R S E B vs. THE C W T

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR (1) D.B. Wealth Tax Appeal No. 20 / 2004 Rajasthan State Electricity Board (Now Rajasthan Rajya Vidyut Prasaran Nigam Ltd.), Vidyut Bhawan, Vidyut Marg, Jaipur. ----Appellant Versus 1. The Commissioner of Wealth Tax, Statute Circle, C-Scheme, Jaipur. 2. The Dy. Commissioner of Wealth Tax, Circle 6, Jaipur. ----Respondents Connected With (2) D.B. Wealth Tax Appeal No. 21 / 2004 Rajasthan State Electricity Board (Now Rajasthan Rajya Vidyut Prasaran Nigam Ltd.), Vidyut Bhawan, Vidyut Marg, Jaipur. ----Appellant Versus 1. The Commissioner of Wealth Tax, Statute Circle, C-Scheme, Jaipur. 2. The Dy. Commissioner of Wealth Tax, Circle 6, Jaipur. ----Respondents (3) D.B. Wealth Tax Appeal No. 22 / 2004 Rajasthan State Electricity Board (Now Rajasthan Rajya Vidyut Prasaran Nigam Ltd.), Vidyut Bhawan, Vidyut Marg, Jaipur. ----Appellant Versus

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(4) D.B. Wealth Tax Appeal No. 23 / 2004 Rajasthan State Electricity Board (Now Rajasthan Rajya Vidyut Prasaran Nigam Ltd.), Vidyut Bhawan, Vidyut Marg, Jaipur. ----Appellant Versus 1. The Commissioner of Wealth Tax, Statute Circle, C-Scheme, Jaipur. 2. The Dy. Commissioner of Wealth Tax, Central Circle-I, Jaipur. ----Respondents

(5) D.B. Wealth Tax Appeal No. 24 / 2004 Rajasthan State Electricity Board (Now Rajasthan Rajya Vidyut Prasaran Nigam Ltd.), Vidyut Bhawan, Vidyut Marg, Jaipur. ----Appellant Versus 1. The Commissioner of Wealth Tax, Statute Circle, C-Scheme, Jaipur. 2. The Dy. Commissioner of Wealth Tax, Central Circle-I, Jaipur.

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----Respondents (6) D.B. Wealth Tax Appeal No. 25 / 2004 Rajasthan State Electricity Board (Now Rajasthan Rajya Vidyut Prasaran Nigam Ltd.), Vidyut Bhawan, Vidyut Marg, Jaipur. ----Appellant Versus 1. The Commissioner of Wealth Tax, Statute Circle, C-Scheme, Jaipur. 2. The Dy. Commissioner of Wealth Tax, Circle-6, Jaipur. ----Respondents _____________________________________________________ For Appellant(s) : Mr. Anant Kasliwal with Ms. Charu Pareek For Respondent(s) : Mr. Sameer Jain with Mr. Daksh Pareek _____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGH Judgment 29/08/2017 1. In all these appeals common question of law and facts are involved hence they are decided by this common judgment. 2. By way of these appeals, the assessee has challenged the judgment and order of the Tribunal whereby Tribunal has allowed the appeal of the department and cross objection of the assessee

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were dismissed whereas the Commissioner Wealth Tax (Appeals) has partly allowed the appeal of the assessee. 3. This court while admitting the appeals framed following substantial questions of law:- 3.1 WTA No.20/2004 admitted on 12.8.2004 “1. Whether on the facts and circumstances of the case the guest houses are integral part of the grid stations having direct nexus with the working thereof and by nature of business, bereft of its nomenclature, the same do not fall within the purview of “assets” as defined under Sec.2(aa) of he Wealth Tax Act, 1957? 2. whether in the facts and circumstances of the case as a business enterprise when the total liabilities are higher than the total capital assets, the borrowing for a particular asset are not required to be co-related against individual asset when there is a pool of borrowed funds and the value of all capital assets stand negatived as against the total liabilities which is undisputedly higher than the entire capital assets as noticed by the CWT(A) in its order (Annexure-2)?” 3.2 WTA No.21/2004 admitted on 12.8.2004 “1. Whether on the facts and circumstances of the case the guest houses are integral part of the grid stations having direct nexus with the working thereof and by nature of business, bereft of its nomenclature, the same do not fall within the purview of “assets” as defined under Sec.2(aa) of he Wealth Tax Act, 1957? 2. whether in the facts and circumstances of the case as a business enterprise when

