P.A.JOSE V. UNION OF INDIA

WP(C)/23487/2010

AI Insights

The case revolves around the interpretation of the Wealth Tax Act, 1957, specifically concerning the taxation of cash-in-hand held by assessees on the valuation date. The assessees, engaged in various businesses, argued that the cash-in-hand, which was disclosed in their books and used for business purposes, should not be considered an 'asset' under the Act. The High Court examined the definitions and provisions of the Act, the recommendations of the Chelliah Committee, and the speeches of the Finance Minister to conclude that only non-productive assets should be taxed. The court also addressed the challenge to the constitutionality of the specific provision under the Act, finding it valid and not discriminatory.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 722310 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 16-07-2018
• Assessment Year: misc
• Other Referred Cases: Commissioner of Wealth Tax v. K.R.Ushasree, KSIDC Ltd. v. C.I.T., Chelliah Committee Report, Sole Trustee, Loka Shikshana Trust v. CIT, Mysore, Indian Chamber of Commerce v. CIT, WB, CIT, WB v. Vegetable Products Ltd., Sneh Enterprises v. Commissioner Of Customs, K.T.Moopil Nair v. State of Kerala, Karimbil Kuhikonan v. State of Kerala, Roop Chand Adlakha v. Delhi Development Authority, Union of India v. N.S.Rathnam, Shri.Ram Krishna Dhalmia v. Shri. Justice S.R.Tendolkar
• Laws Referred To: Wealth Tax Act, 1957
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: JOSE JOSEPH
• Assessee Lawyers: A KUMAR
• Keywords: Arbitrary; Assessment; Cash in hand; Discriminatory; Suo motu revision; Unconstitutionality; Wealth Tax
• Section: 40A(3); 3; 25; 2(ea); 27A(3)

Judgement Text

" IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON MONDAY, THE 16TH DAY OF JULY 2018 / 25TH ASHADHA, 1940 WP(C).No. 23487 of 2010 PETITIONER P.A.JOSE, PAYYAPPALLI HOUSE, THIRUVATHUKAL, KOTTAYAM. BY ADV.SRI.A.KUMAR RESPONDENTS: 1. UNION OF INDIA, REPRESENTED BY THE SECRETARY, MINISTRY OF FINANCE. NEW DELHI- 1. 2. THE COMMISSIONER OF WEALTH TAX, KOTTAYAM. 1 3. ASST. COMMISSIONER (WEALTH TAX) CIRCLE-1, KOTTAYAM. 1 BY ADV. SRI.JOSE JOSEPH, SC, THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 16-07-2018, ALONG WITH WTA NO. 6/2008 AND CONNECTED CASES THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WP(C).No. 23487 of 2010 APPENDIX PETITIONERS EXHIBITS EXT.P1 TRUE COPY OF THE ASSESSMENT ORDERS FOR THE ASSESSMENT YEAR 1996-97 DT. 31.3.2004 EXT.P1(A) TRUE COPY OF THE ASSESSMENT ORDERS FOR THE ASSESSMENT YEAR 1997-98 DATED 31.3.2004 EXT.P1(B) TRUE COPY OF THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 1998-99 DATED 31.3.2004 EXT.P1(C) TRUE COPY OF THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 1999-00 DATED 14.11.2006 EXT.P1(D) TRUE COPY OF THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2000-01 DATED 28.3.2005 EXT.P1(E) TRUE COPY OF THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2001-02 DATED 16.1.2006 EXT.P1(F) TRUE COPY OF THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2002-03 DATED 11.1.2006 EXT.P2 TRUE COPY OF THE COMMON ORDER FOR THE ASSESSMENT YEAR 1996-97, 1997-98 AND 1998-99 DT. 30.11.2006 EXT.P2(A) TRUE COPY OF THE COMMON ORDER FOR THE TRIBUNAL FOR THE ASSESSMENT YEAR 1999-00 AND 2000-01 DT. 09.05.2008 EXT.P2(B) TRUE COPY OF THE ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2001-02 AND 2002-03 DT. 12.3.2007 EXT.P3 TRUE COPY OF THE JUDGMENT OF THE DIVISION BENCH OF THIS HON' BLE COURT RESPONDENTS EXHIBITS NIL /TRUE COPY/ PA TO JUDGE sdr/- 26.7.18 “CR” K.VINOD CHANDRAN & ASHOK MENON, JJ. ------------------------------------------- W.P.(C) No.23487 of 2010, W.T.Appeal Nos.4, 6, 7, 8, 9, 10, 11, 12, 15, 16, 17, 18, 21, 22, 23 & 25 of 2008, W.T.Appeal Nos.1, 2, 3, 4, 5, 6, 7, 9, 11, 12, 13, 14, 15, 16, 17, 18, 20 & 28 of 2009 ------------------------------------------- Dated this the 16th day of July, 2018 J U D G M E N T Vinod Chandran, J. Common question of law arise in the above appeals as to the cash-in-hand; on the valuation date, of the assessees, all proprietary businesses, being capable of assessment under the Wealth Tax Act, 1957 (for brevity the 'Act'), despite the same being disclosed in the books of accounts. An ancillary question in some of the appeals is the applicability of Section 25 of the Act; the power of suo motu revision. The appeals were once dismissed, answering the questions against the assessees, by a common judgment dated 24-07-2009 reported in [2011] 332 ITR 75 (Ker.), Commissioner of Wealth Tax v. K.R.Ushasree. The assessee in W.T.A.No.4/1998, who is concerned with more than one assessment year, had challenged the decision before the Hon'ble Supreme Court. By judgment dated 15-07-2015, the Supreme Court found that the WP(C) 23487/2010 & connected cases 2 High Court committed an error by not framing a substantial question of law as per the provisions of Section 27A(3) of the Wealth Tax Act, 1957 (for short 'the Act'). 