VEENA INVESTMENTS (P) LTD. v. ASSISTANT COMMISSIONER OF WEALTH-TAX
[Citation -2006-LL-0830-6]

Citation 2006-LL-0830-6
Appellant Name VEENA INVESTMENTS (P) LTD.
Respondent Name ASSISTANT COMMISSIONER OF WEALTH-TAX
Court ITAT
Relevant Act Wealth-tax
Date of Order 30/08/2006
Assessment Year 1997-98, 1998-99,
Judgment View Judgment
Keyword Tags income from house property • business or profession • town area committee • residential purpose • commercial purpose • immovable property • security deposit • land appurtenant • cinema building • lease agreement • wealth-tax act • stock-in-trade • business asset • rental income • cash in hand • guest house • letting out • farm house • urban land • net wealth • motor car
Bot Summary: Shri H.N. Shah, Learned Counsel appeared for the assessee and Shri Sandeep Kumar, Departmental Representative appeared for the Revenue and put forward their rival submissions The brief facts of the case are that the assessee is the owner of a building known as New Prakash Cinema Building House at N.M. Joshi Marg, Mumbai. The AO did not accept the plea of the assessee observing that only the property which is occupied by the assessee for the purposes of any business or profession carried on by him is to be excluded and not the property, which is leased to a tenant and income from which is being assessed as income from property. 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-cls. On reconstruction of definition clause, after amendment w.e.f. 1st 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-cl. 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 the facts of the present case, the assessee has not established that it is letting out its property as part of its business and it is also an admitted fact that rent received by assessee is being assessed as income from house property.


Both appeals are by assessee are against consolidated order of CIT(A)-XXX, Mumbai, dt. 31st March, 2005 relating to asst. yrs. 1997-98 and 1998-99 against order under s. 16(3) r/w s. 17 of WT Act, 1957. issue in both appeals being same, two appeals were heard together and are being disposed of by this consolidated order for sake of convenience. appeal was filed late by one day and we condone delay in filing in said appeal. assessee has raised following ground of appeal in both assessment years: "1. learned CWT(A) has erred in rejecting contention of appellant that immovable property owned by appellant and partly used for purpose of business is out of purview of definition asset under s. 2(ea)(i)(3) of WT Act, 1957. appellant submitted that since property was partly used by appellant and partly let out commercial premises and therefore, is exempt for purpose of levy of wealth-tax under WT Act. Shri H.N. Shah, Learned Counsel appeared for assessee and Shri Sandeep Kumar, Departmental Representative appeared for Revenue and put forward their rival submissions brief facts of case are that assessee is owner of building known as New Prakash Cinema Building House at N.M. Joshi Marg, Mumbai. Part of building was being used by assessee for its office. building was leased to M/s Siti Cable Network Pvt. Ltd., as per lease agreement dt. 23rd April, 1996 w.e.f. 1st April, 1996 on monthly rental of Rs. 1 lakh along with security deposit of Rs. 2 crore, with escalation clause of increase in rent by 10 per cent every year. rental income was declared and assessed under head Income from house property . From perusal of records, it transpired that assessee was occupying 600 sq. ft. area and balance area of 5,400 sq. ft. was leased out and assessee had claimed and been allowed 1/10th of depreciation on building. said asset was claimed as outside purview of Wealth-tax Act because of provisions of s. 2(ea)(i)(3) of WT Act being any house which assessee may occupy for purpose of any business or profession carried on by him. AO did not accept plea of assessee observing that only property which is occupied by assessee for purposes of any business or profession carried on by him is to be excluded and not property, which is leased to tenant and income from which is being assessed as income from property. 46 CIT(A) confirmed order of AO placing reliance on decision of Hon ble Madras High Court in CWT vs. Fagun Estates (P) Ltd. (2005) 195 CTR (Mad) 280: (2005) 272 ITR 472 (Mad). learned Authorised Representative stated that assessee was owner of asset which was rented and also partly occupied for its own business and said asset was business asset entitled to exemption from WT Act. Reliance was placed on decision of Hon ble Gauhati High Court in CWT vs. Mahal Chand Pandia (1996) 134 CTR (Gau) 120: (1996) 219 ITR 733 (Gau). Wherein exemption was claimed under s. 5(i)(iv) of house belonging to assessee which was used partly for residence and partly for godown. learned Department Representative relying on decision of Mumbai Tribunal in Mafatlal Industries Ltd. vs. WTO (2005) 95 TTJ (Mumbai) 723: (2005) 95 ITD 66 (Mumbai) stated that only portion occupied by assessee on which depreciation is allowed will qualify for exemption and balance portion, income from which is assessed as income from property is not outside purview of WT Act. We have heard rival submissions and perused records. Similar issue arose in MTR (P) Ltd. vs. WTO (WT Appeal Nos. 282 and 283 (Mumbai) of 2004) relating to asst. yrs. 1997-98 and 1998-99, wherein it has been