9911796707
TMI Blog2003 (3) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... x, Trivandrum, is the appellant in all these appeals. The respondent-assessee is a company in which the public are not substantially interested. It carries on the business of running a hospital at Thiruvananthapuram. The assessment years concerned are 1987-88, 1988-89, 1989-90 and 1990-91. For the aforesaid four assessment years, the assessee did not file any return under the Act. The Assessing Officer therefore issued a notice under section 17 of the Act asking the assessee to file its wealth-tax return for the aforesaid four years. Pursuant to the said notice, the assessee filed nil returns. It was claimed before the Assessing Officer that the assessee is conducting the business of running the hospital and that the building and land used by the assessee for running the hospital are entitled to exemption under the provisions of section 40(3)(vi) of the Finance Act, 1983. It was contended before the Assessing Officer that the company is not liable to wealth-tax as it is running a hospital in the building owned by it. The assessing authority took the view that the exemption under clause (vi) is available only in respect of hospitals which are mainly used by a company for the welfar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so submitted that by no stretch of imagination the hospital run by the company and its entire buildings can be treated as its "office for the purposes of the business". Senior counsel further submitted that when the statute is clear and unambiguous there is no question of resorting to interpretative process and that the question of interpretation arises only when the provision is ambiguous. Senior counsel also relied on the decisions of the Supreme Court on this point. Senior counsel further submitted that the Tribunal has committed a serious error in surmising that the hospital building has to be treated as an office for the purpose of running the business. Sri P. Balachandran, learned counsel for the respondent-assessee, submits that "companies" as an entity were exempted from assessment under the Act from the 1st day of April, 1960, by the Finance Act, 1960, and that it is only by the Finance Act, 1983, closely-held companies are brought within the purview of the Act. He also relied on the speech made by the Finance Minister on the floor of Parliament which would show that the intention in enacting section 40 of the Finance Act, 1983, was only to prevent tax avoidance by some p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny other person, or is not represented by any asset belonging to the assessee, the value of such debts shall not be taken into account in computing the net wealth of the assessee: (3) The assets referred to in sub-section (2) shall be the following, namely:--... (vi) building or land appurtenant thereto, other than building or part thereof used by the assessee as factory, godown, warehouse, cinema house, hotel or office for the purposes of its business or as a hospital, creche, school, canteen, library, recreational centre, shelter, rest-room or lunch room mainly used for the welfare of its employees or used as residential accommodation, except as provided in clauses (via) and (vib), and the land appurtenant to such building or part;" It is also necessary to refer to clause (vi) of sub-section (3) of section 40 of the Act as it stood originally which reads as follows: "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, shelter, rest-ro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1993. Now, we shall consider the scope of section 40 of the Finance Act, 1983. The heading of the section reads: "revival of levy of wealth-tax in the case of closely-held companies". As per sub-section (1) notwithstanding anything contained in section 13 of the Finance Act, 1960, relating to exemption of companies from levy of wealth-tax under the Wealth-tax Act, 1957, wealth-tax shall be charged under the Wealth-tax Act for every assessment year 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 two per cent. of such net wealth. The Explanation also says that for the purposes of this subsection "company in which the public are substantially interested" shall have the meaning [$signed to it in clause (18) of section 2 of the Income-tax Act. Sub-section (2) provides for the computation of net wealth and sub-section (3) specifies the items of properties includible in the computation of net wealth. Sub-section (2) provides that for the purposes of sub-section (1), the net wealth of a company shall be the amount by w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hus no closely-held company is entitled to contend that they are not liable to be assessed under the Wealth-tax Act except in respect of the assets specifically excluded from the computation of their "net wealth" in any of the clauses (i) to (viii) of sub-section (3) of section 40. Here, it must be noted that under clause (i) gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals not being any such precious metal or alloy held for use as raw material in industrial production is included in the net wealth. Under clause (ii) precious or semi-precious stones whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel are included. Under clause (iii) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel are included. Under clause (iv) utensils made of gold, silver, platinum or any other precious metal or an alloy containing one or more of such precious metals are included. Under clause (v) la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of