Kerala H.C : cash in hand is deemed unproductive asset for individual and HUF under sec, 2(ea) of W.T.Act

High Court Of Kerala

CWT Vs. Smt. K.R. Ushasree

Section : 2(ea)

C.N. Ramachandran Nair And C.K. Abdul Rehim, JJ.

WT Appeal Nos. 4, 6 To 12, 15 To 18, 21 To 23 & 25 Of 2008 And 1 To 5, 7, 11 To 18 And 28 Of 2009

July  24, 2009


C.N. Ramachandran Nair, J. :

These connected wealth-tax appeals are filed by the Revenue against the order of the Tribunal holding that cash in hand in excess of Rs. 50,000 in the hands of the assessees who are all individuals, does not form part of the asset under s. 2(ea)( vi) of the WT Act. We have heard senior counsel Sri P.K.R. Menon appearing for the appellants and various counsel appearing for the respondents.

2. All the respondent-assessees are individuals who have, in the books of accounts, cash in hand on the valuation date, in the case of some of the assessees, above Rs. 30 lakhs, in some cases above Rs. 50 lakhs and in few cases it is above a crore of rupees and in one case cash in hand held by an individual assessee is as much as Rs. 2.6 crores. According to the assessees all of them are engaged in business and the cash in hand is nothing but business asset which is a productive asset not forming part of asset as defined under the provisions of the WT Act, 1957. Since the sole question pertains to scope of meaning of s. 2(ea)( vi) of the Act, we extract hereunder the said provision for easy reference:

“(ea) assets, in relation to the assessment year commencing on the 1st day of April, 1993, or any subsequent assessment year, means—

(vi) cash in hand, in excess of fifty thousand rupees, of individuals and HUFs and in the case of other persons any amount not recorded in the books of account.”

3. The contention of the appellants is that cash in hand excluded from “assets” for individual assessees is only Rs. 50,000 and any amount held as cash in hand in excess of Rs. 50,000 is an asset falling under the above definition clause. The contention of the assessees is that so far as businessmen are concerned, cash in hand is a business asset and being productive it is not to be treated as asset within the meaning of the above clause. The assessees have relied on the Speech made by the Finance Minister while introducing the Finance Bill, 1992 containing the above provision for exemption and they have also relied on the two decisions of the Supreme Court in Apollo Tyres Ltd. v . CIT [2002] 174 CTR (SC) 521: [2002] 9 SCC 1and in KSIDC Ltd. v . CIT [2003] 179 CTR (SC) 1 : [2003] 11 SCC 363.

4. The WT Act was amended by Finance Act, 1992 to implement the recommendations of the Chelliah Committee. The Committee’s recommendations are extracted in the Budget Speech of the Finance Minister, relevant portion of which is extracted hereunder :

“67. The WT Act, 1957, has far too many exemptions making its administration enormously complicated. The valuation of certain assets such as shares also presents problems, since very high market values reflecting speculative activity can lead to a heavy burden on shareholders who are long-term investors. There is also no distinction at present between productive and non-productive assets. The Chelliah Committee has suggested that in order to encourage the tax payers to invest in productive assets such as shares, securities, bonds, bank deposits, etc., and also to promote investments through mutual funds, these financial assets should be exempted from wealth-tax. Wealth-tax should be levied on individuals, HUFs and all companies only in respect of non-productive assets such as residential houses, including farm houses and urban land, jewellery; bullion, motor cars, planes, boats and yachts which are not used for commercial purposes. The Committee has further suggested that such tax should be at the rate of one per cent, with a basic exemption of Rs. 15 lakhs. I propose to accept the recommendation and I hope this change will encourage investments in productive assets and discourage investments in ostentatious non productive wealth.”

Pursuant to the amendment, the CBDT issued Circular No. 636, dt. 31st Aug., 1992 [(1992) 107 CTR (St) 1 ]which is as follows :

“54. With a view to stimulating investment in productive’ assets, the Finance Act has abolished wealth-tax on all assets except certain specified assets. The term ‘asset’ will include guest houses and residential houses including farm houses within twenty-five kilometres from the local limits of any municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee or by any other name) or a cantonment board but does not include a house which has been allotted by a company to an employee or an officer, or a director who is in the whole time employment, having a gross annual salary of less than two lakh rupees. It will also not include a house for residential purposes which forms part of stock-in-trade. Further it will include motor cars other than used in the business of running them on hire or which form part of stock-in-trade; jewellery, bullion, furniture utensils or any other articles made wholly or partly of gold, silver, platinum or any other precious metal Or any alloy containing one or more of such precious metals (other than those used as stock-in-trade); yachts and boats and aircrafts (other than those used for commercial purposes), cash in hand in excess of Rs. 50,000 of individuals or HUFs and in case of any other person any amount not recorded in the books of account and urban land”.

