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Commissioner of Wealth-tax Vs. Smt. Razia Begum - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Delhi
Decided On
Judge
Reported in(1985)11ITD677(Delhi)
AppellantCommissioner of Wealth-tax
RespondentSmt. Razia Begum
Excerpt:
.....nature. the retrospective operation will depend on this examination of the nature of the rule. rule 1bb has not been the subject-matter of examination by any court. there is no decision of the supreme court on the controversy regarding retrospective operation of any other rule framed under section 7. it is true that there are certain high court decisions but that does not conclude the matter. in this connection, it is relevant to quote a part of the comments from the commentary by sampath iyengar in the three new taxes about section 7 : ... actually, however, section 7 in both of its limbs enacts rules of computation, which fix the quantum of real taxable value ; and the wealth-tax payable by an assessee will be high or low according as such value is high or low. this,.....
Judgment:
1. By this reference application under Section 27(1) of the Wealth-tax Act, 1957 ('the Act'), the Commissioner has required the Tribunal to refer the following question as a question of law, which is stated to arise out of the order of the Tribunal in WT Appeal No. 552 (Delhi) of 1982 relating to the assessment year 1976-77 : Whether, on the facts and in the circumstances of the case, the Tribunal was justified in directing the Wealth-tax Officer to recalculate the value of property at Marina Hotel', New Delhi, in accordance with Rule 1BB of the Wealth-tax Rules, by holding that though this rule came into existence on 1-4-1979 yet it has retrospective effect.

2. At the time of the hearing of the reference application by the Division Bench, it was found that whereas in a large number of cases references have been made on similar question for the opinion of the Hon'ble High Court, a few Benches of the Tribunal have taken the view that no referable question of law arises on the above matter. These orders were mainly in the case of D.G. Bhagat [Reference Application Nos. 1123 to 1126 of 1981, 1457 to 1461 (Delhi) of 1982 and 597 to 601 (Delhi) of 1983], in the case of Mohd. Haroon Japanwala [Reference Application Nos. 558 and 559 (Delhi) of 1983]. In these reference applications, the Tribunal had held that no question of law is required to be referred for the opinion of the Hon'ble High Court as the answer to the question is self-evident and academic in view of the settled principles of law and the decisions of the Courts. In view of the conflict in such matters, the President of the Tribunal constituted a Special Bench of the Tribunal to decide the question whether a reference should be made to the High Court or not. It is in these circumstances that we have heard the parties in this matter.

3. On behalf of the department, the learned departmental representative has submitted that the Tribunal had held that the direction given by the Commissioner (Appeals) for valuing the property under Rule IBB of the Wealth-tax Rules, 1957 ('the Rules'), was in order, having regard to the decision of the Special Bench of the Tribunal in the case of Biju Patnaik v. WTO L1982] 1 SOT 623 (Delhi), where it has been held that Rule 1BB was mandatory, procedural and retrospective in operation.

He pointed out that in the case of Biju Patnaik (supra), when questions of law had been raised, the Tribunal was pleased to refer them for the opinion of the Hon'ble High Court and as the order in question also followed the decision of the Special Bench, a reference should be made.

It v/as further contended that whether Rule 1BB was purely procedural is itself in dispute as it affects the extent of wealth of the assessee and, therefore, has a bearing on the wealth-tax liability. It was also submitted that Rule 1BB was given effect from 1-4-1979 and whether this rule could be extended to all the other assessments for the earlier assessment year, raises a question of law. It was pointed out that the matter was not concluded by any decision of the Supreme Court, which could make the matter academic. He referred to the order of the Tribunal in the case of D.G. Bhagat (supra) and submitted that the main reliance of that Bench was on an order of the Delhi High Court, dismissing a petition under Section 27(3) on the question of retrospective operation of Section 7(4) of the Act, but this could not cover this issue as this relates to Rule 1BB, which has to be determined after looking into the nature of the rules and the extent to which it affects the tax liability of a taxpayer. In this connection, he pointed out that in the case of Biju Patnaik (supra) at page 630, the department had contended that Rule 1BB was a substantive one and the Tribunal had considered this question but had not accepted. It was, therefore, contended that a referable question of law which has not yet been concluded by a decision of the Supreme Court arises in this case and should be referred for the opinion of the Hon'ble High Court.

4. On behalf of the assessee, main reliance was placed on the orders of the Tribunal, where it had been held that though a question of law arises yet it need not be referred, as the answer is self-evident and academic. He also submitted that Rules 1C and ID of the Rules relating to the mode of valuation of unquoted shares had been applied by the department for even earlier years and such application was upheld by the Allahabad High Court. The learned counsel also pointed out that the property in question in respect of which valuation has to be made was co-owned by the assessee and Mohd. Haroon Japanwala. He pointed out that in the case of the latter, the Tribunal has already decided in Reference Application Nos. 558 and 559 (Delhi) of 1983 that no reference is required to be made. He, therefore, contended that it would be anomalous if a reference is made in the present case.

5. We have carefully considered the rival submissions. We find that there is no dispute before us that a question of law does arise in respect of the effect of Rule 1BB and the only question is whether it should not be referred if the answer to the same is self-evident and/or of academic value in view of any decision of the Supreme Court.

6. Retrospective operation of a particular provision of the Wealth-tax Rules has to be considered in the context of Section 46(3) of the Act, which is as under : (3) The power to make rules conferred by this Section shall include the power to give retrospective effect, from a date not earlier than the date of commencement of this Act, to the rules or any of them and, unless the contrary is permitted (whether expressly or by necessary implication), no retrospective effect shall be given to any rule so as to prejudicially affect the interest of assessees.

