Assets deployed for service activities are treated as productive assets and accordingly the construction / set up of office and service centre by the assessee and used as such for its business purposes would be outside the ambit of wealth tax in the same manner in which the factory structure or manufacturing establishment is excluded and the beneath land on which such structure to come should have the same wealth tax treatment.
From the aforesaid details, it could be conclusively proved that the asses see had used the land only for its business purposes by constructing a building in the subject mentioned land and is carrying on its regular business from the said premises. Hence we hold that the land was used by the assessee only for its business purposes.
FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-
1. This appeal is directed against the order passed by the Learned Commissioner of Wealth Tax (Appeals) -4, Kolkata [ in short the ld CWTA] in WTA No. 1632/C WT(A)-6/Circle- 10(1)/Kol/14- 15 dated 5.10.2016 against the order of assessment framed by the Learned Deputy Commissioner of Wealth Tax, Circle -10, Kolkata [ in short the ld AO] u/s 17/16(5) of the Wealth Tax Act, 1957 [hereinafter referred to as the ‘Act’] dated 12.12.2014 for the Asst Year 2009-10.
2. The only issue to be decided in this appeal is as to whether the ld CWTA was justified in upholding the action of the ld AO in treating the value of freehold land as a taxable asset u/s 2(ea) of the Act in the facts and circumstances of the case.
3. The brief facts of this issue is that the assessee is involved in the business of trading and exporting services in the field of power. It is engaged in after sale service in respect of power projects, which includes operation and maintenance of power plant and providing training to customer’s personal for operation and maintenance. During the course of assessment proceedings u/s 143(3) of the Income Tax Act, 1961, the ld AO observed that the assessee company’s fixed assets comprised of ‘freehold land’ valued at Rs 22,84,28,928/- and motor car valued at Rs 7,94,700/- in the balance sheet as on 31.3.2009. The assessee had not filed its wealth tax return for the Asst Year 2009-10. Hence a notice dated 17.4.2014 was served on the assessee company to show cause as to why notice u/s 17 of the Act should not be issued for non-filing of the return of wealth since the total wealth chargeable exceeds the threshold limit required for filing wealth tax returns. In response to the said notice, the assessee vide letter dated 7.5.20 14 submitted that the freehold land in question is not an ‘asset’ u/s 2(ea) of the Act. The assessee has purchased the freehold land from West Bengal Housing Infrastructure Development Corporation Ltd (WBHIDCL in short) vide an agreement dated 26.9.2008 exclusively for the purpose of setting up their office and service centre i.e. for business purposes, situated in New Town, Kolkata, P.S.Rajarhat, Dist. North 24 Parganas in Panchayat Area. The assessee submitted that the freehold land purchased in financial year 2008-09 by it for industrial use only for setting up its office and service centre. Accordingly, in view of exemption as per clause (b) of Explanation 1 to section 2(ea) of the Act, that ‘urban land’ does not include any unused land held by the assessee for industrial purposes for a period of two years from the date of its acquisition, the land in question should not form part of assets u/s 2(ea) of the Act. The assessee also submitted that it had commenced construction of its office and service centre on the said land with effect from18.12.2009 i.e. within two years from the date of acquisition of land. The said land therefore, did not qualify as an unproductive asset. The assessee also submitted that since the land in question did not qualify as a taxable asset u/s 2(ea) of the Act and the fact that the value of motor vehicles did not exceed the threshold limit of Rs 15,00,000/- , a return of net wealth was not required to be filed under the Act. Subsequently the ld AO issued a notice u/s 17 of the Actdated 12.9.2014, wherein it was contended that he has reasons to believe that net wealth chargeable to tax for the year under dispute has escaped assessment within the meaning of section 17 of the Act. The assessee filed a reply dated13.10.2014 that it does not hold any assets during the relevant financial year which qualify as assets for the purpose of the Act and hence, it had not filed return of wealth as it was not liable to pay wealth tax under the Act. During the course of assessment proceedings, the assessee was provided with a copy of the reasons recorded for reopening of the case u/s 17 of the Act. The ld AO in the reasons recorded stated that the land was not held for ‘industrial purposes’ as the assessee is not an ‘industrialist’ and nothing is there to manufacture. Therefore the subject land, which was purchased for setting up the office and service centre was not eligible for relief under sub-clause (ii) to clause (b) under