Commissioner of Wealth Tax v Ram Pershad

Income Tax Appellate Tribunal

DELHI-A BENCH

31 May 1983

The Judgment was delivered by SHRI S. P. KAPUR, JUDICIAL MEMBER

Per Shri S. P. Kapur, Judicial Member By these reference applications, presented on 12-11-1982 and made under section 27(1) of the Wealth-tax Act, 1957 (‘the Act’), the Commissioner requires the Tribunal to draw up a statement of the cases and refer to the Hon’ble Delhi High Court for its esteemed opinion, the following two common questions in relation to all the years under reference, claiming these to be questions of law and said to arise out of order dated 19-8-1982 made by the Tribunal, Delhi Bench in WT Appeal Nos. 801 to 805 (Delhi) of 1981 in relation to the assessment years 1970-71, 1972-73, 1973-74, 1974-75 and 1975-76, on appeals by the respondent-assessee

“1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in directing the Wealth-tax Officer to recalculate the value of property at Hauz Khas, New Delhi, and other property DLF Colony, in accordance with the provisions contained in rule 1BB of the Wealth Tax Rules, 1957which was operative with effect from 1-4-1979 and which cannot be said to have retrospective operation ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that even if a debt has become barred by limitation, it is still permissible as a liability as per section 2(m) of the Wealth-tax Act especially when such a debt, is not legally enforceable against the assessee and the creditors have no right to recover the money due through due progress of law ?”

2. We have heard at length, the learned departmental representative and the learned counsel for the assessee on various dates while the hearing was concluded on 15-4-1983. We have also gone through with utmost care the ‘resume of argument’ placed on our file for and on behalf of the assessee. This was filed at our behest and direction

3. As regards question No. 2, the finding of the Tribunal are contained in paras 5 and 6 of its order dated 19-8-1982 supra and these paras stand reproduced hereunder ‘in-verbatin’ for ready reference

“5. As regards ground No. (2) which relates to claim of the assessee for deduction of Rs. 1, 63, 600 on account of liabilities, the said claim has been negatived by the first appellate authority with the reasoning that no confirmation has been furnished by the assessee ; that the liabilities relate to the year 1962 and earlier years ; that the creditors have become defunct or bankrupt and no claims have been raised by the creditors against the assessee ; that the creditors are either dead or gone and no details were available regarding creditors ; that loans have become barred by time ; that the assessee has not admitted the liabilities to the creditors. He, accordingly, disallowed the claim not accepting the contentions raised on behalf of the assessee that all these amounts have been allowed as deduction in lieu of liabilities by the Appellate Assistant Commissioner for the assessment year 1971-72

6. The Commissioner of Wealth-tax (Appeals) seems to have misconceived the facts since the assessee has declared these amounts as liabilities in his Wealth-tax returns and that is sufficient to act and be taken as an acknowledgement vis-a-vis the assessee and its creditors, more so, if these credits-liabilities merit allowance as deduction computing the net wealth for the assessment year 1971-72, there is no reason why for the assessment year 1970-71 these should be not allowed. That apart, limitation bars the remedy but does not extinguish the right, hence, a time barred debt cannot be said to be not a liability vis-a-vis the assessee and the creditors and vis-a-vis claim of deduction under the Wealth-tax Act. Simply because the liabilities are being carried over from year to year is no ground to deny relief to the assessee. Also this is no ground that the creditors have either become bankrupt and or else dead. As such, after giving due and careful consideration to the facts of the case as also to the submissions made before us and having perused the orders of the lower authorities and the paper book since placed on our file for and on behalf of the assessee, we do hold that the liabilities merit to be allowed as deduction in computing the net wealth of the assessee for the assessment year under appeal, viz., 1970-71 for the purposes of the net wealth being charged to tax under the provisions of the Wealth-tax Act. Ground No. (2) taken by the assessee before us, as succeeds and stands allowed.”

