TaxTMI 
TaxTMI 
2020 (12) TMI 750
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.... assessee is to only earn income from the property directly and not to put it any industrial use of its own. 3. The learned Appellate Officer has failed to appreciate the submission of the appellant that as per Town Planning Authority - no commercial building existed as on 31.03.1997 in Site No. 8 of Koramangala Industrial Layout. Hence not an asset liable to Wealth Tax. 4. Conceding for arguments sake the appellant has rented the "factory" for earning the income directly the said property cannot be treated as an "asset" liable to wealth tax for A. Y. 1997-98 and A. Y. 1998-99 as per the decision of the Karnataka High Court in CIT-A, Hubli vs Shankaranarayana Industries & Plantation (P) Ltd. [2010] 194 Taxman 189 (Karnataka) 5. The learned CIT-A has failed to appreciate, under interpretation of taxing statutes provision imposing charge of tax must be construed strictly and in the type of building liable to wealth tax from 01.04.1997 the Parliament has left out Industrial Building put up on Industrial land and as such the immovable property owned by appellant let out to tenant for manufacture of pharmaceuticals is not a taxable asset. [Ajax Produc....
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....e filed an appeal before the Hon'ble High Court of Karnataka and the Hon'ble High Court set aside the order of the Tribunal and remitted the matter to the file of Assessing Officer for fresh consideration. The Assessing Officer once again observed that the land held as commercial property and liable for wealth tax and computed the Market Value of the Property (MVP) as per proviso 3 to Expln. 1 of Rule 5 Schedule 3 of the Wealth Tax Rules, 1957 as follows : i) Actual Rent Rs. 6,00,000 ii) 15% on Rs. 80,00,000 Rs. 12,00,000 iii) 15% on the credit balance of the 'Other A/c. worked out on month to month basis. Rs. 15,38,982 Gross maintainable rent Rs. 33,38,982 Less : Municipal Taxes 7,400 15% of GMR 5,00,847 Rs. 5,08,247 Therefore value of the immovable property = NMR x 12.5 i.e. 28,30,735 x 12.5 Rs. 3,53,84,188 Less : Debts incurred in relation to the asset Rs. 2,23,06,893 Gross Taxable Wealth Rs. 1,30,77,295 Less : Basic exemption Rs. 15,00,000 Net taxable wealth : Rs. 1,15,77,295 Thereafter he ....
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....ax. Accordingly I propose to plug this loophole and levy wealth tax on such commercial properties." Hence it is clear that the intention behind the amendment was to levy wealth tax on " commercial properties" if it is not used by the assessee for his business, office or factory premises. However it does not imply that the Finance Minister intended to tax commercial properties not used by the assessee and let out as factories. What is sought to be brought under the ambit of asset, is only such building not used by the assessee for his business, office or factory premises and being used for commercial purposes. Attention is also drawn to the exemption available under said clause 2 (ea) for land held for industrial purposes from the definition of urban land for a period of two years from the date of acquisition without any requirement that the industrial building built on such land should be run by the assessee. However in the assessee's case the subsequent discussion will show that neither is the property a "commercial property used as a factory" nor was it a " building used for commercial purposes" as on the valuation date. 1. The term "property used for c....
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....of Satvinder Singh Kalra Vs. DCIT 109 ITD 241 (Pune-Trib). The ld.AR submitted that subject property is not residential or commercial property liable for wealth tax. It is only an industrial property which is not liable to be taxed under Wealth Tax. 5. On the other hand, the ld. DR submitted that the impugned property was used for commercial exploitation and this being industrial land has to be treated as a commercial property liable for wealth tax. He relied on the orders of the authorities below. 6. We have heard the rival contentions, perused and carefully considered the material on record. In this case, as per the impugned provisions of Section 2(ea) of the Act, the assets as per Section 2(ea) - Assessment Year 1997-98, in relation to the assessment year commencing on the 1st day of April, 1993, or any subsequent assessment year, means - (i) any building or land appurtenant thereto (hereinafter referred to as 'house'), whether used for residential or commercial purposes or for the purpose of maintaining a guest house or otherwise including a farm house situated within twenty five kilometers from the local limits of any municipality (whether known as municipality,....
