TaxTMI 
TaxTMI 
2019 (1) TMI 553
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.... who is concerned with more than one assessment year, had challenged the decision before the hon'ble Supreme Court. By judgment dated July 15, 2015 (P. A. Jose/Smt. Ushasree v. CWT [2015] 376 ITR 448 (SC)), the Supreme Court found that the High Court committed an error by not framing a substantial question of law as per the provisions of section 27A(3) of the Wealth-tax Act, 1957 (for short "the Act"). 2. Having gone through the various appeals, we are of the opinion that the substantial questions of law could be framed as follows : "(i) Whether on the facts and in the circumstances of the case, the cash-in-hand as found on the last day of the accounting year as revealed from the books of account of the various assessees could be treated as an asset under section 2(ea) of the Act ?" One other question arising in certain appeals is also framed as follows : "(ii) Whether on the facts and in the circumstances of the case, the Tribunal was right in finding that the jurisdiction assumed under section 25 of the Wealth-tax Act was not in accordance with law ?" 3. The learned counsel appearing for the assessees in the appeals, which were remanded by the hon'ble Supreme Cour....
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....actions are with cash held in hand, which otherwise would hamper the smooth functioning of the business. It is also submitted that only the cash-in-hand as on the valuation date, would be eligible for being included under the definition of assets under the Act. The assessees could very well escape from the liability by deposit of such cash in a bank on the valuation day and withdrawal on the very next day. The intention under the Act hence was only to tax as assets, such cash held, without it being reflected in the accounts. It is also argued that the cash being kept in hand for business purpose is a productive asset and in such circumstances, necessary aid can be availed of from the speech of the Finance Minister as also the Central Board of Direct Taxes (CBDT) Circular, which clearly indicate the intention to exclude productive assets from being brought under the definition of "assets" and hence not taxable as wealth. 6. The definition clause arising for consideration here is extracted here under- "2(ea) 'assets', in relation to the assessment year commencing on the 1st day of April, 1993, or any subsequent assessment year, means-... (vi) cash in hand, in excess of f....
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....king of individuals, HUF and other persons. An individual carrying on a trading activity as a proprietorship firm could as well be included under the definition of "other persons". One has to understand the provision keeping in mind what is sought to be taxed, being unproductive assets, which ; cash-in-hand, kept for business purposes and recorded in the books of account, is not. 9. The proprietorship concerns of the petitioner in the writ petition is a jewellery having huge turnover as also phenomenal stock at any point of time. They are involved in the purchase of old gold and also payment to artisans, who manufacture ornaments, who are from the marginalized section of the society, who can only be so remunerated with cash. The cash kept by the petitioner often is by way of loans availed of from financial institutions, which necessarily results in liability to interest, which the proprietor is obliged to pay, on the loans. Even if the cash is that which is generated from the business, by keeping it in hand, the petitioner looses interest ; which would accrue, if the same was deposited in banks. By keeping the cash-in-hand as recorded in the books of account, the petitioner does n....
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....ufacture, trade or a commercial activity and is engaged in productive operations. There is also a mandate in so far as recording of cash-in-hand in the books of account as they are regulated by various enactments ; in the absence of which alone such cash-in-hand of the company would be subjected to taxation. The definitions of "company" as available in the Law Lexicon and the Black's Law Dictionary are extracted in the counter-affidavit to contend that it Includes even a union or association of persons for carrying on a commercial or an industrial enterprise, it is argued that it is not arbitrary or discriminatory to treat an individual and a company as distinct and separate which they are, in all respects. Reliance is placed on State of M. P. v. Bhopal Sugar Industries Ltd. [1964] 52 ITR 443 (SC) ; AIR 1964 SC 1179 to urge that though every person similarly circumstanced as regards the subject matter are entitled to equal protection of the law under article 14 of the Constitution ; it is not predicated thereby that every law must have universal application irrespective of dissimilarity of objects or transactions to which it applies, or of the nature or attainments of the perso....
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....shareholders who are long-term investors. There is also no distinction at present between productive and nonproductive assets. The Chelliah Committee has suggested that, in order to encourage the taxpayers 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, Hindu undivided families 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 the recommendation and I hope this change will encourage investments in productive assets and discourage investments in ostentatious nonproductive wealth." The circular read as hereunder ([1993] 199 ITR (St.) 1 ) : "54. With a view to stimulating investment in productive assets, the Finance Act has abolished wealth-tax on all assets except cert....
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....eks to discourage the tendency to keep "assets" dead without it being put to any productive use. The recommendations were also to ensure investment of dead capital in productive activities. The speech of the Finance Minister, adopting the recommendation of the Chellaiah Committee, lays emphasis on the need to encourage taxpayers to invest in productive assets, such as shares, securities, bank deposits, bonds, etc. The Finance Minister's speech also spoke of assets like residential houses, farm houses and urban land, jewellery, bullion, motor cars, etc. not being put to use for commercial purposes, being included in the definition of assets, which are liable to taxation under the Act. What was sought to be taxed was ostentatious investments, stashing or hoarding of wealth, without the same being put to productive use contributing to national economy and the general welfare ; in larger public interest. 14. In this context, we have to notice the judgment of the hon'ble Supreme Court in Moopil Nair's case. Therein, the challenge was against the Travancore-Cochin Land tax Act, which sought to levy a land tax at an average rate of Rs. 2 per acre on private forest lands held ....
