1. This reference raises a rather substantial question as to the interpretation of the provisions of section 5(2) of the Wealth-tax Act, 1957.
2. The question arises upon these facts : The assessee us Messrs. Sindhu Hochtief (India) Ltd. who inter alia carry on the business of construction work. They had entered into a contract with the Government of India for the construction of the Port of Kandla and for that purpose there was a written contract, the material clauses of which were as follows :
Clause 2 of the conditions of the contract was :
'The person... whose tender may be accepted... shall within thirty days of the receipt by him of the notification of the acceptance of his tender, deposits as security for the due fulfillment of the contract an amount in cash or Government securities endorsed to the President of India of value equivalent of 2 1/2 % of the value of the work as per his tender rates into any branch of the Reserve Bank of India or the Imperial Bank of India.....'
3. The opening part of clause 9 (1) was :
'(1) In order that the work may be carried out efficiently, expenditiously and economically, advance payments may be granted to the contractor after he has furnished a security deposit under clause 2. These advance will be against approved machinery, equipment, materials or structures necessary for the execution of the work and shall be regulated as follows :'
4. Clause 11 reads as under :
'In addition to the recovery of 12% mentioned in clause 9 and any other recoveries provided for elsewhere in the contract, a further recovery equivalent to 7 1/2 % shall be made from all on account and final bills due to the contractor in respect of work done by him. This additional payment of 7 1/2 % by the contractor shall be treated as further security (in addition to the deposit mentioned in clause 2) returnable to him at the end of satisfactory compaction of guarantee period. Provided that no security shall be retained on such items, which in the opinion of the Government are considered complete in themselves and for which no security deposit need be retained.'
5. Pursuant to these terms of the contract the assessee deposited large sums with the Central Government in the shape of securities or cash. The details of the amounts deposited are found mentioned in a tabular statement in paragraph 2 of the statement of the case. We only give here the overall total as follow :
------------------------------------------------------------------------As on As on As on31-3-1957 31-3-1958 31-3-1959Rs. Rs. Rs.Security deposits 57,38,668 64,53,624 68,41,151(Book value) (Book value) (Book value)Cash 2,91,772 3,49,003 4,39,816----------- ------------ ------------60,30,390 68,02,627 72,80,967------------------------------------------------------------------------ Though the Tribunal has mentioned the market value of the security deposits as on 31st March, 1957, we have taken the books values throughout.
6. The assessment year with which we are concerned in this consolidated reference are 1957-58, 1958-59 and 1959-60 and the concerned the corresponding valuation dates are 1958, and 31st March, 1959. In these assessment years the assessee claimed exemption in respect of amounts deposited with Government in the dispose of securities and/or cash in the computation of its total wealth under section 5(2) of the Wealth-tax Act. The Wealth-tax Officer rejected this holding that section 5(2) would not be attracted in the case of these amounts because although there were ostensibly deposits made by the assessee, the real nature of the deposits had to be linked at and 'the real nature of the deposit made by the assessee which is in the from of securities..... and these securities have not been exempted by means of a notification.....' Secondly, he held that these securities continued to be the property of the assessee and the assessee was receiving the interest accruing on the securities.
7. The Appellate Assistant Commissioner reversed that decision and held in favour of the assessee. He took the view that the requirements of the notification did not apply in the case of 'any deposit a made by the assessee with the Government under the first part of section 5(2)' and that it was purely a coincidence in the assessee case that these deposits were in the form of Government securities and even if the deposits had been in some other or shape they would still be deposit and would be covered by the exemption granted by section 5(2).
8. The Appellate Tribunal of Bombay has, at the instance of the department, reversed the decision of the Appellate Assistant Commissioner and held that the exemption claimed in respect of these amounts deposited but the assessee with the Government of Indian in the shape of cash and/or Government securities would not be covered by the words used in section 5(2); that in order to entitle the assessee to the exemption claimed in regard to deposits a notification of the Central Government was necessary. If the legislature intended to grant exemption in respect of all deposits then the language used in the sub-section would be have been more explicit. They also held on a construction of the sub-section that the three categories of deposits contemplated by section 5(2) were all qualified by the words used in section 5(2) 'which the Central Government may by notification in the Official Gazette exempt from wealth-tax.'
