Kerala High Court
Commissioner Of Wealth Tax vs Cosmopolitan Hospitals (P) Ltd. on 4 March, 2003
Equivalent citations: (2003)185CTR(KER)111, [2004]265ITR312(KER)
Author: G. Sivarajan
Bench: G. Sivarajan, C.N. Ramachandran Nair
JUDGMENT G. Sivarajan, J.
1. The matter arises under the WT Act, 1957 (for short 'the Act').
2. The scope and ambit of Section 40(3)(vi) of the Finance Act, 1983, regarding the computation of net wealth of a closely-held company which was made liable to wealth-tax assessment as per the said Act arises for consideration in these appeals. The CWT, Trivandrum is the appellant in all these appeals.
3. The respondent-assessee is a company in which the public are not substantially interested. It carries on the business of running a hospital at Thiruvananthapuram. The assessment years concerned are 1987-88, 1988-89, 1989-90 and 1990-91. For the aforesaid 4 assessment years the assessee did not file any return under the Act. The AO, therefore, issued a notice under Section 17 of the Act asking the assessee to file its wealth-tax return for the aforesaid 4 years. Pursuant to the said notice, the assessee filed nil returns. It was claimed before the AO that the assessee is conducting the business of running the hospital and that the building and land used by the assessee for running the hospital are entitled to exemption under the provisions of Section 40(3)(vi) of Finance Act, 1983. It was contended before the AO that the company is not liable to wealth-tax as it is running a hospital in the building owned by it. The assessing authority took the view that the exemption under Clause (vi) is available only in respect of hospitals which are mainly used by a company for the welfare of its employees and since the hospital is not intended nor used for the welfare of its employees, the building and the appurtenant land belonging to the company are liable to be included in the net wealth under the provisions of Section 40(2) r/w 40(3) of the said Act. The assessee took up the matter in appeals before the CIT(A), Thiruvananthapuram, who by a common order dt. 18th Sept., 1995 (Annexure B) dismissed the said appeals holding that exemption was not available to the hospital building even though it was used for the purpose of the assessee's business. The Tribunal, on further appeals by the assessee, by a common order dt. 21st Sept., 1999 (Annexure C) for all the 4 years allowed the appeals holding that the hospital building used by the assessee will fall under the expressions "office for the purpose of business" as appearing in Clause (vi) for the purpose of exclusion.
4. While, admitting these appeals notice was issued on the following two questions :
"1. Whether, on the facts and in the circumstances of the case the building used by the assessee-company for running the hospital (and the land appurtenant thereto) qualifies as a building used as "office for the purpose of the business" envisaged under Section 40(3)(vi) of the Finance Act, 1983, read with the WT Act, 1957 ?
2. Whether, on the facts and in the circumstances of the case, will the building used by the assessee-company for running the hospital and the land appurtenant thereto will come within the exclusion of Section 40(3)(vi) of the Finance Act, 1983 r/w the WT Act, 1957?"
5. Sri P.K.R. Menon, learned senior Central Government standing counsel appearing for the appellant submitted that Section 40(1) of the Finance Act, 1983 clearly provided for assessment of closely-held companies to wealth-tax and that the exemption provided under Clause (vi) of Sub-section (3) of Section 40 of the said Act did not provide for exclusion of a building used for housing a hospital other than a hospital run mainly for the welfare of its employees and, therefore, notwithstanding the fact that the hospital buildings and the land appurtenant thereto are used for the business of the assessee they are not entitled to the exclusion provided under Clause (vi) of Sub-section (3) of Section 40. The senior counsel also submitted that by no stretch of imagination the hospital run by the company and its entire buildings can be treated as its "office for the purpose of the business". The senior counsel further submitted that when the statute is clear and unambiguous there is no question of resorting to interpretative process and that the question of interpretation arises" only when the provision is ambiguous. The senior counsel also relied on the decisions of the Supreme Court on this point; The senior counsel further submitted that the Tribunal has committed a serious error in surmising that the hospital building has to be treated as an office for the purpose of running the business.