2. Having gone through the various appeals, we are of the opinion that the substantial questions of law could be framed as follows:- (i) Whether on the facts and in the circumstances of the case, the cash-in-hand as found on the last day of the accounting year as revealed from the books of accounts of the various assesses could be treated as an asset under Section 2(ea) of the Act ? One other question arising in certain appeals is also framed as follows: (ii) Whether on the facts and in the circumstances of the case, the Tribunal was right in finding that the jurisdiction assumed under Section 25 of the Wealth Tax Act was not in accordance with law ? 3. The learned Counsel appearing for the assessees in the appeals, which were remanded by the Hon'ble Supreme Court, has also brought to our notice a Writ Petition pending, on a challenge made to the provision, numbered as W.P.(C) No.23487/2010. We, WP(C) 23487/2010 & connected cases 3 hence called for the Writ Petition also to be heard along with the appeals; especially since all these cases are pending for long and the disposal of the appeals without addressing the challenge to the provision under which the assessment was facilitated, would cause prejudice to the assessees. 4. The Writ Petition challenged the specific provision in sub-clause (vi) of Section 2(ea) of the Act. The challenge is on the ground of unconstitutionality for reason of it being arbitrary and discriminatory. There is also an alternative relief prayed to read down the provision so as to include within the definition of 'assets' only cash-in-hand in excess of Rs.50,000/-; which is not duly recorded in the books of account, even of an individual. The Writ Petition is filed by the appellant in six of the appeals, pending before us from the orders of the Tribunal. The orders of the Tribunal has also relied on its own earliest order in W.T.A.No.1/2009. On the status and nature of the assessees suffice it to notice that they are proprietor-ships, engaged in businesses of jewellery, chit funds, bar hotels and production and export of cashew and categorized as 'individual' for the purpose of WP(C) 23487/2010 & connected cases 4 assessment. Jewellery requires cash-in-hand for purchase of old gold, payments to job-works etc: and chit funds have it, by way of deposit and for disbursal of funds to the subscribers. As far as cashew industries are concerned, their raw material is sourced from small agriculturalists and cash is required to purchase the raw materials as also payment to employees, engaged seasonally on daily wage basis. The bar hotels emphasise the maximum income generated in the evenings and regular cash transactions with customers as also payment of wages to the employees. The employees are also from the unorganized, marginalized section of society. The regular cash transactions in all the businesses necessitate cash to be held as such. 5. In all the appeals, the assessees retained cash-in-hand, on the valuation date, in excess of Rs.50,000/- but mostly disclosed in the books of accounts; in some cases, ranging between Rs.30 lakhs to Rs.2.6 crores. The learned Counsel for the assessees contended that they are engaged in various businesses, where transactions are with cash held in hand, which otherwise would hamper the smooth functioning of the business. It is also submitted WP(C) 23487/2010 & connected cases 5 that only the cash-in-hand as on the valuation date, would be eligible for being included under the definition of assets under the Act. The assessees could very well escape from the liability by deposit of such cash in a bank on the valuation day and withdrawal on the very next day. The intention under the Act hence was only to tax as assets, such cash held, without it being reflected in the accounts. It is also argued that the cash being kept in hand for business purpose is a productive asset and in such circumstances, necessary aid can be availed from the speech of the Finance Minister as also the CDBT Circular, which clearly indicate the intention to exclude productive assets from being brought under the definition of 'assets' and hence not taxable as wealth. 6. The definition clause arising for consideration here is extracted here under:- “ 2(ea) assets, in relation to the assessment year commencing on the 1st day of April, 1993, or any subsequent assessment year, means - xx xx xx (vi) cash in hand, in excess of fifty thousand rupees, of individuals and Hindu undivided families and in the case of other persons any amount not recorded in the books of account.” WP(C) 23487/2010 & connected cases 6 7. The learned Counsel has relied on KSIDC Ltd. v. C.I.T., (2003) 11 SCC 363, to contend that the provision is ambiguous and for interpretation, there could be external aid resorted to, which aid is forthcoming from the speech of the Finance Minister as also the CDBT Circular; in understanding the exclusion intended for a productive asset. Reading the order of the Tribunal, it is submitted that the Tribunal had ascertained the meaning of 'productive asset' from the speech of the Finance Minister as well as the CDBT Circular. It was found that the Finance Minister has relied on Chelliah Committee Report, which recommended measures encouraging the tax payers to invest in productive assets, such as shares, securities, bank deposits, bonds, etc. It was with such intention to promote investment that the above provision was