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Biju Patnaik Vs. Wealth-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Delhi
Decided On
Judge
Reported in(1983)3ITD693(Delhi)
AppellantBiju Patnaik
RespondentWealth-tax Officer
Excerpt:
1. wt appeal nos. 614 to 624 filed by the assessee and wt appeal nos.703 to 711 filed by the department pertain to the assessment years 1964-65 to 1974-75 and 1960-61 to 1974-75 respectively. the main point in these appeals for the assessment years 1964-65 to 1974-75 pertains to the valuation of a property situated at 3, aurangzeb road, new delhi, for wealth-tax purposes. at the time of hearing of these appeals before the division bench of the tribunal, an additional ground was raised to the effect that rule 1bb of the wealth-tax rules should be applied in valuing the said property. the contention was that this rule is a rule relating to procedure and would apply to all pending proceedings, including appeal proceedings and even though the wto had obtained the valuation of property from.....
Judgment:
1. WT Appeal Nos. 614 to 624 filed by the assessee and WT Appeal Nos.

703 to 711 filed by the department pertain to the assessment years 1964-65 to 1974-75 and 1960-61 to 1974-75 respectively. The main point in these appeals for the assessment years 1964-65 to 1974-75 pertains to the valuation of a property situated at 3, Aurangzeb Road, New Delhi, for wealth-tax purposes. At the time of hearing of these appeals before the Division Bench of the Tribunal, an additional ground was raised to the effect that Rule 1BB of the Wealth-tax Rules should be applied in valuing the said property. The contention was that this rule is a rule relating to procedure and would apply to all pending proceedings, including appeal proceedings and even though the WTO had obtained the valuation of property from the Valuation Officer under Section 16A, the provisions of Rule 1BB would override such valuation.

Since there was difference of opinion, on the point raised in the appeals on the additional ground of appeal between different Benches of the Tribunal, the case was referred by the President under Section 255(3) of the Income-tax Act, 1961, to the Special Bench consisting of three Members for deciding the point at issue.

2. There were five interveners who were represented by the counsel and they were duly heard on all the aspects arising out of the application of Rule 1BB of the Wealth-tax Rules. The assessee was represented by Shri K.K. Jain who led the arguments. The department was ably represented by Shri S.D. Kapila, Senior Departmental Representative.

3. Before we proceed to consider the arguments advanced by the counsel on either side and to give our findings on the same it would be proper to give a few facts which would help in deciding the question at issue and also which would bring into clear focus the effect of Rule 1BB which is the subject-matter of decision before us. The assessee had purchased the property at 3, Aurangzeb Road, New Delhi, which abuts on two roads, i.e., Aurangzeb Road and also on 4, Prithvi Raj Road, for a consideration of Rs. 5,69,950 in 1963. The area of the plot is 7,570 sq. yds. The property is self-occupied. It was valued on 'land and building' method by the assessee's valuer and the assessee declared the value in the returns accordingly. The following chart would give the value as shown by the assessee, value as per the Valuation Officer which has been adopted by the WTO and the value taken by the Commissioner of (Appeals):Assessment Value as shown Value as per Value as taken year by the assessee valuer and by the1964-65 5,69,950 12,54,000 6,48,4001965-66 5,69,950 12,94,000 6,69,4751966-67 5,92.952 13,34,000 6,90,5501967-68 5,92,852 13,73,000 7,60,6251968-69 4.31,000 14,50,000 7,49,7751969-70 4,31,000 15,26,000 7,87,9251970-71 4,31,000 15,66,000 8,09,0001971-72 4,31,000 16,48,000 8,53,1501972-73 4,31,000 17,28,000 8,95,3001973-74 4,31,000 18,12,000 9,41,4501974-75 8,81,000 19,72,000 10,25,750 4. The additional ground of appeal raised in all these years reads as follows: That the hon'ble Tribunal is bound in law, without prejudice to any of grounds of appeal mentioned in the memorandum of appeal and irrespective of the value of the house property in question determined by the Wealth-tax Officer or pleaded for by the assessee, to determine the value by specifically applying the provisions of Rule 1BB of the Wealth-tax rules as these rules have to be enforced in the appellate proceedings pending before the hon'ble Tribunal.

