Income Tax Appellate Tribunal - Madras
Varadaraja Theatres (P.) Ltd. vs Wealth-Tax Officer on 25 August, 1988
Equivalent citations: [1989]29ITD29(MAD)
ORDER
D.S. Meenakshisundaram, Judicial Member
1. These three appeals are against the orders of the Commissioner of Wealth-tax, Tamil Nadu-II, Madras, passed under Section 25(2) of the Wealth-tax Act, 1957, setting aside the assessments made on the assessee for the assessment years 1984-85, 1985-86 and 1986-87 with directions to the Wealth-tax Officer to redo them in accordance with law.
2. The appellant is a private limited company carrying on business in the exhibition of cinematograph films. For this purpose it owns a theatre building, which is used exclusively for the purpose of its film exhibition business. These appeals arise out of its wealth-tax assessments for the three assessment years 1984-85, 1985-86 and 1986-87, for which the valuation dates were 31-3-1984, 31-3-1985 and 31-3-1986, respectively. For these three years the Wealth-tax Officer accepted the returns file d by the assessee and completed the assessments under Section 16(3) of the Wealth-tax Act on 18-3-1987. These orders were considered to be erroneous and prejudicial to the interests of revenue by the Commissioner of Wealth-tax, as he found that the value of the theatre building was omitted to be considered for the purpose of wealth-tax assessments in these three years. He therefore issued show-cause notices calling upon the assessee to state its objections to his proposal to revise these assessments under Section 25(2) of the Wealth-tax Act. In its reply dated 2-11-1987 the appellant relied on the Finance Minister's Budget Speech and submitted that the theatre building, which was used exclusively for business purposes of the company would not attract levy of wealth-tax, as it could not be treated on par with other personal assets on which wealth-tax was leviable in the case of closely-held companies. It was pleaded that the theatre building could not be labelled as an unproductive asset. Therefore, the company requested the Commissioner to drop the proposed action.
3. The Commissioner of Wealth-tax referred to the provisions of Section 40(3) of the Finance Act of 1983, which provides for levy of wealth-tax in the case of closely-held companies. After quoting Clause (vi) of Sub-section (3) of Section 40, the Commissioner held that though the theatre building might not be an unproductive asset, it could not also be categorised in any of the exempted categories mentioned in Section 40 of the Finance Act of 1983. He pointed out that as mentioned in the show-cause notice "factory" in common parlance was a place where things were manufactured or made, but that a cinema theatre where films were only exhibited could not be categorised as a factory. The Commissioner therefore held that the Wealth-tax Officer's non-inclusion of the theatre building as one of the items in the net wealth of the assessee-company was erroneous and prejudicial to the interests of revenue. He therefore set aside the assessments for these three years with directions to the Wealth-tax Officer to redo the same in accordance with law. Aggrieved by these orders of the Commissioner, the appellant has come up on appeal to the Tribunal.
4. Shri S.A. Bhatt, the learned Chartered Accountant for the appellant submitted that one of the main objects for which the appellant-company was formed was to run a cinema theatre and that the theatre building in question was used by the appellant-company exclusively for the purpose of that business and hence the said theatre building could not be regarded as any other personal assets on which wealth-tax was leviable in the case of closely-held companies. He relied on the appellant's reply to the Commissioner of Wealth-tax dated 2-11-1987, wherein the relevant portion from the Budget Speech of the Finance Minister was quoted and pointed out that it clearly established the intention of the Government and the Parliament was to levy wealth-tax on unproductive assets in closely-held companies by means of which persons holding shares in such closely-held companies were able to significantly reduce their wealth-tax liabilities to a substantial extent. He argued that the theatre building in question which was a business asset would fall within the exempted category of building such as factory, godown, warehouse, hotel or office, which were considered as business assets. Shri Bhatt submitted that the type of business assets enumerated therein by the Finance Minister were not exhaustive, but should be taken as illustrative examples of the types of business assets sought to be exempted by the Parliament. He next argued that if once the theatre building is accepted as not an unproductive asset, then it would fall within the category of the exempted assets specified in Section 40(3)(w) of the Finance Act of 1983. He submitted that for this purpose we should construe the provisions of Section 40 in a liberal manner so as to bring out the real intention of the Parliament and not in the literal, narrow and restrictive sense in which the Commissioner of Wealth-tax had interpreted the said provision of law.