6. Sri. P. Balachandran, learned counsel for the respondent-assessee submits that 'companies' as an entity were exempted from assessment under the Act from the 1st day of April, 1960, by the Finance Act, 1960, and that it is only by the Finance Act, 1983, closely-held companies are brought within the purview of the Act. He also relied on the speech made by the Finance Minister on the floor of the Parliament which would show that the intention in enacting Section 40 of the Finance Act, 1983, was only to prevent tax avoidance by some persons by transferring many of the items of personal wealth in favour of a company. The counsel also took us to the statement of objects and reasons for the introduction of the said section. The counsel further relied on a decision of the Tribunal, Madras Bench in the case of Varadaiaja Theatres (P) Ltd. v. WTO (1989) 33 TTJ (Mad) 146. The counsel submitted that the hospital building and the land appurtenant thereto are liable to be excluded in the computation of its net wealth under Section 40(3)(vi) of the Finance Act, 1983.
7. In order to appreciate the correctness of the rival contentions it is necessary to refer to the provisions of Section 40(1) to (3) of the Finance Act, 1983 (relevant portions only) which read as follows :
"40. Revival of levy of wealth-tax in the case of closely-held companies : (1) Notwithstanding anything contained in Section 13 of the Finance Act, 1960 (13 of 1960), relating to exemption of companies from levy of wealth-tax under the WT Act, 1957 (27 of 1957) (hereinafter referred to as the WT Act), wealth-tax shall be charged under the WT Act for every assessment year commencing on and from the 1st day of April, 1984, in respect of the net wealth on the corresponding valuation date of every company, not being a company in which the public are substantially interested, at the rate of two per cent of such net wealth :
Provided that the amount of wealth-tax computed in accordance with the provisions of this sub-section shall, in relation to the assessment year commencing on the 1st day of April, 1988, be increased by a surcharge calculated at the rate of ten per cent of such wealth-tax.
Explanation : For the purposes of this sub-section, company in which the public are substantially interested shall have the meaning assigned to it in Clause (18) of Section 2 of the IT Act.
(2) For the purposes of Sub-section (1), the net wealth of a company shall be amount by which the aggregate value of all the assets referred to in Sub-section (3), wherever located, belonging to the company on the valuation date is in excess of the aggregate value of all the debts owed by the company on the valuation date which are secured on, or which have been incurred in relation to, the said assets;
Provided that where any debt secured on any asset belonging to the assessee is incurred for, or enures to, the benefit of any other person, or is not represented by any asset belonging to the assessee, the value of such debt shall not be taken into account in computing the net wealth of the assessee;
(3) The assets referred to in Sub-section (2) shall be the following, namely :
XXX XXX
(vi) building or land appurtenant thereto, other than building or part thereof used by the assessee as factory, godown, warehouse, cinema house, hotel or office for the purposes of its business or as a hospital, creche, school, canteen, library, recreational centre, shelter, rest-room or lunch room mainly used for the welfare of its employees or used as residential accommodation, except as provided in Clauses (via) and (vib), and the land appurtenant to such building or part; "
It is also necessary to refer to Clause (vi) of sub Section (3) of Section 40 of the Act as it stood originally which reads as follows :
"Building or land appurtenant thereto, other than building or part thereof used by the assessee as factory, godown, warehouse, hotel or office for the purposes of its business or as residential accommodation for its employees or as a hospital, creche, school, canteen, library, recreational centre, shelter, rest-room or lunch room mainly for the welfare of its employees and the land appurtenant to such building or part :
Provided that each such employee is an employee whose income (exclusive of the value of all benefits or amenities not provided for by way of monetary payment) chargeable under the head "salaries" under the IT Act does not exceed eighteen thousand rupees".
Clause (vi) of Sub-section (3) of Section 40 of the Act, as amended w.e.f. 1st April, 1989, reads as follows :
"Building or land appurtenant thereto, other than building or part thereof used by the assessee as factory, godown, warehouse, cinema house, hotel or office for the purposes of its business or as a hospital, creche, school, canteen, library, recreational centre, shelter, rest-room or lunch room mainly used for the welfare of its employees or used as residential accommodation, except as provided in Clauses (via) and (vib), and the land appurtenant to such building or part."
