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2015 (11) TMI 76 - ITAT KOLKATA

2015 (11) TMI 76 - ITAT KOLKATA - TMI - Guest House - Addition to wealth tax - meaning of Sec.2(ea)(i) - asset - the flat at Chennai was located near the appellant's factory and was used by its employees for accommodation purposes. - reopening of such assessments on the ground that the flat at Chennai was in the nature of guest house and therefore constituted an “Asset” under section 2(ea) of the Act, was only a conclusion arrived at on a change of opinion by the AO and on reexamination of the f .....

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clearly supports the contention raised on behalf of the Assessee. We therefore hold that the flat at Chennai cannot be regarded as “Asset” within the meaning of the Act.

It can be seen from the provisions of the IT Act, that “Accommodation in the nature of a guest house has been given an extended meaning under Explanation to Sec.37(4) and Sec.37(5) of the IT Act. Such extended meaning cannot be applied under the provisions of the Act, especially in the context of Sec.2(ea) of the Act .....

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i, cannot be considered as “Asset” under the Act. - Decided in favour of assessee. - WTA Nos.13-17/Kol/2014 - Dated:- 11-9-2015 - Hon ble Shri N.V.Vasudevan, JM & Shri Waseem Ahmed, AM For the Appellant : Shri D.S.Damle, Advocate For the Respondent : Shri Niloy Baran Som, JCIT, Sr.DR ORDER Per Bench : These are appeals by the Assessee against 5 orders all dated 19.12.2013 of Commissioner of Wealth Tax (Appeals)-XVI, Kolkata relating to AY 2000-01 to 2004-05. 2. These appeals arise under the .....

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hased a Guest House flat at Besant Nagar, Chennai at the cost of ₹ 65,15,014 on 1.3.1999 and the same was sold during the AY 2005-06. On further perusal of the wealth tax records, the WTO noticed that the said Guest House flat was not included in the Wealth Tax returns for the various AYs in question. According to the WTO as per the definition of assets u/s.2(ae)(i) of the Act, any building or land appurtenant thereto used for the purpose of maintaining a guest house is covered in the defi .....

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details of assets owned and held by the Assessee which included the flat owned by the Assessee at Chennai. The wealth tax returns so filed were processed u/s.16(1) of the Act. The reopening of such assessments on the ground that the flat at Chennai was in the nature of guest house and therefore constituted an Asset under section 2(ea) of the Act, was only a conclusion arrived at on a change of opinion by the AO and on reexamination of the facts that were already on record. Therefore it cannot be .....

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cluded that the flat in Chennai was not in the nature of guest house for the purposes of Section 2(ea)(i) of the WT Act, 1957. The appellant submits that the flat was purchased with a view to minimize the costs on boarding & lodging of the employees travelling to Chennai on company's official work. The flat was purchased on pure business considerations and commercial expediency. Had the appellant not purchased transit accommodation for its employees, it would have had to incur humongous .....

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egard is placed on the decision of the Gujarat High Court in the case of CIT vs. Gujarat Industrial Development Corporation (170 CTR 19) wherein the High observed that any accommodation exclusively used by the assessee for the purpose of providing accommodation to its employees during their visit on official tour cannot be considered as a "guest house". The word "guest house" in its ordinary sense is suggestive of any accommodation maintained for extending hospitality to a &# .....

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was not in the nature of "guest house" as alleged by the Wealth-tax Officer. In light of definition given by the High Courts, the flat was a transit accommodation of the appellant for its employees and not a "guest house". Since the said flat does not qualify as guest house for the purposes the wealth tax; the addition of R.s.58,79,800/- made while assessing the net wealth deserves to be deleted in fully. The appellant further submits that the provisions of Section 2(ea)(i) o .....

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residential purposes and which is allotted by a company to an employee or an officer or a director who is in whole time employment, having a gross annual salary of less than five lakh rupees; (2) any house for residential or commercial purposes which forms part of stock in trade; (3) any house which the assessee may occupy for the purposes of any business or profession carried on by him; (4) any residential property that has been let out for a minimum period of three hundred days in the previous .....

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en it is submitted that the WTO does not dispute that the said flat was used in the course and for the purposes of the appellant's business. Accordingly even presuming that the flat at Chennai was a "guest house";then also the said flat fell within the exception provided in sub-clause (3) of Section2(ea)(i)of the Income-tax Act, 1961. The provision of Section 2(ea)(i) includes any building and land apparent thereto used for the purposes of maintaining guest house but if such buildi .....

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ments framed u/s. 143(3) for AYs 2000-01 to 2004-05,the Assessing Officer did not dispute the fact that the flat at Chennai was used by the appellant for its business purpose and therefore allowed the expenditure incurred in relation to the aforesaid property. On the same ground the AO also allowed depreciation u/s. 32 on the cost/WDV of the flat at Chennai. This clearly establishes the fact that the flat at Chennai was used for business purposes and therefore qualified for exemption u/s. 2(ea)( .....

