1. Dispute over whether Rule 1-BB of the Wealth Tax Rules, 1957, regarding residential house valuation, applies to assessments pertaining to periods prior to its enactment. (Para 1 , 7 )
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1994 Supreme(SC) 945
SUPREME COURT OF INDIA
(Allahabad High Court)
M.N. Venkatachaliah, C.J.I., S.C. Agarwal, J.
COMMISSIONER OF WEALTH TAX, MEERUT, APPELLANT
Versus
SHARVAN KUMAR SWARUP & SONS, RESPONDENT.
Civil Appeal Nos. 6367-68 of 1994
decided on September 22, 1994.
Advocates:
A.P.MEDH, A.Subhashini, B.B.Ahuja, B.K.PRASAD, D.S.Mahra, Dipa Dixit, G.SARANGAN, HARISH N.SLAVE, J.RAMAMURTHY, K.J.JOHN, MANOJ ARORA, PARAMESVARAN, PRAVIN KUMAR, RAJA RAM AGARWAL, RANBIR CHANDRA, S.RAJAPPA, Tripurari Ray, VINIT KUMAR, Virender Kaushal, YASHANK ADHYARU
A.P.MEDH, A.Subhashini, B.B.Ahuja, B.K.PRASAD, D.S.Mahra, Dipa Dixit, G.SARANGAN, HARISH N.SLAVE, J.RAMAMURTHY, K.J.JOHN, MANOJ ARORA, PARAMESVARAN, PRAVIN KUMAR, RAJA RAM AGARWAL, RANBIR CHANDRA, S.RAJAPPA, Tripurari Ray, VINIT KUMAR, Virender Kaushal, YASHANK ADHYARU
Important Points
Rule 1-BB of the Wealth Tax Rules, 1957, providing a formula for valuing residential house property, is a procedural rule (rule of evidence) rather than substantive law. Consequently, it applies to pending proceedings, as procedural laws are generally construed as retrospective unless specified otherwise.
Subject
Tax Law - Wealth Tax
Act Referred
Headnote
Wealth Tax Act, 1957 - Section 4 - Domain of the law of evidence - Procedure and practice is the mere machinery of law enforcement – Jurisdiction - Section 3 of the Wealth Tax Act is the charging section. It seeks to bring to charge for every assessment year the net wealth on corresponding valuation date of every individual, Hindu undivided family and company - Expression net wealth is defined in Section 2(m) of Act - Section 2(q) defines valuation date - Section 4 enumerates assets to be included in computing net wealth. Sections 5 and 6 exempt certain assets in India an outside from being included in computing net wealth – Held, Court may now turn to scope and content of Rule 1-BB - Said rule merely provides a choice amongst well-known and well-settled modes of valuation - Even in absence of Rule 1-BB it would not have been objectionable nor would there be any legal impediment to adopt the mode of valuation embodied in Rule 1-BB, namely, the method of capitalization of income on a number of years purchase value - Rule was intended to impart uniformity in valuations and to avoid vagaries and disparities resulting from application of different modes of valuation in different cases where nature of the property is similar - Rule 1-BB thus partakes of the character of a rule of evidence - It deems the market value to be one arrived at on the application of a particular method of valuation which is also one of the recognized and accepted methods - Even if a law raises a presumption and renders the presumption irrefutable it is yet in domain of the law of evidence - In Ahmad Khan case it was pointed out by this Court - It would be noticed that as in the case of rebuttable presumption, so in the case of an irrefutable presumption rule purports to assist the judicial mind in appreciating the existence of facts - In one case probative value is statutorily strengthened but yet left open to rebuttal, in the other case, it is statutorily strengthened and placed beyond the pale of rebuttal. Considered from this point of view it seems rather difficult to accept the theory that whereas a rebuttable presumption is within domain of law of evidence irrefutable presumption is outside the domain of that law and forms part of the substantive law - On a consideration of matter we are persuaded to the view that Rule 1-BB is essentially a rule of evidence as to the choice of one of the well accepted methods of valuation in respect of certain kinds of properties with a view to achieving uniformity in valuation and avoiding disparate valuations resulting from application of different methods of valuation respecting properties of a similar nature and character. The view taken by the High Courts, in our opinion, cannot be said to be erroneous – Appeal dismissed
Legal Category Hierarchy
Table of Contents
2. Revenue contends Rule 1-BB is substantive and prospective, while assessees argue it is procedural and applicable to all pending proceedings. (Para 5 , 7 )
3. The court distinguished charging provisions from machinery provisions, characterizing Rule 1-BB as a rule of evidence intended to ensure uniformity in valuation. (Para 10 , 11 , 12 , 13 , 14 , 15 , 16 , 17 , 19 , 20 , 23 , 24 , 25 )
4. Provisions prescribing the machinery or formula for quantifying a tax charge are procedural and generally apply to pending proceedings. (Para 18 , 25 )
