P.K Mlsra, J.:— The common question of law in these cases is as follows:
“Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the assessee engaged in construction and leasing of warehouses was not liable to wealth-tax in respect of the value of the warehouses as they were exempt under the provisions of section 40(3) of the Finance Act, 1983?”
2. In order to appreciate the question of law, it is necessary to notice the facts in brief. The assessee is a company. One of the objects stated in the memorandum of association relates to letting out of godowns. The assessee-company had let out godowns to the Food Corporation of India. In response to the notice issued under section 17(1)(a) of the Wealth-tax Act, the assessee had filed a return indicating “nil” wealth. It was the contention of the assessee that, as the business of the assessee was letting out of godowns and as such godowns were let out to the Food Corporation of India, such properties did not attract the provisions of the Wealth-tax Act. The Assessing Officer, however, did not accept the contention of the assessee and held that the income from letting out godowns is income from house property and wealth-tax was leviable. In the appeal filed by the assessee, the appellate authority accepted the contention of the assessee indicating that warehouses represent the business assets of the assessee, as the warehouses are used for the purpose of godowns and did not attract wealth-tax. In the appeal filed on behalf of the Department, the Tribunal confirmed the order of the appellate authority by holding that warehouses were the business assets of the assessee and were exempted under the provisions of section 40(3)(vi) of the Finance Act, 1983. Thereafter, pursuant to the order of the High Court in T.C.P Nos. 60 to 64 of 1997, the question of law already extracted has been referred for consideration. It is not disputed that in the meantime under the Income-tax Act, income had been assessed as the income from the house property.
3. The main question for consideration is whether the godowns let out to the Food Corporation of India would be excluded under the provisions contained in section 40(3)(vi) of the Finance Act, 1983.
4. section 40(3)(vi) is to the following effect:
“40. (3)(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, creche, school, canteen, library, recreational centre, rest room or lunch room mainly for the welfare of its employees and the land appurtenant to such building or part:
Provided that each such employee is an employee whose income (exclusive of the value of all benefits or amenities not provided for by way of monetary payment) chargeable under the head ‘Salaries’ under the Income-tax Act does not exceed eighteen thousand rupees;”
5. On a bare perusal of the provision it is apparent that under section 40(3)(vi), building or land appurtenant thereto would be taken into account for wealth-tax. However, building or part thereof “used by the assessee as factory, godown, warehouse, hotel or office for the purposes of its business” shall be excluded.
6. It is the contention of learned counsel appearing for the Department that the building had not been used by the assessee-company as godown or warehouse for the purpose of its business. It is submitted that unless the building is used by the assessee as godown or warehouse for the purpose of its business, it cannot be excluded under the provisions of section 40(3) of the Finance Act, 1983.
7. For the aforesaid purpose, learned counsel appearing for the Department has placed reliance upon the Division Bench decision of this court reported in K.N Chari Rubber and Plastics (P.) Ltd. v. CWT, [2003] 260 ITR 164. In the said case, while dealing with a similar question, it was observed (page 166)
“So far as the factory building is concerned it was submitted by the assessee that, that factory should be excluded from the assessable wealth as the memorandum of association of the company mentions the leasing of the properties of the company as one of its objects. Clause (vi).of section 40(3) of the Finance Act stipulates that what is to be excluded is a factory which is ‘used by the assessee for the purpose of its business’. Here it cannot be said that the factory was being used by the assessee for the purposes of its business. All that the assessee had done was to rent out that factory building, as the assessee itself was not carrying on manufacturing and the building was being used as a factory by the lessee who had installed machinery therein and was using the same for the manufacture of cork which was the business of the lessee. The use of the building as a factory and the business carried on therein was by the lessee of the assessee and not by the assessee. Moreover, even the assessee had accounted for the rental income from that property as income from other sources and not as business income.
We, therefore, do not find any error in the order of the Tribunal as also of the statutory authorities who have rightly held that the factory building was not to be excluded while considering the assets required to be valued for the purpose of wealth-tax.”
8. In our opinion, the ratio of the decision of the Division Bench in the aforesaid case is squarely applicable to the present case. It is no doubt true that leasing out of godown or warehouse is one of the objects enumerated in the memorandum of association. However, it cannot be said that the building was “used by the assessee as godown or warehouse”. Even though it can be said that leasing out of godown was for the purpose of the business of the assessee, the further requirement that such building should be used by the assessee as godown or warehouse is not satisfied. Merely because the lessee, namely, the Food Corporation of India, was using the same as godown or warehouse, it cannot be said that the assessee “was using it as godown or warehouse”. Therefore, it has to be observed that the Appellate Tribunal was wrong in law in holding that the value of the warehouse was exempt from the provisions of section 40(3)(vi) of the Finance Act.
9. Learned counsel appearing for the assessee-company has placed reliance upon the decision of the Supreme Court reported in CIT v. Shaan Finance (P.) Ltd., [1998] 231 ITR 308. In the said decision, the question was whether investment allowance was allowable under section 32A of the Income-tax Act in respect of the machinery owned by the assessee, but leased to third parties and used by them for the manufacture of an article or thing. The Supreme Court in the said case had observed that a leasing company which owns machinery and leases such machinery to third parties for manufacture of articles is entitled to investment allowance of such machinery under section 32A of the Income-tax Act. Even though at the first glance such decision appears to support the contention of the assessee, but on deeper scrutiny, we are of the view that the ratio of the said decision is not applicable to the present case. To attract the provisions under section 32A, as observed by the Supreme Court, the assessee must satisfy the following conditions (page 312):
“(1) the machinery should be owned by the assessee;
(2) it should be wholly used for the purposes of the business carried on by the assessee; and
(3) the machinery must come under any of the categories specified in sub-section (2) of section 32A.”
10. The relevant provision in section 32A is to the effect that the machinery should be wholly used for the purpose of the business carried on by the assessee. Even though it can be said that leasing out of godowns was for the purpose of carrying out of the business by the assessee in the present case, as per section 40(3)(vi) there is an additional requirement that the building should be used by the assessee as godown or warehouse for the purpose of its business. The nature of use by the assessee as godown or warehouse is an important aspect. There is no such similar provision contained in section 32A of the Income-tax Act. The ratio of the Supreme Court is, therefore, inapplicable to the present case.
11. Since the Division Bench decision of this court, already cited, in the similar facts and circumstances is squarely applicable, we answer the question posed in the negative.