1. This appeal by the assessee for the asst. yr. 1990-91 is directed against the order of the CWT(A)-II, Calcutta, dt. 10th Feb., 1995, whereby he partly allowing the assessee's appeal upheld the WTO's order in bringing within the ambit of WT Act the flat owned by the appellant-company.
2. Shortly stated the facts leading to this appeal are that the assessee-appellant, being a private limited company, is a property developer. It is also alleged by the assessee that the flats developed by the assessee are meant for sale and till a suitable purchaser is available, the assessee temporarily lets out the flats on rent with a view to defray the interest on borrowings. The WTO had brought to tax the let out portion of the assessee's building situated at Camac Street, being 1282.66 sq. m., and also 940 sq. m. out of 1440 sq. m.
being the portion of the assessee's own office use in Camac Street building together with the incomplete portions of the assessee's three buildings situated at Camac Street, Wood Street and Purandas Road, shown by the assessee as work-in-progress. Aggrieved thereby, the assessee-appellant preferred its first appeal before the CWT(A) who, vide his impugned order, disposed of the appeal as mentioned above. The assessee, aggrieved thereby, has come up in appeal before the Tribunal.
3. The assessee originally raised two grounds of appeal and then raised two additional grounds of appeal on 10th July, 1996, and further raised five additional grounds on 15th July, 1996, as mentioned below : (1) For that the order of the learned CWT(A) is contrary to the facts and the circumstances of the case.
(2) For the learned CWT(A) grossly erred in upholding the order of the AO treating the stock-in-trade (Building in progress) of Rs. 1,49,56,002 as part of the taxable wealth in utter disregard to the provisions contained in s. 40(3) of the Finance Act, 1983. It is prayed that the aforesaid sum should be deleted from the computation of net wealth of the appellant.
(1) That on the facts and in the circumstances of the case, the learned CIT(A) erred in upholding the action of the AO in bringing into the ambit of wealth-tax, the value of the let out portion of the property valued by him at Rs. 1,30,77,362 and thereby upholding the applicability of s. 40(3) of the Finance Act, 1983, to the let out portion of the property which is the business assets of the appellant.
(2) That on the facts and in the circumstances of the case, the learned CIT(A) erred in upholding the action of the AO in computing the gross wealth and gross assets as per balance sheet according to certain calculation which are not as per law and thereby upholding the action of the AO in assessing the net wealth of the appellant at Rs. 1,37,28,900 as against the return wealth of Rs. 65,281.
(i) That on the facts and in the circumstances of the case, the CIT(A) erred in upholding the action of the AO in valuation of let out portion of the property at 12.5 times of the net maintainable rent.
(ii) That on the facts and in the circumstances of the case, the learned CIT(A) erred in upholding the action of the AO in taxing to wealth the own office (40.10 sq. m.) portion used for business by the appellant and also the work-in-progress as chargeable to wealth-tax.
(iii) That on the facts and in the circumstances of the case, the CIT(A) erred in upholding the action of the AO in computing the total assets as per balance sheet at Rs. 3,55,61,835 which actually is not the actual asset position as per balance sheet.
(iv) That on the facts and in the circumstances of the case, the learned CIT(A) erred in confirming the action of the AO in calculating the proportionate liability to be allowed against the gross wealth at Rs. 1,78,55,616 which is erroneous.
(v) That on the facts and in the circumstances of the case, the CIT(A) erred in upholding the action of the AO in allowing only 500 sq. m. for office store and employees' residence in computing taxable asset and thereby giving a deduction of Rs. 7,95,656.
4. The assessee has twice raised additional grounds apart from the original grounds raised in the memo of appeal as mentioned above and considering the fact that the perusal of the record shows that the aforesaid additional grounds do arise from the impugned order and emanate from the matters in dispute in authorised appeal under consideration and that by the learned authorised representative too no substantial objection has been raised, and considering all the facts and circumstances of the case, the said additional grounds are hereby admitted.
