High Court Of Madras
Commissioner Of Wealth Tax vs. Tirupur Sri Meenakshi Sundareswarar Finance Ltd.
Sections 1983FA 40(3)(vi)
Asst. Year 1980-81
N.V. Balasubramanian & K. Raviraja Pandian, JJ.
Tax Case No. 93 of 1998
20th November, 2002
Counsel Appeared
T. Ravikumar, for the Applicant : R. Kumar for T.N. Seetharaman & Mrs. Hema Sampath, for the Respondent
ORDER
N.V. Balasubramanian, J. :
The question of law referred by the Tribunal for our consideration under the WT Act, 1957, in relation to the assessment of the assessee for the asst. yr. 1980-81 reads as under :
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the property let out by the assessee was not an asset exigible to wealth-tax within the meaning of s. 40(3)(vi) of Finance Act, 1983 ?”
2. The short facts are that the assessee is a closely-held company in which the public are not substantially interested and its assets are subjected to wealth-tax. The question that arises is whether the value of the portion of the building which was let out by the assessee in favour of Punjab National Bank would be an exempted asset from the list of assets found in s. 40(3) of the Finance Act, 1983 ? The Asstt. CWT rejected the claim of the assessee by holding it was liable to wealth-tax. The CWT(A) also rejected the claim of the assessee on the ground that the building in question was not used by the assessee for the purpose of company’s business but it was only used for receiving rental income as owner of the property. He also held that though the company has one of its objects for letting out the properties, the company was owning the property as a landlord and, therefore, that part of the building let out to Punjab National Bank was exigible to wealth-tax under s. 40(3) of the Finance Act, 1983. The Tribunal, on appeal by the assessee, however, took a different view on the ground that the property was used by the assessee for the purpose of its business, as the assessee has one of the objects to let out the property. It was, therefore, held that the property was used by the assessee for its business and therefore, the assessee would be entitled to exemption as provided under s. 40(3)(vi) of the Finance Act, 1983. The order of the Tribunal is the subject-matter of the reference in the tax case.
3. We heard Mr. T. Ravikumar, junior standing counsel for the Revenue and Mr. R. Kumar, learned counsel appearing for the assessee. We are of the view that the Tribunal has not applied the correct principles of law to arrive at its conclusion that the letting out of a portion of the building by the assessee would be its business and, therefore, the let out portion was also used by the assessee for the purpose of business. The Supreme Court in Universal Plast Ltd. vs. CIT (1999) 153 CTR (SC) 95 : (1999) 237 ITR 454 (SC) after referring to the earlier decision of the Supreme Court in CEPT vs. Shri Lakshmi Silk Mills Ltd. (1951) 20 ITR 451 (SC), Narain Swadeshi Weaving Mills vs. CEPT (1954) 26 ITR 765 (SC), CIT vs. Calcutta National Bank Ltd. (1959) 37 ITR 171 (SC), Sultan Brothers (P) Ltd. vs. CIT (1964) 51 ITR 353 (SC), New Savan Sugar and Gur Refining Co. Ltd. vs. CIT (1969) 74 ITR 7 (SC), CIT vs. Vikram Cotton Mills Ltd. (1988) 67 CTR (SC) 169 : (1988) 169 ITR 597 (SC), has laid down the following test when the assets let out could be regarded as letting out in the course of business, and when it will be regarded as letting out as an owner of the property. “1. No precise test can be laid down to ascertain whether income (referred to by whatever nomenclature, lease, amount, rents, licence fee) received by an assessee from leasing or letting out of assets would fall under the head “Profits and gains of business of profession. It is a mixed question of law and fact and has to be determined from the point of view of a businessman in that business on the facts and in the circumstances of each case, including true interpretation of the agreement under which the assets are let out. Where all the assets of the business are let out, the period for which the assets are let out is a relevant factor to find out whether the intention of the assessee is to go out of business altogether or to come back and restart the same. If only a few of the business assets are let out temporarily, while the assessee is carrying out his other business activities, then it is a case of exploiting the business assets otherwise than employing them for his own use for making profit for that business; but if the business never started or has started but ceased with no intention to be resumed, the assets also will cease to be business assets and the transaction will only be exploitation of property by an owner thereof, but not exploitation of business assets.”
