Income Tax Appellate Tribunal - Cochin
Divine Medical Centre (P.) Ltd. vs Assistant Commissioner Of Wealth Tax on 31 December, 1998
Equivalent citations: [1999]71ITD238(COCH)
ORDER
Per M.M. Cherian, Accountant Member In view of the common grounds, involved in these seven appeals filed by the same assessee, they are consolidated in a common order for the sake of convenience. These appeals have been filed by the assessee, M/s. Divine Medical Centre (P.) Ltd., Vadakkancherry, against the common order passed by the Commissioner (Appeals), Kochi in the wealth-tax assessments for the assessment years 1986-87 to 1992-93.
2. The assessee is a company in which the public are not substantially interested. As per the memorandum of association, the main object of the company is to carry on business in running hospitals for the treatment of patients and to carry on other medical activities. For the assessment years 1986-87 to 1992-93 the assessments were completed originally under section 16(3) of the Wealth Tax Act. The assessing officer later issued notice under section 17 of the Wealth Tax Act to reopen the assessments on the view that there was escapement of wealth in the since that the value of the hospital building and the land appurtenant thereto had not been included in the assessments. The Wealth-tax Officer felt that in view of section 40 introduced in the Finance Act 1983, the value of specified assets held by closely-held companies was includible in the taxable wealth for the assessment years starting from 1-4-1984 and that the hospital building was such an asset to be included. The assessee's claim that the hospital building not being an unproductive asset, but an asset used for the purpose of the business was entitled to the exemption under clause (vi) of section 40(3) was not accepted by the assessing officer. He proceeded to make the reassessments including the value of the hospital building and the land appurtenant thereto in the taxable wealth as on the respective valuation dates. Though the assessee took up the matter in appeal the Commissioner (Appeals) concurred with the assessing officer and held that exemption was not available on the hospital building, even though it was used for the purpose of the assessee's business. The assessee is in further appeal before the Tribunal with the plea that the revenue authorities were not justified in denying the exemption provided in clause (vi) of sub-section (3) of section 40 of the Finance Act, 1983.
3. At the time of hearing, Shri K. Kittu, Advocate appeared before us on behalf of the assessee and Shri C.D. Nair, the departmental representative, on behalf of the Revenue.
4. The assessing officer has included the value of the hospital building in the wealth-tax assessments on the ground that the assessee being a closely held company, the assets specified under various clauses of sub-section (3) of section 40 of the Finance Act 1983, were liable to tax, and that hospital building was not an asset excluded by clause (vi). It is provided in sub-section (3) that for determining the net wealth of the company, the value of the assets mentioned therein is to be taken into account. Clause (vi) of sub-section (3) provides that the value of the following assets in includible:
"(vi) building or land appurtenant thereto, other than building or part thereof used by the assessee as factory, godown, warehouse, hotel or office for the purpose of its business or as residential accommodation for its employees whose income exclusive of the value of all benefits or amenities not provided for by way of monetary payment chargeable under the head "salaries" does not exceed less than Rs. 18,000 or as hospital, creche, school, canteen, library, recreational centre, shelter, rest-room or lunch room mainly for the welfare of such employees and the land appurtenant thereto;"
The assessing officer has taken the view that the value of all buildings and land appurtenant thereto is includible in the taxable wealth, other than the building or part thereof used by the assessee as factory, godown, warehouse, hotel or office for the purpose of its business and that hospital is not an asset excluded by the clause. The assessee's claim, on the other hand, is that it is running the hospital as a business and that hospital building is the place where that business is carried on and in that sense the building would fall within the meaning of the expression "office for the purpose of its business", as appearing in clause (vi) for the purpose of exclusion. The learned counsel submits that the assessee-company was incorporated in 1984 with the main object of carrying on the business of running the hospital and that the entire business was being carried on in that building. It is the submission of Shri Kittu that the intention of the Legislature is to levy tax on unproductive assets held by closely-held companies and that in the case of the assessee-company the hospital building never remained an unproductive asset and that the entire business operations was carried on in that building and so there is, no justification for denying the exemption. The Commissioner (Appeals) has taken the view that clause (vi) of section 40(3) of the Finance Act, 1983 does not exclude building or land appurtenant thereto used by the assessee for the purpose of running the hospital as a business. The question to be considered is 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". The view taken by the revenue authorities is that only the building used as office for the purpose of the business is eligible for the exclusion in clause (vi) and that in running