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Assam Financial Corporation Vs. Commissioner of Wealth-tax and ors. - Court Judgment

LegalCrystal Citation
Subject;Direct Taxation
CourtGuwahati High Court
Decided On
Case NumberCivil Rule No. 465 of 1968
Judge
ActsWealth Tax Act, 1957 - Sections 2, 3, 4, 4(1), 6, 14 and 15
AppellantAssam Financial Corporation
RespondentCommissioner of Wealth-tax and ors.
Appellant AdvocateB.C. Barua and R.C. Choudhury, Advs.
Respondent AdvocateJ.P. Bhattacharjee and S.N. Medhi, Advs.
Excerpt:
- - the wealth-tax authorities having failed to convince the corporation officials about the correctness of their stand, they ultimately sent a demand notice on 30th of march, 1968, to the principal officer of the corporation claiming tax of rs. ) that the word 'individual' in entry 86 of list i of schedule vii to the constitution takes within its sweep groups of individuals like hindu undivided families. (3) the wealth-tax officer may, if he is satisfied that it is necessary so to do, extend the date for the delivery of the return under this section. 10. a close scrutiny of the judgment in sodra devi's case, leaves no room for doubt that the submission made by shri bhattacharjee is well-founded and so must prevail. however, since according to section 3 every company is chargeable to..... bindra, j. 1. the short though somewhat vexing question that falls for determination in this writ petition filed under articles 226 and 227 of the constitution of india by the assam financial corporation, shillong, hereinafter briefly referred to as the corporation, is about the exact legal connotation of the expression 'individual' used in section 3 of the wealth-tax act, 1957, hereinafter called 'the act'. 2. the facts that have led to the making of the present petition can be briefly summarised. on january 23, 1968, the wealth-tax officer, ward-a, shillong, issued a notice under section 17 of the act communicating to the corporation that the net wealth of the corporation chargeable to tax for the assessment year 1959-60 had escaped assessment and requiring the corporation to submit.....
Judgment:

Bindra, J.

1. The short though somewhat vexing question that falls for determination in this writ petition filed under Articles 226 and 227 of the Constitution of India by the Assam Financial Corporation, Shillong, hereinafter briefly referred to as the Corporation, is about the exact legal connotation of the expression 'individual' used in Section 3 of the Wealth-tax Act, 1957, hereinafter called 'the Act'.

2. The facts that have led to the making of the present petition can be briefly summarised. On January 23, 1968, the Wealth-tax Officer, Ward-A, Shillong, issued a notice under Section 17 of the Act communicating to the Corporation that the net wealth of the Corporation chargeable to tax for the assessment year 1959-60 had escaped assessment and requiring the

Corporation to submit its return of wealth within 35 days of the receipt of the notice. That communication led to exchange of correspondence between the wealth-tax authorities and the officials of the Corporation wherein the former persistently contended that the Corporation was liable to pay wealth-tax while the latter vehemently maintained that the wealth-tax is payable only by an individual or a Hindu undivided family or a company and that since the Corporation did not fall within any of those categories it was immune from payment of the tax. The wealth-tax authorities having failed to convince the Corporation officials about the correctness of their stand, they ultimately sent a demand notice on 30th of March, 1968, to the principal officer of the Corporation claiming tax of Rs. 1,87,381 for the assessment year 1959-60. It was suggested to the Corporation simultaneously that if it approached the appropriate authority for its being declared a company under the Act, the tax demand could be considerably scaled down. However, the Corporation neither paid the tax nor approached the competent authority, for declaring it as a company, and instead preferred an appeal against the assessment notified. The Assistant Commissioner of Wealth-tax, with whom the appeal was filed, rejected the same by his order dated October 17, 1968. It is thereafter that the Corporation, having been left with no alternative, filed the instant petition claiming a writ of certiorari quashing the assessment order dated 30th of March, 1968. The principal ground on which that relief was sought was that a statutory corporation is not liable to pay the wealth-tax since it is not covered by the expressions 'individual', 'Hindu undivided family' and 'company', which alone, according to Section 3 of the Act, are chargeable to wealth-tax.

