SUHAS C. 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 Tribunal has been right in law in holding that the assessee is not liable to wealth-tax under WT 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 not liable to be assessed under the WT Act, 1957, at all. The WTO rejected the claim of the assessee. The AAC 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 vs . WTO : [1980]123ITR395(Guj) . The Tribunal dismissed the appeal upholding the order of the AAC. 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, 1956. The case of the Revenue is that the club will have to be assessed as an 'individual' under the WT Act. Sec.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, HUF and company at the rate or rates specified in Sch. I.
(2) xxx'
Three units of assessment have been mentioned in the charging section; 'individual, HUF and company'. The contention of the Revenue is that 'individual' has to be understood broadly so as to include an AOP like clubs.
4. 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.
5. Unlike IT Act which is also a direct tax, the charging section does not speak of a BOI or an AOP or a firm. If the legislative intent was to tax the wealth of a BOI or an AOP or a firm, the legislature would have said so in so many words as was done in the Indian IT Act, 1922, or IT Act, 1961. Under s. 3 of the Indian IT Act, 1922, the charge was on 'individual, HUF, company, local authority, firm and other AOP or the partners of a firm or the members of the association individually'. When the WT Act, 1957, was passed, the legislature decided to specify only 'individual, HUF 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 IT Act, 1922, when the WT 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 IT Act and the meaning ascribed to 'AOP' therein. The legislature, however, decided to exclude 'firms, AOP and BOI' 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' so as to include whatever has been left out.
It has also to be noted that the charge under the GT Act, 1958, a contemporaneous statute, is on a gift made by a 'person'. 'Person' has been defined by s. 2(xviii) as under :
'Person includes an HUF or a company or an Association or a body of individuals or persons, whether incorporated or not.'
Moreover, in the IT Act, 1961, s. 4 which is the charging section imposes a tax on the total income of every person. Person has been defined by s. 2(31) of the Act as under :
'(31) Person includes -
(i) individual,
(ii) an HUF,
(iii) a company,
(iv) a firm,
(v) an AOP or BOI, whether incorporated or not,
(vi) a local authority, and
(vii) every artificial juridical person, not falling within any of the preceding sub-clauses.'
It will be seen from the above that just like the Indian IT Act, 1922, in the GT Act, 1958 and the IT Act, 1961, an AOP or BOI have been specifically brought in as units of assessment. It is only under the WT Act, the charge is on 'every individual, HUF and a company' and not an AOP or a BOI or a firm. If the language of s. 3 of the WT Act is contrasted with the provisions of other cognate statutes, it will clearly appear that the intention of the legislature was not to treat an AOP or a BOI or a firm as an unit of assessment for the purpose of imposition of wealth-tax. There is no other explanation why these units of assessment which have been specifically made taxable under the Indian IT Act, 1922, the GT Act, 1958 and IT Act, 1961, have been left out of the charging section of WT Act.
6. It is also to be noted that when the WT Act was passed in 1957, Indian IT Act, 1922, was in force. The scheme and structure of the WT Act are very similar to the Act of 1922. In fact, some of the provisions of WT Act are almost verbatim reproduction of the corresponding provisions of the Indian IT Act, 1922.
7. The charge of wealth-tax imposed by s. 3 is in respect of the net wealth on the corresponding valuation date of every individual, HUF and the company. Valuation date has been defined by s. 2(q) to mean the last day of the previous year as defined in s. 3 of the IT Act, if an assessment was to be made under that Act for that year. Proviso (i) to s. 2(q) lays down that where in the case of an assessee there are different previous years under the IT Act for different sources of income, the valuation date for the purposes of this Act shall be the last day of the last of the previous year. This proviso was deleted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1st April, 1989.
Sec. 2(b) defines Tribunal to mean the Tribunal constituted under s. 252 of the Indian IT Act. Various authorities under the Act like Chief CIT, CIT, Addl. CIT, Asstt. CIT have been given the meanings respectively assigned to them under s. 2 of the IT Act. Sec. 16(3) of the Indian IT Act, 1922, lays down that in computing the total income of any individual for the purpose of assessment, the income of a wife or minor child of such individual will have to be included if the wife is member of a firm of which the husband is partner or if a minor is admitted to the benefit of the partnership of which the father of the minor is a partner. There were also provisions for including in the income of an assessee income from assets transferred directly or indirectly to his wife otherwise than for adequate consideration or in connection with an agreement to live apart. Lastly, s. 16(3) provides that an income from assets transferred by a person for the benefit of his wife or a minor child or both otherwise than for adequate consideration will be included in the income of the person concerned. Similar provisions have been made in s. 4(1)(a) of the WT Act.
