ORDER
SMT. P. K. AMMINI, J. M. :
The appeals filed by the assessee relate to asst. yrs. 1984-85 to 1988-89. Since common issue is involved in all these appeals, they are heard together and are being disposed of by this common order for the sake of convenience. The appeals are directed against the order of the CWT, passed under s. 25(2) of the WT Act, 1957.
2. For the assessment years under consideration, the assessee, a closely-held company, did not file any return of wealth. The AO noticed that the assessee owned some specified assets. He issued notice under s. 17 of the WT Act, to the assessee on 26th Dec., 1988, which was served on the assessee on 1st Feb., 1989. In response to the above notice, the assessee filed returns of wealth for all the above assessment years and the AO completed the assessments for all the above assessment years, on 5th Sept., 1991, under s. 16(3) r/w s. 17 of the WT Act.
3. The CWT perused the records of assessments under s. 25(2) of the WT Act and noticed that the assessee-company excluded from the purview of chargeability to wealth-tax, the assets in the form of land and hotel building treating them as not being “specified assets”. Therefore, he issued notices under s. 25(2) of the WT Act. According to the CWT, as per agreement between the assessees (M/s Naveen Hotels Ltd.) and M/s Piem (hereinafter referred to as Piem) dt. 27th March, 1992, showed that the hotel building was not directly utilised by the assessee for running a hotel. The assessee was not a partner in Piem having a definite share of profit or loss in the business of running the hotel. The assessee had been assured a fixed percentage of gross receipt as licence fee. From the various clauses in the above agreement, the CWT concluded that the assessee had let out the hotel premises and was in receipt of a fixed income which was called licence fee, instead of rent. He was of the view that the AO ought to have held that the hotel premises wherein Piem was doing hotel business was, in fact, a specified asset attracting wealth-tax liability as contemplated in s. 40(3)(vi)(b) of the Finance Act, 1983. He fixed the value at Rs. 8 lakhs, as per assessees books, and held that the same should have been brought to tax. He accordingly held that the assessments framed, accepting the assessees claim for exemption, were prejudicial to the interests of Revenue. Hence, he took up the matter in exercise of his revisional powers under s. 25(2) of the WT Act, and set aside the assessments. The assessee is, therefore, on appeal before us.
4. The contentions raised on behalf of the assessee before the CWT were that the company was formed with the very object of running a hotel, that as per the terms of the agreement, the assessee was always intending to carry on hotel business. The asset was commercial in character. Even during the period of licence the commercial character of the asset was retained. What was given was a licence, but not a lease. It was a collaboration to make use of a big name in hotel business so that the commercial asset of the assessee could be exploited more profitably. There is evidence for having exploited the commercial asset. The licence and other agreements with public sector financial institutions indicate that it was a business undertaking. In view of various clauses in the preamble to the agreement and also the findings of the Dy. CIT(A)s order under s. 144A of the IT Act, for the asst. yr. 1984-85 and the CITs order under s. 263, dt. 30th March, 1989, for asst. yr. 1984-85, it is contended that the nature of agreement entered into by the assessee with Piem was clearly in the nature of a collaboration and not a lease agreement. In support of the above contentions the decisions of the Tribunal reported in Prakash Talkies (P) Ltd. vs. WTO(1989) 28 ITD 213 and Varadaraja Theaters (P) Ltd. vs. WTO (1989) 33 TTJ (Mad) 146 : (1989) 29 ITD 29 (Mad) were relied upon. But the CWT did not agree with the above contentions of the assessee. After considering several clauses of the agreements in great details he held that the AO ought to have charged wealth-tax in respect of the assets and failure to do so has prejudiced the interest of Revenue. He, therefore, held that the assessment order dt. 5th July, 1991, passed under s. 16(3) r/w s. 17 was erroneous. He set aside the same, with a direction that the AO shall reframe the assessments in the light of the discussions made in his order. The assessee is aggrieved by the above order of the CWT.
