IN THE HIGH COURT OF KERALA AT ERNAKULAM
WTA.No. 1 of 2008()
1. THE COMMISSIONER OF INCOME TAX
... Petitioner
Vs
1. SMT.PONNAMMA LAKSHMI NARAYANI
... Respondent
For Petitioner :SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES)
For Respondent :SRI.P.BALAKRISHNAN (E)
The Hon'ble MR. Justice C.N.RAMACHANDRAN NAIR
The Hon'ble MR. Justice K.SURENDRA MOHAN
Dated :26/02/2009
O R D E R
C.N.RAMACHANDRAN NAIR & K.SURENDRA MOHAN, JJ.
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W.T.A. NOS:1 & 2 OF 2008
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Dated this the 26th February, 2009.
JUDGMENT
RAMACHANDRAN NAIR, J.
The question raised in the appeal filed by the revenue is
whether the Tribunal was justified in holding that respondent
assessee is entitled to exemption under Section 2(4)(ea)(i) and (3) of
the Wealth Tax Act for the cashew factory buildings leased out to a
firm of which respondent was the partner.
2. We have gone through the order of the Tribunal and have
heard standing counsel appearing for the assessee and Adv.Shri.
Balakrishnan appearing for the respondent.
3. Clause (ea) of Section 2 provides for exemption is as
follows:-
“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 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
W.T.Appeal Nos:1 & 2/2008 2
including a farmhouse situated within twenty-five kilometers from
local limits of any municipality (whether known as municipality,
municipal corporation or by any other name) or a cantonment
board, but does not include—–
……………………………………………………………………………………………
(3) any house which the assessee may occupy for the purposes of
any business or profession carried on by him;
ii) motor cars (other than those used by the assessee in the
business of running them on hire or as stock-in-trade)”
Admittedly respondent was getting annual rent of Rs.48,000/- each
(total Rs.96,000/-) for the cashew factory buildings leased out to a
firm of which respondent was a partner during the assessment
years 1997-98 and 1998-99. The question to be considered is
whether leasing out of the factory building to a firm of which the
assessee is a partner can be treated as occupation of the building
for the purpose of any business or profession carried on by such
assessee. The Tribunal following decision of this Court in
Commissioner of Income Tax v. P.M. Thomas (181 ITR 256) held
that the assessee is entitled to exemption from wealth tax on the
value of the two cashew factory buildings leased out to a firm of
which assessee was a partner. Tribunal has relied on the order of
W.T.Appeal Nos:1 & 2/2008 3
the CAT appeal in a similar case in favour of the assessee and held
that the department has accepted the decision. Besides these two
Tribunal has relied on the decision of the Patna Bench in another
case. Standing counsel for the appellant contended that the
decision relied on by the Tribunal is not applicable because that
was a case where the building involved was not leased out to the
firm for rent. According to him in this case building is leased out
on market rate of rent by the assessee to the firm and so much so
the building cannot be said to have been leased by the assessee for
her own business purpose entitling for exemption. So far as the
case decided by the CAT appeal is concerned the standing counsel
submitted that such decision will not bind the department in other
case if the others are law department will not file the appeal
contesting the issue. Counsel for the assessee contended that
except for the purpose of income tax the firm is nothing but the
partner together and so much so business carried on by the firm
should be treated as business carried on by the partner. We are
unable to accept this contention because the requirement of the
above Section for exemption is use of the building for business or
profession by the assessee himself. This is a case where the
assessee, the owner of the factory building has let out the factory
W.T.Appeal Nos:1 & 2/2008 4
building at market rates of rent to a partnership firm of which
assessee is a partner. Business is admittedly carried out in the
factory by the firm and not by the assessee personally. Then even if
the assessee as a partner is found to be engaged in business of the
firm then it should be taken that the assessee carrying on a
business in the leased premises. What is contemplated in the
above clause is not to carry on business as a lessee but as occupier
of the building. Therefore, in our view the leasing out of the
building on rent will take the building out of exemption. No matter
assessee is part of the organisation which is leased out the building
on rent for the purpose of business. It makes no difference
whether the lessee is a firm of which assessee is a partner or a
company in which assessee is a shareholder or even a director. So
long as the requirement of the section is use of the building for
business or personal purposes or the assessee as its owner and
occupier there is no scope for considering exemption. The building
ceased to be eligible for exemption at the hands of the assessee
when it is leased out on rent. We therefore hold that the assessee
is entitled to exemption for the leased factory buildings under
section 2(ea)(i)(3) of the Wealth Tax Act. Consequently appeal is
allowed by reversing the order of the Tribunal and restoring the
W.T.Appeal Nos:1 & 2/2008 5
assessment.
4. Counsel for the respondent assessee invited out attention
to the order of the Tribunal declining to consider the exemption
claimed by the assessee under Section 5(1)(vi) of the Act which
entitles the assessee for exemption for one house. According to
the counsel house referred to in the definition asset is any building
and need not necessarily be residential building and so much so at
least one factory building is entitled to exemption under Section 5
(1)(vi) of the Act. This issue is not considered by the Tribunal and
assessing officer also had no occasion to consider it as it was raised
for the first time before the Tribunal. We direct the assessing
officer to look into the claim of the assessee and grant exemption
for one building if it is eligible under the provisions of the act.
C.N. RAMACHANDRAN NAIR
Judge
K. SURENDRA MOHAN
Judge
jj
W.T.Appeal Nos:1 & 2/2008 6
K.K.DENESAN & V. RAMKUMAR, JJ.
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M.F.A.NO:
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JUDGMENT
Dated: