IN THE ITAT MUMBAI BENCH ‘WT’
MTR (P.) Ltd.
v.
Wealth-tax Officer, Ward 6(3)(4), Mumbai
Ms. Sushma Chowla and Smt. Madhavi Devi, Judicial
Members
WT Appeal Nos. 282 and 283 (Mum.) of 2004
[Assessment Years 1997-98 and 1998-99]
August 25, 2006
Section 2(ea) of the Wealth - tax Act, 1957 - Assets -
Assessment years 1997-98 and 1998-99 - Whether in period between 1-4-1997 to
31-3-1999, definition of
assets was an enlarged definition wherein in addition to residential properties,
commercial properties owned
by assessee were to be included as an asset for computing net wealth subject to
exclusion clause provided in sub-clauses (1),(2) and (3) under section 2(ea)(i) of the
Act - Held, yes - Assessee had constructed a
factory building on leasehold land -
Assessee was using a portion of building for carrying on its business and had rented out surplus area to one M
for carrying out M's business activities - During previous years, assessee
received compensation from M and
shown same as business income and same was assessed as business income of
assessee - Whether portion of building,
which was occupied by tenant ‘M’ was liable to be included as an assets for
purposes of computing net wealth of assessee
- Held, yes
Circulars
and Notifications:
-
Circular No. 762, dated 18-2-1998
- Circular No. 772, dated 23-12-1998
FACTS
The assessee had constructed a factory building on
leasehold land taken on lease. The assessee was using a portion of the building
for carrying on its business. The assessee
had further rented out the surplus area to one M for carrying out M's business activities. During the previous years,
the assessee received compensation
from M and shown the same as its business
income and same was also assessed as business income of the assessee. The assessee had not filed any return of
wealth for the relevant assessment years
under the belief that the rented portion of the building owned by it was outside the purview of the Act.
The assessee had also not filed returns of wealth in
response to notices issued under section 17. The Assessing Officer, therefore, estimated
the value of the rented building and treated the same as an asset for purposes
of computing the net wealth of the assessee.
On appeal, the Commissioner (Appeals) confirmed the
impugned order.
On second appeal:
HELD
Under the provisions of the Wealth-tax Act, wealth tax is
leviable on assets owned by the assessee. [
The definition of 'assets’ in section 2(ea) is an
exhaustive definition, which was introduced with effect from 1-4-1993 and prior
to amendment with effect from 1-4-1997 by the Finance (No. 2) Act, 1996, the
buildings used for business or commercial purpose did not fall within the ambit
of definition of 'assets' [Para 11]
The Finance (No. 2) Act, 1996, amended the definition of
assets under section 2(ea) and the necessity for amendment was explained by way
of departmental Circular No. 762, dated 18-2-1998, which elaborates the scope
and effect of the substitution of section 2(ea)(i) by the Finance (No. 2) Act,
1996.[Para 12]
Taking into consideration the series of amendments made to
the definition of 'assets' under section 2(ea) the following position involves
with effect from 1-4-1993 to 31-3-1997. 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 with effect from 1-4-1997, wherein
commercial properties were included as part of the assets with an exclusion
clause of sub-clause (3) - any house which the assessee may occupy for the
purposes of any business or profession carried on by him.
By virtue of this inclusion and also exclusion clause, the
scope and effect of the substitution was that the commercial properties were to
be included as an asset for the purpose of computing the net wealth of the
person, except the properties which are being used for the purpose of any
business or profession carried on by the said person. The departmental Circular
No. 762, date 18-2-1998 very clearly elaborated the scope of the insertion and
clarified that the commercial properties other than those used by the assessee
only and exclusively in his business or profession should not be included as
assets. It was further clarified that the commercial buildings which are not
occupied by the assessee for the purpose of his business or profession other
than the business of letting out of the properties shall be brought to tax
under the provisions of Wealth-tax Act. [
The definition of assets was further amended with effect
from 1-4-1999 and two more exclusion clauses were inserted. The Finance (No. 2)
Act, 1998, introduced the amendment to the definition of assets under section
2(ea) and the scope and effect of the substitution was clarified by
departmental Circular No. 72, dated 23-12-11998, which clarified that the
Finance (No. 2) Act, 1998 also amends the said section so as to provide for
exemptions from wealth-tax in respect of any residential property that has been
let out for a minimum period of 300 days in the previous year and also any
property in the nature of commercial establishment or complexes. [
Hence in the period between 1-04-1997 to 31-3-1999, the
definition of assets 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-clauses (1 ), (2) and (3) under section 2(ea)(i) of the
Act. [
As per sub-clause (3) to section 2(ea), 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 definition are to be included as the wealth
of the assessee unless the same are excluded by the exclusion clause. [
On reconstruction of definition clause, after amendment
with effect from 1-4-1997 commercial properties are to be included in the net
wealth of the assessee and exemption is being allowed to such ‘house’ of the
assessee OJV which is occupied for carrying out his business or profession by
assessee himself. The partition rented out by the assessee against which
compensation had been received and assessed as business income was the portion
in which tenant of the assessee was carrying out his business or profession.
Mere assessment of the rent or compensation under the head 'business income'
did not commensurate with the assessee carrying on his business or profession
in the said property. In the facts of the instant case, the assessee was not
carrying on the business of letting out properties. [
Therefore, the portion of property which was occupied by
the tenant was to be included as an asset within the definition provided in
section 2(ea)(i) at the relevant time for purposes of computing the net wealth
of the assessee. [
EDITOR'S NOTE:
The Tribunal also directed the Assessing Officer to verify
the claim of the assessee that the property in question had been constructed on
leasehold land and the unexpired period of lease being more than 50 years on
the valuation date and in case the said claim was found to be correct to adopt
multiply of 10, while valuing the portion of property rented out to the tenant
during the years under consideration.
The Tribunal also held that since the assessee had not
furnished returns of wealth in response to notice under section 17 the assessee
would be liable to pay interest for every month or part of month commencing on
the date immediately following the time allowed to file the return ending on
the date of completion of reassessment proceedings.