TaxTMI 
TaxTMI 
2016 (5) TMI 1056
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....he objections raised by the appellant to the reasons recorded for reopening of assessment and in that view of the matter the assessment framed u/s 17/16(3) was bad in law and deserves to be quashed. 3. For that on the facts and in the circumstances of the case and in law, the CIT-(Appeals) as well as the AO erred in holding that the immovable property at New Delhi qualified as an 'asset' within the meaning of Section 2(ea)(i) of the W.T. Act, 1957. 4. For that on the facts and in the circumstances of the case and in law, the CIT-(Appeals) and well as the AO failed to appreciate that the completion certificate in respect of the immovable property at New Delhi was issued by the Municipal Corporation in the subsequent to the valuation date i.e. 31.03.2006 and therefore the property in question was not "House Property" as defined in Section 2(ea)(i) of the W.T. Act, 1957 and hence not chargeable to wealth tax. 5. For that on the facts and in the circumstances of the case and in law, the Department having accepted till AY 2005-06 that the property at New Delhi was not a residential property within the meaning of Section 2(ea)(i) and on that basis not h....
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.... by the assessee are dismissed as not pressed. 4. The first issue to be decided in this appeal is as to whether the immovable property situated at Aurangazeb Road, New Delhi would fall within the ambit of taxable assets u/s 2(ea) of the Act in the facts and circumstances of the case. 4.1. The brief facts of this issue is that the assessee is engaged in the business of construction and development of property. The assessee purchased an immovable property at No. 22, Aurangazeb Road, New Delhi in July 2000. Since the building, then existing was old, the assessee obtained sanction plan from New Delhi Municipal Corporation (NDMC) for construction of a new residential building. After the permission was obtained for construction of new building, the old structure was demolished and a new residential building was constructed. The construction of new building was in progress till F.Y. 2005-06. Since the contruction of the building was not completed till 31.3.2005, the Learned AO did not initiate any wealth tax assessment proceedings against the assessee for assessing the value of building and land appurtenant thereto till Asst Year 2005-06. The construction of the new building was com....
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....e to be let out based on provisional completion certificate. Hence it was argued that the assessee has made substantive compliance to the provisions contemplated in exceptions to section 2(ea) of the Act and even on that count, the assessee should not be invited with the levy of wealth tax on immovable property. Without prejudice to the above, it was further claimed that the assessee had made huge borrowings for the purpose of construction of the said property and hence the same requires to be allowed as deduction while computing the net wealth, if any. 4.2. The Learned AO doubted the sheer existence of the tenancy agreement entered into by the assessee on the ground that the tenant Sri Lakshmi Niwas Mittal had virtually arranged the entire funds for the construction of the said property by way of personal investments from him and his wife and from overseas companies controlled by him in 0% optionally convertible debentures in the assessee company. Moreover, the Learned AO observed that the entire rentals of Rs. 18,00,000/- was not received by the assessee prior to 31.3.2006 and it was remaining as receivable in the balance sheet of the assessee. He further observed that the 'Re....
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....so submitted that the Learned AO erred in adopting the gross value of land , building and electrical equipments instead of net value. It was also submitted that the assessee had total borrowings as on 31.3.2006 amounting to Rs. 130,70,54,942/- which if deducted would only result in negative net wealth u/s 2(m) of the Act. 4.5. The Learned DR argued that it is not in dispute that the subject mentioned asset as on the valuation date is a residential building which has been let out to Sri Lakshmi Niwas Mittal. But the letting out has been done only from 1.1.2006 by the assessee and hence the same is let out for less than 300 days and thereby the assessee is not eligible for exemption u/s 2(ea)(i)(4) of the Act. He argued that the purposive construction rule need not be applied in a taxing statute which needs to be viewed strictly. 5. We have heard the rival submissions and perused the materials available on record. We find that the first argument of the Learned AR is that the building was under construction and final approval was obtained only in the month of April 2006 and hence as on the valuation date, the asset still remains as 'building under construction' and on such asset....
