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C.W.T. Vs. Sharvan Kumar Swarup & Sons [1994] INSC 492 (22 September 1994)

Venkatachalliah, M.N.(Cj) Venkatachalliah, M.N.(Cj) Agrawal, S.C. (J)

CITATION: 1994 SCC (6) 623 JT 1994 (6) 446 1994 SCALE (4)413



The Judgment of the Court was delivered by VENKATACHALIAH, C.J.- In these appeals and special leave petitions brought up by the Revenue the short but interesting question that arises is 625 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 and 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 inrespect of the remaining part of the house, if any, by the fraction100/9:

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- 626 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 therules 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 heard 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 the special leave petitions.

7.We may here refer to the facts of Civil Appeal Nos. 3563 and 3564 of 1993 which are representative of the batch. The Commissioner of Wealth Tax, Gujarat-IV, Ahmedabad assails the correctness of the judgment and order dated 21-12-1989 of the Gujarat High Court in Wealth Tax Reference No. 15 of 1987. The assessment years are 1977-78 and 1978-79 respectively. Assessments were made on 8-2-1983 by which time Rule 1-BB had been introduced into the Rules. The assessee, a Hindu Undivided Family, contends that its immovable properties be valued applying the said Rule 1-BB even though the assessments in question pertain to the orders prior to 1-4-1979 on which date the said rule came into force. The Wealth Tax Officer rejected this claim and proceeded to value the immovable properties independently of this said Rule 1-BB. The appeals preferred by the assessee before the Commissioner of Wealth Tax (Appeals) were allowed and the Appellate Authority held in favour of the applicability of Rule 1-BB. The appeals of the Revenue before the Income Tax Appellate Tribunal, Ahmedabad were unsuccessful. The Tribunal upheld the Commissioner of Wealth Tax (Appeals). The Revenue sought a reference under Section 27(1) of the Wealth tax Act in respect of both the assessment years. The Tribunal referred the following question of law for the opinion of the High Court:

"Whether, in law and on facts the Appellate Tribunal is right in directing the Wealth Tax Officer to compute the value of Shahibagh Bungalow under Rule 1-BB of the Wealth Tax Rules, 1957 specially when the said rules came into effect from 1-4-1979 only?" The High Court answered the question against the Revenue following its earlier decision in CWT v. Kasturbhai Mayabhai1. The High Court having declined to certify the case as one fit for appeal to the Supreme Court, the Revenue has come up by special leave to appeal.

8.In Kasturbhai Mayabhai case1, the High Court had taken the following view:

1 (1987) 164 ITR 107: (1986) 51 CTR 309 (Guj) 627 "There is, therefore, no doubt that while Section 3 is the charging section, the machinery for the purpose of computing the net wealth is provided in Section 7 of the Act.

Pursuant thereto Rule 1-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.

Since Section 7(1) is a machinery section and since the rule to be made under Section 46(2) must relate to the manner in which the market value of any asset may be determined, it can be safely inferred that the rule-making authority can lay down the method or mode of determining the market value of each asset. When a rule sets out the method or formula for determining the market value of any particular asset, it can only be considered to be procedural and not substantive.

Rule 1 -BB with which we are concerned also lays down the formula for determining the market value of a house used wholly or mainly for residence. Since the rule provides a formula or mechanical method of valuation, it is difficult to agree with learned counsel for the Revenue that it is substantive in character. It has not the effect of impairing any vested right or creating any new obligation." Again in CWT v. Niranjan Narottam2, the Gujarat High Court followed the Kasturbhai Mayabhai case'. The decision of the High Court in Kasturbhai Mayabhai case1 is also under appeal in the present batch of appeals.

9.Similar view has been taken by the Karnataka High Court in CWT v. Vidyavathi Kapur3; Madhya Pradesh High Court in CWT v. Lachmandas Bhatia4; Delhi High Court in CWT v. O.R Tandon5; the Calcutta High Court in Manjushree Biswas (Smt) v. CWT6 and Dilip Kumar Mitra v. CWT7.

