1968 (2) TMI 27 - HC - Wealth-tax

Amounts deposited by the assessee with the Govt. of India in the shape of cash and/or Govt. securities - not entitled to relief u/s 5(2) of the WT Act

Issues Involved:
1. Interpretation of section 5(2) of the Wealth-tax Act, 1957.
2. Whether the deposits made by the assessee with the Government qualify for exemption under section 5(2).

Detailed Analysis:

1. Interpretation of Section 5(2) of the Wealth-tax Act, 1957:

The primary issue revolves around the interpretation of section 5(2) of the Wealth-tax Act, 1957. The section reads: "Wealth-tax shall not be payable by an assessee in respect of any deposit made by the assessee with the Government or in any security of the Government or of a local authority not specified in clause (xvi) or clause (xvia) of sub-section (1) which the Central Government may, by notification in the Official Gazette, exempt from wealth-tax; but the value of any deposit or security so exempted shall be included in computing the net wealth of the assessee."

The court analyzed the structure and grammar of the section, breaking it down into its components:
- Clause (a): "any deposit made by the assessee with the Government"
- Clause (b): "in any security of the Government or of a local authority"
- Clause (c): "not specified in clause (xvi) or clause (xvia) of sub-section (1)"
- Clause (d): "which the Central Government may, by notification in the Official Gazette, exempt from wealth-tax"
- Clause (e): "but the value of any deposit or security so exempted shall be included in computing the net wealth of the assessee"

The court concluded that the word "deposit" governs both clauses (a) and (b), making the plain and grammatical construction of the section read as: "Wealth-tax shall not be payable by an assessee (a) in respect of any deposit made by the assessee with the Government or (b) (i) (in respect of any deposit) in any security of the Government, or (ii) (in respect of any deposit in any security) of a local authority."

2. Whether the Deposits Made by the Assessee with the Government Qualify for Exemption under Section 5(2):

The assessee argued that the deposits made with the Government under the contract for the construction of the Port of Kandla should be exempt from wealth-tax under section 5(2). The Wealth-tax Officer rejected this claim, stating that the deposits were in the form of securities not exempted by any notification and that the assessee continued to receive interest on these securities.

The Appellate Assistant Commissioner reversed this decision, asserting that the deposits, irrespective of their form, should be covered by the exemption granted by section 5(2). However, the Appellate Tribunal of Bombay reinstated the Wealth-tax Officer's decision, emphasizing that a notification by the Central Government was necessary for the exemption to apply.

The court examined whether the phrase "which the Central Government may, by notification in the Official Gazette, exempt from wealth-tax" applies to both categories of deposits mentioned in section 5(2). The court concluded that this phrase does indeed govern both "any deposit made by the assessee with the Government" and "any security of the Government or of a local authority."

Furthermore, the court analyzed the nature of the deposits made by the assessee, concluding that the term "deposit" in section 5(2) does not refer to ordinary commercial or business deposits. Instead, it refers to deposits in specific government schemes or securities, as indicated by the reference to clause (xvi) of section 5(1), which includes treasury savings deposit certificates, deposits in post office savings banks, and ten-year defense deposit certificates.

The court also noted that the object and purpose of the Wealth-tax Act were to levy a direct tax on the wealth of citizens, and exempting private commercial deposits made under business contracts would not align with this objective. The court found support for its interpretation in parallel provisions of the Indian Income-tax Act and in legal commentary.

Conclusion:
The court held that the deposits made by the assessee with the Government, whether in cash or securities, do not qualify for exemption under section 5(2) of the Wealth-tax Act, 1957. The requirement of a notification by the Central Government applies to both categories of deposits mentioned in the section. The Tribunal's decision was affirmed, and the question referred was answered in the negative. The assessee was ordered to pay the costs of the Commissioner.

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