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TMI Blog2016 (5) TMI 1056X X X X Extracts X X X X X X X X Extracts X X X X ..... rded for reopening of assessment and in that view of the matter the assessment framed u/s 17/16(3) was bad in law and deserves to be quashed. 3. For that on the facts and in the circumstances of the case and in law, the CIT-(Appeals) as well as the AO erred in holding that the immovable property at New Delhi qualified as an 'asset' within the meaning of Section 2(ea)(i) of the W.T. Act, 1957. 4. For that on the facts and in the circumstances of the case and in law, the CIT-(Appeals) and well as the AO failed to appreciate that the completion certificate in respect of the immovable property at New Delhi was issued by the Municipal Corporation in the subsequent to the valuation date i.e. 31.03.2006 and therefore the property in question was not "House Property" as defined in Section 2(ea)(i) of the W.T. Act, 1957 and hence not chargeable to wealth tax. 5. For that on the facts and in the circumstances of the case and in law, the Department having accepted till AY 2005-06 that the property at New Delhi was not a residential property within the meaning of Section 2(ea)(i) and on that basis not having brought to wealth-tax the said property, the AO was unjustified in la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the immovable property situated at Aurangazeb Road, New Delhi would fall within the ambit of taxable assets u/s 2(ea) of the Act in the facts and circumstances of the case. 4.1. The brief facts of this issue is that the assessee is engaged in the business of construction and development of property. The assessee purchased an immovable property at No. 22, Aurangazeb Road, New Delhi in July 2000. Since the building, then existing was old, the assessee obtained sanction plan from New Delhi Municipal Corporation (NDMC) for construction of a new residential building. After the permission was obtained for construction of new building, the old structure was demolished and a new residential building was constructed. The construction of new building was in progress till F.Y. 2005-06. Since the contruction of the building was not completed till 31.3.2005, the Learned AO did not initiate any wealth tax assessment proceedings against the assessee for assessing the value of building and land appurtenant thereto till Asst Year 2005-06. The construction of the new building was completed and the architect of the building certified the newly constructed building to be complete after March 2005. O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive compliance to the provisions contemplated in exceptions to section 2(ea) of the Act and even on that count, the assessee should not be invited with the levy of wealth tax on immovable property. Without prejudice to the above, it was further claimed that the assessee had made huge borrowings for the purpose of construction of the said property and hence the same requires to be allowed as deduction while computing the net wealth, if any. 4.2. The Learned AO doubted the sheer existence of the tenancy agreement entered into by the assessee on the ground that the tenant Sri Lakshmi Niwas Mittal had virtually arranged the entire funds for the construction of the said property by way of personal investments from him and his wife and from overseas companies controlled by him in 0% optionally convertible debentures in the assessee company. Moreover, the Learned AO observed that the entire rentals of Rs. 18,00,000/- was not received by the assessee prior to 31.3.2006 and it was remaining as receivable in the balance sheet of the assessee. He further observed that the 'Rent Agreement' was executed by the assessee on a plain paper signed purportedly by one director of the sasessee company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that the assessee had total borrowings as on 31.3.2006 amounting to Rs. 130,70,54,942/- which if deducted would only result in negative net wealth u/s 2(m) of the Act. 4.5. The Learned DR argued that it is not in dispute that the subject mentioned asset as on the valuation date is a residential building which has been let out to Sri Lakshmi Niwas Mittal. But the letting out has been done only from 1.1.2006 by the assessee and hence the same is let out for less than 300 days and thereby the assessee is not eligible for exemption u/s 2(ea)(i)(4) of the Act. He argued that the purposive construction rule need not be applied in a taxing statute which needs to be viewed strictly. 