COMMISSIONER OF WEALTH TAX VS MAN BAHADUR SINGH
1995 P T D 732
[208 I T R 658]
[Rajasthan High Court (India)]
Before K C. Agrawal, CJ. and V.K Singhal J
COMMISSIONER OF WEALTH TAX
Versus
MAN BAHADUR SINGH
D.B. Wealth Tax Reference No. 107 of 1982, decided on 14/10/1993.
(a) Wealth tax---
---- Valuation of assets---House property---Section 7 is a machinery provision subject to rules---Rule 1-BB retrospective in operation---Applies to pending proceedings---Indian Wealth Tax Act, 1957, S.7---Indian Wealth Tax Rules, 1957, R.1-BB.
Section 7 of the Wealth Tax Act, 1957, is a machinery provision which prescribes the procedure for determination of the value of an asset for purposes of wealth tax. Section 7(1) of the Wealth Tax Act, 1957, lays down that the value is to be estimated subject to any rules made in this behalf. Rule 1-BB of the Wealth Tax Rules, 1957, was inserted with effect from April 1, 1979. The provisions are applicable only for determination of the value of a house which is wholly or mainly used for residential purposes. In accordance with the provisions of section 46, power has been conferred to frame rules and rule 1-BB having been framed in pursuance of such power is in aid of the section to determine the value of an asset. The provisions of rule 1-BB, therefor, cannot be said to be a substantive provision so as to be applicable prospectively. The provision is for the general benefit of not only litigants but provides a simple formula for valuation by the Wealth Tax Officer and the Valuation Officer and this change is only to improve the existing system. The provisions of rule 1-BB are procedural in nature and apply to pending assessments.
CWT v. Vidyavathi Kapur (1984) 150 ITR 319 (Kar); CWT v. Lachmandas Bhatia (1987) 163 ITR 586 (MP); Manjushree Biswas v. CWT (1988) 171 ITR 348 (Cal.); CWT v. O.P. Tandon (1992) 195 ITR 688 (Delhi); CWT v. Laxmipat Singhania (1978) 111 ITR 272 (All.) and CWT v. Kasturbhai Mayabhai (1987) 164 ITR 107 (Guj.) fol.
Attorney-General v. Vernazza (1960) AC 965 (HL); Bella Cajeton Travasso v. Third WTO (1987) 166 ITR 49 (Bom.); CWT v. Maharaja Kumar Kamal Singh (1984) 146 ITR 202 (SC); CWT v. Pachigolla Narasimha Rao (1982) 134 ITR 640 (AP); CWT v. Sikand (P.N.) (1977) 107 ITR 922 (SC); Dilip Kumar Mitra v. CWT (1993) 200 ITR 336 (Cal.); Govinddas v. ITO (1976) 103 ITR 123 (SC); Izhar Ahmad Khan v. Union of India AIR 1962 SC 1052; Kusumben D. Mahadevia (Smt.) v. N.C. Upadhya (1980) 124 ITR 799 (Bom.) and Standard Mills Co. Ltd. v. CWT (1967) 63 ITR 470 (SC) ref.
(b) Interpretation of statutes---
--- Retrospective operation of provisions.
A provision of law which affects the rights of a citizen cannot have retrospective operation unless the statute so provides because the retrospective operation of the statute affects, alters or destroys any right acquired. But when a provision does not affect or impair any right or create any obligation and relates to procedure only, it is deemed to be retrospective unless such an inference is likely to lead to absurdity. If an amendment is made in, the procedure, it will apply to all pending proceedings.
G.S. Bapna for the Commissioner.
N.M. Ranka for the Assessee.
JUDGMENT
V.K. SINGHAL, J.---The Income-tax Appellate Tribunal, Jaipur Bench Jaipur, has referred the following questions of law arising out of its order in respect of the assessment years 1971-72 to 1975-76 under section 27(1) of the Wealth Tax Act, 1957:
"(1)Whether, on the facts and in the circumstances of the case, the Tribunal was justified in setting aside the order of the lower authorities and restoring the matter regarding valuation of self -occupied property to the Wealth Tax Officer with the direction to reframe the assessment in accordance with law and as per the decision of the Special Bench of the Income-tax Appellate Tribunal, Delhi Bench `A', dated February 17, 1981, in Wealth Tax Applications Nos.614 to 624/(Delhi) of 1979 and Wealth Tax Applications Nos. 703 to 717/(Delhi) of 1979 in the case of Shri Biju Patnaik, New Delhi?
