of taxing rental income as income from "house property" or "business income" is essential to be decided on the criteria of the user of the property and character in which the property is used. It is necessary to examine whether income derived from that property is in the nature of "property income" or "business income". An admitted position is that for the assessment year under consideration the assessee suo motu has declared the rental income under the head "income from house property" in the income tax proceedings. It is also an admitted position of fact that these two properties have been let out to various companies of the Mafatlal Group and also let out to Bank. A detail is furnished disclosing the names of the parties to whom these properties were let out and also providing the details of the area occupied by those parties. So as far as the user of the properties is concerned the admitted position is that the same were let out during the year to certain concerns. They are 17 in number as per the details furnished on page 34 of paper book, plus assessee itself. As per the details furnished, in the building Mafatlal House the area occupied by the assessee itself was only 14.75% and the area occupied in Mafatlal Centre by the assessee was only 16.78% of the total area. As already referred herein above rental income credited to P&L Account in respect of "Mafatlal House" amounted to Rs. 12,96,444/- and in respect of "Mafatlal Centre" rental income credited amounted to Rs. 79,10,309/-. There is also no dispute about this fact that the income had been disclosed in Income-tax proceedings by the assessee suo motu under the head "income from house property". At this juncture it is worth questioning 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 tax payer should not take inconsistent view and expected to be consistent with the view already taken. It is also expected that tax payer 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 Section 24 would be permissible, however, on the other hand, the assessee has treated the same property as business asset to claim exemption Under Section 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 decision pronounced by Hon'ble Calcutta High Court in the case of Sun Jute Press (P) Ltd. 203 ITR 350 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 Section 40 of the Finance Act, 1983, the asset is an unproductive asset and not a business asset used by the assessee as a businessman. However, the statement of the case was insufficient. There was no material regarding the lease. It was not even clear whether the lease was for a short period. It was not clear whether there was a manifest intention of the assessee to resume in future the use of the part of the leasehold property for the purpose of his business as before. Unquote. So the matter was remanded to the Tribunal for going into the factual aspect of the matter. 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.
8. Now we have to consider certain case laws 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" do not include within the ambits of taxability. So item No. (3) of Sub-clause (i) of Section 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 wards 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, 83 ITR 700 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 fall 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 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., Quote "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." Unquote. This proposition has to be -followed while finalizing 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.(supra). The question before Their Lordship was whether the income realized from the tenants of the shops and stalls was liable to be taxed as "business income" Under Section 10 of the IT Act or as "income from property" Under Section 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 Section 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 above cited decision in the case of Super Leasing Ltd., 56 TTJ 258 and held that the income being derived on exercise of ownership rights so the rental income has to 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, 129 ITR 295 was cited 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 Courts 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 has 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 get support from an order of Jurisdictional High Court in the case of Parekh Traders, 150 ITR 310, wherein it was held that letting out the godown is to be assessed under the head "income from house property". There are certain other decision also cited before the revenue authorities almost on identical proposition need not to be repeated again because the law laid down is the same as already discussed herein above. From the side of the assessee again and again one argument was raised that provisions of one statute should not be interpreted with reference to similar provision in another statute and in support cited the case of CIT v. State Bank of India, 213 ITR Pg.1. Here in the instant appeal we have examined the language of the statute applicable and have found that once item (3) of Section 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. No where it is claimed before lower authorities that the assesses is engaged in the business of letting out of properties. Facts of the case simply reveals that the property owned by the assessee was subject to letting year after year and the income arising there from has been taxed as "house property income". Before we part with an another order of Hon'ble Madras High Court in the case of Madras Silk & Rayon Mills, 262 ITR 122 is also worth mentioning being cited by the parties before us wherein on the facts available 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 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 requires consideration in consonance. In view of the detailed discussion we hereby affirm the orders of the authorities below and held that the properties were rightly taxed for wealth tax purpose.
9. One more ground raised is in respect of valuation of motor cars which is not effectively argued before us, therefore need no interference in the findings of ld. CIT (A), hence dismissed.
10. In the result, the appeal of the assessee is dismissed.