8. As already noted the Tribunal has taken the view that the hospital building will come under the expressions 'office for the purposes of its business'. The question to be considered is as to whether the buildings used by the assessee company for running the hospital as its business qualifies as a building used as 'office for the purpose of its business' envisaged under Section 40(3)(vi) of the Finance Act, 1983. A general question as to whether the said building will come under the exclusion of Section 40(3)(vi) of the Finance Act, 1983 is also raised. Before proceeding to consider the said questions it will be profitable to note the background of the introduction of Section 40 of the Finance Act, 1983. Company was an assessable entity under Section 3 of the Act. However, by Section 13 of the Finance Act, 1960 company was excluded from the charging Section 3 from the financial year commencing on or after the first day of April, 1960. By Section 40 of the Finance Act, 1983, closely-held companies were brought within the purview of the Act for every assessment year commencing on and from the 1st day of April, 1984. This is a special provision for charge to wealth-tax in respect of closely-held companies. The rate of tax is provided at 2 per cent of the net wealth. By the Finance Act, 1992, Section 13 of the Finance Act, 1960 and Section 40 of the Finance Act, 1983, have been omitted w.e.f. 1st April, 1993.
9. Now, we shall consider the scope of Section 40 of the Finance Act, 1983. The heading of the section reads : "revival of levy of wealth-tax in the case of closely-held companies". As per Sub-section (1) notwithstanding anything contained in Section 13 of the Finance Act, 1960 relating to exemption of companies from levy of wealth-tax under the WT Act, 1957, wealth-tax shall be charged under the WT Act for every assessment year commencing on and from the 1st day of April, 1984, in respect of the net wealth on the corresponding valuation date of every company, not being a company in which the public are substantially interested, at the rate of two per cent of such net wealth. The Explanation also says that for the purposes of this sub-section "company in which the public are substantially interested" shall have the meaning assigned to it in Clause (18) of Section 2 of the IT Act. Sub-section (2) provides for the computation of net wealth and Sub-section (3) specifies the items of properties includible in the computation of net wealth. Sub-section (2) provides that for the purposes of Sub-section (1), the net wealth of a company shall be the amount by which the aggregate value of all the assets referred to in Sub-section (3), wherever located, belonging to the company on the valuation date is in excess of the aggregate value of all the debts owed by the company on the valuation date which are secured on, or which have been incurred in relation to the said assets. It also provides that where any debt secured on any asset belonging to the assessee is incurred for, or enures to, the benefit of any other person, or is not represented by any asset belonging to the assessee, the value of such debts shall not be taken into account in computing the net wealth of the assessee. Sub-section (3) has got 8 clauses. All these assets mentioned in the said clauses are the assets referred to in Sub-section (2).
10. For the purpose of this case we are only concerned with Clause (vi) of Sub-section (3) of Section 40 which we have already extracted. Under the said clause building or land appurtenant thereto, other than building or part thereof used by the assessee as factory, godown, warehouse, cinema house, hotel or office for the purposes of its business or as a hospital, creche, school, canteen, library, recreational centre, shelter, rest-room or lunch room mainly used for the welfare of its employees or used as residential accommodation, except as provided in Clauses (via) and (vib), and the land appurtenant to such building or part are includible in the computation of net wealth under Sub-section (2). Clause (vi) as it stood prior to 1st April, 1989, had a proviso which says that each such employee is an employee whose income (exclusive of the value of all benefits or amenities not provided for by way of monetary payment) chargeable under the head "salaries" under the IT Act does not exceed eighteen thousand rupees. Clause (vi) has undergone a change by the Finance Act, 1988, by which 'cinema house' was included in the main part of Clause (vi) excluding certain buildings and further after the words "welfare of the employees" the following was added or used as 'residential accommodation except as provided in Clauses (via) and (vib). The proviso was also deleted.
