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2016 (1) TMI 976 - ITAT HYDERABAD

2016 (1) TMI 976 - ITAT HYDERABAD - TMI - Inclusion of rented premises into wealth tax assessment - revenue yielding asset - power of revision u/s 25 of the CIT - Held that:- section 2(ea)(i) nowhere requires that a commercial establishment or a complex could not be established in a house property but only provides that any property in the nature of commercial establishment or complex shall be excluded from deemed asset as defined in clause 1 of section 2(ea). Further, it nowhere provides that o .....

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ined the nature of the property in detail as extracted above. Therefore, it can be safely concluded that the AO formed an opinion in not bringing the property to tax and the same cannot be substituted by the CIT in the proceedings u/s 25(2) of the Act - Decided in favor of assessee. - WTA Nos. 2 & 3 /Hyd/2015 - Dated:- 22-1-2016 - Smt. P. Madhavi Devi, Judicial Member And Shri B. Ramakotaiah, Accountant Member For the Petitioner : Shri Mohd. Afzal For the Respondent : Smt. Mythili Rani ORDER Per .....

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is on account of financial difficulties of the company, which has taken complete attention of the Executive Director, who could not prefer the appeal at the relevant point of time. It was explained that assessee company s turnover has come down from above 20 crores to ₹ 2.7 crores and due to financial difficulties there was pileup of salaries and electricity bills etc. The Recovery Officer of EPF Organization issued a show cause notice and in the month of March 15, the PF authorities visi .....

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nt of the company appeared for the proceedings of AY 2012- 13 and came to know about the order. Immediately steps were taken to file the appeal. It was submitted that the delay is not an intentional one and not with a contumacious conduct. 2.1 After considering the detailed submissions of the learned counsel for the assessee and objections raised by the ld. DR, we are of the opinion that the assessee has sufficient reasons why the appeal could not be filed in time. Considering the facts as state .....

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assessee on 27/03/2013. 4. Thereafter, ld. CIT-II, issued notices u/s 25 of the WT Act assuming that the AO has omitted to consider the value of the property leased to M/s BHEL Gas Turbine Services (P) Ltd. for the purpose of WT and initiated proceedings u/s 25 considering that the orders of the AO as erroneous and prejudicial to the interests of revenue. 5. Consequent to the show cause notice, it was submitted by the assessee that the property which is leased to M/s BHEL Gas Turbine Services (P .....

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ingly, ld. CIT set aside the order of the AO and directed to consider the value of the building/property for the purpose of WT. His finding in para 5 of his order is as under: 5. The explanation filed by the AR of the assessee is examined and the explanation is not accepted. The argument of the AR that the lease property is a commercial establishment which is not in the purview of the asset is not correct. During the year, the assessee leased out the property to another company on lease basis an .....

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it is decided that the building leased out to M/s BHEL Gas Turbine Pvt. Ltd. is treated as wealth considered for the purpose of wealth tax. Further reference is also made to ITAT, Mumbai Bench - Bernhard Shulte Shipping India (P) Ltd. wherein it was clearly held that if the assessee is not in the business of letting out of properties, premises let out for business purposes are taxable under the Wealth Tax Act. 6. The ld. counsel for the assessee submitted that the case law relied on by the reven .....

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d prejudicial to the interests of revenue, it was submitted that the AO has issued a show cause letter dated 29/05/12 specifically seeking the details of building leased to M/s BHEL Gas Turbine Services (P) Ltd. and the amount offered to WT u/s 2(ea). The assessee vide reply letters dated 25/03/13 filed respectively for both the years, has explained as under: In respect of property in survey No.587[part] and 588[part] admeasuring Acres 304 Guntas toqether with structures standing thereon, situat .....

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d building and plant, machinery and other fittings. The income was admitted as business income for the all assessment years and accepted. Therefore, this property cannot be a asset as defined in section 2[ea] of the VVT Act. At the most this is a commercial establishment. Therefore, not liable for WT Act. It was submitted that after the explanation was given, the AO has accepted the same and did not make any addition, which shows that he has applied his mind, therefore, the CIT is prevented by t .....

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ial Co. Ltd. Vs. CIT, 234 ITR 83 (SC) to submit that CIT cannot substitute his opinion on an issue in the proceedings u/s 25 of the Act. Since the provisions of section 25 WT Act are in paripassu to the provisions of section 263 of IT Act, therefore, these principles will equally apply to the facts of the case. The ld. counsel further on merits submitted that the property is commercial property and incomes of which were offered and accepted as business and is revenue yielding asset. Consequently .....