5. We have heard the arguments of both the sides and perused the record.
6. A perusal of the record shows that mainly three matters are in dispute in this appeal which are the let out portion of the Camac Street building, the work-in-progress part of the assessee's three buildings mentioned above and own office use part of the Camac Street building. We are first taking up ground No. 1 of the additional grounds dt. 10th July, 1996. This ground pertains to the let out portion valued at Rs. 1,30,72,362. The learned authorised representative has raised two fold arguments in this regard. He has contended that the assessee is a property developer and its main business is to construct flats and sell them and that till a buyer of flat at a price offered by the assessee is suitably available the flats are temporarily let out so as to earn some income by way of rent in order to meet the expenses and particularly the interest on borrowings and that this letting out is incidental to the aforesaid main business. He has argued that the assessee has sold a number of flats in the Camac Street building on ownership basis and the remaining flats for which suitable buyer was not available were temporarily let out. He has also contended that after letting out those flats also the assessee has subsequently sold one space which was let out to Lyke Lab Ltd. in April, 1985, and another space which was let out to Pelicon World Service was got vacated and sold to Smt. L. Burman in Jan., 1993, and that another space let out to M/s Best & Crompton Engg. Ltd. was also got vacated for the purpose of being disposed of by sale. He has contended that the object of bringing the company to wealth-tax under the Finance Act, 1983, was to defeat the avoidance of personal wealth-tax by forming closely-held companies to which the tax avoider assessees transferred their unproductive assets but in this case the assessee's assets are not unproductive but are productive only and are business assets and as such they are not taxable. He has also contended that under the IT Act it is assessed under the head 'house property income' but different heads are provided just for the purpose of computation of total income only and they do not strictly delimit the other sources of income. In this regard he has cited CIT vs. Chugandas & Co. (1965) 55 ITR 17 (SC), CIT vs. Shrikishan Chandmal (1966) 60 ITR 303 (MP), CIT vs. Smt.
Indermani Jatia (1970) 77 ITR 133 (All) and Fagun Co. (P) Ltd. vs. Dy.
CWT (1993) 45 ITD 117 (Mad) in his support. He has also contended that a business asset can be commercially exploited by the assessee either directly by himself or also indirectly by letting it out and for that purpose he has cited CWT vs. Sun Jute Press (P) Ltd. (1993) 203 ITR 350 (Cal). Secondly, he has also contended in this regard that this letting out of the flats temporarily is only incidental to the assessee's main business of constructing and developing the real estate and then selling the same and as such the completed flats till they are sold to a suitable buyer they are stock-in-trade of the assessee's business and so they are not taxable to wealth-tax under s. 40(3), proviso. As against this, the learned Departmental Representative has supported the orders of the authorities below and argued that the said assets are taxable to wealth-tax and have been rightly so brought to tax.
7. We have considered the rival contentions and also perused the cited decisions. In CIT vs. Chugandas & Co. (supra) the Hon'ble Supreme Court has laid down that the heads of income described in s. 6 and further elaborated for the purposes of computation in following sections of the IT Act, 1922, are intended merely to indicate the classes of income and that the heads do not exhaustively delimit sources from which income arises. Business income is broken up under different heads only for the purpose of computation of total income. In (1966) 60 ITR 303 (MP) (supra) the Hon'ble Madhya Pradesh High Court allowed the carried forward business loss to be set off against dividend income from shares held as stock-in-trade. The Hon'ble High Court laid down that the heads of income described in s. 6 and elaborated in the following sections do not exhaustively define sources for the purpose of computation of total income and the break up thereby indicated should not be income and the break-up thereby indicated should not be regarded as rigidly delimiting the source of income under different heads for the purpose of other provisions of the Act. Similarly, in (1970) 77 ITR 133 (All) (supra) the Hon'ble Allahabad High Court had held that the entire income earned by the assessee by exploitation of the assets of the business, profession or vocation should be entitled to the exemption under s.
25(4) of the Act of 1922, although the different items of income derived from different assets might be assessable under different heads. In view of the judicial pronouncements building being a business asset does not lose its character as such though the income therefrom may under the IT Act be computed as income from house property. In (1993) 45 ITD 117 (Mad) (supra), ITAT, 'D' Bench, Madras has held that a commercial asset can be exploited by an assessee either directly or indirectly, that is, by letting it out and that the fact of letting it out would not mean that it was not a commercial asset or that it was not used in the business of the assessee since the very letting out constituted the business of the assessee. In (1993) 203 ITR 350 (Cal) (supra) the Hon'ble Calcutta High Court has held that if a building is let out by an assessee for use as factory, godown, warehouse, etc., and such letting is held to be commercial exploitation of a business asset it would amount to user of the building by the assessee as factory, godown, warehouse, etc. for the purpose of its business. It has also been held therein that even where a lull falls upon a business, the business cannot be said to be non-existent and that the letting out or leasing out of the commercial asset during such period of lull is accepted judicially as another mode of commercial exploitation of the asset and that whether it amounted to commercial exploitation or not would depend on the intention of the assessee as manifested in the surrounding circumstances. It has also been observed that the object of s. 40 was only to curb the device adopted by persons to hold their unproductive asset through the medium of closely held companies for reduction of their tax liability. In the present case, the main object of assessee is shown to be the construction of buildings and thereby developing the real estate and then sell off the same and that till a suitable buyer for the offered price is available the completed flats are let out temporarily to earn some income so as to defray the expenses or the interest on borrowings and particularly so when there happens to be a lull in the business. As such it cannot be denied that the assets are being used for productive purposes and not for unproductive purposes. The assessee's case is that even after the unsold flats having been let out, as and when suitable buyer is available, they sell the let out flats also as some instances of the same have also been given by the learned representative of the assessee (sic) as mentioned above. This factual position unmistakably leads us to the conclusion that the unsold let out flats constitute the assessee's stock-in-trade in the business. Under proviso to s. 40(3) of the Finance Act, 1983, any asset referred to in cl. (vi) which is held by the assessee as a stock-in-trade in a business carried on by it is excepted from being included in the taxable asset. As such the aforesaid let out portion of the building being stock-in-trade of the assessee falls within the aforesaid proviso and is therefore excludible from the taxable asset and as such is exempt. The impugned order of the learned CIT(A) (sic) in upholding the assessment order on this count is not tenable.