5. It was urged on behalf of the assessee by Shri K.K. Jain that Rule 1BB is a rule of procedure. This rule was enacted with effect from 1-4-1979, the relevant rule having been published in the Gazette of India on 30-3-1979, the rule was retrospective in its operation and it would, therefore, have to be applied to all pending proceedings. These rules were framed by the Central Board of Direct Taxes (CBDT) under the powers conferred upon it by Section 46(2) of the Wealth-tax Act, 1957 ('the Act')- It was urged that Section 3 of the Act is a charging section while Section 7 of the Act is only a procedural section. By framing Rule 1BB under Section 7(1), the power of the WTO has been circumscribed. The WTO is bound to value all properties which fall within the ambit of Rule 1BB only by application that rule and not otherwise. It was urged that when a procedural rule is framed and enacted, it applies to all the proceedings then pending and it will also apply to proceedings not only which were actually pending before the WTO but also before the Tribunal. It was urged that Rule 1BB enacted a piece of beneficent legislation and it must be given effect to in all pending proceedings.

6. So far as the provisions of Section 7(3) are concerned, it was urged that since Rule 1BB has to be given effect to in all pending proceedings, the validity of a reference to the Valuation Officer by the WTO would have to be judged in the light of the valuation to be made under Rule 1BB and only if circumstances still existed which would justify a reference to the ' Valuation Officer under Section 16A, would the report of the Valuation Officer be binding. Otherwise if there were no circumstances justifying a reference to the Valuation Officer in the light of Rule 1BB, then the report of the Valuation Officer would not be binding because the very reference to the Valuation Officer would be outside the purview of Section 16A of the Act and, therefore, invalid.

It was urged that even the Valuation Officer would be bound by Rule 1BB and he would not be entitled to value the residential property by ignoring the said rule. Certain authorities were cited for the propositions which have been noticed by us above and we shall have occasion to refer to those authorities during the course of our judgment.

7. Shri O.P. Vaish, appearing for one of the interveners, urged that a harmonious construction of the different provisions of Section 7(1), read with Rule 1BB, Sections 16A(3) and 7(3), was necessary. His contention was that Rule 1BB being retrospective the assessee would be entitled to value the property on the basis of these rules even though a higher value may have been returned in any of these years by applying different basis of valuation, i.e., 'land and building' method. If by application of Rule 1BB the conditions under Section 16A are found to be non-existent, the reference to the Valuation Officer would be invalid. Rule 1BB being a concession to owners of residential houses, it should be given effect to even if the value, so arrived at, would be less than the value returned by the a ssessee or estimated by the registered valuer.

8. Shri S.L. Batra, appearing for another intervener, pointed out that the words 'subject to any rule made in that behalf were introducced in Section 7(1) with effect from 1-4-1965 while Section 7(3) came on the statute book with effect from 1-1-1973. Rule 1BB though it was enacted with effect from 1-4-1979, will have precedence over Section 7(3). So far as reference to the Valuation Officer is concerned, he urged that even the Valuation Officer is bound to take note of Rule 1BB and value the property accordingly, by applying the said rule.

9. Shri M.L. Khanna, appearing for another intervener, urged that Rule 1BB enacts a fiction for valuing a residential property and it did not matter what was the real value of a property. The mere fact that the valuation to be arrived at by supplying the said rule, would be much less than the real market value of the property, if sold in the open market, was no reason to hold that this rule was not retrospective.

Even if the higher value of a property has been shown by the assessee the Tribunal should apply Rule 1BB and reduce the valuation.

10. Shri. G.C. Sharma, appearing for another intervener, pointed out that rules framed under Section 7(1) were delegated legislation. The WTO cannot ignore Rule 1BB unless its vires is challenged. Rule 1BB being a valid piece of delegated legislation, the reference to the Valuation Officer without considering the said rule would be invalid.

Alternatively, he urged that even if the reference to the Valuation Officer may be correct, his valuation without reference to Rule 1BB would be wrong. He urged that invalid opinion of the Valuation Officer is not binding on the WTO even though Section 7(3) makes the report of the Valuation Officer binding on the WTO.11. Shri Sharma further urged that Section 7 being a machinery section and the rules framed under that section being retrospective in operation, they would apply to all pending proceedings. Since Rule 1BB was retrospective in operation, the report of the Valuation Officer would become void and there would be no need to hear him before deciding the appeals. The opinion of the WTO, for referring the question of valuation to the Valuation Officer, is subject to Rule 1BB and the validity has to be judged in the light of this rule. He further urged that there can be no discrimination between an assessee whose case was referred to the Valuation Officer and another whose case was not so referred, because the person whose case was referred to the Valuation Officer cannot be worse off than another person whose case was not so referred. Rule 1BB being binding on the WTO, he must give effect to this rule in every case and if he has not done so, the appellate authorities must do so.

