We find that as long as the assessee owns the commercial asset, which is capable of being put to productive use, the said commercial asset is not exigible to Wealth Tax. In this case, the assessee along with two other companies owns the theatre but could not run the theatre due to various reasons but that does not mean that the property has lost its character. Hence, we are satisfied that it is in the nature of commercial establishment, and the exclusion provided in section 2(ea)(i)(3) would be applicable.
FULL TEXT OF THE ITAT JUDGMENT
Both are Revenue’s appeals for the A.Y 2007-08 and 2008-09 against the order of the CIT (A)- 1, Hyderabad, dated 9.6.20 17. The Revenue has raised the following grounds of appeal:
“ 1. Learned CIT (A) erred on both facts and law of the case.
2. Learned CIT (A) erred in holding that share of property at a value of Rs.2,13,50,000 is a commercial asset and is exempt u/s 2(ea)(i)(3) of Wealth Tax Act.
3. Learned CIT (A) failed to appreciate that asset has not fulfilled the conditions to be categorized as commercial establishment.
4. Any other ground that may be urged at the time of hearing of appeal”.
2. Brief facts of the case are that the assessee company purchased a property at Visakhapatnam along with two other group companies on 12.10.2006 for a consideration of 6,40,50,000. The property is located at Daba Gardens in Visakhapatnam and comprised of land and building being a Cinema Theatre. The assessee did not file its returns of wealth for the A.Y 2007-08. The AO was of the opinion that the property is situated in Visakhapatnam City and therefore, is an asset chargeable to tax as per the provisions of section 2(ea) of the Wealth Tax Act. Therefore, he issued a notice u/s 17, dated 15.02.2011 calling for the return of wealth for the relevant A.Ys.
3. In reply to the same, the assessee filed its wealth tax returns on 25.04.2011 declaring its share of the property at a value of Rs.2, 13,50,000 and claimed it as exempt u/s 2(ea)(i)(3) on the ground that the asset is a commercial establishment and therefore, is not chargeable to wealth tax. The AO, however, was not convinced and asked the assessee to produce copies of the Annual Report of the Company for the financial year 2006-07 to 2010-11, copy of the sale deed for the land and building and copies of the permissions received from the local authorities for running the commercial establishment in the said property and the status of the project being carried out on the said property at that point of time.
4. In response to the said notices, the assessee filed letter dated 10.08.2011 furnishing the relevant material and sating that there is no activity being carried out on the said property as on the date, due to lack of business opportunity/permission and financial condition and that the asset purchased by the assessee is an existing cinema theatre and is not liable to the wealth tax. The AO observed that the assessee, on the one hand, is stating that no activity was carried on the said property, while on the other hand, had claimed that the asset is an existing cinema theatre and is not liable for wealth tax. Observing that the assessee did not produce any copy of the permission/license issued by the local authority for running the commercial establishment on the property under consideration, he held that the property is not liable to be treated as an asset under the Wealth Tax Act, 1957. He therefore, proceeded to compute the wealth tax chargeable on the asset of Rs.2,41,20,000 and brought to tax. Aggrieved, the assessee preferred appeals before the CIT (A), who allowed the same and the Revenue is in appeal before us raising the above grounds of appeal.
5. While the learned DR supported the orders of the AO, the learned Counsel for the assessee supported the order of the CIT (A).
6. Having regard to the rival contentions and the material on record, we find that the assessee and other co-owner had purchased a Cinema Theatre with the land and buildings appurtenant thereto. As stated by the learned Counsel for the assessee, the Theatre were not operative during the relevant A.Ys because they were being renovated into multiplex theatres. He submitted that the asset was a commercial asset and therefore, the wealth tax is not payable on the said asset.
7. We find that the CIT (A) has taken all these contentions of the assessee into consideration to hold as under:
“5.4. The appellant has submitted before the AO that it was a commercial property and it was intended to make a commercial enterprise along with the other purchasers. However, since it was in residential area appellant could not set up commercial activity in the property. The contention of the AO is that the property has not been turned/used as commercial property. In absence of proof by the appellant regarding the nature of use of the property, the AO has taken it as a wealth.
However, it is seen that property has been purchased along with other business entities for making out commercial venture. The appellant company is in business of real estate. Buying land and constructing properties is nature of the business. The appellant is also showing the said property as an asset of the appellant company in the financials. Therefore, the asset is a commercial asset which is purchased for commercial activity. Hence, the same should not be included in assets in terms of section 2(ea) of the Wealth Tax Act.
In light of the above, I accept the contention of the appellant. Hence ground is allowed”.
8. Except for relying upon the assessment order, the learned DR could not rebut the findings of the CIT(A). The learned DR however, had also placed reliance on the decision of the Coordinate Bench of this Tribunal in the case of TGV Projects & Investments (P) Ltd vs. ACIT reported in (2006)153 Taxman 15 (Hyd.) wherein the amended definition of the term “asset” by the Finance Bill (No.2) 1996, was considered and after taking into consideration the budget speech of the Finance Minister, the Tribunal had held that the assessee therein had constructed certain commercial buildings and as part of its business let out such property and therefore, it is not exigible to wealth tax. The learned DR had placed reliance upon the following portion of the budget speech of the Finance Minister (referred to therein):
“96. I find it unreasonable that commercial properties, not used by the assessee as his business, office or factory premises, should be outside the levy of wealth-tax. Accordingly, I propose to plug this unintended loophole and levy wealth-tax on such commercial properties”.
Thus, according to the learned DR, since the asset was not commercially used during the relevant A.Ys, it is exigible to Wealth Tax Act.
9. The learned Counsel for the assessee, on the other hand, placed reliance upon the following decisions:
1. ITAT Kolkata in the case of WTO vs. Ferrolite Products Ltd reported in 55 com285
2. ITAT Pune in the case of Satvinder Singh vs. DCWT reported in (2007)109 ITD 241 (Pune)
3. Hon’ble Gujarat High Court in the case of CIT vs. Vasumatiben Chhaganlal Virani reported in 37 com216.
4. ITAT Mumbai in the case of DCIT vs. Sumant G. Naik reported in 34 com259.
10. Having gone through these judgments, we find that as long as the assessee owns the commercial asset, which is capable of being put to productive use, the said commercial asset is not exigible to Wealth Tax. In this case, the assessee along with two other companies owns the theatre but could not run the theatre due to various reasons but that does not mean that the property has lost its character. Hence, we are satisfied that it is in the nature of commercial establishment, and the exclusion provided in section 2(ea)(i)(3) would be applicable. Therefore, we see no reason to interfere with the order of the CIT (A) which is on similar lines.
11. In the result, Revenue’s appeals for both the A.Ys are rejected.