4. From the above findings of the Tribunal, it is patently clear that for the assessment year 1971-72, the revenue itself as allowed the deduction liabilities whereas the Tribunal has allowed it on the same reasoning for the earlier year, viz., 1970-71 and subsequent years, viz., 1972-73, 1973-74, 1974-75 and 1975-76. The reasoning of the Tribunal is that if the liabilities merit to be allowed in the assessment year 1971-72, there is no reason why for the earlier year as also for subsequent years these be not allowed. That apart, the Tribunal has also observed that limitation bars the remedy but does not extinguish the right and there cannot be two opinion about this proposition, hence, question No. 2 sought for by the revenue is hold to be not a question of law since the finding of the Tribunal are based on material on record, hence, we decline to refer this question to the Hon’ble High Court for esteemed opinion

5. As regards common question No. 1, the answer to this question is self-evident since rule 1BB of the Wealth Tax Rules, 1957, is procedural and retrospective in nature and applies to all pending actions and in that view of the matter, we are not referring this question to the Hon’ble High Court for its esteemed opinion. For this proposition we rely upon the ratio of the decision of the Hon’ble Supreme Court, in the case of CGT v. Smt. Kusumben D. Mahadevia 1979 Indlaw SC 172. Their Lordships having held as under

“It is true that there must be a question of law arising out of the order of the Tribunal before a reference can be made, but it is not every question of law that is required to be referred by the Tribunal to the High Court. Where the answer to the question is self-evident or is concluded by a decision of the Supreme Court, it would be futile to make a reference and in such a case the Tribunal would be justified in refusing to refer the question to the High Court.”

6. That apart, the Tribunal, Delhi Bench ‘B’ vide its order dated 23-2-1979, made in IT Appeal Nos. 205, 206 and 207 (Delhi) of 1977-78 in relation to the assessment years 1973-74, 1974-75 and 1975-76, held that although the provisions of section 7(4) of the Act was brought on the statute book by the Finance Act, 1976, with effect from 1-4-1976, it would be a fair position if the value of the property, the subject-matter of appeals, for the valuation dates 31-3-1973, 31-3-1974 and 31-3-1975 be adopted, as for the valuation date 31-3-1971 relevant to the assessment year 1971-72, the provisions of section 7(4) has to be taken as a guide for the years involved in those appeals, hence, the valuation adopted for the valuation dates relevant to the assessment years 1971-72 and 1972-73 be adopted for the assessment years 1973-74, 1974-75 and 1975-76. The finding of the Tribunal can be summarised as being that although section 7(4) was brought on the statute book from 1-4-1976, the section being procedural one, would be adopted as a guide for the valuation dates earlier to 1-4-1976

The reference applications made by the revenue against the above order of the Tribunal stood rejected vide orders dated 21-7-1977 made in RA Nos. 688, 689 and 690 (Delhi) of 1979. The Tribunal held that the finding of the Tribunal are pure findings of fact based on the state of law which is unequivocal and not capable of two interpretations, hence, questions of law proposed by the revenue were mere academic. The Tribunal as such held that the answer to the question being self-evident, the reference applications by the revenue stood dismissed

Against the said order of the Tribunal, rejecting the reference applications of the revenue, the revenue went to the Hon’ble Delhi High Court and following two questions were prayed for to be allowed, as arising from the order of the Tribunal

“1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified and legally correct in applying the provisions of section 7(4) of the Wealth-tax Act which were effective from 1-4-1976 and holding that the valuation of the property for the assessment years 1973-74 to 1975-76 be taken at Rs. 2, 38, 000 for each year, subject to the self-occupancy allowance ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified and correct in law in not accepting the valuation of the self-occupied property adopted by the Wealth-tax Officer for the said three years on the basis of the report of the departmental valuation officer to whom the case was referred under section 16A of the Wealth-tax Act ?”