12. As against these arguments advanced on behalf of the appellant and interveners, the learned departmental representative, at the outset, took objection to the admission of the additional ground of appeal. His contention was that this ground should not be admitted. It was, however, pointed out to him that the Division Bench, before which the appeals had originally come for hearing, had considered this question and had admitted the additional ground of appeal and, therefore, this objection could not now be raised.

13. The departmental representative then contended that Rule 1BB was a substantive provision and not retrospective in operation. For this proposition the learned departmental representative took support from certain observations in Izhar Ahmed Khan v. Union of India AIR 1962 SC 1052. His contention was that the crucial factor in Rule 1BB was the multiplier which was an arbitrary one and this arbitrary multiplier made the rule substantive. According to him, Rule 1BB does not really lay down a method of capitalisation of the annual rent.

14. Assuming that Rule 1BB was procedural, it was contended that Rule 1BB was not binding on the Valuation Officer. His contention was that Rule 1BB became inoperative once a reference was made to the Valuation Officer. The learned departmental representative contended that in this case the reference to the Valuation Officer was made by the WTO through the IAC/Commissioner on 19-9-1975. The report of the Valuation Officer was dated 17-2-1977 and the WTO made the assessment on 30-3-1979. On all these dates Rule 1BB had not been enacted and, therefore, the reference to the Valuation Officer was a valid one. He contended that the jurisdiction to refer the case by the WTO to the Valuation Officer was not justiciable nor appealable. He further contended that under Sub-rule (5) of Rule 1BB, the WTO was entitled not to apply this rule to the case of the assessee in view of the facts stated in the letter of the WTO to the IAC/Commissioner for making the reference to the Valuation Officer. He pointed out that application of Rule 1BB would yield absurd results and it was, therefore, impracticable to apply the said rule in the case of the assessee. He further contended that if Rule 1BB was applicable to the Valuation Officer, the whole institution of the Valuation Officers in the Income-tax Department would become redundant.

15. The learned departmental representative then contended that Section 7(4) of the Wealth-tax Act applies to self-occupied properties and it excludes the operation of Rule 1BB to such properties. In case of properties which are self-occupied, the assessee has the option of valuing the property on two dates, i.e., valuation date after the date of purchase of 1-4-1971, whichever is later. There was no farther option with the assessee in such cases. Section 7(4) would, therefore, override the provisions of Section 7(1), read with Rule 1BB. In any event, he urged that Rule 1BB should yield to the section and it cannot make a Section redundant. He further urged that Rule 1BB cannot render nugatory and destroy any proceedings validly initiated, prior to the rule coming into force, by a Valuation Officer who is not subject to the said rule. He further contended that even if Rule 1BB was procedural, its retrospectivity would only be partial, i.e., it would apply only to the proceedings which would be pending before the WTO, provided he has not made a reference to the Valuation Officer already.

He further pointed out that Rule 1BB would not always yield lesser valuation than the valuation arrived at under the substantive provisions of Section 7(1), i.e., what a property would fetch, if sold in the open market, on the valuation date.