5. Shri Bhatt further relied on the latest amendment brought about in Section 40 of the Finance Act of 1983 by the provisions of Section 87 of the Finance Act of 1988, whereby a cinema house is expressly excluded from the category of assets includible in the net wealth of the company. The learned Chartered Accountant submitted that this amendment, which is brought into force with effect from 1-4-1989 is indicative of the true intention of the Parliament while enacting the original provisions contained in Section 40 of the Finance Act of 1983. He particularly relied on paragraph 54 of the Memorandum explaining provisions in Finance Bill of 1988 which clearly states that the said amendment was proposed to remove unintended hardships and provide incentive for growth and modernisation. Shri Bhatt submitted that even though this amendment was prospective in its operation, this amendment may be looked into for the purpose of ascertaining the true intention of the Parliament while enacting the provisions of Section 40 of the Finance Act of 1983. In support of these submissions, Shri Bhatt relied on the decisions of the Supreme Court in ITO v. Manx Ram [1969] 72 ITR 203 at 211, Anandji Haridas & Co. (P.) Ltd. v. Engg. Mazdoor Sangh [1975] 99 ITR 592 at 595 and K.P. Varghese v. ITO [1981] 131 ITR 597 at 605 and 606. Shri Bhatt argued that the Wealth-tax Officer had rightly excluded the value of the theatre building which was a business asset in the computation of the net wealth of the appellant-company for the purpose of levy of wealth-tax under Section 40 of the Finance Act, 1983 for these three years, that there was nothing erroneous or prejudicial to the interests of revenue which called for interference under Section 25(2) of the Wealth-tax Act by the Commissioner and that therefore the orders of the Commissioner should be cancelled and the assessments made by the WTO should be restored.
6. Shri K.V. Ananthachari, the learned departmental representative opposed these contentions urged on behalf of the appellant and argued that the provisions contained in Section 40 of the Finance Act of 1983 as quoted by the Commissioner were clear and unambiguous and therefore there was no need for us to look into either the Budget Speech of the Finance Minister while introducing the Finance Bill for 1983 or into the memorandum explaining the provisions of the Finance Bill of 1988 proposing the amendment to Section 40 of the Finance Act of 1983. The learned departmental representative submitted that the very fact that the Parliament thought fit to make the proposed amendment prospective in its operation with effect from 1-4-1989 only established the intention of the Parliament to grant such exemption to cinema house buildings from the assessment year 1989-90 onwards only and not for the earlier assessment years. He argued that if it was the intention of the Parliament to grant such exemption for the assessment years presently under appeal, the Parliament would have expressly stated so while proposing the amendment in 1988. Shri Ananthachari,, therefore, argued that even though the cinema theatre building was a business asset, since it had not been specifically mentioned in the exempted category of assets in Section 40(3)(vi) of the Finance Act of 1983, the appellant would not be entitled to exemption in respect of such asset and to this extent the assessments made by the WTO for these three years were erroneous and prejudicial to the interests of revenue and that the Commissioner rightly acted in setting aside these assessments by exercising his revisional jurisdiction under Section 25(2) of the Act. The learned departmental representative further submitted that the decisions relied on by the learned counsel for the assessee would rather support the contentions of the revenue and not the case of the appellant. He therefore submitted that the orders of the Commissioner of Wealth-tax were right and should therefore be upheld.
7. We have carefully considered the contentions urged on both sides in the light of the materials placed before us and the authorities relied on by them.
8. It is an undisputed fact that the theatre building owned by the assessee-company is used exclusively for the purpose of carrying on its film exhibition business and that therefore it constitutes a capital asset or a business asset of the appellant-company and that it is not a personal asset of either the shareholders or the directors of the appellant-company. There was also no dispute that in respect of this business asset, the assessee-company is allowed depreciation and other allowances which it is entitled to in law. It is also accepted by the Commissioner in his order that the theatre building in question may not be regarded as an unproductive asset referred to in the Budget Speech by the Finance Minister while introducing Section 40 of the Finance Act, 1983. Yet, the Commissioner holds that because it does not fall within any one of the items specified in Section 40(3)(ii) as an exempted asset, it would not qualify for such exemption claimed by the assessee. On the contrary, it is the contention of the appellant that it would be entitled to such exemption from wealth-tax as it is a productive capital or business asset and not a personal asset which is used in carrying on the business of the appellant-company. The question to be decided is whether the theatre building of the appellant-company would fall within the exempted or excluded category of assets specified in Section 40(3)(vi) of the Finance Act of 1983.
