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Wealth-tax Officer Vs. Niranjan Narottam (individual) - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Ahmedabad
Decided On
Judge
Reported in(1985)14ITD27(Ahd.)
AppellantWealth-tax Officer
RespondentNiranjan Narottam (individual)
Excerpt:
.....in the finance bill, 1977 as under : ... the valuation of self-occupied house properties from year to year results in certain practical difficulties and inconvenience to taxpayers. with a view to getting over these difficulties, it is proposed to freeze the valuation of such properties as on a particular date, ignoring subsequent variations in its real" value. it is accordingly proposed to provide that the value of one house belonging to the taxpayer and exclusively used by him for residential purposes shall 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 1971-72,.....
Judgment:
1. The common issue in all these appeals relates to the valuation of properties. Taking the first and second appeals, the WTO valued a bunglow called 'Shalimar' situated in Shahi Baug, Ahmedabad, for wealth-tax purposes at Rs. 15,48,600 and Rs. 10,90,000 as against the value offered for assessment by the assessee of Rs. 3,95,260 and Rs. 2,72,700, respectively. For the assessment years 1972-73 to 1974-75, the same issue came up on appeal before the Commissioner who accepted the assessee's contention that the provisions of Section 7(4) of the Wealth-tax Act, 1957 ('the Act') would be applicable to all the assessment years including those even prior to the assessment year 1976-77. He also held that the value to be adopted for the assessment purposes is the market value of the property as arrived at for the assessment year 1971-72. In disposing of the above appeals, he followed a decision of his for the earlier years. He, accordingly, directed the WTO to adopt the value of the property at Rs. 6,46,600 being the market value on the valuation date for the assessment year 1971-72 as computed in his appellate order for the earlier year. He in so doing applied rule IBB of the Wealth-tax Rules, 1957 ('the Rules'). Likewise, in the last three appeals, the same question of valuation of property came up and the Commissioner adopted the value as for the assessment year 1971-72 for the subsequent years also. The department has challenged these orders of the Commissioner.

2. The learned counsel for the department pointed out that the question at issue was whether Section 7(4) inserted by Section 27(3)(b) of the Finance Act, 1976, is effective prospectively from the assessment year 1976-77 onwards or is applicable retrospectively for an earlier year and if so from which assessment year. The Finance Act, 1976 was passed on 27-5-1976. Section 1(1) of the Finance Act carried a legend 'saved as otherwise provided' which indicated clearly the dates from which the Finance Act came into force. Section 27 has six sub-sections ; Section 27(1) takes effect from 1-4-1977 ; Section 1(2) has to be read with each section of the Finance Act insofar as different starting days have been provided for each amendment ; Section 27(3)(a) does not indicate any date, so we have to go to Section 1(2) giving the operation of the provision with effect from 1-4-1976. Section 27(3)(6), on the other hand, does not indicate any date, thus, both Sections 27(3)(a) and (b) came into effect from 1-4-1976. Section 27(4) comes into effect from 1-4-1977. The instructions on the Finance Act issued by the CBDT Circular No. 202 dated 5-7-1976 [see Taxmann's Direct Taxes Circulars, Vol. II, 1985 Edn., p. 686] refer to all aspects including the starting point of these provisions. Reference is made in this connection to paragraph Nos. 2, 51.1 and 51.2 of the circular. The last paragraph is based on a correct interpretation of Section 1(2), read with Section 27(3)(a) and (b). According to the learned counsel, except Section 29(c)(ii) of the Finance Act, no other section of the Finance Act, 1976 specifically gives retrospective effect to the provisions contained therein. If the intention was to give retrospective effect to other sections like Section 27(3)(0) or (b\ they would have also specifically pointed out about it and would have been worded like Section 29(c)(ii).

Illustrating the process further, the learned counsel referred to the provisions of Section 52 of the Income-tax Act, 1961 ('the 1961 Act') amended by the Finance (No. 2) Act, 1977, with effect from 1-4-1978.

Reference is also made to the decision in the case of Smt. Patwant Kaur v. WTO [1983] 4 ITD 109 (Asr.) (TM); especially on the scope of 'substantive provision', at. p. 118 is referred to in this connection.

Referring to the Special Bench's decision in the case of Biju Patnaik v. WTO [1982] 1 SOT 623 (Delhi) it is pointed out that this decision is in favour of the department and would not support the present stand of the assessees.