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n which buildings were constructed as per the specifications of the lessee and leased out to M/s BHEL Gas Turbine Services Pvt. Ltd. for the purpose of running service centre. It is also a fact that assessee is offering the income as business income and the same is also accepted in all the years, except AY 2007-08. In that year also, the AO treated the same as income from house property , but, on appeal assessee s contentions were accepted and therefore there is no dispute on the fact that incom .....

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under s. 2(ea) along with the amendments made from time to time therein. The definition of assets in relation to assessment year commencing from the 1st day of April, 1993 or any subsequent assessment year before the same was substituted by Finance (No. 2) Act, 1996 w.e.f. 1st April, 1997, stood as under : "(ea) assets , in relation to the assessment year commencing, on the 1st day of April, 1993, or any subsequent assessment year, means- (i) any guest-house and any residential house (inclu .....

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rupees; (2) any house for residential purposes which forms part of stock-in-trade. (ii).............." 14. The aforesaid cl. (i) of sub-s. (ea) of s. 2 of the WT Act was substituted by the following cl. (i) by the Finance (No. 2) Act of 1996 with effect from 1st April, 1997 : "(i) any building or land appurtenant thereto (hereinafter referred to as house ), whether used for residential or commercial purposes or for the purpose of maintaining a guest-house or otherwise including a farmh .....

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ock-in-trade; (3) any house which the assessee may occupy for the purposes of any business or profession carried on by him;" 15. The aforesaid cl. (i) substituted by the Finance (No. 2) Act, 1996 w.e.f. 1st April, 1997 has been further substituted by the Finance (No. 2) Act, 1998, w.e.f. 1st April, 1999, which reads as under : "(ea) assets , in relation to the assessment year commencing on the 1st day of April, 1993, or any subsequent assessment year, means- (i) any building or land ap .....

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ficer 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 year; (5) any property in the nature of commercial establishments or complexe .....

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perties like commercial complexes under the WT Act was provided [see para 100 of Finance Minister s Speech reported at (1998) 147 CTR (St) 28 : (1998) 231 ITR (St) 69]. In the Notes on Clauses on Finance Bill No. 2, 1998, it is stated that cl. 69 of the Finance Bill No. 2, 1998, seeks to amend s. 2 of the WT Act relating to definitions. Sub-cl. (b) of cl. (69) seeks to amend sub-s. (ea) of s. 2 of the WT Act relating to the definition of assets for the purpose of wealth-tax. Vide this clause, it .....

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000 and subsequent years. In the memorandum explaining the provisions in the Finance No. 2 Bill, 1998 under the head "Incentives proposed under the WT Act", it is clarified that wealth-tax is not levied on productive assets. In view of this logic, it is proposed that wealth-tax would also not be levied on such residential properties that have been let out for a period of a minimum of three hundred days in a year, and, it is also proposed to exempt commercial establishments and complexe .....

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98 w.e.f. 1st April, 1989, the intention of the legislature that wealth-tax is not to be levied on productive assets is to be kept in mind. 17. On reading of the main enacting provision of cl. (i) of sub-s. (ea) of s. 2, as substituted by the Finance (No. 2) Act, 1996 w.e.f. 1st April, 1997 and by the Finance Act, 1998 w.e.f. 1st April, 1999, it is clear that any building or land appurtenant thereto whether used for residential or commercial purposes falls within the meaning of "assets" .....

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ial or commercial purposes, may not come within the definition of "asset" as defined under cl. (i) of sub-s. (ea) of s. 2 of the WT Act if any one of them is found to be covered by cls. (1) to (5) below s. 2(ea)(i) of the Act. Sub-cls. (1) to (5) qualify the generality of the main enactment by providing an exception and taking out from the main provision a portion which but for the exception provided in sub-cls. (1) to (5) would be the part of the main provision. The properties or the .....

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, we, therefore, do not find any conflict between the main enactment of cl. (i) and the exceptions provided in sub-cls. (1) to (5) thereto. In the light of the main enactment provided in cl. (i) and the exception provided thereto by way of excluding the properties or the houses enumerated in the sub-cls. (1) to (5) from the main enactment, the intention of the legislature becomes clear that the legislature did not intend to bring all buildings or land appurtenant thereto whether used for residen .....

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d by the Finance (No. 2) Act, 1998 w.e.f. 1st April, 1999. The assessment years involved in these appeals are asst. yrs. 1999-2000 to 2002-03, and, as such, we are concerned with the definition of assets as substituted by Finance (No. 2) Act, 1998 w.e.f. 1st April, 1999. In the light of the aforesaid definition of "assets" as it stood from time to time, any house which the assessee may occupy for the purposes of any business or profession carried on by him was not excluded from the pur .....

