Case Law Details

Case Name : Commissioner of Wealth Tax Vs Jay Pee Entures Ltd (Delhi High Court)
Appeal Number : WTA 1/2013
Date of Judgement/Order : 11/07/2013
Related Assessment Year :

The use of an aircraft for commercial purposes does not necessarily entail hiring to third parties, ferrying of passengers or leasing of the air crafts for consideration. The intention of the legislature while creating the exception by using the expression “used by the Assessee for commercial purposes” was not to restrict the meaning of the words ‘commercial purposes’ to running the same on hire or as stock in trade.

The use of an aircraft by the executives or directors of a company for the purposes connected with its business would amount to use by the Assessee for commercial purposes. In case the Assessee was using the air crafts for transporting its directors or executives for excursion purposes or for personal purposes the same would not qualify as use of the aircraft for commercial purposes and would not be exempt from wealth tax. In the present case the ITAT has recorded that it is undisputed that the two air crafts were used by the Assessee for its business. Since this is the undisputed factual position, the same would be exempt from wealth tax.

HIGH COURT OF DELHI AT NEW DELHI

Judgment reserved on : 03rd July, 2013

Judgment pronounced on: 1 1th July, 2013

WTA 1/2013

COMMISSIONER OF WEALTH TAX

versus

JAY PEE VENTURES LTD

CORAM:

HONORABLE MR. JUSTICE SANJIV KHANNA

HONORABLE MR. JUSTICE SANJEEV SACHDEVA

ORDER

SANJEEV SACHDEVA, J.

1. This is an appeal filed by the Revenue impugning the order dated 30th March 2012 passed by the Income Tax Appellate Tribunal whereby the appeal of the Revenue against the order of the Commissioner of Wealth Tax (appeals) dated 24.12.2010 has been dismissed.

2. The assessment year in issue is 2004 – 2005.

3. The question that arises for consideration in the

present appeal is whether the aircraft owned by the

Assessee and used for its business would be exempt from wealth tax?”

4. The Assessing Officer vide order dated 31 .03.2006 has held that the two aircrafts owned by the Assessee and used for its own business purposes were chargeable to wealth tax. The Assessing Officer while interpreting the provisions of section 2 (ea) (iv) of the Wealth Tax Act – 1957 held that aircraft being used other than for commercial purposes were chargeable to wealth tax. As per the Assessing Officer the aircraft which were either used for running the same for earning business income or held as stock in trade would be exempt from wealth tax but an aircraft used by the Assessee for its own business would not be treated as used for commercial purposes and as per the Assessing Officer aircraft used for transportation of goods of the Assessee’s own business or air crafts used by the directors or any other executive of the company were not to be treated as used for commercial purposes and hence would be treated as an asset for wealth tax purposes. As per the Assessing Officer aircraft used by an airline would be treated as used for commercial purposes. We record and note that the Assessing Officer did not dispute or record that the air crafts were not used for Assessee’s business.

5. Aggrieved by the order dated 31 .3.2006 of the Assessing Officer, the Assessee filed an appeal before the Commissioner Income Tax (Appeal). Relying upon the judgement of the Income Tax Appellate Tribunal, Mumbai Bench in the case of Garware Wall ropes Ltd versus additional Commissioner of income tax (2004) 89 ITD 221 (Mumbai) the Commissioner Income Tax (Appeal) held that the aircrafts owned by the Assessee were not taxable assets within the meaning of section 2 (ea) (iv) of the Wealth Tax Act.

6. Aggrieved by the said order the Revenue filed an appeal before the Income Tax Appellate Tribunal. The Income Tax Appellate Tribunal vide its order dated 30 March 2012 has dismissed the appeal of the Revenue as it was not in dispute that the two air crafts were used by the Assessee for its business. Aggrieved, Revenue has filed the present appeal.

7. The learned counsel for the Revenue submitted that the Assessee was neither in the business of commercially operating the air crafts for hire nor was holding the same as stock in trade but was using the said air crafts for the purposes of transportation/travel of its directors and executives and as such the same were not being used for commercial purposes and were not exempt from wealth tax.

8. We find no merit in the submission of the Learned Counsel for the Revenue. Section 2 (ea)(iv) of the Wealth tax act, 1957 lays down as under:

(ea) “assets”, in relation to the assessment year commencing on the first day of April, 1993, or any subsequent assessment year means-

(iv) yachts, boats and air crafts (other than those used by the Assessee for commercial purposes);

9. The term “commercial purposes” has not been defined by the Wealth Tax Act – 1957. The words “used by the Assessee for commercial purposes” have to be understood to mean used by the Assessee for the purposes connected with its business. When the Assessee uses the air crafts in connection with its business as distinct from using it for personal purposes or non-business purposes, the use of the aircraft would be a use for commercial purposes and would be thus exempt from the purview of wealth tax.

