(Per:
HONOURABLE Ms. JUSTICE HARSHA DEVANI)
1. By this appeal under section 27A of the Wealth Tax Act, 1957 (hereinafter referred to as "the Act"), the appellant-revenue has challenged order dated 01.06.2005 passed by the Income Tax Appellate Tribunal, Ahmedabad Bench 'D' (hereinafter referred to as "the Tribunal") in WTA No.63/Ahmedabad/2004.
2. By an order dated 27.09.2006, this court while admitting the appeal had formulated the following substantial question of law:
"Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the properties at Worli, Mumbai owned by the assessee was outside the purview of the 'asset' because this property was commercial property, ignoring the fact that sub-clauses (4) and (5) of the clause (i) of Section 2(ea) were brought on the statute only with effect from 01.04.1999 through the Finance (No. 2) Act, 1999?"
3. The respondent-assessee filed return of wealth tax for assessment year 1998-99 on 30.10.1998 showing net wealth of Rs. 3,31,00,500/-. In the wealth tax return the value of two properties, that is, office premises at Worli, Mumbai and bunglow at Versova Beach was shown to be Rs.59,743/- and Rs.3,98,826/- respectively. However, in the Special Audit Report received under section 142(2A) of the Income Tax Act, 1961, the value of the two properties was worked out at Rs.1,91,17,475/- and Rs.2,33,75,000/- respectively. The auditors, accordingly, estimated the market value of these two properties as on the valuation date at Rs.4,24,92,475/- as against the market value of Rs.4,58,569/- shown in the return. The assessment was, therefore, reopened under section 17 of the Act. In the assessment order framed under section 16(3) read with section 17 of the Act, the market value of these two properties was taken at Rs.4,24,92,475/- as against the value of Rs.4,58,569/- disclosed in the original return. The present case pertains to the property situated at Worli in respect of which the Assessing Officer made assessment at Rs.1,91,17,475/- as against Rs.59,743/- as declared by the assessee. The assessee went in appeal to the Commissioner (Appeals). Before the Commissioner (Appeals) it was contended by the assessee that the subject property having been given on rent was exempt under section 2(ea)(i)(5) of the Act. The Commissioner (Appeals) placed reliance upon his earlier order passed in relation to assessment year 1996-97 and held that the subject property was not a commercial property and upheld the inclusion of the value of the said property for wealth-tax. The assessee carried the matter in further appeal before the Tribunal, which held that as the income earned by the assessee from the said property is assessable under the head "income from house property" the same is not a non-productive commercial asset, and, therefore, the value of such asset cannot be assessed under the Wealth Tax Act.
4. Assailing the impugned order, Mr. M. R. Bhatt, learned senior advocate appearing on behalf of the appellant-revenue drew the attention of the court to the provisions of clause (i) of section 2(ea) of the Act as it stood prior to its amendment by the Finance (No.2) Act, 1996 with effect from 1.4.1997 as well as after the amendment to submit that the Tribunal has failed to consider the position prevailing prior to 1.4.1997 and subsequent thereto and has decided the appeals in relation to assessment year 1996-97 and 1998-99 without noticing the distinction between the definition of assets prior to and after 1.4.1997. It was pointed out that prior to 1.4.1997 the expression "assets" as defined under section 2(ea)(i) did not include assets used for commercial purposes, whereas with effect from 1.4.1997 by the Finance (No.2) Act, 1996 assets used for commercial purposes have been brought within the ambit of the said section. Thus, for the year under consideration, the property which had been let out and the income thereof was assessed under the head 'income from house property" was evidently being used for commercial purposes, clearly falls within the ambit of section 2(ea) of the Act. Referring to the provisions of clause (i) of section 2(ea) of the Act, it was submitted that all properties used for commercial purposes, except those specifically excluded under the said provision would fall within the ambit of the expression "assets". Properties let out on rent do not fall within any of the exceptions under section 2(ea)(i) of the Act and as such the subject property being an asset as contemplated under the Act, the value thereof had rightly been included for the purpose of wealth-tax.
5. On the other hand, Mr. Bhargav Karia, learned advocate appearing on behalf of the respondent-assessee supported the impugned order of the Tribunal and submitted that the subject property is not exigible to wealth tax as rented properties are exempted under section 2(ea)(i)(5) of the Act.