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the total liabilities are higher than the total capital assets, the borrowing for a particular asset are not required to be co-related against individual asset when there is a pool of borrowed funds and the value of all capital assets stand negatived as against the total liabilities which is undisputedly higher than the entire capital assets?” 3.3 WTA No.22/2004 admitted on 12.8.2004 1. Whether on the facts and circumstances of the case the guest houses are integral part of the grid stations having direct nexus with the working thereof and by nature of business, bereft of its nomenclature, the same do not fall within the purview of “assets” as defined under Sec.2(aa) of he Wealth Tax Act, 1957? 2. whether in the facts and circumstances of the case as a business enterprise when the total liabilities are higher than the total capital assets, the borrowing for a particular asset are not required to be co- related against individual asset when there is a pool of borrowed funds and the value of all capital assets stand negatived as against the total liabilities which is undisputedly higher than the entire capital assets as noticed by the CWT(A) in its order (Annexure-2)? 3.4 WTA No.23/2004 admitted on 12.8.2004 “1. Whether on the facts and circumstances of the case the guest houses are integral part of the grid stations having direct nexus with the working thereof and by nature of business, bereft of its nomenclature, the same do not fall within

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the purview of “assets” as defined under Sec.2(aa) of he Wealth Tax Act, 1957? 2. whether in the facts and circumstances of the case as a business enterprise when the total liabilities are higher than the total capital assets, the borrowing for a particular asset are not required to be co- related against individual asset when there is a pool of borrowed funds and the value of all capital assets stand negatived as against the total liabilities which is undisputedly higher than the entire capital assets?” 3.5 WTA No.24/2004 admitted on 29.9.2004 1. Whether on the facts and circumstances of the case the guest houses are integral part of the grid stations having direct nexus with the working thereof and by nature of business, bereft of its nomenclature, the same do not fall within the purview of “assets” as defined under Sec.2(aa) of he Wealth Tax Act, 1957? 2. whether in the facts and circumstances of the case as a business enterprise when the total liabilities are higher than the total capital assets, the borrowing for a particular asset are not required to be co- related against individual asset when there is a pool of borrowed funds and the value of all capital assets stand negatived as against the total liabilities which is undisputedly higher than the entire capital assets.” 4. The facts of the case are that the assessee has appended “Note” to the computation of wealth disputing taxing of the value

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of 09 guest houses (Claimed as rest house located at grid stations) on the same grounds as discussed in the previous year. Further it is stated that the value of motor cars and jeeps has not been included since they have been acquired out of loans and if value of motor car and jeep are considered then equivalent liability should also be considered. However, for the reason discussed in the assessee’s case in the past i.e. A.Y. 1995-96 & 1996-97 where in value of 09 guest houses and the motor cars was taxed after disallowing the liabilities claimed, the value of these assets as no direct nexus or loans taken was established, the value of these assets is taxed for the year under consideration. 4.1 The facts of the case continue to be same as in the past. The assessee has stated that as per statement-3 of the annual accounts, it is clear that all the assets are funded through loans raised from different agencies. It is further stated that the balance sheet clearly shows that there are capital liabilities of Rs.550080/- lac as against assessee of Rs.389824/- lacs. However, as discussed above no direct nexus of loans to the taxable assets acquired has been established hence assesse’s claim in this regard is disallowed. 5. Counsel for appellant Mr. Kasliwal has submitted the chart in all these appeals which is reproduced as under:- S. n. Case No. Title A.Y. Date of AO Date of CWT(A) Order Date of ITAT Order Question of law Remarks 1. WTA RSEB 1993-94 18.03.1995 30.9.1996 12.3.2004 (I) Whether on the AO-

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22/2004 (Now Known As RRVPNL vs. CWT) facts and circumstances of the case the guest houses are integral part of the grid stations having direct nexus with the working thereof and by nature of business, bereft of its nomenclature, the same do not fall within the purview of “assets” as defined u/s 2ea of the Wealth Tax Act, 1957? (ii) Whether on the facts and circumstances of the case as a business enterprise when the total liabilities are higher than the total capital assets, the borrowing for a particular asset are not required to be co-related against individual asset when there is a pool of borrowed funds and the value of all capital assets stand negative-d as against the total liabilities which is AO calculated the net wealth of the assessee company

at Rs.1,46,76,263/- taking the view:- (a) Value of guest houses

is Rs.1,03,83,349/- which the assessee has failed to link with any loans. Similarly, no direct nexus

loans reflected in Statement- 3 has been shown with guest houses and vehicles. (b) Debt owed by the assessee is not directly linked with acquisition of assets. (c) Liability claimed of Rs.6,85,997/-

in acquiring assets has not been linked with the assets required. CWT(A)- Appeal was partly allowed. Upholdiong the valuation made by AO the Rest houses were treated as guest houses

and consequently as assets add AO was directed to allow deduction for debts which is more