amended, specifically determining those assets, which could come under the definition of 'assets' as defined in the Act. The Tribunal noticed that the interpretation has to be based on the intention of the legislature, which was exclusion of productive assets, meaning those assets, which are put to commercial purposes. The Tribunal resorting to such external aid, found that the cash kept by the various assessees WP(C) 23487/2010 & connected cases 7 on the valuation date, having been disclosed in the accounts, there could be no assessment to tax treating it as 'assets' under the Act. 8. The learned Counsel contended that the emphasis in the Chelliah Committee report and the speech of the Finance Minister is on the non-productive assets, specifically to avoid the tendency of keeping dead assets. Only such dead assets were attempted to be brought within the ambit of the definition of 'assets' for the purpose of assessment under the Act. It is also pointed out that there is no warrant for assuming that, the words 'the other persons', as used in the proviso, includes only Companies as has been found by the earlier Division Bench hearing the appeals, which judgment has now been set aside by the Hon'ble Supreme Court. The charging section being Section 3 specifically speaks of every individual, HUF and Company. The definition of 'assets' makes a departure in so far as speaking of individuals, HUF and other persons. An individual carrying on a trading activity as a proprietorship firm could as well be included under the definition of 'other persons'. One has to understand the provision keeping in mind what is sought to be taxed, being unproductive assets, which; WP(C) 23487/2010 & connected cases 8 cash-in-hand, kept for business purposes and recorded in the books of account, is not. 9. The proprietor-ship concerns of the petitioner in the Writ Petition is a jewellery having huge turnover as also phenomenal stock at any point of time. They are involved in the purchase of old gold and also payment to artisans, who manufacture ornaments, who are from the marginalized section of the society, who can only be so remunerated with cash. The cash kept by the petitioner often is by way of loans availed from financial institutions, which necessarily results in liability to interest, which the proprietor is obliged to pay, on the loans. Even if the cash is that generated from the business, by keeping it in hand, the petitioner looses interest; which would accrue, if the same was deposited in banks. By keeping the cash-in-hand as recorded in the books of accounts, the petitioner does not get any advantage other than its employment in the business. The cash so held in hand with liability to interest or loosing earnings by way of interest, is only to facilitate smooth transactions in the individual business. When such cash is disclosed in the accounts there can also be no allegation raised of an WP(C) 23487/2010 & connected cases 9 attempt to suppress and evade any levy by way of direct or indirect taxation. The distinction has to be drawn in so far as the productive and non-productive assets and no classification can be made on the basis of the legal status of a trading firm, which is mandated by statute to maintain books of accounts, especially for income tax purposes; which officials also are empowered to assess the wealth tax. The learned Counsel for the respondents in the Appeals relies on the decisions reported in K.T.Moopil Nair v. State of Kerala, (1961) 3 SCR 77, Karimbil Kuhikonan v. State of Kerala, 1962 Supp.(1) SCR 829, Roop Chand Adlakha v. Delhi Development Authority, (1989) Supp.(1) SCC 116 and Union of India v. N.S.Rathnam, (2015) 10 SCC 681. 10. The learned Senior Standing Counsel, Government of India (Taxes), cautions this Court in interpreting a provision on the basis of individual exceptional circumstances. The law should apply generally and cannot be interpreted on the basis of exceptional circumstances pointed out by the assessees, nor could individual assessees be excluded on the basis of such circumstances, if at all, they exist. The submission of the assessees that they could very WP(C) 23487/2010 & connected cases 10 well have deposited the cash on the valuation date in a bank, which would absolve them from the liability of tax levied on the cash-in-hand, cannot at all be countenanced. The assessees could very well have arranged their affairs in such a way, to avoid taxation. That having not been done, they cannot turn around and seek the liability to be effaced on the basis merely of speculation of a deposit made on the valuation date, which obviously was not resorted to. The deposit having not been made, the amounts remain as cash-in-hand and are included under 'assets' as defined under Section 2(ae)(vi). It is pointed out the recording of the cash- in-hand, in the books of accounts, would absolve only a Company from taxation under the Act, since it was understood by the Parliament that a Company always is established for the purpose of manufacture, trade or a commercial activity and is engaged in productive operations. There is also a mandate in so far as recording of cash-in-hand in the books of accounts as they are regulated