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....at it infringes the equality clause in article 14, though the courts are not concerned with the policy underlying a taxing statute or whether a particular tax could not have been imposed in a different way or in a way that the court might think more just and equitable. The Act has, therefore, to be examined with reference to the attack based on article 14 of the Constitution." Eventually, in Moopil Nair, the Act was set aside on all the grounds on which it was challenged finding inequality writ large and being inherent in the provisions authorising the Government to grant exemptions. Finding a total absence of classification, where such classification was warranted ; this alone was held to create inequality. The enactment was declared to be a confiscatory one for reason of the levy being on the holder and the mea sure being the extent ; without any reference to the nature of the holding, its capacity to yield and generate income or the actual use to which it could be put to or at least its potential to be used and so generate income. 15. We also deem it fit that two of the five classes, enumerated by Shri Ram Krishna Dalmia v. Justice S. R. Tendolkar [1958] AIR 1958 SC 538, under....
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....cing from April 1, 1993, has to be understood as of the object on which the tax is levied, the liability being on the person who holds that object. A productive asset is anything employed in generation of income as distinguished from one stashed or hoarded for the luxury or mere whim of the holder, on an ostentatious consideration and is in effect dead, not in any manner contributing to the economy. 17. While section 3 of the Act, created a charge on every individual, HUF and company, when amendments were made including certain "assets" to come within such definition under the Act, on the distinction drawn of productive and non-productive, the Legislature thought it fit to classify individuals and HUF as falling under one category and "other persons" in yet another category. The earlier Division Bench decision was set aside by the hon'ble Supreme Court, for reason only of no question of law having been framed ; we still had the benefit of going through the judgment. The learned judges have proceeded on the premise that "other persons" would include only a company. We, with all respect at our command, are unable to accede, especially looking at the different entities made menti....
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....as between persons who are statutorily mandated to maintain accounts and those who are not. The former is engaged in productive activities, generating income for themselves, taxable under the Income-tax Act and those assets acquired from the income generated, being kept productive. When such books of account are maintained, there is absolutely no reason why the assessable units and the cash-in-hand of such assessable units, which is recorded in the books of account, should be included in the definition of "assets" for the purpose of taxation under the Act. 19. The policy as evidenced from the statute can also be understood from clause (ea) introduced as per the amendment of 1992 (Act 18 of 1992), within which is comprised sub-clause (vi). The various exclusions made as per sub-clause (i) indicates that a house for residential or commercial purposes, forming part of stock-in-trade, houses occupied for the purpose of any business or profession, any residential property let out for a minimum period and any property in the nature of commercial establishments or complexes, stand excluded ; though the other buildings and lands appurtenant thereto are included within such definition. By ....
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.... assessees on the basis of the income exceeding a particular limit. As in the case of Companies, a proprietorship firm, partnership firm or an association of persons carrying on trading activities are also required to maintain books of account as per the Income-tax Act. The emphasis as we see from sub-clause (vi) of clause (ea) is on the cash-in-hand being recorded in the books of account of "other persons", who are required to statutorily maintain such books of account. We see from all the wealth-tax appeals, the assessees were maintaining books of account and the Income-tax Officials responsible for assessment of their income under the Income-tax Act has looked into the cash-in-hand disclosed in the books of account to proceed for assessment under the Act. The Assessing Officer, in some cases, had also excluded those amounts in excess of Rs. 50,000 when disclosed in the books of account, following an earlier Tribunal order, which was taken up for suo motu revision. The first case in which the Tribunal held in favour of the assessee is a decision rendered in W. T. A. No. 1 of 2009. 21. We find that there is a definite policy as discernible from the Act, as also the specific amend....
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....at any amounts not recorded in the books of account of similarly situated individual proprietorships, without reference to any limit of Rs. 50,000, would be exigible to tax under the Wealth-tax Act. As a consequence, on the findings above there shall be a direction in the writ petition to assess to wealth-tax only that cash-in-hand which, by any person carrying on a trading or commercial activity, is not disclosed in the books of account statutorily required to be maintained. 22. We now have to look at the appeals and we take for consideration Wealth Tax Appeal No. 1 of 2009 in which first the Tribunal took a decision for the first time, in favour of the assessee, in tandem with our reasoning above. The Tribunal has found, interpreting the term "productive asset" that it has to be understood in the context of commercial assets. Those assets which are used for commercial purposes are productive assets and the assets which are not used for commercial purposes are non-productive assets, is the finding. The Tribunal too has sought aid for such interpretation from the recommendations of the Chelliah Committee as also the speech of the Finance Minister relying on Sole Trustee, Loka Shik....