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to the property being occupied and use by the company itself for the purposes of its business, even though no business is actually carried on in such premises and therefore notional annual value cannot be assessed. Relying on the above cited judicial precedents, the appellant submits that the Chennai flat was meant for exclusive use of its employees while on visit to the appellant's factory in Chennai and was occupied by the appellant's employees in the course and for the purposes of the .....

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the CWT(A) did not agree with the aforesaid submissions of the Assessee both on the question of validity of initiation of reassessment proceedings and on the question whether the flat at chennai constituted Asset within the meaning of the Act. The observations of the CWT(A) on the question whether the flat at Chennai constituted an Asset within the meaning of the Act, were as follows: I have duly considered the submissions of the appellant. The facts of the cases mentioned by the appellant in t .....

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mencing on the 1st day of April, 1993, or any subsequent year, means - (i) Any building or land appurtenant thereto (hereinafter referred to as house ), whether used for residential or commercial purposes for the purpose of maintaining a guest house or otherwise including a farm house situated within twenty-five kilometres from local limits of any municipality, Municipal Corporation or by any other name) or a Cantonment Board Therefore, the facts and circumstances that the palatial property loca .....

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the learned counsel for the Assessee who reiterated submissions as were made before the CWT(A). A copy of the judgment of the Hon ble Gujarat High Court was also filed before us. The learned DR relied on the order of the CWT(A) and further placed reliance on the decision of the Hon ble Calcutta High Court in the case of Kesoram Industries and cotton Vs. CIT 191 ITR 518 (Cal) wherein the Hon ble Calcutta High Court took the view (vide para-13 of its judgment) took the view in the context of deduc .....

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by its officers can be regarded as Asset within the meaning of Sec.2(ea)(i) of the Act. The Hon ble Gujarat High Court agreed with the view of the Tribunal that the same had to be regarded as falling within exception clause (3) as well as (5) to Sec.2(ea)(i) of the Act. The following were its relevant observations. Having heard both the sides, we have carefully gone through the orders of the authorities below. It is pertinent to note that the assessee-company is not engaged in the business of le .....

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main purpose of this arrangement was to have close liaison with the Directorate of Petroleum, Department of Energy and Petrochemicals in its day-to-day business liability. The decision of the Hon ble Bombay High Court in the case of Anand Estate Pvt. Ltd. (supra) relied the Ld. D.R. pertained to the assessment years 1997-98 and 1998-99 when clause (5) which was inserted in section 2(ea)(i) of Wealth Tax Act by Finance (No.2) Act, 1998 was not there. In our opinion, this property falls within th .....

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re claimed as specifically exempt from net wealth under section 2(ea)(l)(5) and, as such, value thereof is not includible in the net wealth chargeable to tax under the Wealth tax Act. Therefore, the decision of the Hon ble Bombay High Court in the case of Anand Estate Pvt. Ltd. (supra) relied by the ld. D.R. is not applicable in this case. Apart from this, in the assessment year 2001-02, the Learned Commissioner of Wealth tax (Appeals) assessed the rental income under the head income from busine .....

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l resources were carried out by the assessee is maintained for the purpose of business. Therefore, its value is not includible in net wealth of the assessee for both the assessment years under clause (3) as well as clause (5) of section 2(ea)(i) of the Wealth Tax Act, 1957. The view taken by the Learned Commissioner of Wealth Tax (Appeals) in respect of guest-house is also upheld for both the assessment years. Having heard learned counsel for the Revenue and having perused orders on record, we f .....

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ses were thus used by the Office of the Directorate of petroleum, Department of Energy and Petrochemicals. This was done by the direction of the Government. The main purpose of this arrangement was to have close liaison with the Directorate of Petroleum. It has also come on record that the guest house at Hazira was located at the distance of 30 K.M. from Surat, it was in the vicinity of the exploration site of the assessee. In the said guest house as per the need of the business, the officer of .....

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modation for the senior executives, finance managers, administrative staff and engineers from other units. Thus the flat was used for the purpose of business of the Assessee. The decision of the Hon ble Gujarat High Court clearly supports the contention raised on behalf of the Assessee. We therefore hold that the flat at Chennai cannot be regarded as Asset within the meaning of the Act. 6.3. As far as the decision of the Hon ble Calcutta High Court in the case of Kesoram Industries and Cotton (s .....

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f a guest house (such residential accommodation being hereafter in this sub-section referred to as "guest house"); (ii) in relation to the assessment year commencing on the 1st day of April, 1971, or any subsequent assessment year, no allowance shall be made in respect of depreciation of any building used as a guest house or depreciation of any asset in a guest house: Provided that the aggregate of the expenditure referred to in clause (i) and the amount of any depreciation referred to .....

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of such employees while on leave. Explanation : For the purposes of this sub-section,- (i) residential accommodation in the nature of a guest house shall include accommodation hired or reserved by the assessee in a hotel for a period exceeding one hundred and eighty-two days during the previous year; and (ii) the expenditure incurred on the maintenance of a guest house shall, in a case where the residential accommodation has been hired by the assessee, include also the rent paid in respect of su .....

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