3. In their counter-affidavit the respondents challenged the maintainability' of the writ petition on the score that the Corporation had not exhausted its remedies under the Act. In addition, the respondents joined issues with the Corporation on the point that it was not liable to pay wealth-tax in terms of the Act.

4. At the time of the arguments in this court the contest between the parties' counsel centred around the point whether the Corporation is an 'individual' within the meaning of such expression used in Section 3 of the Act and this is exactly the point on which they were in conflict before they entered the arena of the court Section 3 of the Act provides that, subject to the other provisions contained in the Act, there shall be charged for every assessment; year commencing on and from the 1st day of April, 1957, 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 the Schedule. It was not the contention of Shri J.P. Bhattacharjee, the

learned counsel representing the respondents, that the Corporation answers the description of either 'Hindu undivided family' or that of 'company'. He, however, asserted that the Corporation is an 'individual' within the meaning of Section 3 of the Act and as such (sic) to pay the wealth-tax. Shri R.C. Choudhury, who appeared on behalf of the Corporation, submitted on the other hand that the Corporation is not an 'individual' within the meaning of Section 3 of the Act and consequently not liable to pay wealth-tax. In the context of the stand of the parties' counsel, the fate of this writ petition thangs by answer to the question whether the Corporation is an 'individual' contemplated by Section 3 of the Act.

5. To be sure, the expression 'individual' is not defined in the Act. However, it is manifest that Parliament was conversant with such an expression inasmuch as it had been used in Sections 3 and 16 of the Indian Income-tax Act, 1922, which was in force at the time the Wealth-tax Act was placed on the statute book of the country in 1957. Again, in item 86, List I, Schedule VII, of the Constitution of India, the expression 'individual' had also been used. That item reads :

'Taxes on the capital value of the assets, exclusive of agricultural land, of individuals and companies ; taxes on the capital of companies.'

6. Therefore, Parliament must be imputed with the knowledge of the meaning and connotation of the expression 'individual' used in the Income-tax Act and the Constitution of India when it adopted the same expression in Section 3 of the Wealth-tax Act. The Supreme Court observed in the case of Commissioner of Income-tax v. Sodra Devi, [1957] 32 I.T.R. 615; [1958] S.C.R. 1 (S.C.) which was decided on 17th of May, 1957, that though the word 'individual' has not been defined in the Income-tax Act yet there is authority for the proposition that the word does not mean only a human being but is wide enough to include a group of persons forming a unit. The Supreme Court observed further that the word 'individual' 'includes a corporation created by a statute, e.g., a university or a bar council, or the trustees of a baronetcy trust incorporated by a Baronetcy Act'. Shri Choudhury did not contend that the authority of this decision of the Supreme Court bearing on the interpretation of the expression 'individual' used in Section 3 of the Indian Income-tax Act, 1922, has been doubted in any subsequent decision of the Supreme Court. As a matter of fact, the Supreme Court reaffirmed in Andhra Pradesh State Road Transport Corporation v. Income-tax Officer, [1964] 52 I.T.R. 524; 34 Comp. Cas. 473 ; [1964] 7 S.C.R. 17 (S.C.) that the State Road Transport Corporation in liable to pay income-tax as a corporation, and that could only be in its capacity as 'individual', incorporations are not covered by any other 'person' mentioned in charging Section 3 of the Income-tax Act. Again, the Supreme Court held in the case of Banarsi Dass v. Wealth-tax Officer, [1965] 56 I.T.R. 224; [1965] 2 S.C.R. 355 (S.C.) that the word 'individual' in entry 86 of List I of Schedule VII to the Constitution takes within its sweep groups of individuals like Hindu undivided families. The only point which Shri Choudhury emphasised, however, in this court was that the expression 'individual' used in the Wealth-tax Act must be interpreted in the context of the other provisions of that Act and that the interpretation placed on that expression as used in Section 3 of the Indian Income-tax Act, 1922, was not germane to the present case. This point raised by Shri Choudhury requires a little detailed examination.