We find that the Tribunal has not adverted to the deed of lease and the terms under which the property was let out. The Supreme Court in Universal Plast Ltd. vs. CIT (supra) has held that the period for which the asset is let out is a relevant factor to find out the intention of the assessee whether he intends to go out of business altogether or to come back and restart the business. It was held that only where the asset was let out temporarily, it would amount to exploiting the business assets, but where there was no intention to resume the business, the transaction would only be exploitation of the property as the owner thereof. We find that the Tribunal has not gone into the nature of the lease or the terms of the lease to find out the period of lease and the terms under which the property was let out to find out the intention of the assessee viz., whether the assessee was exploiting the same as a business asset or exploit the same as a owner thereof. The CIT(A) has specifically found that the property was exploited as a landlord and as the owner of the property. Though he has also not referred to the deed of lease, there is a finding by the first appellate authority and when the Tribunal reversed the said finding, there must be some material for the Tribunal to take a different view on the facts of the case. The Tribunal was solely guided by the object clause of the assessee-company in holding that the portion of the building was exploited by the assessee as business asset. This Court in Madras Silk & Rayon Mills (P) Ltd. vs. ITO/Asstt. CIT in TC Nos. 171 to 173 of 2001 (in which one of us was a party) by judgment dt. 11th Feb., 2002, has held that the presence of the object clause in the memorandum of association is not relevant and what has to be seen is whether the property was let out temporarily and whether the assessee has exploited the business asset. Therefore, the view of the Tribunal that since the assessee has object in the memorandum of association to let out the property, it would amount to exploitation of the business asset is not sustainable in law. We are of the view that the question whether there is exploitation of the business asset has to be considered not only with reference to the object of the assessee-company as it is only one of the relevant criteria but also with reference to the terms and the conditions of the lease and all other relevant factors. Calcutta High Court in CWT vs. Sun Jute Press (P) Ltd. (1993) 203 ITR 350 (Cal) has also taken a similar view and the Calcutta High Court has laid down the law as under : “As a matter of fact even where a lull falls upon a business, the business cannot be said to be nonexistent. 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 assets. This view has been taken in CEPT vs. Shri Lakshmi Silk Mills Ltd. (1951) 20 ITR 451 (SC). We are not furnished with the complete facts creating the situation for the part of the leasehold property becoming surplus. We are not told what the tenure of the lease is; if it is a lease for a short period, we can safely draw the inference that sublettig cannot be said to have become a permanent feature. Rather, it is indicative of the intention of the assessee to resume the direct use of the part of the lease property in question in its business in future. Depending on such intention manifest in the surrounding circumstances and the document of lease or other documents connected therewith, the question whether the asset is rendered as an unproductive asset has to be answered. If the subletting is just a passing phase, the answer shall be that the part of the property sublet remains productive. The subletting in that view is a special mode of commercial exploitation of the asset”. The Calcultta High Court in the above case remanded the matter to the Tribunal for owing (sic) to the factual aspect of the matter for deciding the issue satisfactorily.
4. The learned counsel for the assessee strongly relied upon the decision of the Bombay High Court in CWT vs. Cema (P) Ltd. (2001) 248 ITR 629 (Bom) and submitted that the income of the property was treated as business income under the IT Act and therefore, the asset of the assessee should be taken as a business asset. We are unable to accept the said submission of the learned counsel for the assessee. This Court has considered a similar contention in Madras Silk & Rayon Mills (P) Ltd. vs. ITO/Asstt. CIT in TC Nos. 171 to 173 of 2001, dt. 11th Feb., 2002, and held as under : “However, even considering the question on merits, we are of the clear opinion that an order passed in the Wealth-tax proceedings would have no effect on the income-tax proceedings. The concepts of wealth-tax and income-tax would have to be definitely read separately. Even assuming that this property was a commercial property, we would be bound by the Supreme Court judgment, where the Supreme Court held that even a commercial property which is exploited otherwise than in the course of business by letting out, the income from such letting out could not be said to be a business income.” Therefore, the fact that the income from the property was assessed as business income under the IT Act is not conclusive. But no doubt it may be a relevant factor in deciding the question whether the asset is a commercial asset or not. It is also relevant to mention here that this Court in CIT vs. Indian Warehousing Industries Ltd. (2002) 258 ITR 93 (Mad) has held that where the source of income was the warehouses, it mattered little as to who the lessee for the time being was, whether it was the same lessee continuing over a period of time or a shifting class of lessees who occupied the spaces for shorter periods and paid rental for such use, and the income was assessable as income from property. We are, therefore, of the opinion that the Tribunal should decide the question taking into the terms of the lease, the period of lease and other relevant circumstances and then decide the question in the light of the law laid down by the Supreme Court in Universal Plast Ltd. vs. CIT (supra) the assessee has exploited the building or part of the same as a business asset or whether the assessee has used the asset and derived rental income as an owner of the property. We are, therefore, of the opinion that the matter requires to be remanded to the Tribunal for fresh consideration. As a matter of fact, the learned counsel for the assessee has not seriously disputed that the matter requires remand. Accordingly, we are not answering the question referred to us, but remit the matter to the Tribunal with direction to go into the matter afresh. It is needless to mention that it is open to the parties to adduce further evidence before the Tribunal or it is also open to the Tribunal to remit the matter to the lower authorities for fresh consideration to decide the factual issue. In the circumstances, there will be no order as to costs.
[Citation : 262 ITR 129]
