1997 (5) TMI 107 - AT - Wealth-tax

Godowns leased for business use not considered assets under Finance Act, 1983. Assessee not liable for wealth tax.

The majority opinion held that the godowns let out by the assessee were used for its business and therefore not considered as assets under section ... Change Of Wealth tax Issues Involved:1. Whether the godowns let out by the assessee can be considered as assets within the meaning of section 40(3)(vi) of the Finance Act, 1983, for the purpose of levy of wealth-tax.Detailed Analysis:Issue 1: Whether the godowns let out by the assessee can be considered as assets within the meaning of section 40(3)(vi) of the Finance Act, 1983, for the purpose of levy of wealth-tax.The assessee-company owns godowns let out to FCI and TDC since 1979-80. The rental income from these godowns has been assessed as business income, a stance accepted by the Tribunal and now pending before the Hon'ble Patna High Court. The assessee did not file wealth-tax returns for the assessment years 1984-85 to 1986-87, claiming no taxable wealth. However, the Assessing Officer issued notices under section 17 of the Wealth-tax Act, 1957, considering the godowns as taxable assets under section 40(3)(vi) of the Finance Act, 1983, and assessed their value accordingly.Sub-Issue 1.1: Interpretation of Section 40(3)(vi) of the Finance Act, 1983Section 40(3)(vi) states that buildings used by the assessee as godowns for its business are not regarded as assets for wealth-tax purposes. The Tribunal emphasized the distinction between 'used by the assessee for its business' and 'utilized by the assessee for carrying on business.' The godowns were let out and used by lessees for their business, not by the assessee for its own business. Therefore, the godowns were considered assets for wealth-tax purposes.Sub-Issue 1.2: Legislative Intent and Finance Minister's SpeechThe Finance Minister's speech during the introduction of section 40(3)(vi) aimed to prevent tax avoidance by closely held companies holding unproductive assets. The Tribunal noted that the speech, while indicating the purpose of the legislation, does not aid in interpreting the specific words 'used by the assessee for its business' in favor of the assessee.Sub-Issue 1.3: Tribunal's Previous Decision on Rental IncomeThe Tribunal's decision to assess rental income from godowns as business income does not imply that the godowns were used by the assessee for its own business. The Tribunal clarified that the business of the assessee was to construct and let out godowns, not to use them for its own business.Sub-Issue 1.4: Examples and IllustrationsThe Tribunal provided examples to clarify the legislative intent. For instance, a company using its godowns for storing its own goods for business purposes would not have those godowns regarded as assets for wealth-tax purposes. However, in the assessee's case, the godowns were let out, and rental income was derived, which does not meet the criteria of 'used by the assessee for its business.'Separate Judgment by Accountant Member:The Accountant Member disagreed with the Judicial Member's conclusion, emphasizing that the godowns, though not storing the assessee's goods, were constructed and maintained according to tenant specifications, making them productive assets. The Accountant Member argued that the godowns should be excluded from wealth-tax as they were used for the assessee's business of letting out godowns.Third Member's Opinion:The Third Member agreed with the Accountant Member, stating that the Tribunal's previous decision to assess rental income as business income conclusively determined that the godowns were used for the assessee's business. The Third Member emphasized that this finding precludes any contrary conclusion, and the godowns should not be considered assets for wealth-tax purposes.Conclusion:The majority opinion concluded that the godowns let out by the assessee were used for its business, thus not falling within the definition of assets under section 40(3)(vi) of the Finance Act, 1983. Consequently, the assessee is not liable to wealth-tax on the value of the godowns. The appeals of the assessee were allowed, and the matter was disposed of in accordance with the majority opinion.