Explanation 1 to section 2(ea) of the Act. In response, the assessee vide its letter dated 19.11.2014 drew the attention to the difference between ‘industrial purposes’ and ‘manufacturing purposes’ and also referred to various dictionaries, legal decisions and CBDT documents, since the term ‘industrial purpose’ was undefined in both the Wealth Tax Act, 1957 and the Income Tax Act, 1961. The assessee also submitted proof that the construction of office and service centre had commenced with effect from 18.12.2009. Evidences that the assessee had engaged to procure No Objection Certificate (NOC) / Clearance Certificates from various Government departments and a copy of the work order given by the company to M/s Nirman Constructions for construction of site office and boundary wall was also enclosed in the said letter. Further the assessee vide letter dated 9.12.2014, reiterated the submission submitted vide letter dated 19.11.2014 and referred to the definition of the term ‘industry’ defined under the Industrial Disputes Act, 1947 to establish that the land was held for ‘industrial purposes’ and that the ambit of ‘industry’ was wider than the term ‘manufacture’. The assessee laid emphasis that the land in order to qualify for ‘industrial purposes’ , there is no need to carry on manufacturing activities. Retail business, trading business and services also qualify as ‘industrial purposes’.
4. The assessee also presented the following facts before the ld AO :-
i) The assessee-company purchased the land in New Town Kolkata on 26.09.2008;
ii) The land is a urban land and not situated within an area earmarked for industrial park! estate;
iii) The land in question remained vacant on the valuation date i.e. 3 1.03.2009;
iv) The assessee-company was engaged in providing services in the field of maintenance & repair service, business auxiliary services, commercial training & coaching, consulting engineer as declared by the assessee-company.
v) During the year under assessment as well as other years, the assessee-company provided only technical!professional services by deploying its employees to the business premises of different parties viz. BGR Energy Systems Ltd., Durgapur Projects Ltd. and Bharat Aluminium Company Ltd. for this year.
vi) All the above named companies deducted tax at source u!s 194J of the I. T. Act, 1961 as is evident from the details of receipts furnished in course of income-tax assessment proceedings for the assessment year in question.
vii) The entire receipt of the assessee-company was subjected to Service Tax which established that the assessee-company was only provided services to its clients.
viii) The assessee-company did not furnish any documentary evidence to substantiate that its business activities could be termed industrial activities rather than service provider to power companies.
ix) The assessee-company was engaged in providing services with “know how” from others for which royalty has been paid;
x) The land was intended to be used for setting up of assessee’s office only. It has been clearly mentioned vide para no. 2 at page no.7 of the “purchase deed” executed by the seller (WBHIDCL) on 26.09.2008 that the “purchaser” i.e. the assessee- company shall use the said demised land exclusively “for the purpose of setting up of their (assessee-company’s) office and service center and not to use the said demised land for any purpose other than setting of their office and service center as is evident from the Purchase Deed dated 26.09.2008.
xi) It also evident from the “work order” placed by the assessee to M/s. Nirman Construction of SBSTC Bus Terminus Complex Building, Ground Floor, City Durgapur-16 vide Letter No. NC/CFPL/24 102009 dated 24.10.2009 that the work order was for “construction of site office and boundary wall” of the said land at Rajarhat, New Town.
5. The ld AO observed that the assessee company’s fixed assets does not include any plant and machinery and hence there was no industrial activity carried out by the assessee company. Accordingly he held that the urban land was not meant to be used for industrial purposes so as to fall within the exclusion clause of definition of urban land. With these observations, he brought the value of freehold land in the sum of Rs 22,84,28,928/- to wealth tax as a taxable asset in addition to value of motor cars in the sum of Rs 7,974,700/- , which was upheld by the ld CWTA. Aggrieved, the assessee is in appeal before us on the following grounds:-
1. That on the facts and circumstances of the case, the Learned Commissioner of Wealth-tax (Appeals)-4, [ld. WCT(A)] has erred and was unjustified in considering the ‘free hold’ as an asset for the purpose of levy of wealth tax under the Wealth Tax Act, 1957 (‘the Act’) by ignoring clause (b) of Explanation 1 to section 2(ea) of the Act which provides that any unused urban land held by the assessee for industrial purpose for a period of two years from the date of its acquisition cannot be regarded as urban land for the purpose of levy of wealth tax.
