(a) Wealth tax---

----Exemption---Property taken on long lease by company for business purposes---Property used for business purpose---Subsequent sub-lease of part of property not required for business---Effect of---No material regarding lease---Question whether building was entitled to exemption could not be answered---Matter remanded---Wealth Tax Act, 1957---Indian Finance Act, 1983, S.40(3)(vi).

The object of inserting of section 40 of the Finance Act, 1983, 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. Subsection (3) of section 40 of the Finance Act, 1983, enumerates the taxable assets. Clause (vi) thereof includes in the list of taxable assets building or land appurtenant thereto. But it saves from the chargeability the whole of a building or a part of a building used by the assessee as factory, godown, warehouse, hotel or office for the purpose of its business, etc. If a building is let out by an assessee for use as a factory, godown, warehouse, etc. and such letting is held to be commercial exploitation of a business assets, it would amount to user of the building by the assessee as factory, godown, warehouse, etc., for the purpose of its business. Even where a lull falls upon a business, the business cannot be said to be non-existent. 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. The question whether a lease amounted to commercial exploitation of the assets concerned would depend on the intention of the assessee as manifested in the surrounding circumstances and the document of lease or other documents connected therewith.

The assessee was running a jute press. It had taken a long lease of a property for the purpose of that business. Eventually, the whole of the property not being required for use of the business, it sub-leased a portion thereof and earned lease rent. The rental income was initially taxed as income under the head "Other sources". But the first appellate authority, in appeal against that finding, held that the rental income was taxable as profits and gains of business. So, the Tribunal concluded that the assets in question were earlier found to be business assets. But curiously enough, the very same first appellate authority in his capacity as the Commissioner of Wealth Tax (Appeals) held that the asset was not a business asset and, therefore, not entitled to exclusion from the charge of wealth tax. The Tribunal held that it was not open to the Revenue to take a view for wealth tax purposes inconsistent with and diametrically opposed to the view in the income-tax assessment. Therefore, the Tribunal concluded that the property in question had to be excluded from the charge of wealth tax. On a reference:

Held, that the Tribunal was mainly guided by the consideration that the Revenue having accented the income from subletting' as income of the business, could not take the inconsistent view that, for purposes of section 40 of the Finance Act, 1983, the asset is an unproductive asset and not a business asset used by the assessee as a businessman. However, the statement of case was insufficient. There was no material regarding the lease. It was not even clear whether the lease was for a short period. It was not clear whether there was a manifest intention of the assessee to resume in future the use of the part of the leasehold property for the purpose of his business as before.

(b) Interpretation of statutes--

----Construction---Taking into account legislative intent.

The construction of a statutory 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 important specifically where the law as framed leaves a void for the judiciary to fill in, in the total setting of the law. [p. 769] D

CIT v. Ajmera Industries Pvt. Ltd. (1976) 103 ITR 245 (Cal.); CIT v. Scindia Steam Navigation Co. Ltd. (1961) 42 ITR 589 (SC); CIT v. Vikram Cotton Mills Ltd. (1988) 169 ITR 597 (SC); CEPT v. Shri Lakshmi Silk Mills Ltd. (1951) 20 ITR 451(SC); Varadaraja Theatres (P.) Ltd. v. YV70 (1989) 29 ITD 29 and (1989) 75 CTR 69 (Trib.) (Mad.) ref.

R.N. Bajoria and I.P. Khaitan for the Assessee.

JUDGMENT

?AJIT K. SENGUPTA, J: --In this reference under section 27(3) of the Wealth Tax Act, 1957, for the assessment years 1984-85 and 1985-86, the following questions of law have been referred to this Court:

"(1) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in holding that, for the purpose of levy of wealth-tax on the assessee-company the property in question has to be excluded under section 40(3)(vi) of the Finance Act, 1983 ?

(2) Whether the finding of the Tribunal that the asset in question was a business asset is unreasonable or perverse?"