9. For a proper and correct understanding and appreciation of the contentions of parties, it is necessary to quote Section 40 of the Finance Act of 1983 :
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 Wealth-tax Act, 1957 (27 of 1957) (hereinafter referred to as the Wealth-tax Act), wealth-tax shall be charged under the Wealth-tax 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.
Explanation: For the purpose 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 Income-tax Act.
(2) 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 one 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: --
(i) gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals ;
(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;
(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 semiprecious stone, and whether or not worked or sewn into any wearing apparel;
(iv) utensils made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals ;
(v) land other than agricultural land ;
(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 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 Income-tax Act, does not exceed eighteen thousand rupees ;
(vii) motor cars ; and
(viii) any other asset which is acquired or represented by a debt secured on any one or more of the assets referred to in Clause (i) to Clause (vii).
(4) The value of any asset specified in Sub-section (3) shall, subject to the provisions of Sub-section (3) of Section 7 of the Wealth-tax Act, be estimated to be the price which, in the opinion of the Wealth-tax Officer, it would fetch if sold in the open market on the valuation date.
We have not quoted the other three Sub-sections (5), (6) and (7) of Section 40, as they are, not relevant for the purpose of these appeals.
10. From a perusal of the aforesaid provision of law, it would be noticed that levy of wealth-tax on companies which were originally exempted by Section 13 of the Finance Act, 1960 is re-introduced into the statute book to a limited extent in respect of the net wealth of certain category of companies known as closely-held companies and in which the public are not substantially interested. Section 40(1) imposes a charge on the net wealth of a closely-held company from the assessment year 1984-85 in respect of its net wealth as on the corresponding valuation date. Section 40(2) indicates the method of computation of the net wealth of the company as on the valuation date. Section 40(3) enumerates the assets which are to be included in the net wealth of the company. Section 40(4) requires the WTO to estimate the fair market value of the assets specified in Section 40(3) as on the valuation date for the purposes of the assessment under this section.
11. For our purpose, Section 40(3)(vi) is the relevant provision. This provision seeks to include buildings or land appurtenant to such building in the net wealth of the closely-held company. At the same time it excludes building or part of a building used by the assessee as factory, godown, warehouse, hotel or office for the purposes of its business or a 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 the employees of the company and the land appurtenant to such building or part thereof. A careful study of this provision would show that all buildings or part of buildings and the land appurtenant to such buildings which are used for the purposes of the business of a closely-held company are excluded from the assets enumerated in Section 40(3)(ii) of the Act. The argument on behalf of the revenue is that the theatre building owned and used by the appellant-company does not fall under the description of any of the buildings specified in Section 40(3)(vi) of the Act. This argument is based on a literal construction of the provisions of Section 40(3)(vi) of the Act. On the other hand, the appellant contends that the various types of buildings listed in this provision are only descriptive of the types of buildings utilised by a company for the purpose of its business and are not exhaustive and should not be construed in a literal manner so as to restrict the scope and ambit of the exemption granted by the exclusion clause contained in Section 40(3)(vi) of the Act.
12. In CGT v. N. S. Getti Chettiar [1971] 82 ITR 599, the Supreme Court held as follows at pages 605 and 606 of the reports :
The dictionary gives various meanings for those words but those meanings do not help us. We have to understand the meaning of those words in the context in which they are used. Words in the section of a statute are not to be interpreted by having those words in one hand and the dictionary in the other. In spelling out the meaning of the words in a section, one must take into consideration the setting in which those terms are used and the purpose that they are intended to serve.
When we look at the meaning of the words used in the section in Section 40(3)(«0 in the light of the above principle laid down by the Supreme Court, it would be clear that this provision of law excludes from the category of buildings or lands sought to be included in the assets of a closely-held company, all business assets which are used for the purpose of business of the company. In other words, what is sought to be included by this provision are buildings or lands appurtenant to such buildings owned by a company, but which are used personally as personal assets by the directors or shareholders for their own personal use even though such buildings or lands may be owned by the company. The emphasis in the exclusion clause is on the user of these capital assets, i.e., buildings or lands appurtenant to such buildings, for the purposes of the business of even a closely-held company. Such business assets are to be excluded while computing the net wealth of a closely-held company. This meaning is clear from the context and the setting in which the words are used in Section 40(3)(ii) of the Act. Any other interpretation would lead to an absurd and unjust or unreasonable result. The enumeration listed of the various categories of buildings in Section 40(3)(vi) has to be taken as only illustrative and not exhaustive of the various types of buildings sought to be excluded from out of the assets included under the said provision of law.