8. Now we take the matter of work-in-progress constituting ground No. 2 of the original grounds. The incomplete portion of the three buildings referred to above have been shown by the assessee as building in progress, bifurcated details of which have also been submitted by the assessee. Under cl. (vi) of s. 40(3) of the Finance Act, 1983, it is "building" which is a taxable asset. The incomplete portions of the building, which have been alleged by the assessee to be the unfinished stock, cannot obviously fall within the term 'building' because it is only the completed buildings which can be put to residential or commercial use and so as to be taxable and not the incomplete portions of the buildings or for that matter the building in progress.
Accordingly, we hold that the portion shown by the assessee as building in progress is not a taxable asset within s. 40(3)(vi) of the Finance Act, 1983, and so the impugned order of the learned CIT(A) (sic) in upholding the assessment order of the WTO in bringing the said building in progress to wealth-tax is not legally tenable.
9. Now we take up the matter of own office use portion constituting ground No. 2(v) of the grounds dt. 15th July, 1996. So far as the own office use portion of the building is concerned, the assessee claimed it to be round about 1400 sq. m., whereas the WTO has allowed only 500 sq. m. for the purpose and the rest part round about 900 sq. m. has been brought to tax by the WTO. In this regard, the learned authorised representative has contended that the whole portion which is actually being used by the assessee for his own office must be excluded as own office use portion and that the WTO has wrongly disallowed a part of the same and that the entire claim should have been allowed under s.
40(3)(vi). As against this, the learned Departmental Representative has supported the orders of the authorities below.
10. We have considered the rival contentions. In our opinion, the contentions of the learned authorised representative for the assessee are not without weight and that the assessee is entitled to put to use as its office that much of the accommodation which it considers to be reasonably needed for its business. No matter has however been brought on record by the WTO showing that the portion put to own office use by the assessee to be excessive and disproportionate to the business needs and thereby justifying the disallowance of the part of the building which undisputedly is actually being used by the assessee for the purpose of the office for its own business. Accordingly, the impugned order of the learned CIT(A) in confirming the said disallowance by the WTO is erroneous and untenable.
11. In original grounds, ground No. 2 pertaining to the building in progress has been dealt with above and ground No. 1 is general calling for no specific decision on our part.
12. In grounds of appeal dt. 10th July, 1996, ground No. 1 which pertains to the let out portion, has already been discussed above, and ground No. 2 disputes the computing of gross wealth and gross assets as per balance sheet according to wrong calculation and assessing the net wealth at Rs. 1,37,28,900, which we now take up along with ground Nos.
2(iii) and 2(iv), dt. 15th July, 1996. This ground No. 2 generally embraces the whole dispute covering all the three types of disputed matters which have already been specifically dealt with above and so the issues raised here in ground No. 2, 2(iii), 2(iv) do not call for any specific decision as such for the same are now no more necessary for the disposal of the appeal. Similar is the position regarding ground No. 2(ii) of the grounds dt. 15th July, 1996, as it pertains to the own office use portion and work-in-progress portion of the building which both have already been dealt with above. Ground No. 2(i) of the grounds dt. 15th July, 1996, also no more necessitates any decision in view of our findings drawn above wherein we have found the let out portion as not being taxable and so the question of valuation of the same becomes infructuous.
13. Accordingly, the assessee's appeal is hereby allowed and the WTO is directed to recompute the assessee's wealth as indicated above.