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..... (i) of sub-s. (ea) of s. 2 are an exception to the main provision. The exception provided in sub-cls. (1) to (5) must, therefore, be considered in relation to the main or principal enactment of cl. (i) of sub-s. (ea) of s. 2 of the WT Act to which these sub-cls. (1) to (5) stand as an exception. The properties or houses enumerated in these sub-cls. (1) to (5) must not be read as alien to the main provision. In this view of the matter, we, therefore, do not find any conflict between the main enactment of cl. (i) and the exceptions provided in sub-cls. (1) to (5) thereto. In the light of the main enactment provided in cl. (i) and the exception provided thereto by way of excluding the properties or the houses enumerated in the sub-cls. (1) to (5) from the main enactment, the intention of the legislature becomes clear that the legislature did not intend to bring all buildings or land appurtenant thereto whether used for residential or commercial purposes within the ambit of "assets" chargeable to tax under the WT Act. Thus, the question of rendering the cl. (i) being redundant does not arise. 19. On the other hand, sub-cl. (5) covers any property in the nature of commercial ....
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....it should be also in the nature of commercial complex. The legislature has excluded both commercial establishment as well as commercial complexes from the definition of "asset" for the purpose of chargeability to tax under the WT Act. Therefore, for the purpose of sub-cl. (5) of cl. (i) of sub-s. (ea), property must be of commercial complex or establishment in nature where business or trade is being carried on and the property must also be used for the purpose of any business or trade as well. A property cannot only by its very nature be classified as a 'commercial establishment' or complex unless the same is also used in a business and nothing else. Hence, the words 'commercial establishment or complex', as the case may be, appear to be used in the sense must be in the nature of commercial property and the same must also be used for the purpose of trade or business and nothing else. In this sense of the term, we may, therefore, say that if any property though used for commercial purposes, but is not in the nature of commercial property, the same would not fall within the term 'commercial establishment or complex' used in sub-cl. (5) below cl. (i) of sub-s. (ea) of s. 2 of the WT A....
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....ent an amendment w.e.f. 1st April, 1999 and it was provided as under: "(i) Any building or land appurtenant thereto (hereinafter referred to as 'house'), whether used for residential or commercial purpose or for the purpose of maintaining or otherwise including a farmhouse situated within twenty-five kilometers from the local limits of any municipality (whether known as municipality, municipal corporation or by any other name or a cantonment board, but does not include: (1) a house meant exclusively for residential purpose and which is allotted by a company to an employee or an officer or director who is in whole-time employment, having a gross annual salary of less than two lakh rupees: (2) any house for residential or commercial purpose which forms part of stock-in-trade. (3) any house which the assessee may occupy for the purposes of any business or profession carried on by him; (4) any residential property that has been let out for a minimum period of three hundred days in the previous year; (5) any property in the nature of commercial establishments or complexes. 9. In addition to the above, following assets are also inc....
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.... exclusively in his business or profession, should also be not taken as assets. By an amendment, commercial buildings, which are not occupied by the assessee for the purpose of his business or profession, other than the business of letting out properties, shall be brought to tax under the WT Act, 1957. 57.2 This provision will take effect from the 1st day of April, 1997 and, accordingly, will apply in relation to the asst. yr. 1997-98 and subsequent years." 12. Taking into consideration the series of amendments made to the definition of 'assets' u/s. 2(ea) of the WT Act, the following position involves w.e.f. 1st April, 1993 to 31st March, 1997. Wealth tax was chargeable only on the guest house and residential house including farm houses subject to exclusion of certain properties. The amendment was made w.e.f. 1st April, 1997, wherein commercial properties were included as part of the assets with an exclusion clause of ((3): "any house which the assessee may occupy for the purposes of any business or profession carried on by him (s. 2(ea)(i)." 13. The clause was also inserted by the Finance (No.2) Act, 1996. By virtue of this inclusion and also exclusion cla....
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....The amendments to section 2(ea) of the WT Act one after the other clearly explains the nature of assets to be included as part of definition u/s. 2(ea) of the WT Act. In the period between 1st April, 1997 to 31st March, 1999, the definition of asset was an enlarged definition wherein in addition to the residential properties, the commercial properties owned by the assessee were to be included as an asset for computing the net wealth subject to exclusion clause provided in sub cl. (1), (2) and (3) u/s. 2(ea)(i) of the WT Act. 17. As per cl. (3) to section 2(e) of the Act, exemption is provided to an immovable property from inclusion as part of net wealth, to a house which the assessee is occupying for the purpose of carrying on his business or profession. The provisions of the Act are clear and categoric that all immovable assets falling within the definitions are to be included as the wealth of the assessee unless the same are excluded by the exclusion clause. 18. On reconstruction of the definition clause, after amendment w.e.f 1st April, 1997, commercial properties are to be included in the net wealth of the assessee and exemption is being allowed to such 'house' of the ass....