Sec. 8 of the WT Act provides that the IT authorities specified under s. 116 of the IT Act shall be the WT authorities for the purposes of the WT Act and every such authority shall exercise the powers and perform the functions of the WT authority in respect of any individual, HUF or a company, and for this purpose his jurisdiction shall be the same as he had under the IT Act by virtue of orders or directions issued under s. 120 of that Act or under any other provisions of that Act. Sec. 8B confers power of transfer of cases on the CIT from one officer to another. This provision is almost identical with the provisions of sub-s. (7A) of s. 5 of the IT Act. Chapter IV of the WT Act deals with assessment and the provisions are similar to the corresponding provisions of the IT Act. A return of wealth has to be filed by an assessee if his net wealth exceeded the maximum amount which is not chargeable to wealth-tax in the prescribed form and verified in the prescribed manner on or before the 'due date'. Expln. to s. 14 clarifies that 'due date' in relation to assessee under this Act shall be the same date as that applicable to an assessee under the IT Act under the Expln. to sub-s. (1) of s. 139 of the IT Act.
Just as in the IT Act, 1922, s. 15 of the WT Act provides that if any person does not file a return within the time prescribed by the statute or having furnished a return, discovers any omission or wrong statement in the return, he may furnish a revised return at any time before the expiry of one year from end of the relevant assessment year or before the completion of the assessment, whichever is earlier. There are provisions for provisional assessment under s. 15C similar to s. 23B of the Indian IT Act, 1922. Sec. 16 which deals with assessment is similar to s. 23 of the IT Act. After completion of assessment, if the AO has reason to believe that the net wealth chargeable to tax has escaped assessment, he is empowered to issue a notice under sub-s. (1) of s. 17. These provisions are similar to corresponding provisions of s. 34 of the IT Act of 1922. The penalty provisions in s. 18 are similar to provisions of s. 28 of the IT Act. Provisions for appeal against an order of assessment of penalty are provided by s. 23. There are also provisions for further appeal to the Tribunal. The CIT has been given power to revise orders on his own motion or on an application made by the assessee under s. 25. All these provisions are almost identically worded with the corresponding provisions of the IT Act, 1922. A reference lies from an order of the Tribunal to the High Court under s. 27 in respect of any question of law arising out of the appellate order. From the order passed by the High Court on reference, an appeal lies to the Supreme Court under s. 29.
8. All these provisions go to show that the WT Act has been drafted on the same lines as the Indian IT Act, 1922. There is great similarity of wording between the various provisions of WT Act and corresponding provisions of Indian IT Act, 1922. But in the case of the charging s. 3 of the WT Act, the phraseology of the charging s. 3 of Indian IT Act, 1922, has not been adopted. Unlike s. 3 of the IT Act, s. 3 of the WT Act does not mention a firm or an AOP or a BOI as taxable units of assessment.
9. The position has been placed beyond doubt by insertion of s. 21AA in the WT Act itself. This amendment was effected by the Finance Act, 1981, w.e.f. 1st April, 1981. It provides for assessment of AOP in certain special cases and not otherwise. Sec. 21AA is :
'Assessment when assets are held by certain AOP.
21AA. (1) Where assets chargeable to tax under this Act are held by an AOP, other than a company or co-operative society or society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India, and the individual shares of the members of the said association in the income or assets or both of the said association on the date of its formation or at any time thereafter are indeterminate or unknown, the wealth-tax shall be levied upon and recovered from such association in the like manner and to the same extent as it would be leviable upon and recoverable from an individual who is a citizen of India and resident in India for the purposes of this Act.
(2) Where any business or profession carried on by an AOP referred to in sub-s. (1) has been discontinued or where such AOP is dissolved, the AO shall make an assessment of the net wealth of the AOP as if no such discontinuance or dissolution had taken place and all the provisions of this Act, including the provisions relating to the levy of penalty or any other sum chargeable under any provisions of this Act, so far as may be, shall apply to such assessment.
(3) Without prejudice to the generality of the provisions of sub-s. (2), if the AO or the Dy. CIT(A) or the CIT(A) in the course of any proceedings under this Act in respect of any such AOP as is referred to in sub-s. (1) is satisfied that the AOP was guilty of any of the acts specified in s. 18 or s. 18a, he may impose or direct the imposition of a penalty in accordance with the provisions of the said sections.
(4) Every person who was at the time of such discontinuance or dissolution a member of the AOP, and the legal representative of any such person who is deceased, shall be jointly and severally liable for the amount of tax, penalty or other sum payable, and all the provisions of this Act, so far as may be, shall apply to any such assessment or imposition of penalty or other sum.
