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TMI Blog2003 (3) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 welfare of its employees and since the hospital is not intended nor used for the welfare of its employees the building and the appurtenant land belonging to the company are liable to be included in the net wealth under the provisions of section 40(2), read with section 40(3) of the said Act. The assessee took up the matter in appeals before the Commissioner of Income-tax (Appeals), Thiruvananthapuram, who by a common order dated September 18, 1995 (annexure B), dismissed the said ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 persons by transferring many of the items of personal wealth in favour of a company. Counsel also took us to the statement of objects and reasons for the introduction of the said section. Counsel further relied on a decision of the Income-tax Appellate Tribunal, Madras Bench, in the case of Varadaraja Theatres (P.) Ltd. [1989] 33 TTJ 146. Counsel submitted that the hospital building and the land appurtenant thereto are liable to be excluded in the computation of its net wealth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he, 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-room or lunch room mainly for the welfare of its employees and the land appurtenant to such building or part: Provided that each such employee is an employee whose income (exclusive of the value of all benefits or amenities not provided for by way of monetary payment) chargeable under the head 'Salaries' under the Income-tax Act does not exceed eighteen thousand rupees." Clause (vi) of sub-section (3) of section 40 of the Act, as amended with effect from April 1, 1989, reads a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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. It also provides 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 repres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) land other than agricultural land are included. It also provided that nothing in this clause shall apply to any unused land held by the assessee for industrial purposes or for construction of a hotel for a period of two years from the date of its acquisition by him. Clause (vi) has already been extracted. Under clause (via) any building used as residential accommodation in the nature of a guest house and land appurtenant thereto are included. Under clause (vib) any building and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 part thereof used as a hospital, creche, school, canteen, library, recreational centre, shelter, rest-room or lunch room mainly for the welfare of its employees and the land appurtenant to such building or part. The assessee has no case that the hospital building or any part thereof fall under the latter limb of clause (vi) mentioned above. The assessee has also no case that the hospital building or any part thereof will fall under factory, godown, warehouse, hotel or cinema ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 by the appellants to exclude buildings used as hospitals as part of the business activities of the company, certainly the Legislature would have included hospitals also in the main part of the exclusionary clause (vi) by an amendment as done in the case of cinema theatre. If all buildings used for the business of the company are intended to be excluded there was no need to mention about hotels and cinema houses separately. The fact that section 40 was introduced by the Finance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, 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 employees. The latter part of clause (vi) only extends the exemption to a building used by the assessee for the purpose of its own business." Thus according to the Tribunal the building used as hospital which is the business of the assessee is intended to be included in the expressions "office for the purpose of the business" and therefore fall within the assets specifically excluded in clause (vi) of sub-section (3) of section 40. The Tribunal has also explained that the latter part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 expression "office for the purpose of its business" indicates that all the buildings which are used as a productive asset for the purpose of the business of a closely held company are not intended to be excluded under clause (vi). It is only buildings used for "industrial purposes" which are excluded from net wealth under clause (vi). If we understand the main part of clause (vi) in this fashion the further internal aid available is regarding the specific exclusion of a buildi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ema 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 personal wealth-tax liability by forming closely-held companies and transferring the unproductive assets like real estate, jewellery, etc., to such companies. Under the existing provisions, wealth-tax is leviable even in cases, where the assets specified in the section are held as stock-in-trade or are used for industrial purposes. With a view to remove this unintended hardship and provide incentive for growth and modernisation, it is proposed to amend this section to provide ..... X X X X Extracts X X X X X X X X Extracts X X X X
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