5. Appeals dismissed; Rule 1-BB is held to be procedural and applicable to pending assessments. (Para 26 )
6. Is Rule 1-BB of the Wealth Tax Rules, 1957, substantive or procedural?
Rule 1-BB is procedural. It provides a formula for determining the market value of residential houses to ensure uniformity and avoid disparities, acting essentially as a rule of evidence rather than a provision altering substantive rights. (Para 23 , 24 , 25 )
7. What is the distinction between charging provisions and machinery provisions in taxing statutes?
Charging provisions impose the tax liability and are construed strictly. Machinery provisions provide the method for quantifying the charge and levying the tax; they are not subject to rigorous construction and should not defeat the tax charge. (Para 12 , 19 )
8. Do procedural changes in law apply to pending proceedings?
Yes, procedural laws generally apply to pending cases as no suitor has a vested right in a particular course of procedure, provided no injustice is done. (Para 10 , 18 , 20 , 22 )
9. How does the court treat irrebuttable presumptions in the context of substantive vs. procedural law?
Irrebuttable presumptions, like rebuttable ones, fall within the domain of the law of evidence because they assist the judicial mind in appreciating facts, rather than defining substantive rights or duties. (Para 24 )
JUDGMENT
VENKATACHALIAH, C.J.I. - In these appeals and special leave petitions brought up by the Revenue the short but interesting question that arises is whether Rule 1-BB of the Wealth Tax Rules, 1957 is a provision which affects and alters the substantive rights or is merely procedural. The further sequential and cognate question is whether the Rule is attracted to all proceedings pending at its enactment. The said Rule 1-BB concerns the mode of valuation of house-property wholly or mainly used for residential purposes, for the purposes of ascertaining the net wealth under the Wealth Tax Act, 1957.
2. Section 3 of the Wealth Tax Act is the charging section. It seeks to bring to charge for every assessment year the net wealth on the corresponding valuation date of every individual, Hindu undivided family and company. The expression "net wealth" is defined in Section 2(m) of the Act. Section 2(q) defines the "valuation date". Section 4 enumerates the assets to be included in computing net wealth. Sections 5 and 6 exempt certain assets in India an outside from being included in computing the net wealth.
3. Section 7 - and this provision is of particular relevance here - speaks as to how the value of the assets has to be determined. Section 7(1), as it stood during the relevant period, i.e., prior to 1-4-1989 when it stood substituted by the Direct Tax Laws (Amendment) Act, 1989 with effect from 1-4-1989 provided :
"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."
4. The Central Board of Revenue in pursuance of the rule-making power conferred by Section 46 of the Act promulgated rules known as the Wealth Tax Rules, 1957. These were amended from time to time and Rule 1-BB - with which we are now concerned - came to be inserted by the Wealth Tax (Amendment) Rules, 1979 with effect from 1-4-1979. The relevant part of the Rule reads as under :
"1-BB. (1) For the purposes of sub-section (1) of Section 7, the value of a house which is wholly or mainly used for residential purposes shall be the aggregate of the following amounts, namely :
(a) the amount arrived at by multiplying the net maintainable rent in respect of the part of the house used for residential purposes by the fraction 100/8; and
(b) the amount arrived at by multiplying the net maintainable rent in respect of the remaining part of the house, if any, by the fraction 100/9 :
Provided that in relation to a house 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 100/9 and 100/10, respectively, had been substituted."
Sub-rule (2)(a) defines the expression "gross maintainable rent"; sub-rule (2)(b) defines "House" as including an independent residential unit and sub-rule (2)(c) the expression "net maintainable rent". Sub-rule (5), however, envisages a departure from the regime of sub-rule (1) and provides that where the Wealth Tax Officer, having regard to the facts and circumstances of the case, is of the opinion that it is not practicable to apply the provisions of the rules to such a case, he may apply the rule with the previous approval of the Inspecting Assistant Commissioner.
5. The principal question in these cases is whether this rule is a provision of substantive law, not expressly rendered applicable to the valuation for the earlier years, and, therefore, only prospective or whether it is merely procedural attracted to all pending cases.
6. We have herd Shri J. Ramamurti, learned senior counsel for the Revenue and Shri Raja Ram Agrawal and Shri G. Sarangan, learned senior counsel for the assessees. In some of the cases in this batch, there are some delays in filing them. We condone the delays. We grant special leave in
