TMI Blog2016 (5) TMI 1056X X X X Extracts X X X X X X X X Extracts X X X X ..... ble asset u/s 2(ea) of the Act - Decided in favor of assessee. Inclusion of jewellery without giving effect to debts owed in relation to jewellery - Held that:- During the year in which Jewellery was owned, 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 - which enables us to safely conclude that the jewelleries have been obtained only out of borrowed funds and hence the same requires to be deducted from the value of jewelleries. - No addition. - Decided in favor of assessee. Valuation of motor Cars - Held that:- 80% of the insurance value of motor car should be considered as the market value in terms of Rule 20 of Schedule III of Wealth Tax Act. - Decided in favor of assessee. - WTA No. 37/Kol/2011 - - - Dated:- 29-4-2016 - Shri Mahavir Singh, Judicial Member And Shri M. Balaganesh, Accountant Member For the Appellant : Shri D.S.Damle, FCA Amit Agarwal, ACA, ld. ARs For the Respondent : Shri Sallong Yaden, Addl. CIT, ld. Sr.DR ORDER Shri M. Balaganesh, AM This appeal of the assessee arises out of the order of the Learned CWT(A)- VI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act. 7. For that on the facts and in the circumstances of the case and in law, the CIT-(Appeals) as well as the AO failed to appreciate that both Jewellery and Motor Vehicle were fully financed out of borrowed funds and in view of Section 3(2) read with Section 2(m), both these assets were not assessable to wealth-tax. 8. For that on the facts and in the circumstances of the case and in law, the CIT-(Appeals) as well as the AO were unjustified in attributing own funds to the extent of 25.70% of the value of jewellery motor car on pro-rata basis, although the appellant had sufficiently established that the assets were financed out of loan funds. 9. For that on the facts and in the circumstances of the case and in law and without prejudice to the Ground Nos. 7 8, the CIT (Appeals) as well as the AO erred in adopting the written down value of motor car instead of the 80% of the insured value of the motor car. 10. For that on the facts and in the circumstances of the case and in law and without prejudice to the Ground Nos. 7 8, the CIT- (Appeals) as well as the AO failed to value the Jewellery in accordance with Rules 18 19 of the Wealth tax Rules ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of regularization charges of ₹ 2,88,433/- on 29.12.2005 and the payment was tendered on the close of December 2005. Once the conditions prescribed in the Provisional Completion Certificate were complied with by end December 2005, the assessee applied to NDMC for issuing the final completion certificate. NDMC granted the final completion certificate on 26.4.2006. On obtaining completion certificate, the assessee also applied for determination of annual value of the property. By an order dated 27.4.2012, NDMC determined the annual value of the subject mentioned property at ₹ 1,80,15,700/-. As per rectification order dated 7.9.2012, the annual value of the said property was revised downwards to ₹ 1,16,83,790/- with effect from FY 2008- 09. It was therefore submitted by the assessee that as on 31.3.2006, the said property was not in the nature of a building and thereby not a taxable asset u/s 2(ea) of the Act. It was argued that the subject mentioned land under construction was not subjected to wealth tax upto Asst Year 2005-06 by the revenue and hence by adopting the principle of consistency, the value of land together with its construction in progress could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... New Delhi. He also found that the Learned AR had not furnished the annual value of said immovable property assessed by the Municipal Authority. 4.3. The Learned AO did not agree with the contentions of the assessee on the aspect of bringing the immovable property within the ambit of taxable asset u/s 2(ea) of the Act. The Learned AO adopted the cost of construction of the said property as its taxable value as per provision of Rule 3 (2nd proviso) of Schedule III to Wealth Tax Act, 1957 by adopting the ratio of own fund in the total assets as worked out below:- Share capital - ₹ 45,24,36,100/- Unsecured loan - ₹ 130,74,54,942/- ---------------------- ₹ 175,94,91,042/- Ratio of own fund = 45,24,36,100 / 175,94,91,042 = 0.257 Value of Land + Building + Electrical Equipments (44,62,40,300 + 36,30,21,796 + 40,81,92,382) = ₹ 121,74,54,478/- Therefore, ratio of own fund in the above value of ₹ 121,74,54,478/- = 0.257*121,74,54,478 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would fall under the ambit of wealth tax has been decided in favour of the revenue by the decision of the Hon ble Apex Court in the case of Giridhar G.Yadalam vs CWT reported in (2016) 65 taxmann.com 148 (SC) dated 24.7.2015. Hence by placing reliance on the said apex court judgement, we dismiss the ground nos. 3,4 5 raised by the assessee. 5.1. We find that the Learned CIT(A) had categorically given his finding that the asset as on valuation date is in the form of a building which is let out. He held that the final completion certificate obtained in April 2006 does not change the character of the asset which has been let out from Jan 2006 onwards. The Learned AO also had treated the subject mentioned asset on the valuation date as building which is let out. Hence the legality of the provisional certificate vis a vis the final completion certificate need not be adjudicated upon herein by us as the same is not in dispute . 5.2. It is not in dispute that the said property was let out to Sri Lakshmi Niwas Mittal from Jan 2006 onwards. It is not in dispute that the assessee had duly offered the rental income from the subject mentioned property from Jan 2006 onwards as its inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the heading Incentives proposed under the Wealth Tax Act , stating that Wealth tax is not levied on productive assets. It is thus clear that the legislature has adopted a logic that wealth tax is not levied on productive assets, and in view of that logic, it was proposed that wealth tax would not be levied on such residential property that has been let out. Therefore, while construing the meaning of sub-clause (4) of section 2(ea)(i) of the Act, it has to be kept in mind that the intention of legislature is that wealth tax is not to be levied on productive assets. 5.4. We find from the memorandum explaining the provisions of Finance (No.2) Bill, 1998, it will be apparent that in the legislature s opinion, the Wealth tax was not to be levied on productive assets as also in the legislative opinion , let out properties were in the nature of productive assets hence did not qualify for being taxed as unproductive assets. However, the legislature intent was to grant exemption only if the residential property was let out for predominant part of the previous year preceding the valuation date and not if property was sparingly let out for residential purposes. In the opinion of the leg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... andum, the subject mentioned immovable property deriving rental income is to be construed as a productive asset and hence no wealth tax could be levied on the same. 5.5. We find that the property was rented from January 2006 to March 2006 after the same was ready to be occupied. As stated earlier, the company received the completion certificate only in the month of April 2006. During the major portion of the assessment year under appeal, the property was under-construction. Accordingly, it was not possible for the assessee to let out the same for a minimum period of 300 days in a year. It is not the case of the revenue that the property was vacant during the aforesaid assessment year. The property has been rented during the entire period from the date from which it was ready to be occupied. The following list of dates and gist would prove the facts better:- 21.11.2005 Date of issuing provisional completion certificate by New Delhi Municipal Council (enclosed in page 21 of paper book) directing the Assessee to fulfill certain conditions. 29.12.2005 Letter by assessee to New Delhi Municipal Council intimating them Of complying with the conditions stipulated vide letter d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with effect from 1.1.2006. By adopting a literal interpretation of the expression let out for a minimum period of 300 days in a previous year , the lower authorities held that in order to avail benefit of exemption provision , it was necessary for the assessee to satisfy the prescribed conditions in the literal sense , as according to them, the express language used by the legislature while enacting clause (4) was capable of being interpreted only in one manner and there was no scope for any intendment while interpreting the exemption provision of the Act. We hold that having regard to the peculiar facts and circumstances of the case involved in the year under appeal (i.e AY 2006-07) , it is necessary to adopt a purposive interpretation or construction of the statute because the literal interpretation leads to result which is manifestly contrary to the legislative intent according to which value of productive asets are not liable for levy of wealth tax. The facts on record shows that the residential building which is considered as an aset u/s 2(ea)(i) by the Learned AO came into existence on 30.12.2005 and as such the property in question was an asset for an overall period of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, it could be appreciated that residential building qualified for exemption u/s 2(ea)(i)(4) of the Act. 5.6. It is a settled legal proposition that words and phrases used in any statute take the colour and character from the context in which they are used. It is worthwhile to remember that words and phrases have not only a meaning but also living content which breathes and so expands and contracts. In interpreting the words of the statute, the setting in which such words are placed may be taken into consideration. Where the language used by the legislature presents a choice of two or more meanings equally tenable, it is admissible within certain limits to have resort