ORDER
T.N.C. Rangarajan, Vice President
1. These appeals relate to the assessment of a multi-storied building belonging to the assessee-company. The property is at No. 26, Commander-in-Chief Road, Madras, consisting of a land of an extent of 26.65 grounds with a six storeyed building on a built-up area of 469 Sq. Mtrs. There is also another old building of 818 Sq. Mtrs at the back. Of the total area of 26.65 grounds, an extent of 10.52 grounds has been taken as land appurtenant to the main building and the balance of 16.3 grounds was treated as vacant land. The Wealth-tax Officer excluded part of the main building occupied by the assessee for its own business and assessed the rest of the property to wealth-tax. He rejected the claim of the assessee that the entire building must be exempted as a building used in the business of the assessee. The assessee appealed and reiterated this objection which was rejected by the CIT (Appeals) also.
2. In the further appeal before us it was contended on behalf of the assessee that under Section 40 of the Finance Act, 1983, an office building held by the assessee for the purpose of its business was exempt and since the assessee was holding this property only for the purpose of its business by earning income therefrom, it should be exempted. It was pointed out that the articles of association specifically provided the holding of property and leasing of the same as part of the business and that income was shown as income from business in the profit and loss account even though bifurcated and assessed partly under the head ‘Income from Property’. It was further pointed out that the assessee was also providing services and amenities for which the assessee was receiving fees and this activity was recognised by the Supreme Court as business in the case of Karnani Properties Ltd. v. CIT [1971] 82 ITR 547. It was submitted that in the circumstances, the entire property should be exempted from taxation. In the alternative it was submitted that there should be an exclusion of the land beneath the old building which had been inadvertently included as part of the vacant land for valuation.
3. On the other hand it was contended on behalf of the Revenue that the assessee was deriving income only as owner of the property and therefore, the rent was assessed as income from property. It was submitted that other services supposed to be rendered by the assessee did not make it a business of the assessee. It was also argued that the expression ‘for the purposes of its business’ indicated that the building must be used for the assessee’s own business and the buildings which are let out to others for carrying on their business would not qualify for exemption. It was also argued that the section had listed out various buildings such as Factory, Godown etc., which may be exempt even if they were not used as part of the assessee’s business and since the section was exhaustive, the assessee could not get any exemption in respect of a building not listed in the section.
4. We have considered the submissions of both sides and we have considered the back-ground to Section 40 of the Finance Act, 1983. Originally, the Wealth-tax Act imposed a charge on assets belonging to companies which was suspended by Finance Act, 1960. In his budget speech, the Finance Minister stated :
It has come to my notice that some persons have been trying to avoid personal wealth-tax liability by forming closely-held companies to which they transfer many items of their wealth, particularly jewellery, bullion and real estate. As companies are not chargeable to wealth-tax and the value of the shares of such companies does not also reflect the real worth of the assets of the company, those who hold such unproductive assets in closely-held companies are able to successfully reduce their wealth-tax liability to a substantial extent. With a view to circumventing tax avoidance by such persons, I propose to revive the levy of wealth- tax in a limited way in the case of closely-held companies….
Section 40 of the Finance Act, 1983 revived in a limited way the levy of wealth-tax on companies. The section reads as follows :
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 of 1960), relating to exemption of companies from levy of wealth-tax under the Wealth-tax Act, 1957 (27 of 1957) (hereinafter referred to as the Wealth-tax Act), wealth-tax shall be charged under the Wealth-tax Act for every assessment year commencing on and from 1-4-1984, in respect of the net wealth on the corresponding valuation date of every company, not being a company in which the public are substantially interested, at the rate of two per cent of such net wealth.
Explanation: 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 company on the valuation date which are secured on, or which have been incurred in relation to the said assets :
Provided that where any debt secured on any asset belonging to the assessee is incurred for, or enures to, the benefit of any other person, of is not represented by any asset belonging to the assessee, the value of such debt shall not be taken into account in computing the net wealth of the assessee.
(3) The assets referred to in Sub-section (2) shall be the following, namely:-
(i) 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 wearing apparel;
(iv) utensils made of gold, silver, platinum or any other precisous metal or any alloy containing one or more of such precious metals;
(v) land other than agricultural land;
(vi) building or land appurtenant thereto, other than building or part thereof used by the assessee as factory, godown, warehouse, hotel or office for the purpose 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:
Provided that 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;
(vii) motorcars; and
(viii) any other asset which is acquired or represented by a debt secured on anyone or more of the assets referred to in Clause (i) to Clause (vii).
(4) The value of any asset specified in Sub-section (3) shall, subject to the provisions of Sub-section (3) of Section 7 of the Wealth-tax Act, be estimated to be the price which, in the opinion of the Wealth-tax Officer, it would fetch if sold in the open market on the valuation date.
(5) For the purposes of the levy of wealth-tax under the Wealth-tax Act, in pursuance of the provisions of this section, –
(a) Section 5, Clause (a) of Sub-section (2) of Section 7 and Clause (d) of Section 45 of that Act and Part II of Schedule I to that Act shall not apply and shall have no effect,
(b) the remaining provisions of that Act shall be construed so as to be in conformity with the provisions of this section.
(6) Nothing in this section shall apply to any institution, association or body, whether incorporated or not and whether Indian or non-Indian, which the Central Government may, having regard to the nature and object of such institution, association or body, specify by notification in the Official Gazette and every notification issued under this Sub-section laid, as soon as may be after it is issued, before each House of Parliament.
(7) Subject to the provisions of Sub-section (5), this section shall be construed as one with the Wealth-tax Act.