5. The dispute to be resolved by us in these appeals is whether the assessee is entitled to the exemption provided for in s. 40(3)(vi) of the Finance Act, 1983. Sec. 40 of the Finance Act, 1983, reads as under :
“40. Revival of levy of wealth-tax in the case of closely-held companies. –
(1) Notwithstanding anything contained in s. 13 of the Finance Act, 1960 (13 of 1960), relating to exemption of companies from levy of wealth-tax under the WT Act, 1957 (27 of 1957) (…………), wealth-tax shall be charged under the WT Act for every assessment year commencing on and from the 1st day of April, 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………………
(2) For the purposes of sub-s. (1), the net wealth of a company shall be the amount by which the aggregate value of all the assets referred to in sub-s. (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 :
(3) The assets referred to in sub-s. (2) shall be the following, namely :……………..
(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 purposes 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;……………”
According to Shri K. R. Prasad, the learned counsel for the assessee, the exemption under s. 40(3)(vi) of the Finance Act, 1983, is available to the assessee for the reason that the conditions laid down are satisfied. The conditions are :
(i) The building must be owned by the assessee;
(ii) The building must be used by the assessee for the purpose of its business;
(iii) The building must be used by the assessee as a hotel.
Shri Prasad contended that, in this case, the assessee has started construction of the hotel building with all specifications and with the sole intention of running a hotel. As the assessee was not able to do the hotel business on its own, it entered into an agreement on 27th March, 1982, with Piem. A copy of this agreement can be found at pages 31 to 61 of the main paper book filed on behalf of the assessee. Shri Prasad, on behalf of the assessee, and Shri Abhaykumar, on behalf of the Revenue, relied on various clauses of this agreement in support of their respective contentions. As per cl. 2 of the agreement “Naveen is the lessee of the piece and parcel of land situated lying and being at the corner of Mahatma Gandhi Road and Kensington Road in Bangalore, and more particularly described in the First Schedule hereunder written”. As per cl. 3 “Naveen has constructed on the said land, a structure of ground plus ten upper floors which structure is incomplete in other respects such as interior decoration, furnishing, electrical work, plumbing, tiling and finishing”. According to cl. 4, the assessee proposes to set up the hotel undertaking consisting of about 180 rooms with related facilities conforming to international standards. Clause 5 says that the assessee intended to run and conduct the hotel business at the said premises but due to diverse reasons found itself unable to do so exclusively by itself and requested Piem to do so. Clause 6 runs “Piem which owns the Hotel President at Bombay and is a member of the Taj group of hotels, has acquired expertise and knowledge in the planning, designing, construction and operation of hotels and has in its employment or association, skilled and expert personnel, in all fields relating to designing, planning, construction and operation of hotels”. As per cl. 7 “The parties hereto have agreed to collaborate in setting up and completing the hotel undertaking upon the terms and conditions hereinafter contained”. Article I, para 1.1.1 says “the property described in the First Schedule consists of three portions, that is, a portion of the land taken by Naveen on lease from M/s Naveen Mechanised Construction Co. Pvt. Ltd., shown by letters Abhia and two portions out of the land taken by Naveen on perpetual lease from Sri Krishna Reddy and others and shown in the annexed plan by the letters BELMBB and BCDEB”. As per para 1.1.2 Piem shall use the portion allotted to it only for the purpose of construction of a basement floor and shall not put up any structure above the ground level. The assessee shall be entitled to use the remaining portion of the land, as per para 1.1.3. Para 1.2 says that the estimated total cost of the project is Rs. 576 lakhs and will be financed equally between the assessee and Piem at Rs. 288 lakhs each. As per para 1.5 “If there is overrun in the estimated cost of the project as aforesaid such overrun will be contributed equally by Naveen and Piem respectively upto the limit of Rs. 600 lakhs”. Under Art. II, para 2.2, the assessee shall entrust the site to Piem or its designated representatives for the purpose of equipping, furnishing, etc., the hotel building and shall follow and observe the instructions and directions given