by various enactments; in the absence of which alone such cash-in-hand of the Company would be subjected to taxation. The definitions of 'Company' as available in the Law Lexicon and the WP(C) 23487/2010 & connected cases 11 Black's Law Dictionary are extracted in the counter-affidavit to contend that it includes even a union or association of persons for carrying on a commercial or an industrial enterprise. It is argued that it is not arbitrary or discriminatory to treat an individual and a Company as distinct and separate which they are, in all respects. Reliance is placed on State of M.P. v. Bhopal Sugar Industries Ltd., AIR 1964 SC 1179 to urge that though every person similarly circumstanced as regards the subject matter are entitled to equal protection of the law under Article 14 of the Constitution; it is not predicated thereby that every law must have universal application irrespective of dissimilarity of objects or transactions to which it applies, or of the nature or attainments of the persons to whom it relates. In the present case, classification is perfectly legal and proper and the different measure employed for the purpose of taxation categorizing three different entities, who by no stretch of imagination can be said to be equal; serves and furthers the object and cannot be faulted as arbitrary, discriminatory or in violation of the guarantee of equal protection of laws. WP(C) 23487/2010 & connected cases 12 11. The learned Senior Counsel for the Department also argued that Section 40A(3) of the Income Tax Act prohibited any cash transaction above Rs.20,000/- and in that context, the assessees herein cannot contend for a moment, that they had held the cash-in-hand for business purposes. Countering the aforesaid argument, the learned counsel for the petitioner pointed out that though the prohibition as per Section 40A(3) puts a limit of Rs.20,000/-, the permissible amount to be kept in hand without liability to taxation is Rs.50,000/- as per the Wealth Tax Act. There can hence be no argument raised on the basis of Section 40A(3) to sustain the provision under the Wealth Tax Act. It is also pointed out that all these assessees are engaged in trades where they have constant transactions with the marginalized sections of society, either as suppliers or consumers or inextricable part and parcel of their trading or commercial activity. It is hence necessary that cash be held in hand for the purpose of smooth functioning of the business, but however the same being disclosed in the books of accounts maintained by them and offered for taxation under the Income Tax Act. We also do not think that this argument can be WP(C) 23487/2010 & connected cases 13 sustained. As countered, the subject enactment permits individuals to hold cash in excess of the limit under Section 40A(3). There can also be no warrant to assume that any transaction with the cash-in-hand would be in violation of Section 40A(3); which if found out, appropriate action could be initiated under that Act. 12. We have to initially notice the relevant portion of the speech of the Finance Minister as also the Circular of the CDBT; the former of which is extracted first and then the latter: \"67. The Wealth-tax Act, 1957, has far too many exemptions making it's 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 nonproductive 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, Hindu undivided families 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 WP(C) 23487/2010 & connected cases 14 propose to accept the recommendation and I hope this change will encourage investments in productive assets and discourage investments in ostentatious non-productive wealth.” The Circular read as here under: “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\". 13. The aforesaid extracts would have to be examined with reference to the history of the legislation, which prior to WP(C) 23487/2010 & connected cases 15 31-03-1992, included property of every description, movable or immovable, except the items excluded in clause (e) of Section 2. However, with the amendment in 1992, based on the recommendations of the Chelliah Committee, the Act sought to identify the non-productive assets and classified the same under the new definition clause (ea) of 'assets' inserted in Section 2 of the Act. This is the provision, which now comes up for interpretation before us. We have to notice that sub-clause (vi) of Section 2(ea) has two limbs. The first dealing with individuals and HUF's, whose cash-in-hand in excess of Rs.50,000/-, is treated as 'assets' for the purpose of taxation under the Act. As far as the 'other persons' are concerned, any amount kept as cash-in-hand, not recorded in the books of accounts, even if it be less than Rs.50,000/-, is included as assets for the purpose of taxation. As we noticed on the history of legislation, the specific provision was brought in based on the Chelliah Committee report, which seeks to discourage the tendency to keep 'assets' dead without it being put to any productive use. The recommendations were also to ensure investment of dead capital in productive activities. The speech of the Finance Minister, WP(C) 23487/2010 & connected cases 16 adopting the recommendation of the Chelliah Committee, lays emphasis on the need to encourage tax payers to invest in productive assets, such as shares, securities, bank deposits, bonds, etc. The Finance Minister's speech also spoke of assets like residential houses, farm houses and urban land, jewellery, bullion, motor cars, etc. not being put to use for commercial purposes, being included in the definition of assets, which are liable to taxation under the Act. What was sought to be taxed was ostentatious investments, stashing or hoarding of wealth, without the same being put to productive use contributing to national economy and the general welfare; in larger public interest. 