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undisputedly higher than the entire capital assets? than or at least equal to the value of the assets. ITAT- Allowed the appeal of the department having set aside the order of CWT(A) and sustaining the order of AO. Held that CWT(A) has not been able to appreciate the

amended provisions relating to establishing nexus of liabilities with the assets. In Paras-11 to 13, the Tribunal has also taken the view that in respect of the guest houses and vehicles having been purchased

with borrowed funds, the liabilities do not remain in existence forever and cannot be allowed any rebate. Covered by Gujarat high court and Calcutta high court judgments. 2. WTA 27/2004 RSEB (Now Known As RRVPNL vs. CWT) 1995-96 27.3.1998 19.8.1998 28.7.2004 (I) Whether on the facts and circumstances of the case the guest houses are integral part of the grid stations having AO Assessee has failed to establish the direct nexus of the loans taken with the value of

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direct nexus with the working thereof and by nature of business, bereft of its nomenclature, the same do not fall within the purview of “assets” as defined u/s 2ea of the Wealth Tax Act, 1957? (ii) Whether on the facts and circumstances of the case as a business enterprise when the total liabilities are higher than the total capital assets, the borrowing for a particular asset are not required to be co-related against individual asset when there is a pool of borrowed funds and the value of all capital assets stand negative-d as against the total liabilities which is undisputedly higher than the entire capital assets? the assets in question, however,

was accepted that all the assets are funded from different agencies and the liabilities are more than the assets. CWT(A)-

The appeal of the assessee was partly allowed. The value of the guest houses as determined by the AO amounting to Rs. 1,03,83,349/- was upheld but the other ground of the assessee

that

no wealth

tax

was chargeable in view of the capital liability being in excess of the fixed

assets

was sustained

and accepted. ITAT- ITAT set aside the order of the CWT (A) and

consequently allowed the appeal of the revenue. covered by Gujarat high court and Calcutta high court judgments This appeal was dismissed in default and application for restoration has also been dismissed on account of laches. As such, does not survive. 3. WTA RSEB 1997-98 31.12.1998 22.5.2000 28.4.2004 (I) Whether on the AO-

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24/2004 (Now Known As RRVPNL vs. CWT) facts and circumstances of the case the guest houses are integral part of the grid stations having direct nexus with the working thereof and by nature of business, bereft of its nomenclature, the same do not fall within the purview of “assets” as defined u/s 2ea of the Wealth Tax Act, 1957? (ii) Whether on the facts and circumstances of the case as a business enterprise when the total liabilities are higher than the total capital assets, the borrowing for a particular asset are not required to be co-related against individual asset when there is a pool of borrowed funds and the value of all capital assets stand negative-d as against the total liabilities which is Assessee has failed to establish the direct nexus of the loans taken with the value of the assets in question. However,

was accepted that all the assets are funded from different agencies and the liabilities are more than the assets. Yet the entire liabilities of Rs. 4,3 1,155 Lacs as against

assets 2,72,685 Lacs are disallowed in view of absence of any direct nexus. CWT(A)- Upheld the values and taxability of vehicles and guest houses. However, he took the view that as the total liabilities 431171

Lacs

far exceeds the total value of assets of Rs. 272685 Lacs, the assessee cannot be made liable to pay any wealth tax PER SHRI B. L. KHATRI ITAT- The tribunal has set aside the order of the

CWT(A)

and consequently allowed the appeal of the revenue.

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undisputedly higher than the entire capital assets? Covered by Gujarat high court judgment. 4. WTA 23/2004 RSEB (Now Known As RRVPNL vs. CWT) 1998-99 29.12.2000 10.12. 2003 12.3.2004 (I) Whether on the facts and circumstances of the case the guest houses are integral part of the grid stations having direct nexus with the working thereof and by nature of business, bereft of its nomenclature, the same do not fall within the purview of “assets” as defined u/s 2ea of the Wealth Tax Act, 1957? (ii) Whether on the facts and circumstances of the case as a business enterprise when the total liabilities are higher than the total capital assets, the borrowing for a particular asset are not required to be co-related against individual asset when there is a pool of borrowed funds and the value of all A.O.-AO Calculated the net wealth of the assessee company at Rs.

8,50,59,310/- consisting of values of guest houses and motor cards. Recorded that total liabilities was 447342 Lacs as against assets 293155 Lacs. Also recorded that even though CWT(A) had allowed the claim for liabilities to be adjusted

against assets. However, as the matter was pending before the Tribunal, the same was disallowed. CWT- Assesse's appeal was

dismissed. Summarily, after the CWT (A) recorded that even though details of various loans and recurring losses has been

pointed-out, however, a perusal of the balance sheet shows that capital expenditure in progress is also to be included which will make the

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capital assets stand negative-d as against the total liabilities which is undisputedly higher than the entire capital assets? value of assets exceed the liabilities and in view of the absence of direct nexus, the same cannot be allowed. CWT(A)

has

also recorded that the guest houses cannot be treated as rest houses as some of them are located in posh area of Jaipur which is being used for staying of guests of Central and State Government and for personal purpose.

