Indian Jute Mills Association Vs Commissioner of Wealth Tax

Ajit K. Sengupta, J.@mdashThis reference u/s 27(1) of the Wealth-tax Act, 1957, relating to the assessment years 1968-09, 197071 and 1971-72 involves the question of status of the assessee and its entitlement to exemption u/s 5(1)(i) of the Act. The assessee is a body registered under the Trade Unions Act, 1926. The objects of the association are enumerated in Rule 3 of Chapter I of the Rules and Regulations of the Association. The Wealth-tax Officer initiated the wealth-tax proceeding by issue of notices u/s 17 of the Act in respect of the assessment years under reference. In response to the said notice, the assessed filed nil returns contending that it being an association of persons was not a taxable entity in terms of Section 3 of the Act. It further contended that it could not be brought to tax in view of Section 5(1)(i).

2. The Assessing Officer negatived both the contentions of the assesses and observed that the word "individual" in Section 3 includes a group of persons who form a unit or association of persons relying on the decisions of the Supreme Court in The Commissioner of Income Tax, Madhya Pradesh and Bhopal Vs. Sodra Devi, and Seth Banarsi Das etc. Vs. Wealth Tax Officer, Special Circle Meerut, etc.,

3. Aggrieved by the assessment order, the assessee preferred appeals before the Appellate Assistant Commissioner who confirmed the Assessing Officer''s orders by his consolidated order dated December 5, 1981.

4. The assessee preferred appeals against the said appeal orders to the Tribunal. The Tribunal held that "the assessee being an association consisting of members having independent corporate status is a distinct personality and, consequently, is liable to be assessed as an individual in accordance with the provisions of Section 3". As to the assessee''s claim of exemption u/s 5(1)(i), "the Tribunal was of the opinion that the Wealth-tax Officer, it seems, did not examine the various objects of the association as enumerated in paragraph 3, Chapter 1 of the Rules with a view to ascertain, whether the primary or dominant objective of the association was to promote the advancement of jute industries so as to enable the country to earn valuable foreign exchange as has been argued by the assessee''s learned counsel. . . ." and restored "the assessment on the Wealth-tax Officer''s file with a direction to pass fresh orders after making necessary enquiries with reference to the assessee''s books of account: (i) whether the entire receipts of the association have been applied towards implementation of the objects as stipulated in paragraph 3 of IV of the Rules ; (ii) what were the actual activities of the association during the assessment years under appeal and which of the objects mentioned in Chapter 3 were actually carried out ; and (iii) the manner in which the funds have been utilised and the percentage of expenditure in relation to the total expenditure of the association for implementing the main and dominant objectives of the assessee after giving necessary opportunity to the assessee of being heard".

5. Against this background, the Tribunal has referred to us the following two questions :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the association is liable to be assessed as an ''individual'' in accordance with the provisions of Section 3 of the Wealth-tax Act, 1957 ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that further investigation of facts was necessary for determination of the association''s claim for exemption from wealth-tax u/s 5(1) of the Wealth-tax Act, 1957, and, in that view in setting aside the assessment ?"

6. We have heard the rival contentions. Learned counsel, appearing for the parties, reiterated what they had submitted before the Tribunal.

7. The first question falling for determination is whether the Indian Jute Mills Association should be assessed in the status of an association of persons as claimed in the return.

8. According to the charging Section 3 subject to the other provisions of the Act, wealth-tax is leviable on the net wealth on the corresponding valuation date of every individual, Hindu undivided family and company. The assessee is neither an individual nor a Hindu undivided family nor a company. It is, therefore, contended on behalf of the assessee that it has no liability to tax.

