Commissioner of Wealth Tax vs Synthite Industrial Chemicals Ltd.

P.R. Raman, Actg. C.J.

This appeal is directed against the order of the Income Tax Appellate Tribunal, Cochin Bench in W.T.A. No. 77/Coch/ 2002, dated December 14, 2005, in setting aside the order of the Commissioner of Wealth-tax passed u/s 25(2) of the Wealth-tax Act, 1957, hereinafter referred to as "the Act" for short. The Assessee claimed exemption under Sub-clauses (4) and (5) of Section 2(ea)(i) of the Act, noticing that those provisions are not there in the statute at the relevant time, i.e., during the assessment year 1998-99, and the Tribunal allowed the appeal filed by the Assessee.

The brief facts required for the disposal of this appeal are as follows. The Assessee is a company engaged in the manufacture and export of spice products. For the assessment year 1998-99, the Assessee filed its return of net wealth on November 30, 1998, declaring a net wealth of Rs. 2,72,07,400. The assessment was completed u/s 16(3) of the Act on February 28, 2001, determining the total wealth at Rs. 4,68,70,800. The Assessee filed an appeal against the said order and the same is pending before the Commissioner of Wealth-tax (Appeals). In the mean time, the Commissioner of Wealth-tax issued a notice u/s 25(2) of the Act proposing to revise the order of the Assessing Officer. The Commissioner of Wealth-tax noticed that the land at Thevara to the extent of 3.74 acres was purchased by the Assessee-company in August, 1993. Another company, M/s. Synthite Properties and Investments Ltd. had promoted a project on the said land for construction of residential apartments. After considering the records of the promoter company, M/s. Synthite Properties, it was seen that the Assessee-company purchased 30 apartments from the promoter company for a value of Rs. 5,16,20,665. It was stated by the Assessee-company that the intention to purchase these flats was to help the promoter company to tide over the financial crisis and also to enable the Assessee-company to start a hotel business in the apartments. Though in the balance-sheet of the Assessee-company, this item of asset was not specifically mentioned, the work-in-progress of the building in research and development department to the extent of Rs. 5,49,49,252 was quantified. In the return of net wealth filed by the Assessee-company, the value of the apartments amounting to Rs. 5,16,20,665 was not offered for assessment. The Assessing Officer, in such circumstances, did not bring to tax the said amount. So, notice was issued to the Assessee. The Assessee responded. According to him, the property in question was purely a commercial building, where a hotel business called "Hotel Riviera" was being carried on by the company''s subsidiary Synthite Properties and Investments Ltd. and since commercial establishments and complexes are exempted from wealth-tax, the Assessee was not liable for wealth-tax with regard to the said item. Further, it was contended that the furnishing and finishing work of the hotel division was in progress during the accounting year relevant to the assessment year under consideration, and, therefore, the inauguration could not be held during that year itself, and that it would not alter the fact that the property in question was a commercial building. But the Commissioner did not accept those contentions. According to him, as per Section 2(ea)(i) of the Act, any building or land appurtenant thereto, whether used for residential or commercial purposes, for the purpose of maintaining a guest house or otherwise including farm house situated within 20 kms from the local limits of any Municipality has to be subjected to wealth-tax with certain exceptions. According to him, since the contemplated hotel business or any other line of business was not put into effect during the year under consideration, such asset could not and would not partake of the nature of commercial establishment or complex, so as to be eligible for the exception enunciated in Section 2(ea)(i)(5) of the Act. He, accordingly, set aside the order of the Wealth-tax Officer and directed to redo the same, in the light of the discussions made in that order.

The Assessee appealed. The Tribunal took the view that Sub-clauses (4) and (5) of Section 2(ea)(i) of the Act was brought into force subsequently and, therefore, not relevant for the concerned assessment year, to which exemption was claimed. Both sides agree that the provision did come into force only later and no exemption could have been claimed in those provisions which were not in the, statute at the relevant time. In such circumstances, this appeal is liable to be allowed on that short ground, since the question involved is as to whether the Assessee is entitled for any exemption.

The learned Counsel appearing for the Respondent-Assessee in this regard submitted that admittedly Sub-clauses (1) to (3) has no application on which the Assessee cannot claim exemption. Sub-clause (1) deals with exemption for residential purposes; Sub-clause (2) deals with exemption for residential or commercial purposes which forms part of stock-in-trade; Sub-clause (3) deals with any house which the Assessee may occupy for the purpose of any business or profession carried on by him. Thus, none of the above clauses would apply to consider the claim for exemption in the case of the Assessee. Sub-clauses (4) and (5) of Section 2(ea)(i) of the Act have no application, as already noticed, those are the provisions which came into force subsequent to the assessment in question.

It is contended by the learned Counsel for the Respondent that at the time of assessment, the buildings were not completed and were under construction. We have noticed the reply as borne out by the order passed by the Commissioner of Wealth-tax and find that no such contention as such was raised. On the other hand, it was only when the records of the promoter company were verified, it came to light that the Assessee-company had purchased 30 apartments from the promoter company for a value of Rs. 5,16,20,665. If, as a matter of fact, the construction of the buildings was not complete, that being a question of fact, ought to have been pleaded in the reply and no such contention was raised.

In the above circumstances, the only plea being raised on Sub-clauses (4) and (5) of Section 2(ea)(i) of the Act, which have no application with reference to the assessment in question and since other clauses have no application under which the Assessee could claim exemption, we find that the order passed by the Commissioner of Wealth-tax is not liable to be interfered with.

In the result, the appeal is allowed. The impugned order of the Tribunal is set aside.