Income Tax Appellate Tribunal - Cochin
A.A. Salam vs Assistant Commissioner Of Wealth Tax on 25 August, 2006
Equivalent citations: (2007)106TTJ(COCH)1140
ORDER
Riyaz S. Padvekar, J.M.
1. These appeals by the two different assessees and six cross-appeals by the Revenue are filed challenging the different orders of the CWT(A)-m, Trivandrum. As far as WTA Nos. 35 to 39/Coch/2002 and 110/Coch/2005 are concerned, they relate to asst. yrs. 1994-95 to 2000-01. The Revenue's appeals being WTA Nos. 59 to 64/Coch/2002 pertain to asst. yrs. 1993-94 to 1998-99. WTA Nos. 134 and 135/Coch/2005 relate to asst. yrs. 1999-2000 and 2000-01, respectively. In all these appeals, the facts are identical and issues are common, hence, all these appeals were heard together and now being disposed of by this common order for the sake of convenience.
2. The first common issue which arises for our consideration in assessees' appeals is whether the cash recorded in the books of account and held in the business of the assessees as on the valuation date is an asset within the meaning of Section 2(ea) of the WT Act.
3. The facts in brief can be stated that both the assessees are cashew exporters and it is not disputed that the status of both the assessees is individual. It was noticed by the AO that in the balance sheet filed by the assessees, huge cash in hand was reflected on the valuation date as under:
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Sl. No. WTA No. Asst. yr. Cash in hand reflected
in the balance sheet as
on 31st March
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1. 35/2002 1994-95 57,32,470
2. 36/2002 1995-96 73,17,144
3. 37/2002 1996-97 19,31,064
4. 38/2002 1997-98 82,12,900
5. 39/2002 1998-99 1,24,46,221
6. 110/2005 2000-01 2,62,27,855
7. 134/2005 1999-2000 38,87,922
8. 135/2005 2000-01 80,56,707
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4. We have heard the learned Authorised Representative, Shri A.S. Narayanamoorthy, chartered accountant, for the assessees and the learned senior Departmental Representative, Shri V. Sreekumar, for the Revenue. The sum and substance of the argument of the learned Authorised Representative can be summarized as under: The assessees are carrying on the cashew export business as proprietors. The charging provisions in respect of the WT Act have been substantially amended by the Finance Act, 1992, w.e.f. asst. yr. 2003-04. The CBDT has issued a Circular No. 636, dt.31st Aug., 1992, (1992) 107 CTR (St.) 1 : (1992) 198 ITR (St.) 1, explaining the provisions of the Finance Act, 1992, by virtue of which the WT Act was also amended. New definition of the word "asset" is brought on the statute book i.e. Section 2(ea) from the asst. yr. 1993-94. It is argued that the Government decided to encourage investment in productive assets and from that point of view decided to abolish wealth-tax receipt on the specified assets which are non-productive in nature. It was further argued that only three categories of assessees are subjected to WT Act, i.e. individual, HUF and company, and there cannot be discrimination in giving the treatment to productive assets in respect of individuals and HUFs on one hand and companies, on the other side. It was further argued that from the Finance Minister's speech while moving the Bill in the House, there was not even a whisper that when the cash in hand is a part of the business assets of the assessee, then separate treatment should be given in respect of the individuals and HUFs and companies. As far as the Finance Bill is concerned, the Finance Minister's speech while presenting the Bill in the House is very important. Moreover, subsequently, the CBDT has explained the provisions of the Finance Act, 1992, vide Circular No. 636, dt. 31st Aug., 1992, in which it has categorically been made clear that legislative intent is only to bring to wealth-tax those assets which are non-productive. Even on the reading of the language used in Clause (vi) to Section 2(ea) of the Act, the legislature has not specified the category and only stated that in the case of other persons without referring to specific category of the assessees. If the legislative intent was to exclude the companies alone, then it was not difficult for the legislature to specify the category of the assessee as only three types of assessees are subjected to wealth-tax. It was further argued that as far as companies are concerned, normally, they are engaged in the business or trade, but it may not be the case of individuals and HUFs. The individuals and HUFs may be engaged in business, profession, occupation, vocation or may not be also. He further argued that in case of individuals and HUFs, if the cash is not recorded in the books of account, then beyond Re. 50,000, subject to the limits of exemption, it will be charged under the WT Act. But, if the individual and HUF are engaged in the business and cash in hand is duly recorded in the books of account, that cash in hand qualifies for exemption as an asset. He further submitted that the AO as well as CWT(A) have mis-interpreted the provisions of Section 2(ea) of the WT Act and brought to tax the productive assets which is never the intention of the legislature. It was further argued that if the assessees had deposited the said cash one day earlier in their bank accounts and did withdraw immediately on next day of the date of valuation then that is not liable for wealth-tax and certainly that is not the legislative object. The cash in hand reflected in the books of the assessees is a part of their business assets.
