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TMI Blog2019 (1) TMI 553X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 liabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which were remanded by the hon'ble Supreme Court, has also brought to our notice a writ petition pending, on a challenge made to the provision., numbered as W. P. (C) No. 23487 of 2010. We, hence called for the writ petition also to be heard along with the appeals ; especially since all these cases are pending for long and the disposal of the appeals without addressing the challenge to the provision under which the assessment was facilitated, would cause prejudice to the assessees. 4. The writ petition challenged the specific provision in sub-clause (vi) of section 2(ea) of the Act. The challenge is on the ground of unconstitutionality for reason of it being arbitrary and discriminatory. There is also an alternative relief prayed to read down the provision so as to include within the definition of assets only cash-in-hand in excess of ₹ 50,000, which is not duly recorded in the books of account, even of an individual. The writ petition is filed by the appellant in six of the appeals, pending before us from the orders of the Tribunal. The orders of the Tribunal has also relied on its own earliest order in W. T. A. No. 1 of 2009. On the status and nature of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any subsequent assessment year, means-... (vi) cash in hand, in excess of fifty thousand rupees, of individuals and Hindu undivided families and in the case of other persons any amount not recorded in the books of account. 7. The learned counsel has relied on Kerala State Industrial Development Corporation Ltd. v. CIT [2003] 259 ITR 51 (SC) ; [2003] 11 SCC 363, to contend that the provision is ambiguous and for interpretation, there could be external aid resorted to, which aid Is forthcoming from the speech of the Finance Minister as also the CBDT Circular ; in understanding the exclusion intended for a productive asset. Reading the order of the Tribunal, it is submitted that the Tribunal had ascertained the meaning of productive asset from the speech of the Finance Minister as well as the CBDT Circular, It was found that the Finance Minister has relied on Chelliah Committee Report, which recommended measures encouraging the taxpayers to invest in productive assets, such as shares, securities, bank deposits, bonds, etc., it was with such intention to promote investment that the above provision was amended, specifically determining those assets, which could come under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... By keeping the cash-in-hand as recorded in the books of account, the petitioner does not get any advantage other than its employment in the business. The cash so held in hand with liability to interest or loosing earnings by way of interest, is only to facilitate smooth transactions in the individual business. When such cash is disclosed in the accounts there can also be no allegation raised of an attempt to suppress and evade any levy by way of direct or indirect taxation. The distinction has to be drawn in so far as the productive and non-productive assets and no classification can be made on the basis of the legal status of a trading firm, which is mandated by statute to maintain books of account, especially for Income-tax purposes ; which officials also are empowered to assess the wealth-tax. The learned counsel for the respondents in the appeals relies on the decisions reported in Kunnathat Thathunni Moopil Nair v. State of Kerala [1961] 3 SCR 77, Karimbil Kunhikoman v. State of Kerala [1962] Suppl. (1) SCR 829, Roop Chand Adlakha v. Delhi Development Authority [1989] Suppl. (1) SCC 116 and Union of India v. N. S. Rathnam [2015] 34 GSTR 38 (SC) ; [2015] 10 SCC 681. 10. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... objects or transactions to which it applies, or of the nature or attainments of the persons to whom it relates. In the present case, classification is perfectly legal and proper and the different measure employed for the purpose of taxation categorizing three different entities, who by no stretch of imagination can be said to be equal ; serves and furthers the object and cannot be faulted as arbitrary, discriminatory or in violation of the guarantee of equal protection of laws. 11. The learned senior counsel for the Department also argued that section 40A(3) of the Income-tax Act prohibited any cash transaction above ₹ 20,000 and in that context, the assessees herein cannot contend for a moment, that they had held the cash-in-hand for business purposes. Countering the aforesaid argument, the learned counsel for the petitioner pointed out that though the prohibition as per section 40A(3) puts a limit of ₹ 20,000, the permissible amount to be kept in hand without liability to taxation is ₹ 50,000 as per the Wealth-tax Act. There can hence be no argument raised on the basis of section 40A(3) to sustain the provision under the Wealth-tax Act. It is also pointed out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w to stimulating investment in productive assets, the Finance Act has abolished wealth-tax on all assets except certain specified assets. The term 'asset' will include guest houses and residential houses including farm houses within twenty-five kilometres from the local limits of any municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee or by any other name) or a cantonment board but does not include a house which has been allotted by a company to an employee or an officer, or a director who is in the whole time employment, having a gross annual salary of less than two lakh rupees, it will also not include a house for residential purposes which forms part of stock-in-trade. Further it will include motor cars other than used in the business of running them on hire or which form part of stock-in-trade ; jewellery, bullion, furniture, utensils or any other articles made wholly or partly of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals (other than those used as stock-intrade) ; yachts and boats and aircrafts (other than those used for com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Travancore-Cochin Land tax Act, which sought to levy a land tax at an average rate of ₹ 2 per acre on private forest lands held by individuals. The challenge was against an assessment made for a sum of ₹ 50,000 per annum, without any survey being conducted as to the exact extent of land. On a mere conjecture the area was determined at 25 Acres by the District Collector. The challenge was on