by representatives of Piem from time to time, in regard to the construction and shall also ensure that its sub-contractors carry out, follow and observe the directions given by Piem from time to time. As per para 3.3 of Art. III, Piem will provide, at their cost, project management services including site supervisors and ensure that the work is executed in accordance with the standards and specifications laid down in the drawings prepared by the architects, consulting engineers and other consultants, and designers.Piem shall employ technically competent staff for the day-to-day supervision and execution of the work. As per Art. IV, para 4.1, the assessee agreed to grant licence to Piem to enter into and occupy the said hotel from 1st April, 1983, or earlier at their option, notwithstanding the fact that the hotel building may not be complete in all respects, for the purpose of running a hotel of acceptable standards together with related facilities appurtenant thereto. Para 6.1.1 of Art. VI states that in consideration of the licence granted by the assessee to Piem in respect of the hotel undertaking Piem shall pay to the assessee as and by way of licence fee an amount equivalent to 14% per annum on the gross receipts of the said hotel as certified by the statutory auditors of Piem, subject to a minimum return ensured by Art. 6.1.2. Para 6.1.2 is in the following terms : “In order to ensure to Naveen minimum guaranteed return of the investment of Naveen in the said hotel undertaking in terms of this agreement, Piem shall pay to Naveen as and by way of licence fee every year, an amount equivalent to 15% per annum for the first two years and 16% return per annum of the third year onwards on the total contributions made by Naveen under Arts. 1.3 and 1.5 hereof”. As per the Explanation the “Gross Receipts” shall mean receipts on account of rooms, restaurants, banquet parties, poolside snack bar, barbe-quo, room service, public rooms, function rooms, laundry, shops, shopping area, occupational charges, entertainment shows, counter spaces, show windows, show cases.Piem shall use the said premises for the purpose of running a hotel of acceptable standards together with related facilities for providing office accommodation, commercial accommodation, and business appurtenant thereto and shall not use the said hotel for any other purpose whatsoever and that the hotel shall be named by Piem as it may deem fit to suit its business interest and that Piem may use or grant temporary licences for shops in the said hotel for running such trades or services or business as may be consistent with the business of a hotel but Piem shall be responsible for the conduct of the various sub-licensees and observance of the rules and regulations, as per 9.3 of Art. IX. The sub-licensees shall not get any right over and above the rights and privileges of Piem. As per para 9.9, the assessee is authorised to depute its authorised officers to inspect the said hotel any time during the licence period with a view to examining the state and conditions of the hotel building and other fittings, fixtures and installations installed therein and for the purpose of examining whether Piem is complying with the provisions of the appropriate laws and also to ensure the compliance of the agreement without causing any disturbance to or in the hotel operations.
6. Relying on the above clauses, Shri Prasad argued that the assessee has constructed the building only with the intention of running a hotel and nothing else. Since it could not run a hotel on its own it entered into a collaboration agreement with Piem to run the same. According to Shri Prasad the assessee need not run the hotel business direct, as held by the CWT in his order under s. 25(2). The CWT, in his order, found that the assessee has not been running the hotel business direct and the hotel building has not been directly utilised by the assessee for running a hotel. The assessee has let out the building to Piem for running a hotel. Hence, he denied the claim of exemption under s. 40(3)(vi) of the Finance Act, 1983, solely on the ground that the assessee has not utilised the hotel building for running a hotel directly. It is argued by Shri Prasad that this Tribunal should not go beyond the findings arrived at by the CWT in his order under s. 25(2) of the WT Act.
7. The learned Departmental Representative Shri Abhaykumar supported the view of the CWT that the assessee is not running hotel business direct and, hence, it is not entitled to exemption under s. 40(3)(vi) of the Finance Act, 1983. He placed reliance on the speech of the Finance Minister, which reads as follows :
“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.”
