TMI Blog1997 (10) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... s not liable to be assessed under the Wealth-tax Act, 1957, at all. The Wealth-tax Officer rejected the claim of the assessee. The Appellate Assistant Commissioner was of the view that the assessee could not be brought to tax under the Act because of the earlier decision of the Gujarat High Court in the case of Orient Club v. WTO [1980] 123 ITR 395. The Tribunal dismissed the appeal upholding the order of the Appellate Assistant Commissioner. The question of law raised by the Revenue was answered by the High Court also in favour of the assessee. The club was not incorporated under the Companies Act, 1956. The case of the Revenue is that the club will have to be assessed as an "individual" under the Wealth-tax Act. Section 3 which is the charging section of the Act is as under: "3. (1) Subject to the other provisions contained in this Act, there shall be charged for every assessment year commencing on and from the first day of April, 1957, but before the first day of April, 1993, a tax (hereinafter referred to as wealth-tax) in respect of the net wealth on the corresponding valuation date of every individual, Hindu undivided family and company at the rate or rates specified in S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on" has been defined by section 2(xviii) as under : " 'person' includes a Hindu undivided family or a company or an association or a body of individuals or persons, whether incorporated or not. " Moreover, in the Income-tax Act, 1961, section 4 which is the charging section imposes a tax on the total income of every person. "Person" has been defined by section 2(31) of the Act as under: " (31) 'person' includes-- (i) individual, (ii) a Hindu undivided family, (iii) a company, (iv) a firm, (v) an association of persons or a body of individuals, whether incorporated or not, (vi) a local authority, and (vii) every artificial juridical person, not falling within any of the preceding sub-clauses. " It will be seen from the above that just like the Indian Income-tax Act, 1922, in the Gift-tax Act, 1958, and the Income-tax Act, 1961, an association of persons or body of individuals have been specifically brought in as units of assessment. It is only under the Wealth-tax Act, the charge is on "every individual, Hindu undivided family and company" and not on an association of persons or a body of individuals or a firm. If the language of section 3 of the Wealth-tax Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner. There were also provisions for including in the income of an assessee income from assets transferred directly or indirectly to his wife otherwise than for adequate consideration or in connection with an agreement to live apart. Lastly, section 16(3) provides that any income from assets transferred by a person for the benefit of his wife or minor child or both otherwise than for adequate consideration will be included in the income of the person concerned. Similar provisions have been made in section 4(1)(a) of the Wealth-tax Act. Section 8 of the Wealth-tax Act provides that the income-tax authorities specified under section 116 of the Income-tax Act shall be the wealth-tax authorities for the purposes of the Wealth-tax Act and every such authority shall exercise the powers and perform the functions of the wealth-tax authority in respect of any individual, Hindu undivided family or company, and for this purpose his jurisdiction shall be the same as he had under the Income-tax Act by virtue of orders or directions issued under section 120 of that Act or under any other provisions of that Act. Section 8B confers power of transfer of cases on the Commissioner from one officer t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellate order. From the order passed by the High Court on reference, an appeal lies to the Supreme Court under section 29. All these provisions go to show that the Wealth-tax Act has been drafted on the same lines as the Indian Income-tax Act, 1922. There is great similarity of wording between the various provisions of the Wealth-tax Act and the corresponding provisions of the Indian Income-tax Act, 1922. But in the case of the charging section 3 of the Wealth-tax Act, the phraseology of the charging section 3 of the Indian Income-tax Act, 1922, has not been adopted. Unlike section 3 of the Income-tax Act, section 3 of the Wealth-tax Act does not mention a firm or an association of persons or a body of individuals as taxable units of assessment. The position has been placed beyond doubt by the insertion of section 21AA in the Wealth-tax Act itself. This amendment was effected by the Finance Act, 1981, with effect from April 1, 1981. It provides for assessment of associations of persons in certain special cases and not otherwise. Section 21AA is: 21AA. "Assessment when assets are held by certain associations of persons.