T.N.C. Rangarajan, Vice President -
(1.) THESE appeals relate to the assessment of a multi-storied building belonging to the assessee-company. The property is at No. 26, Commander-in-Chief Road, Madras, consisting of a land of an extent of 26.65 grounds with a six storeyed building on a built-up area of 469 Sq. Mtrs. There is also another old building of 818 Sq. Mtrs at the back. Of the total area of 26.65 grounds, an extent of 10.52 grounds has been taken as land appurtenant to the main building and the balance of 16.3 grounds was treated as vacant land. The Wealth-tax Officer excluded part of the main building occupied by the assessee for its own business and assessed the rest of the property to wealth-tax. He rejected the claim of the assessee that the entire building must be exempted as a building used in the business of the assessee. The assessee appealed and reiterated this objection which was rejected by the CIT (Appeals) also.
(2.) In the further appeal before us it was contended on behalf of the assessee that under Section 40 of the Finance Act, 1983, an office building held by the assessee for the purpose of its business was exempt and since the assessee was holding this property only for the purpose of its business by earning income therefrom, it should be exempted. It was pointed out that the articles of association specifically provided the holding of property and leasing of the same as part of the business and that income was shown as income from business in the profit and loss account even though bifurcated and assessed partly under the head 'Income from Property'. It was further pointed out that the assessee was also providing services and amenities for which the assessee was receiving fees and this activity was recognised by the Supreme Court as business in the case of Karnani Properties Ltd. v. CIT  82 ITR 547. It was submitted that in the circumstances, the entire property should be exempted from taxation. In the alternative it was submitted that there should be an exclusion of the land beneath the old building which had been inadvertently included as part of the vacant land for valuation.
On the other hand it was contended on behalf of the Revenue that the assessee was deriving income only as owner of the property and therefore, the rent was assessed as income from property. It was submitted that other services supposed to be rendered by the assessee did not make it a business of the assessee. It was also argued that the expression 'for the purposes of its business' indicated that the building must be used for the assessee's own business and the buildings which are let out to others for carrying on their business would not qualify for exemption. It was also argued that the section had listed out various buildings such as Factory, Godown etc., which may be exempt even if they were not used as part of the assessee's business and since the section was exhaustive, the assessee could not get any exemption in respect of a building not listed in the section.
(3.) WE have considered the submissions of both sides and we have considered the back-ground to Section 40 of the Finance Act, 1983. Originally, the WEalth-tax Act imposed a charge on assets belonging to companies which was suspended by Finance Act, 1960. In his budget speech, the Finance Minister stated :
It has come to my notice that some persons have been trying to avoid personal wealth-tax liability by forming closely-held companies to which they transfer many items of their wealth, particularly jewellery, bullion and real estate. As companies are not chargeable to wealth-tax and the value of the shares of such companies does not also reflect the real worth of the assets of the company, those who hold such unproductive assets in closely-held companies are able to successfully reduce their wealth-tax liability to a substantial extent. With a view to circumventing tax avoidance by such persons, I propose to revive the levy of wealth- tax in a limited way in the case of closely-held companies....
Section 40 of the Finance Act, 1983 revived in a limited way the levy of wealth-tax on companies. The section reads as follows :
Revival of levy of wealth-tax in the case of closely-held companies.-
(1) Notwithstanding anything contained in Section 13 of the Finance Act, 1960 (13 of 1960), relating to exemption of companies from levy of wealth-tax under the WEalth-tax Act, 1957 (27 of 1957) (hereinafter referred to as the WEalth-tax Act), wealth-tax shall be charged under the WEalth-tax Act for every assessment year commencing on and from 1-4-1984, in respect of the net wealth on the corresponding valuation date of every company, not being a company in which the public are substantially interested, at the rate of two per cent of such net wealth.
Explanation: For the purposes of this Sub-section, 'company in which the public are substantially interested' shall have the meaning assigned to it in Clause (18) of Section 2 of the Income-tax Act.
(2) For the purposes of Sub-section (1), the net wealth of a company shall be the amount by which the aggregate value of all the assets referred to in Sub-section (3), wherever located, belonging to the company on the valuation date is in excess of the aggregate value of all the debts owed by the company on the valuation date which are secured on, or which have been incurred in relation to the said assets :
Provided that where any debt secured on any asset belonging to the assessee is incurred for, or enures to, the benefit of any other person, of is not represented by any asset belonging to the assessee, the value of such debt shall not be taken into account in computing the net wealth of the assessee.
(3) The assets referred to in Sub-section (2) shall be the following, namely:-
(i) gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals;
(ii) precious or semi-precious stones whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel;
(iii) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone and whether or not worked or sewn into any wearing apparel;
(iv) utensils made of gold, silver, platinum or any other precisous metal or any alloy containing one or more of such precious metals;
(v) land other than agricultural land;
(vi) building or land appurtenant thereto, other than building or part thereof used by the assessee as factory, godown, warehouse, hotel or office for the purpose of its business or as residential accommodation for its employees or as a hospital, creche, school, canteen, library, recreational centre, shelter, rest room or lunch room mainly for the welfare of its employees and the land appurtenant to such building or part:
Provided that each such employee is an employee whose income (exclusive of the value of all benefits or amenities not provided for by way of monetary payment) chargeable under the head 'Salaries' under the Income-tax Act does not exceed eighteen thousand rupees;
(vii) motorcars; and
(viii) any other asset which is acquired or represented by a debt secured on anyone or more of the assets referred to in Clause (i) to Clause (vii).
(4) The value of any asset specified in Sub-section (3) shall, subject to the provisions of Sub-section (3) of Section 7 of the WEalth-tax Act, be estimated to be the price which, in the opinion of the WEalth-tax Officer, it would fetch if sold in the open market on the valuation date.
(5) For the purposes of the levy of wealth-tax under the WEalth-tax Act, in pursuance of the provisions of this section, -
(a) Section 5, Clause (a) of Sub-section (2) of Section 7 and Clause (d) of Section 45 of that Act and Part II of Schedule I to that Act shall not apply and shall have no effect,
(b) the remaining provisions of that Act shall be construed so as to be in conformity with the provisions of this section.
(6) Nothing in this section shall apply to any institution, association or body, whether incorporated or not and whether Indian or non-Indian, which the Central Government may, having regard to the nature and object of such institution, association or body, specify by notification in the Official Gazette and every notification issued under this Sub-section laid, as soon as may be after it is issued, before each House of Parliament.
(7) Subject to the provisions of Sub-section (5), this section shall be construed as one with the WEalth-tax Act.;