2019 (1) TMI 553 - HC - Wealth-tax

Whether on the facts and in the circumstances of the case, the cash-in-hand as found on the last day of the accounting year as revealed from the books of account of the various assessees could be treated as an asset under section 2(ea) of the Act? Held that - Admittedly, the cash-in-hand held by the appellants herein are with respect to business transactions, the accounts of which were regularly maintained and the income thereon proffered for assessment before the Income-tax authorities. The cash so held in their hand were also recorded in the books of account, with certain exceptions, as we see from the orders of the Assessing Officer. The exceptions are in so far as the Assessing Officer having taxed only such amounts, which were kept in hand and which were in excess of ₹ 50,000 on a reading of sub-clause (vi) of clause (ea). The levy made by the authorities of all such cash-in-hand, whether disclosed in the accounts or not was only of that in excess of ₹ 50,000 - sub-clause (vi) of section 2(ea) is in two limbs, one covering individuals and HUF s and the second the other persons . As far as the former is concerned, only such cash-in-hand in excess of ₹ 50,000 would be brought to tax under the Act and as far as the second limb the other persons are concerned, any amount, even within the limit of ₹ 50,000 kept in hand and not recorded in the books of account will be brought to tax under the Act. The law, in this case the specific amendment seeking to tax the non-productive cash-in-hand as wealth, available in section 2(ea)(vi) is constitutionally valid. However, the officers have deviated from the policy and principle explicit from the enactment and hence such action taken under the Act for assessment of cash-in-hand of the assessees, disclosed in the books of account, but in excess of ₹ 50,000, has to be set aside. Petition disposed off declaring and holding that the other persons as coming in the second limb of section 2(ea)(vi) includes those persons who carry on a commercial activity and are statutorily required to maintain books of account under the Income-tax Act - The writ petitioner, a proprietary firm engaged in the business of jewellery, is declared to be entitled to be absolved from the liability to tax under the Wealth-tax Act, for any amounts held as cash-in-hand, recorded in the books of account. The is answered in favour of the assessees and against the Revenue.

Issues Involved:
1. Whether cash-in-hand on the valuation date, as disclosed in the books of account, can be treated as an asset under section 2(ea) of the Wealth-tax Act, 1957.
2. Whether the jurisdiction assumed under section 25 of the Wealth-tax Act was in accordance with law.
3. Constitutionality and interpretation of sub-clause (vi) of section 2(ea) of the Wealth-tax Act.

Issue-Wise Detailed Analysis:

1. Treatment of Cash-in-Hand as an Asset:

The primary issue was whether cash-in-hand on the valuation date, as revealed from the books of account of various assessees, could be treated as an asset under section 2(ea) of the Wealth-tax Act, 1957. The court noted that the assessees, engaged in businesses like jewellery, chit funds, bar hotels, and cashew production, retained cash-in-hand in excess of ?50,000, which was disclosed in the books of account. The contention was that this cash was necessary for business operations and should not be classified as an asset for wealth tax purposes. The court examined the legislative history and the intent behind the amendment to the Act, which aimed to tax non-productive assets while excluding productive assets used for commercial purposes. The court concluded that cash-in-hand, disclosed in the books of account and used for business purposes, should not be treated as an asset under the Act.

2. Jurisdiction under Section 25 of the Wealth-tax Act:

The second issue was whether the Tribunal was correct in finding that the jurisdiction assumed under section 25 of the Wealth-tax Act was not in accordance with law. The court observed that the Tribunal had previously ruled in favor of the assessees, interpreting the term "productive asset" to include assets used for commercial purposes. The court agreed with the Tribunal's interpretation and found that the Commissioner should not have found an error in the Assessing Officer's order when the jurisdictional Tribunal had already ruled in favor of the assessee. Therefore, the court upheld the Tribunal's decision, rendering the question of jurisdiction under section 25 moot.

3. Constitutionality and Interpretation of Section 2(ea)(vi):

The third issue involved the constitutionality and interpretation of sub-clause (vi) of section 2(ea) of the Wealth-tax Act, which was challenged on the grounds of being arbitrary and discriminatory. The court examined the legislative intent, the Finance Minister's speech, and the CBDT Circular, which aimed to tax non-productive assets while encouraging investment in productive assets. The court found that the classification of individuals, HUFs, and other persons in the provision was based on whether they were required to maintain books of account. It concluded that the provision was not arbitrary or discriminatory and had a reasonable nexus with the object sought to be achieved by the Act. The court held that the provision was constitutionally valid but clarified that cash-in-hand disclosed in the books of account by persons engaged in commercial activities should not be taxed as wealth.

Conclusion:

The court disposed of the writ petition by declaring that the term "other persons" in section 2(ea)(vi) includes those engaged in commercial activities and required to maintain books of account. It directed that only cash-in-hand not disclosed in the books of account should be taxed under the Wealth-tax Act. The court also rejected the wealth-tax appeals, answering the question of law in favor of the assessees and against the Revenue.

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