STATE BANK OF TRAVANCORE EMPLOYEES' UNION VS COMMISSIONER OF WEALTH TAX, 2000 PTD-MADRAS-HIGH-COURT-INDIA 209 (1998)

(a) Wealth tax---

---- Charge of tax---Meaning of "individual"---Trade union is not an individual---Wealth tax cannot be levied on it---Wealth Tax Act, 1957, S.3. [Kerala Financial Corporation v. WTO (1971) 82 ITR 477 (Ker.); Assam Financial Corporation v. CWT (1974)94 ITR 404 (Gauhati) and Indian Jute Mills Association v. CWT (1996) 219 ITR 169 (Cal.) dissented from].

In a taxing statute before taxing any person, it must be shown that the person sought to be taxed falls within the ambit of the charging section by clear words used in the section, and none can be taxed merely by implication. The legislative history of the provisions is a useful guide for ascertaining the legislative intention in. using the words found in a statute.

The charge of wealth tax is on the net wealth of three classes of persons, viz., individuals, Hindu undivided family and companies. The three categories of assessee mentioned in section 3 of the Wealth Tax Act, 1957,are clearly mutually exclusive. While the categories of persons subjected to wealth tax remained the same in section 3 of the Act, the definition of the word "company", one of the three categories of persons liable for wealth tax has been greatly expanded. The context in which the word "individual" occurs provides the clue of ascertaining the meaning to be assigned to that term in a statute. No single definition can be adopted or applied in all' contexts and to all statutes. The fact that the word "individual" in some circumstances may be wide enough to include an artificial juristic entity like a corporation created by a statute does not lead to the conclusion that the word "individual" in section 3(1) of the Act includes all juristic persons. If the intention of Parliament was always to regard all juristic entities whose existence in law is traceable to their incorporation under a statute as covered by the word "individual", the amendments effected to the definition of the word "company" would become inexplicable and a futile exercise in redundancy and no such intention can be attributed to Parliament when it brought about those changes in .the definition of the word "company". Incorporated bodies can be taxed under the Wealth Tax Act, only if they fall within the definition of the word "company" and not otherwise. The term 'individual" as it is used in the section is distinct from the artificial incorporated juristic entities and it is only on account of that fact that Parliament considered it necessary to amend the definition of the word "company" from time to time and expand its coverage with a view to bring incorporated legal entities into the fold of wealth tax for the proposes of taxation.

Kerala Financial Corporation v. WTO (1971) 82 ITR 477 (Ker.); Assam Financial Corporation v. CWT, (1974) 94 ITR 404 (Gaubati) and Indian Jute Mills Association v. CWT (1996) 219 ITR 169 (Cal.) dissented from.

Held, that the assessee was a trade union registered under the Trade Unions Act was not liable to wealth tax in the status of individual.

Banarsi Dass v. WTO (1965) 56 ITR 224 (SC); CIT v. SodraDevi (1957) 32 ITR 615 (SC) and CWT v. Ellis Bridge Gymkhana (1998) 229 ITR 1 (SC) ref.

(b) Interpretation of statutes---

----Charging section---Strict interpretation---Legislative history of provisions is relevant.

P.P.S. Janarthana Raja for Subbaraya Aiyar, Padmanabhan and Ramamani for the Assessee.

C. V. Rajan for the Commissioner.

JUDGMENT

R. JAYASIMHA BABU, J.---At the instance of the assessee, the question referred to us, which arises out of the assessment for the assessment year 1975-76 in respect of the assessment of the wealth of State Bank of Travancore Employees' Union is, as to whether the Tribunal was right in holding that the assessee, which is a trade union registered under the Indian Trade Unions Act, is liable to wealth tax in the status of "individual" under the Wealth Tax Act, having regard to the relevant provisions of the statute including the Indian Trade Unions Act and the authorities and decisions considered by it.