[Emphasis, italicised in print, supplied]
11. The provisions of Section 40(1) r/w Sub-sections (2) and (3) relating to the computation of the net wealth make it very clear that closely-held companies are made liable to assessment under the WT Act for and from the asst. yr. 1984-85. Thus, no closely-held company is entitled to contend that they are not liable to be assessed under the WT Act except in respect of the assets specifically excluded from the computation of their 'net wealth' in any of the Clauses (i) to (viii) of Sub-section (3) of Section 40. Here, it must be noted that under Clause (i) gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals not being any such precious metal or alloy held for use as raw material in industrial production is included in the net wealth. Under Clause (ii) precious or semi-precious stones whether or not set in any furniture, utensil or other articles or worked or sewn into any wearing apparel are included. Under Clause (iii) 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 stone, and whether or not worked or sewn into any wearing apparel are included. Under Clause (iv) utensils made of gold, silver, platinum or any other precious metal or and alloy containing one or more of such precious metals are included. Under Clause (v) land other than agricultural land are included. It also provided that nothing in this clause shall apply to any unused land held by the assessee for industrial purposes or for construction of a hotel for a period of two years from the date of its acquisition by him. Clause (vi) has already been extracted. Under Clause (via) any building used as residential accommodation in the nature of a guest-house and land appurtenant thereto are included. Under Clause (vib) any building and the land appurtenant to such building used as residential accommodation by any director, manager, secretary or any other employee of the assessee, such employee holding not less than one per cent of the equity share of the assessee or by any relative of any person who holds not less than one per cent of the equity share of the assessee are included. Under Clause (vii) motor-cars and under Clause (viii) any other asset which is required or represented by a debt secured on any one or more of the assets referred to in Clauses (i) to (vii) are included. The proviso further states that this section shall not apply to any asset referred to in Clauses (i) to (vi) which is held by the assessee as stock-in-trade in a business carried on by it or, in the case of motor-cars referred to in Clause (vii), they are held as stock-in-trade in such business or registered as taxes and used as such in a business of running motor-cars on hire carried on by the assessee. Sub-section (5) provides that for the purposes of the levy of wealth-tax under the WT Act in pursuance of the provisions of this section. Section 5 and Clause (d) of Section 45 of that Act and Part II of Schedule I to that Act shall not apply and shall have no effect. It also provides that the remaining provisions of that Act shall be construed so as to be in conformity with the provisions of this section. Sub-section (6) provides that nothing in this section shall apply to any institution, association or body, whether incorporated or not and whether Indian or non-Indian, which the Central Government may, having regard to the nature and object of such institution, association or body, specify by notification in the Official Gazette and every notification issued under this sub-section shall be laid, as soon as may be, after it is issued, before each House of Parliament. Sub-section (7) further provides that subject to the provisions of Sub-section (5), this section shall be construed as one with the WT Act. Thus, a reading of the entire provisions of Section 40 of the Finance Act, 1983, which came into force w.e.f. 1st April, 1984, as amended by the Finance Act, 1988, it is clear that it is a self-contained provision so far as closely-held companies are concerned and resort to the provisions of the WT Act is required only for the limited purpose specified in Sub-section (5). Thus, all the assets specified in Clauses (i) to (viii) of Sub-section (3) of Section 40 other than those specifically excluded in any of those clauses will have to be included in the computation of net wealth under Sub-section (2) for the purpose of assessment under Sub-section (1).
12. As we have already pointed out, the dispute centres round the provisions of Clause (vi) of Sub-section (3) of Section 40 only. Clause (vi) as we have already noted specifically excludes (1) buildings or part thereof used by the assessee as factory, godown, warehouse, cinema house, hotel or office for the purposes of its business or as residential accommodation for its employees. It also provides for exclusion of (2) buildings or part thereof used as a hospital, creche, school, canteen, library, recreational centre, shelter, rest-roorn or lunch room mainly for the welfare of its employees and the land appurtenant to such building or part. The assessee has no case that the hospital building or any part thereof fall under the latter limb of Clause (vi) mentioned above. The assessee has also no case that the hospital building or any part thereof will fall under factory, godown, warehouse, hotel or cinema house. The only case is that since the business of the company is the running of the hospital, the hospital building will fall under 'office for the purposes of its business'. In fact the Tribunal has taken the view that the hospital building will fall under the said category. Thus, we have only to consider the question as to whether the hospital building can be brought under 'office for the purpose of its business.
