2006 (10) TMI 72 - HC - Wealth-tax

Court rules factory buildings under construction subject to wealth tax despite not in current business use.

The High Court held that the appellate Tribunal incorrectly excluded the value of factory and research buildings under construction from wealth tax. The ... Wealth tax – AO included the value of factory and research buildings under construction in the total wealth of the assessee company as per Section 40(3)(iv) – Held that AO contention was correct and allow the addition Issues Involved:1. Whether the appellate Tribunal was correct in deleting the value of the factory and research buildings under construction and not in actual use for business as per section 40(3)(vi) of the Finance Act, 1983.2. Whether allowing the assessee's claim violated the plain language of section 40(3)(vi) of the Finance Act, 1983.Issue-Wise Detailed Analysis:Issue 1: Deletion of Value of Buildings Under ConstructionThe Tribunal had deleted the value of the factory and research buildings under construction, which were not in actual use for business purposes. The assessing officer had included the value of these buildings in the total wealth of the assessee, arguing that buildings under construction could not be considered as used for business purposes. The Tribunal, relying on its previous decision in Nutan Electricals Industries Pvt. Ltd. v. CIT, held that unfinished buildings do not fall under taxable assets as per section 40(3) of the Finance Act, 1983. The Tribunal reasoned that buildings meant for future business use were not chargeable to wealth tax.Issue 2: Violation of Section 40(3)(vi) LanguageThe Tribunal's decision was challenged on the grounds that it violated the plain language of section 40(3)(vi) of the Finance Act, 1983. This section excludes buildings used by the company for specific business purposes from wealth tax. The court noted that the buildings in question were under construction and not in actual use, thus not falling under the exclusion clause. The court emphasized that the prospective or intended use of the buildings was irrelevant; the exception could only be invoked if the buildings were already used for specified business purposes.Legislative Intent and AmendmentsThe court discussed the legislative intent behind section 40 of the Finance Act, 1983, which aimed to tax unproductive assets in closely-held companies to prevent tax avoidance. The Finance Act, 1988, amended section 40 to exclude certain assets from wealth tax, effective from April 1, 1989. However, these amendments were not retrospective and did not apply to the assessment year 1986-87. The court rejected the argument that the amendments should be treated as retrospective to avoid anomalous situations.Court's ConclusionThe court concluded that the Tribunal erred in its interpretation of section 40(3)(vi). It held that the buildings under construction did not qualify for the exclusion as they were not in actual use for business purposes. The court disagreed with the Tribunal's reliance on the intended use of the buildings and emphasized that the plain language of the statute must be followed. The court also disagreed with the Delhi High Court's decision in Prem Nath Motors Pvt. Ltd., which took a similar view as the Tribunal.Final DecisionThe court decided in favor of the revenue, stating that the Tribunal was incorrect in deleting the value of the factory and research buildings under construction. It held that the Tribunal had misread the plain language of section 40(3)(vi) of the Finance Act, 1983, and that the buildings under construction were liable to wealth tax. The court appreciated the assistance of the senior advocate who helped clarify the issues.Summary:The High Court ruled that the appellate Tribunal erred in excluding the value of factory and research buildings under construction from wealth tax, as these buildings were not in actual use for business purposes as required by section 40(3)(vi) of the Finance Act, 1983. The court emphasized that the plain language of the statute must be followed, and the intended future use of the buildings was irrelevant. The decision was made in favor of the revenue, confirming that the buildings under construction were taxable assets.