1. This is an appeal by the assessee against an order of the Commissioner of Wealth-tax (Appeals)-IX, New Delhi, pertaining to the assessment year 1984-85.
2. The assessee is aggrieved by the manner in which the CWT (Appeals) has determined the value of the cinema building known as Naaz Cinema, New Delhi. These grounds are enumerated in the grounds of appeal from 1.1 to 3. By a letter dated 9-11-1992 the assessee raised by way of additional ground a legal point by saying that it will not require any further investigation of facts nor it is designed to enlarge the scope of appeal.
3. After hearing the parties, we have admitted the additional grounds raised by a letter dated 9-11-1992. In the additional grounds the assessee assailed the order of the CWT (Appeals) on the ground that the inclusion of value of Naaz Cinema Building in the wealth-tax is against the provisions of Section 40(3) of the Finance Act, 1983. Provisions of Section 2(e)(v) of the Wealth-tax Act, 1957 could not be invoked in contravention of the specific provisions of Sub-section (4) of Section 40 of the Finance Act, 1983. Clause (vi) of Sub-section (3) of Section 40 of the Finance Act, 1983 has been substituted by Finance Act, 1988 with effect from 1-4-1988 whereby the word "Cinema House" is also included. This being retrospective in nature effect should have been given. Alternatively it was pleaded that the Cinema Building cannot be included in the wealth of the assessee in view of the decision of the Supreme Court in the case of F.S. Gandhi v. CWT [1990] 184 ITR 34.
4. In order to appreciate controversy it is worthwhile to mention the facts of the case. The facts of the case are that the assessee company owns a cinema known as Naaz Cinema. It was constructed way back in 1959 on lease-hold land at Jhandewalan, New Delhi. The land belonged to Delhi Improvement Trust and in the year 1948, Delhi Improvement Trust leased out the land to M/s. Raisina Cold Storage & Ice Pvt. Ltd. with effect from 27-1-1948 for a period of 20 years. In the mean-time the original allottee was succeeded by D.L.F. Limited. The lease was further extended for 20 years ending on 26-1-1988 by D.D.A. in favour of D.L.F. Universal Ltd. A portion of this land was sublet by original lessee, i.e., DLF Universal Ltd. to the assessee on which the cinema building was constructed. The sublease was coterminus with the main lease in favour of M/s. DLF Universal Ltd. The building together with certain machinery, equipments, furniture and fittings has been leased out by the assessee for exhibition of films to a partnership firm known as M/s. Naaz Cinema. Canteen and Cycle stand have also been separately licensed to another party. The assessee company is running on its own only one show, while the remaining four shows are run by the said M/s.
Naaz Cinema Delhi. The rent was charged @Rs. 14,500 per month based on the ALV of Rs. 1,74,000 which included inter alia rent for machinery, equipment, projector, furniture etc. and income from shows. The value of the property was declared at Rs. 3.57 lakhs as per approved Valuer's report adopted under the yield method. The Assessing Officer referred the matter of valuation to the Valuation Officer who has assessed the value of the property described above at Rs. 85,57,400 on the rent capitalisation method despite the fact that the assessee has pointed out various inconsistencies and factual mistakes in the valuation made by the Valuation Officer. Aggrieved by that order, the matter came up in appeal before the CWT(Appeals).
5. The CWT(Appeals) has given part relief and thereby directed the Assessing Officer/Departmental Valuation Officer to recalculate the value of assets on the valuation date as per his order. The assessee is still aggrieved.
6. The learned counsel for the assessee submitted that this matter can be decided on the legal aspect. Therefore, it was submitted that by virtue of Section 40(3)(vi) of the Finance Act, 1983, which is to be read as part of Wealth-tax Act, 'Plant & Machinery' are not chargeable to tax and since Cinema Building has been held to be a plant, it cannot be taxed. It was pointed out that this section was further amended to exempt cinema building and it should be given retrospective effect. In view of decision of Bangalore Bench of the Appellate Tribunal in the case of Prakash Talkies (P) Ltd. v. First WTO [1989] 28 ITD 213, it was pointed out that in this decision the object of substituting the Cinema building is also mentioned. It was pointed out that with a view to remove this unintended hardship and provide incentive for growth and modernisation the amendment was brought in Section 40 of Finance Act, 1983 w.e.f. 1-4-1988 by Finance Act, 1988. In the memorandum explaining this provision itself the connotation of'substituted' was incorporated in this order and it was pointed out that the word 'substituted' is of great significance, specially when contrasted with the other words and added in this section. Our attention was invited to the speech of the Finance Minister in which it is mentioned that the object of amendment was only to tax unproductive assets. The object of the provision of Section 40 is to curb the attempt made by the individual to reduce the liability. It is clear from Sub-section (2) of Section 40 that while arriving at the net wealth of the company, only those assets which are referred to in Sub-section (3) of Section 40 can be considered. The provision of Section 40 is self-contained and separate code by itself.