7. In support of his contention Shri Choudhury invited this court's attention to Sections 4, 6, 14 and 15 of the Act. The relevant parts of Sections 4 and 6 read as under:

'4. Net wealth to include certain assets.--(1) In computing the net wealth of an individual, there shall be included, as belonging to that individual-

(a) the value of assets which on the valuation date are held-

(i) by the spouse of such individual to whom such assets have been transferred by the individual, directly or indirectly, otherwise than for adequate consideration or in connection with an agreement to live apart, or

(ii) by a minor child, not being a married daughter of such individual, to whom such assets have been transferred by the individual, directly or indirectly, otherwise than for adequate consideration, or

(iii) by a person or association of persons to whom such assets have been transferred by the individual otherwise than for adequate consideration for the immediate of deferred benefit of the individual, his or her spouse or minor child (not being a married daughter) or both, or

(iv) by a person or association of persons to whom such assets have been transferred by the individual otherwise than under an irrevocable transfer,

whether the assets referred to in any of the sub-clauses aforesaid are held in the form in which they were transferred or otherwise:

Provided that where the transfer of such assets or any part thereof is either chargeable to gift-tax under the Gift-tax Act, 1958 (18 of 1958), or is not chargeable under Section 5 of that Act, for any assessment year commencing after the 3Ist day of March, 1964, the value of such assets or part thereof, as the case may be, shall not be included in computing the net wealth of the individual;

(b) Where the assesses is a partner in a firm or a member of an association of persons, the value of his interest in the firm or association determined in the prescribed manner ...'

'6. Exclusion of assets and debts outside India.--In computing the net wealth of an individual who is not a citizen of India or of an individual or a Hindu undivided family not resident in India, or resident but not ordinarily resident in India, or of a company not resident in India during the year ending on the valuation date-

(i) the value of the assets and debts located outside India ; and

(ii) the value of the assets in India represented by any loans or debts owing to the assessee in any case where the interest, if any, payable on such loans or debts is not to be included in the total income of the assessee under Section 10 of the Income-tax Act;

shall not be taken into account.

Explanation 1.--An individual or a Hindu undivided family shall be deemed to be not resident in India or resident but not ordinarily resident in India during the year ending on the valuation date if in respect of that year the individual or the Hindu undivided family, as the case may be, is not resident in India or resident but not ordinarily resident in India, within the meaning of the Income-tax Act.'

8. Sections 14 and 15 are in the following terms :

'14. Return of wealth.--(1) Every person, if his net wealth or the net wealth of any other person in respect of which he is assessable under this Act on the valuation date was of such an amount as to render him liable to wealth-tax under this Act, shall, before the 30th day of June of the corresponding assessment year, furnish to the Wealth-tax Officer a return in the prescribed form and verified in the prescribed manner setting forth the net wealth as on that valuation date....

(2) If the Wealth-tax Officer is of the opinion that any person is assessable under this Act, whether in respect of his net wealth or the net wealth of any other person, then, notwithstanding anything contained in Sub-section (1), he may serve a notice upon such person requiring him to furnish within such period, not being less than thirty days, as may be specified in the notice, a return in the prescribed form and verified in the prescribed manner (setting forth along with such other particulars as may be required by the notice) the net wealth of such person as on the valuation date mentioned in the notice.

(3) The Wealth-tax Officer may, if he is satisfied that it is necessary so to do, extend the date for the delivery of the return under this section.'

'15. Return after due date and amendment of return.--If any person has not furnished a return within the time allowed under Section 14, or having furnished a return under that section discovers any omission or a wrong statement therein, he may furnish a return or a revised return, as the case may be, at any time before the assessment is made.'

9. Sections 4 and 6 form part of Chapter II which bears the heading 'Charge of wealth-tax and assets subject to such charge', while Sections 14 and 15 fall under Chapter IV which bears the heading 'Assessment'. Section 4(1) undoubtedly uses the expression 'an individual' in the opening part of it and then refers to 'the purpose of such individual' in Clause (a)(i), to 'a minor child' in Clause (a)(ii), and to 'the value of his interest' in respect of a partner in Clause (b) of it. The point that arises for determination at this stage is whether reference in Section 4(1) to human persons in the manner just mentioned necessarily narrows down the generic meaning attaching to the word 'individual' used in charging Section 3 of the Act. Shri Choudhury urged for the Corporation that the exact scope of the expression 'individual' used in Section 3 is to be gathered from a harmonious reading of all the provisions of the Act and that when so read the expression would negative the contention of the respondents that it embraces juristic persons such as statutory corporations. Shri Battacharjee cited the provisions of Sections 3 and 16 of the Indian Income-tax Act, 1922, and their interpretation by the Supreme Court in the case of Sodra Devi, to support the contrary view that nothing said in Sections 4, 6, 14 and 15 can abridge the meaning of the expression 'individual ' used in Section 3 of the Act.