14. In this context, we have to notice the judgment of the Hon'ble Supreme Court in Moopil Nair's case. Therein, the challenge was against the Travancore-Cochin Land Tax Act, which sought to levy a land tax at an average rate of Rs.2/- per acre on private forest lands held by individuals. The challenge was against an assessment made for a sum of Rs.50,000/- per annum, without any survey being conducted as to the exact extent of land. On a mere conjuncture the area was determined at 25 Acres by the WP(C) 23487/2010 & connected cases 17 District Collector. The challenge was on grounds of (i) inequality and discrimination, infringing Article 14 of the Constitution, (ii) unreasonable restriction on right to hold property, (ii) the statute being totally devoid of any procedure for enquiry or investigation, filing of return, an assessment or even an appeal to a higher forum and (iv) arbitrary being repugnant to the guaranteed rights of the land holders. We have to extract the following portions coming within Para 7 of the judgment: “... The guarantee of equal protection of the laws must extend even to taxing statutes. It has not been contended otherwise. It does not mean that every person should be taxed equally. But it does mean that if property of the same character has to be taxed, the taxation must be by the same standard, so that the burden of taxation may fall equally on all persons holding that kind and extent of property. If the taxation, generally speaking, imposes a similar burden on everyone with reference to that particular kind and extent of property, on the same basis of taxation, the law shall not be open to attack on the ground of inequality, even though the result of the taxation may be that the total burden on different persons may be unequal. Hence, if the legislature has classified persons or properties into different categories, which are subjected to different rates of taxation with reference to income or property, such a classification would not be open to the attack of inequality on the ground that the total burden resulting from such a classification is unequal. Similarly, different kinds of property may be subjected to different rates of taxation, but so long as there is a rational basis for the classification, Article 14 WP(C) 23487/2010 & connected cases 18 will not be in the way of such a classification resulting in unequal burdens on different classes of properties. But if the same class of property similarly situated is subjected to an incidence of taxation, which results in inequality, the law may be struck down as creating an inequality amongst holders of the same kind of property. It must, therefore, be held that a taxing statute is not wholly immune from attack on the ground that it infringes the equality clause in Article 14, though the courts are not concerned with the policy underlying a taxing statute or whether a particular tax could not have been imposed in a different way or in a way that the Court might think more just and equitable. The Act has, therefore, to be examined with reference to the attack based on Article 14 of the Constitution.” Eventually, in Moopil Nair, the Act was set aside on all the grounds on which it was challenged finding inequality writ large and being inherent in the provisions authorising the Government to grant exemptions. Finding a total absence of classification, where such classification was warranted; this alone was held to create inequality. The enactment was declared to be a confiscatory one for reason of the levy being on the holder and the measure being the extent; without any reference to the nature of the holding, its capacity to yield and generate income or the actual use to which it could be put to or at least its potential to be used and so generate income. WP(C) 23487/2010 & connected cases 19 15. We also deem it fit that two of the five classes, enumerated by Shri.Ram Krishna Dhalmia v. Shri. Justice S.R.Tendolkar, 1958 AIR SC 538 , under which falls, any attack against constitutionality of a particular law, on grounds of discrimination and violation of equal protection of the laws, also be extracted here under: “(iv) A statute may not make a classification of the persons or things for the purpose of applying its provisions and may leave it to the discretion of the Government to select and classify the persons or things to whom its provisions are to apply but may at the same time lay down a policy or principle for the guidance of the exercise of discretion by the Government