TMI Blog1994 (2) TMI 129X X X X Extracts X X X X X X X X Extracts X X X X ..... enter into real estate business for which purpose it made suitable amendments to its Memorandum of Association, which were approved by the Company Law Board, Southern Region, Madras, on 4-7-1980. 4. Thereafter, it demolished the old structure, parcelled out a piece of land admeasuring about four grounds and constructed a building thereon. The assessee sold this building together with the four ground plot to one M/s. C. Abdul Rehman and Others, Periamet, Madras for a stated consideration of Rs. 22 lakhs. 5. In relation to its assessment to income-tax and for the purposes of ascertaining the profit on the sale of the said building, the assessee went on the footing that it had converted what was previously its investment into stock-in-trade on 23-7-1-980. Accordingly, it valued the land in question at the rate of Rs. 3 lakhs per ground as on 23-7-1980. It was on this basis that it arrived at the profit on the sale of the said building at Rs. 1,97,827. 6. To make the picture complete, it may be mentioned that on his part the Assessing Officer took the value of the plot as on 23-7-1980 at Rs. 1,56,000 per ground and computed the profit on the sale of the building on that basis. Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -------------- Rs. Rs. ----------------------------------------------------------------------------------------------------------------------------------------- 1985-86 30-6-1984 28,54,000 * 2,27,73,662 1986-87 30-6-1985 19,47,775 * 2,79,07,375 1987-88 30-6-1986 13,38,575 * 2,81,79,038 1988-89 30-6-1987 @ 2,07,70,256 ----------------------------------------------------------------------------------------------------------------------------------------- Notes : * For these three wealth-tax assessment years the assessee had disclosed in its return of net wealth, inter alia, the value of the units remaining unsold in KC-I and KC-II. It was only before the first Appellate Authority that the assessee made the claim that no wealth-tax was exigible thereon because the said units represented closing stock of the assessee. @ In its return for the wealth-tax assessment year 1988-89 the assessee did not disclose the value of the said units on the ground that they constituted its closing stock. 11. For the four assessment years that are now before us, one of the questions that naturally arose for consideration was whether the unsold units in KC-I and KC-II, which have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal decision in the case of Prakash Talkies (P.) Ltd. v. First WTO [1989] 28 ITD 213 (Bang.). Following the ratio of the said cases, Shri Ramachandran contended that the benefit of the 1988 amendment should be extended to the assessment years that are now before us. 15. An alternative contention was also made and that was that the value adopted by the lower authorities was on the high side inasmuch as the application of the multiplier 12.5 per cent was itself high. 16. On his part, the Departmental Representative opposed the contention of the assessee. He argued that it is a matter of record that the assessee did not sell all the units of the two complexes. It had kept for its use some of the units, together with the proportionate undivided interest in the land relating thereto. The unsold units were not used for the purposes of the assessee's business. They were let on rent, and the rental income declared by the assessee in the income-tax proceedings under the head 'income from property'. True, it was as a dealer in real estate that the assessee put up the two complexes and sold some of the units therein. But the significant fact to be noted is that it has retained with i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the units retained by the assessee were not used by it for the purposes of its business of dealing in motor cycles, scooters, spare parts and the servicing of the vehicles, etc. All that had happened was that the assessee had let the unsold units on rent, which units, admittedly, are even today under occupation of the tenants. When the owner of a property lets it on rent, all that he does is to turn to profitable account his proprietary interest in the property. Here, the dominant role of the owner of the property comes into play. Therefore, there cannot be a business of letting property on rent. If any authority for the proposition is needed, it is to be found in, (a) the Calcutta case of Commercial Properties Ltd., In re AIR 1928 Cal. 456, and (b) the House of Lords case of Salisbury House Estate Ltd. [1930] 15 TC 266. 19. Commercial Properties Ltd.'s case was a case under section 9 of the old Act. There the assessee-company was owning three properties and was earning rental income by letting out the properties. The assessee's case was that it was incorporated with the sole object of acquiring lands, building houses and letting the premises to tenants on rent, and that cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing purposes and also supplied lights in the passage of the building. 