3. Copiously quoting from Bindra's Statutes and General Clauses Act, 1965, Fourth edn., the learned counsel has referred to the distinction between substantive and adjective law. The purpose of Section 7(4) is to give relief to the taxpayer. Understood in the light of the distinction between substantive and adjective law, according to the learned counsel, Section 7(4) is in the field of substantive law and not procedural law. Further, support for this is drawn from the statements in Dictionary of English Language of Jowitt 1959 edn. Bindra himself says that the : ... procedure provided in a Statute for the endorsement of substantive right conferred thereby should be construed as far as possible so as to give effect to and not to nullify those rights. A mere procedural provision is not to be allowed to whittle down or modify a substantive provision of law. Procedural enactment should be construed liberally and in such manner as to render the enforcement of substantive right effective.(p. 1064) In this connection, the learned counsel has pointed out that the concept of 'intrinsic evidence' referred to in paragraph No. 3 of the Third Member's order is not only wrong but subjective rendering it void and unacceptable. The notes on clauses relevant to the Finance Act also is referred to in this connection.

4. Commenting on the nature of the legislation treated as beneficial by Bindra, it is pointed out that this concept is used in the case of procedural law. A liberal construction does not justify an extension of the scope of the statute beyond the contemplation of the Legislature.

In the present case, the law on the subject is absolutely clear. It is not capable of two interpretations as to the point of time when it comes into operation. It can, therefore, be applied only perspectively from 1-4-1976. The learned counsel has also relied on the decisions in Cape Brandy Syndicate v. IRC 12 Tax Case 358; Drummond v. Collins (Surveyor of Taxes) 6 Tax Case 525 at p. 539 ; A.V. Fernandez v. State of Kerala AIR 1957 SC 657 at p. 661; Madurai District Central Co-operative Bank Ltd. v. Third ITO [1975] 101 ITR 24 (SC) ; Morvi Mercantile Bank Ltd. v. Union of India [1965] 35 Com. Case 629 (SC) and C. Arunachalam v. CIT [1985] 151 ITR 172 (Kar.) (FB). In this connection, reference is also made to the wording and construction of some of the sections of the 1961 Act, such as Sections 50(2), 16(1), 80C(1) and also 80J(1)(a), 17(1)(v)(a) and 17(2)(vi).

5. The learned counsel for the assessee has pointed out to the substantial contribution of case law in this connection. Reference is made to the decision of the Supreme Court in the case of Standard Mills Co. Ltd. v. CWT [1967] 63 ITR 470 at p. 476. The impugned section is a machinery one, useful for the determination of the value of the assets.

It does not deal with net wealth of the assessee but with the value of the assets included in the net wealth. The decision in CWT v. Laxmipat Singhania [1978] 111 ITR 272 at pp. 275-276 (All.) is referred to in this connection.

The question is whether a provision relating to valuation is procedural law or substantive law and comes under the rules or the statute.

Referring to the decision in Smt. Kusumben D. Mahadevia v. N.C. Upadhya [1980] 124 ITR 799 (Bom.), the learned counsel referred to the nature of machinery section and doubted whether if Section 7(1) is procedural, Section 7(4) which is an only option section could be substantive. In fact, Section 7(4) could even be treated as a proviso. At any rate, this will apply to the pending proceedings. For this purpose, it is not necessary to hold this provision to be retrospective so as to rectify a completed assessment. In this connection, the decision of the Andhra Pradesh High Court in the case of CWT v. Pachigolla Namsimha Rao [1982] 134 ITR 640 is referred to. Stress is laid on the decisions in CWT v.Vidyavathi Kapur [1984] 150 ITR 319 (Kar.) and K. Eapen Chako v.Provident Investment Co. (P.) Ltd. AIR 1976 SC 2610 at p. 2617, In any case where two views are possible, one which serves the purpose better should be followed rather than the one which does not do so.

6. The intervener on behalf of Shri Chandrakant Bakubhai (HUF) pointed out that if Section 7(4) is rejected, rule IBB effect should be given restricted to Section 7(4) relief. The learned counsel for the intervener pointed out the anomaly of having one value for certain years, which was adopted for later years as well but restricting the value for the intermediate year to a different figure. In this assessee's case, the ground of appeal relating to the applicability of rule IBB was not decided at all by the Commissioner. It is, therefore, urged that the matter should go back to him for this issue. Even in the main assessee's case, Shri Niranjan Narottam (Individual), it is pointed out that for the purpose of the assessment year 1975-76, if the question of valuation is decided against the department, the order could stand. Otherwise, the matter has to go back to the Commissioner (Appeals) to decide the question of valuation.

7. The simple question at issue in these appeals is whether Section 7(4) introduced by the Finance Act, would apply to the years prior to the assessment year 1976-77 or only prospectively for the subsequent years. Section 7(4) as amended by Section 27 of the Finance Act, is as under : (4) Notwithstanding anything 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 : This was explained in the memorandum explaining the provisions in the Finance Bill, 1977 as under : ... The valuation of self-occupied house properties from year to year results in certain practical difficulties and inconvenience to taxpayers. With a view to getting over these difficulties, it is proposed to freeze the valuation of such properties as on a particular date, ignoring subsequent variations in its real" value.