(2)Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that rule 1-BB of the Wealth Tax Rules, 1957, is procedural in nature and retrospective in operation and, therefore, the same is applicable in the year under consideration?"
The brief facts of the case are that the assessee filed a return of its net wealth on the basis of the report of the registered valuer but the Wealth Tax Officer referred the matter for valuation to the Departmental Valuation Officer under section 16-A of the Wealth Tax Act and framed the assessments in conformity with the report of the Valuation Officer. The assessed wealth included immovable property which was self-occupied. In the self-occupied property the area of 901 sq. meters was under self-occupation and 319 sq. meters was let out. While valuing the immovable property which was partly under self-occupation, the Valuation Officer and the Wealth Tax Officer did not give due consideration to the statutory rule 1-BB of the Wealth Tax Rules. The Appellate' Tribunal set aside the order of the lower authorities and restored the matter back to the file of the Wealth Tax Officer for fresh decision in accordance with law and in tune with the decision of the Appellate Tribunal, Special Bench, Delhi `A' referred to above. It was also observed that valuation in respect of property other than self-occupied property will also be subject to valuation afresh and the assessee will be entitled to place any evidence on the file of the Wealth Tax Officer, if he so desires.
The Special Bench of the Income-tax Appellate Tribunal in the case of Biju Patnaik v. WTO was seized of the matter with regard to the interpretation of rule 1-BB of the Wealth Tax Rules. In that case, the report of the Valuation Officer was, dated January 17, 1977, on a reference made by the Wealth Tax Officer on September 19, 1975. The assessments were completed by the Wealth Tax Officer on March 30, 1979, and on that date rule 1-BB was not enacted. Reliance was placed on the decision of the apex Court in the case of Standard Mills Co. Ltd. v. CWT (1967) 63 ITR 470 wherein it was observed that section 7 falls in Chapter II which deals with the charge of wealth tax and assets subject to such charge; it is intended to provide a machinery for the determination of the value of assets. After taking into consideration the various decisions, the Tribunal came to the conclusion that the provisions of rule 1-BB are procedural in nature and, therefore, retrospective and will be applicable to the assessments which are pending before the Wealth Tax Officer and before the appellate authorities.
The Allahabad High Court in CWT v. Laxmipat Singhania (1978) 111 ITR 272; while interpreting the provisions of rules 1-C and 1-D, has held that those rules prescribed the method of valuation of unquoted preference shares and unquoted equity shares respectively. The criteria prescribed by the rules, was held applicable to pending assessments of the assessee even though such assessments related to assessment years prior to the date of the coming into force of those rules and the relevant valuation dates were also prior to that date. Reliance was placed on the decision of the apex Court in the case of Izhar Ahmad Khan v. Union of India, AIR 1962 SC 1052 and at page 1063, it was observed as under:
"In deciding the question as to whether a rule about irrebuttable presumption is a rule of evidence or not, it seems to us that the proper approach to adopt would be to consider whether fact A from the proof of which a presumption is required to be drawn about the existence of fact B, is inherently relevant in the matter of proving fact B and has inherently any probative or persuasive value in that behalf or not. If fact A is inherently relevant in proving the existence of fact and to any rational mind it would bear a probative or persuasive value in the matter of proving the existence of fact B, then a rule prescribing either a rebuttable presumption or an irrebuttable presumption in that behalf would be a rule of evidence. On the other hand if fact A is inherently not relevant in proving the existence of fact B or has no probative value in that behalf and yet a rule is made prescribing for a rebuttable or an irrebuttable presumption in that connection, that rule would be a rule of substantive law and not a rule of evidence."
The special leave petition was also dismissed in the case of CWT v. Dr. B.N. Gyani and CWT v. Naresh 166 ITR (St.) 66/67 (sic).
The Karnataka High Court in CWT v. Vidyavathi Kapur (1984) 150 ITR 319 has held that the provisions of rule 1-BB are procedural in nature and can be called into aid in respect of pending matters.
The Madhya Pradesh High Court in CWT v. Lachmandas Bhatia (1987) 163 ITR 586 has also held that the provisions of rule 1-BB are procedural in nature.