5. We have heard the rival submissions and perused the materials available on record. We find that the first argument of the Learned AR is that the building was under construction and final approval was obtained only in the month of April 2006 and hence as on the valuation date, the asset still remains as 'building under construction' and on such asset, no wealth tax has been levied by the Learned AO in the earlier assessment years and accordingly, following the principles of consistency, he prayed for no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de a house for residential purpose which forms part of the stock in trade." Accordingly, effective from AY 1993-94, the productive assets did not come within the charging provisions of the WT Act. However, as per the provisions enacted by the Finance Act 1992 "residential houses" came within the charging provisiosn of the Act because in the opinion of the legislature all residential and commercial properties did not qualify for exemption. Later on the legislature realized that the exemption provided in section 2(ea)(i) of the Act was inadequate because the let out residential properties which produced income were being unfairly taxed, on the footing that they are 'unproductive assets'. The legislature appreciated that investment in residential property which is let out for residential purpose is a productive asset and therefore entitled for exemption from the charge of wealth tax. Accordignly in the Finance (No.2) Act, 1998, amendment was made in section 2(ea)(i) of the Act by enacting clause (4) which provided that any residential property which was let out for a period of atleast 300 days in a year shall not be included in the definition of 'assets'. The rationale for granting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry 2006, the property was let out by the assessee for residential purposes and since then the property is being continuously used for residential purposes. Moreover, the taxability of assets u/s 2(ea) of the Act is determined based on the status of the asset remaining as on the valuation date. Hence the crucial test is what is the nature of the asset as on the valuation date i.e whether it is a productive asset or unproductive asset. It is not in dispute that the property continued to be let out to the same tenant (i.e Shri Lakshmi Niwas Mittal) in the subsequent years as well. It was argued that barring AY 2006-07, the revenue accepted that in all the subsequent years , the assessee qualified for exemption provided in section 2(ea)(i)(4) of the Act on the premise that the property in question was productive one and it was let out for more than 300 days in a year. It is not in dispute that the Learned AO had treated the subject mentioned property as a residential property which has been let out for a monthly rent of Rs. 5 lacs plus service charges of Rs. 1 lakh per month. As on the valuation date, the asset is in the nature of residential property yielding rental income thereby mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... low. I hereby certify that the building has been completed in accordance with the Completion Plans sanctioned vide Chairperson's order dt. 21.11.2005, by the New Delhi Municipal Council and is fit for use for which it has been erected. DESCRIPTION OF BUILDING Plot No. : 22 Location : Aurangzeb Road, New Delhi. Type or Building : Residential Building (Ground Floor + First Floor) One Dwelling unit Sd/- (SANJIB SENGUPTA) CHIEF ARCHITECT Sd/- (RAJEEV SOOD) (Architect) Copy of the above is forwarded to Sh. S.K. Sharda, Director. Gentex Merchants Pvt , Ltd. 22, Aurangzeb Road, New Delhi. COMPLETION CERTIF1CATE APPROVED VIDE CHAIRPERSON'S ORDER DTD. 21.11.2005". From the above, it could be noticed that the provisional completion certificate issued vide chairperson's order dated 21.11.2005 have been converted into final completion certificate by New Delhi Municipal Council on fulfillment of necessary conditions by the assessee. It is not in dispute that the stipulated conditions were satisfied by the assessee on 29.12.2005. Immediately thereafter (ie immediately after the property was made available to the assessee for rental purposes), the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im. When the obligation is one implied by law, the impossibility of performance is a good excuse, say, 'ImpotentialExcusantLegem'. It was further argued that even under the Contract Act dealing with private rights and obligation of a party to the agreement, the contract is deemed to be void on account of impossibility of performance (section 56). The law regards the order and course of nature and will not force a man to demand that which he cannot recover. The law will not itself attempt to do an act which would be vain - LEX NIL FRUSTA FACIT - nor enforce on which would be frivolous - LEX NEMIN COGIT AD VADA SEU INUTILIA - the law will not force any one to do a thing vain and fruitless. It was argued that if the property is let out for more than 82% (300 days / 365 days) of the total period , then it qualifies for exemption. In the present case, as the construction of the property was completed and made available for letting out on 30.12.2005 and immediately with effect from 1.1.2006 it was let out, it has to be construed that effectively the assessee had let out for 99% of the period available and hence eligible for exemption u/s 2(ea)(i)(4) of the Act. Hence if the 'purpose' tes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h extra ordinary results which cannot have been intended by the legislature, court then have to move on to a second stage in which it re-examines the word. In case the court is faced with two possible construction of the legislative lanuage, it has to look to the results of adopting each of the alternatives respectively for the purposes of upholding the true intention of the legislature. Such examination has to be done if - (i) the statute leads to absurdity, hardship or injustice presumably not intended or where the language of the statute in its ordinary and grammatical construction leads to manifest contradiction of the apparent purpose of the enactment or (ii) gives rise to inconsistency. 