1996 (7) TMI 168 - AT - Income Tax

Assessee entitled to tax exemption for hotel building used for business

The Tribunal held that the assessee was entitled to the exemption under section 40(3)(vi) of the Finance Act, 1983, as the hotel building was used for ... Assessment Year Issues Involved:1. Whether the assessee is entitled to the exemption provided under section 40(3)(vi) of the Finance Act, 1983.2. Whether the Commissioner of Wealth-tax (CWT) was justified in exercising his revisional powers under section 25(2) of the Wealth-tax Act, 1957.Issue-wise Detailed Analysis:1. Entitlement to Exemption under Section 40(3)(vi) of the Finance Act, 1983:The primary issue was whether the assessee, a closely-held company, was entitled to the exemption under section 40(3)(vi) of the Finance Act, 1983. The conditions for exemption under this section are:- The building must be owned by the assessee.- The building must be used by the assessee for the purpose of its business.- The building must be used by the assessee as a hotel.The assessee constructed a hotel building with the intent to run a hotel but entered into a collaboration agreement with 'Piem' due to its inability to run the hotel business independently. The agreement specified that 'Piem' would operate the hotel, and the assessee would receive a license fee based on a percentage of the gross receipts.The CWT argued that the assessee was not directly running the hotel business and thus did not qualify for the exemption. However, the Tribunal found that the building was indeed used for hotel purposes, fulfilling the conditions of section 40(3)(vi). The Tribunal referenced similar cases, such as Varadaraja Theatres (P.) Ltd. and Prakash Talkies (P.) Ltd., where business assets used for business purposes were excluded from wealth tax.The Tribunal also considered the Karnataka High Court's decision in CIT v. Shaan Finance (P.) Ltd., which held that the owner of machinery leased to third parties for manufacturing could claim investment allowance, indicating that direct operation by the owner was not necessary for exemption.2. Justification of CWT's Revisional Powers under Section 25(2) of the Wealth-tax Act, 1957:The CWT exercised his revisional powers under section 25(2) of the Wealth-tax Act, 1957, arguing that the Assessing Officer's failure to charge wealth tax on the hotel building was prejudicial to the interests of revenue. The CWT set aside the assessments and directed the Assessing Officer to reframe them, considering the hotel building as a specified asset attracting wealth tax.The Tribunal found that the CWT's decision was based on the incorrect premise that the assessee needed to directly run the hotel business to qualify for the exemption. The Tribunal emphasized that the hotel building was used for the business purpose of running a hotel, even though it was operated by 'Piem' under a collaboration agreement. The Tribunal concluded that the CWT was not justified in exercising his revisional powers, as the original assessments were not erroneous.Conclusion:The Tribunal held that the assessee was entitled to the exemption under section 40(3)(vi) of the Finance Act, 1983, as the hotel building was used for business purposes, fulfilling the conditions for exemption. The CWT's order under section 25(2) of the Wealth-tax Act, 1957, was canceled, and the original assessments were restored. The appeals filed by the assessee were allowed.