1. This is an appeal by the assessee against the order of the CIT (Appeals) for the assessment year 1986-87. The only dispute in this appeal is as to whether the payment of tax amounting to Rs. 42, 490 is an allowable deduction in computing the income of the assessee.
2. According to the Assessing Officer (A. O.) it is a wealth-tax payment and, therefore, not allowable in view of Section 40(a)(iii) of the IT Act. Before the CIT (Appeals) the assessee submitted that it had paid this tax under Section 40 of the Finance Act, 1983 and that the Explanation to Section 40(a)(iia) specifically excludes any tax chargeable with reference to the value of any particular asset of the business or profession. The CIT (Appeals) held that charging of wealth-tax on companies has been introduced by Section 40 of the Finance Act, 1983 and by the mere fact that it was not charged under the Wealth-tax Act, 1957, it could not be said that it would not constitute wealth-tax as defined in the Explanation to Section 40(a)(iia) of the Act. Aggrieved, the assessee is in appeal.
3. We have heard the ld. counsel for the assessee, Shri H. R. Kamdar, and the ld. Departmental Representative, Shri R. G. Sharma, and considered the rival submissions. Section 40 provides that "notwithstanding anything to the contrary in Sections 30 to 38 the following amounts shall not be deducted in computing the income chargeable under the head 'Profits and gains of business or profession'.
4. What is wealth-tax is defined in the Explanation which reads as under: Explanation: For the purposes of this sub-clause, 'wealth-tax' means wealth-tax chargeable under Wealth-tax Act, 1957, or any tax of a similar character chargeable under any law in force in any country outside India or any tax chargeable under such law with reference to the value of the assets of, or the capital employed in, a business or profession carried on by the assessee, whether or not the debts of the business or profession are allowed as a deduction in computing the amount with reference to which such tax is charged, but does not include any tax chargeable with reference to the value of any particular asset of the business or profession.
5. The explanation thus defines the scope of the term 'wealth-tax' and besides wealth-tax chargeable under the Wealth-tax Act, 1957 it includes in its term any tax of a similar character chargeable under any law in force in any country outside India or any tax chargeable under such law with reference to the value of the asset or capital employed in a business or profession carried on by the assessee whether or not the debts of the business or profession are allowed as a deduction in computing the amount with reference to which such tax is chargeable. It, however, does not include any tax chargeable with reference to the value of any particular asset of the business or profession.
6. The assessee is a limited company. The companies were earlier exempted by Section 13 of the Finance Act, 1960 from the levy of wealth-tax and thus there was no wealth-tax chargeable in respect of a company prior to the introduction of Section 40 by the Finance Act, 1983 with effect from 1-4-1984. Sub-section (1) of Section 40 of the Finance Act, 1983, which revived the levy, states that wealth-tax shall be charged under the Wealth-tax Act for every assessment year commencing on and from the 1st day of April, 1984 in respect of the net wealth on the corresponding valuation date of every company, not being a company in which the public are substantially interested, at the rate of two per cent of such net wealth. For the sake of convenience, Sub-section (1) of Section 40 is reproduced here: 40(a). Notwithstanding anything contained in Section 13 of the Finance Act, 1960 relating to exemption of companies from levy of wealth-tax under the Wealth-tax Act, 1957 (hereinafter referred to as the Wealth-tax Act) wealth-tax shall be charged under the Wealth-tax Act for every assessment year commencing on and from the 1st day of April, 1984 in respect of the net wealth on the corresponding valuation date of every company not being a company in which the public are substantially interested, at the rate of two per cent of such net wealth: 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, 1984, be increased by a surcharge calculated at the rate of ten per cent of such wealth-tax.
Explanation: For the purposes of this sub-section 'company in which the public are substantially interested' shall have the meaning assigned to it in Clause (18) of Section 2 of the Income-tax Act 7. On a bare reading of this provision it is evident that revival of the levy of wealth-tax by this section is under the Wealth-tax Act, 1957. Therefore, we do not find any merit in the submission that the wealth-tax charged by virtue of Section 40 of the Finance Act, 1983 would not be a wealth-tax under the Wealth-tax Act, 1957. It is also evident from Sub-section (7) of Section 40 that these provisions are to be construed as part and parcel of Wealth-tax Act. This Sub-section (7) reads "Subject to the provisions of Sub-section (5), this section shall be construed as one with the Wealth-tax Act. " Sub-section (5) states that for the purposes of levy of wealth-tax under the Wealth-tax Act, 1957, in pursuance of the provisions of this Section- (a) Section 5 and clause (d) of Section 45 of that Act and Part II of Schedule I to that Act shall not apply and shall have no effect; (b) the remaining provisions of that Act shall be construed so as to be in conformity with the provisions of this section.
8. It is further submitted by the ld. counsel for the assessee that its case falls within the last part of the explanation viz. "but does not include any tax chargeable with reference to the value of any particular asset of the business or profession". The contention of the ld. counsel is that this part excludes the tax chargeable with reference to the value of business assets. In the present case such business assets on which wealth-tax is levied are motor cars and it is not in dispute that motor cars were the business assets of the assessee. We, however, find a direct decision on this issue in the case of T. S. Krishna v. CIT[ 1973] 87 ITR 429 (SC), wherein their Lordships held that the aforesaid last part of the explanation which related to the tax chargeable under a law in force in any country outside India and the exception contemplated by those words has no logical connection with wealth-tax chargeable under the Wealth-tax Act, 1957. The relevant portion of the decision appearing at pages 435 and 436 is extracted below: The learned advocate further proceeds to submit that the explanation, however, excludes from the prohibition to deduct wealth-tax under the sub-clause or sub-section the tax chargeable with reference to a particular asset whether such charges is either under the laws in this country, i. e., the Wealth-tax Act or under the laws in force outside India. There is no warrant for this construction because the words upon which reliance has been placed are related to the tax chargeable under a law in force in any country outside India with reference to the value of the assets of or employed in a business or profession carried on by the assessee.