10. When the directors or executives of a company use an aircraft owned by the company to travel to its various offices or to various places for meeting or business purposes connected with the operation and activities  of the company, the use of the aircraft would amount to usage for commercial purposes. In the today’s need and requirement for the efficient running of businesses, the directors and executives of a company instead of taking commercial flights prefer to travel by their own air crafts which in turn saves them time and provides them the flexibility of traveling at short notices to various destinations without having the need to plan in advance. This is a practical necessity and help business grow, expand and generate profit.

11. The use of an aircraft for commercial purposes does not necessarily entail hiring to third parties, ferrying of passengers or leasing of the air crafts for consideration. The intention of the legislature while creating the exception by using the expression “used by the Assessee for commercial purposes” was not to restrict the meaning of the words “commercial purposes” to running the same on hire or as stock in trade.

12. The use of an aircraft by the executives or directors of a company for the purposes connected with its business would amount to use by the Assessee for commercial purposes. In case the Assessee was using the aircrafts for transporting its directors or executives for excursion purposes or for personal purposes the same would not qualify as use of the aircraft for commercial purposes and would not be exempt from wealth tax. In the present case the ITAT has recorded that it is undisputed that the two air crafts were used by the Assessee for its business. Since this is the undisputed factual position, the same would be exempt from wealth tax.

13. Learned counsel for the appellant has submitted that the decision of the tribunal in Garware Wall Ropes Ltd (supra) has not been taken up in appeal in the revenue before the Bombay High Court and has been accepted

14. We find no infirmity in the impugned order of the Income Tax Appellate Tribunal. The appeal being devoid of merit as no substantial question of law arises for consideration and is thus dismissed with no order as to costs.

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One Comment

  1. Surender K Singal says:

    Costs in favour of Appellant-Assessee may generally be helpful in discouraging Assessing Officers to refrain from non-sustainable disallowances / penalty etc. which unwarrantedly add to litigation;

  2. ca.devkumarkothari says:

    ca.devkumarkothari
    Thanks for un-necessary litigation by revenue – it add to professionals assignments and fees but at cost of national resources – we must avoid it as good and responsible citizens.
    Going back to my initial studies of commerce in 9th class, I believe that the concept of commercial purpose is well known and there should not be dispute on this aspect even at assessment stage. Business of plying, hiring, leasing etc. of vehicles or other plant or machinery are recognized as such as a separate nature of business in various provisions of direct taxes for deductions by way of depreciation and other allowances, exemptions, presumptive tax etc. Such activities are part of ‘commercial purpose’. It is not that hiring, plying of vehicles are only commercial purposes. Besides in the definition of asset, under WT Act itself, both these activities find different treatment in respect of different type of vehicles some are liable to WT and some are exempted assets.The AO was not at all justified in this case to initiate un-necessary litigation by not excluding aircraft from taxable wealth. The CIT(A) and Tribunal have concurrently allowed appeal. Judgment in case of Garware (supra.) was rendered on 21.03.2003and was reported belatedly during 2004 vide [2004] 89 ITD 221 (MUM.)
    is quite old, and it is admitted that this judgment was accepted by revenue, therefore there was no justification of CIT (Judicial) and other officers proposing appeal before the High Court in the year 2013 (WT Appeal no. 1 of 2013), and counsels of revenue was also not justified in recommending filing of appeal before High Court. There is a system of finding out settled legal position before moving in appeal.Thus this was a fit case for awarding costs in favour of assessee. Tribunals and High courts can impose costs in such cases as a measure to reduce un-necessary litigation.
    Let us hope revenue will not file appeal before the Supreme court. When judgments of two Supreme Court Judgments can be disputed before three judges, we must not be shocked if revenue appeal against judgment of High Court to treat impugned aircraft as taxable asset.
    Readers can read some other articles about unnecessary litigation on http://www.taxmanagementindia.com
    Professionals like advocates, CA and other tax practioners should also make some efforts to reduce un-necessary litigation.

  3. CA Dev Kumar Kothari says:

    Thanks for un-necessary litigation by revenue – it add to professionals assignments and fees but at cost of national resources.
    This judgment is again a case of un-necessary litigation by revenue. The concept of commercial purpose is well known and there should not be dispute on this aspect even at assessment stage.
    Business of plying, hiring, leasing etc. of vehicles or other plant or machinery are recognized as such as a separate nature of business in various provisions of direct taxes.
    Such activities are part of ‘commercial purpose’. It is not that hiring , plying of vehicles are only commercial purposes.
    The AO was not at all justified in this case to initiate un-necessary litigation by not excluding aircraft from taxable wealth. The CIT(A) and Tribunal have concurrently allowed appeal. Judgment in case of Garware (supra.) which was reported in 2004 is quite old, and it is admitted that this was accepted by revenue, therefore there was no justification of CIT (Judicial) and other officers proposing appeal before the High Court in the year 2013, and counsels of revenue was also not justified in recommending filing of appeal before High Court.
    Thus this was a fit case for awarding costs in favour of assessee. Tribunals and High courts can impose costs in such cases as a measure to reduce un-necessary litigation.
    Let us hope revenue will not file appeal before the Supreme court.

    Professionals like advocates, CA and other tax practioners should also make some efforts to reduce un-necessary litigation.

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