TMI Blog1988 (8) TMI 158X X X X Extracts X X X X X X X X Extracts X X X X ..... hree years the Wealth-tax Officer accepted the returns filed by the assessee and completed the assessments under section 16(3) of the Wealth-tax Act on 18-3-1987. These orders were considered to be erroneous and prejudicial to the interests of revenue by the Commissioner of Wealth-tax, as he found that the value of the theatre building was omitted to be considered for the purpose of wealth-tax assessments in these three years. He therefore issued show-cause notices calling upon the assessee to state its objections to his proposal to revise these assessments under section 25(2) of the Wealth-tax Act. In its reply dated 2-11-1987 the appellant relied on the Finance Minister's Budget Speech and submitted that the theatre building, which was used exclusively for business purposes of the company would not attract levy of wealth-tax, as it could not be treated on par with other personal assets on which wealth-tax was leviable in the case of closely-held companies. It was pleaded that the theatre building could not be labelled as an unproductive asset. Therefore, the company requested the Commissioner to drop the proposed action. 3. The Commissioner of Wealth-tax referred to the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but should be taken as illustrative examples of the types of business assets sought to be exempted by the Parliament. He next argued that if once the theatre building is accepted as not an unproductive asset, then it would fall within the category of the exempted assets specified in section 40(3)(vi) of the Finance Act of 1983. He submitted that for this purpose we should construe the provisions of section 40 in a liberal manner so as to bring out the real intention of the Parliament and not in the literal, narrow and restrictive sense in which the Commissioner of Wealth-tax had interpreted the said provision of law. 5. Shri Bhatt further relied on the latest amendment brought about in section 40 of the Finance Act of 1983 by the provisions of section 87 of the Finance Act of 1988, whereby a cinema house is expressly excluded from the category of assets includible in the net wealth of the company. The learned Chartered Accountant submitted that this amendment, which is brought into force with effect from 1-4-1989 is indicative of the true intention of the Parliament while enacting the original provisions contained in section 40 of the Finance Act of 1983. He particularly relied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Parliament would have expressly stated so while proposing the amendment in 1988. Shri Ananthachari, therefore, argued that even though the cinema theatre building was a business asset, since it had not been specifically mentioned in the exempted category of assets in sec. 40(3)(vi) of the Finance Act of 1983, the appellant would not be entitled to exemption in respect of such asset and to this extent the assessments made by the WTO for these three years were erroneous and prejudicial to the interests of revenue and that the Commissioner rightly acted in setting aside these assessments by exercising his revisional jurisdiction under sec. 25(2) of the Act. The learned departmental representative further submitted that the decisions relied on by the learned counsel for the assessee would rather support the contentions of the revenue and not the case of the appellant. He therefore submitted that the orders of the Commissioner of Wealth-tax were right and should therefore be upheld. 7. We have carefully considered the contentions urged on both sides in the light of the materials placed before us and the authorities relied on by them. 8. It is an undisputed fact that the theatr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Act. (2) For the purposes of sub-section (1), the net wealth of a company shall be the amount by which the aggregate value of all the assets referred to in sub-section (3), wherever located, belonging to the company on the valuation date is in excess of the aggregate value of all the debts owed by the company on the valuation date which are secured on, or which have been incurred in relation to, the said assets : Provided that where any debt secured on any asset belonging to the assessee is incurred for, or enures to, the benefit of any other person, or is not represented by any asset belonging to the assessee, the value of such debt 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 :-- (i) gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals ; (ii) precious or semi-precious stones whether or not set in any furniture, utensils or other article or worked or sewn into any wearing apparel ; (iii) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 40(4) requires the WTO to estimate the fair market value of the assets specified in section 40(3) as on the valuation date for the purposes of the assessment under this section. 11. For our purpose, section 40(3)(vi) is the relevant provision. This provision seeks to include buildings or land appurtenant to such building in the net wealth of the closely-held company. At the same time it excludes building or part of a building used by the assessee as factory, godown, warehouse, hotel or office for the purposes of its business or a residential accommodation for its employees or as a hospital, creche, school, canteen, library, recreational centre, shelter, rest-room or lunch room mainly for the welfare of the employees of the company and the land appurtenant to such building or part thereof. A careful study of this provision would show that all buildings or part of buildings and the land appurtenant to such buildings which are used for the purposes of the business of a closely-held company are excluded from the assets enumerated in section 40(3)(vi) of the Act. The argument on behalf of the revenue is that the theatre building owned and used by the appellant-company does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he enumeration listed of the various categories of buildings in sec. 40(3)(vi) has to be taken as only illustrative and not exhaustive of the various types of buildings sought to be excluded from out of the assets included under the said provision of law. 13. We are supported in this conclusion of ours by the following observations of the Supreme Court in the case of K.P. Varghese at 604 : "The task of interpretation of a statutory enactment is not a mechanical task. It is more than a mere reading of mathematical formulae