TMI Blog1994 (3) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... years 1984-85 and 1985-86 under the Wealth-tax Act, 1957 (Act No. 27 of 1957), before the Wealth-tax Officer raising various factual and legal contentions for claiming exemption from the Wealth-tax Act, which are pending consideration. The petitioners have in this petition challenged the constitutional validity of section 40 of the Finance Act, 1983, on the ground that it violates article 14 of the Constitution of India. According to the petitioners, the first petitioner is a " closely-held company ", that is not a company in which the public are substantially interested within the meaning of the provisions of section 2(18) of the Income-tax Act, 1961. The wealth-tax was leviable on companies under the Wealth-tax Act, 1957. Section 3 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry, bullion and real estate. As companies are not chargeable to wealth-tax, and the value of the shares of such companies does not also reflect the real worth of the assets of the company, those who hold such unproductive assets in closely-held companies are able to successfully reduce their wealth-tax liability to a substantial extent. With a view to circumventing tax avoidance by such persons, I propose to revive the levy of wealth-tax in a limited way in the case of closely-held companies. Accordingly, I am proposing the levy of wealth-tax in the case of closely-held companies at the rate of two per cent. . . . " As per the petitioners, the speech clearly shows the intention of the Legislature in introducing the levy of wealth-tax on c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (18)(b) reads as under : " if it is a company which is not a private company as defined in the Companies Act, 1956 (1 of 1956), and the conditions specified either in item (A) or in item (B) are fulfilled, namely :---- (A) shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) were, as on the last day of the relevant previous year, listed in a recognised stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956 (42 of 1956), and any rules made there under ; (B) shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y not including persons who are in the employment of the company ; and persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased ; and prohibits any invitations to the public to subscribe for any shares in, or debentures of, the company. Thus, the Companies Act itself defines three different types of companies and the private company is defined in section 3 of the Companies Act. The private company is a company in which the public are not substantially interested and as such is a " closely-held company ". The equal protection of the laws provision in our constitution prohibits a discrimination by the State against it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held in K. P. Varghese v. ITO [1981] 131 ITR 597 (SC). Therefore, we can look into the speech of the Finance Minister whereunder he has given some of the reasons for levying wealth-tax on closely-held companies at the rate of two per cent. It is the contention of the petitioners that there was no transfer of interest in the property of the company from the directors of the company and, therefore, there is no attempt on the part of the directors or the persons interested in the formation of a closely-held company to avoid wealth-tax and bringing into the net such companies who are carrying on their legitimate business along with the companies who are trying to avoid wealth-tax by transfer of assets by the directors of closely-held companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scriminatory if, within the sphere of its operation, it affects alike all persons similarly situated. It merely requires that all persons subjected to such legislation shall be treated alike, under like circumstances and conditions, both in the privileges conferred and in the liabilities imposed. (Reliance is placed on Spences Hotel Pvt. Ltd. v. State of West Bengal [1991] 2 SCC 154). The Legislature has jurisdiction and authority to classify property, trade, profession and events for imposition of tax equally and uniformly and as such the discretion exercised by the Legislature cannot be challenged on the ground that it discriminates and infringes article 14 of the Constitution of India. Wealth-tax of two per cent. has been uniformly charg ..... X X X X Extracts X X X X X X X X Extracts X X X X
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