to the aid of all extraneous considerations and certainly to the context of the statute itself, in order to discover which meaning is most palpably intended. The legislature have the power to decide what the policy of the law shall be, and if has intimated, that will should be recognized and obeyed. It is accepted proposition that general words cannot be read in isolation, their colour and content must be derived from the context in which used and for such purpose, context includes the mischief which the statute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the object of the statute, the consequences that may follow from strict observance of the particular provision and above all the general scheme of other provisions of which it forms part. In Pepper (Inspector of Taxes) vs Hart reported in (1994) 210 ITR 156 , the House of Lords speaking through Lord Griffiths observed that the days have long passed when the courts adopted a strict constructionist view of interpretation which required them to adopt the literal meaning of the language. The courts now adopt a purposive approach which seeks to give effect to the true purpose of legislation and are prepared to look as much extraneous material that bears upon the background against which legislation was enacted. 5.6.2. What the Parliament means and what it says can be two concepts. The intention of the legislature is all important though what it said may not express what it meant. The intention assimilates two aspects, in one aspect, it covers the meaning - i.e what the words mean , and in another aspect, it conveys purpose and object or the reason or spirit pervading through the statute. The purposive interpretation has now been judicially recognized by the Hon ble Supreme Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with certainty what are the additional words that would have been inserted by the draftsman and approved by the Parliament had their attention been drawn to the omission before the Bill was passed into law. 5.6.3. As the jurisprudence is evolved in the modern times, the courts are now placing more reliance on the purposive interpretation of the statute particularly where it is found by the courts that the literal interpretation or construction of the statute produces manifestly absurd or undesired or unintended result not foreseen by the legislature at the time of framing the law. In this regard, we would like to make to the useful reference made to the observations made by Justice P.N.Bhagwati in the case of K.P.Varghese vs ITO reported in 131 ITR 597 (SC) :- A statutory provision must be so considered, if possible, that absurdity and mischief may 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 court 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rimary object of section 2(ea)(i)(4) of the Act was to exempt a residential building which for pre-dominant part of the previous year was let and only for brief period , the property remained vacant. In the instant case the property itself came into existence during the relevant year and its existence was for period less than 300 days , then application of section 2(ea)(i)(4) of the Act in its existing form becomes unworkable because in such case, the assessee shall be called upon to perform an impossibility to claim the exemption. It could be appreciated that the asset which was taxed u/s 2(ea)(i) of the Act was legally in existence only for a period of 92 days during FY 2005-06. In the circumstances, it was not possible to let the said property for period of at least 300 days in FY 2005-06 so as to qualify for exemption provided in section 2(ea)(i)(4) of the Act. In view of the aforesaid findings and adopting purposive interpretation of the legal provisions of the Act in consonance with the Explanatory Memorandum to Finance (No.2) Bill, 1998 , residential property let out being a productive asset, we deem it fit to grant benefit of exemption envisaged by clause (4) since for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 96/- which was much below the value shown at the time of acquisition by the assessee in the earlier years. The Learned AO considering the market trend regarding the value of the precious metal and precious stones, estimated the value of jewellery by increasing the cost of acquisition by 20% . Accordingly he followed the same ratio of own fund to total funds available which was worked out by him at 25.7% and applied the same on the cost disclosed by assessee at ₹ 4,93,73,084/- and thereafter added a sum of ₹ 98,74,617/- ( 20% of 4,93,73,084/-) and arrived at the taxable jewellery of ₹ 2,25,63,500/-. 