22. The Revenue's case was that the entire receipts from the building is chargeable under Schedule D (analogous to the head of income 'income from business'). The House of Lords held that the rent received by the company fell under Schedule A (Analogous to the head 'income from house property') and not under Schedule D. Starting from the proposition that income-tax is one tax and not an aggregate or collection of different taxes under the different Schedules, the House of Lords went on to point out that to see which head of income you are to apply, you have to consider the nature and the constituent parts of the items of income. In that case, it was held that there was nothing in the facts stated in the case which would properly lead to the conclusion that in dealing with the property the company was acting otherwise than as an ordinary land-owner would act in turning to profitable account the land of which he is the owner. It was also held that the circumstance that a taxpayer was a limited company did not distinguish its operations from those of an individual. 23. Two English authorities, namely, Russell (S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s returned by the assessee, and brought to charge under the head "Income from house property". 25. In the view that we have taken on question No. (i) supra, it is unnecessary to answer question No. (ii). Even so, let us assume that somehow the unsold units which had been let on rent by the assessee are the stock-in-trade of the assessee. The question that then arises for consideration is whether the 1988 amendment to section 40(3) could avail the assessee. 26. Now, the Finance Act, 1988 inserted, with effect from 1-4-1989, the following proviso to section 40(3) of the Act : "Provided that this section shall not apply to any asset referred to in clause (i), (ii), (iii), (iv), (v) or (vi), which is held by the assessee as stock-in-trade in a business carried on by it or, in the case of motor-cars referred to in clause (vii), they are held as stock-in-trade in such business or registered as taxis and used as such in a business of running motor-cars on hire carried on by the assessee." Having been inserted into the Act from 1-4-1989, the said proviso will naturally apply to the assessment year 1989-90 and the subsequent assessment years. Yet, it is contended on behalf of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee's claim on both the aforesaid grounds. The cinema theatre being actually a source of the assessee's income was a plant both for income-tax and wealth-tax purposes. Secondly, the Finance Act, 1988 substituted a new clause (vi) for the existing clause (vi) in section 40(3), so as to extend the benefit of the exemption from wealth-tax to cinema houses also. According to the Tribunal : "...the provisions of the Finance Act, 1988 led one to presume that a cinema house was intended to be included in the list of assets exempt from wealth-tax even from the inception because the connotation of 'substituted' was that new clause should be taken to have been incorporated in place of the old clause from the very inception. This was also clear from the wording of the original clause itself which stated that building used by the assessee for the purpose of its business should be exempt." 32. In the case of Varadaraja Theatres (P.) Ltd., the assessee claimed that the cinema theatre building was exempt from wealth-tax on the ground that the said building was used exclusively for the purposes of its film exhibition business. The Assessing Officer accepted the said contention and completed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refrom that each and every provision that is newly inserted to remove unintended hardship must invariably or necessarily have retrospective effect. 35. In view of the foregoing, therefore, we are unable to accept the contention of the learned counsel for the assessee that the provisions of the newly inserted proviso to section 40(3) should be given retrospective effect. 36. In view of the foregoing, therefore, we decline to interfere in this aspect of the matter. 37. This brings us on to the alternative contention that the value placed on the units in question is on the high side. In this regard, a two-fold contention was urged on behalf of the assessee. The first was that under Part D of Schedule-III of the Wealth-tax Act, the book value of the assets ought to have been taken into account. Secondly, in any event, the multiple of 12.5 adopted by the lower authorities is very much on the high side. 38. On hearing both the sides, we decline to interfere in this matter too. Reasons: First, Schedule-III is applicable with effect from the assessment for the assessment year 1989-90. Secondly, it is well-settled that rent capitalisation method is the proper method to apply to valu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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