1. This is an appeal filed by the assessee against an order of the CIT(A) declining to accept the contention of the assessee that by virtue of provisions of Section 5(1) read with Section 5(1 A) of the Wealth-tax Act, 1957, financial assets in excess of Rs. 5 lakhs were includible in the net wealth but could not be subject to tax.
2. The assessee is an HUF. Assessment order is a brief one where the computation of net wealth has been summarised as under : property Rs. 3,32,400(ii)Value of movable property Rs. 18,53,438 --------------of one house restricted to Rs. 5,00,000in terms of Section 5(1 A) of the W.T. --------------Act, 1957 Rs. 16,85,838Less : Current year liability :(ii) W.T. Rs. 34,074 Rs. 1,71,414 -------------- 3. The movable property of Rs. 18,53,438 included shares of Premier Vinyak Flooring Ltd. valued at Rs. 9 lakhs and shares of Premier Irrigation Equipment valued at Rs. 24,000. These are covered by the exemption provided in Section 5(1)(xxiii) of the Wealth-tax Act, 1957.
4. It will be seen that the Assessing Officer (A.O.) restricted the exemption of assets to Rs. 5 lakhs in terms of Section 5(1 A) of the Wealth-tax Act, 1957. The excess was brought to wealth-tax like any other taxable asset. The assessee submitted before the CIT(A) that in respect of assets covered by Section 5(1) of the Wealth-tax Act, the excess over Rs. 5 lakhs should be considered only for the purpose of rate. In other words, no wealth-tax was payable on such excess. The CIT(A) dismissed the contention briefly saying that he did not find any basis for such an argument advanced on behalf of the assessee. The assessee is now in appeal before us.
5. The learned counsel for the assessee submitted before us that the assessee's contention could be appreciated only by proper analysis of the relevant provisions of Section 5, Sub-sections (1), (1A), (2) & (3) of the Wealth-tax Act. For the sake of convenience, we are re-producing the relevant extracts below: 5. (1) Subject to the provisions of Sub-section (1 A), wealth-tax shall not be payable by an assessee in respect of the following assets, and such assets shall not be included in the net wealth of the assessee :- (1 A) Nothing contained in Sub-section (1) shall operate to exclude from the net wealth of the assessee any assets referred to in Clauses (iv), (xv), (xvi), (xxii), (xxiii), (xxiv), (xxv), (xxva), (xxvi), (xxvii), (xxviia), (xxviib), (xxviii), (xxix), (xxxi) and (xxxii) not being deposits under the Post Office Savings Bank (Cumulative Time Deposits) Rules, 1959, to the extent the value thereof exceeds, in the aggregate, a sum of five hundred thousand rupees.
(2) Wealth-tax shall not be payable by an assessee in respect of any deposit made by the assessee with the Government or in any security of the Government or of a local authority not specified in Clause (xv) or Clause (xvi) or Clause (xvia) of Sub-section (1) which the Central Government may, by notification in the Official Gazette, exempt from wealth-tax, but the value of any deposit or security so exempted shall be included in computing the net wealth of the assessee.
(3) Notwithstanding anything contained in Sub-section (1), wealth-tax shall be payable by an assessee in respect of the assets referred to in Clauses (xv), (xvi), (xvid), (xvie), (xix), (xxa), (xxii), (xxiii), (xxiv), (xxv), . . . (xxvi), (xxvii), (xxviia), (xxviib)) (xxviii) and (xxix) of Sub-section (1) or in Sub-section (2) for any assessment year unless the assets are owned by him- (a) in the case of shares in a company, from the date on which the shares were first issued by the company, or for a period of at least six months ending with the relevant valuation date, whichever is shorter; (aa) in the case of Capital Investment Bonds referred to in clause(xvid), or debentures referred to in Clause (xvie), ...clause(xvii), of Sub-section (1), from the date on which the Bonds or debentures, as the case may be, were subscribed to by the assessee, or for a period of at least six months ending with the relevant valuation date, whichever is shorter; and (b) in the case of other assets, for a period of at least six months ending with the relevant valuation date; 6. The learned counsel for the assessee first invited our attention to Sub-section (1) of Section 5 of the Wealth-tax Act where a phrase has been used "wealth-tax shall not be payable" and also a further phrase "and such assets shall not be included in the net wealth of the assessee". He submitted that the two matters were separate and distinct. It was possible that assets were included in the net wealth but wealth-tax was not be payable, as was evident from Sub-section (2) of Section 5. Here it was clearly laid down that 'wealth-tax shall not be payable' but the value 'shall be included in computing the net wealth of the assessee'. It was only because of such a distinction that both the phrases had been used in Sub-section (1) of Section 5 of the Wealth-tax Act.
7. On the other hand, Sub-section (3) of Section 5 made a special provision for payment of wealth-tax. This has again made it clear that inclusion in net wealth and payment of wealth-tax were distinct issues.
8. The learned counsel, thereafter, invited our attention to the words used in Sub-section (1 A) of Section 5 of the Wealth-tax Act. According to him, the specified assets in excess of Rs. 5 lakhs were included in the net wealth, but there was no specific provision for charging wealth-tax in the sub-section itself. Thus, the treatment should be same as the treatment given to assets covered by Sub-section (2) of Section 5. In other words, these specified assets, covered by Sub-section (1 A) in excess of Rs. 5 lakhs, were to be included in the net wealth only for rate purposes, and no wealth-tax was chargeable on them. He submitted that direction should be issued to the Assessing Officer to recompute the wealth-tax accordingly.