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....ed on by an assessee. So, in other words, if an asset is used for the purpose of business or profession then it is not an "asset" for the purpose of taxability under WT Act. Therefore, to determine whether an asset is exempt or not one has to look into the nature of business of the assessee. In this context we have perused an order of Hon'ble apex Court in the case of S.G. Mercantile Corporation vs. CIT 1972 CTR (SC) 8 : (1972) 83 ITR 700 (SC) and have found that on the facts of that case, the taking of property on lease and sub-letting portion thereof was part of the business and trading activity of that assessee, so it was held that the income fell under the head business income. Therefore, the proposition laid down by the Hon'ble Court is that the facts of the case should lead to the uncontroversial position that leasing and sub-letting should be part of the business and trading activity of an assessee then only the income arising from such an asset can be considered as business income. One more observation of the Hon'ble Court is worth quoting, i.e., "The residuary head of income can be restored to only if none of the specific heads is applicable to the income in question; i....
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....ed either in WT Act or IT Act are mutually exclusive and each specific head covers specific asset or source. Regardless of any arguments if the fact indicates that the property is rented out then falls under the specific head and such property cannot be treated as business asset. This view gets support from an order of jurisdictional High Court in the case of Parekh Traders vs. CIT (1983) 37 CTR (Bom) 4 : (1984) 150 ITR 310 (Bom), wherein it was held that letting out the godown is to be assessed under the head "Income from house property". In the instant appeal, we have examined the language of the statute applicable and have found that once item (3) of s. 2(ea) prescribes that the property is required to be used for the purpose of business or profession carried on, then in view of this specific provision, otherwise also, the asset in question cannot be held as a business asset because the assessee has not established that letting out of the properties is the business of the assessee. Nowhere it is claimed before lower authorities that the assessee is engaged in the business of letting out of properties. Facts of the case simply reveal that the property owned by the assessee was su....
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....dvantageous to him so that the tax can be saved. In our humble opinion, this not permissible and the same view has also been taken by various Courts. In a decision pronounced by Hon'ble Calcutta High Court in the case of CIT vs. Sun Jute Press (P) Ltd. (1994) 118 CTR (Cal) 236 : (1993) 203 ITR 350 (Cal) it was held, quote "that the Tribunal was mainly guided by the consideration that the Revenue having accepted the income from sub-letting as income of the business, could not take the inconsistent view that for the purpose of s. 40 of the Finance Act, 1983, the asset is an unproductive asset and not a business asset used by the assessee as a businessman. In view of the above cited precedent, a conclusion can safely be drawn that under the present set of circumstances, it not permissible to take two different stands, one in the income-tax proceedings and other in the wealth-tax proceedings. 23. The learned Authorised Representative submitted that judgment of Hon'ble Karnataka High Court in the case of CIT(A) Vs. Shankar Narayan Industries and Planatations Pvt. Ltd. 344 ITR 613 (Kar) is applicable to the facts of the case and since the assessee has rented out the factory buildi....
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....ing the same property as business asset to claim exemption u/s.2(ea) of W T Act. This is not permissible. It is not possible to take two different stands one in income tax proceedings and other in wealth tax proceedings. A distinction is required to be drawn between the two activities i.e. let out or commercial exploitation. If the fact indicate that the property is rented out then it falls under the specific head and such property cannot be treated as business asset. In the present case also the assessee's income from letting out the property is assessed as income from house property and the assessee has availed deduction u/s.24 of the Act and for the purpose of wealth tax it cannot be considered as business asset so as to exempt from wealth tax. In our opinion, it is rightly to be considered as an asset liable for wealth tax. 25. The next argument by the learned Authorised Representative is the value of industrial land to be reduced from value of the factory building so as to ascertain the net asset value. The assessee in this case not demonstrated that industrial land is not part of the factory building let out to the tenant. Being so, it should be considered as part of the f....