sub-section (5), this section shall be construed as one with the Wealth-tax Act. Thus from a reading of the entire provisions of section 40 of the Finance Act, 1983, which came into force with effect from April 1, 1984, as amended by the Finance Act, 1988 it is clear that it is a self-contained provision so far as closely-held companies are concerned and resort to the provisions of the Wealth-tax Act is required only for the limited purpose specified in sub-section (5). Thus all the assets specified in clauses (i) to (viii) of sub-section (3) of section 40 other than those specifically excluded in any of those clauses will have to be included in the computation of net wealth under sub-section (2) for the purpose of assessment under sub-section (1). As we have already pointed out the dispute centres round the provisions of clause (vi) of sub-section (3) of section 40 only. Clause (vi) as we have already noted specifically excludes (1) buildings or part thereof used by the assessee as factory, godown, warehouse, cinema house, hotel or office for the purposes of its business or as residential accommodation for its employees. It also provides for exclusion of, (2) buildings or p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sary for Parliament to specify the particular user of the building separately. In that case the wording would have been" all buildings used for the purpose of the business". That apart, hospitals are specifically mentioned in clause (vi) which shows that the intention of Parliament was only to exclude buildings used as hospitals mainly for the welfare of its employees. If as a matter of fact Parliament wanted to exclude buildings used as hospitals as part of the business of a closely-held company it would have been clearly specified in the main part of the clause such as factory, godown, etc., in which case there was absolutely no need for separately mentioning about hospitals mainly for the welfare of the employees. Apart from the fact that clause (vi) is very clear, the legislative intention which is discernible from the fact that only buildings used as hospitals for the welfare of its employees are sought to be excluded also does not support the case of the assessee. It is by an amendment made by the Finance Act, 1988, with effect from April 1, 1989 that "cinema house" is specifically included in the main part of clause (vi). If the Legislature in fact had intended as contended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ." It was further held as follows: "So we do not see the rationale behind denying exemption on a hospital building used by the assessee for the purpose of its business used by the assessee mainly for the welfare of the low paid employees. As we see it, the intention of the Legislature was to grant exemption on a hospital building used by the assessee for the purpose of its business of 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 incidentally but mainly for the welfare of high paid employee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt, the inclusion of hotel and cinema theatre in the excluded category also indicates that the legislative intention was to exclude only the buildings which are specified in clause (vi) and used for industrial purposes and in that context office for the purpose of its business must be understood in a limited sense as including only the administrative wing of a closely-held company. So far as the cinema theatre is concerned apart from the building in which the cinema is exhibited there will only be a small counter in the very same building which is used as its office. In the circumstances if cinema theatre will come within the ambit of the expressions "office for the purposes of its business" there was absolutely no requirement for specifically including a cinema theatre in the exclusion clause. This is so in the case of a hotel also. A hotel is a place where the business of serving food to customers is transacted. Hence if a closely-held company is engaged in the business of running a hotel if the view taken by the Tribunal is adopted there was no need for specifically including a hotel in the excluded category in clause (vi). This internal aid in understanding the meaning of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , bullion, buildings and lands owned by such companies. Buildings used by the company as factory, godown, warehouse, hotel or office for the purposes of its business or as residential accommodation for its low paid employees will be excluded from net wealth." In the year 1988, clause (vi) of section 40(3) of the Finance Act, 1983, was substituted by a new clause under section 87 of the Finance Act, 1988. In clause (vi) after the words factory, godown, warehouse the words "cinema house" were inserted. Further amendments to clauses (i) and (v) stress is given to "industrial production" and "industrial purposes". The memorandum explaining the above amendments reads thus: "54. Under the existing provisions of section 40 of the Finance Act, 1983, wealth-tax is levied in respect of the net wealth of all closely-held companies. For the purposes of determining the net wealth of the company, the value of only specified assets like building, land (other than agricultural land), gold, silver, platinum, ornaments or utensils made of gold, silver, etc., are taken into account. The rationale underlying the revival of levy of wealth-tax on companies was to curb the tendency of avoidance of pe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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