held as under: "9. Under provisions of WT Act, wealth-tax is leviable on assets owned by assessee. definition of assets is provided under s. 2(ea) of IT Act, which is as under (at relevant time): (i) Any building or land appurtenant thereto (hereinafter referred to as house ), whether used for residential or commercial purpose or for purpose of maintaining guest house or otherwise including farmhouse situated within twenty-five kilometers from local limits of any municipality (whether known as municipality, municipal corporation or by any other name or cantonment board, but does not include: (1) house meant exclusively for residential purpose and which is allotted by company to employee or officer or director who is in whole-time employment, having gross annual salary of less than two lakh rupees; (2) any house for residential or commercial purposes which forms part of stock-in-trade; (3) any house which assessee may occupy for purposes of any business or profession carried on by him. above definition was in force between 1st April, 1997 to 31st March, 1999. definition of assets under s. 2(ea) of WT Act underwent amendment w.e.f. 1st 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 purpose of maintaining guest house or otherwise including farmhouse situated within twenty-five kilometers from local limits of any municipality (whether known as municipality, municipal corporation or by any other name or cantonment board, but does not include: (1) house meant exclusively for residential purpose and which is allotted by company to employee or officer or director who is in whole-time employment, having gross annual salary of less than two lakh rupees; (2) any house for residential or commercial purposes which forms part of stock-in-trade; (3) any house which assessee may occupy for purposes of any business or profession carried on by him; (4) any residential property that has been let out for minimum period of three hundred days in previous year; (5) any property in nature of commercial establishments or complexes. In addition to above, following assets are also includible as assets for purpose of computation of net wealth as per provisions of s. 2(ea) of Act: (ii) motor car other than those used in 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 Hindu Undivided Families and in case of other persons, any amount not recorded in books of account. definition of assets in s. 2(ea) of WT Act is 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, buildings used for business or commercial purpose did not fall within ambit of definition of asset . For period 1st April, 1993 to 31st March, 1997, definition of asset under s. 2(ea) of WT Act was: (i) Any guest house and any residential house (including farm house situated within twenty-five kilometers from local limits of any municipality (whether known as municipality, municipal corporation, notified area committee, town area committee, town committee or by (any other name) or cantonment board), but does not include: (1) house meant exclusively for residential purpose and which is allotted by company to employee or officer or director who is in whole-time employment, having gross annual salary of less than two lakh rupees; (2) any house for residential or commercial purposes which forms part of stock-in-trade; Finance (No. 2) Act, 1996 amended definition of assets under s. 2(ea) and necessity for amendment was explained by way of Departmental Circular No. 762, dt. 18th Feb., 1998, which elaborates scope and effect of substitution of s. 2(ea)(i) by Finance (No. 2) Act, 1996, as under: Amendment of term assets 57.1 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 farm house situated within 25 kms. of local limits of any municipality) except assets mentioned in sub-cls. (1) and (2) of this clause. If residential houses have been taken as assets, there seems to be no reason why commercial properties, other than those used by assessee wholly and exclusively in his business or profession, should also be not taken as assets. By amendment, commercial buildings, which are not occupied by assessee for purpose of his business or profession, other than business of letting out properties, shall be brought to tax under WT Act, 1957. This provision will take effect from 1st day of April, 1997, and, accordingly, will apply in relation to asst. yr. 1997-98 and subsequent years. Taking into consideration series of amendments made to definition of assets under s. 2(ea) of WT Act, following position involves w.e.f. 1st April, 1993 to 31st March, 1997, wealth-tax was chargeable only on guest house and residential house including farm houses subject to exclusion of certain properties. amendment was made w.e.f. 1st April, 1997, wherein commercial properties were included as part of assets with exclusion clause of cl. (3) any house which assessee may occupy for purposes of any business or profession carried on by him [s. 2(ea)(i)], clause was also inserted by Finance (No. 2) Act, 1996. By virtue of this inclusion and also exclusion clause, scope and effect of substitution was that commercial properties were to be included as asset for purpose of computing net wealth of person, except properties which are being used for purpose of any business or profession carried on by said person. Departmental Circular No. 762, dt. 18th Feb., 1998 very clearly elaborated scope of insertion and