1996 (8) TMI 139 - AT - Wealth-tax

Tribunal excludes let-out portion and work-in-progress from taxable wealth

The Tribunal allowed the appeal, directing the WTO to recompute the assessee's wealth by excluding the let-out portion, work-in-progress, and the entire ... Assessment Year, Let Out Issues Involved:1. Taxability of the let-out portion of the property.2. Inclusion of work-in-progress in taxable wealth.3. Inclusion of own office use portion in taxable wealth.4. Computation of gross wealth and gross assets.5. Valuation of let-out portion of the property.6. Calculation of proportionate liability.7. Deduction for office store and employees' residence.Detailed Analysis:1. Taxability of the Let-Out Portion of the Property:The primary issue was whether the let-out portion of the property, valued at Rs. 1,30,77,362, should be included in the taxable wealth. The assessee, a property developer, argued that the flats were temporarily let out to defray expenses until suitable buyers were found. The Tribunal referred to various judicial pronouncements, including CIT v. Chugandas & Co. and CWT v. Sun Jule Press (P.) Ltd., to conclude that the let-out flats were part of the assessee's stock-in-trade and thus not taxable under section 40(3) of the Finance Act, 1983. The Tribunal held that the let-out portion, being stock-in-trade, was excludible from taxable wealth.2. Inclusion of Work-in-Progress in Taxable Wealth:The Tribunal addressed whether the incomplete portions of the buildings, shown as work-in-progress, should be included in taxable wealth. It was determined that under clause (vi) of section 40(3) of the Finance Act, 1983, only completed buildings could be considered taxable assets. Since the incomplete buildings could not be used for residential or commercial purposes, they did not qualify as taxable assets. Therefore, the Tribunal ruled that the work-in-progress should not be included in the taxable wealth.3. Inclusion of Own Office Use Portion in Taxable Wealth:The assessee claimed that 1400 sq. mtr. of the building was used for its own office, but the WTO allowed only 500 sq. mtr. The Tribunal found that the assessee was entitled to use the portion reasonably needed for its business and that no evidence was provided to show that the space used was excessive. Consequently, the Tribunal held that the entire office use portion should be excluded from taxable wealth, overturning the WTO's disallowance.4. Computation of Gross Wealth and Gross Assets:The Tribunal addressed the assessee's contention that the gross wealth and assets were computed incorrectly. This issue was linked to the broader disputes already resolved regarding the let-out portion, work-in-progress, and own office use. Since these issues were resolved in favor of the assessee, the Tribunal found that the computation of gross wealth and assets needed to be recalculated accordingly.5. Valuation of Let-Out Portion of the Property:The assessee challenged the valuation method used by the Assessing Officer, who valued the let-out portion at 12.5 times the net maintainable rent. However, since the Tribunal found the let-out portion to be non-taxable, the issue of its valuation became moot and did not require further decision.6. Calculation of Proportionate Liability:The Tribunal also reviewed the calculation of proportionate liability allowed against the gross wealth, which the Assessing Officer set at Rs. 1,78,55,616. Given the Tribunal's findings on the non-taxability of the let-out portion and work-in-progress, this calculation needed to be revised to reflect the correct taxable assets.7. Deduction for Office Store and Employees' Residence:The issue of whether the deduction of Rs. 7,95,656 for office store and employees' residence was correctly allowed was also considered. The Tribunal's findings on the non-taxability of the office use portion implied that the deduction should be revisited in the context of the revised taxable wealth.Conclusion:The Tribunal allowed the appeal, directing the WTO to recompute the assessee's wealth in accordance with the Tribunal's findings, which excluded the let-out portion, work-in-progress, and the entire own office use portion from the taxable wealth.