13. The word 'office' is defined in the Chambers 20th Century Dictionary as "a place where business is carried on; a body or staff occupying such a place; a building in which it is housed". The word 'office' is generally used in combination with other words as 'municipal office, public office, registered office of company, revenue office, etc. In the Shorter Oxford English Dictionary on Historical Principles Third Edition prepared by William Little and others edited by C.T. Onions the meaning of the word 'office' is given as 'a place for the transaction of business; often including the staff, or denominating their department; applied to the room or department in which the clerical work of an establishment is done; also to that in which the business of any department of a large concern is conducted, as the booking office, enquiry office, etc. at a railway station, sometimes transferred from the place of business to the company, etc. the parts of a house specially devoted to household work or service; the kitchen and its appurtenances; often including outhouses".
14. Here, it must be noted that the Parliament has clearly specified the buildings which are excluded under Clause (vi). A company carrying on business as an industrial unit will have a factory, godown, warehouse and office for the purposes of transacting its business. If all the buildings in which a company is conducting business is intended to be brought under 'office for the purposes of its business' it was not at all necessary for the Parliament to specify the particular user of the building separately. In that case the wordings would have been "all buildings used for the purpose of the business". That apart, hospitals are specifically mentioned in Clause (vi) which shows that the intention of the Parliament was only to exclude buildings used as hospitals mainly for the welfare of its employees. If as a matter of fact the Parliament wanted to exclude the buildings used as hospitals as part of the business of a closely-held company it would have been clearly specified in the main part of the clause such as factory, godown, etc. in which case there was absolutely no need for separately mentioning about the hospitals mainly for the welfare of the employees. Apart from the fact that Clause (vi) is very clear, the legislative intention which is discernible from the fact that only the buildings used as hospitals for the welfare of its employees are sought to be excluded also does not support the case of the assessee. It is by an amendment made by the Finance Act, 1983, w.e.f. 1st April, 1989 'cinema house' is specifically included in the main part of Clause (vi). If the legislature in fact had intended as contended by the appellants to exclude buildings used as hospitals as part of the business activities of the company, certainly the legislature would have included hospitals also in the main part of the exclusionary Clause (vi) by an amendment as done in the case of cinema theatre. If all the buildings used for the business of the company is intended to be excluded there was no need to mention about hotels and cinema house separately. The fact that Section 40 was introduced by the Finance Act, 1983 only with the object of bringing to tax the specified assets of a closely-held company when the section is very clear and unambiguous there is no scope for referring to the statement of objects and reasons or to the speech made by the Minister on the floor of the Parliament for departing from the plain meaning of the section, for that will amount doing violence to the section.
15. We find that the Tribunal has correctly posed the question as to "whether the building used by the assessee-company for running the hospital qualifies as a building used as office for the purpose of the business" ? Tribunal then referred to the object of introducing Section 40 of the Act, 1983, which is. spoken to by the Finance Minister in his speech as one intended to rope in unproductive assets of closely-held companies, the dictionary meaning of the word 'office' as a place where business is carried on', the mischief rule laid down in Heydon's case and held as follows :
"If the mischief intended to be remedied was the avoidance of wealth-tax by keeping unproductive assets in closely-held companies, we do not see how a building used as a hospital by a company would be helping the shareholders to avoid tax more than a building used as a factory, godown, warehouse or a hotel. We do not see any reason why the legislature wanted to deny exemption to a building used by a closely-held company as a hospital while granting exemption to a building used as a factory, godown, warehouse or a hotel. It is our considered view that hospital building is the place where the assessee-company is carrying on its business and so it is entitled to the exclusion in Clause (vi) as a building used as "an office for the purpose of business". Such an interpretation will be in tune with the intention behind the enactment, i.e., to discourage closely-held companies keeping buildings as unproductive assets."