in the matter of such selection or classification, the court will uphold the law as constitutional, as it did in Kathi Raning Rawat v. State of Saurashtra. (v) A statute may not make a classification of the persons or things to whom their provisions are intended to apply and leave it to the discretion of the Government to select or classify the persons or things for applying those provisions according to the policy or the principle laid down by the statute itself for guidance of the exercise of discretion by the Government in the matter of such selection or classification. If the Government in making the selection or classification does not proceed on or follow such policy or principle, it has been held by this Court e.g. in Kathi Raning Rawat v. State of Saurashtra that in such a case the executive action but not the statute should be condemned as unconstitutional.” WP(C) 23487/2010 & connected cases 20 16. We understand from Moopil Nair that inequality arises not only when equals are classified differently, but also when in-equals are put in the same category. We also have to look at the policy of the legislature as evident from the statute for the purpose of discerning as to who and what is to be taxed under the Act, specifically under the definition of 'assets'. The vexing question is as to who comes under the class 'individuals' and 'HUF's' and who are sought to be included or excluded under the category of 'other persons'; in deciding the levy on cash-in-hand, with or without limit, as a productive or non-productive asset. The policy is also to tax the non-productive assets. The charge as per Section 3 is on the net wealth of every individual, HUF and company, which by virtue of Section 4 also includes the value of assets held. The classification, in Section 2(ea) being the definition of assets in relation to assessment year commencing from 01-04-1993, has to be understood as of the object on which the tax is levied, the liability being on the person who holds that object. A productive asset is anything employed in generation of income as distinguished from one stashed or hoarded for the luxury or mere whim of the holder, WP(C) 23487/2010 & connected cases 21 on an ostentatious consideration and is in effect dead, not in any manner contributing to the economy. 17. While Section 3 of the Act, created a charge on every individual, HUF and company, when amendments were made including certain 'assets' to come within such definition under the Act, on the distinction drawn of productive and non-productive, the legislature thought it fit to classify individuals and HUF as falling under one category and 'other persons' in yet another category. The earlier Division Bench decision was set aside by the Hon'ble Supreme Court, for reason only of no question of law having been framed; we still had the benefit of going through the judgment. The learned Judges have proceeded on the premise that 'other persons' would include only a Company. We, with all respect at our command, are unable to accede, especially looking at the different entities made mention of in the charging section. Companies were specifically mentioned in the charging section at Section 3. The avoidance of the word 'company' and the use of the words 'other persons' by the legislature was conscious and not without a specific intention. The words 'other persons' are of a wider import and has WP(C) 23487/2010 & connected cases 22 to be understood by the qualification made of; being exempt when there is a disclosure made in the books of accounts. 18. We also notice the specific grounds taken by the Department in its counter-affidavit that a Company and its transactions recorded in the books of accounts have been excluded for reason of the legislature's understanding that they are involved in a trade and also a productive activity. It cannot be said that only a company is involved in a trade or productive activity. A proprietorship firm, an association of persons and a partnership firm as also an HUF could also be involved in trading or other commercial activity, which would necessarily be a productive activity as has been noticed in the recommendations of the Chelliah Committee. A partnership firm, though a compendium of individuals and legally not treated as separate from the partners; for income tax purpose, the firm itself is an assessable unit as is an association of persons. An assessable unit whether it be an individual, a firm, a proprietorship concern or a company, whether incorporated as a company registered under the Indian Companies Act, or otherwise; are all required to maintain books of accounts for WP(C) 23487/2010 & connected cases 23 the purpose of Income Tax Act, the officers of which Department also makes assessments under the Wealth Tax Act. The requirement to maintain the books of accounts also is insofar as the proprietor-ship concern being assessable to income-tax, while many of those classified as individuals, for example, a salaried individual, not being required to maintain any books. The classification has hence to be understood as one facilitating the levy of tax on unproductive assets and the categorization is of those persons required to maintain