6. For the purpose of understanding the controversy involved in the present case it would be necessary to refer to section 2(ea) as it stood prior to 1.4.1997 and after its amendment with effect from 1.4.1997 by the Finance (No.2) Act, 1996 which read thus:
Prior to 1.4.1997 "(ea) "assets"
in relation to the assessment year commencing on the 1st day of April, 1993, or any subsequent assessment year, means-
(I) any guest house and any residential house including a farm house situated within twenty-five kilometres from the local limits of any municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee or by any other name) or a cantonment board,but does not include-
(1) a house meant exclusively for residential purposes and which is allotted by a company to an employee or an officer or a director who is in whole-time employment, having a gross annual salary of less than two lac rupees;
any house for residential purposes which forms part of stock-in-trade;"
After 1.4.1997 (ea) "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 including a farmhouse situated within twenty-five kilometres 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--
a house meant exclusively for residential purposes and which is allotted by a company to an employee or an officer or director who is in whole-time employment, having a gross annual salary of less than two lakh rupees;
any house for residential or commercial purposes which forms part of stock-in-trade;
any house which the assessee may occupy for the purposes of any business or profession carried on by him;
7. A perusal of the provisions of section 2(ea) of Act, as it stood prior to 01.04.1997 shows that any land or building used for commercial purposes was not included within the ambit of the expression "assets" as defined thereunder, and as such, the property of the nature involved in the present case did not fall within the scope and ambit of the expression "assets" prior to 01.04.1997. However, with effect from 01.04.1997, the definition of "assets" has been amended and the words "commercial purposes" have been specifically inserted therein. The following portion of the Departmental Circular No.762, dated 18th February, 1998 elaborates the scope and effect of the substitution of section 2(ea)(i) by the Finance (No.2) Act, 1996, as under:
"Amendment of the term "assets".- 57.1 The term "assets", on which tax is to be levied is defined in clause (ea) of section 2. This definition includes any guest house and any residential house (including a farm house situated within 25 kms of the local limits of any municipality) except assets mentioned in sub-clauses (1) and (2) of this clause. If residential houses have been taken as assets, there seems to be no reason why commercial properties, other than those used by the assessees wholly and exclusively in his business or profession, should also not be taken as assets. By an amendment, commercial buildings, which are not occupied by the assessee for the purpose of his business or profession, other than the business of letting out properties, shall be brought to tax under the Wealth-tax Act, 1957."
8. Adverting to the facts of the present case, it is an undisputed position that the subject property has been let out on rent and as such clearly bears the character of a property used for commercial purposes. Once the property is used for commercial purposes, it would fall within the ambit of the expression "assets" as defined under section 2(ea) of the Act, unless the same falls within any of the excepted categories enumerated under clause (i) of section 2(ea) of the Act which are:
a house meant exclusively for residential purposes and which is allotted by a company to an employee or an officer or director who is in whole-time employment, having a gross annual salary of less than two lakh rupees;
any house for residential or commercial purposes which forms part of stock-in-trade;
any house which the assessee may occupy for the purposes of any business or profession carried on by him;
9. Examining the facts of the present case in the light of the aforesaid provision, the subject property undoubtedly does not fall within any of the aforesaid three categories which are excluded from the purview of the section 2(ea) of the Act. Moreover, it may be noticed that even before the Commissioner (Appeals) it was not the case of the assessee that it fell within the ambit of any of the aforesaid three excepted categories. According to the assessee the subject property was exempted under clause 2(ea)(i)(5) of the Act. In this regard it may be germane to note that by the Finance (No.2) Act, 1998 with effect from 1.4.1999, section 2(ea) came to be amended whereby two additional categories which are excluded from the definition of "assets" thereunder, came to be introduced vide sub-clauses (4) and (5) to clause (i) of section 2(ea) of the Act, so as to provide exemptions from wealth-tax in respect of any residential property that has been let out for a minimum period of 300 days in the previous year and also any property in the nature of commercial establishment or complexes. The case of the assessee before the Commissioner (Appeals) was that it would fall under sub-clause (5) of clause (i) of section 2(ea), viz., "any property in the nature of commercial establishments or complexes".
10. Since the present case relates to assessment year 1998-99, evidently the amended provisions of section 2(ea) of the Act which were brought into force with effect from 1.4.1999 would not be applicable. Section 2(ea)(i) as it stood at the relevant time included properties used for commercial purposes. Hence, unless the subject property fell within any of the three categories enumerated thereunder, the same would clearly fall within the ambit of the expression "assets". As noted in the preceding paragraph, the subject property does not fall within any of the three excluded categories enumerated under clause (i) of section 2(ea). Under the circumstances, the value of the subject property had rightly been taken into consideration for the purpose of computation of the net wealth of the assessee. The Tribunal was, therefore, not justified in holding that the subject property owned by the assessee was outside the purview of the expression "assets" as defined under section 2(ea)(i) of the Act. The question, therefore, stands answered in the negative, that is, in favour of the revenue and against the assessee.
11. It is, however, clarified that this court has not expressed any opinion one way or the other, as regards the applicability or otherwise of sub-clause (5) of clause (i) of section 2(ea) of the Act in respect of the subject property, as the same does not arise for consideration in the present case.
12. At this stage, Mr. Bhargav Karia, learned advocate for the respondent has submitted that in light of the fact the Tribunal had allowed the appeal of the respondent-assessee, it had not entered into the merits of the dispute as regards of valuation of the subject property and as such the matter be remitted to the Tribunal for adjudicating upon the said controversy. The request appears to be reasonable.
13. For the foregoing reasons, the appeal succeeds, and is, accordingly, allowed. The impugned order dated 1.06.2005 passed by the Tribunal in WTA No.63/Ahd/2004 for assessment year 1998-99 is hereby quashed and set aside. However, for the limited purpose of deciding the issue as regards the valuation of the subject property the matter is restored to the file of the Tribunal. No order as to costs.
[AKIL KURESHI, J.] [HARSHA DEVANI, J.] JYOTI Top