ITAT- Allowed the appeal of the department having set aside the order of CWT(A) and sustaining the order of AO. Held that CWT(A) has not been able to appreciate the

amended provisions relating to establishing nexus of liabilities with the assets. In Paras-11 to 13, the Tribunal has also taken the view that in respect of the guest houses and vehicles having been purchased

with borrowed funds, the

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liabilities do not remain in existence forever and cannot be allowed any rebate. Covered by Gujarat high court judgment. 5. WTA 20/2004 RSEB (Now Known As RRVPNL vs. CWT) 1999- 2000 25.2.2002 12.5.2003 12.3.2004 (I) Whether on the facts and circumstances of the case the guest houses are integral part of the grid stations having direct nexus with the working thereof and by nature of business, bereft of its nomenclature, the same do not fall within the purview of “assets” as defined u/s 2ea of the Wealth Tax Act, 1957? (ii) Whether on the facts and circumstances of the case as a business enterprise when the total liabilities are higher than the total capital assets, the borrowing for a particular asset are not required to be co-related against individual asset AO- AO Calculated the net wealth of the assesse company

Rs. 87854600/- consisting of values of guest houses and motor cards. Recorded that total liabilities was 550080 Lacs as against assets 389824 Lacs. Also recorded that even though CWT(A) had allowed the claim for liabilities to be adjusted

against assets. However, as the matter was pending before the Tribunal, the same was disallowed. CWT(A)- assesse's appeal was partly allowed. The addition on account of the value of guest houses as made by the AO was confirmed. However, the CWT(A) was of the view that as

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when there is a pool of borrowed funds and the value of all capital assets stand negative-d as against the total liabilities which is undisputedly higher than the entire capital assets? capital liabilities far exceed the value of net fixed assets, the wealth chargeable to tax shall be NIL. ITAT- Allowed the appeal of the department having set aside the order of CWT(A) and sustaining the order of AO. Held that CWT(A) has not been able to appreciate the

amended provisions relating to establishing nexus of liabilities with the assets. In Paras-11 to 13, the Tribunal has also taken the view that in respect of the guest houses and vehicles having been purchased

with borrowed funds, the liabilities do not remain in existence forever and cannot be allowed any rebate. Covered by Gujarat high court judgement. 6. WTA 21/2004 (Assesse e’s RSEB (Now Known As 2000-01 (Appeal filed by assesse 6.2.2003 10.12.2003 15.3.2004 (I) Whether on the facts and circumstances of the case the guest A.0. AO Calculated the net wealth of the assessee company

Rs.

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appeal) RRVPNL vs. CWT) e) houses are integral part of the grid stations having direct nexus with the working thereof and by nature of business, bereft of its nomenclature, the same do not fall within the purview of “assets” as defined u/s 2ea of the Wealth Tax Act, 1957? (ii) Whether on the facts and circumstances of the case as a business enterprise when the total liabilities are higher than the total capital assets, the borrowing for a particular asset are not required to be co-related against individual asset when there is a pool of borrowed funds and the value of all capital assets stand negative-d as against the total liabilities which is undisputedly higher than the entire capital assets? 75531684/- and took the view that value of 9 guest houses and motor cars are to be taxed in view of the assessee's failure to establish direct nexus of their purchase from out of the capital liabilities from financial institutions and state governments of Rs. 653125 Lacs as against net fixed assets of Rs. 412184 Lacs CWT(A)- Appeal was partly allowed on the basis of view taken by CWT(A) in appeal relating to A.Y. 1999- 2000 as total liabilities exceeded value of total assets. ITAT- Summarily dismissed the assesse's appeal in view of its order dated 12.03.2004

in assessee's own case relating to A.Y. 1998- 99

1999-2000 Confirmed the addition made by the AO in respect of the rest houses and declined to

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interfere with the order of the CWT(A) and consequently, dismissed the appeal Covered by Gujarat high court judgement. 7. WTA 25/2004 RSEB (Now Known As RRVPNL vs. CWT) 2000-01 6.2.2003 10.12.2003 28.7.2004 (I) Whether on the facts and circumstances of the case the guest houses are integral part of the grid stations having direct nexus with the working thereof and by nature of business, bereft of its nomenclature, the same do not fall within the purview of “assets” as defined u/s 2ea of the Wealth Tax Act, 1957? (ii) Whether on the facts and circumstances of the case as a business enterprise when the total liabilities are higher than the total capital assets, the borrowing for a particular asset are not required to be co-related against individual asset AO- AO Calculated the net wealth of the assessee company