9. The first point that has to be noted is that the assessee here is a juristic person and not a natural person. It is registered under the Trade Unions Act. Section 13 of the Trade Unions Act invests it with the juristic character with the power to acquire and hold property. The Wealth-tax Officer, in the case, has held that such a juristic person would be brought to the charge of wealth-tax as an individual, because u/s 2 of the Act, the assessee means a person by whom wealth-tax on any sum of money is payable under the Act. Section 3 is the charging section. It says that the tax is payable by every individual, Hindu undivided family and a company. Now, the assessee here is not a company which means a body corporate incorporated under the Companies Act, 1956, nor is it a Hindu undivided family. It has to be regarded as an individual to be brought within the charge of tax. If it is not an individual, there is no charge of tax on its wealth.

10. The difficulty for the Revenue, in the case, is that the word "individual" in the common acceptance means a human being. Therefore, a juristic person like an association registered under the Trade Unions Act may on the first blush seem to be at odds with the common understanding of the word "individual",

11. But, it is now a settled principle that the word "individual" in law may not necessarily imply a human being. A juristic person like the assessee in the instant case may also be treated as an individual. The assessee''s contention is that when the ordinary connotation of the word "individual" does not encompass a body or an association of persons, it is improper that the word should be overstrained to yield a result helpful to fasten a liability of tax on to a juristic person.

12. But we have to refer here to the decision of the Supreme Court in Seth Banarsi Das etc. Vs. Wealth Tax Officer, Special Circle Meerut, etc., wherein the Supreme Court interpreted the word "individual" in an expansive manner to cover, apart from the individuals, juristic persons. It is not for mere forensic novelty that the Supreme Court had to stretch the word "individual". A difficulty arose in Seth Banarsi Das etc. Vs. Wealth Tax Officer, Special Circle Meerut, etc., as the taxation on the wealth of the Hindu undivided family was challenged on grounds of want of constitutional authority to tax the wealth of such family. It was contended before the Supreme Court that there is no reference in entry 86 of List I of the Seventh Schedule of the Constitution to Hindu undivided family as the subject of taxation in respect of its wealth. There is only reference to individuals and companies. Entry 86 of List I of the Seventh Schedule which is the source of authority for the levy reads as follows :

"86. Taxes on the capital value of the assets, exclusive of agricultural land, of individuals and companies ; taxes on the capital of companies."

13. That being the case the inclusion of a Hindu undivided family, in Section 5 is ultra vires entry 86 of List I of Schedule VII of the Constitution. It is in that context that the Supreme Court decided that the word "individual" in the said entry has a broad sweep and shall include a group of individuals including a Hindu undivided family. Therefore, the vires of Section 3 is beyond question. The Supreme Court doubtless gave the entry a connotation larger than its common meaning. Gajendragadkar C.J. observed, in this connection, as follows (page 231) :

"The tax legislation may, for convenience or other valid reasons, have made a distinction between individuals and a Hindu undivided families ; but it would not be legitimate to suggest that the word "individuals" occurring in an organic document like the Constitution must necessarily receive the same construction. Take, for instance, the traditional concept of income as recognised by the tax law. It has been held by this court in Navinchandra Mafatlal Vs. The Commissioner of Income Tax, Bombay City, , that the said traditional concept of income cannot introduce considerations of restriction or limitation in interpreting the word ''income'' in entry 54 in List I of the Seventh Schedule to the Government of India Act, 1935, which corresponds to entry 82 in List I of the Seventh Schedule to the Constitution. In that case, the validity of the tax levied on capital gains was impeached on the ground that capital gains cannot be regarded as income, and so entry 54 did not justify the levy of the tax on capital gains. In rejecting this contention, this court held that the word ''income'' occurring in entry 54 must receive the widest interpretation and could, therefore, he interpreted to include a capital gain."

14. Even earlier under the Income Tax Act, 1961, there arose the question whether the individual could imply an artificial person, In that context, the word "individual" fell to be considered by the Supreme Court.

