Strict construction of wealth-tax revival provision excluded a members' club deemed to be a company by Board declaration.

Section 40(1) of the Finance Act, 1983, a charging provision reviving wealth-tax for closely held companies to curb avoidance through transfer of personal assets, was held to be strictly construed. An entity merely deemed to be a company by Board declaration under section 2(h)(iii) of the Wealth-tax Act, 1957 was not treated as a company in the true sense, and the statutory mischief targeted by the revival provision was absent. The provision was therefore not extended to a members' club declared to be a company by the Board, and section 40(1) did not apply to the assessee-club.

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Issues: Whether section 40(1) of the Finance Act, 1983 applies to a members' club declared to be a company by the Board under section 2(h)(iii) of the Wealth-tax Act, 1957.

Analysis: The provision revived wealth-tax in a limited manner for closely held companies to curb tax avoidance through transfer of personal assets to such companies. The club was not a company in the true sense, was only deemed to be a company by Board declaration under section 2(h)(iii), and did not answer the mischief targeted by the revival provision. As a charging provision, section 40(1) was held to require strict construction, and its language was not read to include entities merely recognised as companies by the Board. The court also applied the principle that a construction leading to absurd or unjust results should be avoided.

Conclusion: Section 40(1) of the Finance Act, 1983 does not apply to the assessee-club, and the question was answered in favour of the assessee and against the Revenue.

Ratio Decidendi: A provision reviving wealth-tax for closely held companies, being a charging provision, is to be strictly construed and does not extend to an entity that is only deemed to be a company by Board declaration where the statutory mischief targeted by the provision is absent.

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