5. On the other hand, the learned senior Departmental Representative vehemently argued that from the plain reading of Clause (vi) to Section 2(ea) of the WT Act, it is very clear that in case of individuals and HUFs, whether cash is recorded in the books of account or not, if it is in excess of Rs. 50,000, the same will be charged to wealth-tax and the AO has rightly done the same. The learned Departmental Representative supported the orders of AO as well as CWT(A) on this particular issue.
6. We have heard the rival submissions of the parties. We have also carefully considered the facts as per material placed before us. No specific precedent was relied on by either of the parties. In these cases, it is not disputed that both the assessees are engaged in the processing and export of cashew and both are having proprietary business and are assessed in individual capacity. It is also not disputed that the cash in hand which is treated as an "asset" for the purpose of WT Act is duly recorded in the books of account of the assessees as is evident from the assessment orders. Now, we will have to examine the relevant provisions of the WT Act.
7. Upto asst. yr. 1992-93, the definition of the word "asset" was very much wide enough to cover every property save specifically exempted under Section 2(e). By the Finance Act, 1992, Section 2(ea) was brought on the statute book giving the definition of "asset" for the purpose of WT Act which reads as under:
(ea) 'assets' in relation to the assessment year commencing on the 1st day of April, 1993, or any subsequent assessment year, means-
(i) any guest-house and any residential house (including a farm house situated within twenty-five kilometres from the local limits of any municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee or by any other name) or a cantonment board, but does not include-
(1) a house meant exclusively for residential purposes and which is allotted by a company to an employee or an officer or a director who is in whole-time employment, having a gross annual salary of less than two lakh rupees;
(2) any house for residential purposes which forms part of stock-in-trade;
(ii) motor cars (other than those used by the assessee in the business of running them on hire or as stock-in-trade);
(iii) jewellery, bullion and furniture, utensils or any other article made wholly or partly of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals:
Provided that where any of the said assets is used by the assessee as stock-in-trade, such asset shall be deemed as excluded from the assets specified in this sub-clause;
(iv) yachts, boats and aircrafts (other than those used by the assessee for commercial purposes);
(v) Urban land;
(vi) cash in hand, in excess of fifty thousand rupees, of individuals and HUF and in the case of other persons any amount not recorded in the books of account.
Explanation : For the purpose of this clause,-
(a) 'jewellery' includes-
(i) 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 stones, and whether or not worked or sewn into any wearing apparel;
(ii) precious or semi-precious stones, whether or not set in any furniture, utensils or other article or worked or sewn into any wearing apparel;
(b) 'urban land' means land situated-
(i) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the valuation date; or
(ii) in any area within such distance, not being more than eight kilometres from the local limits of any municipality or cantonment board referred to in Sub-clause (i), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette, but does not include land on which construction of a building is not permissible under any law for the time being in force in the area in which such land is situated or the land occupied by any building which has been constructed with the approval of the appropriate authority or any unused land held by the assessee for industrial purposes for a period of two years from the date of its acquisition by him;
(c) in Clause (m), for the portion beginning with the words 'on the valuation date other than-'and ending with the words, brackets, figures and letter 'under Sub-section (IA) of Section 5,', the words 'on the valuation date which have been incurred in relation to the said assets;' shall be substituted.