It is not possible to read into this code the provisions of the wealth-tax indiscriminately. Sub-section (5) of Section 40 of the Finance Act, 1983 mentions that Sections 5, 7(2)(a) and 45(d) of the Act will not apply for the purpose of levy of wealth-tax on closely-held companies. It further directs that the remaining provisions of wealth-tax shall be so construed as to be in conformity with the provisions of Section 40 of the Finance Act, 1983. It was submitted that the valuation of cinema building can be included in the wealth of the assessee by virtue of Section 2(e) only. Section 2(e) has to be read only in conformity with the subject code. After applying provisions of Section 2(e) if it is found that it is not in conformity with Section 40 of the Finance Act, that Section cannot be applied.
Continuing his arguments, it was submitted that land was on lease which finally expired on 26-1-1978 and has not yet been renewed. The matter of granting perpetual lease between DLF Universal Ltd. and D.D.A. is pending before the Hon'ble High Court, where the assessee had sought injunction against eviction by paying Rs. 2.25 crores. Thus the only asset required to be valued was the super-structure of cinema building as lease-hold property which is not exigible to wealth-tax by virtue of Section 40(3) of the Finance Act, 1983 because after the expiry of lease the assessee is a tenant of property by holding and there being no new tenancy, he will be a tenant precarious in nature. The assessee cannot ask for grant of fresh lease on terms and conditions mentioned.
This new tenancy will start from month to month under Section 116 read with Section 106 of the Transfer of Property Act, 1882. It was submitted that this tenancy being precarious in nature, cannot be defined as an asset under Section 2(e) of the Wealth-tax Act because the lease had expired. He has only a right which may materialise or not in future. Reliance was placed on the following decisions for the proposition that the cinema house is held as a plant and machinery:- As against this, the learned Departmental Representative Smt. Anuja Sarangi supported the action of the CWT(Appeals).
7. We have heard the learned Departmental Representative and opportunity was also given to the Valuation Officer Shri N.K. Sood who was present in the Court but he did not argue. The learned Departmental Representative Smt. Anuja Sarangi pointed out that the assessee has rented out the machinery, equipments, furniture, fittings etc. to M/s.
Naaz Cinema and also exhibited one show. Therefore, it is deriving rental income and this rental income has value. Therefore, the CWT (Appeals) has rightly included the value of cinema building together with machinery, equipments, furniture, fittings etc. in the net wealth of the assessee. It was pointed out that the lease granted by the D.D.A. had expired in January 1988 only. Therefore, during the year under consideration the assessee had aright of lease-hold land. Thus this lease-hold land has a market value which was valued at the hands of the assessee.
8. We have considered the rival submissions. In the case of S.K. Tulsi & Sons (supra) the Hon'ble Allahabad High Court has held that in order to find out whether a building or structure or a part thereof constitutes 'Plant', the functional test must be applied. If it is found that the building or structure constitutes an apparatus or a tool of the taxpayer by means of which the business activities are carried on, it would amount to 'plant' but where the structure plays no part in the carrying on of those activities but merely constitutes a place which they are carried on, the building cannot be regarded as a plant.
In the case of Tulsi Theatre (supra) following its earlier order in the case of S.K. Tulsi & Sons (supra) the same High Court has held that the cinema building constituted 'plant'. Similar view was taken by the Madras High Court in the case of A.V. Mayyappa Chettiar (supra). The Ahmedabad Bench of the Tribunal in the case of Patel Enterprises (supra) and Shashi Theatre (P.) Ltd. (supra) have held that the cinema building which is used for exhibition of films is a plant for the purpose of depreciation and investment allowance. Thus from these decisions it is clear that the cinema building where films are exhibited, should be treated as a 'plant'. In the case of Prakash Talkies (P.) Ltd. (supra) the Hon'ble Bangalore Bench of the Tribunal considered the applicability of provision of Section 40(3)(vi) of the Finance Act, 1983 on cinema theatre and after considering this provision, have held as under:- Wealth-tax on companies was reintroduced by the Finance Act, 1983.
