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Judgment
Honourable Mr. Justice P.P.S. Janarthana Raja
The above Tax Case Appeals are filed by the Commissioner of Wealth Tax-I against the order of the Income Tax Appellate Tribunal, Madras
''D'' Bench, dated 19.03.2004 in WTA.No.124-128/Mds/97. These appeals were admitted on 28.09.2005 on the following substantial questions
of law:-
Whether in the facts and circumstances of the case, the Tribunal was right in holding that the property leased out is not assessable to wealth tax
and excludible from the operation of Section 40 of the Finance Act 1983?
Whether in the facts and circumstances of the case, the Tribunal was right in holding that the property let out was used in the assessee''s business
and was therefore excludible from the operation of Section 40 of the Finance Act, 1983?
The brief facts arising out of the case are as follows:- The assessee is a company. The relevant assessment years are 1988-89 to 1992-93. For
the above assessment years, the assessee filed returns of income and claimed exemption in respect of the property viz., Donatus Victoria Estates
and Hotels(P) Ltd., No.13, Gandhi Irwin Road, Egmore, Madras-8. The said property was leased out for rental income of Rs.2,34,000/-
annually. The assessee claimed deduction and stated that the property would not subject to levy of Wealth Tax u/s 40 of the Finance Act, 1983.
The contentions raised by the assessee were rejected by the Wealth Tax Officer and the Officer levied wealth tax and held that provisions u/s
40(3)(vi) of the Finance Act, 1983 is not applicable to the assessee. Aggrieved by the same, the assessee filed an appeal before the Commissioner
of Income Tax (Appeals). The Commissioner of Income Tax(Appeals) held that the property situated in Gandhi Irwin Road, Madras-8 is an asset
exempted from Wealth Tax. Aggrieved by that order, the Revenue filed an appeal before the Income Tax Appellate Tribunal. The Income Tax
Appellate Tribunal following the case of Fagun Co. Ltd., reported in (1945 ITD 117) and also the case of M/s.Kumudam Printers (P) Ltd., in
ITA.Nos.1271 and 1272(Mds)/1992 held that the assessee is entitled to exemption provided u/s 40(30(vi) of the Finance Act, 1983. Aggrieved
by that, the Revenue filed the present appeals raising the above questions of law.
The learned counsel appearing for the Revenue contended that the order passed by the Income Tax Appellate Tribunal is illegal, wrong and
without justification. Further it was held that the Tribunal is wrong in holding that the value of the property of the assessee should not be assessed
to wealth tax. The Tribunal ought to have appreciated that the use of the property by the lessee for business would not entitle the assessee to claim
for exemption. Further it was submitted that the assessee has not used it as a hotel and simply leased out and therefore, the assessee is not entitled
to exemption. Therefore, the order passed by the Tribunal is not in accordance with law and the same should be set aside.
The learned counsel appearing for the assessee submitted that one of the objects of the assessee is letting out to rental and accordingly, the said
property was leased out as a hotel and therefore, satisfies the condition and they are entitled to exemption. He further submitted that the Income
Tax Appellate Tribunal had considered all the facts and circumstances of the case and correctly held that the assessee is not subject wealth tax and
is in accordance with law and the same should be confirmed.