Briefly stated, the facts raising the question are that the assessee is a private limited company. It filed nil returns under the Wealth Tax Act, 1957, for the assessment years 1984-85 and 1985-86. The Wealth Tax Officer, however, brought to charge the value of certain leasehold properties on the ground that the leasehold property excluded from taxable wealth under subsection (3) of section 40 of the Finance Act, 1983, which levies wealth-tax in respect of specified assets of closely held companies as the rental income from the leasehold properties had been assessed to income-tax under the head "Other sources". Therefore, the leasehold properties could not constitute business assets for the purpose of exclusion in terms of section 40(3)(vi) of the Finance Act, 1983. On appeal, the Commissioner of Wealth-tax (Appeals) in an ex parte order confirmed the decision of the Wealth Tax Officer. In second appeal before the Tribunal the assessee contended that the asset must be regarded as one of the business assets of the assessee because in the appeal against the income-tax assessment for the assessment year 1983-84, the Commissioner of Income-tax (Appeals) had found the rental income from the case hold properties by reason of its sub-letting to be assessable under the head "Profits and gains of business". Reliance was placed by the assessee on the decision of the Tribunal in the case of Varadarala Theatres (P.) Ltd. v. WTO (1989) 29 ITD 29 (Mad.). The Tribunal found that it was a matter of record that the assessee was earlier running a jute press. The long lease of the property in question was taken for the purpose of that business. Eventually, the whole of the property not being required for use of the business, it subleased a portion thereof and earned lease rent. The rental income was initially taxed as income under the head "Other sources". But the first appellate authority in appeal against that finding held that the rental income was taxable as profits and gains of business. So, the Tribunal concluded that the assets in question were earlier found to be business assets.

But, curiously enough, the self-same first appellate authority in his capacity as the Commissioner of Wealth-tax (Appeals) made a turn-about and held that the asset was not a business asset and, therefore, not entitled to exclusion from the charge of wealth-tax. The Tribunal did not approve of this duplicity of approach and held that the assets which have been treated as business assets for the purpose of income-tax and the rental income wherefrom taxed as part of the profits and gains of the business cannot but be business asset. It is not open to the Revenue to take a view for wealth-tax purposes inconsistent with and diametrically opposed to the view in the income-tax assessment. Therefore, the Tribunal concluded that the property in question has to be excluded from the charge of wealth-tax under section 40(3)(vi) of the Finance Act, 1983.

Learned counsel for the parties reiterated before us the respective contentions urged before the Tribunal. The burden of the argument developed by learned counsel appearing for the assessee is that, having regard to the legislative intent behind the enactment of section 40 and in the facts and circumstances of the present case, the leasehold right is not liable to be included in the net wealth. It is the undisputed position that the assessee had taken the entirety of the said premises do lease for the purposes of its business. Eventually, a portion of the leasehold property fell out of requirement. It was, therefore, sub-leased. The income therefrom has also been assessed as business income. The position is that the leasehold interest held as a commercial asset became surplus in part. It was, therefore, exploited by the assessee through a third party as a sub-lessee. Reliance was placed on the decision of this Court in CIT v. Ajmera Industries Pvt. Ltd. (1976) 103 ITR 245 and of the Supreme Court in CIT v. Vikram Cotton Mills Ltd. (1988) 169 ITR 597.

It was submitted that it could not have been the intention of the Legislature to bring within the tax net commercial or business assets even if held by a closely held company. Intrinsic evidence of this intention is available in clause (vi) of section 40 itself. The object of section 40 was only to curb the device adopted, by persons to hold their unproductive assets through this medium of closely held companies for reduction of their tax liability. A commercial asset or a business asset even if held by a closely held company would obviously not fall within the said clause. The said commercial asset of the assessee in the facts and circumstances of this case cannot be said to be an unproductive asset held through the medium of the assessee for tax avoidance. The assessee had taken the lease for its jute press. Subsequently, the assessee did not require the entire premises for its use. It sub-leased a portion of it and thus continued its commercial exploitation in a different manner. Further, in terms of clause (vi), a building or part thereof used by the assessee as factory, godown, warehouse, hotel or office for the purpose of its business is not to be included in the net wealth. The said clause does not stipulate that the assessee must itself use the building as factory, godown, warehouse, hotel or office, it is submitted. The use of a building as factory, godown, warehouse, etc., need not be by the assessee itself and it may as well be through others. 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 was further pointed out on behalf of the assessee that, in this case, the income from the subletting has been assessed in the hands of the assessee as income from business which necessarily postulates that the asset let out was taken to be a commercial asset. It was further submitted that the leasehold interest in a building does not fall within clause (vi) of section 40(3) of the Finance Act, 1983. When confronted with the question whether this particular issue not raised before the Tribunal could be pressed before this Court in the reference, learned counsel for the assessee invited our attention to CIT v. Scindia Steam Navigation Co. Ltd. (1961) 42 ITR 589 (SC). It was argued that the fundamental issue is whether the asset in question is to be excluded under section 40(3)(vi) of the Finance Act, 1983. The contention that the leasehold interest in a building does not fall within clause (vi) since it refers only to the building is only one fact of the question referred to this Court. Therefore, no exception can possibly be taken to this last limb of the argument submitted on behalf of the assessee.

