D.M. Chandrashekhar, J.
1. In these three references under Section 27 of the Wealth-tax Act, 1957 (hereinafter referred to as 'the Act'), the following common question of law has been referred to this court by the Income-tax Appellate Tribunal (hereinafter referred to as 'the Tribunal' ):
'Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that Rules 1C and ID introduced by the Wealth-tax (Amendment) Rules, 1967, by notification dated October 6, 1967, do not have any retrospective effect and could not be applied for the valuation of the unquoted shares for the assessment years in question as the relevant valuation dates thereof preceded October 6, 1967?'
2. Each of these references relates to a separate assessee, but in respect of the same assessment years, i.e., 1965-66 and 1966-67. In each of these cases the assessee had valued for the purpose of wealth-tax certain shares which had not been quoted in the stock exchange, by adopting the average of the break-up value thereof and the average yield of dividends therefrom. The Wealth-tax Officer valued these shares on the basis of their break-up value only. But in appeals the Appellate Assistant Commissioner held that these shares should be valued according to Rules 1C and 1D, inserted by the Wealth-tax (Amendment) Rules, 1967, published by the notification dated October 6, 1967, and directed the Wealth-tax Officer to recompute the value of those shares accordingly.
3. In the further appeals by the assessees, the Tribunal held that the Appellate Assistant Commissioner was not justified in rejecting the valuation adopted by the assessees and in directing the Wealth-tax Officer to value those shares in accordance with Rules 1C and ID.
4. Before considering the rival contentions of learned counsel in these references, it is useful to set out the relevant provisions of the Act and the Rules thereunder.
5. Clause (m) of Section 2 of the Act defines 'net wealth' as the amount by which the aggregate value computed in accordance with the provisions of the Act, of all the assets in excess of the aggregate value of all the debts owed by the assessee (except certain specified categories of debts), on the valuation date.
6. Sub-section (1) of Section 7 of the Act, as substituted by Central Act 46 of 1964 with effect from April 1, 1965, reads:
'7. (1) 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.'
7. Sub-section (1) of Section 46 of the Act empowers the Central Board of Direct Taxes to make rules for carrying out the purposes of the Act. Without prejudice to the generality of such power, Sub-section (2) of this section provides, inter alia, that such rules may be made in regard to the manner in which the market value of any assets may be determined. Subsection (3) of Section 46 of the Act provides that such power to make rules shall, on the first occasion of exercise thereof, include the power to give retrospective effect to the rules or any of them from a date not earlier than the date of commencement of the Act.
8. In exercise of the powers conferred by Section 13 of the Wealth-tax Act, the Central Board of Direct Taxes issued Circular No. 3 W. T. of 1957, dated September 28, 1957, containing instructions regarding valuation of unquoted shares. This circular was replaced by Rules 1C and 1D inserted in the Wealth-tax Rules, 1957 (hereinafter referred to as the Rules), by the Wealth-tax (Amendment) Rules, 1967, issued on October 6, 1967. Rule 1C prescribed the method of valuing unquoted preference shares, while Rule ID prescribes the method of valuing unquoted equity shares of companies (other than investment companies and managing agency companies). As these two rules were made long subsequent to the first exercise of the rule-making power (when the original rules were made), these rules could not be given retrospective effect and do not purport to have retrospective effect.
9. In Setu Parvati Bayi v. Commissioner of Wealth-tax : 69ITR864(SC) , the Supreme. Court pointed out that the liability to pay wealth-tax becomes crystallised on the valuation date though the tax is levied and becomes payable in the relevant assessment year. It is, therefore, clear that in the present cases the liability to pay wealth-tax for the assessment year 1965-66 became crystallised on March 31, 1965, and such liability for the assessment year 1966-67 became crystallised on March 31, 1966. The question now is whether Rules 1C and 1D which came into force on ' October 6, 1967, could be applied by the Wealth-tax Officer in determining the market value of unquoted shares of the assessees for assessment for -the years 1965-66 and 1966-67. As stated earlier, the Tribunal took the view that these rules could not be applied for any of the assessment years prior to the coming into force of these rules. In these references, the learned standing counsel for the revenue contended that these rules are merely procedural in nature and do not affect the substantive rights and liabilities of the assessees and that hence these rules were applicable to pending proceedings. He maintained that since the assessments of these three assessees for the years 1965-66 and 1966-67 were made on March 31, 1970, i.e., subsequent to the coming into force of these two rules, the Wealth-tax Officer had to apply them for determining the market value of the unquoted shares of the assessees for assessment for these two years.
10. On the other hand, Shri V. B. Upadhya, learned counsel for the assessees, contended that determination of the market value of unquoted shares cannot be regarded as merely a matter of procedure since such determination affects the substantive liability of the assessees as to the quantum of wealth-tax they have to pay. He maintained that the liability of the assessees to pay wealth-tax for the years 1965-66 and 1966-67 had crystallized on the respective valuation dates, March 31, 1965, and March 31, 1966, and that these rules which came into force on October 6, 1967, could not be applied by the Wealth-tax Officer in determining the market value of those shares.
11. The law relating to applicability of an amendment to pending actions has been stated thus in Maxwell on the Interpretation of Statutes (12th edition), at pages 220 to 222 :
'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.........
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..........
'Alterations in the form of procedure are always retrospective, unless there is some good reason or other why they should not be '.'
12. If the method of valuation of unquoted shares is merely a matter of procedure; it follows that Rules 1C and 1D which prescribe the method of valuation of unquoted shares, would be applicable to assessments pending on the day those rules came into force though the assessments relate to assessment years prior to the coming into force of those rules. But, if the method of valuation of unquoted shares is a matter of substantive law and not merely of procedure, then it is clear that those rules could not be applied to assessments for the assessment years prior to the coming into force of those rules.
13. As stated earlier, Rules 1C and 1D prescribe the method of determining the market value of unquoted shares whose value cannot be ascertained on the basis of the prices at which sales and purchases thereof take place in the market.
14. In deciding whether such rules are rules of evidence or procedure or rules of substantive law, assistance can be derived from the following observations of the Supreme Court in Izhar Ahmad Khan v. Union of India : AIR1962SC1052 :
'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 B 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 rebut-table 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.'
15. In determining the value of an unquoted preference share, the paid up value thereof and the rate of dividend paid in respect thereof which are prescribed by Rule 1C as criteria, are undoubtedly relevant factors. Likewise, for determining the value of an unquoted equity share, Rule 1D prescribes the break-up value as the basis. A well-accepted method of valuing an unquoted equity share is on the basis of its break-up value. Thus, the criterion prescribed by Rule 1D is undoubtedly a relevant one for valuation. In the light of the enunciation of law by the Supreme Court in Izhar Ahmad Khan's case : AIR1962SC1052 , these two rules must be regarded as rules of evidence or procedure and not rules of substantive law.
16. It follows that Rules 1C and 1D which were inserted in the Wealth-tax Rules by the Wealth-tax (Amendment) Rules, 1967, were applicable to pending assessments of the assessees even though such assessments relatedto assessment years prior to the date of coming into force of those rules and the relevant valuation dates were also prior to that date.
17. As a result of the foregoing discussion we answer the question referred to us in each of these cases against the assessee and in favour of the revenue and as follows :
'On the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was not justified in holding that Rules 1C and 1D introduced by the Wealth-tax (Amendment) Rules, 1967, by notification dated October 6, 1967, do not apply for valuation of the unquoted shares of the assessees in pending assessment proceedings for the assessment years 1965-66 and 1966-67 as the relevant valuation dates for those years preceded October 6, 1967.
In the circumstances of these references, we direct the parties to bear their own costs.