9. Now the question posed for our opinion is :
'Whether, on a proper interpretation of section 5(2) of the Wealth-tax Act, the securities and cash deposits made by assessee in pursuance of clauses 2 and 11 of the contract with the Government are entitled to the relief under section 5(2) of the Wealth-tax Act ?' We have already setforth clauses 2 and 11 of the contract. Section 5(2) reads as under :
'Wealth-tax shall not be payable by an assessee in respect of any deposit made by the assessee with the Government or in any security of the Government or of a local authority not specified in clause (xvi) or clause (xvia) of sub-section (1) which the Central Government may, by notification in the Official Gazette, exempt from wealth-tax; but the value of any deposit or security so exempted shall be included in computing the net wealth of the assessee.'
The section contemplates alternatively two categories of cases in which exemption is granted, firstly, in respect of 'any deposit made by the assessee with the Government' and, secondly, in respect of any deposit 'in any security of the Government or of a local authority.' The Tribunal has rightly sub-divided the latter category into two sub-categories but for the purposes of the point argued before us that sub-division may for the time being be ignored. In the latter case it must be a security of the Government or a of local authority which is 'not specified in clause (xvi) or clause (xvia) of sub-section (1)'. Then follows the further qualification laid down by the words 'which the Central Government may, by notification in the the Official Gazette, exempt from wealth-tax.'
10. Mr. Palkhivala on behalf of the assessee concedes that the securities specified above do not come within clauses (xvi) and (xvia) of section 5(1) nor is there any notification exempting them under section 5(2), but he seeks to bring them within the words 'any deposit made by the assessee with the Government'. To this contention the first answer of the department is that even in the case of deposits as a notification by Government exempting them is essential and there is none in the present case. The Principal question which thus arises is whether this last clause 'which the Central Government may, by notification in the Official Gazetter, exempt form wealth-tax' governs the words 'any deposit made by the assessee with the Government'. The Principal contention on behalf of the assessee is that these words laying down the requirement of a notification in the Official Gazetter only concern the second category mentioned above and covered by the use of the words 'or in any security of the Government or of a local authority', and not the first category 'any deposit made by the assessee with the Government'. Counsel next urged that if the above interpretation is correct, then the exemption granted in the case of the first category is 'in respect of any deposit' and, therefore, it will cover any and every deposit and cannot be limited to any particular class of deposit. To the second contention the answer on behalf of the department has been that the word 'deposit' has been used in a special sense and does not cover ordinary commercial or business deposits.
11. Truing to the precisions of sub-section (2), it must be conceded, as urged by counsel for the assessee, that the sub-section could have been couched in happier language and the ideas contained there in expressed with greater clarity. An analysis of the relevant portion of the sub-section yields the following result :
'Wealth-tax shall not be payable by an assessee in respect of any deposit -
(a) made by the assessee with the Government; or
(b) in any security -
(i) of the Government, or
(ii) of a local authority;
(c) not specified in clause (xvi) or clause (xvia) of sub-section (1);
(d) which the Central Government may, by notification in the Official Gazette, exempt from wealth-tax;
(e) but the value of any deposit or security so exempted shall be included in computing the net wealth of the assessee.'
(The lettering and numbering of the several clauses of this sub-section is ours and is given for convenience of reference and in the further discussion we shall refer to its clauses by the said letters and numbers.)
12. Now, it seems clear upon this analysis that the word 'deposit' governs both the clauses (a) and (b) and is grammatically the subject of both these clauses. Therefore, those clause of the section, if simplified, should really read as follows : P2 'Wealth-tax shall not be payable by an assessee (a) in respect of any deposit made by the assessee with the Government or (b) (i) (in respect of any deposit) In any security of the Government, or (ii) (in respect of any deposit) of a local authority...'
13. The principal argument on behalf of the assessee has been that the word 'deposit' governs only clause (a) and is grammatically only the 'subject' of clause (a). It cannot govern clauses (b), (c) or (d), firstly, because it would lead to very awkward and unheard of phraseology, and, secondly, because the subsequent provisions of the subsequent provisions of the sub-section indicate otherwise. We proceed to consider these two contentions.
14. If, as we have said above, the word 'deposit' - is properly and grammatically the subject of both clauses (a) and (b), then clause (b) would read 'or in respect of any deposit in any security of the Government, or in respect of any deposit in any security of a local authority'. Mr. Palkhivala urged that there can be nothing like a deposit in any security of the Government or deposit in any security of a local authority. One only invests money in securities, one does not deposit moneys in securities. Therefore, to treat the word 'deposit' as also the subject of clause (b) would be doing violence to the language and the accepted jargon of finance and business and we should not adopt such an interpretation.
15. It is true that upon the interpretation which commends itself to us, clause (b) would apply to 'deposits' in any security of the Government or of a local authority, but if the plain and grammatical construction of the section results in the use of that awkward expression, the court cannot help it. We must accept the phraseology used. We may say also that the expression - 'deposit in any security' - is neither so incomprehensible or absurd nor so strained that we must necessarily reject it. In making these provisions it seems to us that the draftsmen always had in mind the several forms of public investments which members of the public usually make with Government or a local authority such as deposits in treasury savings deposit certificates, or deposits in post office savings banks and so on. He was not thinking of ordinary commercial deposits at all such as for instance, deposits required to be made under commercial contracts with Government for their due fulfilment as in the case before us, or as security for service in Government and so on. We will advert to this point in detail a little later, but for the time being we mention it here to show why the draftsman of this unfortunate sub-section used the curious expression 'deposit... in any security of the Government or of a local authority'.
16. The most telling argument, however, against the interpretation canvassed by counsel for the assessee is that if we were to accept it, some word in the sub-section must necessarily have to be declared superfluous or meaningless or some words would necessarily have to be added. Confining the word 'deposit' to clause (a) only, that clause would not be perfectly intelligible; it would read 'wealth-tax shall not be payable by an assessee in respect of any deposit made by the assessee with the Government'. But in that case clause (b) 'or in any security of the Government' would become meaningless, for the clause cannot stand alone without a subject. The words 'in respect of', in the opening clause, cannot govern clause (b) because it is separated by the word 'or' from clause (b) because it is separated by the word 'or' from clause (a). Counsel was, thereof, forced to contend that the word 'in' in clause (b) is superfluous, and it should be so declared or that, alternatively, instead of the word 'in' in clause (b), the words should be 'in respect of'. Clauses (a) and (b) should then read 'wealth-tax shall not be payable by an assessee in respect of any deposit made by the assessee with the Government or any security of the Government or of a local authority (omitting the word 'in' in clause (b). Alternatively, clauses (a) and (b) should read 'wealth-tax shall not be payable by an assessee in respect of any deposit made by the assessee with the Government or of a local authority...' (adding the words 'respect of' after the word 'in' in clause (b)). Counsel supported this argument by saying that the obvious intention of the legislature was, in the first place, to exempt any and every deposit and, in the second place, investments in such securities either of a Government or of a local authority which were notified as exempted in the Official Gazette, and since there is doubt, we must construe the sub-section according to that obvious intent. Now, in the first place, we are unable to see that any doubt arises upon the sub-section as it stands. All that has been shown is some awkwardness of language arising from the expression 'deposit... in any security', etc. In the second place, it is a cardinal rule of construction of statutes that, except for compelling necessity or where otherwise patent absurdity results, a court should not hold that any word in a statute is a superfluity nor add to the words of a statute, and in the present case we can see absolutely no necessity for doing either. Despite the resultant awkwardness of expression and some confusion of ideas, the intention of the legislature can be clearly gleaned. By clause (b) the legislature intended to exclude from wealth-tax investments in any security of the Government or of a local authority which were to be notified and non other. It suits the case of the assessee to urge that the first clause is a clause but that must necessarily result in our declaring the word 'in' superfluous in clause (b) and adding the words 'respect of' after the word 'in' in clause (b). As between declaring a word in the statute redundant or superfluous or adding words thereto on the one hand, and giving it effect albeit some awkwardness of expression involved, we must adopt the latter course and allow the statute to speak for itself.
17. Another point made in support of the interpretation, for which counsel for the assessee argues, is based upon the provisions of clause (e). That clause says 'but the value of any deposit or security so exempted shall be included in computing the net wealth of the assessee'. In this clause, the statute speaks of 'deposit or security so exempted'. It was urged that this clause distinguishes between 'deposit' and 'security' in the context of exemption; therefore, the clause militates against the interpretation clause (b) refers to deposit in any security of the Government or of a local body but clause (e) makes a clear cut distinction between 'deposit' and 'security'. If the word 'deposit' is the subject of both clauses (b) (i) and (b) (ii), as we have held it is, then, it was urged, there is no scope for distinguishing between deposit and security in the matter of exemption.