Accordingly, Section 40 thereof brought to tax the company's net wealth which was the aggregate value of all the assets referred to in Sub-section (3) which was in excess of the aggregate value of the debts owed by the company as on the valuation date. The plant and machinery used in the assessee's business was not one of the items listed in Sub-section (3) as an asset liable to tax. The object of this legislation was only to tax unproductive assets not actually utilised in the business. Since the cinema theatre in this case was actually a source of the assessee's income even though it might not have been assessed under the head 'Profits and gains of business or profession' which might require the treatment of the cinema theatre as a plant for income-tax purposes. The nature of the asset remained a plant for the purpose of wealth-tax. A new Clause (vi) was substituted by the Finance Act, 1988, for the existing Clause (vi) in Section 40(3), so as to include the words 'cinema house' in the list of items of building used by the assessee and exempt from wealth-tax. As noted in the memorandum explaining this provision itself, this substitution has been made to remove an unintended hardship. Thus, the provisions of the Finance Act, 1988 led one to presume that a cinema house was intended to be included in the list of assets exempt from wealth-tax even from inception because the connotation of 'substituted' was that new clause should be taken to have been incorporated in place of the old clause from the very inception. This was also clear from the wording of the original clause itself which stated that building used by the assessee for the purpose of its business should be exempt. Hence, the assessments were to be annulled.
The Tribunal has further observed that the word 'substituted' in Clause (c) of the Act is of great importance specially when contrasted with the other two words "inserted" and "added" in the same section. It is to be presumed that Parliament has advisedly used this word to give it a meaning quite different from the other two so that it means that this amendment is in fact, a declaratory statute. As noted in the Memorandum explaining these provisions itself this substitution has been made to remove an unintended hardship. Even the Finance Minister has stated earlier that the object was only to tax unproductive assets. It was further observed that the list of items such as factory, godown, warehouse, etc. cannot be exhaustive but only illustrative of the buildings exempt from wealth-tax. The clause itself has to be read ejusdem generis. This rule applies when "(i) the statute contains an enumeration of specific words; (ii) the subjects of enumeration constitute a class or category; (iii) that class or category is not.
exhausted by the enumeration; (iv) the general terms follow the enumeration; and (v) there is no of a different legislative intent." These conditions are satisfied in case to attract this rule so that we are convinced that a cinema theatre was intended to be included in the category of buildings exempt from tax even from the very inception.
9. In another case Park Hotel (P.) Ltd. (supra), before the Hon'ble Calcutta Bench of the Tribunal, the question of exemption of cinema building came where the interpretation of provision of Section 2(e), Section 7(2) (a) and Section 45(d) of the Wealth-tax Act vis-a-vis Sub-sections (3), (4) & (5) of Section 4 of the Finance Act, 1983 was considered. The facts in that case are also similar to the present case. The Tribunal has observed as under: - The object of the provisions of Section 40 of the Finance Act, 1983 is to curb the attempts made by individuals to reduce the wealth-tax liability by transferring their wealth to closely-held companies formed by them.
It is clear from Sub-section (2) of Section 40 that while arriving at the net wealth of the company only those assets which are referred to in Sub-section (3) of Section 40, can be considered. The provision of Section 40 is a self-contained and separate code by itself. It is not possible to read into this code the provisions of the wealth-tax indiscriminately. Sub-section (5) of Section 40 of the Finance Act, 1983 expressly says that Sections 5, 7(2)(a) and 45(d) of the Act will not apply for the purpose of levy of wealth-tax shall be so construed as to be in conformity with the provisions of Section 40 of the Finance Act, 1983. Section 2(e) is one such provision which should be read only in conformity with the subject code. If while applying the provisions of Section 2(e) it is found that it is not in conformity with the provisions of Section 40 of the Finance Act, that section cannot be applied.
In the instant case, the immovable property could be brought to tax in the hands of the assessee company only if that property belonged to the assessee-company. It was common ground that the said property was not owned by the assessee-company. It would be doing violence to the express provision of Section 40 of the Finance Act, 1983, if the provisions of Section 2(e) were invoked to bring to tax the lease-hold interest of the assessee in the said immovable property even though the lease was for a period exceeding six years.
The Legislature in its wisdom has specified various assets that are to be brought to tax in the hands of closely-held companies. Had it been the intention of the Legislature that all the provisions of the Wealth-tax Act should be made applicable, a simple expedient of amending the charging Section (3) to include closely-held company as an amendment to Section 13 of the Finance Act, 1960 would have been sufficient. Since the Legislature has thought of a separate scheme for levy of wealth-tax on closely-held companies, detailed provisions have been made in a separate enactment.
Therefore, the order of the Commissioner (Appeals) to the effect that the lease-held interest of the assessee in the immovable property could not be assessed to wealth-tax was upheld.10. In the case of F.S. Gandhi (supra) the assessee owned certain buildings erected on certain lands which were leased out to him by the Government of U.P. The lease expired in 1958 and 1963 and the Government issued notices to the assessee to hand over vacant possession of the lands. The assessee continued in possession and received rental income from the buildings like the present one. The Wealth-tax Officer-included the value of the properties. When the matter came before the Hon'ble Supreme Court, it held as under:- Held, reversing the decision of the High Court, (i) that, in view of the words "for a period not exceeding six years" which follow the word "available" in Section 2(e)(2)(iii) [or the earlier Section 2(e)(v) which was identical], the word "is" must be construed as referring to the present and the future; and in that sense, it would mean that the interest in property is available and is to be available in future for a period not exceeding six years. The word "is" cannot be construed to mean "has been". The question as to whether the interest in property should be included or excluded from the assets of the assessee under Section 2(e)(2)(iii) has to be considered in the light of the nature of the interest on the relevant date, viz., the date on which the interest vests in the assessee.