The Gujarat High Court in the case of CWT v. Kasturbhai Mayabhai (1987) 164 ITR 107 has taken into consideration the provisions of section 7 of the Wealth Tax Act and relying on the decision in Standard Mills Co. Ltd. v. CWT (1967) 63 ITR 470 (SC), Kusumben D. Mahadavia v. Upadhya (N.C.) (1980) 124 ITR 799 (Bom.), CWT v. Laxmipat Singhania (1978) 111 ITR 272 (All.), CWT v. Pachigolla Narasimha Rao (1982) 134 ITR 640 (AP) and CWT v. Maharaja Kumar Kamal Singh (1984) 146 ITR 202 (SC), has held that section 7 merely provides the machinery for the purpose of ascertaining the net wealth by valuing the assets. It states that the net value would have to be estimated on the basis of the price which the asset was likely to fetch on the valuation date if sold in the open market. There is, therefore, no doubt that while section 3 is the charging section, the machinery for the purpose of computing the net wealth is provided in section 7 of the Act.
The fact that the Central Board of Direct Taxes constituted a committee for laying down proper guidelines to enable speedy disposal of cases in which questions relating to valuation of immovable property were involved was also taken into consideration. The report of the committee was submitted and pursuant thereto rule 1-BB was introduced in the Rules providing the formula for the determination of the fair market value of the houses used "wholly" and "mainly" for the purpose of residence. This formula was applicable to all the assessees falling under rule 1-BB and, therefore, the uncertainty or arbitrariness or litigation was avoided. It was held by the Gujarat High Court that there is no insurmountable difficulty in applying rule 1-BB retrospectively and, therefore, the benefit of rule 1-BB was held to relate back to the date on which section 7(1) was made subject to the rules.
The Calcutta High Court in Manjushree Biswas v. CWT (1988) 171 ITR 348 has also held that the provisions of rule 1BB are retrospective in operation and could be applied even to the earlier assessment years which pertain to the period before the rules were promulgated.
The Delhi High Court in CWT v. O.P. Tandon (1992) 195 ITR 688, has held that rule 1-BB only lays down the procedure for valuation of assets and is as such purely procedural. It follows that it is retrospective in application. It applies to all the proceedings pending on the date it was brought into force.
In Dilip Kumar Mitra v. CWT (1993) 200 ITR 336, it was held by the Calcutta High Court that where the statute itself fixes a method of valuation as the statutory method that method shall have its authoritative and statutory force for all the officers under the Act the Assessing Officer, the Appellate Officer or the Appellate Tribunal or the Departmental Valuation Officer. The provisions of rule 1-BB were held mandatory and binding on the Departmental Valuation Officer.
In Bella Cajeton Travasso v. Third WTO (1987) 166 ITR 49, the Bombay High Court has also held that the Valuation Officer is duty bound to take into consideration the applicability of rule 1-BB and carry out the work of valuation in accordance with the provisions of the Act and the Rules.
We have considered the arguments of both learned counsel. The provisions of rule 1-BB were inserted with effect from April 1, 1979, vide Gazette notification dated March 30, 1979. The said rule during the relevant period was as under (see (1979) 117 ITR (St.) 51):
"Rule 1-BB.---(1) For the purposes of subsection (1) of section 7, the value of a house which is wholly or mainly used for residential purposes shall be the aggregate of the following amounts, namely:---
(a)the amount arrived at by multiplying the net maintainable rent in respect of the part of the house used for residential purposes by the fraction 100/8; and
(b)the amount arrived at by multiplying the net maintainable rent in respect of the remaining part of the house, if .any, by the fractions 100/9:
Provided that in relation to a house which is built on leasehold land, this sub-rule shall have effect as if for the fraction 100/8 in clause (a) or, as the case may be, the fraction 100/9 in clause (b), the fraction 1.00/9 and 100/10, respectively, had been substituted.
Explanation.---For the purpose of this sub-rule, a house shall be deemed to be mainly used for residential purposes, if the built-up floor area thereof used for residential purposes is not less than sixty-six and two-thirds per cent. of its total built-up floor area."
The provision of section 7 of the Wealth Tax Act during the relevant period provided that subject to any rules made in this behalf, the value of any asset, other than cash, for the purposes of this Act, shall be estimated to be the price which in the opinion of the Wealth Tax Officer it would fetch, if sold in the open market on the valuation date. From this provision, it would be evident that section 7 provides for estimation of the price on the valuation date and that work has to be done by the Wealth Tax Officer. For the purpose of making the estimate, the discretion of the Wealth Tax Officer is now fettered and he has to take into consideration the rules which have been made in this regard for the valuation of any asset. The provisions of rule 1-BB are applicable only for determination of the value of a house which is wholly or mainly used for residential purposes.