(5) Where such discontinuance or dissolution takes place after any proceedings in respect of an assessment year have commenced, the proceedings may be continued against the persons referred to in sub-s. (4) from the stage at which the proceedings stood at the time of such discontinuance or dissolution, and all the provisions of this Act shall, so far as may be, apply accordingly.'
It will be seen that assessment as an AOP can be made only when the individual shares of members of the association in the income or assets or both of the association on the date of its formation or any time thereafter are indeterminate or unknown. It is only in such an eventuality that an assessment can be made on an AOP, otherwise not. Sub-s. (2) of s. 21AA deals with cases of such associations as mentioned in sub-s. (1). That means only AOP in which individual shares of the members were unknown or indeterminate can be subjected to wealth-tax. Sub-s. (3) also deals with AOP referred to in sub-s. (1). Sub-ss. (4) and (5) deal with some consequences which will follow the members of an AOP spoken of in sub-s. (1) in the case of discontinuance or dissolution.
10. It is not the case of the Revenue before us that the members of the club were unknown or that their interest in the assets of the club was indeterminate. In fact, no argument was advanced on this aspect of the matter in any of the cases that have come for hearing along with this case. In fact, a list of members of the club should be readily available. In any event, there is no finding of fact that particulars of members were unknown or their interest in the assets of the club were indeterminate.
In our view, s. 21AA far from helping the case of the Revenue directly goes against its contention. An AOP cannot be taxed at all under s. 3 of the Act. That is why an amendment was necessary to be made by the Finance Act, 1981, whereby s. 21AA was inserted to bring to tax net wealth of an AOP where individual shares of the members of the association were unknown or intermediate.
11. We were referred to a large number of cases. It is not necessary to deal with them in detail. It may be noted that the Gujarat High Court in the case of Orient Club vs . WTO (supra) and the Bombay High Court in the case of Orient Club vs . CWT : [1982]136ITR697(Bom) were of the view that the charging provision of the WT Act had not treated a firm or an AOP as a taxable unit. An unincorporated members club was a society of persons and did not have any existence apart from the members of which it was composed. An unincorporated club being an AOP could not be brought to tax as an individual under WT Act. The Kerala High Court in the case of CWT vs . Sri Mulam Club : [1991]191ITR370(Ker) has taken a similar view.
12. A contrary view was taken by the Madras High Court in the case of Coimbatore Club vs. WTO (1985) 153 ITR 172 where it was held that the expression 'individual' occurring in s. 3 of the Act was wide enough to include within its scope a plurality of individuals forming a single collective unit even though formed without any profit motive.
13. In our judgment, the Kerala High Court in the case of CWT vs. Sri Mulam Club (supra), the Bombay High Court in the case of Orient Club vs. CWT (supra) and the Gujarat High Court in the case Orient Club vs. WTO (supra) have come to a right decision. The judgment of the Madras High Court in the case of Coimbatore Club (supra) to the contrary is erroneous. The Madras High Court has overlooked the significance of omission of firms or AOP or a BOI from the charging section even though these entities were specifically made taxable under various direct tax enactments from 1922 to 1961. Moreover, the WT assessment of an individual will involve computation of 'net wealth'. All the assets belonging to an individual will have to be included. If an individual is a partner of a firm or member of an AOP, the value of his share in these entities will have to be included in his individual assessment. We have already examined the scheme of the WT Act and also the object behind the insertion of s. 21AA. All these will go to show, the legislature deliberately excluded a firm or an AOP from the charge of wealth-tax and the word 'individual' in the charging section cannot be stretched to include entities which had been deliberately left out of the charge.
14. Strong reliance was placed on the judgment of this Court in WTO vs . C. K. Mammed Kayi : [1981]129ITR307(SC) . In that case, the question was whether Mapilla Marumkkathayam tarwads of North Malabar Muslim undivided families governed by the Marumkkathayam Act (Madras Act 17 of 1939) fell within the expression 'individual' and were assessable to tax under s. 3 of the WT Act, 1957.
The contention in that case was about the constitutionality of the charging section of the WT Act. The challenge was on two grounds; (a) that Parliament was not competent to include an HUF in the charging s. 3 of the Act in view of Entry 86, List I of the Seventh Schedule of the Constitution and (b) that the charge of wealth-tax on an HUF under s. 3 of the Act was violative of Art. 14 of the Constitution. Entry 86 in List I of the Seventh Schedule of the Constitution is 'Taxes on the capital value of the assets, exclusive of agricultural land, of individuals and companies; taxes on the capital of companies'. The High Court rejected the challenge on the first ground and held that Parliament was competent to include an HUF in s. 3 of the Act as constituting a body or group of individuals coming within the term 'individuals' in entry 86. However, the challenge on the ground of Art. 14 was upheld. The High Court was of the view that there was discrimination as between an HUF and Muslim Mapilla Tarwads which were also undivided families and, therefore, the charging section so far as it governed undivided families was hit by Art. 14. The Department came up in appeal before this Court and by a judgment dt. 17th February, 1964, this Court set aside the judgment and order of the High Court and remanded the case back to the High Court to consider whether Art. 14 applied to the case or not after giving the parties further opportunity to put forward their cases supported by facts and figures.