The contention made on behalf of the Revenue is that subsection (3) of section 40 enumerates the taxable assets. Clause (vi) thereof includes in the list of taxable assets building or land appurtenant thereto. But it saves from the chargeability the whole of a building or part of a building used by the assessee as factory, godown, warehouse, hotel or office for the purpose of its business, etc. It is clear that a building ordinarily is chargeable to wealth-tax. But it may be excluded from the charge either in whole or in part if such whole or part is used by the assessee itself and not by a third party as factory, godown, warehouse, etc. Therefore, the admitted position in this case is that the leasehold building which had been used beforehand wholly for business, however, came to be used partly for business purposes as referred to in clause (vi). It is further admitted on both hands that there has been cessation of use in a part of the leasehold property and it has been sublet to a third party. Even if the third party used it for the specified business purposes that makes no dent in the Revenue's case because the exclusionary part of clause (vi) requires the use of the property for the said purposes of business by the assessee and in this case the part of the property questioned is not used by the assessee.

The Revenue's case is that the way the case has been sought to be made out in favour of the assessee for exclusion of the tenanted part of the property from the charge of tax amounts to reading into something more to the provision than could be read in a straight manner and on plain meaning of the language of clause (vi). There is nothing involved in the language. which is quite plain and simple. If one reads that the expression "used by the assessee" would also mean "used by the sub-tenant of the assessee", one would be supplying words which are not there in the provision. The provision is clear as to the requirement of the commercial user of the property to be by the assessee himself. The commercial user by the tenant or sub-tenant would be a super?imposition. The expression "used by the assessee" cannot be transmuted to mean "used by the tenant or sub-tenant of the assessee".

We have heard the arguments of the parties. Reference has been made in this connection on behalf of the assessee to the Budget Speech of the Finance Minister while introducing the Finance Bill, 1983, before Parliament. It is true 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-tax in the manner envisaged in section 40 ibid was found necessary. The Finance Minister in his Budget Speech observed (see (1983) 140 ITR (St.) 32); "Buildings used by the company as factory, godown, warehouse, hotel or office for the purposes of its business or as residential accommodation for its low-paid employees will be excluded from net wealth." So, exclusion was contemplated where the properties are wholly or partly the accessory to carrying on the business. We have carefully gone through the Budget Speech of the Finance Minister heavily relied upon by the assessee's learned counsel. The mischief which is sought to be remedied is the tax avoidance through transfer of unproductive wealth to closely held companies. We feel that the construction of the provision particularly in the context of a situation not foreseen by the law-makers should not be overall literal but purpose-seeking. The reading of the legislative intention is very rams eaves a void or the judictary to fill in the total setting of the law Here the rasp doer, not fit into a particular slot in section 40(3). True, a part of the commercial asset has ceased to e a commercial asset under the compulsion of circumstances. The unproductive assesses e but part of its requirement eventually ceased. This one factor does not create a situation of mischief that is sought to be checked. A hitherto productive property has fallen surplus in part incidentally but, on that score, it cannot be said to have been transmuted into an unproductive asset in the hands of the company. The moment such a contingency takes place, a literal construction as urged by the Revenue would be unduly rigid. May be, the present non-user is just a passing phase. If it is a passing phase, it cannot be said that part of the property has become unproductive or surplus to the business. Its surplus status, if for a temporary spell, shall not undermine its character as a productive commercial asset.

As a matter of fact, even where a lull falls upon a business, the business cannot be said to be non-existent. 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 v. 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 subletting 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.

We have noticed that the Tribunal was mainly guided by the consideration that the Revenue, having accepted the income from the sub?letting as income from business, cannot take the inconsistent view that, for section 40 of the Finance Act, 1983, the asset is an unproductive asset and not a business asset used by the assessee as a businessman.

However, we find that the statement of case as made out is insufficient. The inadequacy emanates from the fact that more facts ought to have been brought out before drawing the conclusions. The Tribunal has not gone into the question as to what was the consideration that guided the decision of the self-same first appellate authority under the Income Tax Act in deciding that the rental income derived from the subletting was business income or what terms the lease deed contained or what is the duration of the lease. We cannot say whether there was a manifest intention of the assessee to resume in future the use of the part of the leasehold property for the purpose of its business as before.

In the premises, we decline to answer the questions and remand the matter to the Tribunal for going into these factual aspects of the matter for deciding the issue more satisfyingly. If the Tribunal feels it necessary, it can allow the parties to adduce further evidence.

There will be no order as to costs.

SHYAMAL KUMAR SEN, J.---I agree.

M.BA./161/T.F.??????????

Matter remanded.