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2015 (4) TMI 61 - MADRAS HIGH COURT

2015 (4) TMI 61 - MADRAS HIGH COURT - [2015] 375 ITR 445 (Mad) - Valuation of property - Whether the Tribunal is correct in concluding that the value of the lease hold right in the property under consideration was correctly brought into the computation of net wealth as per provisions of Section 40 of the Finance Act, 1983 for the assessment year under consideration - Held that:- it is clear that none of the exceptions as enumerated in Section 40 (3) (vi) are attracted to the facts of the present .....

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tivity conducted in the premises would fall outside the purview of wealth tax, because, as stated above, the assessee in this case does not fall within any of the exceptions provided under Section 40 (3) (vi) for availing the benefit. Such being the case, the building as such, constructed on a leasehold property, would be termed as an asset in terms of Section 40 (3) and, therefore, the net wealth of the company has to be determined in terms of Section 40 (2) of the Act for the purpose of levy o .....

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ct, 1983. The abovesaid Full Bench decision is squarely applicable to the facts of the present case. Accordingly, following the Full Bench decision in Fagun's case (2006 (9) TMI 118 - MADRAS High Court), the 1st substantial question of law is answered against the assessee/appellant and in favour of the Revenue/respondent.

Whether the Tribunal is correct in concluding that assessibility of the said right in the property under consideration at ₹ 82 Lakhs in the computation of net .....

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al has been filed by the Department challenging that portion of the order of the Tribunal. In such circumstances, this Court is of the considered opinion that the value adopted by the Tribunal at ₹ 82 Lakhs for the purpose of computation of net wealth is just and proper and calls for no interference, as the value of the building alone is taken as composite value for the purpose of computation of the value of the land and building. Accordingly, in view of the above, the 2nd substantial ques .....

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present appeal. This Court, vide order dated 28.11.05, while admitting the appeal, framed the following substantial questions of law for consideration :- i) Whether the Tribunal is correct in concluding that the value of the lease hold right in the property under consideration was correctly brought into the computation of net wealth as per provisions of Section 40 of the Finance Act, 1983 for the assessment year under consideration? ii) Whether the Tribunal is correct in concluding that assessib .....

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ral Bank of India and received a certain amount as advance rent. The assessee did not show the building, that was let out to Central Bank of India, in the taxable wealth. Before the Assessing Officer, the assessee, however, claimed that the lease holding right in the land and building is not liable for wealth tax assessment. However, the said stand of the assessee was negatived by the Assessing Officer and, accordingly, the assessee was assessed to wealth tax. Aggrieved against such assessment, .....

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of owner of land. The Tribunal further held that since the assessee is receiving rental income, the assessee cannot plead that he is not occupying the landed property. The Tribunal further held that occupation of Central Bank of India on the leased premises is deemed to be constructive occupation of the assessee. Further the assessee has not treated the land and building as commercial asset and, therefore, it held that the Department was right in including it under the taxable wealth of the asse .....

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unsel appearing for the respondent/Department and perused the materials available on record. 5. The issue that is raised before this Court could be easily understood if the provisions of Section 40 of the Finance Act, 1983, more particularly Sections 40 (1) and (3), are looked into. For better clarity, Section 40 is extracted hereinbelow :- 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 o .....

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tion.-For the purposes of this sub-section, "company in which the public are substantially interested " shall have the meaning assigned to it in clause (18) of section 2 of the Income-tax Act. (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 of the aggregate value of all the debts owed by the .....

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gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals ; (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 other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any .....

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lter, rest room or lunch room mainly for the welfare of its employees and the land appurtenant to such building or part : (Emphasis supplied) 6. The provisions of Section 40 of the Finance Act, 1983, provides that wealth tax should be charged under the Wealth Tax Act in respect of any wealth on the corresponding valuation date of every company at the rate specified. For the purposes of sub-section (1), the net wealth of the company shall be the amount by which the aggregate value of all the asse .....

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l include building or land appurtenant thereto, to be part of the net wealth. The exceptions mentioned therein are other than building or part thereof, used by the assessee for 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. .....