8. While moving the Finance Bill, 1992, which is popularly known as Budget Speech, the Hon'ble Finance Minister explained the reasons and object for introducing changes to the WT Act, 1957. The relevant part of his speech is as under:
67. The WT Act, 1957, has far too many exemptions making its administration enormously complicated. The valuation of certain assets such as shares also presents problems, since very high market values reflecting speculative activity can lead to a heavy burden on shareholders who are long-term investors. There is also no distinction at present between productive and non-productive assets. The Chelliah Committee has suggested that, in order to encourage the tax-payers to invest in productive assets such as shares, securities, bonds, bank deposits, etc., and also to promote investments through mutual funds, these financial assets should be exempted from wealth-tax. Wealth-tax should be levied on individuals, HUFs and all companies only in respect of non-productive assets such as residential houses including farm houses and urban land, jewellery, bullion, motor cars, planes, boats and yachts which are not used for commercial purposes. The committee has further suggested that such tax should be at the rate of one per cent, with a basic exemption of Rs. 15 lakhs. I propose to accept this recommendation and I hope this change will encourage investments in productive assets and discourage investment in ostentatious non-productive wealth.
9. After the said Bill was converted into the Act, the CBDT vide Circular No. 636, dt. 31st Aug., 1992, explained the provisions of the Finance Act, 1992, and the relevant extract of the said circular is reproduced as under:
54. With a view to stimulating investment in productive assets, the Finance Act has abolished wealth-tax on all assets except certain specified assets. The term 'asset' will include guest-houses and residential houses including farm houses within twenty-five kilometres from the local limits of any municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee or by any other name) or a cantonment board but does not include a house which has been allotted by a company to an employee or an officer, or a director who is in the whole-time employment, having a gross annual salary of less than two lakh rupees. It will also not include a house for residential purposes which forms part of stock-in-trade. Further, it will include motor cars other than used in the business of running them on hire or which form part of stock-in-trade; jewellery, bullion, furniture, utensils or any other articles made wholly or partly of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals (other than those used as stock-in-trade); yachts and boats and aircrafts (other than those used for commercial purposes); cash in hand in excess of Rs. 50,000 of individuals or HUFs and in case of any other person any amount not recorded in the books of account and urban land.
10. Now, we will have to examine the scope of newly inserted definition of "asset" vide Section 2(ea) in the WT Act. As far as the issue before us is concerned, Clause (vi) to Section 2(ea) is relevant. On the plain reading of the said clause, it may give an impression that in the case of individuals and HUFs, the cash in excess of Rs. 50,000 is treated as an "asset" for the purpose of charging sections of the WT Act.
11. We find force in the argument of the learned Authorised Representative that after referring to the Hon'ble Finance Minister's speech while moving the Finance Bill, 1992, and subsequent circular by the CBDT explaining the provisions of the said Act, it is clear that the Government was more concerned for stimulating the investment in the productive assets. Now, the meaning of the term "productive asset" should be ascertained from the speech of the Hon'ble Finance Minister as well as the aforesaid circular of the CBDT. It appears from the speech of the Hon'ble Finance Minister that the Chelliah Committee appointed by the Government of India had suggested that in order to encourage the taxpayers to invest in the productive assets such as shares, securities, bonds, bank deposit, etc. and also to promote investment to the mutual funds, those assets should be exempted from wealth-tax. While indirectly defining the non-productive assets, more stress was given on residential houses including farm houses and urban land, jewellery, bullion, motor car, plane, boat and yacht which are not used for commercial purposes. Hence, while interpreting the term "productive asset", we have to interpret it in the context of the commercial assets. It means that assets which are used for commercial purposes are productive assets and assets which are not used for commercial purposes are non-productive assets. Though the term "commercial asset" has not been precisely defined, but the term "commercial activity" has been defined in the Law Lexicon Second Edition, Reprint 2000 by R. Ramanatha Iyer "to include any type of business or activity which is carried on for a profit." The term "commercial asset" has been defined as an asset which is a part of the business or activity which is carried on for a profit.