In Govinddas v. ITO (1976) 103 ITR 123, it was observed by the apex Court that it is a well-settled rule of interpretation that unless the terms of a statute expressly so provided or necessarily requires it, retrospective operation should not be given to a statute so as to take away or impair an existing right or create a new obligation or impose a new liability as regards matter of procedure. If the enactment is express in language which is fairly capable of either interpretation, it ought to be construed as prospective only. From this observation of the apex Court, it is evident that normally the interpretation with regard to the statute has to be taken as prospective and particularly in those cases where the right of any person is affected. If any vested rights are affected, then retrospectivity cannot be presumed. Thus, if a statute takes away or impairs any vested right or creates new obligations, then it has to be construed prospectively.
Maxwell on the Interpretation of Statutes has written as under:
"The presumption against retrospective construction has no application to enactments which affect only the procedure and practice of the Courts. No person has a vested right in any course of procedure, but only the right of prosecution or defence in the manner prescribed for the time being, by or for the Court in which he sues, and, if an Act of Parliament alters that mode of procedure, he can only proceed according to the altered mode. `Alterations in the form of procedure are always retrospective, unless there is some good reason or other why they should not be."
In respect of pending actions, it has been mentioned that in general, when the substantive law is altered during the pendency of an action, the rights of the parties are decided according to the law as it existed when the action was begun, unless the new statute shows a clear intention to vary such rights.
It was further stated that the effect of a change in the law between a decision at first instance and the hearing of an appeal from that decision was discussed by the House of Lords in Attorney-General v. Vernazza (1960) AC 965. Lord Denning said that it was (at page 978): "clear that in the ordinary way the Court of Appeal cannot take into account a statute which has been passed in the interval since the case was decided at first instance, because the rights of litigants are generally to be determined according to the law in force at the date of the earlier proceedings. But it is different when the statute is retrospective either because it contains clear words to that effect, or because it deals with matters of procedure only, for then Parliament has shown an intention that the Act should operate on pending proceedings, and the Court of Appeal are entitled to give effect to this retrospective intent as well as a Court of first instance." For this purpose, however, a statute which actually takes away the right of appeal is not to be regarded as affecting mere matters of procedure.
Under the scheme of the Wealth Tax Act, a power is conferred on the Wealth Tax Officer to determine the fair market value of the asset under section 7(1) of the Act which he has to determine on the basis of the price prevailing in the market on the valuation date. For arriving at the fair market value, the recognised principles of valuation have to be taken into consideration. It was only with a view to eliminate any arbitrariness in determining the value of the residential house that the provisions of rule 1-BB were inserted and once this rule comes into force, other methods for determining the fair market value could not be adopted. The dispute is as to whether it could be made applicable for the assessment year prior to 1979-80. The rule has not excluded its application in respect of earlier assessment years, assessments for which were pending on the date when this rule came into force. It may also be observed that the appeal before the first appellate authority or before the Income-tax Appellate Tribunal are a continuation of the proceedings and if it is found that rule 1-BB is applicable even in respect of periods prior to the coming into force of the said rule, that alone is to be adopted and it only excludes the discretion of the Wealth Tax Officer in estimating the value on an asset. Besides this the provisions of section 7(1) of the Wealth Tax Act mention that the value is to be estimated subject to any rules made in this behalf, this provision makes it clear that the intention for the method of valuation is to prescribe a procedure and the discretion of the Wealth Tax Officer to adopt any other method no longer remains. The opinion which the Valuation Officer has to form no doubt relates to the valuation date in respect of property which, if sold in the open market, it would fetch the price but by taking into consideration the formula given under the said rule, it eliminated discretionary arbitrary action on the part of the Wealth Tax Officer.