On remand, out of the two contentions initially advanced by the assessee, the first relating to the constitutionality of the Act in relation to Entry 86, List I, had become academic because the point was dealt with and overruled by this Court in the case of Banarsi Das vs . WTO : [1965]56ITR224(SC) . Therefore, only the second contention regarding validity of the charge imposed by s. 3 survived. A Special Bench of three Judges ultimately rejected the challenge and held that s. 3 was not violative of Art. 14. But the three judges, by different reasonings held that non-HUFs like Mapilla Tarwads fell altogether outside the scope of the charge of s. 3. The Revenue once again came up in appeal to this Court. The Court drew distinction between canons of construction applicable to entries in the legislative lists and canons of construction applicable to construction of a charging section in a taxing statute. It was explained :
'It cannot be disputed that the canon of construction applicable to entries in the three Legislative Lists occurring in a Constitution would be different from the canon of construction that would apply to terms or expressions used in a taxing statute. The object of an entry in any legislative list is to demarcate as wide a legislative field as possible by the use of compendious words or expressions while the rule of construction applicable to a taxing statute must ensure that 'the subject is not to be taxed unless the language of the statute clearly imposes the obligation' [per Lord Simonds in Russel vs. Scott (1948) AC 422 (HL)'.
The Court further held that the point in controversy has to be examined having regard to the general scheme of the WT Act which was to assess all persons who had wealth beyond the statutory limit. The presumption would be equality of incidence rather than exemption of a few. Secondly, it was observed that the term 'individual' can be read in plural and as such would include a body or group of individuals like a Mapilla Tarwad. Thirdly, there was no warrant for suggesting that the two terms of 'individuals' and 'HUF' had been used in antithesis with each other. Sec. 3 being the charging provision was merely concerned with specifying different assessing units for the purpose of assessment of wealth. There could be no dispute that the legislature was competent to select persons, properties, transactions and objects for the imposition of a levy and for that purpose classify as many different assessing units as it could reasonably think necessary and that is how the three assessing units 'individual' 'HUF' and 'Company' (which was later omitted) came to be specified in s. 3. The Court concluded :
'In our view, the specific mention of an HUF in the section does not result in the exclusion of group of individuals who only form a unit by reason of their birth like a Mapilla Tarwad from the operation of the section. It is difficult to accept the argument that if the term 'individual' was intended to include joint families or undivided families it was redundant to specify HUFs'.
The Court thereafter pointed out that this conclusion accorded with legislative history of the taxing statutes in the country. Mapilla Tarwads have been consistently treated and taxed in the status of 'individuals' under various taxing statutes. Reference was made to the Expenditure Tax Act, 1957, under which a similar question was considered by this Court in the case of V. Venugopala Ravi Varma Rajah vs. Union of India : [1969]74ITR49(SC) . In that case, the question was whether a Mapilla Tarwad in North Malabar had to be treated as HUF for the purpose of levy of expenditure-tax. Expenditure-tax was levied in respect of 'expenditure incurred by any individual or HUF in the previous year' (s. 3 of the Expenditure Tax Act). It was held by this Court that Mapilla Tarwad could not be assessed to tax in the status of HUF. However, it was liable to pay tax as an individual. It was pointed out :
'Under the taxing Acts the scheme of treating HUF as a distinct taxable entity has been adopted for a long time, e.g., the Indian IT Act, 1869 (IX of 1869), the Indian IT Act, 1870 (IX of 1870), the Indian IT Act, 1871 (XII of 1871), Act No. VIII of 1872, Act, No. II of 1886, Act No. VII of 1912, Act No. XI of 1922, Act No. 43 of 1961, have treated an HUF as a distinct taxable entity. Similarly, under the WT Act, 1957 (27 of 1957), and the GT Act, 1958 (18 of 1958), the HUF is made a unit of taxation. Under the Business Profits Tax Act, 1947 (21 of 1947), and the Excess Profits Tax Act, 1940, also the HUF was made a unit of taxation. For the purposes of these Acts Mapilla Tarwads governed by the Marumkkathayam law have been regarded as individuals'.