18. This argument is one of the substance, but not unanswerable. Undoubtedly this last clause of the sub-section (clause (e)) is difficult to reconcile with the earlier part of it. But upon this clause (clause (e)) irreconcilability arises upon either interpretation, viz., the one canvassed by the department as well as the one canvassed by the assessee. It appears that, in speaking of the powers of the Government to exempt, the draftsman has assumed-and rightly assumed-that the Government has the power to exempt a security as well as a deposit though the Act does not speak of a deposit apart from a security. Such phraseology has been used only by way of abundant caution when referring to powers of the Government but for that reason we cannot negative an interpretation of the earlier part of the sub-section which is, in our opinion, clear.
19. Turning to the interpretation canvassed on behalf of the assessee, in an important respect this clause (e) of the sub-section negatives the interpretation sought to be placed upon clause (b) on behalf of the assessee. Accordingly to the interpretation canvassed by counsel for the assessee, the word 'deposit' cannot be read into clause (b). Thus clause (a) only deals with deposits and clause (b) only with securities. In the case of the deposits (clause (A)) any and every deposit is exempt and the qualification of a notification by the Government does not apply. The requirements as to a notification, only applied in the case of securities of the Government or of a local authority. This argument is completely met and negatived by the same words of clause (e) 'deposit or security so exempted', because these words show that both deposits and securities can be exempted, i.e., by a notification, but counsel's argument is that for a deposit no notification is at all necessary. Clause (e), therefore, is a double-edged weapon. In some measure it cuts across the argument on behalf of the department, but it also completely destroys the argument on behalf of the assessee. We have already said that the whole sub-section is unhappily worded and we may now, add, in the light of what we have said, it could bear re-drafting. The attempt to compress different and conflicting ideas in one complex paragraph (as the sub-section is) has neither made for clarity of ideas nor good syntax.
20. An argument was advanced on the basis of the punctuation marks. It may be mentioned that in the first clause up to the semi-colon (;) after the words 'wealth-tax' there do not appear to be any punctuation marks at all and that would rather support the argument on behalf of the department that the two categories separated by the word 'or' namely, 'any deposit' and 'any security of the Government or of a local authority', etc., would both be governed by the clause (which the Central Government may, by notification in the Official Gazette, exempt from wealth-tax). We would not normally stake the construction of a section upon the punctuation marks appearing therein, but since the question of the punctuation marks has been raised before us, we must point out that in the first part of sub-section (2) before the comma (,), after the word 'may', there is no other punctuation mark. Thus, such punctuation marks as are to be found in the section do not negative the interpretation we have placed upon the section. In this Act we notice that considerable use of punctuation marks has been made particularly in the use of the semi-colon (;), where two clauses are divided by the word 'or' as may be seen from section 6, Explanation 2, section 17 and section 18. In the last two sections, two clauses (a) or (b) are separated by a semicolon (;) before the word 'or'. On a plain construction of sub-section (2) of section 5, therefore, it must be held that clause (d) 'which the Central Government may, by notification in the Official Gazette', would govern both the categories contemplated by the opening words of the sub-section, namely, 'any deposit' and 'any security', etc. Clause (d) does not merely qualify the words 'in any security of the Government or of a local authority' but also qualifies 'any deposit' in clause (a).
21. It will be noticed that so far we have considered the question of construction of sub-section (2) upon the assumption that the word 'deposit' used in the opening part of the sub-section covers the deposits which have been made in the present case, i.e., made by private parties as deposits in the course of business (though in the shape of securities). They have not considered the point in any detail but what they have found is 'if the legislature wanted to give exemption with reference to all the deposits, without any notification, then more explicit language, in our opinion, would have been used'. They appear to have read the word in sub-section (2) of section 5 in the sense in which the word 'deposit' is used in some of the categories mentioned in sub-clause (xvi) of section 5(1) and a consideration of the several provisions of the statute shows that in this conclusion the Tribunal was right. We have already said that upon any reading of the sub-section the subject of the second category defined by the words 'in any security of the Government or of a local authority' is 'deposit' and it is in the context of those words that the word 'deposit' must be construed. If we are right in this construction then 'deposit... in any security of the Government or of a local authority' cannot possibly mean deposit of any security of the Government or of a local authority. The deposits made by the assessee would not, therefore, be covered by the sub-section and would not be entitled to exemption.