It is accordingly proposed to provide that the value of one house belonging to the taxpayer and exclusively used by him for residential purposes shall 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 1971-72, whichever is later....

8. The intention of the Legislature as clarified by the above is that in respect of this asset the valuation should be frozen as on a particular date ignoring variations in its value that may take place subsequently. The valuation as on the valuation date for the assessment year 1971-72 is prescribed in this connection. There is no dispute about the fact that with effect from 1-4-1976, the value to be adopted for the wealth-tax purposes would be on the basis of Section 7(4).

Thus, the value for an assessment year 1976-77 or 1977-78 would be the value as for 1971-72. The question is whether for the purposes of the earlier assessments such as 1972-73, 1973-74 or 1975-76, the same value as that in 1971-72 should be adopted following Section 7(4) or a valuation be made for each of these assessment years independently. The assessee's learned counsel relying on the procedural aspect of the provisions has claimed that for these years as well the value as in 1971-72 should be adopted. This goes on the further assumption that procedural sections have retrospective effect and would convey what they cover at the time of their enactment for the earlier assessments as well. In other words, where a matter is one of procedurally arriving at something the latest procedure available should be followed even with respect to computation to be made for the earlier years. This is sanctioned by law. In the case of substantial provisions on the contrary unless amended retrospectively the provisions relevant to the respective years have to be applied. The department's case is that the valuation of a property belongs to the realm of substantive law. In Biju Patnaik's case (supra), a Special Bench of the Tribunal has treated the valuation provisions as procedural. In Smt. Kusumben D.Mahadevi's case (supra), the Bombay High Court has held Section 7 to be a machinery section. Section 7(4) would automatically go, therefore, to the field of procedural rather than substantive law.

9. Some of the decisions of the Tribunal have also dealt with the incongruity arising from the fact of the valuation for 1971-72 being adopted for all years subsequent to 1976-77, but not for the intermediate years 1972-73 to 1975-76 for which the real value would be much lower than that for the later years, where the tremendous thrust of inflation would weigh on the value. We agree with this view, especially in the light of the objects of the amendment referred to in the preceding paragraphs.

10. In the circular of the CBDT No. 202 of 5-7-1976, referring to Section 27(3) of the Finance Act, it is mentioned that the amendment comes into force with effect from 1-4-1976 and will be applicable in relation to the assessment year 1976-77 and subsequent years. Since no reason is given for the view expressed, it becomes difficult to regard these observations as decisive of the law. Section 27(3) of the Finance Act does not lay down any particular date of commencement of the provisions apart from what would be applicable under Section 1(2).

These provisions, however, do not affect the position of the applicability of the amendment to any particular year if the amendments themselves are regarded as procedural in nature. The claim of the revenue, therefore, cannot be supported on the strength of these decisions 11. Section 7 lays down the method of valuation of assets for the purpose of wealth-tax. The general provisions relating to valuation set out in this section are clarified by the clauses to the section as well as the rules applicable to valuation. On the legal side, the controversy about this portion of the statute as well as the rules being procedural or otherwise is raised. But the question of valuation is a matter of fact to be arrived at by well-established and known principles. These principles also involve the application of particular legal norms relevant to the context. Thus, in fixing the standard rent of a property let out the actual rent realisable when let out from year to year would certainly vary from year to year but all the same the Rent Control Acts as well as the legal principles followed in them provide for a fixity of the concept as well as the quantum of rent fixed. This practice is followed even with regard to other situations where decisions have to be made with regarding the value of any asset on different dates. Fixity is regarded as one of the settled norms in all these statutory provisions and rightly so in our view. A provision like Section 7(4), which lays down a method of valuing properties with the specific purpose of removing uncertainty and bringing in fixity should normally follow the same pattern as these statutes referred to.

Thus, on a parity of the concepts in these different statutes also having a beneficial approach to difficult situations, we see nothing wrong even from the legal point of view in applying the provisions for the intermediate years. Thus, apart from removing an anomaly, the position is made more rational with no particular undesirable results.

For this reason also, we hold that the valuation for these years be made on the same basis as for the subsequent years.

12. The aseessee's claim is accepted and the Commissioner's valuation upheld. WT Appeal Nos. 308, 36 to 39 are dismissed.

13. In WT Appeal No. 309, the department has challenged the order of the Commissioner holding that for the purposes of computation of the break up value of shares advance tax paid under Section 210 of the 1961 Act should not be deducted from the total assets of the company. This matter is covered by the decision in CWTv. Ashok K. Parikh [1981] 129 ITR 46 (Guj.) against the department.


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