the hospital, the assessee company is not using the building as an office for its business. If the argument raised on behalf of the revenue accepted, it would mean that one or two rooms used as administrative office in the hospital could be excluded, but not the remaining area where the business activity is carried on. We are not inclined to accept such a narrow view for the meaning of' the expression "office for the purpose of business". It is not correct to limit. the meaning of "office" as administrative office. We do not see the reason behind allowing exemption on building used as administrative office while denying exemption on buildings used as working place for the business. As held by the Madhya Pradesh High Court in Chambalal v. Staie of MPAIR 1971 MP 88, the meaning of the word "office" in each case m usi be assigned in a way as to conform with the language used in the enactment and its objects. In this context, we may refer to the object behind the introduction of section 40 in the Finance Act, 1983. It ma v be mentioned that section 40 of the Finance Act revived in a limited way the levy of wealth-tax on companies which had been superseded b ' v the Finance Act, 1960. In the Finance Minister's speech the intention behind the legislation is given as under:
lt 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, billion 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 of 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, 1 propose to revive the levy of wealth-tax in a limited way in the case of closely held companies. Accordingly, 1 am proposing the levy of wealth-tax in the case of closely held companies at the rate of 2 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 purpose of its business or as residential accommodation for its low paid employees will be excluded from net wealth."
Section 40 has been introduced in the Finance Act, 1983 with a view to circumventing the tax avoidance by keeping unproductive assets in closely-held companies. We find force in the contention of the learned counsel for the assessee that in the case of an assessee carrying on the business of running a hospital, the hospital building does not remain as an unproductive asset. Shri Kittu has drawn our attention to the meaning of' the word "office" as appearing in the Chambers Twentieth Century Dictionary, as "a place where business is carried on; a body or staff occupying such a place; the building in which it is housed;". If office means the place where the business is carried on or the building in which the business is housed, there can be no doubt that the hospital building qualifies as an 'office' where a business is carried on by the assessee. As the word 'office' is not defined in section 40, there is nothing wrong in relying on the dictionary meaning. The most firmly established rule of' construction in a situation where the material words lend themselves to more than one construction is the rule in Heydon's case, which, according to the Supreme Court, has now attained the status of a classic. In the case of Dr. Baliram Waman Hiray v. Mr. Justice B. Lentin (1989) 176 ITR 1/44 Taxman 111 the Supreme Court states the principles in Heydon's case as (1) what was the common law before the making of the Act; (2) what was the mischief and defect for which the common law did not provide; (3) what remedy parliament has resolved and appointed to cure the disease, and (4) the true reason of the remedy. The construction to be put on the material provisions and phrases ought to be such as would suppress the mischief and advance the remedy.
5. If the mischief intended to be remedied was the avoidance of wealth-tax by keeping unproductive assets is 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, ~e. to discourage closely held companies keeping buildings as unproductive assets.
6. The Commissioner (Appeals) has referred to the later part of clause (vi) of subsection (3) of section 40 to observe that the Legislature was we) I aware of' the buildings or land appurtenant thereto being used as hospitals for the welfare of the employees and that the intention was to exclude only such buildings which were mainly used for the welfare of the law paid employees, from the levy of wealth-tax. The Commissioner (Appeals) feels that the Legislature did not want all hospital buildings to be excluded from the list of taxable assets, even if they are used by the closely-held companies for the purpose of business. We do not see the rationale behind denying exemption on a hospital building used by the assessee for the purpose of' its business of running the hospital, at the same time allowing exemption on a hospital building used by the assessee mainly for the welfare of the lowly 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 (0) 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 later part of clause (vi) only extends the exemption to a building used by the assessee as a hospital mainly for the welfare of its low paid employees, apart from the exemption available on the building used by the assessee for the purpose of its own business.
7. In the above circumstances, we find that the revenue authorities were not justified in denying the exemption on the value of the hospital building and the land appurtenant thereto in computing the taxable wealth of the assessee. We accordingly directed the assessing officer to exclude the value of the hospital building and the land appurtenant thereto from the taxable wealth in the hands of the assessee.
8. In the result, these appeal filed by the assessee for the assessment years 1986-87 to 1992-93 are allowed.