6.2. Before the Learned CIT(A), it was argued by the assessee that the Learned AO erred in not recording any reasons for not accepting the valuation and the valuation report given by the assessee from a registered valuer for jewellery. The notional increase of 20% on estimated basis was also objected to before the Learned CIT(A). It was also argued that even assuming that the version of Learned AO is to be taken as correct, then deduction to the extent of loan funds utilized for jewellery which is 74.3% (100-25.7) according to Learned AO should have been reduced from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find that there is no dispute with regard to the quantity of jewellery offered by the assessee in its return vis a vis assessment made thereon. The dispute is only on valuation. We find that the assessee has submitted the valuation report for jewellery as on 31.3.2005 wherein the value of jewellery mentioned therein is much less than the value reported by the assessee in the return of wealth. We find that since the assessee had placed reliance on Rule 19 of Schedule III of Wealth Tax Act wherein the valuation report once obtained would hold good for subsequent four assessment years and accordingly the assessee not obtaining separate valuation report as on 31.3.2006 relevant to asst year 2006-07 (asst year under appeal) is justified and the argument of the Learned AO in this regard is rejected. 6.4.1. It was further stated that from the list of jewelleries, predominant portion pertains only to diamonds. We find that the assessee also submitted the valuation report from the same registered valuer as on 31.3.2006 before the Learned CITA who valued the same at ₹ 4,18,14,417/- which was also much below the cost of acquisition of the assessee. The assessee explained before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les us to safely conclude that the jewelleries have been obtained only out of borrowed funds and hence the same requires to be deducted from the value of jewelleries. Hence in any case, there cannot be any addition towards jewellery as a taxable asset u/s 2(ea) of the Act. Accordingly, the ground raised by the assesseee with regard to the issue of jewellery is allowed. 7. The next issue to be decided in this appeal is as to whether the valuation of motor vehicle made by the Learned AO and without giving effect to debts owed in relation to motor vehicle could be brought to wealth tax in the facts and circumstances of the case. 7.1. The brief facts of this issue are that the assessee disclosed the value of Mercedes Benz in the return of wealth and claimed the corresponding liability attributed to it. The Learned AO adopted the value of vehicle at the book profit of ₹ 66,63,177/- and added the same to the net wealth. On first appeal, the assessee submitted that the motor car was funded out of loan funds which requires to be deducted from the asset. It was argued that the Learned AO should have considered 80% of the insured value of the motor car as the value for the purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s justified in adopting the book written down values of cars as the assessable value of the cars. During the course of hearing before us, we have take due note of this observation of Ld CIT(A) because a known decision of Samarth Knitters Pvt. Ltd., 60 ITD 657 is related to the issue wherein the respected co-ordinate bench has held that the market value of motor car could be estimated at 80% of the value as adopted for insurance purpose. When this position of stand as taken by the respected co-ordinate bench was addressed to the Ld. A.R., then he has requested to give the necessary direction, so that the correct value of the vehicles can be determined. From the side of the revenue, Ld. D.R. also had no reservation against this proposition. We have considered their submissions, however, for the sake of ready reference, hereby reproduce the relevant portion from the head-notes of the decision of Samarth Knitters Pvt. Ltd., 60 ITD 657 as follows: Rule 14 of Schedule III applies only in the case when a global valuation of the assets of the business as a whole are to be computed, whereas in the instant case only the motor cars were subjected to wealth-tax and wereunder valuation a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordance with the provision of this Schedule as applicable to that particular asset has to be given a meaning as provisions other than as provided under clause(a) to rule 14(2). The difference between the written down value and the insurance value being more than 20 per cent of the higher value was to be adopted as the value of the asset. The value of motor cars for the purposes of insurance is adopted after taking into consideration market value of the motor cars. It is true that the value may not be determinative of the fact that the insurance is done for other things as well, but the basic premium is determined for the damage of the car, the value of which is taken on the basis of market trends. In these circumstances, the value of motor cars shown in their insurance policy was rightly taken as the basis for determining the market value. However, looking to the fact that the insurance company would also take other things into consideration in arriving at a particular value for the purposes of insurance, market value of motor cars could be reasonably estimated at 80 per cent of their insurance value. So, in the interest of justice, we refer this issue back to the sta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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