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....farm houses but does not include a house which has been allotted to a company to an employee having a gross annual salary of less than Rs. 2 lacs. It will also not include a house for residential purpose which forms part of the stock in trade." Accordingly, effective from AY 1993-94, the productive assets did not come within the charging provisions of the WT Act. However, as per the provisions enacted by the Finance Act 1992 "residential houses" came within the charging provisiosn of the Act because in the opinion of the legislature all residential and commercial properties did not qualify for exemption. Later on the legislature realized that the exemption provided in section 2(ea)(i) of the Act was inadequate because the let out residential properties which produced income were being unfairly taxed, on the footing that they are 'unproductive assets'. The legislature appreciated that investment in residential property which is let out for residential purpose is a productive asset and therefore entitled for exemption from the charge of wealth tax. Accordignly in the Finance (No.2) Act, 1998, amendment was made in section 2(ea)(i) of the Act by enacting clause (4) which provided t....
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.... It is not in dispute that the asset in the form of building wsa not in existence for initial 9 months of FY 2005-06. The facts on record show that effective from 1st January 2006, the property was let out by the assessee for residential purposes and since then the property is being continuously used for residential purposes. Moreover, the taxability of assets u/s 2(ea) of the Act is determined based on the status of the asset remaining as on the valuation date. Hence the crucial test is what is the nature of the asset as on the valuation date i.e whether it is a productive asset or unproductive asset. It is not in dispute that the property continued to be let out to the same tenant (i.e Shri Lakshmi Niwas Mittal) in the subsequent years as well. It was argued that barring AY 2006-07, the revenue accepted that in all the subsequent years , the assessee qualified for exemption provided in section 2(ea)(i)(4) of the Act on the premise that the property in question was productive one and it was let out for more than 300 days in a year. It is not in dispute that the Learned AO had treated the subject mentioned property as a residential property which has been let out for a monthly rent....
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....22 Aurangazeb Rd/D-1469-72 dated 26/04/06 COMPLETION CERTIFICATE Whereas Sh, S.K. Sharda, Director. Gentex Merchants Pvt. Ltd. 22, Aurangzeb Road, New Delhi have applied for Completion Certificate of the building described below. I hereby certify that the building has been completed in accordance with the Completion Plans sanctioned vide Chairperson's order dt. 21.11.2005, by the New Delhi Municipal Council and is fit for use for which it has been erected. DESCRIPTION OF BUILDING Plot No. : 22 Location : Aurangzeb Road, New Delhi. Type or Building : Residential Building (Ground Floor + First Floor) One Dwelling unit Sd/- (SANJIB SENGUPTA) CHIEF ARCHITECT Sd/- (RAJEEV SOOD) (Architect) Copy of the above is forwarded to Sh. S.K. Sharda, Director. Gentex Merchants Pvt , Ltd. 22, Aurangzeb Road, New Delhi. COMPLETION CERTIF1CATE APPROVED VIDE CHAIRPERSON'S ORDER DTD. 21.11.2005". From the above, it could be noticed that the provisional completion certificate issued vide chairperson's order dated 21.11.2005 have been converted into final completion certificate by....
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....swamy S. Pd. And Another vs Union of India and Others reported in (2006) 281 ITR 305 (SC) dated 21.2.2006 . We hold that when the law creates a duty or charge and the party is disabled to perform it, without there being any default on his part, and there is no remedy for him, the law will in general, excuse him. When the obligation is one implied by law, the impossibility of performance is a good excuse, say, 'ImpotentialExcusantLegem'. It was further argued that even under the Contract Act dealing with private rights and obligation of a party to the agreement, the contract is deemed to be void on account of impossibility of performance (section 56). The law regards the order and course of nature and will not force a man to demand that which he cannot recover. The law will not itself attempt to do an act which would be vain - LEX NIL FRUSTA FACIT - nor enforce on which would be frivolous - LEX NEMIN COGIT AD VADA SEU INUTILIA - the law will not force any one to do a thing vain and fruitless. It was argued that if the property is let out for more than 82% (300 days / 365 days) of the total period , then it qualifies for exemption. In the present case, as the construction of the prop....
