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TMI Blog1985 (11) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act or the amount of tax, penalty or interest payable pursuant to an order passed under the Act or any other law relating to taxation. Section 4 enumerates the assets to be included in computing the net wealth. Sections 5 and 6 exempt certain assets in India and outside India from being included in computing the net wealth of the taxpayer. The value of assets is to be determined in accordance with section 7, sub-section (1) whereof reads as under : " 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." The words " subject to any rules made in this behalf " were substituted by the Wealth-tax (Amendment) Act, 1964, with effect from April 1, 1965. Sub-sections (2), (3) and (4) of section 7 are in the nature of exceptions to sub-section (1) and each one of them begins with a non obstante clause, viz., notwithstanding anything contained in sub-section (1). Subsection (2) deals with the manner in which the assets of an assessee carrying on business in respect whereof r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et value or in any other case if the Wealth-tax Officer is of the opinion that the fair market value of the asset exceeds the returned value by more than such percentage or by more than such amount as may be prescribed in this behalf or that having regard to the nature of the asset and other relevant circumstances, it is necessary to do so. Sub-section (5) of this section enjoins the Valuation Officer to estimate the value of the asset by a written order and forward a copy thereof to the Wealthtax Officer as well as the assessee. After the Wealth-tax Officer has received the order from the Valuation Officer, sub-section (6) requires that he shall proceed to complete the assessment in conformity with the estimate of the Valuation Officer. Section 23 provides for an appeal to the Appellate Assistant Commissioner from the orders of the Wealth-tax Officer. Section 24 provides a further appeal to the Appellate Tribunal from the orders of the Appellate Assistant Commissioner. Section 25 confers power on the Commissioner to revise orders of the subordinate authorities either of his own motion or on application made to him by an assessee. An order passed by the Commissioner under this sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 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 of 100/9 in clause (b), the fractions 10019 and 100/10, respectively, had been substituted." Sub-rule (2) of this rule defines the expressions " gross maintainable rent ", " net maintainable rent " and " house ", the last including an independent residential unit. Sub-rule (5) of this rule, however, provides that where, having regard to the facts and circumstances of the case, the Wealth-tax Officer is of the opinion that it is not practicable to apply the provisions of the rule to such a case, he may not apply the rule with the previous approval of the Inspecting Assistant Commissioner. The controversy before us revolves round this rule, namely, whether it is substantive or merely procedural in nature. Before we proceed to deal with the controversy, a few relevant facts may be noticed. The assessee owns a property in the City of Ahmedabad known as " K. M. Residences ". The question of valuation of this estate was referred to the Valuation Officer by the Wealth-tax Officer. On receipt of the order from the Valuation Officer, unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... While stating the scheme of the Act, we have pointed out that section 3 is the charging section. Under that provision, a tax (wealthtax) in respect of the net wealth for every assessment year commencing on and from the first day of April, 1957, is chargeable from every individual, Hindu undivided family and company at the rate or rates specified in Schedule I to the Act. In computing the net wealth of an individual, the value of assets held by certain persons other than the assessee are to be included as belonging to the assessee. Section 7(1) lays down that the value of any asset, other than cash, shall be estimated to be the price which, in the opinion of the Wealthtax Officer, it would fetch if sold in the open market on the valuation date. This provision makes it clear that the value of the asset for the purposes of computing the net wealth of the assessee must be estimated by working out the price it would fetch if it is put to sale in the open market. It presupposes that the asset has a price and there exists some market to which it can be taken for sale. That is why in Ahmed G. H. Ariff v. CWT[1970] 76 ITR 471, the Supreme Court, while interpreting the words " if sold in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the market value of any asset may be determined. The word " manner " used in clause (a) of subsection (2) of section 46 would denote the mode or method to be followed for ascertaining the market value of the concerned asset. It is in exercise of this power that rule 1BB came to be inserted in the Rules by the Wealth-tax (Amendment) Rules, 1979. By this rule, the method or formula for determining the value of the asset, that is, a house which is wholly or mainly used for residential purposes, is stated. The rule, therefore, is intended to carry out the purpose and object of section 7(1) of the Act, namely, an estimate of the price of the asset if sold in the open market on the valuation date. Different methods are employed for valuing real estate. In CIT v. Vimlaben Bhagwandas Patel [1979] 118 ITR 134 (Guj), it was pointed out that the well-known and recognised methods for arriving at the fair market value of real estate are land and building method, contractor's method, rental or yield basis method or comparable sales method. The