13. We are supported in this conclusion of ours by the following observations of the Supreme Court in the case of K.P. Varghese (supra) at 604:
The task of interpretation of a statutory enactment is not a mechanical task. It is more than a mere reading of mathematical formulae because few words possess the precision of mathematical symbols. It is an attempt to discover the intent of the Legislature from the language used by it and it must always be remembered that language is at best an imperfect instrument for the expression of human thought and, as pointed out by Lord Denning, it would be idle to expect every statutory provision to be 'drafted with divine prescience and perfect clarity'. We can do no better than repeat the famous words of Judge Learned Hand when he said :
...it is true that the words used, even in their literal sense, are the primary and ordinarily the most reliable source of interpreting the meaning of any writing : be it a statute, a contract or anything else. But it is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary ; but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning'.
We must not adopt a strictly literal interpretation of Section 52, Sub-section (2), but we must construe its language having regard to the object and purpose which the Legislature had in view in enacting that provision and in the context of the setting in which it occurs. We cannot ignore the context and the collocation of the provisions in which Section 52, Sub-section (2) appears, because, as pointed out by Judge Learned Hand in the most felicitous language :
...the meaning of a sentence may be more than that of the separate words, as a melody is more than the notes, and no degree of particularity can ever obviate recourse to the setting in which all appear, and which all collectively create.
Again at pages 605 and 606 the Supreme Court held as follows while construing the provisions of Section 52(2) of the Income-tax Act, 1961 :
We must, therefore, eschew literalness in the interpretation of Section 52, Sub-section (2), and try to arrive at an interpretation which avoids this absurdity and mischief and makes the provision rational and sensible, unless of course, our hands are tied and we cannot find any escape from the tyranny of the literal interpretation. It is now a, well settled rule of construction that where the plain literal interpretation of a statutory provision produces a manifestly absurd and unjust result which could never have been intended by the Legislature, the court may modify the language used by the Legislature or even 'do some violence' to it, so as to achieve the obvious intention of the Legislature and produce a rational construction : Vide Luke v. IRC [1963] AC 557 ; [1964] 54 ITR 692. The court may also in such a case read into the statutory provision a condition, which, though not expressed, is implicit as constituting the basic assumption underlying the statutory provision. We think that, having regard to this well-recognised rule of interpretation, a fair and reasonable construction of Section 52, Sub-section (2) would be to read into it a condition that it would apply only where the consideration for the transfer is understated or, in other words, the assessee has actually received a large consideration for the transfer than what is declared in the instrument of transfer and it would have no application in the case of a bona fide transaction where the full value of the consideration for the transfer is correctly declared by the assessee. There are several important considerations which incline us to accept this construction of Section 52, Sub-section (2).
Adverting to the rule of construction of a statute firmly established in England by Heydon's case [1584] 3 Co. Rep. 7a the Supreme Court held as follows at pages 607 and 608 of the reports :--
This becomes clear if we have regard to the object and purpose of the introduction of Sub-section (2) as appearing from travaux pre-paratoire relating to the enactment of that provision. It is a sound rule of construction of a statute firmly established in England as far back as 1584 when Heydon's case [1584] 3 Co. Rep. 7a was decided that :
...for the sure and true interpretation of all statutes in general . . . four things are to be discerned and considered : (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 the Parliament hath resolved and appointed to cure the disease of the Commonwealth, and, (4) the true reason of the remedy ; and then the office of all the judges is always to make such construction as shall suppress the mischief, and advance the remedy....
In In re., May fair property Company [1898] 2 Ch 28 (CA), Lindley M.R. in 1898 found the rule "as necessary now as it was when Lord Coke reported Heydon's case". The rule was reaffirmed by the Earl of Halsbury in Eastman Photographic Materials Company Ltd. v. Comptroller-General of Patents, Designs and Trade-Marks [1898] AC 571, 576 (HL) in the following words :
My Lords, it appears to me that to construe the statute now in question, it is not only legitimate but highly convenient to refer both to the former Act and to the ascertained evils to which the former Act had given rise, and to the latter Act which provided the remedy. These three things being compared, I cannot doubt the conclusion.