Heard the learned counsel on both sides and perused the documents available on record. Even though the memorandum of Association of the
assessee company was not filed along with the typed set of papers, but the same has been extracted by the Commissioner of Income
Tax(Appeals) and the same is found in paragraph 14 of the order of the Commissioner of Income Tax (Appeals). From the reading of the said
extract, it is clear that one of the main object of the assessee company is to give any land, building or other assets belonging to the company on
lease or license in favour of any person, company or firm, and to give on hire immovable properties of the company and any machinery, plant,
furniture or fixtures or any other movable property whatsoever to any person, company or firm upon such terms and conditions as may be
beneficial to the company. The learned counsel appearing for the assessee submitted that the property was leased out as a hotel and the same is
used as a hotel. The only contention of the appellant is that the assessee himself has not used it as a hotel. The Income Tax Appellate Tribunal in
paragraph 3 of its order has held as follows:- We have heard both the parties. The Commissioner(Appeals) has found that as per the
Memorandum of Association, the main objects of the assessee-company included giving of any lands, building or other assets belonging to the
assessee on lease or licence in favour of any person on such terms and conditions as may be beneficial to the assessee. That being so, the first
appellate authority following the aforesaid orders of the Tribunal, allowed the claim of the assessee. We find no infirmity in the said order of the first
appellate authority. The decision of the Special Bench of this Tribunal (D-Bench, Chennai) in WTA.Nos.855 to 857(Mds)/1991 and 546 and
547(Mds)/1992 (order dated 14.03.2002) in the case of Trichy Everest Automobile Agency Pvt Ltd., also supports the assessee''s claim. We,
therefore, uphold the order of the first appellate authority and reject the grounds taken by the Revenue.
Thus, the Tribunal held that the assessee is entitled to exemption.
Similar issue came up before the Full Bench of this Court, (in which, one of us was a party) and the Full Bench had an occasion to deal with the
scope of interpretation of Section 40 of the Finance Act, 1983 in the case of The Commissioner of Wealth-tax Vs. Fagun Co. P. Ltd., The Full
Bench considered the issue in detail and held that if a leasing company lets out a factory, building or warehouse as stated in the exclusionary clause,
the assessee is entitled to the relief. The Full Bench also considered the judgment of the Supreme Court in the case of Commissioner of Income
Tax, Karnataka, Bangalore Vs. M/s. Shaan Finance (P) Ltd., Bangalore, , wherein, the Supreme Court considered the scope of Section 32A of
the Income Tax Act, 1961 and held that the assessee is entitled to the investment allowance on plant and machinery let out to the third parties. The
Full Bench in paragraphs 20, 21, 22 and 24 extracted the judgment in CIT Vs. Shaan Finance P.Ltd (cited above) and held as follows:- ""20. In
the case of Commissioner of Income Tax, Karnataka, Bangalore Vs. M/s. Shaan Finance (P) Ltd., Bangalore, , the Apex Court held as follows
(page 312)
We have already set out the three requirements of Section 32A(1) which entitle an assessee to claim investment allowance. One of the
requirements is that the machinery must be wholly used for the purpose of such assessee''s business. When the business of the assessee is leasing
of such machines, the machines so leased out are being used for the purpose of the assessee''s business. The income by way of hire charge which
the assessee receives is also taxed as business income of the assessee.
The above judgment considered the scope of Section 32A of the Income Tax Act and held that the assessee is entitled to the investment
allowance on plant and machinery let out to the third parties. Further it was held that the let out plant and machinery, were used in the business of
leasing. Hence, the apex court granted investment allowance u/s 32A of the Income Tax Act. In the present case, the articles of association
indicate the main object, which is extracted hereunder:
To acquire by purchase, lease, exchange or otherwise farms, lands, buildings and hereditaments of any tenure of description and any estate or
interest therein, and any rights over or connected with lands so situated and to turn the same to account as many seen expedient and in particular
by preparing building sites and by constructing, reconstructing, altering, improving, decorating, furnishing and maintaining offices, flats, houses,
hotels, restaurants, shops, factories, warehouses, wharves buildings works and conveniences of all kinds and by consolidating or connecting or
subdividing properties and by leasing and disposing of the same.
From the object, it is clear that the assessee is carrying on leasing business. No doubt the assets are used in the leasing business. Section 40 of
the Finance Act levies tax on the assets as enumerated under the provision and only the assets that are excluded under the exclusionary clause
alone will be entitled to the exemption. If the leasing company let out factory, building or warehouse as stated in the exclusionary clause, the
assessee is certainly entitled to the relief. All the leased assets are not entitled to exemption unless the same come under any of the specified assets,
for example, if the assessee lets out the specified assets like factory, godown or warehouse in the leasing business, certainly it will come within the
exclusionary clause..........