9.1n support of his contention, the learned counsel for the assessee relied on the decision of the Supreme Court in C.W.S. (India) Ltd v.OT[1994] 208 ITR 649 where it was held that literal construction of the statute was the general rule in construing taxing enactments. According to him, the language here was very clear and it was not possible to give any interpretation other than the one explained above.
10. The learned D.R., on the other hand, relied on the same decision of the Supreme Court and submitted that it had been held further that literal interpretation of taxing statutes was not to be adopted if it leads to discriminatory or incongruous results. He further supported the order of the CWT(A).
11. We have considered the rival submissions carefully. No doubt, two phrases have been used in Sub-section (1) of Section 5 of the Wealth-tax Act saying that 'wealth-tax shall not be payable' and also that "and such assets shall not be included in the net wealth". There is also a provision in Sub-section (2) where certain assets would be included in the net wealth but wealth tax shall not be payable on them.
In our opinion, the category of such assets included in Sub-section (2) of Section 5 is exhaustive and not just inclusive. It is significant that in this sub-section both phrases have been used, the first saying, 'wealth-tax shall not be payable' and the second saying "but the value of any deposit or security, so exempted, shall be included in computing the net wealth of the assessee".
12. Comparing the provisions of Sub-section (1A) of Section 5, it is seen that it starts with the words 'Nothing contained in Sub-section (1) shall operate to exclude from the net wealth of the assessee'. In other words, the assets in question in excess of Rs. 5 lakhs shall be included in the net wealth. What is the normal consequence of including in the net wealth The answer is available in the charging Section 3 of the Wealth-tax Act which is reproduced below : Subject to the other provisions (including provisions for the levy of additional wealth-tax) contained in this Act there shall be charged for every assessment year commencing on and from the first day of April, 1957, 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.13. Thus when an asset forms part of the net wealth, it is mandatory to charge wealth-tax as per the charging provisions of the Wealth-tax Act.
There is no escape from it, unless there is a specific provision such as the provision contained in Sub-section (2) of Section 5. In absence of such a provision, it must follow that once the asset is included in the net wealth, wealth-tax is also chargeable.
14. We may mention that if the distinction drawn by the learned counsel for the assessee is followed strictly, then with regard to the assets covered by Sub-section (3) of Section 5, wealth-tax is payable without the assets being included in the net wealth. This is an absurd result.
15. Similarly, in Section 4(1)(a) of the Wealth-tax Act it is provided that certain assets will be included in the net wealth of an individual but there is no mention regarding the levy of wealth-tax. It will be an absurd proposition that these assets will be included only for rate purposes and no wealth-tax will be payable on them.
16. The decision of the Supreme Court in the case of CWS (India) Ltd. (supra) has been relied upon by both the sides. We, therefore, reproduce the relevant extracts from it: "While we agree that literal construction may be the general rule in construing taxing enactments, it does not mean that it should be adopted even if it leads to a discriminatory or incongruous result. Interpretation of statutes cannot be a mechanical exercise. The object of all the rules of interpretation is to give effect to the object of the enactment having regard to the language used. The intention of Parliament in enacting Section 40(a)(v) can be gleaned from the memorandum explaining the provisions of the Finance Bill, 1968, which sets out the object behind this clause. The Full Bench of the Kerala High Court has set out the memorandum in the judgment under appeal. In this connection, we may refer to the well-recognised rule of interpretation of statutes that where a literal interpretation leads to an absurd or unintended result, the language of the statute can be modified to accord with the intention of Parliament and to avoid absurdity. The following passage from Maxwell's Interpretation of Statutes (12th edition), may usefully be quoted (at page 228): 1. Modification of the language to meet the intention.-Where the language of a statute, in its ordinary meaning and grammatical construction, leads to a manifest contradiction of the apparent purpose of the enactment, or to some inconvenience or absurdity which can hardly have been intended, a construction may be put upon it which modifies the meaning of the words and even the structure of the sentence. This may be done by departing from the rules of grammer, by giving an unusual meaning to particular words, or by rejecting them altogether, on the ground that the Legislature could not possibly have intended what its words signify, and that the modifications made are mere corrections of careless language and really give the true meaning. Where the main object and intention of a statute are clear, it must not be reduced to a nullity by the draftsman's unskilfulness or ignorance of the law, except in a case of necessity, or the absolute intractability of the language used.
Lord Reid has said that he prefers to see a mistake on the part of the draftsman in doing his revision rather than a deliberate attempt to introduce an irrational rule : 'the canons of construction are not so rigid as to prevent a realistic solution'.(pp. 656 & 657) 17. The above extract clearly supports the stands of the Revenue.
Literal construction need not to be adopted if it leads to a discriminatory or incongruous result and it is a well-recognised rule of interpretation of statutes that where a literal interpretation leads to an absurd or unintended result, the language of the statute can be modified to accord with the intention of the Parliament and to avoid absurdity. Respectfully following the ratio of the above decision, we hold that the specified assets covered by Sub-section (1A) of Section 5 of the Wealth-tax Act, 1957, in excess of Rs. 5 lakhs shall be included in the net wealth of the assessee and wealth-tax will also be charged on them. We direct accordingly.