--(1) Where assets chargeable to tax under this Act are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich the proceedings stood at the time of such discontinuance or dissolution, and all the provisions of this Act shall, so far as may be, apply accordingly." It will be seen that assessment as an association of persons can be made only when the individual shares of the members of the association in the income or assets or both of the association on the date of its formation or any time thereafter are indeterminate or unknown. It is only in such an eventuality that an assessment can be made on an association of persons, otherwise not. Sub-section (2) of section 21AA deals with cases of such associations as mentioned in sub-section (1). That means only associations of persons in which individual shares of the members were unknown or indeterminate can be subjected to wealth-tax. Sub-section (3) also deals with associations of persons referred to in sub-section (1). Sub-sections (4) and (5) deal with some consequences which will follow the members of an association of persons spoken of in sub-section (1) in the case of discontinuance or dissolution. It is not the case of the Revenue before us that the members of the club were unknown or that their interest in the assets of the club ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of firms or associations of persons or bodies of individuals from the charging section even though these entities were specifically made taxable under various direct tax enactments from 1922 to 1961. Moreover, the wealth-tax assessment of an individual will involve computation of "net wealth". All the assets belonging to an individual will have to be included. If an individual is a partner of a firm or member of an association of persons, the value of his share in these entities will have to be included in his individual assessment. We have already examined the scheme of the Wealth-tax Act and also the object behind the insertion of section 21AA. All these will go to show that the Legislature deliberately excluded a firm or an association of persons from the charge of wealth-tax and the word "individual" in the charging section cannot be stretched to include entities which had been deliberately left out of the charge. Strong reliance was placed on the judgment of this court in WTO v. C. M. Mammed Kayi [1981] 129 ITR 307. In that case, the question was whether Mapilla Marumakkathayam tarwads of North Malabar-Muslim undivided families governed by the Marumakkathayam Act (Madras Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... side the scope of the charge of section 3. The Revenue once again came up in appeal to this court. The court drew a distinction between the canons of construction applicable to entries in the legislative lists and the canons of construction applicable to construction of a charging section in a taxing statute. It was explained : " It cannot be disputed that the canon of construction applicable to entries in the three Legislative Lists occurring in a Constitution would be different from the canon of construction that would apply to terms or expressions used in a taxing statute. The object of an entry in any legislative list is to demarcate as wide a legislative field as possible by the use, of compendious words or expressions while the rule of construction applicable to a taxing statute must ensure that 'the subject is not to be taxed unless the language of the statute clearly imposes the obligation' [per Lord Simonds in Russell v. Scott [1948] AC 422 (HL)]. " The court further held that the point in controversy has to be examined having regard to the general scheme of the Wealth-tax Act which was to assess all persons who had wealth beyond the statutory limit. The presumption w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndu undivided family as a distinct taxable entity has been adopted for a long time, e.g., the Indian Income-tax Act, 1869 (IX of 1869), the Indian Income-tax Act, 1870 (IX of 1870), the Indian Income-tax Act, 1871 (XII of 1871), Act No. VIII of 1872, Act No. II of 1886, Act No. VII of 1918, Act No. XI of 1922, Act No. 43 of 1961, have treated a Hindu undivided family as a distinct taxable entity. Similarly, under the Wealth-tax Act, 1957 (27 of 1957), and the Gift-tax Act, 1958 (18 of 1958), the Hindu undivided family is made a unit of taxation. Under the Business Profits Tax Act, 1947 (21 of 1947), and the Excess Profits Tax Act, 1940, also the Hindu undivided family was made a unit of taxation. For the purposes of these Acts Mapilla tarwads governed by the Marumakhathayam law have been regarded as individuals. " (emphasis supplied) On the basis of the reasoning given in the case of Venugopala Ravi Varma Rajah [1969] 74 ITR 49 (SC), this court had no difficulty in holding that having regard to the legislative history of revenue laws, Mapilla tarwads had to be assessed to tax as "individuals". The court laid special emphasis on the aforesaid passage in the judgment of Venugopal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a large number of associations of persons without specifically defining the shares of the members therein with a view to avoiding proper tax liability. Under the existing provisions, only the value of the interest of the member in the association which is ascertainable is includible in his net wealth. Accordingly, to the extent the value of the interest of the member in the association cannot be ascertained or is unknown, no wealth-tax is payable by such member in respect thereof. 21.3. In order to counter such attempts at tax avoidance through the medium of multiple associations of persons without defining the shares of the members, the Finance Act has inserted a new section 21AA in the Wealth-tax Act to provide for assessment in the case of associations of persons which do not define the shares of the members in the assets thereof. Sub-section (1) of new section 21AA, provides that where assets chargeable to wealth-tax are held by an association of persons (other than a company or a co-operative society) and the individual shares of the members of the said association in the income or assets of the association on the date of its formation or at any time thereafter, are indete ..... X X X X Extracts X X X X X X X X Extracts X X X X
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