High Court Of Madras
Commissioner Of Wealth Tax vs. Standard Fireworks (P) Ltd.
Section FA 1983, S. 40(3)(vi)
Asst. Year 2001-02
P.D. Dinakaran & P.P.S. Janarthana Raja, JJ.
Tax Case (Appeal) No. 2607 of 2006
12th December, 2006
Counsel Appeared :
J. Naresh Kumar, for the Appellant
JUDGMENT
P.P.S. Janarthana Raja, J. :
This appeal is filed by the Revenue under s. 27A of the WT Act, 1957 against the order of the Tribunal, Madras, ‘C’ Bench dt. 16th May, 2006 in WTA No. 130/Mad/2004, raising the following substantial questions of law :
“1. Whether, in the facts and circumstances of the case, the Tribunal was right in holding that the land being sold is to be treated as a business asset and exempt from wealth-tax merely because the builder took possession after the valuation date ?
2. Whether, in the facts and circumstances of the case, the Tribunal was right in holding that since the land is in possession of the assessee, it is capable of being used as a business asset and consequently should be treated as exempt, even though it was not actually used for storage of explosives as on the valuation date ?”
2. The brief facts leading to the above questions of law are as under : The assessee is a closely-held industrial company engaged in the business of manufacture and sale of fire works. The relevant assessment year is 2001-02 and the valuation date is 31st March, 2001. No wealth-tax return was filed by the assessee under s. 16(1) of the WT Act (“Act” in short). The Revenue had information to the effect that the assessee (is) having taxable wealth. Hence, notice under s. 17 was issued to the assessee calling for the wealth-tax return. In response to the notice, the assessee company filed wealth-tax return on 17th April, 2003 admitting a gross wealth of Rs. 24,64,777. The liability of several loan from bank was quantified at Rs. 12,58,907 and hence the return of net wealth amounted to Rs. 12,05,870. The assessee company is the owner of 6.86 acres of vacant land at Velachery, Chennai in survey Nos. 329, 328/2, 327/1, 256, 325/1, 325/2 and 325/3. The assessee company had not returned the value of the land for the wealth-tax purpose on the ground that the land was used as a godown for storage of fire works. Because it is a business asset, the assessee claimed exemption from the WT Act. The AO was of the view that the land was not used for the purpose of business during the year and therefore he brought it to tax. Further, the AO found that the assessee had written a letter dt. 20th Aug., 2001 to the Chief Controller of Explosives, Nagpur, stating that for the last six months the vacant land was not used for storage of fire works and hence, the explosive licence might be cancelled. Further, it was found by the AO that the assessee entered into a memorandum of understanding with a builder for sale of land for a sum of Rs. 14 crores and the assessee received an advance of Rs. 12 lakhs on 10th March, 2001. In consequence of the same, the builder has taken over possession of the land on 4th June, 2001. On the above facts, the AO held that the land was not used for the purpose of storing fire works and therefore, he included the value of the said land in the net wealth of the assessee and estimated the value of land at Rs. 14 crores being the sale value of land and completed the assessment. Aggrieved by the order, the assessee filed an appeal to the CWT(A). The CWT(A) allowed the appeal and directed the AO to delete the addition made in respect of the vacant land. Aggrieved, the Revenue filed an appeal to the Income-tax Appellate Tribunal (“Tribunal” in short). The Tribunal dismissed the appeal preferred by the Revenue and confirmed the order of the CWT (A).
Learned standing counsel appearing for the Revenue submitted that the authorities below failed to note that, in the land at Velachery, Chennai, there were three magazines (fireworks godown) and when the assessee surrendered explosive licence in respect of one magazine and renewed only in respect of two magazines, the CWT(A) ought to have held that the magazine in respect of which license was not renewed was not used for the purpose of business for more than six months as on the valuation date. It is also further submitted that the memorandum of understanding was entered by the assessee with the buyer on 28th March, 2001 and even prior to this date, the board of directors of the assessee company approved the sale of vacant land in the board meeting held on 17th March, 2001. From this fact, it is evident that the vacant land was not actually used for the purpose of business and hence the same is taxable under the WT Act.
Heard the counsel. On facts, it is seen that the assessee entered into a memorandum of understanding with a builder for sale of the said property and received advance of Rs. 14 crores as follows : “Advance 10/03/2001 Rs. 12,00,000 24/05/2001 } 22/05/2001 } 24/05/2001 } Rs. 2,00,00,000 31/05/2001 Before 30/11/2001 Rs. 5,00,00,000 Before 31/03/2002 Rs. 6,88,00,000 Total Rs.14,00,00,000 There was a memorandum of understanding entered into, by the assessee on 28th March, 2001 and also advance was received by the assessee as stated above. As per the agreement dt. 25th May, 2001, the purchaser is entitled to enter the land only after the agreement date. Further, the assessee has renewed its two explosive licences upto 31st March, 2002. Merely because one licence was surrendered, that too, after the end of the valuation date, it could not be held that the land cannot be used for storage of fire works. Also it is seen that the said land was not brought to wealth-tax in earlier years on the ground that the land was used for storage of fire works and the same was used for the purpose of business. There is no factual dispute that the builder took possession of the land only on 4th June, 2001 which is much after the valuation date. Merely getting advance or entering into a memorandum of understanding does not mean that the land was not used for the purpose of business as on the valuation date. The agreement of sale was signed only on 25th May, 2001 and merely entering into an agreement of sale does not mean that the land was not used for the purpose of business. The relevant date for the purpose of wealth-tax assessment is valuation date. In this case, the valuation date is 31st March, 2001. The Tribunal as well as the first appellate authority had given a concurrent finding that the land was used for the purpose of the business and the same was taken over only after the valuation date by the purchaser. The reasons given by the authorities below are based on valid materials and evidence and hence we find no error or legal infirmity in the order of the Tribunal and the same does not require interference.
5. Under these circumstances, no substantial questions of law arise for consideration of this Court andaccordingly, the tax case is dismissed. No costs.
[Citation : 292 ITR 348]