Rs. 75531684/- and took the view that value of 9 guest houses and motor cars are to be taxed in view of the assessee's failure to establish direct nexus of their purchase from out of the capital liabilities from financial institutions and state governments of Rs. 653125 Lacs as against net fixed assets of Rs. 412184 Lacs. CWT(A)- Appeal was partly allowed on the basis of view taken by CWT(A) in appeal relating to A.Y. 1999- 2000 as total liabilities exceeded value of total asset. ITAT- ITAT set aside the order of the CWT(A)

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when there is a pool of borrowed funds and the value of all capital assets stand negative-d as against the total liabilities which is undisputedly higher than the entire capital assets? and

consequently allowed the appeal of the revenue. Covered by Gujarat high court judgement. 6. He has also relied upon the decision of Calcutta High Court in Maynak Poddar (HUF) vs. Wealth Tax Officer (2003) 262 ITR 633 wherein it has been held as under:- “Having regard to the definition of 'net wealth', we may refer to the definition of 'asset' and find out as to whether under the said provision, as it stood in 1993-94, the building let out to a tenant for commercial purposes could be treated to be an asset taxable under Section 3 of the WT

Act.

plain

reading

of Section 2(ea) indicates that only a guest- house and/or residential building (including a farm-house situated within 25 kms of the local limits of any municipality) are assets. However, an exception was carved out in respect of house meant exclusively for residential purposes and those allotted by a company to an employee or an officer or director subject to the conditions laid down therein or used for business purposes forming part of stock-in-trade. If this definition is interpreted in the manner on the principle settled by law then it is very difficult to bring within the definition a building used for commercial purpose by the tenant on being let out. Character of the building is the determining factor under the existing provision for making it an asset. Guest-house, residential buildings including farm-houses were made taxable.

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But commercial building was not made taxable. 6. The buildings used for business or commercial purpose was not taxable under Section 3 of the WT Act until amended. The expression used in Section 3 before amendment is clear and unambiguous. It had specified the buildings, which were included in the definition of asset. It included guest-house, residential building, farm-house situated within 25 kms of the municipal town, but did not include commercial building. It had specifically referred to some kind of building while omitted to include the other kinds. Therefore, only the kinds included are taxable and not the others. 7. In Ajax Products (supra), the Supreme Court, at p. 747, had relied on a passage from Cape Brandy Syndicate v. IRC (1921) 1 KB 64, where Rowlatt, J. observed : "In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used." It was so echoed by the Supreme Court : "To put it in other words, the subject is not to be taxed unless the charging provision clearly imposes the obligation. Equally important is the rule of construction that if the words of a statute are precise and unambiguous, they must be accepted as declaring the express intentions of the legislature..…" 8. This position becomes clear by reason of the amendment sought to be brought about, as is apparent from the amendment effective from 1st April, 1997. The amended provision included building used for commercial purposes. This itself indicates that buildings used for commercial purposes were not subject- matter of taxation prior to the said amendment. This was explained at p. 238 of 220 ITR (St). This Explanation is self-

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explanatory. We would do better if we leave at that and quote the Explanation itself, viz., "The proposed amendment seeks to enlarge the definition of assets. Under the existing provisions, assets include guest- house, residential house and farmhouse. It is proposed to include in the definition any house whether used for residential or commercial purposes or as guest-house. It is also proposed to exclude any house allotted by a company to its employees, etc., and any house, which is used as stock-in-trade or a house used by the assessee for the purpose of his business." This is further clarified p. 282 of 220 ITR (St), we do not think we need to explain or add anything to it except quoting it : "The term 'assets', on which tax is to be levied, is defined in Clause (ea) of Section 2. This definition includes any guest-house and any residential house (including a farm-house situated within 25 Kms of the local limits of any municipality) for levy of tax, except the exclusions made in items (1) and (2) of Sub-clause (i) of this clause. If residential houses have been taken as assets, there seems to be no reason why commercial properties, other that those used by the assessee wholly and exclusively in his business or profession, should "also be not taken as assets. It is, therefore, proposed to tax commercial buildings, which are not used by the assessee in his business or profession, other than the business of letting out of properties." 9. However, we are not called upon to decide the meaning of the phrase 'other than the business of letting out of properties', therefore, we do not make any observation with regard thereto and keep it open to decision on an appropriate time and issue. However, this explanation clearly indicates that a commercial property whether let out or not was outside the scope of the existing provision of Section 2(ea) until amended in 1997.