5.6.1. The construction which promotes the objectives for which the enactment is intended must be adopted. The court's interpretation must be in keeping with the purpose for which the legislation is made. The court should not always cling to the literalness, but it should seek to avoid an unjust and absurd result and to make sense out of an unhappily worded provision. It is held that where the purpose is apparent to the judicial eye, some violence to the language is permissible. The court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... produce an unreasonable result is not to be imputed to a statute if there is some other construction available. Where to apply words literally would defeat the obvious intention of the legislation and produce a wholly unreasonable result, then courts must do some violence to the words so as to achieve the obvious intention and produce a rationale construction. The purpose of interpretation is to discover the intention of the legislation if such intention is not made clear from the language expressly used. The court adopts purposive construction where applying the literal meaning of the legislative language used would lead to a result which clearly defeats the purpose of the Act. However, while doing so, three conditions must be fulfilled in order to justify the recourse:- - First, it is possible to determine from a consideration of the provisions of the Act read as a whole precisely what the mischief is, that it is the purpose of the Act to remedy ; - Secondly, it is apparent that the draftsman and Parliament had by inadvertence overlooked, and so omitted to deal with, an eventuality that required to be dealt with, if the purpose of the Act is to be achieved ; - Thirdly, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e this involves reading into the Act words which are not expressly included in it. [Kammins Ballroom Co. Ltd v. Zenith Investments (Torquay) Ltd, 1971 AC 850] provides an instance of this; but in that case the three conditions that must be fulfilled in order to justify this course were satisfied. First, it was possible to determine from a consideration of the provisions of the Act read as a whole precisely what the mischief was that it was the purpose of the Act to remedy, secondly, it was apparent that the draftsman and Parliament had by inadvertence overlooked, and so omitted to deal with, an eventuality that required to be dealt with if the purpose of the Act was to be achieved; and thirdly, it was possible to state with certainty what were the additional words that would have been inserted by the draftsman and approved by Parliament had their attention been drawn to the omission before the Bill passed into law. Unless this third condition is fulfilled any attempt by a court of justice to repair the omission in the Act cannot be justified as an exercise of its jurisdiction to determine what is the meaning of a written law which Parliament has passed." 5.6.5. We find that the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and findings given therein and relevant legal maxims quoted hereinabove, we hold that the subject mentioned property which has been let out would not fall within the ambit of taxable asset u/s 2(ea) of the Act and accordingly the ground no. 6 raised by the assessee is allowed. Since the taxability of building let out is decided at threshold level itself, the aspect of granting deduction towards debts owed in relation to the asset is not decided herein as it becomes academic. 6. The next issue to be decided in this appeal is as to whether the valuation of jewellery made by the Learned AO and without giving effect to debts owed in relation to jewellery could be brought to wealth tax in the facts and circumstances of the case 6.1. The brief facts of this issue are that the assessee disclosed the value of jewellery at Rs. 4,93,73,084/- and claimed the corresponding liability attributed to it in the return of wealth. During the course of assessment proceedings, the assessee submitted that the jewelleries were acquired in the earlier years and also submitted a valuation report from the Registered Valuer as on 31.3.2005 showing total value of Rs. 4,05,25,396/- which was much belo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment year under