1. This is an appeal filed by the assessee against the order of the Commissioner of Wealth-tax, West Bengal-HI, Calcutta dated 3-3-1992 for the assessment year 1986-87.
2. The brief facts of the case are that the assessee-company is Lincensed Stevedores & General Marine Contractors. The assessee company had let out factory sheds to third parties. The Assessing Officer included the rental receipts as business income and, therefore, he did not consider the factory sheds thereby as includible for the purpose of taxable wealth. The CWT after providing an opportunity, set aside the assessment order with a direction to reframe the assessment order by taking into consideration that the rental income is the income from the house property, and same may be included in the total wealth of the assessee as per rule 1 BB of the Wealth-tax Rules. Being aggrieved, the assessee has come in appeal before the Tribunal with seven grounds which are in fact only related to the question of whether the rental income is a business income or an income from house property for the purpose of wealth-tax.
3. The learned Authorised Representative mentioned that section 40(3)(vi) of the Finance Act, 1983 specifies that building and land appurtenant thereto used by the assessee as a factory, godown or warehouse for the purpose of its business shall be excluded for the purpose of computing net wealth of the company. He has repeated a number of case laws which were mentioned before the authorities below as evident from the pages 16-28, 53 and 54 of the Paper Book. He specifically emphasised on CIT v. Ajmera Industries (P.) Ltd. [1976] 103 ITR 245 where the Calcutta High Court considered the rental income as business income of the assessee. Lastly, he submitted that for the assessment of income-tax the said income was accepted by the department as a business income. Therefore, now the department cannot treat this income as an income from house property or from other sources.
4. On the other hand, the learned Departmental Representative relied on the order of the CWT and mentioned that the factory sheds were not used by the assessee and were giving on rent basis, initially for two years with effect from 16-11-1975 and again for three years with effect from 15-2-1986. He submitted that it is true that for Income-tax assessment the said income was accepted by the department as a business income but the department has already taken step under section 263 of the Income-tax Act, for revision of the earlier assessment orders. By mentioning the case law in CWT v. Sun Jute Press (P.) Ltd. [1993] 203 ITR 350 (Cal.), he justified the action of the CWT under section 25(2) of the Wealth-tax Act. He also submitted that in the previous assessment year the wealth was assessed in favour of the department and the assessee has not filed any appeal. So, the same is binding on the assessee for the assessment year under consideration. In the subsequent years, section 40 of the Finance Act, 1983 was abolished.
5. We have heard the rival submissions of both the parties very carefully and gone through the material available on record. It is true that the Hon'ble Calcutta High Court in Ajmera Industries (P.) Ltd.'s case (supra) has taken the income derived from letting out the surplus of the non-factory building including godown as business income of the assessee. But in the said case, the assessee had not started its manufacturing business. The sheds and factory were totally unused. In the instant case, the facts and circumstances are different from the Ajmera Industries (P.) Ltd.'s case (supra) which was also considered by the authorities below. The Hon'ble Supreme Court in the case of CIT v.Vikram Cotton Mills Ltd. [1988] 169 ITR 597/36 Taxman 1 considered that by letting out the mills on lease to pay off creditors, the rent received was the business income. In the said case, the Hon'ble Supreme Court mentioned the facts that the mill was totally closed on account of losses and proceedings for winding-up were in progress and a scheme was evolved by the High Court for letting out the mills on lease to pay off creditors. The High Court also gave the direction that earlier losses will have to be set off against the rental income.
6. Thus, the facts and circumstances of Vikram Cotton Mills Ltd's case (supra) are quite different from the instant case where the rental income is the income of the company and not used for the set off of the claims of the creditors.
7. The Patna High Court in the case of CIT v. Kuya & Khas Kuya Colliery Co. [1985] 156 ITR 206/23 Taxman 229 observed that in the case of a lease, it must be noted that letting out of business as a whole is distinct from letting out commercial assets of the firm. if the business as a whole is let out, the income i.e., the rent, would not be liable to be assessed as income from business. if only the commercial assets are leased out the income would continue to be income from business. The question has to be determined in the light of the nature of the transaction evidenced by the terms of the agreement. We have also gone through the agreement dated 16-11-1975 between the tenant and the assessee where it has been mentioned that the assessee is absolute owner of the factory, land and building under consideration (pages 31 and 32 of the Paper Book). As per clause 5(e) of the Agreement, the tenant was entitled to use and occupy the premises for their office and business purposes and to discharge all charges and expenses for consumption of electricity, licence, fees and other/or other rates and taxes pertaining to their business from the date of occupation.
