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1998 (12) TMI 104

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..... t substantially interested. As per the memorandum of association, the main object of the company is to carry on business in running hospitals for the treatment of patients and to carry on other medical activities. For the assessment years 1986-87 to 1992-93 the assessments were completed originally under section 16(3) of the Wealth-tax Act. The Assessing Officer later issued notice under section 17 of the Wealth-tax Act to reopen the assessments on the view that there was escapement of wealth in the since that the value of the hospital building and the land appurtenant thereto had not been included in the assessments. The Wealth-tax Officer felt that in view of section 40 introduced in the Finance Act 1983, the value of specified assets hel .....

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..... 983, were liable to tax, and that hospital building was not an asset excluded by clause (vi). It is provided in sub-section (3) that for determining the net wealth of the company, the value of the assets mentioned therein is to be taken into account. Clause (vi) of sub-section (3) provides that the value of the following assets in includible : "(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 purpose of its business or as residential accommodation for its employees whose income exclusive of the value of all benefits or amenities not provided for by way of monetary payment chargeable under the head "salaries" does not exceed less than .....

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..... the view that clause (vi) of section 40(3) of the Finance Act, 1983 does not exclude building or land appurtenant thereto used by the assessee for the purpose of running the hospital as a business. The question to be considered is whether the building used by the assessee-company for running the hospital qualifies as a building used as "office for the purpose of the business". The view taken by the revenue authorities is that only the building used as office for the purpose of the business is eligible for the exclusion in clause (vi) and that in running the hospital the assessee company is not using the building as an office for its business. If the argument raised on behalf of the revenue accepted, it would mean that one or two rooms used .....

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..... old such unproductive assets of closely held companies are able to successfully reduce their wealth-tax liability to a substantial extent. With a view to circumventing tax avoidance by such persons, I propose to revive the levy of wealth-tax in a limited way in the case of closely held companies. Accordingly, I am proposing the levy of wealth-tax in the case of closely held companies at the rate of 2 per cent, on the net wealth represented by the value of specified assets, such as jewellery, gold, bullion, buildings and lands owned by such companies. Buildings used by the company as factory, godown, warehouse, hotel or office for the purpose of its business or as residential accommodation for its low paid employees will be excluded from net .....

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..... n law did not provide; (3) what remedy parliament has resolved and appointed to cure the disease, and (4) the true reason of the remedy. The construction to be put on the material provisions and phrases ought to be such as would suppress the mischief and advance the remedy. 5. If the mischief intended to be remedied was the avoidance of wealth-tax by keeping unproductive assets is closely-held companies, we do not see how a building used as a hospital by a company would be helping the shareholders to avoid tax more than a building used as a factory, godown, warehouse or a hotel. We do not see any reason why the Legislature wanted to deny exemption to a building used by a closely-held company as a hospital while granting exemption to a bu .....

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..... running the hospital. In the first part of clause (vi) such a building is excluded. But then, an assessee may be carrying on some other business and then running a hospital for the welfare of its employees. But such an assessee will not get the exemption on the hospital building because the building is not used as an office for the purpose of its business; the running of the hospital being incidental to its other business. It was therefore necessary to provide separately for the exclusion of a building owned by a closely-held company and used for running a hospital mainly for the welfare of its low paid employees. It is not difficult to see why the exemption is denied if the hospital is used not as the main business activity but only used i .....

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