because few words possess the precision of mathematical symbols. It is an attempt to discover the intent of the Legislature from the language used by it and it must always be remembered that language is at best an imperfect instrument for the expression of human thought and, as pointed out by Lord Denning, it would be idle to expect every statutory provision to be 'drafted with divine prescience and perfect clarity'. We can do no better than repeat the famous words of Judge Learned Hand when he said : '. . . it is true that the words used, even in their literal sense, are the primary and ordinarily the most reliable source of interpreting the meaning of any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nderstated or, in other words, the assessee has actually received a large consideration for the transfer than what is declared in the instrument of transfer and it would have no application in the case of a bona fide transaction where the full value of the consideration for the transfer is correctly declared by the assessee. There are several important considerations which incline us to accept this construction of s. 52, sub-s. (2)." Adverting to the rule of construction of a statute firmly established in England by Heydon's case [1584] 3 Co. Rep. 7a the Supreme Court held as follows at pages 607 and 608 of the reports :-- "This becomes clear if we have regard to the object and purpose of the introduction of sub-s. (2) as appearing from travaux preparatoire relating to the enactment of that provision. It is a sound rule of construction of a statute firmly established in England as far back as 1584 when Heydon's case [1584] 3 Co. Rep. 7a was decided that : ' . . . for the sure and true interpretation of all statutes in general . . . four things are to be discerned and considered : (1) what was the common law before the making of the Act, (2) what was the mischief and defect fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ub-s. (1) because the transferee was not directly or indirectly connected with the assessee. The object and purpose of sub-sec. (2), as explicated from the speech of the Finance Minister, was not to strike at honest and bona fide transactions where the consideration for the transfer was correctly disclosed by the assessee but to bring within the net of taxation those transactions where the consideration in respect of the transfer was shown at a lesser figure than that actually received by the assessee, so that they do not escape the charge of tax on capital gains by understatement of the consideration. This was the real object and purpose of the enactment of sub-s. (2) and the interpretation of this sub-section must fall in line with the advancement of that object and purpose. We must, therefore, accept as the underlying assumption of sub-s. (2) that there is an understatement of consideration in respect of the transfer and sub-s. (2) applies only where the actual consideration received by the assessee is not disclosed and the consideration declared in respect of the transfer is shown at a lesser figure than that actually received." 14. In his Budget Speech for the year 1983-84, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing clauses shall be substituted, 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 ; (via) any building used as residential accommodation in the nature of a guest house and land appurtenant thereto ; (vib) any building and the land appurtenant to such building used as residential accommodation by any director, manager, secretary or any other employee of the assessee, such employee holding not less than one per cent of the equity share of the assessee or by any relative of any person who holds not less than one per cent of the equity share of the assessee. Explanation : For the purposes of this clause, 'relative' shall have the meaning assigned to it in clause (b) of Explanation I to section 80F of the Income-tax Act." 16. In the memoran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The amendment also seeks to provide that in respect of a residential accommodation it will form part of the net wealth, only if it is used (i) as residential accommodation in the nature of guest house, or (ii) as residential accommodation of any Director, Manager, Secretary or any employee of the company holding not less than one per cent of the equity shares of the assessee-company, or (iii) as residential accommodation of any relative of a person holding not less than one per cent of the equity shares of the company. For this purpose, relative shall have the same meaning as assigned to it in clause (b) of Explanation (1) to section 80F of the Income-tax Act. This amendment will take effect from 1st April, 1989, and will, accordingly, apply in relation to the assessment year 1989-90 and subsequent years. (Clause 87)." The above passage is taken from 170 ITR Part I, dated 7th March, 1988 (statutes portion) pages 204 and 205. 17. It is argued on behalf of the revenue that these amendments brought about by the Finance Act of 1988 are not retrospective in their operation, but are only prospective, as expressly stated in the provision of law itself, and therefore, these subseque ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xture of it, they would have straightened it out ? He must then do as they would have done. A judge must not alter the material of which the Act is woven, but he can and should iron out the creases." These observations have been referred to with approval by the Supreme Court in the case of K.P. Varghese, from which we have already quoted above. 19. In the light of the above authorities, we are inclined to agree with the learned Chartered Accountant for the appellant that the theatre building in question, which is a capital asset of the appellant-company and which it utilises for the purpose of carrying on its business in the exhibition of cinema films would fall within the exclusion clause, as the said building is used for the purposes of its business. We have reached this conclusion without doing any violence to the existing provisions of section 40(3)(vi) of the Act, but by construing the said provision of law in the context and in the setting in which it has been enacted by the Parliament in 1983. We therefore accept the contentions of the appellant and cancel the orders of the Commissioner of Wealth-tax passed u/s 25(2) of the Wealth-tax Act, 1957 and restore the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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