No Wealth Tax If Assessee used Building for Construction / Set Up of Office and Service Centre: ITAT [Read Order]

The Kolkata bench of Income Tax Appellate Tribunal ( ITAT ) in Dongfang Electric (India) P Ltd vs. DCWT ruled that No Wealth Tax if Assessee used the building for construction or set up of office and service Centre.

In instant case Assessee engaged in the business of trading and exporting in the field of power and also doing sales after service which includes operation and management of power plant and providing training to customer’s personal.

During the scrutiny, AO observed that Assessee Company had not filed its wealth tax even the company’s balance sheet reveals the huge amount of the fixed asset like freehold land and Motorcar. Show cause proceeding was initiated by AO to show cause as to why notice u/s 17 of the Act should not be issued for non-filing of the return of wealth since the total wealth chargeable exceeds the threshold limit required for filing wealth tax returns.

In reply to such proceedings, Assessee explained the purpose of land was to set up their office and service centre and also stated that said land did not qualify as an unproductive asset since it started its construction within two years from the date of acquisition of land.

The assessee’s explanation was that since the land in question did not qualify as a taxable asset u/s 2(ea) of the Act and the fact that the value of motor vehicles did not exceed the threshold limit of Rs 15,00,000/-, a return of net wealth was not required to be filed under the Act.

Assessee presented various facts before AO in the light of purchase deed. However, AO concluded that since the fixed Asset of business doesn’t include any item like plant and machinery and hence there was no industrial activity carried out by the company.

Accordingly, AO brought the value of freehold land to wealth tax as a taxable asset and the same was upheld by the CWTA. Being aggrieved Assessee is in appeal before this tribunal.

The bench comprising of Judicial Member Aby T Varkey and Accountant Member M.Balaganesh heard the contentions and perused the cases and records submitted by both the parties. The tribunal bench cited the case of Federal Bank Ltd vs. JCWT wherein it has been held that once the construction of the building started and not completed will be termed as vacant land and also held that wealth tax is leviable only in respect of non-productive assets and it does not apply to productive assets.

The Tribunal perused the contentions raised by Assessee before AO regarding the purpose of the land and the date on which it started its construction of office building till the completion which reveals the intention of the assessee to use the subject mentioned land only for its business purposes.

Finally ITAT noted that “We hold that the assets deployed for service activities are treated as productive assets and accordingly the construction / set up of office and service centre by the assessee and used as such for its business purposes would be outside the ambit of wealth tax in the same manner in which the factory structure or manufacturing establishment is excluded and the beneath land on which such structure to come should have the same wealth tax treatment. It could be conclusively proved that the assessee had used the land only for its business purposes by constructing a building in the subject mentioned land and is carrying on its regular business from the said premises”.