12. Now, we will have to consider the relevance of the speech of the Hon'ble Finance Minister while moving the Bill on the floor of the House as well as the circular issued by the CBDT for finding out the intention of the legislature to bring a particular provision on the statute book. The relevance of the Finance Minister's speech for the purpose of finding out the object of the amendment for interpreting the statutory provisions has got the approval of the Hon'ble Supreme Court in the case of Sole Trustee, Loka Shikshana Trust v. CIT and Indian Chamber of Commerce v. CIT . In the case of Sole Trustee, Loka Shikshana Trust (supra), His Lordship, Mr. Justice M.H. Beg, as he then was, made the following observations:
In the case before us, a reference was made merely to the fact that a certain reason was given by the Finance Minister, who proposed an amendment, for making the amendment. What we can take judicial notice of is the fact that such a statement of the reason was given in the course of such a speech. The question whether the object stated was properly expressed by the language of Section 2(15) of the Act is a matter which we have to decide for ourselves as a question of law. Interpretation of a statutory provision is always a question of law on which the reasons stated by the mover of the amendment can only be used as an aid in interpretation if we think, as I do in the instant case, that it helps us considerably in understanding the meaning of the amended law. We find no bar against such a use of the speech.
13. Hence, while interpreting the statutory provisions the speech of the Hon'ble Finance Minister while moving the Bill in the House can be used as external aid. As far as CBDT circulars are concerned, the Hon'ble Supreme Court in the case of K.P. Varghese v. ITO has held that "CBDT circulars are clearly in the nature of contemporanea expositio furnishing legitimate aid in constructing the statutory provisions. The rule of construction by reference to contemporanea expositio is well established rule for interpreting a statute by reference to the exposition it has received from the contemporary authorities, though it may not give weight where the language of the statute is plain and unambiguous. This rule has been succinctly and felicitously expressed in Grover on Statutory Construction, 1940 Edition where it is stated on p. 219 that "administrative construction (i.e. contemporaneous construction placed by administrative or executive officers charged with executing a statute) should generally be clearly wrong before it is over-turned and such construction, commonly referred to as practical construction, although non-controlling, is nevertheless entitled to considerable weight, it is highly persuasive."
14. In Section 2(ea), the assets like motor car, jewellery, bullion or furniture which are held by the assessees either for the use of the business or running them on hire or as stock-in-trade are excluded from the ambit of "asset". Even in the case of yachts, boats and aircrafts which are used for commercial purposes are also excluded from the definition of "asset". We will have to take into consideration while interpreting Clause (vi) which specifically deals with the treatment to be given in respect of cash in hand, the entire definition of "asset" as it was brought on the statute book. There is force in the argument of the learned Authorised Representative that no discrimination can be made in respect of the productive and non-productive assets as per the category of the assessees and hence, the proper construction of Clause (vi) in case of an individual and HUF should be if the cash in hand is not recorded in the books of account in excess of Rs. 50,000 then it will be non-productive asset. But, if the cash in hand is recorded in the books of account whether the assessee is individual, HUF or company, then it is not an asset for the purpose of charging section of WT Act. In this case, it is not disputed that cash in hand which is treated as an asset for the purpose of WT Act is duly recorded in the books of account of both the assessees. Moreover, as per the provisions of Section 3 which is a charging section of the WT Act, three categories of assessees are liable for the wealth-tax i.e. (i) individual, (ii) HUF and (iii) company, and hence, it was not difficult for the legislature to make a specific reference of "the company" as such instead of using the word "persons". We further find that both the assessees are engaged in the cashew business which they are exporting and they have also availed of the credit facilities from the bank. The learned Authorised Representative has filed the details of the withdrawals from the credit facilities and we find that this cash has not come from outside sources, but it is a part and parcel of the commercial transactions of the assessees. Now, a question may be raised as to why only for individual and HUF the basic exemption of Rs. 50,000 is given if it is not the cash in hand recorded in the books of account and why it is not so in case of company, the answer is very simple. As far as the companies are concerned, there is statutory check under the company law and as per the provisions of the Companies Act and Rules made thereunder, a company cannot keep the cash without recording the same in the books of account, but there is no statute controlling the individuals and HUFs like Companies Act specifying that every individual and HUF must record the cash in hand in the books of account. Moreover, every individual and HUF is not expected to engage in the commercial activity like business or trade. Moreover, if two interpretations are possible then the interpretation in favour of the assessee should be preferred as held by the Hon'ble Supreme Court in the case of CIT v. Vegetable Products Ltd. .