This rule being a rule of construction has been repeatedly applied in India in interpreting statutory provisions.
After referring to the three decisions of the Supreme Court in Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234, Indian Chamber of Commerce v. CIT [1975] 101 ITR 796 and AMI. CIT v. Swat Art Silk Cloth Mfrs. Association [1980] 121 ITR 1, the Supreme Court held that the speech made by the Finance Minister while moving the amendment introducing Sub-section (2) in Section 52 of the Income-tax Act was relevant and could be looked into. We quote below the relevant passage from page 609 of the reports :
The speech made by the Finance Minister while moving the amendment introducing Sub-section (2) clearly states what were the circumstances in which Sub-section (2) came to be passed, what was the mischief for which Section 52 as it then stood did not provide and which was sought to be remedied by the enactment of Sub-section (2) and why the enactment of Sub-section (2) was found necessary. It is apparent from the speech of the Finance Minister that Sub-section (2) was enacted for the purpose of reaching those cases where there was understatement of consideration in respect of the transfer or to put it differently the actual consideration received for the transfer was 'considerably more' than that declared or shown by the asses-see, but which were not covered by Sub-section (1) because the transferee was not directly or indirectly connected with the assessee. The object and purpose of Sub-section (2), as explicated from the speech of the Finance Minister, was not to strike at honest and bona fide transactions where the consideration for the transfer was correctly disclosed by the assessee but to bring within the net of taxation those transactions where the consideration in respect of the transfer was shown at a lesser figure than that actually received by the assessee, so that they do not escape the charge of tax on capital gains by understatement of the consideration. This was the real object and purpose of the enactment of Sub-section (2) and the interpretation of this sub-section must fall in line with the advancement of that object and purpose. We must, therefore, accept as the underlying assumption of Sub-section (2) that there is an understatement of consideration in respect of the transfer and Sub-section (2) applies only where the actual consideration received by the assessee is not disclosed and the consideration declared in respect of the transfer is shown at a lesser figure than that actually received.
14. In his Budget Speech for the year 1983-84, the Hon'ble Finance Minister stated as follows, as reported at page 620 of A.N. Aiyar's Indian Tax Laws (1983), for introducing Section 40 of the Finance Act, 1983 in the statute book reviving levy of wealth-tax in the case of closely-held companies :--
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....
It is thus clear from the speech of the Hon'ble Finance Minister that the purpose of the levy of wealth-tax in the case of closely-held companies was to tax such of those items of personal wealth which have been transferred by certain persons by forming closely-held companies and trying to avoid personal wealth-tax liability on their own part. No doubt, the words "real estate" occur in the speech of the Finance Minister. Can it be stated that in the context in which those words have been used by the Hon'ble Finance Minister would refer to capital assets which are used for the purpose of business by a closely-held company and which are not the personal assets of either the shareholders or the directors of the company ? To our mind, the answer must be a categorical "No", because what is sought to be included for purposes of levy of wealth-tax are only the personal assets, both movable and immovable, and not business assets of a closely-held company.
15. This becomes clearer when we look into the subsequent amendment brought about by the Finance Act of 1988 in Section 40(3)(fn) of the Finance Act of 1983. Section 87 of the Finance Act of 1988 has introduced several amendments in Section 40 of the Finance Act of 1983. Sub-section (ii)(c) of Section 87 of the Finance Act of 1988 has substituted the following three clauses for the existing Clause (vi) with effect from. 1-4-1989 :--
(c) for Clause (vi), the following clauses shall be substituted, namely :--
(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;
(via) any building used as residential accommodation in the nature of a guest house and land appurtenant thereto ;
(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.
Explanation : For the purposes of this clause, 'relative' shall have the meaning assigned to it in Clause (b) of Explanation 1 to Section 80P of the Income-tax Act.
16. In the memorandum explaining the provisions in Finance Bill, 1988, it is stated as follows in para 54 while explaining Clause 87 of the Finance Bill :--
54. Exclusion of certain assets from the net wealth in the case of closely-held companies.--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 the 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) Precious metals used as raw material in industrial production ;
(ii) Land other than agricultural land proposed to be utilised for industrial purposes, for a period of two years from the date of its acquisition ;
(in) Cinema house ;
(iv) Gold, silver, platinum or other precious metals, precious and semi-precious stones and utensils made of gold, silver, platinum, buildings and motor-cars, if held as stock-in-trade. In the case of gold, silver, platinum or other metals, precious or semi-precious stones and buildings and land appurtenant thereto, on the question as to whether these items are held as investment or stock-in-trade, guidelines by way of general or specific order will be issued by the Board. In issuing such guidelines, the Board will, inter alia, take into account the ratio of the yearly turnover to the average value of stock of such assets held from time to time during the year and other relevant factors.
