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TMI Blog2002 (12) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... nd cultural needs of its members, registered itself during the year 1977 under the provisions of the Societies Registration Act, 1860. Under section 3 of the Wealth-tax Act, 1957, the three assessable entities are individual, Hindu undivided family and company. In the year 1960, by section 13 of the Finance Act, 1960, the levy of wealth-tax on the wealth of companies came to be excluded with effect form the assessment year 1960-61. The assessee-club at its instance got it declared as a company by notification dated September 30, 1982, issued by the Central Board of Direct Taxes under section 2(h)(iii) of the Wealth-tax Act with retrospective effect from the assessment year 1974-75 and thereby the assessee-club became inexigible to wealth-tax from the assessment year 1974-75 onwards. However, by section 40 of the Finance Act, 1983, the levy of wealth-tax on closely held companies was revived. Hence, the assessee-club by its representation dated January 31, 1995, requested the Central Board of Direct Taxes to grant exemption from the levy of wealth-tax under sub-section (6) of section 40 of the Finance Act, 1983. The said request was rejected by the Board on March 21, 1986. Again ano ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as its limited marketability, allowed a discount of 70 per cent. of the valuation of the property for the purpose of computation of net wealth of the assessee. Aggrieved by the order of the Commissioner of Wealth-tax (Appeals) in holding that the assessee was liable to wealth-tax either as a company or as an association of persons, the assessee preferred the appeal in W.T.A. No. 1099/Mds of 1990. The Revenue aggrieved by the order granting discount of 70 per cent. on the valuation of the property for computation of the net wealth, preferred an appeal in W.T.A. No. 1129/Mds of 1990. Both the appeals were heard together by the Income-tax Appellate Tribunal, which by its order dated June 24, 1992, allowed the appeal filed by the assessee in W.T.A. No. 1099/Mds. of 1990, consequently dismissed the appeal of the Revenue. Having failed to get an order of referral to this court, the Revenue filed T.C.P. No. 562 of 1996 and obtained an order directing the Tribunal to state a case and refer the question of law for the opinion of this court relating to the assessment year 1984-85 and under section 27(3) of the Wealth-tax Act. In obedience of the same, the Tribunal stated a case and refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te or Provincial Act; any institution, association or body, whether incorporated or not and whether Indian or non-Indian, which the Board may, having regard to the nature and objects of such institution, association or body, declare by general or special order to be a company; provided that such institution, association or body shall be deemed to be a company only for such assessment year or assessment years (whether commencing before April 1, 1975, or on or after that date) as may be specified in the declaration; and anybody corporate incorporated by or under the laws of a country outside India. Obviously, the assessee-club got itself declared under section 2(h)(iii) of the Wealth-tax Act a company by a declaration from the Central Board of Direct Taxes dated September 30, 1982, with retrospective effect from 1974-75. The reason for such a declaration was also obviously to get the benefit of exemption from the wealth-tax to the assessee-club. It is also not disputed that the assessee was run by the subscription of members and entrance fee of the new members. Members also did not share any profit except enjoying the recreation facilities provided to them by the club. It is also e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in revive the levy of wealth-tax in a limited way in the case of closelyheld companies." The mischief sought to be prevented by the Finance Act, 1983, was to prevent the directors of companies from transferring their personal unproductive wealth such as jewels, real estate, etc., to closely-held companies formed b y them and thereby avoid personal wealth-tax liability. Thus the rationale underlying the revival of wealth-tax on companies was to check the tendency of avoidance of personal wealth-tax liability by certain persons by forming closely-held companies and transferring unproductive assets like jewellery, real estate, etc., to such companies. The said provision, which was revived was only intended to curb such a mischief and cannot be used against the assessee-club, because of the simple reason that it got itself declared as a company under section 2(h)(iii) for the purpose of claiming exemption from wealth-tax. The assessee is a members' club. There is no question of any of its members transferring his personal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the purpose for which section 40 was introduced reintroducing levy of wealth-tax in a limited way and in a limited manner and taking note of the marginal heading of section 40 of the Finance Act and subsequent amendments made in 1992, the intention behind the section and the language employed in the section, we are of the view that the section should be so interpreted to achieve the object behind the section 40 of the Wealth-tax Act and considered in the above view, we hold that section 40 of the Finance Act does not apply to an entity declared as a company by the Board. The obvious intention of the Legislature is to restore the levy of wealth-tax in a limited way on specified assets held by private companies and closely-held companies, which were used as a medium of tax avoidance, by transfer of personal properties by the director or other persons interested in such companies to such companies. We are of the view that though the language employed in section 40 of the Finance Act, 1983, is wide, yet, considering the object of section 40 of the Finance Act it does not encompass entities which are not really companies, but recognised as companies by the Board. We are of the view th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... garded as companies under section 2(17) of the Act would be regarded as companies under section 2(18) of the Income-tax Act, unless section 2(17) of the Act is also referred to in section 40 of the Finance Act, the expression, "company" should be construed as one referred to under the Companies Act and not all associations which are deemed to be companies for the purposes of the Income-tax Act. We are of the view that section 40 of the Finance Act, 1983, is a charging section and it should be strictly construed and there is nothing in that section to include an association which is not actually a company. We are of the considered view that there is absolutely no substance in contending that the Tribunal has overlooked sub-section (7) of section 40 of the Finance Act, 1983. Sub-section (7) of section 40 of the Finance Act, 1983, provided that subject to the provisions of sub-section (5), this section shall be construed as one within the Wealth-tax Act. Sub-section (5) of section 40 provided that for the purposes of the levy of wealth-tax under the Wealth-tax Act, in pursuance of the provisions of this section, section 5 and clause (d) of section 45 of that Act and Part 11 of Sched ..... X X X X Extracts X X X X X X X X Extracts X X X X
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