10.The basis of distinction between statutes affecting rights and those affecting merely procedure is well- recognised. Dixon, C.J. in Maxwell v. Murphy8 drawing upon the following words of Lord Justice Mellish in Republic of Costa Rica v. Erlanger9 said:

2 (1988) 173 ITR 693 (Guj) 3 (1984) 150 ITR 319 (Kant) 4 (1987) 163 ITR 586 (MP) 5 (1992) 195 ITR 688 : 103 CTR 129 (Del) 6 (1988) 171 ITR 348 :(1987) 65 CTR 68 (Cal) 7 (1993) 200 ITR 336 (Cal) 8 (1957) 96 CLR 261, 267 9 (1876) 3 ChD 62, 69 : 45 LJ Ch 743 628 "No suitor has any vested interest in the course of procedure, nor any right to complain, if during the litigation the procedure is changed, provided, of course, that no injustice is done." It is true that if one traces any substantive right back far enough it will be found secreted in the interstices of procedure.

11.In WH. Cockerline & Co. v. IRC10, Lord Hanworth quoted with approvala following passage from the judgment of Sargent, L.J.:

"The liability is imposed by the charging section, namely, Section 38 the words of which are clear. The subsequent provisions as to assessment and so on are machinery only. They enable the liability to be quantified and when quantified to be enforced against the subject, but the liability is definitely and finally created by the charging section and all the materials for ascertaining it are available immediately." 12.In, Halsbury's Laws of England (Fourth Edn., Vol. 23, para 29), referring to the machinery provisions it is stated:

"It is important to distinguish between charging provisions, which impose the charge to tax, and machinery provisions, which provide the machinery for the quantification of the charge and the levying and collection of the tax in respect of the charge so imposed. Machinery provisions do not impose a charge or extend or restrict a charge elsewhere clearly imposed." 13.The distinction between substantive law and procedural provisions has been indicated in Black's Law Dictionary (Sixth Edn., p. 1203) as follows:

"As a general rule, laws which fix duties, establish rights and responsibilities among and for persons, natural or otherwise, are ,substantive laws' in character, while those which merely prescribe the manner in which such rights and responsibilities may be exercised and enforced in a court are 'procedural laws'." 14.In Salmond's Jurisprudence (Twelfth Edn., p. 462), the distinction between substantive law and law of procedure is indicated in the following words:

"What, then, is the true nature of the distinction? The law of procedure may be defined as that branch of the law which governs the process of litigation. It is the law of actions - jus quod ad action espertinet - using the term action in a wide sense to include all legal proceedings, civil or criminal. All the residue is substantive law, and relates, not to the process of litigation, but to its purposes and subject matter.

Substantive law is concerned with the ends which the administration of justice seeks.

Procedural law deals with the means and instruments by which those ends are to be attained. The latter regulates the conduct and relations of courts and litigants in respect of the 1016 TC 1, 19: (1930) 47 TLR 13 629 litigation itself; the former determines their conduct and relations in respect of the matters litigated.

'... What facts constitute a wrong is determined by the substantive law; what facts constitute proof of a wrong is a question of procedure.

'... So far as the administration of justice is concerned with the application of remedies to violated rights, we may say that the substantive law defines the remedy and the right, while the law of procedure defines the modes and conditions of the application of the one to the other.' " 15. In Izhar Ahmad Khan v. Union of India11 it is observed:

(SCR p. 25 1) "The division of law into two broad categories of substantive law and procedural law is well known. Broadly stated, whereas substantive law defines and provides for rights, duties and liabilities, it is the function of the procedural law to deal with the application of substantive law to particular cases and it goes without saying that the Law of Evidence is a part of the law of procedure." 16.In Kesoram Industries and Cotton Mills Ltd. v. CWT (Central)12 Justice Shah observed: (AIR p. 1384, para 56) "Section 7(2) merely provides machinery in certain special cases for valuation of assets, and it is from the aggregate valuation of assets that the net wealth chargeable to tax may be ascertained.... This is an artificial rule adopted with a view to avoid investigation of a mass of evidence which it would be difficult to secure or, if secured, may require prolonged investigation." Though this was the part of the minority opinion, there is, however, nothing said to the contra in the majority view.

17. In Murarilal Mahabir Prasad v. B.R. Vad13, this Court laid down as follows:(SCC p. 749, para 30) "We are concerned in this case to determine not whether a particular turnover can be brought to sales tax but whether if the turnover was liable to be charged to sales tax, the firm can be assessed to tax after its dissolution. In other words, we are concerned with a provision which prescribes the machinery for the computation of tax and not with a charging provision of the Sales Tax Acts." 18.Procedural law, generally speaking, is applicable to pending cases. No suitor can be said to have a vested right in procedure. It must, however, be noted that a provision can be partly substantive and partly procedural.

