Commissioner Of Wealth Tax, Gujarat vs Ellis Bridge Gymkhana

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

1997 Supreme(SC) 1359

1997(9) Supreme 204
SUPREME COURT OF INDIA
Suhas C. Sen and S. Saghir Ahmad, JJ.
Commissioner of Wealth Tax, Gujarat-III, Ahmedabad -Appellant
versus
Ellis Bridge Gymkhana etc. etc. -Respondents
Civil Appeal No. 650 of 1988
With
C.A.Nos. 3210-14/88, 1544/93, 1649/93, 5340-48/93, 5393/94, 948/95, 8347/95, 1796-1799/96, SLP (C) Nos. 2490/84, C.A. Nos. 4674/95, 2517/96, 9096/96, 3532-38/88, SLP (C) Nos. 7246-7250/97, C.A. Nos. 2366-2375/94, SLP (C) Nos. 16259-16275/94 with C.A. No. 658/93 with C.A. Nos. 7420-22 of 1997 @ SLP (C)
Nos. 4658-60/1990
Decided on 21-10-1997
Counsel for the Parties :
For the Appearing Parties : K.N. Shukla, T.A. Ramachandran, Sr. Advocates, Ms. Renu George, B.K. Prasad, P. Parmeswaran, D.S. Mehra, S.N. Terdol, K.J. John, Ms. Manju Mishra, R.A. Perumal, S. Sukumaran, S.K. Pasi, Mrs. Janaki Ramachandran, Mukul Mudgal, (Mrs. M. Karanjawala,) Advocate (NP), S.S. Khanduja, Y.P. Dhingra and B.K. Satija, Advocates.

Headnote:(i) Wealth Tax Act, 1957-Sections 3 and 21AA as inserted w.e.f. 1.4.81-Charge of wealth tax-Assessment when assets held by certain association of persons-Net wealth of an association of persons taxable where individual shares of members of association were unknown or indeterminate-Assessment years 1970-71 to 1977-78-Assessee being a club-Whether liable to Wealth Tax under the Act for assessment year in question?
       Held : That the charging section of the Wealth Tax Act does not impose a charge on a firm or association of persons has been made clear by explanatory notes on the provisions relating to direct taxes issued by the Central Board of Direct Taxes on June 29, 1981 clarifying the Finance Bill, 1981. (Para 25)
       Further held that the Central Board of Direct Taxes clearly recognised that the charge of wealth tax was on individuals and Hindu undivided families and not on any other body of individuals or association of persons. Section 21AA has been introduced to prevent evasion of tax. In a normal case, in assessment of an individual, his wealth from every source will be added up and computed in accordance with provisions of the Wealth Tax Act to arrive at the net-wealth which has to be taxed. So, if an individual has any interest in a firm or any other non-corporate body, then his interest in those bodies or associations will be added up in his wealth. It is only where such addition is not possible because the shares of the individual in a body holding property is unknown or indeterminate, resort will be taken to Section 21AA and association of individuals will be taxed as association of persons. (Para 26)
       In the instant case, we are concerned with assessment years 1970-71 to 1977-78. Section 21AA was not in force during the relevant assessment period. There was no way that a club could be assessed as an association of persons in these assessment years. It is not even the case of the Revenue that individual member s interest in the club was indeterminate or unknown. (Para 27)
       (ii) TAXATION - Rule of construction of a charging section-No one can be taxed by implication-A charging section has to be construed strictly-If a person has not been brought within ambit of charging section by clear words-He cannot be taxed at all. (Para 5)

JUDGMENT

Sen, J.-This is an appeal from an order passed by the High Court of Gujarat in which following question of law was answered in the affirmative and in favour of the assessee :

"Whether on the facts and in the circumstances of the case, the Appellate Tribunal has been right in law in holding that the assessee is not liable to Wealth Tax under Wealth-tax Act, 1957 for the assessment year in question?"

2. The assessment years involved are 1970-71 to 1977-78. The assessee is a club. It filed its return of wealth being called upon to do so for the aforesaid assessment years but contended that it was liable to be assessed under the Wealth Tax Act, 1957 at all. The Wealth Tax Officer rejected the claim of the assessee. The Appellate Assistant Commissioner was of the view that the assessee could not be brought to tax under the Act because of the earlier decision of Gujarat High Court in the case of Orient Club v. Wealth Tax Officer1. The Tribunal dismissed the appeal upholding the order of the Appellate Assistant Commissioner. The question of law raised by the Revenue was answered by the High Court also in favour of the assessee.

3. The club was not incorporated under the Companies Act, 1960. The case of the Revenue is that the club will have to be assessed as an "individual" under the Wealth Tax Act. Section 3 which is the charging section of the Act is as under:

"3. (1) Subject to the other provisions contained in this Act, there shall be charged for every assessment year commencing on and from the first day of April, 1957 but before the first day of April, 1993, a tax (hereinafter referred to as wealth-tax) in respect of the net wealth on the corresponding valuation date of every individual, Hindu undivided family and company at the rate or rates specified in Schedule I.

(2) x x x x "

4. Three units of assessment have been mentioned in the charging section; "individual, Hindu undivided family and company". The contention of the Revenue is that "individual" has to be understood broadly so as to include an association of persons like clubs.

5. The rule of construction of a charging section is that before taxing any person, it must be shown that he falls within the ambit of the charging Section by clear words used in the section. No one can be taxed by implication. A charging section has to be construed strictly. If a person has not been brought within the ambit of the charging section by clear words, he cannot be taxed at all.

6. Unlike Income Tax Act which is also a direct tax, the charging section does not speak of a body of individuals or an association of persons or a firm. If the legislative intent was to tax the wealth of a body of individuals or an association of persons or a firm, the Legislature would have said so in so many words as was done in the Indian Income Tax Act, 1922 or Income Tax Act, 1961. Under Section 3 of the Indian Income Tax Act, 1922, the charge was on "individual, Hindu undivided family, company, local authority, firm and other association of persons or the partners of a firm or the members of the association individually". When the Wealth Tax Act, 1957 was passed, the Legislature decided to specify only "individual, Hindu undivided family and company" as units of assessment. It will not be right to presume that the Legislature was unaware of the wording of the charging provisions of Indian Income Tax Act, 1922 when the Wealth Tax Act was enacted. The Legislature must be presumed to have known the large number of cases that were heard and decided on the scope of the charging section under the Indian Income Tax Act and the meaning ascribed to "association of persons" therein. The Legislature, however, decided to exclude "firms, association of persons and body of individuals" from the ambit of the charge of Wealth Tax. What has been specifically left out by the Legislature cannot be brought back within the ambit of the charging section by implication or by ascribing an extended meaning to the word "individual

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