grounds of (i) inequality and discrimination, infringing article 14 of the Constitution, (ii) unreasonable restriction on right to hold property, (ii) the statute being totally devoid of any procedure for enquiry or investigation, filing of return, an assessment or even an appeal to a higher forum and (iv) arbitrary being repugnant to the guaranteed rights of the landholders. We have to extract the following portions coming within para 7 of the judgment : The guarantee of equal protection of the laws must extend even to taxing statutes. It has not been contended otherwise. It does not mean that every person should be taxed equally. But it does mean that if property of the same character has to be taxed, the taxation must be by the same standard so that the burden of taxation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15. We also deem it fit that two of the five classes, enumerated by Shri Ram Krishna Dalmia v. Justice S. R. Tendolkar [1958] AIR 1958 SC 538, under which falls, any attack against constitutionality of a particular law, on grounds of discrimination and violation of equal protection of the laws, also be extracted hereunder : (iv) A statute may not make a classification of the persons or things for the purpose of applying its provisions and may leave it to the discretion of the Government to select and classify the persons or things to whom its provisions are to apply but may at the same time lay down a policy or principle for the guidance of the exercise of discretion by the Government in the matter of such selection or classification, the court will uphold the law as constitutional as it did in Kathi Raning Rawat v. State of Saurashtra, AIR 1952 SC 123. (v) A statute may not make a classification of the persons or things to whom their provisions are intended to apply and leave it to the discretion of the Government to select or classify the persons or things for applying those provisions according to the policy or the principle laid down by the statute itself for guidance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther persons would include only a company. We, with all respect at our command, are unable to accede, especially looking at the different entities made mention of in the charging section. Companies were specifically mentioned in the charging section at section 3. The avoidance of the word company and the use of the words other persons by the Legislature was conscious and not without a specific intention. The words other persons are of a wider import and has to be understood by the qualification made of ; being exempt when there is a disclosure made in the books of account. 18. We also notice the specific grounds taken by the Department in its counter-affidavit that a company and its transactions recorded in the books of account have been excluded for reason of the Legislature's understanding that they are involved in a trade and also a productive activity. It cannot be said that only a company is involved in a trade or productive activity. A proprietorship firm, an association of persons and a partnership firm as also an HUF could also be involved in trading or other commercial activity, which would necessarily be a productive activity as has been noticed in the recom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture of commercial establishments or complexes, stand excluded ; though the other buildings and lands appurtenant thereto are included within such definition. By sub-clause (iv) yachts, boats and aircrafts, are included in assets, but those used for commercial purposes stand excluded. Hence, the policy is to exclude any asset, which is put to use for a commercial purpose, from taxation under the Act. This is the policy reflected in clause (ea) and sub-clause (vi), when an attempt was made to include cash-in-hand kept without investing it in a productive activity. The policy also is to avoid taxing any assets, which is put to use for a commercial purpose, which as recommended by the Chelliah Committee, was for a productive purpose. 20. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al held in favour of the assessee is a decision rendered in W. T. A. No. 1 of 2009. 21. We find that there is a definite policy as discernible from the Act, as also the specific amendment brought in by way of introduction of clause (ea) in section 2, which is to tax non-productive assets, including cash, in excess of ₹ 50,000 in case of individuals and HUF's and with respect to all other persons who regularly maintain books of account, on cash so held without disclosure. There is no classification which is arbitrary or discriminatory and violating the rights guaranteed of equal protection of laws. The policy and principle discernible from the enactment provides clear guidelines for selecting those to be taxed and does not leave it to the arbitrary exercise of the officers constituted under the Act. The classification herein is on the basis of whether an assessee is required to maintain regular books of account in the course of business or not. For anyone, who is not so required, the tax will be on any cash-in-hand exceeding ₹ 50,000. For the others, for whom the requirement is mandatory, any cash not disclosed in the books of account will be taxed as wealth. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts, is the finding. The Tribunal too has sought aid for such interpretation from the recommendations of the Chelliah Committee as also the speech of the Finance Minister relying on Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234 (SC) and Indian Chamber of Commerce v. CIT [1975] 101 ITR 796 (SC). The CBDT circular has been found to reveal the understanding of the authorities contemporanea expositio furnishing legitimate aid in the construction and interpretation of statutory provisions as held in K. P. Varghese v. ITO [1981] 131 ITR 597 (SC). Reliance was also placed on CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC) to find in favour of the assessee when two interpretations are possible. The learned counsel for the assessees also have relied on Sneh Enterprises v. Commissioner of Customs [2006] 7 SCC 714 to further buttress the above proposition. On such interpretation given, accepting the findings of the Tribunal, we have to necessarily reject the wealth-tax appeals. The question of law framed by us as (i) above is answered in favour of the assessees and against the Revenue on the basis of the interpretation placed by us in the writ petition. The second question ..... X X X X Extracts X X X X X X X X Extracts X X X X
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