2002 (4) TMI 23 - HC - Wealth-tax

High Court affirms exemption for new building under Wealth-tax Act

The High Court held that the exemption under section 5(1)(iii) of the Wealth-tax Act, 1957, applied to the new building constructed by the assessee in ... Net Wealth - Wealth Tax, Exemption - '1. Whether, Tribunal was right in law in coming to the conclusion that the assessee was entitled to exemption under section 5(1)(iii) of the Wealth-tax Act, 1957, in respect of new building constructed by him in place of the old recognised palace? - 2. Whether, Tribunal was right in law in coming to the conclusion that the exemption was available to a building used as an official residence irrespective of the fact whether it was old or newly constructed?' - 'Whether, assessee is entitled to exemption under section 5(1)(iii) of the Wealth-tax Act, 1957, in respect of the palace which was demolished and a new building has been constructed?' - Since the question as to whether the exemption claimed under section 5(1)(iii) of the Act could have been made by the assessee in the return filed by him in the status of a Hindu undivided family has not been referred and does not arise from the order of the Tribunal, we refrain from giving any opinion on that aspect of the matter. - In view of the above discussion, we hold that the Tribunal was right in coming to the conclusion that the exemption under section 5(1)(iii) of the Wealth-tax Act, 1957, was admissible even in respect of the new building constructed by the assessee in the place of the old recognised palace which was used as his official residence. Issues Involved:1. Entitlement to exemption under section 5(1)(iii) of the Wealth-tax Act, 1957, for a new building constructed in place of an old recognized palace.2. Applicability of exemption to a newly constructed building used as an official residence.Detailed Analysis:Issue 1: Entitlement to exemption under section 5(1)(iii) of the Wealth-tax Act, 1957, for a new building constructed in place of an old recognized palace.For the assessment year 1977-78, the assessee declared a net wealth of Rs. 11,12,243 and filed the return as an individual. The assessment was later requested to be made in the status of a 'Hindu undivided family'. The assessee claimed exemption under section 5(1)(iii) of the Wealth-tax Act for a new building constructed on the site of an old palace, which was previously exempted under the Part 'B' States (Taxation Concessions) Order, 1950. The Wealth-tax Officer denied this exemption, stating that the new building could not be regarded as the palace mentioned in the notification. Similar decisions were made for the assessment years 1978-79 and 1979-80.The Appellate Assistant Commissioner of Wealth-tax, however, held that the exemption under section 5(1)(iii) was applicable even if the old palace was demolished and a new building was constructed at the same place. The Tribunal upheld this view, stating that the exemption should continue as long as the new building was in the occupation of the ex-Ruler.The High Court confirmed that the exemption under section 5(1)(iii) was intended to provide relief to the recognized Ruler or successor by exempting one building in their occupation, whether old or newly constructed. The court emphasized that the purpose was not to compel the Ruler to live in a dilapidated building but to ensure a habitable residence was available.Issue 2: Applicability of exemption to a newly constructed building used as an official residence.The Tribunal referred to the language of section 5(1)(iii) of the Wealth-tax Act, which exempts 'any one building in the occupation of a Ruler,' and noted that the exemption was not limited to the original structure but extended to any building used as an official residence. The High Court agreed, stating that the exemption should apply to the new building constructed on the same site as the old palace, given that the intent was to provide a residence to the ex-Ruler or his recognized successor.The court also referenced the legislative history and the amendments made by the Rulers of Indian States (Abolition of Privileges) Act, 1972, which aimed to transition the Rulers to changed circumstances while maintaining certain privileges, including the exemption for one official residence.The High Court concluded that the exemption under section 5(1)(iii) was admissible for the new building constructed in place of the old recognized palace, affirming the Tribunal's decision and ruling in favor of the assessee.Conclusion:The High Court held that the exemption under section 5(1)(iii) of the Wealth-tax Act, 1957, was applicable to the new building constructed by the assessee in place of the old recognized palace used as an official residence. The questions referred were answered in the affirmative, in favor of the assessee and against the Revenue, with no orders as to costs.