Commissioner of Income Tax vs Ponnamma Lakshmi Narayani

C.N. Ramachandran Nair, J.—The question raised in the appeal filed by the revenue is whether the Tribunal was justified in holding that respondent assessee is entitled to exemption u/s 2(4)(ea)(i) and (3) of the Wealth Tax Act for the cashew factory buildings leased out to a firm of which respondent was the partner.

We have gone through the order of the Tribunal and have heard standing counsel appearing for the assessee and Adv. Shri. Balakrishnan appearing for the respondent.

Clause (ea) of Section 2 which provides for exemption is as follows:

assets 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 farmhouse situated within twenty-five kilometers from local limits of any municipality (whether known as municipality, municipal corporation or by any other name) or a cantonment board, but does not include--

(3) any house which the assessee may occupy for the purposes of any business or profession carried on by him;

(ii) motor cars (other than those used by the assessee in the business of running them on hire or as stock-in-trade)

Admittedly respondent was getting annual rent of Rs. 48,000/- each (total Rs. 96,000/-) for the cashew factory buildings leased out to a firm of which respondent was a partner during the assessment years 1997-98 and 1998-99. The question to be considered is whether leasing out of the factory building to a firm of which the assessee is a partner can be treated as occupation of the building for the purpose of any business or profession carried on by such assessee. The Tribunal following decision of this Court in Commissioner of Income Tax Vs. P.M. Thomas, held that the assessee is entitled to exemption from wealth tax on the value of the two cashew factory buildings leased out to a firm of which assessee was a partner. Tribunal has relied on the order of the C.I.T. (Appeal) in a similar case in favour of the assessee and held that the department has accepted the decision. Besides this, the Tribunal has relied on the decision of the Patna Bench of the Tribunal in another case. Standing counsel for the appellant contended that the decision relied on by the Tribunal is not applicable because that was a case where the building involved was not leased out to the firm for rent. According to him in this case building is leased out on market rate of rent by the assessee to the firm and so much so the building cannot be said to have been used by the assessee for her own business purpose entitling for exemption. So far as the case decided by the C.I.T. (Appeal) is concerned, the standing counsel submitted that such decision will not bind the department. Counsel for the assessee contended that except for the purpose of income tax, the firm is nothing but the partners together and so much so business carried on by the firm should be treated as business carried on by the partner. We are unable to accept this contention because the requirement of the above Section for exemption is use of the building for business or profession by the assessee himself. This is a case where the assessee, the owner of the factory building has let out the factory building at market rates of rent to a partnership firm of which assessee is a partner. Business is admittedly carried on in the factory by the firm and not by the assessee personally. Even if the assessee as a partner is found to be engaged in business of the firm then it should be taken that the assessee is carrying on business in the leased premises. What is contemplated in the above clause is not to carry on business as a lessee but as owner of the building. Therefore, in our view the leasing out of the building on rent will take the building out of exemption, no matter assessee is part of the organisation which has taken on lease the building on rent for the purpose of business. It makes no difference whether the lessee is a firm of which assessee is a partner or a company in which assessee is a shareholder or even a director. So long as the requirement of the section is use of the building for business or personal purposes of the assessee as its owner and occupier, there is no scope for granting exemption on rented building. The building ceased to be eligible for exemption at the hands of the assessee when it is leased out on rent. We therefore hold that the assessee is not entitled to exemption for the leased factory buildings u/s 2(ea)(i) and. (3) of the Wealth Tax Act. Consequently appeal is allowed by reversing the order of the Tribunal and by restoring the assessment.

Counsel for the respondent assessee invited our attention to the order of the Tribunal declining to consider the exemption claimed by the assessee u/s 5(1)(vi) of the Act which entitles the assessee for exemption for one house. According to the counsel house referred to in the definition of asset is any building and need not necessarily be residential building and so much so at least one factory building is entitled to exemption u/s 5(1)(vi) of the Act. This issue is not considered by the Tribunal and Assessing Officer also had no occasion to consider it as it was raised for the first time before the Tribunal. We direct the assessing officer to look into the claim of the assessee and grant exemption for one building if it is eligible under the provisions of the Act.