6. We have heard the rival submissions. The short dispute to be adjudicated in this appeal is as to whether the freehold land held by the assessee as vacant as on the valuation date i.e. 3 1.3.2009 , on which the construction has been started for setting up of its office and service centre, could be stated to be used for ‘industrial purposes’, so as to fall within the ambit of definition of ‘urban land’ and consequential exemption from levy of wealth tax. In this regard, we find that the expression ‘industrial purposes’ is not defined either in the Income Tax Act or in the Wealth Tax Act. The terms not defined in the statute may need to be understood in a manner which a person in business or in common parlance would generally understand it. The ld AR stated the dictionary meanings of ‘industry’ as under:-
a) As per Oxford Advanced Learner’s Dictionary (7th Edition) ‘Industry’ is , inter-alia defined, “as people and activities involved in producing a particular thing or in providing a particular services’.
b) West’s legal Thesaurus Dictionary (1st Edition) defines ‘Industry’ as an art, occupation, or business conducted as a means of livelihood or for profit, especially one that is a district branch of trade.
c) Webster II defines ‘Industry’ inter-alia to mean commercial production and sale of goods and services.
6.1. We also find the section 2(j) of the Industrial Disputes Act, 1947, defines the term ‘Industry’ as under:-
(j) 7 ” industry” means any systematic activity carried on by co- operation between an employer and his workmen (whether such workmen are employed by such employer directly or by or through any agency, including a contractor) for the production, supply or distribution of goods or services with a view to satisfy human wants or wishes (not being wants or wishes which are merely spiritual or religious in nature), whether or not, –
6.2. Further section 2(ka) of the Industrial Disputes Act, 1947 defines the term ‘Industrial establishment’ or ‘undertaking’ to mean an establishment or undertaking in which any industry is carried on.
6.3. Hence from the above definitions, it could be safely concluded that the expression ‘industrial purposes’ covers the activity of supply or distribution of goods and services and given that the assessee company’s business is to provide services, the setting up of its office and service centre for the purpose of carrying out its business operations satisfies the criteria as being for ‘industrial purposes’. Moreover, the subject mentioned land cannot be used for any other purpose other than for setting up of an office and service centre.
6.4. We find that the term ‘industrial purposes’ in section 2(ea) of the Wealth Tax Act, 1957 will cover retail, trading and service activities as these activities do also represent occupration or business which is conducted in an organized manner by deploying the requisite resources.
6.5. We find that the Co-ordinate Bench of Cochin Tribunal in the case of Federal Bank ltd vs JCWT reported in (2007) 107 ITD 451 had held that vacant land which was acquired by the assessee for commercial puproses and on which construction of building was started could not be treated as urban vacant land liable to wealth tax u/s 2(ea) of the Act. The Tribunal also stated that wealth tax is leviable only in respect of non-productive assets and it does not apply to productive assets. In respect of urban land being considered as ‘asset’ for wealth tax purposes, the tribunal had specifically and unambiguously held that once the construction of office building commences and even if the building is not fully constructed, the nature of the land ceases to be vacant land.