The exclusion contemplated by the exception on which emphasis is placed is wholly unrelated to the scheme of the Wealth-tax Act, because wealth-tax under that Act is not chargeable with reference to the value of any particular asset of the business or profession but under Section 3 the charge is 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 the Schedule.
'Net wealth' under Section 2(m) means the amount by which the aggregate value computed in accordance with the provisions of the Wealth-tax Act of all the assets, wherever located, belonging to the assessee on the valuation date, including assets required to be included in his net wealth as on that date under that Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than those specified in items (i), (ii) and (iii) of that section. Section 4 includes certain assets in the net wealth while Section 5 provides for exemption in respect of specified assets on which wealth-tax is not payable and such assets are not to be taken into account in computing the net wealth of the assessee. Section 6 concerns with the exclusion of assets and debts outside India and Section 7 deals with the determination of the value of the assets which are to be included in the net wealth. It is thus clear that under the scheme of the Wealth-tax Act, tax is leviable not on any separate or particular asset but on the net wealth as defined under that Act. The learned advocate wanted us to read 'any particular asset' in Explanation to Sub-clause (iia) of Clause (a) of Section 40 as the aggregate of the assets as defined in 'net wealth' under Section 2(m). To accept such an argument would be to give a go-by to the scheme of the Wealth-tax Act where though each asset comprised in the net wealth - can be separately valued under Section 7, nevertheless net wealth would be the amount by which the aggregate value of all those assets, exceed the aggregate value of debts owed by the assessee on the valuation date. Even otherwise, to read the exception 'but does not include any tax chargeable with reference to the value of any particular asset of the business or profession' with the first part of the explanation 'wealth-tax' means wealth-tax chargeable under the Wealth-tax Act, Act, 1957, would not grammatically make any sense. These two, read together, would make the following sentence 'wealth-tax' means wealth-tax chargeable under the Wealth-tax Act, 1957, but does not include any tax chargeable with reference to the value of any particular asset or the business or profession'. As already pointed out on the scheme of the Act there is no logical connection between the import of each of the two parts of that sentence; the first definitely indicates the wealth-tax chargeable under the Wealth-tax Act while the latter seeks to except a tax chargeable with reference to the value of any particular business or profession, which is not a tax leviable as such under the Wealth-tax Act and hence does not relate to that part of the Explanation where wealth-tax in Sub-section (iia) means that it is the wealth-tax chargeable under the Wealth-tax Act. In our view, Sub-section (1A) of Section 58 clearly excludes any deduction as claimed.
9. The ld. counsel, however, submitted that the aforesaid finding of the Supreme Court was rendered in the context of the scheme of charging wealth-tax under the Wealth-tax Act. At that time the revival of wealth-tax on companies by Section 40 of the Finance Act, 1983 was not in existence. According to him, the scheme of charging wealth-tax on companies is altogether different to the scheme for charging wealth-tax under the Wealth-tax Act. Wealth-tax under Section 40 of the Finance Act was revived with respect of the value of assets enumerated in Sub-section (3) of Section 40 of the Finance Act, 1983. It is, therefore, according to him, is not a tax on the net wealth of the assessee as defined under Section 2(m) of the Wealth-tax Act, i. e., the aggregate value of all the assets belonging to the assessee on the valuation date which is in excess of the aggregate value of all the debts owed by the assessee on the valuation date. We, however, do not find any force in the contention of the assessee as we do not see any material difference in the scheme. For the purpose of Section 40 of the Finance Act, 1983, 'net wealth' is defined in Sub-section (2) which reads as under: (2) For the purposes of Sub-section (1), the net wealth of a company shall be the amount by which the aggregate value of all the assets referred to in Sub-section (3), wherever located, belonging to the company on the valuation date is in excess of the aggregate value of all the debts owed by the company on the valuation date which are secured on, or which have been incurred in relation to, the said assets.
10. If the aforesaid definition of net wealth is compared with the definition of Section 2(m) given under the Wealth-tax Act, 1957 we hardly find any difference between the two, except perhaps the fact that net wealth under the Wealth-tax Act is the aggregate value of all the assets owed by the assessee whereas under the Finance Act, 1984 it is the value of all the assets enumerated in Sub-section (3). But that difference, in our opinion, does not make any material departure from the scheme of charging wealth-tax Under the Wealth-tax Act. The abovequoted extract of the decision of the Supreme Court in the case of T. S. Krishna (supra), therefore, continues to govern the case.
11. In view of the aforesaid, we are of the opinion that the tax chargeable from the assessee under Section 40 of the Finance Act, 1983 is part of wealth-tax chargeable under the Wealth-tax Act, 1957 itself and there is no deviation of the scheme of charging wealth-tax by reviving the levy of wealth-tax on companies by the Finance Act, 1983 with effect from 1-4-1984.
12. In view of the above discussion, we uphold the appellate order and dismiss the appeal filed by the assessee.