According to the learned Departmental Representative real estate is also included in the speech of the Finance Minister in respect of charge of wealth-tax including assets of the closely-held companies. It is argued by Shri Abhaykumar that several clauses in the agreement between the assessee and Piem would go to show that the assessee is not running the hotel business direct. He further contended that as per the terms of the agreement the assessee has no liability towards third party, and Piem is liable to compensate any liability to the third party incurred during the course of the running of the hotel business. To show what are the assets belonging to the assessee the learned Departmental Representative placed reliance on the balance sheet. According to the learned Departmental Representative the agreement between the assessee and Piem is dt. 27th March, 1982, whereas the hotel came into operation only on 1st April, 1983. As the AO had failed to consider the building portion of the assets belonging to the assessee, the CWT was competent to exercise has revisional powers under s. 25(2) of the WT Act. For this proposition, our attention was drawn to the following case law :
(i) Gee Vee Enterprises vs. Addl. CIT (1975) 99 ITR 375 (Del),
(ii) Thalibai F. Jain & Ors. vs. ITO (1975) 101 ITR 1 (Kar),
(iii) CIT vs. Ratlam Coal Ash Co. (1988) 171 ITR 141 (MP),
(iv) Swarup Vegetable Products Industries Ltd. vs. CIT (1991) 187 ITR 412 (All),
(v) Umashanker Rice Mill vs. CIT (1991) 187 ITR 638 (Ori).
The learned Departmental Representative further contended that when the agreement was entered into by the assessee with Piem the construction of the building was incomplete. Therefore, it was not the hotel which was the subject – matter of the agreement between the parties. When the construction was incomplete Piem took it over for further construction of the hotel building in order to run hotel business. The licence standing in the name of the assessee was to run and operate the hotel undertaking on completion of the construction. According to the learned Departmental Representative, Piem was responsible for completion of the construction of the building. The assessee utilised its share of Rs. 288 lakhs only for civil construction of the building, electrical installations and pre-operational expenses including interest on borrowed capital upto 31st Dec., 1982. Piem utilised its share of contribution of Rs. 288 lakhs towards installation of elevators, boilers, airconditioning equipments, interior decoration, furniture, fixture, kitchen equipments other operating supplies, pre-opening expenses including interest (notional) on borrowed capital, etc. It is the case of the learned Departmental Representative that, at the most the building alone belongs to the assessee but it is not running a hotel business. But he drew our attention to the P&L a/c and pointed out that the expenditure does not relate to the construction of the hotel building. He also invited our attention to the difference between “lease” and “licence”. He also placed reliance on the decision of the Supreme Court in the case of Sultan Bros. (P) Ltd. vs. CIT (1964) 51 ITR 353 (SC).
8. On a careful consideration of the rival submissions narrated above, we are of the opinion that the assessee has to succeed in this case. Admittedly, the assessee is not running the hotel business direct nor has there been any partnership between the assessee and Piem. The assessee is only a licence-holder to run the hotel business. The assessee granted the licence to Piem to run a hotel business in collaboration with Taj group. Therefore, the profit derived has to be treated as income from business only. The contention on behalf of the assessee is that to get the exemption under s. 40(3)(vi) of the Finance Act, 1983, the assessee need not run the hotel business direct. It is to this end the decision of the Madras Bench of Tribunal in the case of Varadaraja Theatres (P) Ltd. vs. WTO (supra) is relied on by Shri Prasad. It is held therein :
“A careful study of the provisions of s. 40(3)(vi) would show that all buildings or part of buildings and the land appurtenant thereto which are used for the purpose of the business of a closely-held company are excluded from the assets enumerated therein. It is clear that this provision of law excludes from the category of buildings or lands sought to be included in the assets of a closely-held company, all business assets which are used for the purpose of business of the company. The emphasis in the exclusion clause is on the user of these capital assets, i.e., buildings or lands appurtenant to such buildings for the purposes of the business of a closely-held company. Such business assets are to be excluded while computing the net wealth of a closely-held company. The list various categories of buildings in s. 40(3)(vi) has to be taken as only illustrative and not exhaustive of the various types of buildings sought to be excluded from out of the assets included under the said provisions of law. Further, it was also clear from the Finance Ministers Budget Speech for the year 1983-84 that the purpose of the levy of wealth-tax in the case of closely-held companies was to tax such of those items of personal wealth which have been transferred by certain persons by forming closely-held companies and trying to avoid personal wealth-tax liability on their own part. Subsequently amendment of the said s. 40(3)(vi) by s. 87(ii)(c) of the Finance Act, 1988, makes the position more clear.”
