Judgment:
1. These appeals reiterate the claim of the assessee that a cinema theatre belonging to the assessee is not chargeable to wealth-tax.
2. The assessee is a private limited company. For the assessment years 1984-85 and 1985-86 corresponding to the valuation dated 31-3-1983 and 31-3-1984 respectively, the assessee filed returns declaring net wealth to be 'nil' on the ground that all the assets of the assessee were exempt from wealth-tax. But the Wealth-tax Officer was of the opinion that a cinema theatre building belonging to the assessee was not exempt. He valued the same by capitalising the net annual rent of Rs. 30,978 by 12 1/2 times and brought to tax the sum of Rs. 3,87,225. This was confirmed on appeal.
3. In the further appeal before us, it was contended on behalf of the assessee that under Section 40(3)(IV) of the Finance Act, 1983 which is to be read as part of the Wealth-tax Act, plant and machinery are not chargeable to tax and since a theatre building has been held to be a plant, it cannot be taxed. In the alternative, it was contended that that section has been amended to exempt a theatre building and it should be given retrospective effect. On the other hand, it was contended on behalf of the revenue that theatre building has not been treated as a plant for income-tax purposes in the assessee's case and that the amendment cannot be applied to the assessment years prior to the amendment.
4. On a consideration of the rival submissions, we are of the opinion that the assessee is entitled to succeed. Wealth-tax on companies was re-introduced by the Finance Act of 1983. The Finance Minister introducing the Bill stated thus : (140 ITR Statutes 25 at page 32) : It has come to my notice that some persons have been trying to avoid personal wealth-tax liability by forming closely-held companies to which they transfer many items of their wealth, particularly jeweler, bullion and real estate. As companies are not chargeable to wealth-tax, and the value of the shares of such companies does not also reflect the real worth of the assets of the company, those who hold such unproductive assets in closely-held companies are able to successfully reduce their wealth-tax liability to a substantial extent. With a view to circumventing tax avoidance by such persons, I propose to revive the levy of wealth-tax in a limited way in the case of closely-held companies. Accordingly, I am proposing the levy of wealth-tax in the case of closely-held companies at the rate of 2 per cent, on the net wealth represented by the value of specified assets, such as, jeweler, gold, bullion, buildings and lands owned by such companies. Buildings used by the company as factory, go down, warehouse, hotel or office for the purpose of its business or as residential accommodation for its low paid employees will be excluded from net wealth.
Accordingly, Section 40 of the Finance Act, 1983 brought to tax the net wealth of the company which was the aggregate value of all the assets referred to in Sub-section (3) which is in excess of the aggregate value of the debts owed by the company as on the valuation date.
Sub-section (3) of Section 40 read as follows : (3) The assets referred to in Sub-section (2) shall be the following, namely:- (i) gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals ; (ii) precious or semi-precious stones whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel] ; (iii) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel; (iv) utensils made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals ; ; (vi) building or land appurtenant thereto, other than building or part thereof used by the assessee as factory, go down, warehouse, hotel or office for the purposes of its business or as residential accommodation for its employees whose income chargeable under the head 'Salaries' is ten thousand rupees or less ; (viii) any other asset which is acquired or represented by a debt secured on any one or more of the assets referred to in Clause (i) to Clause (vii)." 5. It will be apparent from a perusal of Sub-section (3) that plant and machinery used in the business of the assessee is not one of the items listed in Sub-section (3) as an asset liable to tax. The assessee has brought to our notice the decision of the Tribunal in the case of Gavisiddeswara & Co. [IT Appeal Nos. 544 and 545 (Bang.) of 1985, dated 29-7-1986] where we have held that a cinema theatre should be treated as a plant for depreciation purposes. There are similar decisions of the Tribunal in other cases such as Shanthi Enterprises [IT Appeal No.602 (Bang.) of 1982] and Santosh Enterprises [IT Appeal Nos. 569, 589 and 590 (Bang.) of 1979]. The contention of the revenue was that in this particular case, cinema theatre has not been treated as a plant for income-tax purposes. But in our opinion, it makes no difference to the situation because we find that the object of this legislation was only to tax unproductive assets not actually utilised in the business.
Since the cinema theatre in this case is actually a source of income of the assessee, even though it might not have been assessed under the head 'Business' which may require the treatment of the cinema theatre as a plant for income-tax purposes, we must accept the contention of the assessee that the nature of the asset remains a plant for the purpose of wealth-tax.