books of accounts and others who have no such statutory liability. The use of the word 'other persons' reveals a common stream of persons, qualified with recording of cash-in-hand in the books of accounts. There can be no classification on the basis of the mere status, of an individual, HUF or Company. The classification has to be understood as between persons who are statutorily mandated to maintain accounts and those who are not. The former is engaged in productive activities, generating income for themselves, taxable under the Income Tax Act and those assets acquired from the income generated, being kept productive. When such books of accounts are maintained, WP(C) 23487/2010 & connected cases 24 there is absolutely no reason why the assessable units and the cash-in-hand of such assessable units, which is recorded in the books of accounts, should be included in the definition of 'assets' for the purpose of taxation under the Act. 19. The policy as evidenced from the Statute can also be understood from clause (ea) introduced as per the amendment of 1992 (Act 18 of 1992), within which is comprised sub-clause (vi). The various exclusions made as per sub-clause (i) indicates that a house for residential or commercial purposes, forming part of stock-in-trade, houses occupied for the purpose of any business or profession, any residential property let out for a minimum period and any property in the nature of commercial establishments or complexes, stand excluded; though the other buildings and lands appurtenant thereto are included within such definition. By sub- clause (iv) yards, boats and air-crafts, are included in assets, but those used for commercial purposes stand excluded. Hence, the policy is to exclude any asset, which is put to use for a commercial purpose, from taxation under the Act. This is the policy reflected in clause (ea) and sub-clause (vi), when an attempt was made to WP(C) 23487/2010 & connected cases 25 include cash-in-hand kept without investing it in a productive activity. The policy also is to avoid taxing any assets, which is put to use for a commercial purpose, which as recommended by the Chelliah Committee, was for a productive purpose. 20. Admittedly, the cash-in-hand held by the appellants herein are with respect to business transactions, the accounts of which were regularly maintained and the income thereon proffered for assessment before the Income-tax authorities. The cash so held in their hand were also recorded in the books of accounts, with certain exceptions, as we see from the orders of the Assessing Officer. The exceptions are in so far as the Assessing Officer having taxed only such amounts, which were kept in hand and which were in excess of Rs.50,000/- on a reading of sub-clause (vi) of clause (ea). The levy made by the authorities of all such cash-in-hand, whether disclosed in the accounts or not was only of that in excess of Rs.50,000/-. As we saw herein above, sub-clause (vi) of Section 2(ea) is in two limbs, one covering individuals & HUF's and the second 'the other persons'. As far as the former is concerned, only such cash-in-hand in excess of Rs.50,000/- would be brought to WP(C) 23487/2010 & connected cases 26 tax under the Act and as far as the second limb 'the other persons' are concerned, any amount, even within the limit of Rs.50,000/- kept in hand and not recorded in the books of account will be brought to tax under the Act. We have also found that there is no warrant for assuming that 'other persons' as seen from the provision includes or refers only to Companies. We are of the opinion that 'the other person' refers to any assessable unit on whom there is a specific statutory mandate to maintain books of accounts, in the present case under the Income Tax Act. The Companies Act definitely mandates maintenance of books of accounts by a company as a regular measure, whereas the Income Tax Act insists on such maintenance for the purpose of proper assessment of income, also making it mandatory for a statutory audit with respect to certain assessees on the basis of the income exceeding a particular limit. As in the case of Companies, a proprietorship firm, partnership firm or an association of persons carrying on trading activities are also required to maintain books of accounts as per the Income Tax Act. The emphasis as we see from clause (vi)(ea) is on the cash-in-hand being recorded in the books of accounts of 'other WP(C) 23487/2010 & connected cases 27 persons', who are required to statutorily maintain such books of accounts. We see from all the W.T.Appeals, the assessees were maintaining books of accounts and the Income Tax officials responsible for assessment of their income under the Income Tax Act has looked into the cash-in-hand disclosed in the books of account to proceed for assessment under the Act. The Assessing Officer, in some cases, had also excluded those amounts in excess of Rs.50,000/-, when disclosed in the books of accounts, following an earlier Tribunal order, which was taken up for suo motu revision. The first case in which the Tribunal held in favour of the assessee is a decision rendered in W.T.A.No.1/2009. 