Similar is the view taken by this Bench of the Tribunal in the case of Prakash Talkies (P) Ltd. vs. WTO (supra).
9. Shri Prasad has strongly relied on the decision of the Karnataka High Court in the case of CIT vs. Shaan Finance (P) Ltd. (1993) 199 ITR 409 (Kar) for the proposition that even if the assessee has not carried on the hotel business direct still the assessee is entitled to the exemption under s. 40(3)(vi) of the Finance Act, 1983. The above decision was rendered by the Honble Karnataka High Court under the provisions of s. 32A of the IT Act, which is a beneficial provision in a taxing statute and full effect has to be given to the language used by the Parliament. The Honble Court has held that the main conditions to be satisfied as per s. 32A(1) and (2) are : (i) the subject-matter is to be owned by the assessee; (ii) the subject-matter is wholly used for the purposes of the business of the assessee; and (3) the subject-matter should come under any of the enumerated categories as per s. 32A(2). The only requirement under s. 32A(2)(b) is that the machinery owned by the assessee should have been used by someone in the manner stated in the said sub-clauses. Clause (a) clearly refers to a new ship or new aircraft acquired by an assessee engaged in the business of operation of ships or aircraft. But, in the case of new machinery or plant, no such requirement is stated in cl. (b). In the latter two sub-clauses of s. 33, there is a specific reference to the assessees business premises where the machinery is to be installed. Similarly, the language of cl. (a) of s. 32A(2) stands in clear contrast to the language used in cl. (b) thereof. Each machinery installed in a particular manner is the cause for the investment allowance to be granted to the person who owns the machinery, provided the owner uses it in its entirety in his business. The benefit is given with reference to the actual user of the machinery, though the benefit may go to a person who does not exploit the machinery himself, for manufacturing or producing any article. Such a situation is not entirely unknown in the field of taxation. Hence, in respect of machinery owned by the assessee but leased to third parties and used by them for manufacture, investment allowance can be claimed under s. 32A. Relying on the above ruling of the Honble jurisdictional High Court, it is argued by Shri Prasad that the assessee is entitled to exemption under s. 40(3)(vi) of the Finance Act, 1983. The assessee is a licence-holder for conducting the hotel business and allowed Piem to carry on the hotel business on its behalf. In the reported decision, the assessee owned the machinery but has been leased out to third parties for using the same in the manufacture of article or thing by the lessee. Still the Honble High Court of Karnataka has held that the assessee, though not used the machinery in his own business, is entitled to get the benefit of exemption envisaged in s. 32A of the IT Act. Sec. 32A itself mentions that the subject-matter must be owned by the assessee and the subject-matter must be wholly used for the purposes of the business of the assessee. As contended by Shri Prasad, the case of the assessee here is on a stronger footing. Hence, the assessee is entitled to get exemption under s. 40(3)(vi) of the Finance Act, 1983, even though it has not been directly engaged in the business of running a hotel.
Another strong point on which Shri Prasad laid stress is that for the last one decade the IT Department has been assessing this income as business income. In support of this he produced copy of the assessment order for the asst. yr. 1984-85, which is at page 66 to 68 of the paper book. At page 68 it is stated. “The above business loss and unabsorbed depreciation are allowed to be carried forward.” At page 67 it is specifically stated “that the hotel Taj Residence is on the approved list of the Government of India in relation to s. 32(1)(v) of the IT Act, 1961, w.e.f. 22nd March, 1993”. At page 70 is copy of the assessment order for the asst. yr. 1985-86, dt. 30th March, 1987, in the case of the assessee wherein it is stated “Total business loss”. The assessee has also furnished copy of the assessment order for 1986-87, dt. 30th March, 1987, wherein (at page 75 of the paper book) the AO has stated “Net business loss”. Pages 78 and 79 of the paper book contain copy of the assessment order for 1987-88, dt. 10th Dec., 1987, wherein (at page 79) the “NET BUSINESS INCOME” is shown at Rs. 6,91,252. The assessee has also furnished copy of the assessment order for 1988-89, which is dt. 29th Sept., 1989. This is at pages 81 to 84 of the paper book. At page 84 it is shown “Less : Business loss Rs. 33,68,961”. Pages 85 to 89 of the paper book contain copy of the order of the CIT, under s. 263, for asst. yr. 1984-85. At page 86 it is stated “s. 32(1)(v) requires that an allowance equal to 25 per cent of the actual cost of erection of the building to the assessee be allowed, when the building is owned by an Indian company and used by such company as a hotel and such hotel is for the time being approved in this behalf by the Central Government”. It is argued by Shri Prasad that the “business loss” and “business income” referred to above is the income derived by the assessee from the running of the hotel business by Piem which is the subject-matter of these appeals.
