AI Structured Summary
Not yet generated for this judgment
Judgment
Honourable Mr. Justice D. Murugesan
1.These appeals are filed at the instance of the Revenue. As these appeals were admitted on the following common substantial questions of law,
they are disposed of by this common judgment.
Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in exempting the property at
No.20, Hunters Road, Madras from the wealth tax, even though Section 40(3)(vi b) of the Finance Act, 1983 states if the property used by
Director, Manager and Secretary as residential accommodation then it will not be exempt and the same will be included as taxable asset in the net
wealth of the assesses?
Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that the value of the
property at door Nos.123 and 124 should not be included in the assesses net wealth is valid?
The assesses, apart from doing printing business, is also doing the business of leasing out the properties. It has leased out two properties at
Door Nos.123 and 124, Brick Kiln Road, Madras-7. The first property was leased out to Tamilnadu Electricity Board and derived the benefits
from the Board by way of installation of transformers. The property in Door No.124 was leased out to one company by name Lotus Inks.
Similarly, the assesses allotted the premises at Door No.20, Hunters Road to the Managing Director for being used as residence. The assesses
filed return of wealth on 12.3.1992 Act, admitting a net wealth of Rs.5,58,900/-. In order to regularise the return, a notice u/s 17 of the Wealth
Tax, was issued to the assesses. In response to the notice, the assesses had stated that the return filed earlier may be treated as one filed in
response to the said notice. As far as the Door No.20 is concerned, it was the case of the assesses that since the premises was used for residential
purpose of the Managing Director, who was an employee of the assesses, in terms of Section 40(3)(vi b) of the Finance Act, 1983, it is entitled to
exemption from wealth tax. As far as the premises at Door No.123 is concerned, it was the case of the assesses that though the premises was
leased out to Tamilnadu Electricity Board, inasmuch as the Company had derived the benefit from the Board by way of installation of transformer,
it forms part of business and therefore, they are entitled to exemption from wealth tax in terms of Section 40(3)(vi b) of the Finance Act. Likewise,
insofar as the Door No.124 is concerned, since one of the business objects of the assesses is leasing out the properties, a portion of the factory
premises was leased out to M/s. Lotus Inks, which also carries on the manufacture of inks and therefore, in terms of the Section 40(3)(vi b) of the
Finance Act, they are entitled to exemption. These objections do not find favour with the Assessing Officer, who ultimately finalised the
assessment, determining tax after rejecting the claim for exemption.
When the matter was taken on appeal to the Commissioner of income tax, insofar as the challenge to the residential house occupied by the
Managing Director is concerned, the case of the assessee has been accepted. Insofar as the premises at Door No.123 is concerned, the
Commissioner of income tax (Appeals) found that inasmuch as the nature of the premises had not been discussed by the Assessing Officer, it
remitted the matter to the Assessing Officer for fresh consideration in the light of the ratio laid down by the income tax Appellate Tribunal in
W.T.A.No.1271/Mds/1992 dated 8.4.1996 for the assessment years 1986-87 and 1987-88. As far as the property at Door No.124 is
concerned, the case of the assessee was accepted on the ground that the leasing out the premises is part of the company''s business and the
premises itself had been commercially exploited, the assessee could claim exemption. This was taken on further appeal to the Tribunal by the
Revenue and the appeals were dismissed.
Insofar as the premises allotted to the Managing Director of the assessee is concerned, the claim of exemption is made u/s 40(3)(vi b) of the
Finance Act and the said Section reads as follows:
any building and the land appurtenant to such building used as residential accommodation by any director, manager, secretary or any other
employee of the assesses, such employee holding not less than one per cent of the equity share of the assesor by any relative of any person who
holds not less than one per cent of the equity share of the assesses. Explanation:- For the purposes of this clause, ""relative"" shall have the meaning
assigned to it in Explanation to Section 13 of the income tax Act.
The Commissioner of income tax Appeals found that inasmuch as the Managing Director has got more than one per cent share, the assessee
would be entitled to exemption in terms of the above provision. This finding has been accepted by the income tax Appellate Tribunal. However, in
our opinion, the reasoning of the Commissioner of income tax Appeals as well as the Tribunal in favour of the assessee is not on proper
construction of the above provision. Nevertheless, the assessee would be entitled to exemption for our own reasons, which we are inclined to deal
with. A careful reading of the above provision would show that the question of holding more than one per cent of equity share for claiming the
benefit would arise only in case of an employee of the assessee and not the Director, Manager or the Secretary as the case may be. The Section is
very clear, inasmuch as it treats any building and the land appurtenant to such building used as residential accommodation by any Director,
Manager, Secretary or any other employee of the assessee, such employee holding not less than one per cent of the equity share of the assessee
would be entitled to exemption. The second portion of the holding not not less than one per cent of the equity share of the assessee would be
applicable only in case of employees of the assessee and not the Director, Manager or the Secretary. In case even the Manager or Secretary do
not hold any share, nevertheless the assessee would be entitled to exemption of the above provision. For that reason, the claim of the assessee for
exemption should be accepted. Accordingly, the first substantial question of law is answered in favour of the assessee and against the Revenue.
As far as the Door No.123 is concerned, the claim of exemption must be with reference to the nature of the premises. As there was no factual
finding by the Assessing Officer on this issue, very rightly the Commissioner of income tax Appeals had remitted the matter to the Assessing Officer
to find out the factual aspect, which was confirmed by the Tribunal, we find no interference is required, as no substantial question of law arises in
respect of the premises at Door No.123.
As far as the premises at Door No.124 is concerned, it is the specific case of the assessee that they are doing business in leasing as well and in
the course of such business, they have leased out the premises to M/s. Lotus Inks, a factory manufacturing inks. This being the factual position, the
Commissioner of income tax Appeals had referred to the said fact holding that the leasing out the premises owned by a company is part of the
company''s business and therefore, the asset itself having been commercially exploited, is not includable in the net wealth, the assessee is entitled to
exemption. This being also a factual finding, it has been confirmed by the income tax Appellate Tribunal. We do not find any justification to
interfere with that. That apart, the substantial question of law no.2, though raised in respect of those two premises, in our reason, the said question
of law should be only answered against the Revenue and in favour of the assessee. That apart, the tax effect in each of these appeals is less than
Rs.1,00,000/-.
For all these reasons, both the substantial questions of law are answered against the Revenue and in favour of the assessee. Accordingly, these
appeals are dismissed. No costs.