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Section 2(m) and Section 2(ea), respectively, includes a building let out to a tenant used for commercial purposes, the same cannot be subjected to wealth-tax. Even if the assessee had included the same in his return, that would not preclude the assessee from claiming the benefit of law. There cannot be any estoppel against statute. A property, which is not otherwise taxable, cannot become taxable because of misunderstanding or wrong understanding of law by the assessee or because of his admission or on his misapprehension. If in law an item is not taxable, no amount of admission or misapprehension can make it taxable. The taxability or the authority to impose tax is independent of admission. Neither there can be any waiver of the right by the assessee. The Department cannot rely upon any such admission or misapprehension if it is not otherwise taxable. 11. This question was dealt with by this Court in Bhaskar Mitter (supra) at para 8 at p. 442. In this decision, this Court observed : "...,... An assessee is liable to pay tax only upon such income as can be in law included in his total income and which can he lawfully assessed under the Act. The law empowers the ITO to assess the income of an assessee according to law and determine the tax payable thereon. In doing so, he cannot assess an assessee on an amount, which is not taxable in law, even if the same, is shown by an assessee. There is no estoppel by conduct against law nor is there any waiver of the legal right as much as the legal liability to be assessed otherwise than according to the mandate of the law (sic). It is always open to an assessee to take the plea that the figure, though shown in his return of total income, is not taxable in law. .....…" 12. Therefore, the building in question could not come within the definition of

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'asset' as was held by the learned Tribunal affirming the decision of the CWT(A) and the AO. Therefore, the order of the learned Tribunal cannot be sustained and is hereby set aside. The tax proposed to be imposed on the building let out to as commercial building to tenants, is not an asset within the meaning of Section 2(ea), included in net

wealth

defined

in Section 2(m) respectively and, therefore, is not taxable under Section 3 of the WT Act, for the asst. yr. 1993-94.” 6.1 He relied upon the decision of Gujarat High Court in CWT vs. Narayan T. Baddi Tax Appeal No.540/2006 decided on 16.6.2012 wherein it has been held as under:- “9. Drawing the distinction between section 2(ea)(i) as it stood prior to and after 1-4-1997, it was submitted that prior to 1-4-1997 the words "commercial purposes" did not find place in the definition of assets and as such buildings used for commercial purposes were not taxable under section 3 of the Act prior to 1-4-1997 and as such the Tribunal was justified in holding that the asset in question could not have been assessed under the WT Act.10. The core and only question that arises for consideration is as to whether the property in question, viz. property at 604, Sterling Centre, Worli is an asset as contemplated under section 2(ea)(i) so as to fall within the ambit of "net wealth" under section 2(m) of the Act. As is apparent on a plain reading of section 2(ea)(i) as it stood at the relevant time and as amended by the Finance ( No. 2) Act, 1997 it is apparent that prior to 1-4-1997 the words "commercial purposes" did not find place therein. It is only w.e.f. 1-4-1997 that the words "commercial purposes" came to be inserted in clause (i) of section 2(ea) of the Act. Thus, it is apparent that it is the nature of the building which is the

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determinative factor for the purpose of deciding whether the same is an asset as contemplated under section 2(ea)(i) of the Act. Prior to 1-4-1997 a building used for commercial purposes was clearly not an asset under section 2(ea)(i) of the Act. In the facts of the present case, in the year under consideration the property in question had been given on rent by the assessee to Indian Additives Ltd., which has been taxed as "income from house property" and as rightly observed by the Tribunal, is not a non-productive asset. The property in question, therefore, bears the character of a commercial property which was not included in the definition of asset as denied under section 2(ea)(i) of the Act as it stood prior to 1-4-1997. The Tribunal was, therefore, justified in holding that the property in question was outside the purview of the expression "asset" as defined under section 2(ea)(i) of the Act. The question, accordingly stands answered in the affirmative, that is, in favour of the assessee and against the Revenue.” 6.2 He also relied upon the decision of Gujarat High Court in Commissioner of Income Tax vs. Gujarat State Petroleum Corporation Ltd. Tax Appeal No.684/2010 decided on 16.8.2011 wherein it has been held as under:- “The assessee carried the issue in appeal before CIT (A) who deleted the addition accepting the assessee's version that the properties were used preliminary for the purpose of assessee's business and they were neither created nor let out for earning rental income. Revenue approached the Tribunal by filing Appeal which however confirmed the view of the CIT (A) making following observations: “Having heard both the sides, we have carefully gone through the orders of the