Moreover, the rules framed have to be looked into from the point of view of its effect on the wealth-tax liability of an assessee and that may decide the question whether Rule 1BB is purely procedural or is 'of substantive nature. The retrospective operation will depend on this examination of the nature of the rule. Rule 1BB has not been the subject-matter of examination by any Court. There is no decision of the Supreme Court on the controversy regarding retrospective operation of any other rule framed under Section 7. It is true that there are certain High Court decisions but that does not conclude the matter. In this connection, it is relevant to quote a part of the comments from the commentary by Sampath Iyengar in The Three New Taxes about Section 7 : ... Actually, however, Section 7 in both of its limbs enacts rules of computation, which fix the quantum of real taxable value ; and the wealth-tax payable by an assessee will be high or low according as such value is high or low. This, therefore, is a taxing provision of the statute, a substantive law, and portion of the judgment quoted not a procedural law. . . .

We also note that similar question had arisen before a Third Member, as there was a difference of opinion between the two Members of Delhi Bench and the Third Member has decided the matter in the case of CWT v.Smt. Simla Vati Mehra [1984] 8 ITD 316. While holding that the question of law should be referred to the High Court, the learned Third Member held as under : 3. The learned counsel for the assessee has raised an important point on which emphasis has also been placed by the learned Judicial Member, namely, that procedural provisions have retrospective effect is a well settled proposition and it would be not correct to refer such a self-evident question of law. Even so, the other question remains as to whether the finding of the Tribunal that Rule 1BB is a procedural provision which I find, is a question of law to be referred to their Lordships. Apart from the fact that the learned Accountant Member refers to other decisions where a question of law, as suggested in the application itself, has been referred to the Hon'ble High Court, the same question involved in the decision in Biju Patnaik's case (supra) (Special Bench decision) has been referred to the High Court. For these reasons, I agree with the learned Accountant Member that a question of law has to be referred as to the nature of the provisions. Since a reference is already being made, the additional question as to the retrospective operation of the rule being procedural could also be referred, both these being comprehensively covered by a common question as under : Whether, on the facts and in the circumstances of the case, the value of the assessee's residential house should be computed for the purposes of wealth-tax assessments for the assessment years 1972-73, 1973-74, 1974-75 and 1975-76 in accordance with Rule 1BB of the Wealth-tax Rules We agree with the above view and we hold that a referable question of law arises in this case and should be referred. In our view, the decision of the Delhi High Court rejecting the petition under Section 27(3) in the case of CWT v. S. Bhagwant Singh (HUF) [WT Case No, 127 (Delhi) of 1979] regarding the application of Section 7(4) does not conclude the issue before us as Section 7(4) in terms makes a reference of a particular year and provides for the fixation of the value with reference to that year for the later years. There is no such provision in the present rule and it will depend on the determination of question whether Rule 1BB was procedural and mandatory, as held by the Tribunal in the case of Biju Patnaik {supra). In this connection, it will not be out of place to mention that the Bombay High Court had held in the case of Smt. Kusumben D. Mahadevia v. N.C. Upadhya [1980] 124 ITR 799 that Rule 1D is directory and not mandatory, in spite of the use of the word 'shall' in the Rules. We, therefore, proceed to draw up statement of the case.

7. The assessee is an individual having one-fourth share in a property known as Marina Hotel. The value declared by the assessee had not been accepted by the WTO, who determined the value on the basis of a valuation report which had fixed the value of the property at Rs. 56,87,000 and the assessee's share at Rs. 14,21,950. The assessee filed an appeal before the Commissioner (Appeals). It was contended before him that the assessee had declared her share at Rs. 2,75,000. It was urged that the WTO had wrongly declined to consider the assessee's plea regarding the application of Rule 1BB. The Commissioner (Appeals) found that this matter had been considered in the case of other co-owner, Shri Mohd. Haroon Japanwala, and in that case also, direction had been given for application of Rule 1BB. The Commissioner (Appeals) set aside the assessment and restored the matter to the WTO for making a de novo assessment in accordance with law.

8. When the matter came before the Tribunal, it was found that the matter was covered by a decision of the Special Bench in the case of Biju Patnaik (supra), where it had been held that Rule 1BB was procedural, mandatory and hence retrospective in operation. The Tribunal further found that in the case of the other co-owner, similar directions had been given for applying Rule 1BB. Before the Tribunal, the order of the Tribunal in the case of Mohd. Haroon Japanwala (supra) had been filed. From that order of the Tribunal, it appears that the contention of the department was that the property in question was a commercial property and not a residential property and, hence, Rule 1BB did not have any application. The Tribunal, while giving direction that the application of Rule 1BB should be taken into consideration, also held that the WTO shall also determine whether the property in question is a residential property within the meaning of Rule 1BB and if he is satisfied, he will proceed to value the property in accordance with the rule. The Tribunal followed the order of the Special Bench as well as the order in the case of the co-owner, Mohd, Haro.on Japanwala, and dismissed the departmental appeal.

The orders of the WTO, the Commissioner (Appeals) and the Tribunal are at Annexures 'A', 'B' and 'C, respectively, and they from part of the statement of the case.

9. It is on the above facts that question of law as given in paragraph No. 1 has been raised. We find that the Tribunal has dismissed the departmental appeal and had confirmed the order of the Commissioner (Appeals). We would reframe the question as under : Whether, on the facts and in the circumstances of the case, the Tribunal was correct in uphofding the consideration of Rule 1BB of the Wealth-tax Rules in respect of the assessment year 1976-77 though the rule came into existence on 1-4-1979 on the ground that the said rule had retrospective effect? 10. Though the notice was served, no suggestions have been received from the assessee. The departmental representative has also no suggestion to make. So the statement is finalised.


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