15. We are, therefore, of the opinion that the cash in hand which is reflected in the balance sheet and duly recorded in the books of account is not an asset within the meaning of Section 2(ea) of the Act even in the case of the individual and HUF. In our opinion, the cash in hand duly recorded in the books of account by the assessees who are the individuals and HUFs are the commercial assets and hence productive assets.
16. Another aspect which we can also consider is that wealth-tax is charged on the specific valuation date. Now, bank accounts are not included in the definition of "asset". In case of both these assessees, presuming one day immediately preceding the date of valuation they would have deposited their amounts in their bank accounts and immediately next day after the valuation date, they would have withdrawn that amount, then they could not have been otherwise also liable for the wealth-tax and it is much more easier for the individuals and HUFs. Though as per the general principles of interpretation where the wordings of a statute are plain, precise and unambiguous, the intention of the legislature is to be gatherer1 from the language of the statute itself and no help of external aid should be taken, but when the statute is not exhaustive or where its language is ambiguous, uncertain, clouded or susceptible of more than one meaning, then certainly the external aid can be taken for finding out the legislative intent. As we have already observed, in both these cases, for the reasons given above, the cash in hand brought to tax for the purpose of WT Act by including the same for the purpose of computing the net wealth is not correct. We, therefore, direct the AO to delete the cash in hand which is reflected in the balance sheets of both the assessees for the purpose of working out the net wealth. At the same time, we set aside the order of the CWT(A) on this issue.
The assessees have taken an alternative contention that the cash in hand which is treated as an asset is having direct nexus with the withdrawals from bank loan account and to that extent while computing the net wealth same should be reduced as debt owed by the assessees. As we have held that, on the facts of these cases, cash in hand is not an asset within the meaning of Section 2(ea), this alternative contention does not survive.
17. The next issue is inclusion of the value of motor cars in computing the net wealth. While completing the wealth-tax assessments, the AO included the value of the three cars while computing the net wealth. The assessees challenged the same before the CWT(A) but they did not find favour. Now, the assessees are in appeal before us.
18. We have heard the learned Authorised Representative for the assessees and learned Departmental Representative for the Revenue. The learned Authorised Representative submitted that these cars are used by the assessees in their business and are not an "asset" in terms of Rule 14 of Sch. III to the WT Act. It was further argued that these cars are productive assets as the same are the commercial assets of the assessees and hence the same are not included in computing the net wealth. On the other hand, the learned Departmental Representative supported the orders of the AO as well as CWT(A).
19. We have heard the rival submissions of the parties. We have also carefully considered the facts as per material placed before us. As per Clause (ii) to Section 2(ea), the motor cars other than those used by the assessee in the business of running them on hire or stock-in-trade are included in the definition of "asset". It is not the case of the assessees that the assessees are engaged in the business of running the cars on hire or they are held as a stock-in-trade. We do not agree with the argument of the learned Authorised Representative because the legislature has in clear terms excluded motor car considering its holding as a stock-in-trade or nature of business of the assessee. As far as the treatment to be given to motor cars is concerned, there is no ambiguity in the language used by the legislature and the legislature has already considered the nature of motor car as a productive and non-productive asset. This issue is, therefore, decided against the assessees and in favour of the Revenue.