16. The learned departmental representative further contended that Section 144B of the Income-tax Act was also a procedural section but it could not be given retrospective effect in all proceedings pending when the said section came into force so as to necessitate setting aside by the AAC/Commissioner (Appeals)/Tribunal for a reference being made to the IAC under that section. So far as this contention is concerned, we may point out that it is not necessary for us to decide this hypothetical question at this stage because it would indeed have to be decided in a proper case if it is specifically so raised. His further contention was that even a substantive rule can be made under a machinery section. He further contended that so far as reducing the valuation below the figure returned by the assessee was concerned, the assessee could not be said to be aggrieved by the value returned by him and cannot, therefore, claim a further reduction of the value by applying Rule 1BB.17. In reply the learned counsel for the assessee pointed out that if the rules do not bind the Valuation Officer it would lead to absurd results and the very purpose for which the rules were brought into force would be lost. So far as the reference to the Valuation Officer is concerned, the learned counsel for the assessee contended that reasons must exist under Section 16A to justify a reference to the Valuation Officer though the sufficiency of the said reasons could not be justiciable. If Rule 1BB is applied in this case, then the very reasons for reference did not exist and, therefore, the reference itself would be invalid and the report of the Valuation Officer would not be binding on the WTO. So far as Section 7(4) is concerned he urged that this section came into force with effect from 1-4-1976 in respect of self-occupied properties. The valuation of such properties was only frozen with reference to two dates but the valuation has still to be made under Section 7(1) and, therefore, Section 7(4) does not override Section 7(1). It was urged that a person cannot contract out of the statute and the WTO must give effect to Rule 1BB before valuing residential properties. This was a legal fiction for valuing the residential properties and it must be given full effect to. He urged that merely because the property, if it had been sold in the open market would have fetched much more than the valuation, which would be arrived at by application of Rule 1BB, did not justify an inference that Rule 1BB(5)(i) applies to the case.

18. We have considered the rival contentions. The first question to be decided is whether Rule 1BB is a procedural rule and, therefore, retrospective in operation. Section 3 is the charging section. Section 7 pertains to the determination of the value of the assets and lays down the method for the same. La the case of Standard Mills Co. Ltd. v.CWT [1967] 63 ITR 470, the Supreme Court laid down on page 476 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".

19. For determining whether Rule 1BB is procedural in nature, we can take guidance from similar rules framed under Section 7(1) for the valuation of unquoted preference and equity shares, being Rules 1C and ID introduced by the Wealth-tax (Amendment) Rules, 1967 by notification, dated 6-10-1967. The question arose before the Allahabad High Court in CWT v. Laxmipat Singhania [1978] 111 ITR 272 whether these rules were retrospective in operation and apply to all pending proceedings. Their Lordships held that these two rules must be held as rules of evidence or procedure and not as rules of substantive law.

Reliance was placed on the Supreme Court ruling in the case of Izhar Ahmed Khan (supra). It was, therefore, held that these Rules 1C and 1D were applicable to pending proceedings even though such assessments related to assessment years prior to the date of coming into force of these rules and the valuation dates were also prior to that date. In view of the fact that the learned departmental representative relied on observations on page 1063 of this ruling in Izhar Ahmed Khan's case (supra), we may quote the observations at page 1063 which are as follows: 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 Band 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 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 of 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 contention of the learned departmental representative was that since an arbitrary multiplier has been fixed under Rule 1BB, this makes the rule a substantive one. We are of the opinion that this alleged arbitrary multiplier is really not arbitrary, if we look at the report of the Committee which recommended the amendment and which had given a scientific basis for this multiplier and, therefore, the multiplier does not make the rule a substantive one. The reasons are given by the Allahabad High Court itself while dealing with Rules 1C and 1D that a well accepted method of valuing unquoted equity shares and unquoted preference shares had been laid down in those rules and, therefore, those rules would be procedural in nature. In Rule 1BB the multiple provided in the case of a house which is wholly or mainly used for residential purposes is 100/8 of the net maintainable rent in respect of that part of the house, which is used for residential purposes and 100/9 for the remaining part of the house, in case the land is freehold. In case the land is leasehold, the multiplier is 100/9 and 100/10, respectively. These multipliers are not arbitrary but are based on scientific data. That apart there could be no doubt that these multipliers would yield a value which is less than the real market value on the valuation date but that is no reason to hold that the rule becomes substantive thereby.

20. In the case of CWT v. Sripat Singhania [1978] 112 ITR 363, the Allahabad High Court held that Rule ID applies not only to the WTO but also to the AAC and the Tribunal. Assessment appeal to the AAC and further appeal to the Tribunal are parts of an integrated process and an appellate court or authority exercises the same powers as the trial court or the assessing authority.

21. The question pertaining to Rule ID also came before the Bombay High Court in the case of Smt. Kusumben D. Mahadevia v. N.C. Upadhya [1980] 124 ITR 799 and that Court held that Rule ID is not mandatory but is directory. However, there is no ruling so far wherein it has been held that Rules 1C and ID are not procedural and do not apply to pending proceedings. It is one thing to say that the rules are directory and not mandatory and quite another thing to say that they are procedural and, therefore, retrospective. The question before us is both whether Rule 1BB is mandatory and whether it is a procedural rule and, therefore, retrospective in operation.