8. The said agreement shows that the tenant was having an independent business activity without linking the business of the assessee-company.
Moreover, as per letter dated 29-6-1985 written to the company (page 34 of the Paper Book) it is clear that the object of letting out was to earn a sufficient income by way of rent because in the said letter the rent was increasable every year per sq. ft. So, we are fully convinced that there is no relationship between the assessee and tenant except landlord and tenant.
9. Almost all the cases cited by the assessee are related to the income-tax. The Hon'ble Calcutta High Court while deciding the case of Sun Jute Press (P.) Ltd (supra) mentioned that if the property taken on long lease by a company for business purpose, the Assessing Officer (WTO) has to see whether the lease amounted to commercial exploitation of the assets in the light of the object and purpose of section 40 of the Finance Act, 1983. For the purpose of object of section 40 introduced by the Finance Act, 1983, the Budget Speech of the then Finance Minister is relevant. In the said speech, it was said that the object of the special fiscal measure was to defeat the avoidance of personal wealth-tax by forming closely held companies to which the tax avoiders transferred many unproductive items of their wealth particularly jewellery, bullion and real estate. Therefore, to curb this subterfuge, the levy of wealth in the manner envisaged in section 40 ibid was found necessary. The Finance Minister in his Budget Speech observed [1983] 140 ITR 32 (St.) "building used by the company as factory, godown, warehouse, hotel or office for the purpose of its business or as residential accommodation for its low-paid employees will be excluded from net wealth." 10. So, exclusion was contemplated where the properties are wholly or partly the accessory to carrying on the business. Needless to mention that the mischief which is sought to be remedied is the tax avoidance through transfer of unproductive wealth to closely held companies. We also feel that the construction of the provision particularly in the context of a situation not foreseen by the law-makers should not be overtly literal but should be purpose-seeking. The reading of the legislative intention is very much important specially where the law as framed leaves a void for the judiciary to fill in the total setting of the law.
11. Hence, the case in hand, does not fit into any particular slot in section 40(3). True, a part of the commercial asset has ceased to be a commercial asset under the compulsion of circumstances. The property was not entirely unproductive of the assessee but part of its requirement eventually ceased. By letting out the sheds of the factory, the nature of the property has changed. The property letted out was neither used for the business of the assessee nor as residential accommodation for its low-paid employees. Thus, the shed cannot be excluded from the net of wealth-tax.
12. On the other hand, in Sun Jute Press (P.) Ltd.'s case (supra) the assessee was running a Jute Press. It had taken a long lease of a property for the purpose of business. Eventually, the whole of the property not being required for use of the business, it sub-leased a portion thereof and earning lease rent. The question whether the building was entitled to exempt was decided by the Hon'ble High Court and the matter was remanded back to the Hon'ble Tribunal, originally who considered the rental income as business income. We are of the view that if the business as a whole is let out only then, the income can be considered as business income which is not the case here.
13. The Hon'ble Allahabad High Court in the case of Bithal Das v. CWT [1983] 141 ITR 228/[1982] 10 Taxman 51 observed that the arrears of the rent were assets of the assessee liable to be included in his net wealth. Needless to mention that the purpose of the wealth is to have the income or capitalisation of the income. Classical valuation practice hinges on income or incomes expectancies and their capitalisation. Even intangible additions made in the income-tax assessment are liable to be included in the net wealth of the assessee, as per CWT v. Mishrilal Jain [1986] 161 ITR 583/[1987] 30 Taxman 186 (Pat.). In view of above discussion, and facts and circumstances of the case, it is clear that the whole premises was not letted out. The nature of the shed of the factory was changed by the tenancy agreement with the outside party. So, there is no reason to interfere with the order of the CWT who rightly applied rule 1 BB for the valuation of the sheds for the purpose of wealth-tax. Moreover, it is relevant to mention that the assessment for the previous assessment year was set aside on the same ground and the assessee did not file any appeal. So, as per earlier precedent; CWT rightly set aside the assessment order for the year under consideration too.