The charge to wealth tax is created under section 3 of the Wealth Tax Act, 1957, which creates a charge for wealth tax in respect of the net wealth of "every individual, a Hindu undivided family and the company". The Tribunal has held that the word "individual" is capable of taking within its scope an artificial juristic entity like a trade union, which on incorporation under the Trade Unions Act becomes a juristic person capable of ,entering into contracts. That is also the view taken by three other High. Courts in the cases of Kerala Financial Corporation v. WTO (1971) 82 ITR 477 (Ker.) (FB); Assam Financial Corporation v. CWT (1974)94 ITR.404 (Gauhati) and Indian Jute Mills Association v. CWT (1996) 219 ITR 169 (Cal.). All these judgments referred to and relief upon on the decision of the Supreme Court in the case of CIT v. Sodra Devi (1957) 32 ITR 615, a decision rendered under section 16(3) of the Indian Income-tax Act, 1922 Section 16(3) of the 1922 Act, inter alia, provided that in computing the total income of any individual for the purpose of assessment, there shall be included the income of the wife or minor child, to the extent such income was derived in the manner set out in the two sub-clauses of section

16(3)(a) of the Act. It was in the context of the words found in section 16(3) of the 1922 Act, the Court observed that while the word "assessee" is wide enough to cover not only an "individual" but also a "Hindu undivided family", "corlpany" and "local authority" and every firm and other association of persons or the partners of the firm or the members of the association individually, the word "individual" is narrower in its connotation being one of the units for the purposes of taxation, than the word "assessee". The Court noted that the word "individual" had not been defined in the Indian Income- tax Act, 1922, and that there was authority for the proposition that the word "individual" does not mean only a human being, but is wide enough to include a group of persons forming a unit. The Court observed that it had been held that the word "individual" includes a corporation created by a statute, e.g., a university or a Bar council, or the trustees of a baronetcy trust incorporated by a Baronetcy Act. After having made these observations, the Court proceeded to hold that the word "individual" in section 16(3) of the Indian Income-tax Act, 1922, referred only to an individual capable of having a wife or minor child or both, and that would necessarily exclude from its purview- a group of persons forming a unit of a corporation created by a statute and is confined only to human beings who in the context would be comprised within that category.

A Constitution Bench of the Supreme Court, referred to the case of Sodra Devi (1957) 32 ITR 615 and in the case of Banarsi Dass v. WTO .(1965) 56 ITR 224 (SC) at page 233, that decision was referred to for the purposes of showing that the word "individual" was interpreted by the apex Court, as including a group of pet-sons forming a unit.

The context in which the word "individual" occurs provides the clue for ascertaining the meaning to be assigned to that term in a statute. No single definition can be adopted or applied in all contexts, and to all statutes. The fact that the word "individual" in some circumstances may be wide enough to include an artificial juristic entity like a corporation created by a statute does not lead to the conclusion that the word "individual" -in section 3(1) of the Wealth Tax Act includes all juristic persons. One must look at the statute as a whole its object and purpose, the relevant words used in the relevant provisions and the context for ascertaining the true scope and effect of that term.

The legislative history of the provision is also a useful guide for ascertaining the legislative intention in using the words found in a statute. We will presently refer to the changes in the definition of the word "company" for the purpose of wealth tax as that is of some significance in ascertaining the true scope of. the word "individual" used in section 3(1) of the Wealth Tax Act.

The charge of wealth tax is on the net wealth of three classes of persons, viz., individuals, the Hindu undivided family and companies. In contrast to "individual" and "Hindu undivided family", a "company" is an artificial juristic entity which takes birth on the registration of the company in accordance with the provisions of the Companies Act, if the word "company" is confined in its application to companies registered under the Companies Act, as it was, when the Act was first enacted. "Company" is defined in section 3, of the Companies Act, 1956, and includes foreign company within the meaning of section 591 of the Act.

Section 2(h) of the Act initially defined "company" as follows:

"a company as defined in section 3 of the Companies Act, 1956 (1 of 1956), and includes a foreign company within the meaning of section 591 of that Act.''