On the basis of the reasoning given in the case of Venugopala (supra), this Court had no difficulty in holding that having regard to the legislative history of Revenue laws, Mapilla Tarwad had to be assessed to tax as an 'individual'.
The Court laid special emphasis on the aforesaid passage in the judgment of Venugopalas case and reiterated that for the purpose of various tax laws set out in that passage 'Mapilla Tarwads governed by the Marumkkathayam law have been regarded as individuals'.
15. This judgment took note of the fact that long before the WT Act was passed Mapilla Tarwad families had been treated as distinct taxable entities and had been taxed as individuals under various tax laws for a very long time. Therefore, 'individual' in s. 3 of the WT Act must be given the same meaning as was given in various other tax laws so as to include a Mapilla Tarwad family.
This judgment really goes against the contention made on behalf of the Revenue. The Court first laid down that a charging section of a taxing statute has to be strictly construed. The Court found that the charging section of various taxing statutes had imposed tax on HUFs as well as on 'individuals'. It has been held under various fiscal statutes that Mapilla Tarwads cannot be taxed as a HUF but will have to be taxed as an 'individual'. If 'individual' is understood under the WT Act, in the same sense in which it has been understood in various fiscal statutes, then 'individual' under s. 3 of the WT Act will include a Mapilla Tarwad. But in the various tax Acts mentioned in that judgment individual has not been interpreted to include a firm or an AOP.
16. That the charging section of the WT Act does not impose a charge on a firm or AOP has been made clear by explanatory notes on the provisions relating to direct taxes issued by the CBDT on 29th June, 1981, clarifying the Finance Bill, 1981. The idea behind introduction of the new s. 21AA was explained in the following words :
'21.1 Under the WT Act, 1957, individuals and HUFs are taxable entities but an AOP is not charged to wealth-tax on its net wealth. Where an individual or an HUF is a member of an AOP, the value of the interest of such member in the AOP is determined in accordance with the provisions of the rules and is includible in the net wealth of the member.
21.2 Instances had come to the notice of the Government where certain assessees had resorted to the creation of a large number of AOP without specifically defining the shares of the members therein with a view to avoiding proper tax liability. Under the existing provisions, only the value of the interest of the member in the association which is ascertainable is includible in his net wealth. Accordingly, to the extent the value of the interest of the member in the association cannot be ascertained or is unknown, no wealth-tax is payable by such member in respect thereof.
21.3 In order to counter such attempts at tax avoidance through the medium of multiple AOP without defining the shares of the members, the Finance Act has inserted a new s. 21AA in the WT Act to provide for assessment in the case of AOP which do not define the shares of the members in the assets thereof. Sub-s. (1) provides that where assets chargeable to wealth-tax are held by an AOP (other than a company or a co-operative society) and the individual shares of the members of the said association is income or the assets of the association on the date of its formation or at any time thereafter, are indeterminate or unknown, wealth-tax will be levied upon and recovered from such association in the like manner and to the same extent as it is leviable upon and recoverable from an individual who is a citizen of India and is resident in India at the rates specified in Part I of Schedule I or at the rate of 3 per cent., whichever course is more beneficial to the Revenue'.
It will appear from this notification that the CBDT clearly recognised that the charge of wealth-tax was on individuals and HUFs and not on any other BOI or AOP. Sec. 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 WT 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 s. 21AA and association of individuals will be taxed as AOP.
17. In the instant case, we are concerned with asst. yrs. 1970-71 to 1977-78. Sec. 21AA was not in force during the relevant assessment period. There was no way that a club could be assessed as an AOP in these assessment years. It is not even the case of the Revenue that individual members interest in the club was indeterminate or unknown.
18. In view of the aforesaid, the appeal must fail. The question referred by the Tribunal was correctly answered by the High Court in the affirmative and in favour of the assessee. The appeal is dismissed. There will be no order as to costs.
CA Nos. 3210-14/88, 1544/93, 1649/93, 5340-48/93, 5393/94, 948/95, 8347/95, 1796-1799/96 1796-1799/96 , SLP (C) No. 2490/84, CA Nos. 2517/96, 9096/96, SLP (C) Nos. 7246-7250/97 7246-7250/97 , CA Nos. 2366-2375/94 2366-2375/94 , SLP (C) Nos. 16259-16275/94 with CA No. 658/93
In view of our decision in CA No. 650 of 1988, the above appeals and Special Leave Petitions are also dismissed with no order as to costs.
CA Nos. 4674/95, CA Nos. 3532-38/1988 3532-38/1988 & CA Nos. 7420-22 of 1997 arising out of SLP Nos. 4658-60/1990
Leave granted.
The appeals are allowed.