19. In Associated Cement Co. Ltd. v. CT014, this Court laid down: (SCC p. 602, para 27) 11 1962 Supp 3 SCR 235 : AIR 1962 SC 1052 12 (1966) 59 ITR 767 : AIR 1966 SC 1370 13 (1975) 2 SCC 736: 1975 SCC (Tax) 432: (1976) 37 STC 77 14 (1981) 4 SCC 578 : 1982 SCC (Tax) 3 : (1981) 48 STC 466 630 "It is settled law that a distinction has to be made by court while interpreting the provisions of a taxing statute between charging provisions which impose the charge to tax and machinery provisions which provide the machinery for the quantification of the tax and the levying and collection of the tax so imposed. While charging provisions are construed strictly, machinery sections are not generally subject to a rigorous construction.

The courts are expected to construe the machinery sections in such a manner that a charge to tax is not defeated."

20.Bennion's Statutory Interpretation (First Edn., p. 446, para 19 1) lays down as follows:

"Because a change made by the legislator in procedural provisions is expected to be for the general benefit of litigants and others, it is presumed that it applies to pending as well as future proceedings.

" At page 447 it is stated:

"Procedure and practice is the mere machinery of law enforcement. As Ormrod, L.J. said:

'The object of all procedural rules is to enable justice to be done between the parties consistently with the public interest'." 21.In Jose Da Costa v. Bascora Sadasiva Sinai Narcornim15, this Court laid down as follows: (SCC p. 925, para 3 1) "Before ascertaining the effect of the enactments aforesaid passed by the Central Legislature on pending suits or appeals, it would be appropriate to bear in mind two well- established principles. The first is that while provisions of a statute dealing merely with matters of procedure may properly, unless that construction be textually inadmissible, have retrospective effect attributed to them, provisions which touch a right in existence at the passing of the statute are not to be applied retrospectively in the absence of express enactment or necessary intendment (see Delhi Cloth and General Mills Co. Ltd. v. CIT16.) The second is that a right of appeal being a substantive right the institution of a suit carries with it the implication that all successive appeals available under the law then in force would be preserved to the parties to the suit throughout the rest of the career of the suit. There are two exceptions to the application of this rule, viz., (1) when by competent enactment such right of appeal is taken away expressly or impliedly with retrospective effect and (2) when the court to which appeal lay at the commencement of the suit stands abolished (see Garikapaui Veeraya v. N. Subbiah Choudhury17 and Colonial Sugar Refining Co. Ltd. v. Irving18."

22. Halsbury's Laws of England (Fourth Edn., Vol. 44, para 925) states:

15 (1976) 2 SCC 917 16 AIR 1927 PC 242: 54 IA 421 : 32 CWN 237 17 1957 SCR 488: AIR 1957 SC 540 18 1905 AC 369: (1904-7) All ER Rep 1620: 74 LJPC 77 631 "The presumption against retrospection does not apply to legislation concerned merely with matters of procedure or of evidence; on the contrary, provisions of that nature are to be construed as retrospective unless there is a clear indication that such was not the intention of Parliament." 23.We may now turn to the scope and content of Rule 1 -BB.

The said rule merely provides a choice amongst well-known and well-settled modes of valuation. Even in the 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 capitalisation of income on a number of years' purchase value. The 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 the nature of the property is similar.

24.Rule 1-BB thus partakes of the character of a rule of evidence. It deems the market value to be the one arrived at on the application of a particular method of valuation which is also one of the recognised and accepted methods.

Even if a law raises a presumption and renders the presumption irrebuttable it is yet in the domain of the law of evidence. In Izhar Ahmad Khan case11, it was pointed out by this Court: (SCR pp. 258-59) "It would be noticed that as in the case of rebuttable presumption, so in the case of an irrebuttable presumption, the rule purports to assist the judicial mind in appreciating the existence of facts. In one case the 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 the domain of the law of evidence, irrebuttable presumption is outside the domain of that law and forms part of the substantive law."

25. On a consideration of the 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.

26. The appeals are accordingly dismissed. There will, however, be no orders as to costs.


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