It was further held as follows :
"So we do not see the rationale behind denying exemption on a hospital building used by the assessee for the purpose of its business used by the assessee mainly for the welfare of the low paid employees. As we see it, the intention of the legislature was to grant exemption on a hospital building used by the assessee for the purpose of its business of running the hospital. In the first part of Clause (vi) such a building is excluded. But then, an assessee may be carrying on some other business and then running a hospital for the welfare of its employees. But such an assessee will not get the exemption on the hospital building because the building is not used as an office for the purpose of its business; the running of the hospital being incidental to its other business. It was therefore, necessary to provide separately for the exclusion of a building owned by a closely-held company and used for running a hospital mainly for the welfare of its low paid employees. It is not difficult to see why the exemption is denied if the hospital is used not as the main business activity but only used incidentally but mainly for the welfare of high paid employees. The latter part of Clause (vi) only extends the exemption to a building used by the assessee for the purpose of its own business".
16. Thus, according to the Tribunal the building used as hospital which is the business of the assessee is intended to be included in the expressions "office for the purpose of the business" and, therefore, fall within the assets specifically excluded in Clause (vi) of Sub-section (3) of Section 40. The Tribunal has also explained that the latter part of Clause (vi) which excludes only hospitals run for the welfare of its employees deal with hospitals which are not run as part of the business and in such cases for getting exclusion the conditions specified therein have to be satisfied. In other words, according to the Tribunal, if the business of the assessee is running the hospital it will fall within the expressions 'office for the purpose of the business' and there is no need to go to the latter part of Clause (vi) at all for understanding the scope of the first part.
17. We have already noted Clause (vi) excludes building or part thereof used by the assessee as factory, godown, warehouse, hotel, cinema house or office for the purposes of its business and also buildings which are used for residential accommodation for its employees or as a hospital, creche, school, canteen, library, recreational centre, shelter, rest room or lunch room mainly for the welfare of its employees and the land appurtenant to such building. A company can do a variety of business. It need not have a factory or a godown or a warehouse. It may carry on business of a hotel, business of a cinema theatre, business of a hospital and so on. If the legislative intention was to exclude all the buildings which are used for the purpose of its business as a productive asset certainly the legislature need not have undertaken the exercise of separately specifying the buildings with reference to the nature of its user used by an assessee which is a closely-held company for the purposes of exclusion. It is also relevant to note that Clause (vi) apart from factory, godown, warehouse also refers to hotel and cinema theatre. If all buildings other than factory, godown, warehouse will fall within the expressions "office for the purposes of its business" there was no need at all for the legislature to classify the buildings for the purpose of this exclusion. That apart, the inclusion of hotel and cinema theatre in the excluded category also indicates that the legislative intention was to exclude only the buildings which are specified in Clause (vi) and used for industrial purposes and in that context office for the purpose of its business must be understood in a limited sense as including only the administrative wing of a closely-held company. So far as the cinema theatre is concerned, apart from the building in which the cinema is exhibited, there will only be a small counter in the very same building which is used as its office. In the circumstances if cinema theatre will come within the ambit of the expressions "office for the purposes of its business" there was absolutely no requirement for specifically including a cinema theatre in the exclusion clause. This is so in the case of a hotel also. A hotel is a place where the business of serving food to customers is transacted. Hence, if a closely-held company is engaged in the business of running a hotel if the view taken by the Tribunal is adopted there was not need for specifically including a hotel in the excluded category in Clause (vi).