5. In this section in item (vi), the word ‘cinema-house’ was not there initially and it was introduced by an amendment made by Finance Act, 1988. The question arose whether prior to 1988, the cinema-house will be exempt from wealth-tax. The Tribunal held in the case of Varadaraja Theatres (P.) Ltd. v. WTO [1989] 29 ITD 29 (Mad.) that:
No doubt, the words “real estate” occur in the speech of the Finance Minister. Can it be stated that in the context in which those words have been used by the Hon’ble Finance Minister would refer to capital assets which are used for the purpose of business by a closely-held company and which are not the personal assets of either the shareholders or the directors of the company? To our mind, the answer must be a categorical ‘No’, because what is sought to be included for purposes of levy of wealth-tax are only the personal assets, both movable and immovable and not business assets of a closely-held company.
A similar question arises in the case of Prakash Talkies (P.) Ltd. v. First WTO [1989] 28 ITD 213 (Bang.) and the Tribunal in its decision observed as follows:
The contention of the revenue was that in this particular case, cinema theatre has not been treated as a plant for income-tax purposes. But in our opinion, it makes no difference to the situation because we find that the object of this legislation was only to tax unproductive assets not actually a utilised in the business. Since the cinema theatre in this case is actually source of income of the assessee, even though it might not have been assessed under the head ‘Business’ which may require the treatment of the cinema theatre as a plant for income-tax purposes, we must accept the contention of the assessee that the nature of the asset remains a plant for the purpose of wealth-tax.
These cases indicate the understanding of the Tribunal that the object of this section was to exempt those assets which are actually used in the business of the assessee.
6. The main objection of the Revenue in the present case is two-fold. The first is that except for the part of the building which was occupied by the assessee itself, the other parts of the building let out should not be considered to be used in the assessee’s own business. This contention over-looks the fact that a commercial asset can be exploited by an assessee either directly or by letting out. The fact that it has let out would not mean that it is not a commercial asset or that it is not used in the business of the assessee, since the very letting out constitutes the business of the assessee. An attempt was made to argue that the words “for the purposes of its business” would qualify only the preceding noun ‘Office’ and would not qualify the other words such as ‘factory, godown’ etc., preceding it. This, however, does not make any difference to the situation because whether the assessee uses the factory in its own business or earns income by letting it out as part of its business, it would be exempt. We must remember that we are dealing with a company which exists only for business. Reading the section as a whole, it appears to us that the intention is only to tax the building which is not held for the purpose of business. This is strengthened by the fact that even if assessed, the land is exempt for a period of two years from the date of acquisition if it is held for industrial purpose.
7. The second aspect of the argument of the Revenue is that the activity of the assessee with regard to this property did not constitute its business. On this aspect, the material on record consists of (i) Articles of Association which indicates that the main object is :
2. To acquire by purchase, lease exchange or otherwise farms, lands, buildings and hereditaments of any tenure of description and any estate or interest therein and any rights over or connected with lands so situated and to turn the same to account as many seem expedient and in particular by preparing building sites and by constructing, reconstructing, 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 subdividing properties and by leasing and disposing of the same.
(ii) Profit and loss accounts which indicate receipt from this property as rent by letting out portions of the buildings, hire charges in respect of equipment and furniture and capital gains on sale of a portion of the land, (iii) Income-tax adjustment statement showing rent taxable as income from house property, capital gains under the head ‘capital gains’ and income by way of hire charges as business loss, (iv) Lease Deed showing tenancy of office space, including provision of lift facility and supply of electricity and water, (v) Agreement of hiring out fixtures and furniture, the fact that the assessee had maintained a generator to supply electricity, the fact that the assessee had engaged services of watchman, sweeper, Generator attendant and lift operator to maintain and assure the tenants of the services offered. The contention of the Revenue is that all these facts are consistent with the letting out of the property as a owner and did not establish the carrying on of the business with the property. On the other hand, the contention of the assessee is that these facts fit-in with the decision of the Supreme Court in the case of Karnani Properties Ltd. (supra).
8. We have considered the submissions and perused the decision of the Supreme Court. We are of the considered opinion that it was the business of the assessee to let out the property with the services offered. Merely because part of the income derived from the property was assessed under the head ‘income from property’ for the purpose of income-tax assessment, it does not detract from the nature of the income as ‘business income’ as reflected in the profit and loss account. We are satisfied that the property was used in the assessee’s business and was, therefore, excluded from the operation of Section 40 of the Finance Act, 1983.
9. In this view it may not be necessary to consider the other submission regarding the exclusion of the land beneath the building as part of the building used in the assessee’s own business. It was submitted that since the property was valued on land and building method, the reversionary value of the land was to be taken into account. But that is beside the issue. The manner in which the property is valued will not affect eligibility of the land as part of the building admittedly used in the assessee’s own business and thereby exempt. We are of the opinion that this claim of the assessee also has to be allowed. In the appeal of the Revenue, the contention that the advance from tenants as deposits for use of the lift generator and payment of water-tax should not be allowed as a liability. The contention is that these deposits were not debts secured on the assets belonging to the assessee. The Revenue cannot dispute the fact that these debts have been incurred in relation to the said assets as they are intricately connected with the assets which are chargeable to tax according to the Revenue. Therefore, if the buildings were taxable as claimed by the Revenue, the liabilities would have to be deducted. The other objection of the Revenue is that the Commissioner (Appeals) has erred in granting a further deduction for appurtenant land and for restricted marketability due to lack of vacant possession. We find that the Commissioner (Appeals) has only followed the decision of the Madras High Court in the case of Raja D.V. Seetharamayya Bahadur v. CGT [1988] 173 ITR 366 and hence we see no reason to interfere with this view of the Commissioner (Appeals). In any case, these issued are academic in as much as according to us, the property itself is not chargeable to tax.
10. In the result, the appeals of the assessee are allowed and the appeals of the Revenue are dismissed.