10. In support of the contentions on behalf of the assessee, a “Supplementary paper book” containing page 1 to 14 is filed on behalf of the assessee. Shri Prasad placed reliance at page 2 of the supplementary paper book, wherein it is stated that the assessee-company is deriving income from hotel business, house property and from other sources. It is also submitted that subsequent to the order under s. 263 also the IT Department has been assessing the income as business income. The impugned order to the CWT is dt. 22nd March, 1993, but the assessment order for the asst. yr. 1991-92 is dt. 3rd Dec., 1993, wherein also the income is shown as business income. In the assessment order for 1992-93 also, at page 13 of the supplementary paper book, there is a mention of “hotel income”. Shri Prasad argued that the proceedings under the different statutes must be harmonious. In this case, the IT Department has treated the income from the hotel as a business income whereas in these particular assessment years the CIT under s. 263, has treated this income as the income from other sources. This shows that the views of officers appointed under the provisions of two different tax statutes are conflicting. In order to show that there must be harmony in these two tax statutes, Shri Prasad placed reliance on a decision of the Madras High Court in the case of K. V. Iyer vs. CIT (1995) 215 ITR 461 (Mad) wherein it is held that direct tax laws are supplementary to each other and it is proper to read closely related provisions of Revenue laws together to get a proper meaning and that where a gift has been held to be valid in the gift-tax proceedings, its validity cannot be examined in wealth-tax proceedings. It is also held that if determination as to the validity or otherwise of the gift is permitted in collateral proceedings and in one proceeding, it is held to be valid and in another invalid, the sufferer will be the assessee. So the income assessed under the wealth-tax proceedings should have been assessed as income from the hotel business as has been doing in the income-tax proceedings.
11. From the above facts and in the circumstances of this case, it is clear that the assessee has constructed the building in order to carry on a hotel business. This is clear from Schedule II giving the broad details of items of investment by the assessee wherein it is specifically stated that the assessee has done plantation and transplantation of trees, turf, shrubs and vines, landscaping and compound wall. It also states that the assessee has completed the buildings in respect of structural and masonry work, flooring, finishing, internal and external, doors, windows and glazing, water-proofing, storage tank for water and fuel and swimming pool. It is the assessee who has provided hot and cold water supply pipes, both internal and external, sanitary and drainage installations, both internal and external, electrical conduits and wiring, including wiring and sockets for telephone, pool and yard lighting. Admittedly, the building has got ten floors. It is, therefore, clear that the construction of the building is only to carry on hotel business. Such intention never ceased to arise subsequently. Further, it is nowhere stated in s. 40(3)(vi) of the Finance Act, 1983, that the assessee must carry on the hotel business direct or exclusively. As stated earlier, the assessee has, in this case, established that the hotel building belongs to it. It is also proved that the buildings is used for hotel business. Hence, we hold that the assessee is entitled to get the exemption provided for in s. 40(3)(vi) of the Finance Act, 1983. Hence, the CWT was not within his powers to exercise jurisdiction under s. 25(2) of the WT Act, 1957. His order is cancelled and the order of assessment is restored.
12. In the result, the appeals filed by the assessee are allowed.