Supreme Court rules building not exempt if used by subsidiary.

The Supreme Court upheld the decisions of the lower authorities, affirming that the portion of the building used by the subsidiary company does not qualify for exemption under Section 40(3)(vi) of the Finance Act, 1983. Despite being used productively, the building is not utilized by the assessee itself but by its separate legal entity subsidiary. The Court dismissed the appeal, concurring with the appellate tribunal and High Court's reasoning that the statutory language necessitates direct usage by the assessee for its business to merit exemption.

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Issues Involved:
1. Whether the building used by the subsidiary company qualifies for exemption under Section 40(3)(vi) of the Finance Act, 1983.
2. Interpretation of the term "used by the assessee as factory" under Section 40(3)(vi).
3. Applicability of precedents and judgments cited by the appellant.

Issue-wise Detailed Analysis:

1. Whether the building used by the subsidiary company qualifies for exemption under Section 40(3)(vi) of the Finance Act, 1983:
The primary issue revolves around whether the portion of the building given on license to M/s Dior International Pvt. Ltd., a subsidiary of the appellant, qualifies for exemption under Section 40(3)(vi) of the Finance Act, 1983. The appellant contends that since the building is used for the purpose of its business, it should be exempt from wealth tax. However, the assessing authority, Commissioner of Income Tax (Appeals), and the Income Tax Appellate Tribunal all held that the building portion given on license is not used by the assessee for its own business, thus not qualifying for exemption.

2. Interpretation of the term "used by the assessee as factory" under Section 40(3)(vi):
The crux of the dispute lies in the interpretation of the phrase "used by the assessee as factory" under Section 40(3)(vi). The Tribunal emphasized that the building or part of it must be used by the assessee itself as a factory for its business. The Tribunal noted, "The expression 'used by the assessee as factory...for the purpose of its business'...clearly shows that the building...must be used by the assessee as factory for the purpose of its own business." The Tribunal further clarified that even though M/s Dior International Pvt. Ltd. is a subsidiary, it is a separate legal entity conducting its own business, and the relationship between the appellant and the subsidiary is that of lessor and lessee.

3. Applicability of precedents and judgments cited by the appellant:
The appellant cited several judgments to support its case. The appellant's counsel argued that the object of Section 40 should be considered, pointing out that wealth tax aims to tax non-productive assets, and the building in question is a productive asset used for the appellant's business. However, the Tribunal and the High Court found that the plain language of the statute must be followed. The Tribunal stated, "It is only in cases of ambiguity that one can construe the language in accord with the object sought to be achieved." The Tribunal and the High Court concluded that the building must be used by the assessee itself for its business. The cited judgments, including those in 53 ITR 140 (SC) and 20 ITR 451 (SC), were found to be distinguishable on facts or not directly applicable to the present case.

Conclusion:
The Supreme Court upheld the decisions of the lower authorities, emphasizing the clear language of the statute. The Court noted that although the building is used productively, it is not used by the assessee itself but by its subsidiary, which is a separate legal entity. The Court concluded, "We, therefore, dismiss the appeal, agreeing with the reasoning of the appellate tribunal, which has found favour with the High Court." The appeal was dismissed, affirming that the portion of the building used by the subsidiary does not qualify for exemption under Section 40(3)(vi) of the Finance Act, 1983.

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