6.6. In the instant case, the assessee company before us had purchased the land in financial year 2008-09 for industrial use only for setting up their office and service centre in conformity with the applicable rules and regulations and not for any other purpose. The same is evident from the agreement entered by the company with WBHIDCL vide clause 2 of the agreement, wherein it is specifically mentioned that the company can use the land for their business purposes only and not for any other purpose. Further the construction of office building and service centre on the said land had commenced with effect from 18.12.2009 i.e before expiry of 2 years from the date of acquisition by the company. Hence we hold that the constructive utilization of the vacant land was made by the assessee to convert the plot into a business asset. In the asses see’s case , eventhough the freehold land was lying vacant as on the valuation date i.e 3 1.3.2009, yet it was in the process of being converted into a building complex meant for the purpose of accommodating the office of the assessee . The ld AR produced the following documents before us to prove that the construction of building has been completed and the business is being carried on in the said premises :-
a) Occupancy certificate / completion certificate issued by New Town Kolkata Development Authority (NKDA) dated 3.10.2016 – property comprising of basement, ground floor plus 7 storied building.
b) Photograph of the existing building situated at New Town Kolkata
c) Audit Report together with Fixed Assets schedule as on 3 1.3.2017 to prove that the assessee had invested more than Rs 76 crores towards construction of building, together with plant and machinery to the tune of Rs 14.19 crores , Furniture & Fittings of Rs 19 lacs, Vehicles of Rs 57.44 lacs, office equipments of Rs 1.26 crores, Computers & Accessories of RS 29.56 lacs and Electrical Installations of Rs 4.17 crores.
6.7. It would be relevant to understand the entire sequence of events right from the date of purchase of the freehold land by the assessee till the completion of construction of building to understand the intention of the assessee to use the subject mentioned land only for its business purposes :-
6.8. We find that the provisions of section 72A of the Income Tax Act, 1961 defines the expression ‘industrial undertaking’ wherein certain ‘services’ are also included. We find that the term ‘service’ is defined in section 28(va) of the Income Tax Act, 1961 in Explanation as under:-
“service” means service of any description which is made available to potential users and includes the provision of services in connection with business of any industrial or commercial nature such as accounting, banking, communication, conveying of news orinformation , advertising, entertainment, amusement, education, financing, insurance, chit funds, real estate, construction, transport, storage, processing, supply of electrical or other energy, boarding and lodging.
6.9. We find that wherever the legislature intended to confine a particular benefit only for manufacturers, it had deliberately used the expression ‘manufacture of any article or thing’ in the relevant sections and not ‘industrial purposes’. For example, while granting additional depreciation u/s 32(1)(iia) of the Act or while granting special deduction u/s 32AC of the Act. We find that the allowance of depreciation u/s 32(1) of the Act is available for all assessees i.e whether it is manufacturing or in service industry. Hence the understanding of the revenue in this case that the expression ‘industrial purposes’ would be confined only to manufacturers and as long as the subject mentioned land is not used for manufacturing activity, then the same would be liable for wealth tax, cannot be accepted. The expression ‘industrial purpose’ should mean , in our considered opinion, as applicable to all industries that are engaged in manufacturing as well as servicing activities. Admittedly the assessee herein is engaged in service activity. Hence we are afraid to give a restricted meaning to the expression ‘industrial purposes’ used in exception to definition of urban land in wealth tax act. On the contrary, we hold that the expression ‘industrial purpose’ has been loosely used and hence need to be given a wider import so as bring even the service industry within its meaning.
6.10. We hold that the assets deployed for service activities are treated as productive assets and accordingly the construction / set up of office and service centre by the assessee and used as such for its business purposes would be outside the ambit of wealth tax in the same manner in which the factory structure or manufacturing establishment is excluded and the beneath land on which such structure to come should have the same wealth tax treatment.
6.11. From the aforesaid details, it could be conclusively proved that the asses see had used the land only for its business purposes by constructing a building in the subject mentioned land and is carrying on its regular business from the said premises. Hence we hold that the land was used by the assessee only for its business purposes. Accordingly, the Ground No. 1 raised by the assessee is allowed.
7. The Ground No. 2 raised by the assessee before us was stated to be not pressed by the ld AR at the time of hearing before us. The same is reckoned as a statement from the Bar and accordingly the Ground No. 2 is dismissed as not pressed.
8. The Ground No. 3 raised by the assessee is with regard to chargeability of interest u!s 17B of the Act, which is only consequential in nature and does not require any specific adjudication.
9. In the result, the appeal of the assessee is partly allowed.
Order pronounced in the Court on 04.04.2018