market value has to be estimated or worked out by employing one or more of these methods which are considered appropriate having regard to the chara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valuation of a house which is wholly or mainly used for residential purposes. The Central Board of Direct Taxes had constituted a committee for laying down proper guidelines to enable speedy disposal of cases in which questions relating to the valuation of immovable properties, etc., arose for decision. The committee submitted its report drawing up guidelines for the valuation of residential properties. Pursuant thereto, rule I BB came to be introduced in the Rules providing a formula for the determination of the fair market value of a house used wholly or mainly for the purpose of residence. It became necessary for the Board to provide a formula for determining the market value of a house in order to speed up the disposal of cases involving questions of valuation of such an asset. By providing a uniform formula applicable to all such cases falling under rule I BB, the Board desired to remove the uncertainties prevailing in regard to the valuation of such assets which would help reduce litigation and secure early disposal of cases. If this is the avowed purpose of the introduction of the rule, can it be said that it was not intended to apply to pending cases ? But, before we dea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. The general rule of interpretation is that a substantive law is intended to be prospective unless a contrary intention is manifest from the language of the statute or arises by necessary implication. It is well-settled that courts will refuse to place a construction giving retrospective effect if such construction is likely to impair existing rights and/or obligations. It is, however, open to the Legislature to give retrospective effect to a law by use of express words manifesting such an intention. That apart, a statute which takes away or impairs any vested right or creates new obligations must be construed not to have been intended to apply retrospectively. But, as observed by R. S. Wright J. in Re Athlumney [1898) 2 QB 547 at p. 552: " If the enactment is expressed in language which is fairly capable of either interpretation, it ought to be construed as prospective only." But if the law deals with matters of procedure only, it is deemed to be retrospective unless such an inference is likely to lead to unjust results. It is clear from what we have stated above that the rule of construction depends upon whether the law is substantive or merely procedural. If ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucing this formula, no vested right of the assessee is sought to be taken away. It is generally assumed that the value - likely to be worked out by the adoption of this formula would be the minimum of the values which would be worked out if the other well-recognised formulae are employed. It was, therefore, felt that a large number of assessees could adopt this formula for the purpose of valuation of their asset used wholly or mainly for the purpose of residence and that would facilitate early disposal of cases on a uniform pattern. It is indeed true that under section 7(1) of the Act, the assessee can claim that his asset should be estimated on the basis of the price it was likely to fetch if sold in the open market on the valuation date. This right of the assessee is not sought to be taken away by the introduction of rule 1BB. If the assessee feels that the value of the property, if sold in the open market on the valuation date would be less than the value worked out by employing the formula of rule 1BB, it would be open to him to claim that the value of his asset may be so estimated. In other words, if the fair market value estimated in accordance with section 7(1) of the Act wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to curtail avoidable litigation and bring about uniformity and certainty in the matter of valuation of such an asset. It would also obviate the need to go through the exercise of valuing the asset under each recognised method of valuation and then choosing that method which yields the minimum value. By adopting and offering the straitjacket formula engrafted in rule 1BB, the Revenue has tried to cover large number of cases which could be disposed of in accordance therewith. If the intention of the rule-making authority in introducing rule 1BB was to evolve a method of valuation which, would be beneficial and, therefore, acceptable to the assessee with a view to early disposal of cases relating to the asset in question, it would be reasonable to infer that the rule-making authority desired to clear up pending cases which were in the pipeline by the aid of this rule rather than to keep the pipeline of cases prior to the date of the introduction of the rule choked and merely deal with future cases with the aid of this rule. The introduction of this rule may also obviate the need to get the asset valued by a recognised valuer from time to time. As pointed out earlier, the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , observed that in a company which is a running concern, the market value of a share is determined mainly on the basis of the yield method because a person who holds the shares or who wants to purchase the shares does it not with a view to bring the company into liquidation but he does it in the hope of getting return for his investment. It is only when the company is known to be at the end of its life, that is, in the process of winding up, that the market value of its shares will be determined on the break-up formula employed under rule 1D of the Rules. Referring to section 46(2) of the Act, the learned judge observed that the scope of the rule-making power is