The terms "individual" and "Hindu undivided family" in section 3 of Act did not, therefore, encompass "companies" registered under the Companies Act.

The definition of a "company" was substituted by the Finance Act 1958. That definition reads as under (see (1958) 33 ITR (St.) 147):

" 'company' means a company as defined in section 3 of the Companies Act (1, of 1956), and includes--

(i) a company within the meaning of any law in force in the State of Jammu and Kashmir relating to companies; and

(ii) a company incorporated outside India which has a place of business in India."

By the Finance (No.2) Act, 1967, an amendment was effected to the definition of "company". The Finance (No.2) Act, 1967, added clause (iii) relating to statutory corporations. That amendment was to the following effect (see (1967) 65 ITR (St.) 41).

"(iii) a corporation established by or under a .Central, Provincial or State Act, which is declared by the Central Government, by general or special order, to be a company for the purposes of this Act."

The definition of "company" was once again substituted by the Finance Act, 1975, with effect from April 1,1975. That definition is as under (see (1975) 99 ITR (St.) 150):

" 'company' means a company formed and. registered under the Companies Act, 1956 (1 of 1956), and includes.

(i), a company formed and registered, under airy law relating to companies, formerly in force in any part of India;

(ii) a corporation established by or under a Central, State or Provincial Act;

(iii) any institution, association or body, whether incorporated or not and whether Indian or non-Indian, which the Board may, having regard to the nature and object of such institution, association or body, declare by general or special order to be a company:

Provided that such institution, association or body shall be deemed to be a company only for such assessment year or assessment years (whether commencing before the 1st day of April 1975, or on or after that date) as may be specified in the declaration;

(iv) any body corporate incorporated by or under the laws of a country outside India.

That definition was again amended by the Direct Tax Laws (Amendment) Act, 1987. "Company" is now defined in the Wealth Tax Act as having the meaning assigned to it in clause (17) of section' 2 of the Income-tax Act.

Thus, while the categories of persons subjected to wealth tax remained the same in section 3 of the Act, the definition of word "company" one of the three categories of persons liable for wealth tax has been greatly expanded. Initially, it was confined to companies registered under the Companies Act, but, later, extended to companies registered under the law in force in the State of Jammu and Kashmir and to those incorporated outside India, but, having a place in India; later to companies under the law in force in the Union Territories of Dadra and Nagar Haveli, Goa, Daman Diu and, Pondicherry and to associations in those territories which are declared by the Board to be a company for the purposes of the Act. In 1967, the scope of the definition was further enlarged by including corporations established by or under a Central, Provincial or State Act which is declared by the Central Government to be the company for the purposes of the Act. In 1975 it was further enlarged to include all statutory corporations, foreign corporations, and institutions, associations or bodies whether incorporated or not, declared by the Board to be a company.

From 1975 to 1987, the definition of "company" included companies registered under company law in force in any part in India, corporationsestablished under a Central, State or Provincial Act, institutions, associations or bodies, whether incorporated or not, and whether Indian or non-Indian, which the Board may, having regard to their nature and 6bject, declare by general or special order to be a company and any body corporate incorporated by or under the laws of a country outside India.

The three categories of assessee mentioned in section 3 of the Act are clearly mutually exclusive. A company cannot be regarded as an individual, nor can an individual be regarded as a company, and neither of the two can be regarded as a Hindu undivided family. If the person sought to be taxed falls within the definition of "company", the person can only be taxed as a company and not by treating that person as art individual or the Hindu undivided family. The categories mentioned in section 3 of the Act clearly indicate the legislative intention to separately specify natural and artificial juristic entities.. The term "individual" has been used to refer to natural, persons, while the word "company" has been used to refer to artificial juristic entities' Hindu undivided family, which consists of natural persons, has been specifically mentioned as it cannot be characterised either as an "individual" or as a "company". That the artificial juristic entities which trace their legal existence to their incorporation under a statute, are not included, and were never meant to be included in the word "individual" used in that section, is evident from the legislative history of the definition of "company", Parliament being of the view that apart from the company registered under the Companies Act, no other incorporated juristic entity could be subjected to wealth tax, the definition of "company" was enlarged from time to time to take within its fold other juristic entities, besides companies registered under the Companies Act. By the Finance Act of 1967, even corporations established by a Central, State or Provincial Act were to be treated as a company, but only if the Government declared it to be such by general or special order. By the amendments effected in 1975, such corporations, were, even without the aid of a declaration by the Government, treated as companies. Even institutions, associations or bodies whether incorporated or not, could be brought into the fold of companies, if they were declared as such by the Board, by a general or special order.

