Case: Kapri International (P) Ltd Vs. Commissioner of Wealth Tax

1. In this case we are concerned with wealth tax on a property situated at Plot No.39, Site IV, Sahibabad. The concerned assessment year isThe facts are that the appellant before us is a company which manufactures bed sheets. It contends that its own subsidiary company namely, M/s Dior International Pvt. Ltd., is a company under the same management and is doing processing work, namely, dyeing, for the assessee company in a part of the factory building situate at the aforesaid property. It is not disputed that M/s Dior International Pvt. Ltd. installed its own machinery for the said job work of dyeing and that the assessee charged a sum of Rs. 20,000/per month as license fee from M/s Dior International Pvt. Ltd.2. He said sum of Rs. 20,000/per month charged as license fee has been claimed by the assessee to be business income. Further, it is also clear that the job work undertaken by M/s Dior International Pvt. Ltd., though done wholly for the assessee, was nonetheless charged to the assessees account and paid for by the assessee. The question that arises on the facts in this case is whether under Section 40(3)(vi) of the Finance Act, 1983, "the building" is used by the assessee as a factory for the purpose of its business. Section 40(3) is set out hereinassets referred to in(2) shall be the following, namelygold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals (not being any such precious metal or alloy held for use as raw material in industrial production;(ii) precious orstones whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel;(iii) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious orstone, and whether or not worked or sewn into any wearing apparel;(iv) utensils made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals;(v) land other than agricultural land;(Provided that nothing in this clause shall apply to any unused land held by the assessee for industrial purposes for a period of two years from the date of its acquisition by him;)(vi) building or land appurtenant thereto, other than building or part thereof used by the assessee as factory, godown, warehouse, hotel or office for the purposes of its business or as residential accommodation for its employees or as a hospital, enter, school, canteen, library, recreation enter, shelter,or lunch room mainly for the welfare of its employees and the land appurtenant to such building or part :(vi) (a) any building used as residential accommodation in the nature of a guest house and land appurtenant thereto;(vi) (b) any building and the land appurtenant to such building used as residential accommodation by any director, manager, secretary or any other employee of the assessee, such employee holding not less than one per cent of the equity share of the assessee or by any relative of any person who holds not less than one per cent of the equity share of the assessee.By an order dated 9th March, 1989, the assessing authority held that on these facts they had no hesitation in holding that the part of the building given to M/s Dior International Pvt. Ltd. on licence is not being used for the assessees own business and therefore, the assessee is not entitled to exemption in respect of the said part of the Sahibabad building property. On an appeal to the Commissioner of Income Tax (Appeals), the Commissioner by judgment dated 28th January, 1993 agreed with the assessing authority and dismissed the appeal. The Commissioner opined that the assessing officer should refer the matter to the Valuation Officer under Section 16A (1)(b)(ii) for the valuation of the portion given on rent by the appellant company to its licensee. In a further appeal to the Income Tax Appellate Tribunal, the Income Tax Appellate Tribunal agreed with the view of the authorities below and dismissed the appeal. It held asexpression "used by the assessee as factory. for the purpose of its business" used by the legislature in the aforesaid clause clearly shows that the building or part of such building which is to be excluded from the net wealth must be used by the assessee as factory for the purpose of its own business.

Court's reasoning:
8. It is true that the expression "for the purpose of the business" may be wide but as the judgment says its limits are also clear. The expenditure incurred therefore, will have to be for the carrying on of the business and the assessee shall incur it in its capacity as a person carrying on the business. On facts here it is clear that the assessee, namely, M/s. Kapri International (P) Ltd., the appellant before us, has not incurred anything in its capacity as the person carrying on the business. On the other hand, it is clear on facts that it is M/s Dior International Pvt. Ltd. in its separate individual capacity that is carrying on its own business. This case is, therefore, clearly distinguishable onpassage cited at pageof the report again makes it clear that this judgment does not in any manner further the argument of the assessee in the present case. It goes as far as saying that on the facts here Rs. 20,000/licence fee per month ought to be treated as business income. This may well be correct but as we have pointed out herein above, this fact does not further the assessees case in that the very factum of charging Rs. 20,000/per month makes it clear that the assessee treated itself as a corporate personality separate from itsthat case, assets were let out by a leasing company doing leasing business. On the facts therefore, it was held that such leased assets would be treated as being for the purpose of business in that case. This judgment also does not carry the appellants case anydoes not take the assessee very much further. An interest free loan may well on facts be treated to be "for the purposes of business" so far as Section 36 of the Income Tax Act is concerned. However, on facts here we are concerned with a very different provision in which user of premises has to be by the assessee itself and not by its sister concern. This case is also distinguishable on facts.