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s or profession carried on by him shall not be included within the definition of the "assets". It is further clear that only that house which the assessee may occupy for the purpose of any business or profession carried on by him is only excluded from the "asset" vide sub-cl. (3) below cl. (i) of sub-s. (ea) of s. 2 of the Act. Therefore, in order to claim benefit of this clause, the assessee has to prove that the house was being occupied by him for the purpose of any busines .....

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on carried on by him, would be covered by this sub-clause. In order to bring the case to be covered by this item, the only requirement is to prove that the house was occupied by the assessee for the purpose of any business or profession carried on by him. The nature of the house is not material. What is material is that the house must be occupied by the assessee for the purpose of any business or profession carried on by him. Thus, any house being not occupied by the assessee for the purpose of .....

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r profession carried on by him as in the case covered by sub-cl. (3). Here, the nature and purpose of use of the property is material irrespective of the fact whether it is used or occupied either by the assessee himself or anybody else for the purpose of any business or profession carried on by them, as the case may be. 20. Sub-cl. (5) below cl. (i) of sub-s. (ea) of s. 2 of the WT Act reads as under : Impact Metals Ltd. "(5) any property in the nature of commercial establishments or compl .....

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n the nature of commercial establishments or complexes. In this sub-cl. (5), "complexes or establishments" are qualified with an adjective commercial establishment or complex, therefore, must be of a commercial in nature. The word commercial means something which is used in or related to, a business or a trade. Commercial means relating to or engaged in or used for commerce. The word establishment means an organization, building, construction, shop, store, concern or corporation. Thus, .....

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ommercial establishment, it is not necessary that it should be composed of or made of interrelated parts. In the case of a property in the nature of commercial establishment, it is not necessary that it should be also in the nature of commercial complex. The legislature has excluded both commercial establishment as well as commercial complexes from the definition of "asset" for the purpose of chargeability to tax under the WT Act. Therefore, for the purpose of sub-cl. (5) of cl. (i) of .....

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mmercial property and the same must also be used for the purpose of trade or business and nothing else. In this sense of the term, we may, therefore, say that if any property though used for commercial purposes, but is not in the nature of commercial property, the same would not fall within the term commercial establishment or complex used in sub-cl. (5) below cl. (i) of sub-s. (ea) of s. 2 of the WT Act. Having regard to the object and purpose of the said cl. (i) with exception thereto, any bui .....

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ss or trade and nothing else. 21. However, from the reading of the main provision contained in sub-cl. (i) of sub-s. (ea) of s. 2, which is appended above, it is clear that any building or land appurtenant thereto used for commercial purposes also comes within the definition of asset, subject to the items excluded, vide sub-cls. (1) to (5) thereto. In the main principal portion of cl. (i), the word used is "any building or land appurtenant thereto whether used for residential or commercial .....

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ctually used for the purpose of any business or trade carried on in those commercial establishments or complexes. This would mean that any house, which is not by its very nature in the nature of commercial establishment or complex, but is occupied for the purpose of any business or profession carried on, not by the assessee but by somebody else, shall be included in the definition of "asset" as would be clear from reading together the main provisions contained in cl. (i) together with .....

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thin the ambit of commercial establishment or complex unless it is also established and proved that the said building by its very nature is in the nature of commercial establishment or complex. The correct meaning of sub-cl. (5) would thus be that any property which is merely used for commercial purposes would not by itself be sufficient enough to classify the same as commercial establishment or commercial complex unless it is also proved and established that the property by its very nature is a .....

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to the building used for commercial purposes as under : (1) That any building or land appurtenant thereto used for commercial purposes shall not be excluded from the "asset" as defined under sub-s. (ea) of s. 2 of the WT Act, unless (i) any house is occupied by the assessee for the purpose of any business or profession carried on by him [sub-cl. (3)], or (ii) the property by its very nature is in the nature of commercial establishment or commercial complex, being used in a business or .....

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Further, any property which satisfies the criteria of its being in the nature of commercial establishment or complex and also used in a business or trade carried thereon shall be covered by sub-cl. (5) below s. 2(ea)(i) of the Act. Furthermore, any house used for commercial purposes forming part of stock-in-trade also stand excluded from the purview of asset vide exception provided in sub-clause below s. 2(ea)(i) of the Act. In this sense, we may, therefore, state that merely because of the fac .....

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siness or trade carried thereon. In view of the detailed analysis of the provisions as above, we are of the opinion that the commercial building leased out by the assessee gets exemption under sub-clause 5 of the provision to section 2(ea)(i). 10. Not only that the Hon ble Gujarat High Court in the case of CIT Vs. Vasumati ben Chhaganlal Virani (supra) also held that section 2(ea)(i) nowhere requires that a commercial establishment or a complex could not be established in a house property but on .....

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