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authorities below. It is pertinent to note that the assessee company is not engaged in the business of letting out of properties. In the case of Anand Estate Pvt. Ltd. (supra), Anand Estate has leased out its godowns. Therefore, it was held that godowns were not used for business because those were occupied or used by the tenants for their businesses. In the instant case, the assesseecompany has let out only a very small portion (i.e. less than 10%) of its office premises to the Directorate of Petroleum. Department of Energy and Petrochemicals and that too under directions from the Government. The main purpose of this arrangement was to have, close liaison with the Directorate of Petroleum, Department of Energy and Petrochemicals in its day to day business liability. The decision of the Hon'ble Bombay High Court in the case of Anand Estate Pvt. Ltd. (supra) relied the Ld. D.R. pertained to the assessment years 199798 and 199899 when Clause (5) which was inserted in section 2(ea)(i) of Wealth Tax Act by Finance (No.2) Act, 1998 was not there. In our opinion, this property falls within the exceptions under subclause (5) of clause (I) of section 2(ea) because it is in the nature of commercial establishment or complex. Therefore, it is not necessary that it should be used and occupied by the assessee. Such commercial establishment or complex is not includible in that wealth as held by the ITAT, Pune Bench in the case of Satvinder Singh Kalra – vs. DCWT reported in (2007) 112 TTJ 489 (Pune). In that case, the assessee was having two office premises, which were let out by him and were claimed as specifically exempt from net wealth under section 2(ea)(i) (5) as commercial establishment. The A.O. Treated them as “assets” defined u/s. 2(ea). This was confirmed by the Id. Learned Commissioner of Wealth Tax (Appeals). On further appeal, the Tribunal held that having regard to the nature of property as well as its use, the property can be classified as commercial establishment within the meaning of section 2(ea)(i)(5) and, as such, value thereof is not includible in the net wealth

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chargeable to tax under the Wealth Tax Act. Therefore, the decision of the Hon'ble Bombay High Court in the case of Anand Estate Pvt. Ltd. (supra) relied by the Id. D.R. is not applicable in this case. Apart from this, in the assessment year 200102, the Learned Commissioner of Wealth Tax (Appeals) assessed the rental income under the head “income from business”. This fact is not controverted by the Id.D.R. The guest house at Hazira, Surat is primarily maintained by the assessee for its business purposes and recovery charges for the use of such guest house by officials of joint venture partner and professionals, who rendered services, was rightly regarded by the Learned Commissioner of Wealth Tax (Appeals) as incidental to business activity. Whatever income earned from guest house is also assessed by the Learned Commissioner of Wealth Tax (Appeals) in the assessment year 200102 under the head “business”. The guest house maintained at nearby site from where exploration and exploitation of oil resources were carried out by the assessee is maintained for the purpose of business. Therefore, its value is not includible in net wealth of the assessee for both the assessment years under clause (3) as well as clause (5) of section 2(ea)(i) of the Wealth Tax Act, 1957. The view taken by the Learned Commissioner of Wealth Tax (Appeals) in respect of guesthouse is also upheld for both the assessment years.” Having heard learned counsel for the Revenue and having perused orders on record, we find that the CIT (A) as well as the Tribunal have both concurrently come to the conclusion that the said two immovable properties were utilized by the assessee for the purpose of its own business. We may recall that the assessee, Government Owned Company, had pointed that the property at Udyog Bhavan was permitted to be used by the Government Officer for the short period and usage charges were collected. It has come on record that only a small portion of properties i.e. less than 10% of the premises were thus used by the Office of

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the Directorate of Petroleum, Department of Energy and Petrochemicals. This was done by the direction of the Government. The main purpose of this arrangement was to have close liaison with the Directorate of Petroleum. It has also come on record that the guest house at Hazira was located at the distance of 30 K.M. from Surat, it was in the vicinity of the exploration site of the assessee. In the said guest house as per the need of the business, the officer of the joint venture and subsidiary companies and other officers were permitted to reside and in the process usage charges were collected. Principally the guest house constructed for the assessee's own business. Though the Revenue has heavily relied on the decision in the case of Anand Estate Pvt. Ltd. Vs. Deputy Commissioner of Income Tax reported in 316 ITR 94, we may notice that the Tribunal had distinguished the case on the basis of subclause (5) of clause(i) of Section 2(ea) of the Wealth Tax Act which was introduced with effect from 01.04.1999. On cumulative facts on record, we find that CIT (A) and the Tribunal committed no error in holding that both the properties were used by the assessee's own business and not creating rental income.” 6.3 He relied on provisions of Section 2 (ea) but relevant is Section 2(m) of Wealth Tax Act which reads as under:- Section 2(m) of Wealth Tax Act “(m) net wealth means the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets, wherever located, belonging to the assessee on the valuation date, including assets required to be included in his net wealth as on that date under this Act, is in excess of the aggregate value of all the debts owed by the assessee [on the valuation date which