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....rive at the real meaning , it is always necessary to get an exact conception of the aim, scope and object of the whole Act. The words used are primarily the reliable source of interpreting their meaning of the statute. But in giving the words their ordinary grammatical or plain meaning if the court is faced with extra ordinary results which cannot have been intended by the legislature, court then have to move on to a second stage in which it re-examines the word. In case the court is faced with two possible construction of the legislative lanuage, it has to look to the results of adopting each of the alternatives respectively for the purposes of upholding the true intention of the legislature. Such examination has to be done if - (i) the statute leads to absurdity, hardship or injustice presumably not intended or where the language of the statute in its ordinary and grammatical construction leads to manifest contradiction of the apparent purpose of the enactment or (ii) gives rise to inconsistency. 5.6.1. The construction which promotes the objectives for which the enactment is intended must be adopted. The court's interpretation must be in keeping with the purpose for whi....
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.... given set of words which are capable of conveying that meaning, it is not surprising if the words are accepted having that meaning. Parliament never intends to enact an ambiguity. Absurdity or anomalous results could not have been intended by the legislature (L.N.Pandey vs Puran Singh- AIR 2004 SC 2303). An intention to produce an unreasonable result is not to be imputed to a statute if there is some other construction available. Where to apply words literally would defeat the obvious intention of the legislation and produce a wholly unreasonable result, then courts must do some violence to the words so as to achieve the obvious intention and produce a rationale construction. The purpose of interpretation is to discover the intention of the legislation if such intention is not made clear from the language expressly used. The court adopts purposive construction where applying the literal meaning of the legislative language used would lead to a result which clearly defeats the purpose of the Act. However, while doing so, three conditions must be fulfilled in order to justify the recourse:- - First, it is possible to determine from a consideration of the provisions of the Act read....
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....graph 44, quoting the passage from Bennion it said :- "I am not reluctant to adopt a purposive construction where to apply the literal meaning of the legislative language used would lead to results which would defeat the purposes of the Act. But in doing so the task on which a court of justice is engaged remains one of construction, even where this involves reading into the Act words which are not expressly included in it. [Kammins Ballroom Co. Ltd v. Zenith Investments (Torquay) Ltd, 1971 AC 850] provides an instance of this; but in that case the three conditions that must be fulfilled in order to justify this course were satisfied. First, it was possible to determine from a consideration of the provisions of the Act read as a whole precisely what the mischief was that it was the purpose of the Act to remedy, secondly, it was apparent that the draftsman and Parliament had by inadvertence overlooked, and so omitted to deal with, an eventuality that required to be dealt with if the purpose of the Act was to be achieved; and thirdly, it was possible to state with certainty what were the additional words that would have been inserted by the draftsman and approved by Parliamen....
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....al income offered by the assessee as such as income from house property in income tax proceedings completed u/s 143(3) of the Act. It was therefore submitted that the assertion of the Learned AO that the rental agreement is not valid is bad in law. These facts and arguments were not controverted by the Learned DR before us. 5.8. In view of the aforesaid facts and findings given therein and relevant legal maxims quoted hereinabove, we hold that the subject mentioned property which has been let out would not fall within the ambit of taxable asset u/s 2(ea) of the Act and accordingly the ground no. 6 raised by the assessee is allowed. Since the taxability of building let out is decided at threshold level itself, the aspect of granting deduction towards debts owed in relation to the asset is not decided herein as it becomes academic. 6. The next issue to be decided in this appeal is as to whether the valuation of jewellery made by the Learned AO and without giving effect to debts owed in relation to jewellery could be brought to wealth tax in the facts and circumstances of the case 6.1. The brief facts of this issue are that the assessee disclosed the value of jewellery at Rs.....