6. The charge to tax is supported by the revenue on the wording of Clause (vi) which lists certain buildings such as factory, go down, warehouse, hotel or office to show that a cinema theatre is not included and, therefore, not exempt from tax. In this context we may refer to the Finance Bill, 1988 which throws a considerable light on this matter. Sec. 87 of the Finance Act, 1988 reads as follows (171 ITR Statutes 53 at page 89) : 87. Amendment of Act 11 of 1983.-In Section 40 of the Finance Act, 1983,- (i) in Sub-section (1), before the Explanation, the following' proviso shall be inserted, namely :- 'Provided that the amount of wealth-tax computed in accordance with the, provisions of this sub-section shall, in relation to the assessment year commencing on the 1st day of April, 1988, be increased by a surcharge calculated at the rate of ten per cent of such wealth-tax' ; (ii) in Sub-section (3), with effect from the 1st day of April, 1989,- (a) in Clause (0, the words 'not being any such precious metal or alloy held for use as raw material in industrial production' shall be inserted art; the end ; 'Provided that nothing in this clause shall apply to any unused land held by the assessee for industrial purposes for a period of two years from the date of its acquisition by him; '; (c) for Clause (vi), the following clauses shall be substituted, namely:- '(vi) building or land appurtenant thereto, other than building or part thereof used by the assessee as factory, go down, warehouse, cinema house, hotel or office for the purposes of its business or as a hospital, cre, school, canteen, library, recreational centre, shelter, rest-room or lunch room mainly used for the welfare of its employees or used as residential accommodation, except as provided in Clauses (via) and (vib), and the land appurtenant to such building or part;' It can be seen that in Clause (vi) the words 'cinema house' have been included in the list of items of buildings used by the assessee and exempt from wealth-tax. The Memorandum explaining this provision stated as follows (170 ITR Statutes 176 at page 204) : 54. Under the existing provisions of Section 40 of the Finance Act, 1983, wealth-tax is levied in respect of the net wealth of all closely-held companies. For the purposes of determining the net wealth of the company, the value of only specified assets like building, land (other than agricultural land), gold, silver, platinum, ornaments or utensils made of gold, silver, etc., are taken into account.
The rationale underlying the revival of levy of wealth-tax on companies was to curb the tendency of avoidance, of personal, wealth-tax liability by forming closely-held companies and transferring the unproductive assets like real estate, jeweler, etc., to such companies.
Under the existing provisions, wealth-tax is leviable even in cases, where the assets specified in the section are held as stock-in-trade or are used for industrial purposes.
With a view to remove this unintended hardship and provide incentive for growth and modernisation, it is proposed to amend this section to provide that the following assets shall not form part of the net wealth for the purposes of levy of wealth-tax under the section : 7. Now the contention of the revenue is that this section cannot help the assessee to avoid tax for the valuation dates 31-3-1983 and 31-3-1984 since the amendment was to take effect from 1st April, 1989.
We are unable to accept this contention for more than one reason.
Section 87 of the Finance Act, 1988 consists of three parts. In Sub-clause (i) a proviso is inserted. Similarly in Sub-clause (ii) certain words are to be inserted in Clause (a) and a proviso is to be added in Clause (d). Naturally these clauses can take effect only from the date when these words are inserted or added. But in Clause (c) the Act says that for Clause (vi), the following clauses shall be substituted. The word 'substituted' is of great significance, especially when contrasted with the other two words "inserted" and "added" in the same section. It is to be presumed that Parliament has advisedly used this word to give it a meaning quite different from the other two so that it means that this amendment is in fact, a declaratory statute. As noted in the Memorandum explaining these provisions itself, this substitution has been made to remove an unintended hardship. Even the Finance Minister has stated earlier that the object was only to tax unproductive assets.
8. Blackstone, J. in Nicol v. Verelst [1779] 26 ER 751 said "declaratory statutes do not prove the law was otherwise before, out rather the reverse". Coleridge, CJ. said in Jones v. Bennet [1890] 63 LT 705 that a declaratory Act means to declare the law or to declare that which has always been the law, and there having been doubts which have arisen, Parliament declares that the law is and enacts that it shall continue what it then is. Under well known principles of construction of statutes when an Act is passed for the express purpose explaining or clearing up issues the presumption is that such an explanatory Act is retrospective [see CIT v. Bejoy Kumar Almal [1977] 106 ITR, 743 (Cal.)]. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. [see Keshavlal Jethalal Shah v. Mohanlal Bhagwandas AIR 1968 SC 1336 at page 1339]. It is well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended (Channan Singh v. Smt. Jai Kaur AIR 1970 SC 349 at page 351).
9. Thus, the provisions of the Finance Act, 1988 leads us to presume that a cinema house was intended to be included in the list of assets exempt from wealth-tax even from inception because the connotation of 'substituted' is that new clause shall be taken to have been incorporated in place of the old clause from the very-inception. This is also clear from the wording of the original clause itself which stated that building used by the assessee for the purpose of its business shall be exempt. The list of items such as factory, go down, warehouse, etc., cannot be exhaustive but only illustrative of the buildings exempt from wealth-tax. The clause itself has to be read ejusdem generis. This rule applies when "(i) the statute contains an enumeration of specific words ; (it) the subjects of enumeration constitute a class or category ; (iii) that class or category is not exhausted by the enumeration ; (iv) the general terms follow the enumeration ; and (v) there is no indication of a different legislative intent" (see Amar Chandra Chakraborty v. Collector of Excise AIR 1972 SC 1863 at page 1868). We find that all these conditions are satisfied in this case to attract this rule so that we are convinced that a cinema theatre was intended to be included in the category of buildings exempt from tax even from the very inception.
10. It may also be noted that even a cinema house contains certain office premises and since it will not be possible to bifurcate the asset, it can also be said that the building can be regarded as office premises, so as to be exempt under that category also. Since we are of the opinion that the asset itself is exempt, we find it unnecessary to consider the grounds of appeal relating to the valuation of the asset.
11. In the circumstances, we accept the claim of the assessee that a cinema theatre is exempt from wealth-tax and since the assessee has no other chargeable asset, the assessments are annulled. The appeals are allowed.