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have been incurred in relation to the said assets];” 7. Counsel for the respondent Mr. Jain submitted that view taken by the tribunal is just and proper, taking into consideration the evidence on record and in view of the finding of 2(ea) recorded by CWT(A) in appeal no.23/2004 which reads as under:- “I have carefully considered rival submissions. The submissions of the ld. AR cannot be held totally correct. Though the capital liabilities from financial institutions are Rs.3,32,050/- lacs and the loans from the State Govt. are Rs.1,15,292/- lacs, but it is not correct to say that these amounts relate to only to fixed assets of Rs.2,93,455/- lacs. Assets of the appellant Board consist of not only all the fixed asset to the extent of Rs.2,93,455/- lacs, but also “capital expenditure in progress” of Rs.1,83,299/- lacs, other net current assets of Rs.1,09,222/- lacs and investments of Rs.16,731/- lacs. Together with other capital assets the net assets have been shown in the balance sheet at Rs.7,24,058/- lacs which is much more than the capital liabilities and loans to the extent of Rs.4,47,342/- lacs. From the balance sheet the capital expenditure in progress is itself Rs.1,83,299/- lacs. The total of fixed assets and capital

work

in progress

is Rs.2,93,455+Rs.1,83,299=Rs.4,76,754/- lacs which is much more than the capital liabilities of Rs.4,47,342/- lacs. The arguments of the ld. AR of the appellant that all the gust houses are in fact rest houses located in the remote areas, also not acceptable. The details of the location of the rest houses has not been furnished before me, but it is well known fact that the appellant Board is having a decent ‘guest house in the posh are of Jaipur which is used for staying of guest of the State Govt. and also of the Central Govt. for official and personal purposes. The argument of the ld. AR is also not acceptable that the guest house which is located at the work place cannot be included in the definition of asset u/s 2(ea).

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According to Section 2(ea)(ii) any house which the assessee may occupy for the purposes of any business or profession carried on by him is to be included in the net wealth. Therefore, the rest house cannot be excluded from the definition of net wealth.” 7.1 When the assets were found much more than the capital liabilities and loans to the extent of Rs.4,47,342/-, it is contended that the tribunal has not committed any error in considering the amendment in the Act and in view of the fact that the guest house was not included, he relied on the observations made by the tribunal which reads as under:- “11. We have heard the rival submissions and perused the materials available on record. We find that for the assessment year 1993-94 & 1999-2000, the CWT(A) had not been able to appreciate the amended provisions of law whereas for the assessment year 1998-99, the ld. CWT(A) had examined the facts of the case in depth at page 2 and 3 of his order and he rightly held that liabilities cannot be correlated with the fixed assets. Therefore, net wealth of the appellant board cannot be taken at Nil. It may be possible that the guest houses are built and vehicles are purchased with borrowed funds but the borrowed funds are paid from time to time and the liabilities for a particular project do not remain in existence for ever. In any case, the assessee has not been able to establish that there is some loan liability against a particular guest house or vehicle. 12. In this connection, it is also pertinent to reproduce the amended provisions of law of Section 2(m) of Wealth Tax Act, 1957 which reads as under:- “net wealth means the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets, wherever located belonging to the assessee on the valuation date, including assets

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required to be included in this net wealth as on that date under this Act, is in excess of the aggregate value of all the debts owned by the assessee [on the valuation date which have been incurred in relation to the said assets]” 13. From the perusal of the amended provisions of law, it is evident that for and from the assessment year 1993-94, only such debts owned by the assessee on the valuation date will be deducted from the aggregated value of the assets which have been incurred in relation to the said assets. Thus, where the assessee had taken loan from a bank against his property, the assessee would be entitled to get deduction to the extent of land taken from the bank in determination of net wealth. Therefore, the order of the ld. CWT(A) for the assessment year 1998-99 is sustained and the order of the ld. CWT(A) for the assessment years 1993-94 and 1999-2000 are reversed and also the orders of the Wealth Tax Officers are restored.” 7.2 Therefore, he contended that the view taken by the tribunal is required to be accepted. 8. We have heard counsel for the parties. 9. After amendment of Section 2(ea) w.e.f. 1.4.2013 since all these appeals are subsequent to 1993-94, in that view of the matter, taking into consideration the provisions of sub clause (III) of clause (i) of Section 2(ea), any house which the assessee may occupy for the purpose of business but not carried out by him. 10. In our considered opinion, the CWT(A) while considering the matter rightly held in favour of the assessee for the property is not required to be included within the meaning of assets and the

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view taken by the Gujarat High Court in Narayan T. Baddi (supra) is required to be accepted. 11. Regarding question no.2 for liability, taking into consideration the definition of 2(m), we are of the considered opinion that the liability is to be calculated on the basis of total liability against total assets of the company for a electricity company, it cannot be taken into consideration separately because service which is rendered are audi alturum and individual assets cannot be parted with liabilities as stated by the tribunal. 12. In that view of the matter, the issues are answered in favour of the assessee and against the department. 13. The appeals stand allowed. (INDERJEET SINGH)J. (K.S.JHAVERI)J. Brijesh 115-120.