TMI Blog1996 (7) TMI 168X X X X Extracts X X X X X X X X Extracts X X X X ..... h section 17 of the WT Act. 3. The CWT perused the records of assessments under section 25(2) of the WT Act and noticed that the assessee-company excluded from the purview of chargeability to wealth-tax, the assets in the form of land and hotel building treating them as not being "specified assets". Therefore, he issued notices under section 25(2) of the WT Act. According to the CWT, as per agreement between the assessee (M/s. Naveen Hotels Ltd.) and M/s. Piem (hereinafter referred to as 'Piem') dated 27-3-1992 showed that the hotel building was not directly utilised by the assessee for running a hotel. The assessee was not a partner in 'Piem' having a definite share of profit or loss in the business of running the hotel. The assessee had been assured a fixed percentage of gross receipt as licence fee. From the various clauses in the above agreement, the CWT concluded that the assessee had let out the hotel premises and was in receipt of a fixed income which was called licence fee, instead of, rent. He was of the view that the Assessing Officer ought to have hold that the hotel premises wherein 'Piem' was doing hotel business was, in fact, a specified asset attracting wealth-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts in the light of the discussions made in his order. The assessee is aggrieved by the above order of the CWT. 5. The dispute to be resolved by us in these appeals is whether the assessee is entitled to the exemption provided for in section 40(3)(vi) of the Finance Act, 1983. Section 40 of the Finance Act, 1983, reads as under : " 40. Revival of levy of wealth-tax in the case of closely-held companies. (1) Notwithstanding anything contained in section 13 of the Finance Act, 1960 (13 of 1960), relating to exemption of companies from levy of wealth-tax under the Wealth-tax Act, 1957 (27 of 1957) ( ......... ), wealth-tax shall be charged under the Wealth-tax Act for every assessment year commencing on and from the 1st day of April, 1984, in respect of the net wealth on the corresponding valuation date of every company, not being a company in which the public are substantially interested, at the rate of two per cent of such net wealth. (2) For the purposes of sub-section (1), the net wealth of a company shall be the amount by which the aggregate value of all the assets referred to in sub-section (3), wherever located, belonging to the company on the valuation date is in excess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee intended to run and conduct the hotel business at the said premises but due to diverse reasons found itself unable to do so exclusively by itself and requested 'Piem' to do so. Clause 6 runs "Piem which owns the Hotel President at Bombay and is a Member of the Taj Group of Hotels, has acquired expertise and knowledge in the planning, designing, construction and operation of Hotels and has in its employment or association, skilled and expert personnel, in all fields relating to designing, planning, construction and operation of Hotels". As per clause 7 "The parties hereto have agreed to collaborate in setting up and completing the Hotel undertaking upon the terms and conditions hereinafter contained". Article I, para 1.1.1 says "The property described in the first schedule consists of three portions, that is, a portion of the land taken by NAVEEN on lease from M/s. Naveen Mechanised Construction Co. Pvt. Ltd., shown by letters ABHIA and two portions out of the land taken by Naveen on perpetual lease from Sri Krishna Reddy and others and shown in the annexed plan by the letters BELMBB and BCDEB". As per para 1.1.2, 'Piem' shall use the portion allotted to it only for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry year, an amount equivalent to 15 per cent per annum for the first two years and 16 per cent return per annum of the third year onwards on the total contributions made by Naveen under Articles 1.3 and 1.5 hereof." As per the Explanation, the "Gross Receipts" shall mean receipts on account of rooms, restaurants, banquet parties, pool side snack bar, barbecue, room service, public rooms, function rooms, laundry, shops, shopping area, occupational charges, entertainment shows, counter spaces, show windows, show cases. 