10. A close scrutiny of the judgment in Sodra Devi's case, leaves no room for doubt that the submission made by Shri Bhattacharjee is well-founded and so must prevail. The charging Section 3 of the Indian Income-tax Act, 1922, provided that where any Central Act enacts that income-tax shall be charged for any year at any rate or rates, the tax at that rate or those rates shall be charged for that year in accordance with, and subject to, the provisions of the Act in respect of the total income of the previous year of every individual, Hindu undivided family, company and local authority and of every firm and other association of persons or the partners of the firm or the members of the association individually. Section 16(3) of the Indian Income-tax Act, 1922, was worded as follows :

'In computing the total income of any individual for the purpose of assessment, there shall be included-

(a) so much of the income of a wife or minor child of such individual as arises directly or indirectly-

(i) from the membership of the wife in a firm of which her husband is a partner;

(ii) from the admission of the minor to the benefits of the partnership in a firm of which such individual is a partner;

(iii) from assets transferred directly or indirectly to the wife by the husband otherwise than for adequate consideration or in connection with an agreement to live apart; or

(iv) from assets transferred directly or indirectly to the minor child, not being a married daughter, by such individual otherwise than for adequate consideration ; and

(b) so much of the income of any person or association of persons as arises from assets transferred otherwise than for adequate consideration to the person or association by such individual for the benefit of his wife or a minor child or both.'

11. The point that was debated before the Supreme Court in Sodra Devi's case, was whether the expression 'any individual' used in the opening words of Section 16(3) contemplated both male and female of the human species or it referred only to the male of the species. The Supreme Court held after elaborate discussion that the only intention of the legislature in enacting Section 16(3) was to include the income derived by the wife or a minor child in the computation of the total income of the husband or the father, as the case may be, for the purpose of assessment, and that the words 'any individual' and 'such individual' occurring in Section 16(3) are restricted in their connotation to mean only the male of the species and not the female. While enunciating this interpretation of Section 16(3) the Supreme Court very categorically laid down that the word 'individual' used in the charging Section 3 of the Income-tax Act encompasses both natural and juristic persons. In other words, the Supreme Court did not whittle down the generic meaning of the word 'individual' used in Section 3 of the Act while holding that the expression 'any individual' in Section 16(3) is restricted only to the male and not the female human species. The Supreme Court held further that Section 16(3) talks only of 'individual' capable of having a wife or minor child or both and that it, therefore, necessarily excludes from its purview a group of persons forming a unit or a corporation created by statute and is thus confined only to human beings. By parity of reasoning, it is easy to conclude that the relevant parts of Sections 4 and 6 of the Wealth-tax Act also relate to human beings and not to a group of persons forming a unit or a corporation created by statute. This reading of the relevant parts of Sections 4 and 6 does not militate against the generic meaning of the expression 'individual' used in charging Section 3 of the Wealth-tax Act. The two provisions, namely; Section 3 of the Act on the one hand and Sections 4(1) and 6 on the other hand, can stand side by side. When the net wealth of a natural person is to be computed then the relevant provisions of Section 4(1) will come into play but they will have no applicability when the net wealth of a corporate body is to be determined. The expression 'an individual' used in Section 6 of the Act refers quite apparently both to the natural and juristic persons and as such the provisions of that section do not lend

support to the contention raised by Shri Choudhury. It is in order to mention that the expression 'net wealth' is defined in Clause (m) of Section 2 of the Act. That clause reads as under ;

''net wealth' means the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets, wherever located, belonging to the assessee on the valuation date, including assets required to be included in his net wealth as on that date under this Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than-