15. The Supreme Court in Seth Banarsi Das etc. Vs. Wealth Tax Officer, Special Circle Meerut, etc., thus observed on the said earlier decision, viz., The Commissioner of Income Tax, Madhya Pradesh and Bhopal Vs. Sodra Devi, :

"In The Commissioner of Income Tax, Madhya Pradesh and Bhopal Vs. Sodra Devi, , the question which arose for the decision of this court had relation to the construction of Section 16(3) of the Indian Income Tax Act, 1922. That subsection provides that in computing the total income of any individual for the purpose of assessment, there shall he included the items specified in Clauses (a) and (b). What is the denotation of the word ''individual'' was one of the points which had to be considered in that case. According to the majority decision, though the word ''individual'' is narrower than the word ''assessee'', it does not mean only a human being, but is wide enough to include a group of persons forming a unit. ''It has been held'', observed Bhagwati J., who spoke for the majority, ''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. It would also include a minor or a person of unsound mind''. We are referring to this case only for the purpose of showing that the word ''individual'' was interpreted by this court as including a group of persons forming a unit."

16. These early decisions of the Supreme Court indicate that there was some amount of ambiguity with regard to the meaning of the expression "individuals" in its use in entry 86 of List I of the Seventh Schedule to the Constitution and its use and setting in Section 3 of the Wealth-tax Act. This difficulty had to be resolved. There is nothing exceptional in the judiciary taking upon .itself the duty of resolving such dilemma by use of astute forensic skill. In this connection, the memorable observations of learned Lord Denning in Seaford Court Estates Ltd. v. Asher [1949] 2 All ER 155 are worth quoting (page 164) : "It would certainly save the judge''s trouble if Acts of Parliament were drafted with divine prescience and perfect clarity. In the absence of it, when a defect appears, a judge cannot simply fold his hands and blame the draftsman. He must set to work on the constructive task of finding the intention of Parliament. . . A judge must not alter the material of which the Act is woven, but he can and should iron out the creases".

17. Anyway, the decision of the Supreme Court in Seth Banarsi Das etc. Vs. Wealth Tax Officer, Special Circle Meerut, etc., has become a landmark and part of the tax law itself. A similar view has been taken by the Supreme Court in a few more other decisions, for example, in ANDHRA PRADESH STATE ROAD TRANSPORT CORPORATION Vs. Income Tax OFFICER, B-I B-WARD, HYDERABAD, AND ANOTHER., . It has been held that a corporation constituted under a special Act is an individual within the meaning of Section 3 of the Indian Income Tax Act, 1922, and as such is taxable. Eventually, many High Courts have held that the statutory corporation, which is not a company, is embraced by the word "individual" and, thus, can be the subject of taxation in terms of Section 3 of the Wealth-tax Act. This view has been taken by the Kerala High Court in Kerala Financial Corporation Vs. Wealth-tax Officer, . The same has been the view taken by the Gauhati High Court in Assam Financial Corporation Vs. Commissioner of Wealth-tax and Others, In these decisions, it has been held that the import of the word "individuals" is not restricted to human beings and can include a corporation constituted under a Central or Provincial or State Act.

18. Reference may also be made to the decision of the Madras High Court in Coimbatore Club Vs. Wealth-tax Officer, There, the Madras High Court held that a club is to be treated as an "individual" because the word "individual" in Section 3 includes within its meaning plurality of individuals or body of individuals forming a single collective unit knit together by ties of common and joint interest without profit motive but owning property. A similar view has also been taken by the Andhra Pradesh High Court in Commissioner of Wealth-tax Vs. Hyderabad Race Club, .

19. This court in Royal Calcutta Turf Club Vs. Wealth Tax Officer, "B" Ward VIII and Others, has, however, held that a members'' club is not a juristic entity but is only an association of persons who come together for social intercourse and recreation but not absolutely for gain and as such a members'' club being an association of persons would not be an individual entity for the purpose of the Wealth-tax Act. But that case is distinguishable from the assessee-association. The assessee here is an institution, a Jute Mills Association, and is a juristic person by virtue of being registered under the Trade Unions Act. It, therefore, passes the tests laid down by the Kerala and the Assam High Courts. Reliance on behalf of the assessee on the decisions of the Bombay High Court in Indian National Shipowners Association v. A.B. Joshi, Sixth WTO [1987] 175 ITR 582 and Orient Club Vs. Commissioner of Wealth-tax, Bombay City-II, does not advance the assessee''s ease as in those cases the assessees were not registered under the Trade Unions Act. That makes a radical difference to the entire case.