'Piem' shall use the said premises for the purpose of running a hotel of acceptable standards together with related facilities for providing office accommodation, commercial accommodation, and business appurtenant thereto and shall not use the said hotel for any other purpose whatsoever and that the hotel shall be named by 'Piem' as it may deem fit to suit its business interest and that 'Piem' may use or grant temporary licences for shops in the said hotel for running such trades or services or business as may be consistent with the business of a hotel but 'Piem' shall be responsible for the conduct of the various sub-licensees and observance of the Rules and Regulatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld companies are able to successfully reduce their wealth-tax liability to a substantial extent. With a view to circumventing tax avoidance by such persons, I propose to revive the levy of wealth-tax in a limited way in the case of closely-held companies. " According to the learned departmental representative, real estate is also included in the speech of the Finance Minister in respect of charge of wealth-tax including assets of the closely-held companies. It is argued by Shri Abhaykumar that several clauses in the agreement between the assessee and 'Piem' would go to show that the assessee is not running the hotel business direct. He further contended that as per the terms of the agreement, the assessee has no liability towards third party, and 'Piem' is liable to compensate any liability to the third party incurred during the course of the running of the hotel business. To show what are the assets belonging to the assessee the learned departmental representative placed reliance on the balance sheet. According to the learned departmental representative, the agreement between the assessee and 'Piem' is dated 27-3-1982 whereas the hotel came into operation only on 1-4-1983. As th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opinion that the assessee has to succeed in this case. Admittedly, the assessee is not running the hotel business direct nor has there been any partnership between the assessee and 'Piem'. The assessee is only a licence-holder to run the hotel business. The assessee granted the licence to 'Piem' to run a hotel business in collaboration with Taj group. Therefore, the profit derived has to be treated as income from business only. The contention on behalf of the assessee is that to get the exemption under section 40(3)(vi) of the Finance Act, 1983, the assessee need not run the hotel business direct. It is to this end the decision of the Madras Bench of the Tribunal in the case of Varadaraja Theatres (P.) Ltd. is relied on by Shri Prasad. It is held therein : " A careful study of the provision of section 40(3)(vi) would show that all buildings or part of buildings and the land appurtenant thereto which are used for the purpose of the business of a closely-held company are excluded from the assets enumerated therein. It is clear that this provision of law excludes from the category of buildings or lands sought to be included in the assets of a closely-held company, all business asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he business of operation of ships or aircraft. But, in the case of new machinery or plant, no such requirement is stated in clause (b). In the latter two sub-clauses of section 33, there is a specific reference to the assessee's business premises where the machinery is to be installed. Similarly, the language of clause (a) of section 32A(2) stands in clear contrast to the language used in clause (b) thereof. Each machinery installed in a particular manner is the cause for the investment allowance to be granted to the person who owns the machinery, provided the owner uses it in its entirety in his business. The benefit is given with reference to the actual user of the machinery, though the benefit may go to a person who does not exploit the machinery, himself, for manufacturing or producing any article. Such a situation is not entirely unknown in the field of taxation. Hence, in respect of machinery owned by the assessee but leased to third parties and used by them for manufacture, investment allowance can be claimed under section 32A. Relying on the above ruling of the Hon'ble jurisdictional High Court, it is argued by Shri Prasad that the assessee is entitled to exemption under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the CIT, under section 263, for assessment year 1984-85. At page 86 it is stated "section 32(1)(v) requires that an allowance equal to 25 per cent of the actual cost of erection of the building to the assessee be allowed, when the building is owned by an Indian Company and used by such company as a hotel and such hotel is for the time being approved 'in this behalf' by the Central Government". It is argued by Shri Prasad that the "business loss" and "business income" referred to above is the income derived by the assessee from the running of the hotel business by 'Piem' which is the subject-matter of these appeals. 10. In support of the contentions on behalf of the assessee, "Supplementary paper book" containing pages 1 to 14 is filed on behalf of the assessee. Shri Prasad placed reliance at page 2 of the supplementary paper book, wherein it is stated that the assessee-company is deriving income from hotel business, house property and from other sources. It is also submitted that subsequent to the order under section 263 also the Income-tax Department has been assessing the income as business income. The impugned order of the CWT is dated 22-3-1993 but the assessment order f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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