(i) debts which under Section 6 are not to be taken into account;

(ii) debts which are secured on, or which have been incurred in relation to, any property in respect of which wealth-tax is not chargeable under this Act ; and

(iii) the amount of the tax, penalty or interest payable in consequence of any order passed under or in pursuance of this Act or any law relating to taxation of income or profits, or the Estate Duty Act, 1953 (34 of 1953), the Expenditure-tax Act, 1957 (29 of 1957), or the Gift-tax Act, 1958 (18 of 1958),--

(a) which is outstanding on the valuation date and is claimed by the assessee in appeal, revision or other proceeding as not being payable by him, or

(b) which, although not claimed by the assessee as not being payable by him, is nevertheless outstanding for a period of more than twelve months on the valuation date.'

12. The word 'assessee' used in Clause (m) is also defined in the Act, vide Clause (c) of Section 2, to mean a person by whom wealth-tax or any other sum of money is payable under the Act. And Clause (42) of Section 3 of the General Clauses Act, 1897, states that 'person' shall include a company or association or body of individuals, whether incorporated or not.

13. It is manifest that Sections 4 and 6 have relevancy for only determining the net wealth of an 'individual' of the description given in the said sections. Assuming that those two sections do not cover the case of corporations in the background of their peculiar phraseology, no stalemate is reached respecting the computation of net wealth of corporations. It is for this reason that the expression 'net wealth' is defined in Clause (m) of Section 2 of the Act and on the basis of that definition a corporation's net wealth in reference to a particular valuation date can be worked out. The only consequence of the non-applicability of the provisions of Sections 4 and 6 to corporations is that they (the corporations) can neither avail of the benefits nor suffer under the liabilities mentioned in those sections. The definition of 'net wealth' does not suggest, much less establish, that corporations are excluded from the purview of the Act.

14. Therefore, the argument of Shri Choudhury based on the provisions of Sections 4 and 6 does not sound convincing.

15. This brings us to the consideration of the provisions of Sections 14 and 15 to find out if they help to advance the contention canvassed on behalf of the Corporation. Those sections pertain to returns of wealth to be filed under the Act. According to Section 3 of the Act, the persons chargeable to wealth-tax are 'every individual, Hindu undivided family and company'. Therefore, each one of them, it is beyond doubt, has to submit a return either under Section 14 or under Section 15. Some of the persons chargeable to wealth-tax are undeniably other than natural persons, e.g., companies. However, the wordings of Sections 14 and 15 suggest that the persons who are to file the returns are natural persons and not juristic persons as is clear by the use of the pronouns 'his', 'he' and 'him'. Such pronouns, it is apparent, cannot be used in respect of persons other than natural. However, since according to Section 3 every company is chargeable to wealth-tax the use of 3 pronouns just mentioned in Sections 14 and 15 in respect of persons required to submit returns clearly looks to be grammatically wrong. However, we have no misgivings that by this lapse in drafting the companies are not exempted from the obligation to submit returns or to pay the wealth-tax. Likewise, it is difficult to countenance the suggestion that the manner in which the two sections under consideration are couched indicates the parliamentary intention not to charge wealth-tax from corporations or that they suggest either explicitly or implicitly that Parliament meant not to include corporations within the expression 'individuals' used in Section 3 of the Act. If the corporations were to be excluded from the operation of the Act only for the reason of grammatical lapse noticed in the 2 sections, another two varieties of assessees may well claim exemption from the liability to pay the wealth-tax, they being Hindu undivided families and companies in respect of which the pronouns 'he', 'his' and 'him 'are never used. Therefore, the argument raised by Shri Choudhury has to be negatived.

16. Another argument pressed into service by Shri Choudhury is founded on the definition of the expression 'company' given in Clause (h) of Section 2 of the Act. The definition, as at present, reads as follows :

'(h) 'company' means a company as defined in Section 3 of the Companies Act, 1956 (1 of 1956), and includes-

(i) a company within the meaning of any law in force in the State of Jammu and Kashmir relating to companies :

(ii) a company incorporated outside India which has a place of business in India ;

(iia) a corporation established by or under a Central, Provincial or State Act, which is declared by the Central Government, by general or special order, to be a company for the purposes of this Act; and

(iii) a company within the meaning of any law relating to companies for the time being in force in the Union territories of Dadra and Nagar Haveil, Goa, Daman and Diu, or Pondicherry and any association in any such Union territory, whether incorporated or not, which is declared by general or special order of the Board to be a company for the purposes of this Act.'

