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2015 (3) TMI 771 - SUPREME COURT

2015 (3) TMI 771 - SUPREME COURT - [2015] 373 ITR 50 (SC) - Valuation of net worth of assessee company - whether under Section 40(3)(vi) of the Finance Act, 1983, "the building" is used by the assessee as a factory for the purpose of its business - Held that:- No doubt, M/s Dior International P. Ltd. was manufacturing the garments for the assessee but it was charging the price for the same from the assessee and assessee was charging rent for the use of the premises. Therefore, the only relations .....

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id that such portion of building was used by the assessee for the purpose of its own business of manufacturing as factory. Therefore, such portion of the building was rightly included by the lower authorities in the net wealth of the assessee company. - Decided against assesseee. - Civil Appeal No. 5165 of 2003 - Dated:- 10-3-2015 - A. K. Sikri And Rohinton Fali Nariman,JJ. For the Appellants : Mr Sanjeev Sabharwal, Sr. Adv., Ms Bina Gupta, Adv., Mr Ranjit Raut, Adv. Ms Megha Kamthan, Adv. and M .....

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t. Ltd., is a company under the same management and is doing processing work, namely, dyeing, for the assessee company in a part of the factory building situate at the aforesaid property. It is not disputed that M/s Dior International Pvt. Ltd. installed its own machinery for the said job work of dyeing and that the assessee charged a sum of ₹ 20,000/- per month as license fee from M/s Dior International Pvt. Ltd. The said sum of ₹ 20,000/- per month charged as license fee has been c .....

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low: "The assets referred to in sub-section (2) shall be the following, namely:- (i) gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals (not being any such precious metal or alloy held for use as raw material in industrial production; (ii) precious or semi-precious stones whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel; (iii) ornaments made of gold, silver, platinum or any ot .....

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od of two years from the date of its acquisition by him;) (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, enter, school, canteen, library, recreation enter, shelter, rest-room or lunch room mainly for the welfare of its employees and the land appurtenant to such building or part: (vi a) any building .....

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the assessing authority held that on these facts they had no hesitation in holding that the part of the building given to M/s Dior International Pvt. Ltd. on licence is not being used for the assessee's own business and therefore, the assessee is not entitled to exemption in respect of the said part of the Sahibabad building property. On an appeal to the Commissioner of Income Tax (Appeals), the Commissioner by judgment dated 28th January, 1993 agreed with the assessing authority and dismiss .....

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of its business" used by the legislature in the aforesaid clause clearly shows that the building or part of such building which is to be excluded from the net wealth must be used by the assessee as factory for the purpose of its own business.... In the present case, there is no dispute that a portion of the building was let out to its sister concern M/s Dior International P. Ltd. which is a subsidiary company of the assessee at rent of ₹ 20,000/- p.m. Further, the AO has given a findi .....

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acturing the garments for the assessee but it was charging the price for the same from the assessee and assessee was charging rent for the use of the premises. Therefore, the only relationship between the parties was that of the lessor and lessee and nothing else. Therefore, the contention of the assessee that M/s. Dior International was manufacturing the garments for the assessee, in our opinion, would not advance the case of the assessee and is, therefore, rejected. In view of the above discus .....

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Finance Act, 1983, the legislature has specifically provided that building must be used as factory by the assessee himself. In view of this distinguishing factor, the said judgment of the Hon'ble Supreme Court cannot be applied to the present case. The observations of the Hon'ble Supreme Court at page 314 of 231 ITR, on which reliance was placed by the learned counsel for the assessee, do not advance the case of the assessee in as much as those observations were made in the context of t .....

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are unable to accept the contention of the learned counsel for the assessee." Mr. Sabharwal, learned Senior counsel for the appellant, has argued two points before us and has relied on a number of judgments. According to learned counsel, the object sought to be achieved by Section 40 is paramount. He pointed out that wealth tax was abolished so far as companies were concerned by the Finance Act, 1960 and revived qua closely held companies only by Section 40 of the Finance Act, 1983 w.e.f. t .....

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ed at commercially and if looked at commercially it is clear that the assessee really undertakes various processes under the same roof by itself and by a sister concern, both being under the same management and therefore, the asset, namely, the building, is used by the assessee commercially speaking for the purpose of the assessee's own business. Mr. Guru Krishan Kumar, learned Senior counsel on behalf of the respondent drew our attention to the assessment order, the Commissioner of Income T .....

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th companies therefore observed the corporate form and did not behave as part of a single group. He further added that the fact that the job work done by M/s Dior International Pvt. Ltd. was charged for by the assessee company further buttresses this submission. The judgment under appeal passed by the High Court of Delhi is a short one page judgment referring to the Tribunal and agreeing with its reasoning. We are of the view that the judgments of the authorities below, the Tribunal and the High .....

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uctively and not otherwise. However, super-added to this condition is another condition, namely, that such user must be "by the assessee". Not only must it be by the assessee but it must also be "for the purpose of its business". It is clear on the facts here that the appellant before us and M/s Dior International Pvt. Ltd are doing their own business and are separately assessed as such. Mr. Guru Krishan Kumar, learned Senior counsel is right in contending that on facts the c .....

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erved their individual corporate personalities so far as the present transaction is concerned. Shri Sabharwal cited a judgment of this Court reported in 53 ITR 140 (SC) in the case of Commissioner of Income Tax, Kerala v. Malayalam Plantations Ltd., and brought to our notice a passage at page 150 which reads as follows:- "The aforesaid discussion leads to the following result: the expression "for the purpose of the business" is wider in scope than the expression "for the purp .....

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ess; it may comprehend many other acts incidental to the carrying on of a business. However wide the meaning of the expression may be, its limits are implicit in it. The purpose shall be for the purpose of the business, that is to say the expenditure incurred shall be for the carrying on of the business and the assessee shall incur it in his capacity as a person carrying on the business." It is true that the expression "for the purpose of the business" may be wide but as the judgm .....

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rate individual capacity that is carrying on its own business. This case is, therefore, clearly distinguishable on facts. He also cited before us a judgment reported in 20 ITR 451 (SC) in the case of Commissioner of Excess Profits Tax, Bombay City v. Shri Lakshmi Silk Mills Ltd. where the controversy was whether, when a dyeing plant of a company remains idle because of difficulty in obtaining raw material, and it was temporarily let out, the amount received in the hands of such company could be .....

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