2009 (2) TMI 51 - HC - Wealth-tax

Godown Lease Not for Business = Asset in Wealth Tax Calculation

The court upheld the Tribunal's decision that the godowns leased out by the assessee were not used for their business, leading to the inclusion of the ... Ware-housing business – Tribunal’s finding that the godowns given on rent are occupied by the lessee for their business and were not occupied by the appellants for their business therefore, value of the godowns must be included in the net wealth of the assessee, is a finding of fact – since assessee is closely held company, for computing net wealth S. 40(3) of the Finance Act, 1983 is relevant – substitution of definition of “asset” by Finance Act 2 of 1996 w.e.f. 1.4.97, would be inapplicable Issues:1. Interpretation of Section 40 of the Finance Act, 1983.2. Determination of the principle business of the appellant as warehousing.3. Classification of rental income derived from godowns.Interpretation of Section 40 of the Finance Act, 1983:The judgment involved appeals by an assessee regarding the interpretation of Section 40 of the Finance Act, 1983. The Tribunal found that the godowns in question were rented out to lessees for their business and not used by the appellants for their business. The Tribunal concluded that the value of the godowns should be included in the net wealth of the assessee. The court analyzed Section 40(3)(vi) of the Finance Act, 1983, which excludes certain buildings or land appurtenant thereto used for specific purposes from wealth tax calculation. The court emphasized that if an asset is leased out and not used for the assessee's business, it would be considered for computing net wealth. The judgment highlighted the importance of the specific provisions for closely held companies under Section 40(3) and concluded that the general definition of assets would be excluded in such cases. Since the assessee was not using the building for their business but had leased it out, the court found no error of law committed by the Tribunal or lower authorities.Determination of the Principle Business of the Appellant as Warehousing:The appeals also raised the issue of determining the principle business of the appellant as warehousing. The court noted that the assessee was in the business of warehousing. However, the Tribunal's finding that the godowns were rented out to lessees for their business and not used by the appellants themselves was crucial in assessing the nature of the business. The court's analysis focused on whether the leased asset should be considered in computing the net wealth of the assessee based on the specific provisions for closely held companies under the Finance Act, 1983. The judgment clarified that the substitution of the definition of 'asset' by the Finance Act, 1996, was inapplicable in this case, emphasizing the relevance of Section 40(3) of the Finance Act, 1983, for closely held companies.Classification of Rental Income Derived from Godowns:Another issue addressed in the judgment was the classification of rental income derived from the godowns. The court examined the nature of the rental income and its treatment under the head 'Income from House Property.' The judgment highlighted that the mere classification of rental income under a specific category does not alter the nature of the asset for wealth tax computation purposes. The court's decision was based on the factual finding that the godowns were leased out and not used by the assessee for their business, leading to the inclusion of the asset in the net wealth calculation. Overall, the judgment dismissed both appeals, emphasizing the importance of specific provisions for closely held companies and the factual findings regarding asset usage for wealth tax assessment.