22. Maxwell on The Interpretation of Statutes, 12th Edn. on p. 222 under the head 'Procedural Acts' writes as follows : 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'.

Again on page 221 under the head 'Pending actions', the learned author observes as follows: 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 Att.-Gen. v. Vernazza [1960] AC 965. Lord Denning said (at p. 978) that it was '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'....

It is, therefore, clear that a rule of procedure is retrospective in operation and applies to all pending proceedings. Rule 1BB is clearly a rule of procedure in the same manner in which Rules 1C and 1D were enacted. The CBDT issued a Circular No. F2/2/65-WT, dated 13-8-1968 and directed that the said rules shall apply to all pending assessments for determining the market value of unquoted shares. The contention of the department that Rule 1BB is not retrospective is, therefore, clearly at variance with their own stand when Rules 1C and 1D were brought into operation. We, therefore, hold that Rule 1BB is procedural in nature, is retrospective in operation and, therefore, applies to all pending proceedings whether they are pending before the WTO, the AAC/Commissioner (Appeals) or the Tribunal.

23. The next point that arises is how Section 7(1), read with Rule 1BB, can be reconciled with Section 7(3) where a reference has been made to a Valuation Officer as a result of which the valuation made by the Valuation Officer becomes binding on the WTO. The effect of a legal fiction was considered by the Supreme Court in the case of CIT v. S.Teja Singh [1959] 35 ITR 408 and on page 413 their Lordships quoted, with approval, the observations of Lord Asquith in East End Dwellings Co. Ltd. v. Finsbury Borough Council which are as under : If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it. One of these in this case is emancipation from the 1939 level of rents. The statute says that you must imagine a certain state of affairs : it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs.

Though that was a case of a legal fiction, once we hold that Rule 1BB is retrospective and applies to all pending proceedings we have to assume that Rule 1BB was in existence when the WTO made a reference to the Valuation Officer. The Supreme Court had held in the case of M.K.Venkatachalam, ITO v. Bombay Dyeing & Manufacturing Co. Ltd. [1958] 34 ITR 143, that when a retrospective piece of legislation is enacted, the ITO can even rectify a completed assessment to give effect to it. We are of the opinion that it is immaterial whether retrospectivity is given by a specific provision enacted in the legislation itself or whether it is held to be retrospective in operation by applying the principles of law of interpretation of statutes. " 24. The jurisdiction of the WTO to make a reference to the Valuation Officer is not an arbitrary one but is based on the opinion that the value so returned by the assessee on the basis of the estimate made by the registered valuer is less than its fair market value [Section 16A(1)(a)]. In arriving at that opinion the WTO is not entitled to ignore Rule 1BB from consideration. This is so because for purposes of Section 7(1) that rule lays down how the fair market value of residential properties is to be arrived at. Only if he considers that the valuation arrived at by the registered valuer is less than a fair market value by applying Rule 1BB, would the WTO be entitled to refer the question of valuation to the Valuation Officer. The same would be the position in considering the reference under Sub-clause (b) of Section 17A(1). The department itself has done quite a bit of exercise to point out the effect of Rule 1BB. A case study was filed before us on pages 3-4 of the paper book, which shall form Annexure 'A' to this order, according to which the valuation of a house on the basis of actual investment comes to Rs. 6.18 lakhs and its value as per Rule 1BB works out to Rs. 2.75 lakhs. Similarly, there is a case study on pages 5 to 7 of the paper book, which also shall form Annexure 'B' to this order, according to which the value of a residential bungalow at 7 Tolstoy Marg comes to Rs. 12.70 lakhs by applying Rule 1BB, while it was valued at Rs. 106.64 lakhs by the valuation cell and it was actually sold for Rs. 98 lakhs on 26-2-1979. It is, therefore, not a case where the CBDT was not alive to the effect of Rule 1BB. On the contrary this rule was clearly brought into effect to give a benefit to owners of residential properties by adopting a lesser value than what would be arrived at on the principle that it was sold in the open market on the valuation date. On this ground alone, that the valuation arrived at by applying Rule 1BB comes to much less than by ignoring the rule, the said rule cannot be ignored by the WTO. Under the circumstances, therefore, we hold that the WTO who had no opportunity to consider Rule 1BB when he made the reference under Section 16A because the said rule did, not then exist, must now re-consider the question whether a reference under Section 16A could be validly made keeping in view Rule 1BB and only if he comes to such a conclusion, would he be bound by the report of the Valuation Officer. In that event the appellate authorities must examine the Valuation Officer under Section 23(3A). If by taking into account Rule 1BB the value shown by the assessee is not less than the value arrived at by the application of that rule, the reference itself becomes invalid and the WTO will not be bound by the said report. Therefore, for this purpose, the orders so far as they pertain to the assessment years 1965-66 to 1974-75, would be set aside. The WTO will re-examine the question of valuation in the light of the above observations and directions and re-do the assessment in accordance with law. We may point out that the position regarding the assessment year 1964-65 is somewhat different because in that year Section 7(1) read differently, that is, the words 'Subject to any rule made in this behalf were not on the statute book. They came into force with effect from 1-4-1965 only. Therefore, the retrospectivity of Rule 1BB cannot go beyond 1-4-1965, i.e., 1965-66.