21. We find that there is a definite policy as discernible from the Act, as also the specific amendment brought in by way of introduction of clause (ea) in Section 2, which is to tax non- productive assets, including cash, in excess of Rs.50,000/- in case of individuals & HUF's and with respect to all other persons who regularly maintain books of accounts, on cash so held without disclosure. There is no classification which is arbitrary or discriminatory and violating the rights guaranteed of equal WP(C) 23487/2010 & connected cases 28 protection of laws. The policy and principle discernible from the enactment provides clear guidelines for selecting those to be taxed and does not leave it to the arbitrary exercise of the officers constituted under the Act. The classification herein is on the basis of whether an assessee is required to maintain regular books of accounts in the course of business or not. For anyone, who is not so required, the tax will be on any cash-in-hand exceeding Rs.50,000/-. For the others, for whom the requirement is mandatory, any cash not disclosed in the books of accounts will be taxed as wealth. The classification is based on a reasonable differentia and has a reasonable nexus with the object sought to be achieved by the taxing enactment. The law, in this case the specific amendment seeking to tax the non-productive cash-in-hand as wealth, available in Section 2(vi)(ea) is constitutionally valid. However, the officers have deviated from the policy and principle explicit from the enactment and hence such action taken under the Act for assessment of cash-in-hand of the assessees, disclosed in the books of accounts, but in excess of Rs.50,000/-, has to be set aside. We find the challenge to be capable of decision, on the WP(C) 23487/2010 & connected cases 29 principles herein above extracted from Shri.Ram Krishna Dhalmia. We do not hence find any reason to set aside the provision as arbitrary or discriminatory nor to read it down; on the interpretation placed by us on Section 2(ea)(vi). We dispose of the Writ Petition declaring and holding that the 'other persons' as coming in the second limb of Section 2(ea)(vi) includes those persons who carry on a commercial activity and are statutorily required to maintain books of accounts under the Income Tax Act. The writ petitioner, a proprietary firm engaged in the business of jewellery, is declared to be entitled to be absolved from the liability to tax under the Wealth Tax Act, for any amounts held as cash-in-hand, recorded in the books of accounts. It is made clear that any amounts not recorded in the books of accounts of similarly situated individual proprietorships, without reference to any limit of Rs.50,000/-, would be exigible to tax under the Wealth Tax Act. As a consequence, on the findings above there shall be a direction in the Writ Petition to assess to wealth tax only that cash in hand which, by any person carrying on a trading or commercial activity, is not disclosed in the books of account; statutorily required to be maintained. WP(C) 23487/2010 & connected cases 30 22. We now have to look at the appeals and we take for consideration W.T.Appeal No.1/2009 in which first the Tribunal took a decision for the first time, in favour of the assessee, in tandem with our reasoning above. The Tribunal has found, interpreting the term “productive asset” that it has to be understood in the context of commercial assets. Those assets which are used for commercial purposes are productive assets and the assets which are not used for commercial purposes are non-productive assets, is the finding. The Tribunal too has sought aid for such interpretation from the recommendations of the Chelliah committee as also the speech of the Finance Minister relying on Sole Trustee, Loka Shikshana Trust v. CIT, Mysore, (1975) 101 ITR 234 (SC) and Indian Chamber of Commerce v. CIT, WB, (1975) 101 ITR 796. The CBDT circular has been found to reveal the understanding of the authorities contemporanea expositio furnishing legitimate aid in the construction and interpretation of statutory provisions as held in K.P.Varghese v. ITO, (1981) 131 ITR 597 (SC). Reliance was also placed on CIT, WB v. Vegetable Products Ltd., (1973) 88 ITR 192 (SC) to find in favour of the assessee when two interpretations are WP(C) 23487/2010 & connected cases 31 possible. The learned Counsel for the assessees also have relied on Sneh Enterprises v. Commissioner Of Customs, (2006) 7 SCC 714 to further buttress the above proposition. On such interpretation given, accepting the findings of the Tribunal, we have to necessarily reject the Wealth Tax Appeals. The question of law framed by us as (i) above is answered in favour of the assessees and against the Revenue on the basis of the interpretation placed by us in the Writ Petition. The second question, on question (i) being answered in favour of the assessee, does not arise at all. Suffice it to notice that the Commissioner ought not to have found an error in the order of the Assessing Officer, and a consequential prejudice to the revenue, when the jurisdictional Tribunal had answered the questions already in favour of the assesssee. Ordered accordingly. Sd/- K. VINOD CHANDRAN Judge Sd/- ASHOK MENON Judge dkr "