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termining the net wealth of the assessee liable to wealth tax. It is of no avail on the part of the assessee to plead that a commercial activity conducted in the premises would fall outside the purview of wealth tax, because, as stated above, the assessee in this case does not fall within any of the exceptions provided under Section 40 (3) (vi) for availing the benefit. Such being the case, the building as such, constructed on a leasehold property, would be termed as an asset in terms of Section .....

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use, hotel or office, the assessee cannot claim exemption under the provision. These specified assets alone are excluded from taxation. The assets other than the specified assets in the exclusionary clause, are not entitled for exemption. The assessee, in this case, let out a portion of the building to various tenants. The let out portions are not coming under any of the specified assets mentioned earlier. The business of the assessee is leasing out the assets and hence the assets are commercial .....

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the provision would be different. Parliament need not enumerate various assets for exclusion. If they want to exclude commercial assets from the purview of the Wealth-tax Act, the section would be that all commercial assets used for the purpose of the business are exempt or excluded from wealth-tax. Instead of using the same, they have only picked and chosen the specified assets for the purpose of excluding from wealth-tax. So, the intention of Parliament is also very clear to exclude only parti .....

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guous and specific, it is not necessary to rely on the Statement of Objects and Reasons or refer to the speech made by the Finance Minister. The argument of learned counsel for the Revenue relying on the Finance Minister s speech for the purpose of introducing the impugned provision is not relevant, as the impugned provision is plain, clear, unambiguous and specific. The Statement of Objects and Reasons should be used only for limited purposes and cannot be used to construe the provisions of the .....

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ion when the language of the operative provisions of the Act is clear and unambiguous. The Supreme Court judgment reported in P. V. Narasimha Rao v. State (CBI/SPE) AIR 1998 SC 2120, held that the speech of the Minister should not be looked into, except for the limited purpose of ascertaining the mischief which the Act seeks to remedy. Normally, the courts will not rely on the statement of the minister or explanatory notes on the clauses of a Bill for construing the provision except in cases whe .....

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be avoided. Where the plain literal interpretation of a statutory provision produces a manifestly absurd and unjust result which could never have been intended by the Legislature, the may modify the language used by the Legislature or even do some violence to it, so as to achieve the obvious intention of the Legislature and produce a rational construction. The court can rely on the speech made by the mover of the Bill explaining the reason for its introduction for the purpose of ascertaining th .....

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nance Minister and notes on clauses, if the statute is plain, clear, unambiguous and specific. Recently, the Supreme Court in the case of K. P. Sudhakaran v. State of Kerala reported in [2006] 5 SCC 386, held that the alleged intention behind a provision could not be used to defeat the express words of the provision. Once a statutory rule is made without providing any exceptions, no exceptions can be carved out to such rule by judicial interpretation. All that the court has to see at the very ou .....

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to this court judgment reported in CWT v. Asoka Betelnut Co. P. Ltd. [2003] 260 ITR 573, wherein it was held that unless the business assets fall within the exclusionary clause of section 40(3)(vi) of the Finance Act, 1983, the business assets would be liable to be taxed under the Wealth-tax Act, 1957. In that case, there was a claim that the building owned by it was not eligible to wealth-tax under section 40 of the Finance Act, 1983. So, the main argument advanced by the assessee was that the .....

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t thereto and motor cars. Hence, the commercial complex owned by the assessee, namely, building with the land appurtenant thereto, fell within clause (vi) of sub-section (3) of section 40 of the Finance Act, 1983 and it did not fall within any of the excluded items mentioned in section 40(3)(vi) of the Finance Act. Therefore, it was held that the assessee was liable to be taxed on the value of the commercial complex under section 40(3). Merely because the assets are commercial assets, it does no .....

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ludes certain items of assets listed in the sub-section. In other words, certain specific items of assets are excluded from the scope of levy of wealth-tax and the assets so excluded are factory, godown, warehouse, hotel or office used for the purposes of its business. The commercial complex owned by the assessee is not one of the excluded items mentioned in clause (vi) of sub-section (3) of section 40 of the Finance Act. The latter part of the same clause only deals with the building let out to .....

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t the assets must be the building and the land appurtenant thereto and it should be a factory or a godown or warehouse, hotel or office used for the purpose of the business. The commercial complex of the assessee does not fall within any of the excluded items mentioned in section 40(3) of the Finance Act, 1983. 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 t .....