In the Finance Act, the relevant provision in Section 40(3), reads as follows:-
(vi) building or land appurtenant thereto, other than building or part thereof used by the assessee as factory, godown, warehouse, hotel or office for
the purposes of its business or as residential accommodation for its employees or as a hospital, creche, school, canteen, library, recreational
centre, shelter, rest room or lunch room mainly for the welfare of its employees and the land appurtenant to such building or part : Provided that
each such employee is an employee whose income (exclusive of the value of all benefits or amenities not provided for by way of monetary
payment) chargeable under the head ''Salaries'' under the income tax Act, does not exceed eighteen thousand rupees.
In both the provisions, one of the conditions to be satisfied by the assessee is that, the assets must be used in the assessee''s business. There is
no dispute in the present case that the let out assets are used in the leasing business. That alone is not sufficient to claim exemption from the
Wealth-tax Act. The yardstick of the income tax Act cannot be applied in the present case for the purpose of exemption under the Wealth-tax
Act. The exemptions or exclusionary clause are different from granting deduction or allowance under the Incometax Act. Not all the business
assets used in the business are exempt from the purview of the wealth-tax. Once the let out assets come within the specified clause as
contemplated u/s 40(3)(vi) of the Finance Act, the assessee is certainly entitled to exemption from the Wealth-tax Act. The Division Bench
judgment of this Court reported in Commissioner of Wealth Tax Vs. Indian Warehousing Industries Ltd., following the principles enunciated by this
Court judgment reported in K.N. Chari Rubber and Plastics Pvt. Ltd. Vs. The Commissioner of Wealth Tax, , held that, as per section 40(3)(vi)
of the Finance Act, there is an additional requirement that the building should be used by the assessee as godown or warehouse for the purpose of
its business. We are of the view that the let out assets are used by the assessee in its leasing business. If the leased out assets such as, godown,
warehouse, hospital or other assets, come within the specified assets in Section 40(3)(vi) of the Finance Act, certainly the assessee is entitled to the
exemption, because the same is used in leasing business. The view of the Division Bench judgment that the leased assets are not used for the
purposes of business, is contrary to the Supreme Court judgment cited supra. Hence, we are unable to agree with the Division Bench judgments
reported in K.N. Chari Rubber and Plastics Pvt. Ltd. Vs. The Commissioner of Wealth Tax, and Commissioner of Wealth Tax Vs. Indian
Warehousing Industries Ltd., . In the present case, the let out portions are not coming in any of the specified assets. Hence, the earlier judgment
reported in The Commissioner of Wealth Tax Vs. Fagun Estates Pvt. Ltd., is correctly decided. The remaining judgments relied on by learned
standing counsel for the Revenue are not relevant to the facts of the present case and hence we are not referring to the same. Hence, we are of the
view that since the case of the assessee does not fall within the exclusionary clause mentioned in section 40(3)(vi) of the Finance Act, 1983, the
assessee is liable to be taxed on the value of the tenanted portion of the building u/s 40 of the Finance Act, 1983.
From the reading of the above judgment, it is clear that once the let out assets come within the specified clause as contemplated u/s 40(3)(vi) of the
Finance Act, the assessee is certainly entitled to exemption from the Wealth-tax Act.
Taking into consideration the principle enunciated in the above judgment and looking into the present case, it is seen that one of the objects of
the assessee company is leasing and other object is running hotel in the disputed property. Accordingly, the assessee has leased out the property as
a hotel and the lessee also used the same property as a hotel and there is no dispute and therefore, the assessee comes within the specified assets
as contemplated u/s 40(3)(vi) of the Finance Act, 1983 and therefore, the assessee is entitled to exemption from Wealth Tax Act. Under these
circumstances, both the appellate authorities below has correctly come to the conclusion and allowed the claim of the assessee and such finding is
also in accordance with the principles enunciated in the above judgment. It is based on valid material and it is not a perverse order. Therefore, we
do not find any illegality or infirmity in the order passed by the Income Tax Appellate Tribunal. Therefore, we answer the above questions of law in
favour of the assessee and against the Revenue. The Tax Case Appeals are devoid of merits and hence, the same stands dismissed. No costs.