17. Sub-clause (iia), it was conceded at the Bar, was added by the Finance (No. 2) Act of 1967. Shri Choudhury submitted that the definition of company clearly indicates that a corporation established by or under a Central, Provincial or State Act shall answer the description of company only when a declaration to that effect is made by the Central Government, and that until such a declaration is made a corporation being not a company it is not assessable to wealth-tax. The argument lacks the merit of being persuasive. A reference to the Schedule appended to the Wealth-tax Act will show that there is great disparity in the incidence of the tax between individuals and the Hindu undivided families on the one hand and the companies on the other.

18. By adding Sub-clause (iia) to the definition of the company given in Clause (h) Parliament meant to bring, subject to necessary notification by the Central Government, the corporations at par with the companies in the matter, of rate of wealth-tax payable by them. Another advantage which the corporations can gain, after the declaration is made by the Central Government, is that with effect from April 1, 1960, they shall, not be liable to pay wealth-tax at all. It is for this reason that Section 13 of the Finance (No. 2) Act, 1967, provides that notwithstanding anything contained in the Wealth-tax Act, no tax shall be charged in respect of the net wealth of a company for any financial year commencing on or after the first day of April, 1960. That Parliament meant to confer this double benefit on the corporations by adding Sub-clause (iia) is abundantly made clear by the NOTES ON CLAUSES which form part of the Statement of Objects and Reasons behind the Finance (No. 2) Act of 1967. The note we are concerned with reads as under :

' Sub-clause (a) seeks to insert, retrospectively, a new Sub-clause (iia) in Clause (h) of Section 2 of the Wealth-tax Act. The effect of the new Sub-clause (iia) is to empower the Central Government to declare, by general or special order, any corporation established by or under a Central, State or Provincial Act as a ' company' for the purposes of the Wealth-tax Act. The object of the proposed amendment is to secure that any statutory corporation which is declared by the Central Government to be a company will be subject to wealth-tax for assessment years up to and including the assessment year 1959-60 at the lower rate of wealth-tax applicable to companies, and exempted from wealth-tax for subsequent assessment years, in the same manner as companies formed and registered under the Companies Act, 1956.'

19. This note is self explanatory and so we need not elaborate on it. Suffice it to say that the language of the note clearly indicates that Parliament had inserted Sub-clause (iii) in the definition of company to confer certain benefits on corporations rather than to impose any burden on them to which they were not previously subject. Therefore, we reject the argument canvassed by Shri Choudhury on the authority of the amended definition of the expression ' company '.

20. The point at issue is not res integra. We have a Full Bench decision of the Kerala High Court in the case of Kerala Financial Corporation v. Wealth-tax Officer, [1971] 82 I.T.R. 477 (Ker.) [F.B.] holding that the term 'individual' in Section 3 of the Act is not restricted to human beings and includes a corporation, like the Kerala Financial Corporation, constituted under a Central, Provincial or State Act. The argument based on the particular wording of Section 4(1)(a)(i) and (ii) of the Act on behalf of the Financial Corporation to support its contention that corporations are not liable to wealth-tax was brushed aside by the Full Bench with the observations that though the term 'individual' used in Clauses (i) and (ii) of Section 4(1)(a) is certainly a human being capable of having spouse or a minor child, in Section 3 the term is used in a wider amplitude. In view of the conclusions already reached by us above we respectfully agree with the opinion given by the Kerala High Court respecting the true scope of the expression 'individual' used in Section 3 of the Act.

21. No other point was urged in support of the prayer made in the writ petition.

22. In the result the writ petition fails and is hereby dismissed. Taking all the factors into consideration we have decided to leave the parties to bear their own costs and order accordingly.

Goswami, C.J.

23. I agree.


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