(ii) That the only change which was brought about in Section 2(e)(v) as a result of the amendment introduced in 1964 whereby the words "from the date the interest vests in the assessee" were inserted was that, prior to the amendment the relevant date was the valuation date and the availability of interest had to be seen with reference to that date and, as a result of the amendment of 1964, the relevant date became the date on which the interest vested in the assessee, and, therefore, the availability of the interest was to be seen with reference to the date on which the interest vested in the assessee.
But the requirement that, on the relevant date, the interest would be available in future for a period exceeding six years, as laid down by the Supreme Court in CWT v. R.A. Muthukrishna Ammal [1969] 72 ITR 801, remained unaltered.
(iii) That it must be assumed that, while enacting the Finance Act, 1969, Parliament was aware of the construction placed by the Supreme Court on the words "where the interest is available to an assessee for a period not exceeding six years" in Muthukrishna Ammal's case [1969] 72 ITR 801 (SC) and, in repeating those words in the amended Section 2(e), Parliament must be taken to have used those words to bear the meaning which was put upon them by the Supreme Court.
(iv) That, on the facts, after the expiry of the leases in 1958 and 1963, the assessee continued in possession under a new contract and the said tenancy was a tenancy from month to month for an unstated period. The new tenancy was precarious in nature because it could be terminated by the lessor, viz., the Government of U.P., at any time by a notice under Section 106 of the Transfer of Property Act. The fact that such a notice was not given did not mean that the interest created by the new tenancy was an interest available to the assessee for a period exceeding six years from the date the interest vested in the assessee. In the circumstances, in view of Section 2(e)(2)(iii), the said interest could not be treated as an asset of the assessee for the purpose of the Wealth-tax Act.
(v) That, therefore, the properties in respect of which leases had expired in 1958 and 1963 and notices had been received by the assessee to hand over possession were not "assets" within the meaning of Section 2(e)(2)(iii) of the Wealth-tax Act and their value was not liable to be included in the net wealth of the assessee.
Held, also that the fact that the asseessee whose leases had expired in 1958 and 1963 could ask for grant of fresh lease on the terms and conditions mentioned in 1959 and 1960 orders issued by the Government of Uttar Pradesh only meant that, in the relevant assessment years, the assessee had the right to obtain fresh leases for the lands or the properties in question. But there was nothing to show that, in pursuance of the said right, fresh leases had been granted by the Government of U.P. in respect of those lands and such leases were available to the assessee during the assessment years in question.
Applying the principles laid down by the Hon'ble Supreme Court and various Benches of the Appellate Tribunal in the cases cited above, to the facts of the present case, it is clear that the assessee had given building together with the machinery, equipments, furniture and fittings for exhibition of films to a firm known as M/s. Naaz Cinema.
The sub-lease granted by the D.L.F. Universal Ltd. in favour of the assessee has expired in the year 1978. The D.L.F. Universal Ltd. has applied for perpetual lease to the D.D.A. and the matter is pending before the Hon'ble Delhi High Court. The assessee was granted injunction against eviction on payment of Rs. 2.25 crores but no final order has been passed. In view of these facts the value of cinema building is exempt from wealth-tax on the ground that it is a plant & machinery as defined under Section 40(3)(vi) of the Finance Act in view of the decisions of the Tribunal in the cases of Prakash Talkies (P.) Ltd. (supra) & Park Hotel (P.) Ltd. (supra). Even otherwise, when the lease has expired and the assessee has been asked to handover the possession. The assessee, in spite of asking for grant of fresh lease, has not been granted lease for a period beyond 1978 and he has obtained injunction against eviction by the Hon'ble Delhi High Court. Therefore, under these circumstances, it cannot be said that the assessee had the right to obtain fresh lease for the land or properties in question.
There is nothing to show that in pursuance of the said right fresh lease has been granted by the Government in respect of land. Therefore, this right cannot be said to be an asset within the meaning of Section 2(e)(2)(iii) of the Wealth-tax Act and its value was not liable to be included in the net wealth of the assessee in view of the decision of the Supreme Court in the case of F.S. Gandhi (supra).
11. In view of our above discussion, the appeal of the assessee succeeds on legal point. Therefore, we set aside the order of the CWT (Appeals) valuing the property under the Wealth-tax Act. The Cinema-house being plant & machinery, is not chargeable to tax as per the provisions of Section 40(3) of the Finance Act, 1983 also.