20. Now, we are taking up the Revenue's appeals. The first issue in the Revenue's appeals is regarding directions of the CWT(A) to value cash in hand under Rule 14 of Sch. III to the WT Act. As we have already held that cash in hand recorded in the books of account of the assessee is not an asset, hence this issue does not survive and the relevant grounds taken by the Revenue stand rejected.
21. The next issue which arises in the Revenue's appeals, more particularly in WTA Nos. 62, 63 and 64/Coch/2002, is in respect of the directions of the CWT(A) to grant exemption to the assessee under Section 5(vi) of the Act in respect of the land and building at Thevally. In respect of the asst. yr. 1996-97, while computing the net wealth the AO included the market value of 58.75 cents of land at Thevally, Kollam, purchased by the assessee vide document No. 1607, dt. 20th April, 1995, for Rs. 31,33,150. As far as asst. yrs. 1996-97, 1997-98 and 1998-99 are concerned, the AO made two additions, (i) in respect of residential building at Thevally at Rs. 39,81,668 and (ii) in respect of 58.75 cents of land purchased vide document No. 1607, dt. 20th April, 1995, for Rs. 31,33,150. The assessee challenged the said addition while computing the net wealth before the CWT(A). The CWT(A) was of the opinion that the assessee is entitled for exemption under Section 5(vi) of the WT Act in respect of one building and part of the building. The CWT(A) noted that the AO has not given any reason as to why the exemption has not been granted to the assessee. It is further noted by the CWT(A) that from Section 230A certificates filed by the assessee, it is seen that the building a large one occupying the substantial part of the land area and the AO has not made out a case for assessing any part of the land as a vacant land under Section 2(ea) of the Act. The CWT(A), therefore, directed to give exemption under Section 5(vi) of the Act. Now, the Revenue has challenged the finding of the CWT(A).
22. We have heard the rival submissions of the parties. We have also carefully considered the facts as per material placed before us. We find that as far as asst. yrs. 1996-97 and 1998-99 are concerned, the AO has taken the value of the property at Thevally at Rs. 31,33,150 but as far as asst. yr. 1997-98 is concerned, the AO has mentioned two immovable properties at Thevally, one residential building and another value of 58.75 cents of land. We further find that as per Section 5(vi), one house or part of the house belonging to the assessee is exempt. We further find that the CWT(A) has already considered the fact that it is not a vacant plot of land but it consists of building as such and it is an indivisible property. In our opinion, no interference is called for in the order of the CWT(A). We, therefore, confirm the order of the CWT(A) on this issue. We would like to clarify here that in asst. yr. 1997-98, the AO has included the value of two immovable properties and both as per address is situated at Thevally. It is contended by the learned Authorised Representative before us that it is one and the same property purchased by the assessee vide document No. 1607, dt. 20th April, 1995, and there is no separate property. We find that in the asst. yrs. 1996-97 and 1998-99, the value of alleged residential building at Thevally is not at all considered by the AO for computing the gross value of the immovable properties. On perusal of the reasons given by the CWT(A), we find that the CWT(A) has already considered this particular aspect in the appeal relating to the asst. yr. 1997-98. It is clarified by the CWT(A) that after verification of the income-tax record, the assessee has spent Rs. 13,850 before the acquisition of the property in May, 1995, on the renovation of the building and after that he has further spent Rs. 8,64,892 on the said property. The Revenue has not filed any evidence or even not taken pain to produce the concerned assessment record to prove that, in fact, there are two properties of the assessee at the same location. We do not find any reason to interfere with the findings of the CWT(A). We, therefore, confirm the finding of the CWT(A) on this issue.
23. In the result, the assessee's appeals, WTA Nos. 35, 36, 37, 38 and 39/Coch/2002 are allowed and WTA Nos. 110, 134 and 135/Coch/2005 are partly allowed. All the Revenue's appeals are dismissed.