18. This internal aid in understanding the meaning of the expressions "office for the purpose of its business" indicate that all the buildings which are used as a productive asset for the purpose of the business of a closely-held company are not intended to be excluded under Clause (vi). It is only buildings used for 'industrial purposes' which are excluded from net wealth under Clause (vi). If we understand the main part of Clause (vi) in this fashion the further internal aid available is regarding the specific exclusion of a building used as a hospital mainly for the welfare of its employees. For the exclusion the 'hospital' must be one held by an industrial unit for the welfare of its employees. Thus, the intention of the legislature as can be understood from this internal aids is that the legislature did not intend to exclude all the buildings which are used for the purpose of its business and that it was intended to exclude only such of those buildings which are specifically mentioned as excluded in Clause (vi) which are used for industrial purposes and not for all business purposes.
19. If we consider the matter with reference to the external aid such as speech made by the Finance Minister regarding the scope of Section 40 of the Finance Act, 1983, the amendment to Section 40(3), Clauses (i), (v) and (vi) and the memorandum explaining the amendment, the position will be the same. The purpose of introducing Section 40 of the Finance Act, 1983, was explained by the Finance Minister in his Budget Speech for 1983-84-Part B [(1983) 140 ITR (St) 32) as follows :
"It has come to my notice that some persons have been trying to avoid personal wealth-tax liability by forming closely-held companies to which they transfer many items of their wealth, particularly, jewellery, 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 on the net wealth represented by the value of specified assets, such as jewellery, gold, bullion, buildings and lands owned by such companies. Buildings used by the company as factory, godown, warehouse, hotel or office for the purposes of its business or as a residential accommodation for its low paid employees will be excluded from net wealth".
20. In the year 1988, Clause (vi) of Section 40(3) of the Finance Act, 1983, was substituted by a new clause under Section 87 of the Finance Act, 1988 [(1988) 171 ITR (St) 89]. In Clause (vi) after the words factory, godown, warehouse words 'cinema house' were inserted. Further amendments to Clauses (i) and (v) stress is given to 'industrial production' and 'industrial purposes'.
21. The memorandum explaining the above amendments (1988) 170 ITR (St) 204 reads thus ;
"54. Under the existing provisions of Section 40 of the Finance Act, 1983 wealth-tax is levied in respect of the net wealth of all closely-held companies. For the purposes of determining the net wealth of the company, the value of only specified assets like building, land (other than agricultural land), gold, silver, platinum, ornaments or utensils made of gold, silver, etc. are taken into account.
The rationale underlying to revival of levy of wealth-tax on companies was to curb the tendency of avoidance of personal wealth-tax liability by forming closely-held companies and transferring the unproductive assets like real estate, jewellery, etc. to such companies.
Under the existing provisions, wealth-tax is leviable even in cases, where the assets specified in the section are held as stock-in-trade or are used for industrial purposes.
With a view to remove this unintended hardship and provide incentive for growth and modernisation, it is proposed to amend this section to provide that the following assets shall not form part of the net wealth for the purposes of levy of wealth-tax under the section;
(i) ...........;
(ii) ...........;
(iii) cinema house;"
22. From the aforesaid amendments and the memorandum explaining the amendment it is clear that prior to this amendment wealth-tax was leviable even in cases where the assets specified in the section are held as stock-in-trade or are used for industrial purposes and it was to remove this unintended hardship and provide incentive for growth and modernisation the said amendments were made to provide that the assets mentioned in the amendments shall not form part of the net wealth for the purpose of levy of wealth-tax under the section. 'Cinema house' is accordingly included in the excluded category in Clause (vi). It is clear that the legislative intention is to exclude only buildings used for industrial purposes including running of cinema houses and hotels and not for any other business.
23. Thus, both from the internal aid and from the external aid the conclusion is irresistible that buildings used for running the hospital which is the business of the assessee cannot be brought under the expression "office for the purpose of the business" in Clause (vi) of Section 40(3) of the Act. We answer the questions extracted in para 4 of this judgment against the assessee. For the above reason we are unable to agree with the interpretation placed by the Tribunal on the expressions "office for the purposes of its business". We are of the view that the Tribunal was not justified in allowing the claim made by the assessee. We accordingly set aside the order of the Tribunal impugned in these appeals and restore the order of the AO as affirmed by the first appellate authority.
The above ITAs are disposed of as above.