25. So far as the question of higher value being returned by the assessee and a lower value being arrived at by applying Rule 1BB is concerned, we agree with the learned counsel for the assessee and the interveners that an assessee has no right to contract out of the statute and he cannot offer to be assessed on a higher valuation than arrived at by applying Rule 1BB insofar as it is an admitted fact that it is a self-occupied property. The assessee had returned the valuation on the basis of the report of a registered valuer who had estimated the value at certain figures for different years. There is a positive concession given in respect of valuation of a residential property including self-occupied property by Rule 1BB and if by taking advantage of that concession the assessee is entitled to value his self-occupied property at lesser figure than arrived at by the registered valuer, he cannot be denied that benefit.

26. So far as the binding nature of Rule 1BB on the Valuation Officer is concerned, we may point out that the Committee which had been formed by the Central Board of Direct Taxes for laying down proper guidelines in the shape of rules in order to eliminate/reduce the uncertainty that prevails regarding the valuation of immovable properties which would lead to reduction in litigation and economy and uniformity in administra-tion of the Wealth-tax Act had recommended that Rule 1BB would not be binding on the Valuation Officer only in exceptional cases which had been laid down in Rule 1BB(5). Obviously, if rules are binding on the WTO, but not on the Valuation Officer, it would lead to absurd results and would defeat the very purpose of Rule 1BB in as far as litigation would increase rather than decrease thereby. We, therefore, hold that Rule 1BB' being a piece of delegated legislation which is mandatory in nature as held in Laxmipat Singhania's case (supra) by the Allahabad High Court and which binds the WTO, also binds the Valuation Officers who are part of the machinery under the Wealth-tax Act and, therefore, the Valuation Officer cannot ignore Rule 1BB for valuing the residential properties falling under Rule 1BB.27. We may point out that Rule 1BB(5)(i) applies only where the WTO with the previous approval of the IAC is of the opinion that it is not practicable to apply the provisions of the rule to a particular case.

The mere fact that the value arrived at by applying Rule 1BB would be much less than the value arrived at by ignoring the said rule, would not make it unpracticable to apply the rule to a given case. So far as the argument of the learned departmental representative, that the whole machinery of valuation cell of the Income-tax Department would become redundant if Rule 1BB is given retrospective operation, is concerned, the wealth of a person does not consist only of a residential house but also of other assets. The CBDT made Rules 1C and 1D and held them to be retrospective. This did not make the machinery of valuation cell redundant. The valuation cell would continue to value other assets and if part of the machinery becomes surplus by applying the said rules, it cannot be helped.

28. The assessment years which are in appeal before us are up to 1974-75. Section 7(4) came on the statute book with effect from 1-4-1976. The question regarding reconciling Section 7(1), read with Rule 1BB, with Section 7(4) does not, therefore, directly arise in these appeals but would indeed arise in the case of some of the interveners. Since this point was argued at length we proceed to decide this point also. Section 7(4) applies to self-occupied properties only.

It came into force at the time when Rule 1BB had not been enacted.

Valuation of self-occupied properties was, therefore, sought to be frozen in order to benefit the owners of the self-occupied properties.