appeal (i.e Asst year 2006-07). It was further stated that from the list of jewelleries, predominant portion pertains only to diamonds. The assessee also submitted the valuation report from the same registered valuer as on 31.3.2006 before the Learned CIT(A) who valued the same at Rs. 4,18,14,417/- which was also much below the cost of acquisition of the assessee. The assessee explained before the Learned CIT(A) that though the price of gold has increased over the years, the value of diamonds comprising of stones generally depreciates over the years. It was further argued that the entire amount of jewellery has been funded out of borrowed funds and hence in any account, no addition could be made towards jewellery under the provisions of the Act. The Learned CIT(A) did not appreciate the aforesaid contentions of the assessee and upheld the addition made by the Learned AO. 6.3. Both the Learned AR and Learned DR reiterated the submissions made before the lower authorities. 6.4. We have heard the rival submissions and perused the materials available on record including the paper book filed by the assessee. We find that there is no dispute with regard to the quan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and without pointing out any discrepancies in the valuation report submitted by the assessee which is obtained from a registered valuer , no addition could be made by the Learned AO with regard to jewellery. 6.4.2. It is not in dispute that the jewelleries were obtained in Asst Year 2003-04 to the tune of Rs. 1,30,46,000/- and Asst Year 2004-05 to the tune of Rs. 3,63,27,084/-. Correspondingly we find that there was no increase in share capital and reserves and surplus during those relevant assessment years. On the contrary, we find that the loan funds have increased by Rs. 3,72,25,114/- and Rs. 40,73,83,100/- for the Asst Years 2003-04 and 2004-05 respectively. During the Asst Year 2006-07, there was no introduction of share capital and reserves and surplus had decreased by Rs. 6,87,79,798/- and loan funds have increased by Rs. 26,97,32,542/-. These details are available at page 45 of the paper book. We find that the borrowed funds had increased from Asst Years 2003-04 to 2004-05 (i.e the years in which jewelleries were acquired) and remained so in the assessment year under appeal , which enables us to safely conclude that the jewelleries have been obtained only out of borrowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the asset. We find that this argument of the Learned AR is squarely covered by the decision of the coordinate bench of Pune Tribunal in the case of Thermax Ltd vs DCWT reported in (2008) 110 ITD 591 (Pune) dated 14.12.2006 wherein it was held that :- "9. Submissions of both the sides have been heard. Orders of the authorities below perused. Facts as narrated above are not in dispute that the A.O. has adopted the value of the vehicles as shown in the books of accounts of the assessee, however, on the other hand, the assessee has claimed that the value of the car should be the WDV allowed under I.T. Act. It has been clarified during the course of hearing, that the assessee has adopted lesser rate of depreciation in the books of accounts and due to that reason, the WDV of the vehicles was towards higher side than the WDV as calculated under I.T. Act in the income tax assessment records. Under such a situation, an important observation of Ld CWT(A) is very relevant because he has categorically mentioned that quote "in the absence of insurance value of cars, in my opinion the A.O was justified in adopting the book written down values of cars as the assessable value of the cars." D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining value of a particular asset like rules provided in rules 3 to 8 for valuing the immovable property, rules 9 to 30 providing for valuation of shares and debentures, rule 17 providing for valuation of life interest and rules 18 and 19 providing for valuation of jewellery. In absence of any specific rule for valuation of motor car, the Assessing Officer has to resort to rule 20 only. The rule 20 provides for valuation of an asset to be the price which in the opinion of Assessing Officer it would fetch if sold in the open market on the valuation date, that is, its market value. To accept the contention of the assessee would be to make the provisions of clause(b) to rule 14 redundant as it could never have application under any circumstances. Reason being the Clause (b) comes into operation only when a property is subject-matter of valuation under clause(a) to rule 14(2). The value arrived at under Clause (a) is to be compared with some other value and that is the value to be determined either in accordance with the provisions of rule 20. Therefore, the words 'determined in accordance with the provision of this Schedule as applicable to that particular asset has to be given a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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