20. In Seth Banarsi Das etc. Vs. Wealth Tax Officer, Special Circle Meerut, etc., the Supreme Court interpreted the word "individual" in entry 86 of List I of the Seventh Schedule of the Constitution which reads :

"Taxes on the capital value of the assets, exclusive of agricultural land, of individuals and companies ; taxes on the capital of companies."

21. According to the said interpretation, the word "individual" may include a group of individuals.

22. In the result, there is no error in treating the assessee-association as an individual within the meaning of the word "occurring" in Section 3.

23. The second point for consideration is whether the Indian Jute Mills Association is entitled to exemption u/s 5(1). Section 5(1)(i) is as under :

"Exemptions in respect of certain assets.--(1) Subject to the provisions of Sub-section (1A), 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, --

(i) any property held by him under trust or other legal obligation for any public purpose of a charitable or religious nature in India."

24. The object clauses of the assessee are contained at page 38 of the paper book. All the objects along with the provisions of the Trade Unions Act as quoted in Commissioner of Income Tax, West Bengal III Vs. Indian Sugar Mills Association, by the Supreme Court will go to indicate that some of the objects are not of charitable nature. The Supreme Court and this court in Commissioner of Income Tax, West Bengal III Vs. Indian Sugar Mills Association, and Indian Sugar Mills Association Vs. Commissioner of Income Tax, , have reconsidered the question of exemption u/s 11(1) of the Income Tax Act, and u/s 4(3)(i) of the Indian Income Tax Act, 1922, which are almost in pari materia to Section 5(1)(i) of the Wealth-tax Act. In Indian Sugar Mills Association Vs. Commissioner of Income Tax, , it has been held that one of the objects was promotion and protection of trade union interest and it was held that the. association was not formed primarily for the purpose of promoting good relationship between employees and employees or between employers and workmen (see page 599 of the Reports). It is settled law that if some of the objects are not charitable, the assessee cannot claim exemption. Reference is made to the decision of the Supreme Court in the case of Yogiraj Charity Trust v. CIT [1976] 105 ITR 777. It has been held that if one of the objects of the trust deed is not of charitable nature, the exemption u/s 4(3)(i) of the Indian Income Tax Act, corresponding to Section 11 of the Income Tax Act, is not available. In that case, the Supreme Court applied the principle laid down by its earlier decision in East India Industries (Madras) Private Limited Vs. Commissioner of Income Tax, Madras, . In this case, the finding of the Tribunal was that all objects were not of charitable nature, which has not been challenged and as such the assessee cannot claim exemption u/s 5(1)(i). Reliance is also sought on the decision of this court in the case of Commissioner of Income Tax Vs. Upper Ganges Sugar Mills Ltd., . In that case one of the objects of the trust was to maintain and grant aid to public places of worship and on that ground it was held that the whole object is not a charitable purpose and the assessee was not entitled to claim the benefit of Section 80G of the Income Tax Act. Distinction has to be made between charitable and non-charitable purposes, as has been done by the Supreme Court in the case of Commissioner of Income Tax, West Bengal III Vs. Indian Sugar Mills Association, . The same view is applicable to the instant case.

25. Where charitable and non-charitable objects are inseverable in the sense that the charitable trust or institution is free to spend income or to hold the property for the benefit of non-charitable objects to the exclusion of the charitable objects if it so chooses, the character of the objects of the institution in such event ceases to be charitable.

26. We see no perversity in the Tribunal''s order giving directions for further investigation as to the assessee''s claim for entitlement to exemption u/s 5(1)(i). The Tribunal has merely shown anxiety to see that justice is done to the parties by setting aside the matter for fresh adjudication.

27. For the reasons aforesaid, we answer both the questions in the affirmative and against the assesses.

Shyamal Kumar Sen, J.

28. I agree.