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....as further argued that the valuation report from a registered valuer once obtained could be used for four subsequent assessment years as per Rule 19 of Schedule III of Wealth Tax Act. Accordingly, it was prayed for adoption of value of jewellery reported by the registered valuer as on 31.3.2005 to be used for four subsequent assessment years which includes the assessment year under appeal (i.e Asst year 2006-07). It was further stated that from the list of jewelleries, predominant portion pertains only to diamonds. The assessee also submitted the valuation report from the same registered valuer as on 31.3.2006 before the Learned CIT(A) who valued the same at Rs. 4,18,14,417/- which was also much below the cost of acquisition of the assessee. The assessee explained before the Learned CIT(A) that though the price of gold has increased over the years, the value of diamonds comprising of stones generally depreciates over the years. It was further argued that the entire amount of jewellery has been funded out of borrowed funds and hence in any account, no addition could be made towards jewellery under the provisions of the Act. The Learned CIT(A) did not appreciate the aforesaid content....
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....made legal submissions before the Learned CIT(A) for admission of additional evidences. We hold that in case the Learned AO had any doubt in the valuation report submitted by the assessee, nothing prevented him from referring the valuation of jewellery to a valuation officer. This aspect had been completely ignored by the Learned AO. We hold that without doing the same and without pointing out any discrepancies in the valuation report submitted by the assessee which is obtained from a registered valuer , no addition could be made by the Learned AO with regard to jewellery. 6.4.2. It is not in dispute that the jewelleries were obtained in Asst Year 2003-04 to the tune of Rs. 1,30,46,000/- and Asst Year 2004-05 to the tune of Rs. 3,63,27,084/-. Correspondingly we find that there was no increase in share capital and reserves and surplus during those relevant assessment years. On the contrary, we find that the loan funds have increased by Rs. 3,72,25,114/- and Rs. 40,73,83,100/- for the Asst Years 2003-04 and 2004-05 respectively. During the Asst Year 2006-07, there was no introduction of share capital and reserves and surplus had decreased by Rs. 6,87,79,798/- and loan funds have i....
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.... find that Rule 20 of Schedule III of Wealth Tax Act would come into force in the facts of the case which states that fair market value is to be adopted. We find that the Learned AR had made a submission to adopt the value of 80% of insurance value of motor car as the market value of the asset for the purpose of wealth tax subject to grant of deduction of debts owed in relation to the asset. We find that this argument of the Learned AR is squarely covered by the decision of the coordinate bench of Pune Tribunal in the case of Thermax Ltd vs DCWT reported in (2008) 110 ITD 591 (Pune) dated 14.12.2006 wherein it was held that :- "9. Submissions of both the sides have been heard. Orders of the authorities below perused. Facts as narrated above are not in dispute that the A.O. has adopted the value of the vehicles as shown in the books of accounts of the assessee, however, on the other hand, the assessee has claimed that the value of the car should be the WDV allowed under I.T. Act. It has been clarified during the course of hearing, that the assessee has adopted lesser rate of depreciation in the books of accounts and due to that reason, the WDV of the vehicles was towards hi....
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....otor car being an asset on which depreciation was admissible and, therefore, there was no question of adopting higher value, had no force. Rule 14(2)(a) provides for a general rule applicable to all the assets of a business disclosed in the balance sheet, that is, assets on which depreciation is admissible, and in case of closing stock. Clause (a) cannot be said to be a provision for determining value of a particular asset like rules provided in rules 3 to 8 for valuing the immovable property, rules 9 to 30 providing for valuation of shares and debentures, rule 17 providing for valuation of life interest and rules 18 and 19 providing for valuation of jewellery. In absence of any specific rule for valuation of motor car, the Assessing Officer has to resort to rule 20 only. The rule 20 provides for valuation of an asset to be the price which in the opinion of Assessing Officer it would fetch if sold in the open market on the valuation date, that is, its market value. To accept the contention of the assessee would be to make the provisions of clause(b) to rule 14 redundant as it could never have application under any circumstances. Reason being the Clause (b) comes into operation only....