If, as contended by the Revenue, the intention of Parliament was always to regard all juristic entities whose existence in law is traceable to their incorporation under a statute, as covered by the word "individual", the amendments effected to the definition of the word "company" would become inexplicable and a futile exercise in redundancy: No such intention can be attributed to Parliament when it brought about those changes in the definition of the word "company".

It is a settled proposition that in the construction of charging sections in the taxing statutes before taxing any person, it must be shown that the person sought to be taxed falls within the ambit of the charging section by clear words used in the section, and that no one can be taxed merely by implication. That principle has been reiterated by the apex Court in the. case of CWT v. Ellis Bridge Gymkhana (1998) 229 ITR 1. The Court, inter alia, held that (page 4):

"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. "

The Court rejected in that case, the contention of the Revenue that unincorporated bodies could be subjected to wealth tax by treating them as falling within the scope of the term "individual" used in section 3 of the act.

The case of incorporated bodies cannot be any worse than unincorporated bodies. Incorporated bodies can only be taxed under the Wealth Tax Act, if they fall within the definition of the word "company" and not otherwise. The term "individual", as it is used in the section is distinct from artificial incorporated juristic entities and it is only on account of that fact that Parliament considered it necessary to amend the definition of the word "company" from time to time and expand its coverage with a view to bring incorporated legal entities into the fold of wealth tax for the purpose of taxation.

We may also notice here the fact that though section 3 of the Act in so far as it refers to individual, Hindu undivided family and company remains in the same form as it was when, enacted the levy of wealth tax -on companies was discontinued by the Finance Act of 1960. Section 13, of the Finance Act,1960, provided that notwithstanding what is contained in the Wealth Tax Act, no tax shall be charged in respect of wealth of a company for any financial year commencing after April 1,1960. By section 40 of the Finance Act,1983, the levy of wealth tax on companies was revived on and from the assessment year 1984-85 and that was limited to only closely held companies. By the Finance Act,1992; section 40 of the Finance Act, 1983, was omitted with effect from April 1, 1993.

The position as of now, therefore, is that so far as companies are concerned, section 3 of the Wealth Tax Act, has to be read along with section 13 of the Finance Act, 1960, and if so read, there is no levy of wealth tax on companies.

The view of Tribunal in this case that a trade union, though a body corporate on its registration under the Trade. Unions Act, can nevertheless be regarded as an "individual" is plainly erroneous. We must, with the greatest respect, express our inability, in the light of the foregoing decision, to agree with the view taken by the High Courts of Kerala, Assam and Calcutta all of whom have, relying upon the decision of the Supreme Court in the case of Sodra Devi (1957) 32 ITR 615, held that incorporated bodies which. are artificial juristic persons are included in the word "individual" in section 3(1) of the Act. The context in which that word is used, the other terms used in the statute, the strict rules of construction which need to be applied to charging sections and the legislative history of the definition of "company" in that statute, clearly indicate that the intention of Parliament was to limit the application of the word "individual" to natural persons, and that incorporated bodies, which were artificial legal entities, were not meant to be covered by that term "individual" in section 3 of the Act.

We, therefore, answer the question referred tous against the Revenue, in the negative, and in favour of the assessee. The assessee shall be entitled to costs in the sum of Rs. 1,000.

M.B.A./4245 /FC??????????