clarified that commercial properties other than those used by assessee only and exclusively in his business or profession should not be included as assets. It was further clarified that commercial buildings which are not occupied by assessee for purpose of his business or profession other than business of letting out of properties shall be brought to tax under provisions of WT Act. definition of assets was further amended w.e.f. 1st April, 1999 and two more exclusion clauses were inserted - (1) Any residential property that has been let out for minimum period of three hundred days in previous year; (2) Any property in nature of commercial establishments or complexes. Finance (No. 2) Act, 1998 introduced amendment to definition o f assets under s. 2(ea) of WT Act and scope and effect of substitution was clarified by Departmental Circular No. 772, dt. 23rd Dec., 1998, which clarified that Finance (No. 2) Act, 1998 also amends said section so as to provide for exemptions from wealth-tax in respect of any residential property that has been let out for minimum period of 300 days in previous year and also any property in nature of commercial establishment or complexes. issue before us is relevant to period 1st April, 1997 to 31st March,1999, wherein though definition of asset was elaborated by including commercial properties within ambit of definition of assets but exclusion was limited to only in respect of any house which assessee may occupy for carrying on his business or profession. subsequent amendment w.e.f. 1st April, 1999 by excluding any property in nature of commercial establishment or complexes in addition to house which is being occupied for purpose of carrying on of business or profession by assessee enlarges scope of exclusion from definition of asset under s. 2(ea) of WT Act. amendments to s. 2(ea) of WT Act one after other clearly explains nature of assets to be included as part of definition under s. 2(ea) of WT Act. In period between 1st April, 1997 to 31st March, 1999, definition of asset was enlarged definition wherein in addition to residential properties, commercial properties owned by assessee were to be included as asset for computing net wealth subject to exclusion clause provided in sub-cls. (1), (2) and (3) under s. 2(ea)(i) of WT Act. As per cl. (3) to s. 2(ea) of Act, exemption is provided to immovable property from inclusion as part of net wealth, to house which assessee is occupying for purpose of carrying on his business or profession. provisions of Act are clear and categoric that all immovable assets falling within definitions are to be included as wealth of assessee unless same are excluded by exclusion clause. On reconstruction of definition clause, after amendment w.e.f. 1st April, 1997 commercial properties are to be included in net wealth of assessee and exemption is being allowed to such house of assessee which is occupied for carrying out his business or profession by assessee himself, as it is provided in sub-cl. (3) to s. 2(ea)(i) of Act business or profession carried on by him . portion rented out by assessee against which compensation has been received and assessed as business income is portion in which tenant of assessee is carrying out his business or profession. Mere assessment of rent or compensation under head Business income does not commensurate with assessee carrying on his business or profession in said property In facts of present case, assessee is not carrying on business of letting out properties. In CIT vs. Ajax Products Ltd. (1965) 55 ITR 741 (SC) Hon ble Supreme Court at p 747 had held: To put it other words, subject is not to be taxed unless charging provision clearly imposes obligation. Equally important is rule of construction that if word of Statute are precise and unambiguous they must be accepted as declaring express intentions of legislature. Their Lordships of Hon ble Delhi High Court in Kapri International (P.) Ltd. vs. CWT (supra) had categorically held as under Held, that it was not disputed that petitioner-company had let out portion of property to and that portion was in fact used by and not by assessee. Therefore, value of such portion of building was rightly included in wealth of assessee company. Accordingly, portion of property which is occupied by tenant is to be included as asset within definition provided in s. 2(ea)(i) of Act at relevant time." Mumbai Bench of Tribunal in Mafatlal Industries Ltd. s case (supra) had held that in absence of assessee not letting out properties as part of their business and letting same from year to year income from which is assessable as income from property is chargeable to wealth-tax. Reliance by learned Authorised Representative on decision of Hon ble Gauhati High Court is misplaced due to amended provisions of Act. In facts of present case, assessee has not established that it is letting out its property as part of its business and it is also admitted fact that rent received by assessee is being assessed as income from house property. Accordingly, portion of property which is occupied by tenant is to be included as asset within definition provided under s. 2(ea)(i) of WT Act and we direct AO to include value of said portion of property in taxable wealth of assessee. In result, both appeals filed by assessee are dismissed. *** VEENA INVESTMENTS (P) LTD. v. ASSISTANT COMMISSIONER OF WEALTH-TAX
Report Error