Sub-rule (5) of rule 1-BB also provides that where the Wealth Tax Officer is of the opinion that it is not practicable to apply rule 1-BB in a particular case, then with the approval of the Inspecting Assistant Commissioner, the rule would have no application. The rule is also not applicable where the difference between the un-built area and the specified area exceeds 20 per cent. of the aggregate area. It is also not applicable where the house is built on leasehold land and the lease expires within a period not exceeding fifteen years from the relevant valuation date and the deed of lease does not give an option to the lessee for the renewal of the lease deed. There is no other provision by which the rule has excluded its application in the determination on the valuation date. As a matter of fact, from a perusal of sub rule (4) of rule 1-BB, it would be evident that the principles which were laid down by the apex Court in the case of CWT v. P.N. Sikand (1977) 107 ITR 922 have been given statutory recognition. Even the other sub-rules of rule 1-BB are based on the recommendations of the Committee appointed for the purpose. The provisions of section 7(1) itself are machinery provisions and give an option to the Wealth Tax Officer to estimate the fair market value of the property as on the valuation date. When the matter is being sent by the Income-tax Appellate Tribunal for applying the provisions of rule 1BB, if it is found by the Wealth Tax Officer that he is of the opinion that it is not practicable to apply the provisions of rule 1BB, then he can with the prior approval of the Inspecting Assistant Commissioner refuse to apply the formula given under rule 1-BB. Otherwise, the method which has been given therein has to be applied uniformly in respect of the assessee and for all pending matters. It is true that when a charge is created or the matter relates to a substantive provision of law, then it would not be considered to be retrospective in operation unless specifically provided in the provision itself. Procedural provisions have retrospective effect but do not authorise or confer any right for reopening closed matters. A provision of law which affects the rights of a citizen cannot have retrospective operation unless the statute so provides because the retrospective operation of the statute affects, alters or destroys any right acquired. But when a provision is not affecting or impairing any right or creating any obligation and relates to procedure only, it is deemed to be retrospective unless such an inference is likely to lead to any absurdity. Besides this it is also to be seen that the provision is for the general benefit of not only litigants but provides a simple formula for valuation by the Wealth Tax Officer and the Valuation Officer and this change is only to improve the existing system and, therefore, has to be considered as not inflicting detriment on anyone. The provision cannot be considered as substantive.
There can be no dispute that the provisions of section 7 of the Act are machinery provisions and prescribe the procedure for determination of estimation of the value of the asset. As observed by the apex Court, in the case of CWT v. Maharaja Kumar Kamal Singh (1984) 146 ITR 202, section 7 provides the method as to how the value has to be assessed and the section itself has been made subject to the rules. In accordance with the provisions of section 46 of the Act, power has been conferred to frame rules and rule 1-BB having been framed in pursuance of such power is in aid of the section to determine the value of an asset. The provisions of rule 1-BB, therefore, cannot be said to be substantive provisions so as to be applicable prospectively only No existing right of any person is affected and, on the contrary, the rules have been made applicable uniformly to all assessees in respect of house property which is "wholly" or "mainly" used for residential purposes. No doubt, there was a load of litigation and even the allegations with regard to the arbitrary action for valuation of house property were raised as in respect of one part of the property a different value was taken than for the other part and valuation was made adopting different methods like land and building method, contractor's method, rental or yield method. The task for determining the fair market value was by itself a defective one. The provisions of section 7(1) are subject to rules, if any rules are framed in this respect, but if no rules are framed, then the estimation has to be made by the Wealth Tax Officer. The provisions of rule 1-BB are applicable to the valuation of a house which is wholly or mainly used for residential purposes. If house is not used for residential purpose, then the provisions of rule 1-BB were not applicable. All the cases where the valuation of the house is made which is wholly or mainly used for residential purposes, then a uniform system was introduced. The object of the rule is to lay down the mode of determination of the market value of a particular asset and this rule has eliminated discretion to adopt any other method, and, therefore, could not be said to be applicable only in respect of a period after the rule was framed. If the assessment was pending or even-an appeal which is only a continuation of the assessment proceedings, the benefit of application of rule 1-BB cannot be denied. If any amendment is made in the procedure, it will apply to all pending proceedings. If the assessment has already been completed and no action is taken by filing an appeal, before the coming into force of the procedural law, then the said procedure would not apply to reopen those closed matters.
On the basis of the decisions given by the Karnataka, Madhya Pradesh, Delhi, Calcutta and Gujarat High Courts and also on the basis of the decision of the Allahabad High Court which is in respect of interpretation of rules 1-C and 1-D, we are of the opinion that the provisions of rule 1-BB are procedural in nature and apply to pending assessments.
Accordingly, it is held that the Tribunal was justified in setting aside the order of the lower authority and restoring the matter regarding valuation of self-occupied property to the Wealth Tax Officer with a direction to reframe the assessment in accordance with law and as per the decision of the Special Bench of the Income-tax Appellate Tribunal, Delhi, Bench `A', dated February 17, 1981, (Wealth Tax Applications Nos. 614 to 624/(Delhi) of 1979 and Wealth Tax Applications Nos. 703 to 717/(Delhi) of 1979 in the case of Biju Patnaik v. WTO (1983) 3 ITD 693). It is also held that the Tribunal was justified in holding that rule 1-BB of the Wealth Tax Rules is procedural in nature and retrospective in operation and, therefore, the same is applicable in the year under consideration.
M.B.A./441/T.F.Order accordingly.