22. But the point of greater importance is that the word 'deposit' used in sub-section (2) of section 5 does not appear to have been used in the ordinary sense of a commercial deposit, in the context in which it is used. That this is the correct construction to be placed on the words used in sub-section (2) is further clear from the exception contemplated by the sub-section (in clause (c)) by the words 'not specified in clause (xvi) or clause (xvia) of sub-section (1)'. The draftsman of the statute, therefore, had in contemplation deposits in any security of the Government such as are dealt with in clause (xvi) of sub-section (1) of section 5 and what he intended to says was that deposits in securities mentioned in clause (xvi) are dealt with by the clause. What is referred to in this sub-section is any deposit in any security of the Government or of a local authority not specified in clause (xvi). The word 'deposit', therefore, must be given the same meaning that it bears in clause (xvi) of sub-section (1) and 5. Now clause (xvi) of sub-section (1) of section 5 contemplates three categories of deposits. The categories of deposits contemplated in clause (xvi) are (1) treasury savings deposit certificates, (2) deposits in post office savings banks and (3) ten year defence deposit certificates. Since clause (xvi) is expressly referred to in sub-section (2) of section 5 in the context of the words 'deposit'... in any security of the Government or of a local authority', it is clear that the word 'deposit' must be construed in the sense in which it is used in clause (xvi) of section 5(1). As such, it would clearly exclude a deposit made in the course of a business contract by a particular individual with the Government whether in cash or in the shape of securities, although the word 'any' precedes the word 'deposit'. The word 'deposit' in sub-section (2) of section 5 must be read in the context of the provisions of the Act as a whole especially clause (xvi) of section 5(1). Upon that view also the present deposits, whether in cash or in securities, made by the assessee would not fall within the ambit of sub-section (2) of section 5. This construction of the word 'deposit' used in sub-section (2) of section 5 appears to us also to be in conformity with the object and purpose of the Wealth-tax Act which was to create a new source of revenue by the levy of a direct tax on the wealth of the citizens of the country. A commercial or business deposit continues to be the property of the assessee despite the transference of possession of the asset deposited and would clearly fall within the charging section 3 read with the definition of 'net wealth' and 'assets' in clauses (m) and (e) respectively of section 2. Sub-section (2) of section 5 moreover merely grants an exemption from payment of wealth-tax and we do not suppose that, where the levy is of such a general nature, as we have indicated above, the exemption would be in respect of private commercial deposits made by individuals with the Government under business contracts or other commercial transactions entered into with the Government, e.g., deposits which are liable to be returned when their purpose is served. We are also in agreement with the view expressed by the Tribunal that, if the exemption granted was of so general a character as was sought to be canvassed before us, it would have been granted in clearer language than that employed in sub-section (2) of section 5.
23. We may by way of analogy also refer to parallel provisions in another fiscal enactment, viz., the Indian Income-tax Act. Section 10 of the Income-tax Act of 1961 deals with the subject of exclusion of income from the total income and sub-clause (ii) of clause (15) deals with a number of categories of deposits or investments, but all the contemplated categories of deposits are deposits with different departments of the Government permitted to be invested or deposited and in that context the concluding clause of sub-clause (ii) limits the non-inclusion 'to the extent to which the amounts of such certificates or deposits do not exceed in each case the maximum amount which is permitted to be invested or deposited therein'. We only refer to this provision by way of analogy. Both are fiscal statutes and deal with two different sources of public revenue, and, in both, the word 'deposit' or 'depositing' is used in the context of deposit in a public or national fund or a public or national scheme of finance and not in the sense o a deposit made under a business contract by a private individual. A consideration, therefore, of that provision in a parallel statute supports the construction which we have placed upon the word 'deposit' in sub-section (2) of section 5.
24. A similar construction is suggested by Mr. Sampath Iyengar in his book on the Three New Taxes, 2nd edition (1966). The learned author does not discuss the subject in any detail but he has read sub-section (2) of section 5 as limited only to deposits in schemes of the Government or in securities of the Government. We may, while referring to the passage, however, guard ourselves by saying that we must not be taken to be in agreement with all that the learned author says on the sub-section particularly where he refers only to new forms or new schemes to be notified by the Central Government. Incidentally, we may also point out that the same commentator considers (see paragraph 98) that the requirement of a notification governs both deposits and/or securities of the Government or of a local authority, the first point which we have dealt with.
25. For these reasons we think that the Tribunal took the correct view in this case. We accordingly answer the question referred in the negative. The assessee will pay the costs of the Commissioner.