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change the commercial character of the said asset. Apart from the order of the Tribunal which is passed, on facts, we ourselves examined the returns filed by the assessee right from the assessment year 1985-86 which clearly indicate that even under the Income-tax Act, the assessee has been given the benefit of depreciation and the income received by the assessee has been treated as income from business. Taking into account the above facts and circumstances of the case, we are of the view that a .....

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epreciation. (c) Income received by the assessee by letting out of the commercial asset had been treated as income from business. 19. The above reasons are not at all relevant for wealth-tax purposes. The computation under the income-tax and the wealth-tax are different. Under the Income-tax Act, there are five heads of income and the income has to be computed on the basis of the heads of income. While computing the income, there are various exemptions and deductions provided under the Income-ta .....

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e criteria mentioned in the Bombay High Court judgment is not at all relevant for the purpose of excluding from wealth-tax, unless the assets come within the exclusionary clause as contemplated under section 40(3)(vi) of the Finance Act and hence, even though the let out portion is a commercial asset, it is not exempt because the same is not coming within the scope of exclusionary clause contemplated under section 40(3)(vi) of the Finance Act. Hence, we are unable to agree with the view of the B .....

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for the purpose of the assessee s business. The income by way of hire charges which the assessee receives is also taxed as business income of the assessee. 21. The above judgment considered the scope of section 32A of the Incometax 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 allowan .....

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cting, 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 sub-dividing properties and by leasing and disposing of the same. 22. 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 enum .....

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g business, certainly it will come within the exclusionary clause. It is useful to refer to the Madras High Court judgment in the case of CWT v. Indian Warehousing Industries Ltd. reported in [2004] 269 ITR 203, which held as follows (page 207) : The Supreme Court in the said case had observed that a leasing company which owns machinery and leases such machinery to third parties for manufacture of articles is entitled to investment allowance of such machinery under section 32A of the Income-tax .....

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y the assessee ; and (3) the machinery must come under any of the categories specified in sub-section (2) of section 32A. The relevant provision in section 32A is to the effect that the machinery should be wholly used for the purpose of the business carried on by the assessee. Even though it can be said that leasing out of godowns was for the purpose of carrying out of the business by the assessee in the present case, as per section 40(3)(vi) there is an additional requirement that the building .....

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particular assets as specified in the exclusionary clause alone are exempt from taxation. If the leasing companies let out the factory, warehouse or godown, the same is exempt from taxation. The Supreme Court judgment in the case of CIT v. Shaan Finance P. Ltd. [1998] 231 ITR 308, held that the assessee is entitled to investment allowance under section 32A of the Income-tax Act on the ground that the let out plant and machinery were used for the purpose of the leasing business and the income der .....

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o the provisions of this section, be allowed a deduction, in respect of the previous year in which the ship or aircraft was acquired or the machinery or plant was installed or, if the ship, aircraft, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year, of a sum by way of investment allowance, equal to twenty-five per cent. of the actual cost of the ship, aircraft, machinery or plant to the assessee : 24. In the Finance Act, t .....

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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 ; 25. 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 alon .....

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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 CWT v. Indian Warehousing Industries Ltd. [2004] 269 ITR 203 (Mad), following the principles enunciated by this court judgment reported in K. N.Chari Rubber and Plastics P. Ltd. v. CWT [2003] 260 ITR 164, 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 godo .....

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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 P. Ltd. v. CWT [2003] 260 ITR 164 (Mad) and CWT v. Indian Warehousing Industries Ltd. [2004] 269 ITR 203 (Mad). In the present case, the let out portions are not coming in any of the specified assets. Hence, the earlier judgment reported in CWT v. Fagun Estates P. Ltd. [2005] 272 ITR 472 (Mad) is correctly decided. The remaining judgme .....

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n has leased out the property to the lessee for running banking business, which is not the business activity of the assessee/appellant. Therefore, as held by the Full Bench, assessee/appellant does not fall within the exclusionary clause mentioned in section 40(3)(vi) of the Finance Act, 1983, and, thereby, the assessee is liable to be taxed on the value of the tenanted portion of the building under Section 40 of the Finance Act, 1983. The abovesaid Full Bench decision is squarely applicable to .....

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