We may reproduce Section 7(4) for the sake of clarity: Notwithstanding any thing contained in Sub-section (1), the value of a house belonging to the assessee and exclusively used by him for residential purposes throughout the period of twelve months immediately preceding the valuation date may, at the option of the assessee, be taken 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 next following the date on which he became the owner of the house or on the valuation date relevant to the assessment year commencing on the 1st day of April, 1971, whichever valuation date is later: According to the department, the option regarding the valuation is only between two dates which is available to the assessee, i.e., the valuation date next after the date on which the assessee became the owner of the house and the valuation date relevant to the assessment year commencing on 1-4-1971, whichever is later. The contention of the department, therefore, was that Section 7(4) is not affected by coming into force of Rule 1BB insofar as this section opens with a non obstante clause and excludes the operation of Section 7(1) for the valuation of self-occupied properties. The contention on behalf of the assessee and the interveners was otherwise and their contention was that Rule 1BB would apply even to self-occupied properties so long as the assessee exercises the option not to be governed by Section 7(4) but to be governed by Rule 1BB. The argument that an assessee can opt to be governed by Section 7(1) or 7(4) has somewhat been obscurely worded and is capable of both the interpretations canvassed before us.

However, we find that while Section 7(4) came into effect from 1-4-1976, on 26-7-1976 the CBDT appointed a Committee to go into the question of valuation of immovable property so that the valuation of immovable properties should be made more certain by applying certain rules to be framed. The Committee gave a report drawing up guidelines for the valuation of residential properties as a result of which Rule 1BB was enacted. Rule 1BB applies to a house which is wholly or mainly used for residential purposes. Obviously, when a reference was made by the CBDT to the Committee to draw up guidelines for valuation of immovable property and the report of the Committee for valuing a house which is wholly or mainly used for residential purposes was accepted and enacted as Rule 1BB, the assessee who owned such a house had obviously an option either to be governed by Section 7(4) or Section 7(1), read with Rule 1BB. To hold that a person who owns a residential house even though let out would get the benefit of Rule 1BB but one who is self-occupying that house would not get the benefit, would, in our opinion, be not the correct interpretation, nor harmonious construction of the sections and the rules. It has to be remembered that Rule 1BB is a piece of beneficent legislation to give a benefit of reduced valuation of a residential house to the house owners for wealth-tax purposes. The benefit should be more readily available to a self-occupied property than to let out property, though both are residential. In our opinion, Section 7(4) was also enacted to benefit the owners of the self-occupied properties and if by application of Rule 1BB they are entitled to a larger benefit, the same cannot be denied to them. We, therefore, hold that even after 1-4-1976 when Section 7(4) came on the statute book, the assessee has an option either to value the property so far as self-occupied property is concerned, by application of Section 7(4) or by application of Rule 1BB, whichever is more beneficial to the assessee.

29. We may point out that we have proceeded to dispose of the additional ground of appeal on the basis that the said ground has been admitted by the Division Bench. There is a note to that effect on the ground of appeal by that Bench dated 3-11-1980. Even if there had not been such a note and the matter had to be decided, we have no doubt that the said additional ground would have been admitted by us because where retrospective legislation has to be given effect to, the rule laid down by the Gujarat High Court in the case of CIT v. Karamchand Premchand (P.) Ltd. [1969] 74 ITR 254 cannot apply because the assessee could pot have taken the plea regarding the applicability of Rule 1BB before the WTO and the Commissioner (Appeals) as the said rule had not been enacted till then. In case of retrospective legislation being enacted subsequent to the order of the WTO or the AAC or the Commissioner (Appeals), the same has to be given effect to by the Tribunal as held by the Federal Court in Chatturam v. CIT [1947] 15 ITR 30. So far as appeals by the assessee pertaining to the assessment years 1965-66 to 1974-75 are concerned, the orders of the Commissioner (Appeals) and the WTO are set aside and the WTO is directed to revalue the property at 3, Aurangzeb Road, keeping in view the provisions of Rule 1BB and he shall accordingly give a fresh decision on the question of valuation of the said property.