(v) Motor-cars registered as taxis and used for the business of running of motor-cars on hire.
The amendment also seeks to provide that in respect of a residential accommodation it will form part of the net wealth, only if it is used (i) as residential accommodation in the nature of guest house, or (ii) as residential accommodation of any Director, Manager, Secretary or any employee of the company holding1 not less than one per cent of the equity shares of the assessee-company. or (iii) as residential accommodation of any relative of a person holding not less than one per cent of the equity shares of the company. For this purpose, relative shall have the same meaning as assigned to it in Clause (b) of Explanation (1) to Section 80F of the Income-tax Act.
This amendment will take effect from 1st April, 1989, and will, accordingly, apply in relation to the assessment year 1989-90 and subsequent years. (Cluse 87).
The above passage is taken from 170 ITR Part I, dated 7th March, 1988 (statutes portion) pages 204 and 205.
17. It is argued on behalf of the revenue that these amendments brought about by the Finance Act of 1988 are not retrospective in their operation, but are only prospective, as expressly stated in the provision of law itself, and therefore, these subsequent amendments would be of no assistance to the appellant. While we partly agree with these submissions of the revenue regarding the prospective operation of these provisions, we are unable to agree with the other part, that these amendments would be of no assistance to the assessee in construing the provisions of Section 40(3)00 as they stood in the relevant years and were applicable for these three years under appeal. In Manx Ram's case (supra) the Supreme Court while construing the provisions of Section 18A(3) and Section 23B of the Indian Income-tax Act, 1922 held as follows with reference to the argument sought to be advanced on behalf of the revenue with reference to the subsequent enactment in Sections 210 and 213 of the Income-tax Act, 1961, at pages 210 and 211 of the reports :--
The argument was that these Sections apply to a case of a regular assessment and that the enactment of these Sections should be treated as a Parliamentary exposition of Section 18A(3) of the earlier Act as referring only to a case of regular assessment. We are unable to accept this argument as correct. There is nothing in the 1961 Act to suggest that Parliament intended to explain the meaning or clear up doubts about the meaning of the word 'assessed' in Section 18A(3) of the earlier Act. Generally speaking, a subsequent Act of Parliament affords no useful guide to the meaning of another Act which came into existence before the later one was ever framed. Under special circumstances, the law does, however, admit of a subsequent Act to be resorted to for this purpose but the conditions under which the later Act may be resorted to for the interpretation of the earlier Act are strict; both must be laws on the same subject and the part of the earlier Act which it is sought to construe must be ambiguous and capable of different meanings.
18. In Seaford Court Estates Ltd. v. Asher [1949] 2 All ER 155 at 164 (CA), Lord Justice Denning held as follows :
It would certainly save the judge's trouble if Acts of Parliament were drafted with divine prescience and perfect clarity. In the absence of it, when a defect appears a judge cannot simply fold his hands and blame the draftsman. He must set to work on the constructive task of finding the intention of Parliament .... A judge should ask himself the question how, if the makers of the Act had themselves come across this ruck in the texture of it, they would have straightened it out ? He must then do as they would have done. A judge must not alter the material of which the Act is woven, but he can and should iron out the creases.
These observations have been referred to with approval by the Supreme Court in the case of K.P. Varghese (supra), from which we have already quoted above.
19. In the light of the above authorities, we are inclined to agree with the learned Chartered Accountant for the appellant that the theatre building in question, which is a capital asset of the appellant-company and which it utilises for the purpose of carrying on its business in the exhibition of cinema films would fall within the exclusion clause, as the said building is used for the purposes of its business. We have reached this conclusion without doing any violence to the existing provisions of Section 40(3)(vi) of the Act, but by construing the said provision of law in the context and in the setting in which it has been enacted by the Parliament in 1983. We therefore accept the contentions of the appellant and cancel the orders of the Commissioner of Wealth-tax passed Under Section 25(2) of the Wealth-tax Act, 1957 and restore the assessments made by the Wealth-tax Officer.
20. In the result, the appeals are allowed.