The assessees have heavily relied on Minister’s Speech and the above circular of CBDT to contend that cash in hand of businessmen being productive asset recorded in the books of accounts, including the balance sheet, does not fall within the definition of “asset”. They have relied on the above referred decisions of the Supreme Court for the proposition that if the meaning of the section is not free from doubt, then the Minister’s Budget Speech introducing the section should be resorted to. Before considering the contentions of the respondents, we have to first consider the scope of the above section and see whether it excludes cash in hand above Rs. 50,000 held by the individuals from the scope of “asset”. In fact, it would be useful to refer to the scheme of the Act, prior to and after the amendment before proceeding to consider the meaning of the section. The Act provides for wealth-tax on three categories of assessees, namely, individuals, HUFs and companies. “Asset” as defined under s. 2(e) of the Act, which stood in force until 31st March, 1992 included property of every description, movable or immovable, except the items excluded in the sub-clauses provided therein. In other words, property of every description other than those which were specifically excluded were subject to wealth-tax. However, after the amendment, Parliament based on the recommendations of the Chelliah Committee, identified non-productive assets and classified the same under the new definition cl. (ea) introduced to s. 2 providing for wealth-tax only on such of the assets enumerated in the sub-clauses provided under the said section w.e.f. 1st April, 1992. In other words, while the provisions of the WT Act, prior to the amendment by Finance Act, 1992, described and named items of assets excluded from tax, after the amendment, the assets which are subject to wealth-tax are specifically identified and earmarked by Parliament in the sub-clauses contained in s. 2(ea) of the Act. Keeping this in mind, we have to identity what are the “assets” covered by the various clauses of s. 2(ea) and which are the assessees dealt with therein. No one can have any doubt that cash in hand is covered by cl. (vi) of s. 2(ea). It is obvious that exclusion of cash in hand above Rs. 50,000 is provided only to individuals and HUFs. In other words, for the other persons referred to in the said clause which can be only companies, there is no exclusion of any specific amount. However, the section makes it very clear that so far as individuals and HUFs are concerned, cash in hand in excess of Rs. 50,000 is assessable under the Act. So far as the other category, namely, companies, is concerned, the distinction is between the amount recorded in the books of accounts and amounts not recorded in the books of accounts. In the case of companies, what is brought to definition of “asset” is the amount not recorded in the books of accounts, which obviously means that cash in hand recorded in the books of accounts is outside the scope of “asset”. We notice that the assets described in the sub-clauses are taxable assets. While cash in hand in excess of Rs. 50,000 has to be treated as an “asset” of individuals and HUFs, any cash in hand for other persons, namely, companies, not recorded in the books of accounts is an asset. We do not find any ambiguity in the section which is plain and clear and is capable of no other meaning except what is stated above.

5. The question now to be considered is whether the respondents argument that cash in hand recorded in the books of accounts by the respondents-assessees, who are businessmen, has to be excluded from the scope of “assets” because cash in hand is a productive asset. We do not think this argument is tenable because there is no provision in the definition clause or in any other section of the Act authorising the WTO to exclude cash in hand if it is found to be a productive asset. Even though Chelliah Committee recommended levy of wealth-tax only on nonproductive assets, Parliament has instead of leaving the matter for adjudication in the case of every assessee and every asset, proceeded to identify non-productive assets and brought all such assets within the definition clause for the purpose of wealth tax. In other words, once the statute identified non-productive assets for the purpose of assessment in the definition clause, there is no scope for any adjudication as to whether any such asset is productive warranting exclusion. In fact, it is pertinent to note that cash in the bank account of the assessee is excluded because such cash is used by the bank for business purposes like advancing loans to other parties, and so much so cash maintained in the bank accounts by assessees is excluded from the definition of “assets”. So much so, in our view, the Parliament deliberately brought to tax cash in hand in the case of individuals and HUFs for the purpose of levy of wealth-tax in excess of the limit of Rs. 50,000 by treating it as nonproductive asset. Though not relevant, we are constrained to observe that there is nothing that stops the assessees from utilising the cash in hand which may be business asset on the valuation date for any nonproductive purpose on the next day. Therefore the argument of the assessees that cash in hand of businessmen should be treated as productive asset also is meaningless. Except narrating the recommendations of the Chelliah Committee, neither the Finance Minister in the Budget Speech, nor the CBDT in its circular, said anything for exclusion of cash in hand in excess of Rs. 50,000 held by individuals and HUFs from the “assets” for the purpose of WT Act.

In the result, we allow all the Departmental appeals, reversing the orders of the Tribunal and by upholding the orders of the lower authorities holding that cash in hand in excess of Rs. 50,000 held by the individual assessees formed part of assets under s. 2(ea)(vi ) of the Act.

[Citation : 332 ITR 75]

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