31. So far as the departmental appeals for the assessment years 1960-61 to 1974-75 are concerned, the appeals for the assessment years 1960-61 to 1963-64 can be separately disposed of. They pertain to the inclusion of assets held in the name of Kalinga Foundation Trust and shares of Kalinga Tubes Ltd. in the hands of the assessee. The Commissioner (Appeals) noticed that the Cuttack Bench of the Tribunal by order dated 27-11-1970 had held that the wealth of the trust cannot be added to the assessee's wealth. It was held that the Kalinga Trust was a genuine entity, it further held that the shareholders of Kalinga Tubes were not the benamidars of the assessee. The department's reference had been rejected by the Tribunal and by the Orissa High Court. The Commissioner (Appeals), therefore, deleted the additions so far as the assets of Kalinga Foundation Trust and the shares of Kalinga Tubes were concerned from the hands of the assessee. Insofar as the Commissioner (Appeals) had followed an earlier order of the Tribunal which has been upheld by the Orissa High Court we uphold the orders of the Commissioner (Appeals) for the assessment years 1960-61 to 1962-63. These departmental appeals are dismissed.

32. In the assessment year 1963-64, besides [the assets of Kalinga Foundation Trust and Kalinga Tubes Ltd., there is also the question regarding the valuation of shares of Kalinga Airlines (P.) Ltd. The learned Commissioner (Appeals) has held that the valuation of these shares was made by the WTO at Rs. 5,058 originally against which the AAC had worked out the value at Rs. 2,132 by his order dated 5-9-1966 which valuation had not been contested by the department. Therefore, he directed the WTO to adopt this valuation. We are in agreement with the view taken by the learned Commissioner (Appeals) that since the department had originally accepted the valuation at Rs. 2,132 to the AAC, the same valuation should be adopted in reassessment also. We, therefore, uphold the order of the Commissioner (Appeals) for the assessment year 1963-64 and dismiss the departmental appeals.

33. lathe assessment years 1964-65 to 1974-75, besides the valuation of property at 3, Aurangzeb Road, the department also contested the deletion of the value of the assets of Kalinga Foundation Trust and Kalinga Tubes Ltd. which were deleted by the Commissioner (Appeals) following the decision of the Cuttack Bench of the Tribunal which has been upheld by the Orissa High Court. Respectfully following the earlier orders of the Tribunal which have been approved by the High Court, we dismiss the departmental appeals on this point and uphold the orders of the Commissioner (Appeals).

34. So far as the assessment years 1965-66 to 1974-75 are concerned on the point regarding the valuation of the property at 3, Aurangzeb Road, the orders of the Commissioner (Appeals) and the WTO are set aside for a fresh valuation to be made by applying Rule 1BB. We may point out that it was urged on behalf of the department that 50 per cent of the unearned increase could not be deducted in the instant case since there was no such clause in the lease deed of the assessee. Since the matter is going back before the WTO, he shall no doubt consider the lease deed and come to a fresh decision regarding the claim for deduction for unearned increase while applying Rule 1BB. In the result, the departmental appeals for the assessment years 1965-66 to 1974-75 are also partly allowed.

35. This leaves for consideration the assessee's and the department's appeals for the assessment year 1964-65 when Rule 1BB could not be applied since Section 7(1) was in that year not subject to rules.

However, since the WTO had referred the valuation of the property to the Valuation Officer under Section 16A which applied to all assessments which are pending when Section 16A was brought on the statute book, the Commissioner (Appeals) was, under Section 23(3A), required to give the Valuation Officer an opportunity of being heard when the valuation of the property was challenged. The Commissioner (Appeals) failed to do so. We, therefore, set aside the order of the Commissioner (Appeals) for the assessment year 1964-65 and restore the matter on his file for a fresh decision after giving the Valuation Officer an opportunity of being heard.

36. To sum up, the questions that arose in this case and our findings thereon are as follows:1. Whether Rule 1BB is It is procedural, substantive or2. Whether Rule 1BB is It is mandatory, directory or3. Whether Rule 1BB is Yes. It is retro- retrospective in spective and applies operation? to all assessments which are pending4. Whether it is necessary in appeal before to give a hearing to the the AAC/ Commi- Valuation Officer in ssioner (Appeals) a case in which referenc /Tribunal.

was enacted In such cases, it is obvious, that the5. Whether the assessee the circumstances having returned a higher mentioned in claim reduction in the he will value the valuation property in6. Whether benefit of Rule accordance with 1BB can be availed of Rule 1BB. Only7. Whether Rule 1BB valued again by binds the Valua- the Valuation


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