- (1.) In this case we are concerned with wealth tax on a property situated at Plot No. 39, Site IV, Sahibabad. The concerned assessment year is 1984-1985. The facts are that the Appellant before us is a company which manufactures bed sheets. It contends that it's own subsidiary company namely, M/s. Dior International Pvt. Ltd., is a company under the same management and is doing processing work, namely, dyeing, for the Assessee company in a part of the factory building situate at the aforesaid property. It is not disputed that M/s. Dior International Pvt. Ltd. installed its own machinery for the said job work of dyeing and that the Assessee charged a sum of Rs. 20,000/- per month as license fee from M/s. Dior International Pvt. Ltd.
(2.) The said sum of Rs. 20,000/- per month charged as license fee has been claimed by the Assessee to be business income. Further, it is also clear that the job work undertaken by M/s. Dior International Pvt. Ltd., though done wholly for the Assessee, was nonetheless charged to the Assessee's account and paid for by the Assessee. The question that arises on the facts in this case is whether Under Section 40(3)(vi) of the Finance Act, 1983, "the building" is used by the Assessee as a factory for the purpose of its business. Section 40(3) is set out herein below: 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 (not being any such precious metal or alloy held for use as raw material in industrial production; (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 precious metal or any alloy containing one or more of such precious metals; (v) land other than agricultural land; (Provided that nothing in this clause shall apply to any unused land held by the Assessee for industrial purposes for a period of two years from the date of its acquisition by him;) (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 purposes of its business or as residential accommodation for its employees or as a hospital, enter, school, canteen, library, recreation enter, shelter, rest-room or lunch room mainly for the welfare of its employees and the land appurtenant to such building or part: (vi a) any building used as residential accommodation in the nature of a guest house and land appurtenant thereto; (vi b) any building and the land appurtenant to such building used as residential accommodation by any director, manager, secretary or any other employee of the Assessee, such employee holding not less than one per cent of the equity share of the Assessee or by any relative of any person who holds not less than one per cent of the equity share of the Assessee.
(3.) By an order dated 9th March, 1989, the assessing authority held that on these facts they had no hesitation in holding that the part of the building given to M/s. Dior International Pvt. Ltd. on licence is not being used for the Assessee's own business and therefore, the Assessee is not entitled to exemption in respect of the said part of the Sahibabad building property. On an appeal to the Commissioner of Income Tax (Appeals), the Commissioner by judgment dated 28th January, 1993 agreed with the assessing authority and dismissed the appeal. The Commissioner opined that the assessing officer should refer the matter to the Valuation Officer Under Section 16A(1)(b)(ii) for the valuation of the portion given on rent by the Appellant company to its licensee. In a further appeal to the Income Tax Appellate Tribunal, the Income Tax Appellate Tribunal agreed with the view of the authorities below and dismissed the appeal. It held as follows: The expression "used by the Assessee as factory....... for the purpose of its business" used by the legislature in the aforesaid clause clearly shows that the building or part of such building which is to be excluded from the net wealth must be used by the Assessee as factory for the purpose of its own business.... In the present case, there is no dispute that a portion of the building was let out to its sister concern M/s. Dior International P. Ltd. which is a subsidiary company of the Assessee at rent of Rs. 20,000/- p.m. Further, the AO has given a finding that it was M/s. Dior International P. Ltd. which had installed the machinery for the purpose of its own business of manufacturing of readymade garments. This factual aspect is not controverted by the Assessee. The Hon'ble Bombay High Court in the case of Phalton Sugar Works : 208 ITR 989 has held that the business of the subsidiary company cannot be considered as business of parent company. In the eye of law, both are independent entities. No doubt, M/s. Dior International P. Ltd. was manufacturing the garments for the Assessee but it was charging the price for the same from the Assessee and Assessee was charging rent for the use of the premises. Therefore, the only relationship between the parties was that of the lessor and lessee and nothing else. Therefore, the contention of the Assessee that M/s. Dior International was manufacturing the garments for the Assessee, in our opinion, would not advance the case of the Assessee and is, therefore, rejected. In view of the above discussion, it is held that a portion of the building belonging to Assessee was in fact used by M/s. Dior International for its own use of manufacturing activity and consequently, it cannot be said that such portion of building was used by the Assessee for the purpose of its own business of manufacturing as factory. Therefore, such portion of the building was rightly included by the lower authorities in the net wealth of the Assessee company. However, in Clause (vi) of Sub-section (3) of Section 40 of Finance Act, 1983, the legislature has specifically provided that building must be used as factory by the Assessee himself. In view of this distinguishing factor, the said judgment of the Hon'ble Supreme Court cannot be applied to the present case. The observations of the Hon'ble Supreme Court at page 314 of 231 ITR, on which reliance was placed by the learned Counsel for the Assessee, do not advance the case of the Assessee in as much as those observations were made in the context of the language of Section 32A. In the present case, it is not the case of the Assessee to lease out the building. Further, mere user for the purpose of business is not sufficient for the purpose of claiming exemption Under Section 40 of Finance Act, 1983. As observed earlier, the use must be by the Assessee himself as factory, that is, for the purpose of business of manufacturing carried on by him. Since in the present case admittedly the premises were actually used by the lessee and not by the Assessee, we are unable to accept the contention of the learned Counsel for the Assessee.;