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TMI Blog2002 (10) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... cts and in the circumstances of the case, the Court in the case of CWT v. Sharwan Kumar Swarup and Sons [1994] 210 ITR 886 given in respect of the Wealth-tax Rules was applicable to the provisions of Schedule III to the Wealth-tax Act and thereby in giving retrospective effect to the provisions contained in Schedule III to the Wealth-tax Act?" The material facts necessary for answering the reference are that the assessee, Jodhan Real Estate Development Co. (P.) Ltd., is a wholly owned subsidiary of Jodhan Investment and Finance Corporation Pvt. Ltd. The holding company is a closely held company wherein the shares are held by Shri Gaj Singh of Jodhpur and his family members. The main business of the company is that of dealing in real estate, purchasing and developing of land, acquiring, taking on lease, sub-lease, etc., any property and to invest and deal in lands, buildings, shares, debentures, etc. The company purchased the following properties for consideration as mentioned against each of them from Shri Gaj Singh: Rs. Jawahar Khana 48,000 Saloon House 1,57,000 Large house, Mt. Abu 46,000 Land near Stadium, Jodhpur 77,000 Land to the east and west of Circuit Hou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntention was to impose tax on unproductive assets in closely held companies. This necessitated the clarification. Thus, the amendment has to be treated as retrospective in nature. It is submitted that the assets which were held by the assessee in stock-in-trade from the beginning, should not be visited with levy of wealth-tax for the periods 1984-85 to 1988-89 only. On the other hand, it is submitted by Mr. Bhandawat, learned counsel appearing for the Revenue, that the amended provision being substantive in nature, it cannot have retrospective effect. Before dealing with the contentions of the respective parties it will be apposite to look into the background in which the subject amendment has been introduced. The net wealth of companies was taxable under the Wealth-tax Act till 1960. Thereafter by the Finance Act, 1960, banking companies, insurance companies, finance companies, shipping companies and companies registered under section 25 of the Companies Act were exempted from tax liability. The rationale underlying the revival of the levy of wealth-tax in respect of certain assets held by closely held companies was to curb the tendency of avoidance of personal tax liability by f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 whose income chargeable under the head 'Salaries' is ten thousand rupees or less; (vii) motor cars; and (viii) any other asset which is acquired or represented by a debt secured on any one or more of the assets referred to in clause (i) to clause (vii)." However, it was later on realised that the said amendment was causing unintended hardship. Thus, with a view to remove the unintended hardship of closely held companies on account of the provisions of sub-section (3) and to provide incentive for growth and modernisation, the Finance Act, 1988, has amended sub-section (3) of section 40 of the Finance Act, 1983, by amending clause (i), inserting a proviso to clause (v), substituting the existing clause (vi) by new clauses (vi), (via), and (vib) and inserting a proviso to the sub-section. The reason for the revival of wealth-tax on closely held companies was expressed by the Finance Minister while introducing the Bill as follows: "It has come to my notice that some persons have been tryi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Explanation 1 to section 13 of the Income-tax Act. (vii) motor cars; and (viii) any other asset which is acquired or represented by a debt secured on any one or more of the assets referred to in clause (i) to clause (vii): Provided that this section shall not apply to any asset referred to in clause (i), (ii), (iii), (iv), (v) or (vi) which is held by the assessee as stock-in-trade in a business carried on by it or, in the case of motor cars referred to in clause (vii), they are held as stock-in-trade in such business or registered as taxies and used as such in a business of running motor cars on hire carried on by the assessee. Explanation.--Where any question arises as to whether all or any of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brought on the statute with a view to removing the unintended hardship of closely-held companies on account of the provisions of sub-section (3) and providing incentive for growth and modernisation, and, therefore, the proviso can be safely applied retrospectively. Looking to the curative nature of the amendment made by the Finance Act, 1988, it has been submitted before us that the proviso which is inserted by the amending Finance Act, 1988, should be given retrospective effect and should be read as forming part of section 40(3) of the Act from its inception. G.P. Singh in his Principles of Statutory Interpretation, fourth edition, page 291, has observed: "It is well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended." Once it is held that the proviso is inserted as a remedial curative measure for removing the difficulties faced by taxpayers because of inadvertent mistake or omission which has crept in drafting the provision, it would be just and proper to hold that it would relate back to the very inception of the provision. It would be relevant to extract the passage from Craies on Statute Law, page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsequent statute would relate back to the time when the prior Act was passed. In the present case, it can be held that the first proviso was added for supplying an obvious omission in section 43B and (b) where an Act is declaratory in its nature, the presumption against construing it retrospectively is inapplicable. The proviso is declaratory in its nature. It declares that nothing contained in section 43B shall apply in relation to any sum referred to in clause (a), (c) or (d) which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred." The apex court in Allied Motors (P.) Ltd. v. CIT [1997] 224 ITR 677 has affirmed the view taken by the Gujarat High Court. It is held therein that an amendment remedial in nature and designed to eliminate unintended consequences making the provision unworkable or unjust, causing undue hardship to the assessee, on taking into consideration the Budget Speech of the Finance Minister and also taking into consideration the object of the statute, external aids can safel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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