Income tax - Whether 'building' which is used for purpose of hospital, can be treated as 'office', for purpose of exclusion from ambit of Wealth tax - NO: Supreme Court
By TIOL News Service
NEW DELHI, MAY 13, 2015: THE issue before the Bench is - Whether 'building' which is used for the purpose of hospital, can be treated as 'office', for purpose of its exclusion from the ambit of Wealth tax. NO is the Apex Court's answer.
Facts of the case
The assessee company is engaged in the business of running a Hospital at Thiruvananthapuram. During the A.Ys, 1987-1988, 1988-1989, 1989-1990 and 1990-1991, invoking the provisions of Section 40 of the Finance Act, 1983 by which the levy of wealth tax in the case of closely-held companies was revived, the AO took the view that on the building where the assessee was carrying on its business activity of running a Hospital would be subjected to the wealth tax inasmuch as u/s 40(3) the nomenclature of those assets were mentioned which were to be included for the purposes of assessing the wealth tax and building and land appurtenant thereto was specifically stipulated therein. On appeal, the CIT(A) confirmed the order of AO. On further appeal, the Tribunal however reversed the order of CIT(A). The High Court, however, again reversed the order of Tribunal and upheld the order of AO & CIT(A) on further appeal.
Having heard the parties, the Supreme Court held that,
++ Section 40 clearly mandates that wealth tax shall be charged under the Wealth Tax Act for A.Ys commencing on and from the 1st day of April, 1984, in respect of the net wealth on the corresponding valuation date of every company, not being a company in which the public are substantially interested, at the rate of 2 per cent of such net wealth. Thus, excluding those companies in which public has a substantial interest and share holding, assets and wealth of every company is excisable to wealth tax under the aforesaid provision. Section 40(2) deals with the net wealth of a company on which the wealth tax is to be levied. The assets which are referred to u/s 40(2) are specifically stipulated in sub-section (3). As mentioned above, building and land appurtenant thereto are mentioned in those assets. However clause (vi) of sub-section (3) excludes certain kinds of buildings or parts thereof. The only question is as to whether the building of the assessee where the aforesaid Hospital is running, would fall in that excluded category. It is seen that Section 40(3)(vi) makes it clear that insofar as factory, godown warehouse and hotel are concerned, they are specifically excluded. Likewise residential accommodation for the employees or the accommodation which is run as hospital, creche, school, canteen, library, recreational centre, shelter, rest-room or lunch room mainly for the welfare of its employees and land appurtenant to such building or part thereto is excluded. Any building or part thereto, used by the assessee as "office for the purposes of its business" also stands excluded. It is noted that the assessee wants its case to be covered by the aforesaid category. To put it otherwise, the contention of the assessee is that the Hospital building should be treated as "office" which is used for the purposes of its business. However, building used for purpose of hospital by no stretch of imagination can be treated as 'office'. It is again noted that the High Court in its judgment has stated that:
["....We have already noted clause (vi) excludes building or part thereof used by the assessee as factory, godown, warehouse, hotel, cinema house or office for the purposes of its business and also buildings which are used for residential accommodation for its employees or as a hospital, creche, school, canteen, library, recreational centre, shelter, rest room or lunch room mainly for the welfare of its employees and the land appurtenant to such building. A company can do a variety of business. It need not have a factory or a godown or a warehouse. It may carry on business of a hotel, business of a cinema theatre, business of a hospital and so on. If the legislative intention was to exclude all the buildings which are used for the purpose of its business as a productive asset, certainly the legislature need not have undertaken the exercise of separately specifying the buildings with reference to the nature of its user used by an assessee which is a closely held company for the purposes of exclusion. It is also relevant to note that clause (vi) apart from factory, godown, warehouse also refers to hotel and cinema theatre. If all buildings other than factory, godown, warehouse will fall within the expressions "office for the purposes of its business" there was no need at all for the legislature to classify the buildings for the purpose of this exclusion....If we understand the main part of clause (vi) in this fashion the further internal aid available is regarding the specific exclusion of a building used as a hospital mainly for the welfare of its employees. For the exclusion the 'hospital' must be one held by an industrial unit for the welfare of its employees. Thus the intention of the legislature as can be understood from this internal aids is that the legislature did not intend to exclude all the buildings which are used for the purpose of its business and that it was intended to exclude only such of those buildings which are specifically mentioned as excluded in clause (vi) which are used for industrial purposes and not for all business purposes...."]
++ this court is in agreement with the aforesaid view taken by the High Court. Therefore, finding no merit in the present appeals, the same are, accordingly, dismissed.
(See 2015-TIOL-106-SC-WT)