restricted so as to provide by a rule a mode in which the market value of an asset may or would be determined. This rule-making power can be exercised only for the purpose of making a rule giving discretion to the Wealth-tax Officer to apply the rule, if necessary, and compute the value according to the manner prescribed in that rule. Rule 1D of the Rules was, therefore, held to be not mandatory. It was also held that it was not possible to attribute an intention to the rule-making authority that it desired to shut out all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicability of rule 1BB. The Tribunal has held that it is a procedural rule and, therefore, it may be given effect to even in respect of pending matters. There is no dispute and indeed it cannot be disputed that rule 1BB is procedural in nature. That being the position, we fail to see any question of law arising out of the order of the Tribunal, since it is always not disputed that the rules of procedure can be called into aid in respect of pending matters." The aforesaid three decisions lend support to the view that we are inclined to take. Mr. Shelat, learned counsel for the Revenue, argued that since the rule-making authority was empowered to give retrospective effect by virtue of sub-section (3) of section 46, it would have done so if it intended rule 1BB to apply to pending cases also. Sub-section (3) of section 46 does confer power on the rule-making authority to give retrospective effect from a date not earlier than the date of commencement of the Act and the rules or any of them provided it does not prejudice the interests of the assessee. He submitted that the plain words of rule 1BB do not indicate that the rule-making authority wanted it to apply retrospectively. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terpretation of Statutes (Twelfth. Edition), we find the following statement under the caption " Pending actions " : " 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 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 (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 14, 1956, the appellant applied to the Magistrate claiming a right to appear and give evidence under the newly inserted section 342A of the Code. His application was dismissed by the trial Magistrate and his revision against the said order met the same fate in the High Court. In the background of these facts, the Supreme Court observed that no person has a vested right in any course of procedure. He has only the right of prosecution or defence in the manner prescribed for the time being by or for the court in which the case is pending and if by an Act of Parliament the mode of procedure is altered, he has no other right than to proceed according to the altered mode. In other words, observed the court, a change in the law of procedure operates retrospectively and, unlike the law relating to a vested right, is not prospective only. This decision does not support the argument of Mr. Shelat because in that case no question arose whether a rule of procedure which operates retrospectively can also govern pending appeal. Mr. Shelat then invited our attention to the observation made by the Full Bench of the Calcutta High Court in Ajit Kumar Palit v. State, AIR 1961 Cal 560. In paragra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere to operate retrospectively, it would render sections 7(3) and 7(4) as well as section 16A(6) redundant. Under section 7(4), the assessee has the option of valuing the property on (i) the valuation date following the date on which he became the owner; or (ii) on the valuation date relevant to the assessment year commencing on April 1, 1971, whichever is later. He pointed out that once reference is made to the Valuation Officer under section 16A(1), the Valuation Officer is required to follow the procedure set out in the subsequent sub-sections and after his order is received, the law expects the Wealthtax Officer to complete the assessment in conformity with the estimate of the Valuation Officer. Mr. Shelat, therefore, urged that it would not be possible to apply rule I BB retrospectively having regard to the scheme of these provisions. It is indeed true that sub-sections (3) and (4) of section 7 which begin with a non obstante clause have overriding effect on sub-section (1) of section 7 read with rule 1BB. Once a reference is made to the Valuation Officer, the asset has to be valued in accordance with section 7(3) or 7(4), as the case may be. Sub-section (3) of section 7, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Guj), it was observed that the order of assessment made by the Income-tax Officer merges in the order of the Appellate Assistant Commissioner only in so far as it relates to items considered and decided by the latter. The following observations made by the court at page 261 are apposite and may be reproduced with advantage: " It is now well-settled as a result of several decisions of this court as well as the Supreme Court that if an assessee does not choose to appeal, the order of assessment becomes final, subject to any power of revision which the Commissioner may have under section 33B but once an appeal is preferred by the assessee, the assessment is opened up and the Appellate Assistant Commissioner can examine all aspects of the assessment, not only those which are complained of by the assessee but also those in regard to which the assessee is satisfied and has not preferred an appeal. " It is, therefore, clear that under the scheme of the Act, the original assessment order can be modified, varied or substituted at the appellate stage to make it consistent with rule 1BB. We, therefore, do not see any insurmountable difficulty in applying rule 1BB retrospectively. The inte ..... 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