The Hon’ble Delhi High Court vide judgment order dated 25-1-1982 made in WT Case No. 127 of 1979 held that, ‘after hearing the learned counsel, we agree with the view of the Tribunal that no question of law arises out of the order of the Tribunal’. Petition of the revenue made under section 27(3) was dismissed by the Hon’ble High Court

In view of the above jugdment-order of the Hon’ble Delhi High Court, which is conclusively binding on us (Tribunal, Delhi Benches, New Delhi), and also in view of the matter that the issue involved in the above case squarely covers the fact of the case with which we are presently seized of in the reference applications, we hold likewise, respectfully following the ratio laid down by the Hon’ble High Court, and decline to draw up statement of the cases and are not referring this question to the Hon’ble Delhi High Court

Yet, that apart, section 7, that deals with the topic, ‘Value of assets, how to be determined’, reads as under

“Value of assets, how to be determined. — (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(2) Notwithstanding anything contained in sub-section (1), —

(a) where the assessee is carrying on a business for which accounts are maintained by him regularly, the Wealth-tax Officer may, instead of determining separately the value of each asset held by the assessee in such business, determine the net value of the assets of the business as a whole having regard to the balance sheet of such business as on the valuation date and making such adjustments therein as may be prescribed ;

(b) where the assessee carrying on the business is a company not resident in India and a computation in accordance with clause (a) cannot be made by reason of the absence of any separate balance sheet drawn up for the affairs of such business in India, the Wealth-tax Officer may take the net value of the assets of the business in India to be that proportion of the net value of the assets of the business as a whole wherever carried on determined as aforesaid as the income arising from the business in India during the year ending with the valuation date bears to the aggregate income from the business wherever arising during that year

(3) Notwithstanding anything contained in sub-section (1), where the valuation of any asset is referred by the Wealth-tax Officer to the Valuation Officer under section 16A, the value of such asset shall be estimated to be the price which, in the opinion of the Valuation Officer, it would fetch if sold in the open market on the valuation date or, in the case of an asset being a house referred to in sub-section (4), the valuation date referred to in that sub-section

(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 laterrovided that where more than one house belonging to the assessee is exclusively used by him for residential purposes, the provisions of this sub-section shall apply only in respect of one of such houses which the assessee may, at his option, specify in this behalf in the return of net wealth

Explanation : For the purposes of this sub-section —

(i) where the house has been constructed by the assessee, he shall be deemed to have become the owner thereof on the date on which the construction of such house was completed ;

(ii) ‘house’ includes a part of a house, being an independent residential unit.”

7. Section 7 of the Wealth-tax (Amendment) Act, 1964, has inserted the words ‘subject to any rules made in this behalf’ in sub-section (1) and at the end of sub-section (2)(a) has substituted the words ‘may be prescribed’ for the words ‘the circumstances of the case may require’ and this is made effective from 1-4-1965

8. By the Taxation Laws (Amendment) Act, 1972, sub-section (3) of section 7 has been inserted with effect from 1-1-1973, while, under the Finance Act, 1976, sub-section (4) comes into effect from 1-4-1976

9. Under the provisions of section 7 following rules have been framed

1. Rule 1A (revised) for definition

2. Rule 1B for valuation of life interest

3. Rule 1BB for valuation of house

4. Rule 1C for valuation of market value of unquoted preference share

5. Rule 1D for valuation of market value of equity shares

6. Rules 2A to 2G

Rules 1C and 1D were introduced by the Wealth-tax (Amendment) Rules, 1967, vide notification, dated 6-10-1967 but vide Circular No. 5 (WT), dated 13-8-1968 [See Taxmann’s Direct Taxes Circulars, Vol. 1, 1980 edn., p. 1017] rule 1D was given retrospective operation and was held to be applicable to all pending assessments by the CBDTIn the case of CWT v. Laxmipat Singhania 1977 Indlaw ALL 30 (All.), rules 1C and 1D were held to be rules of evidence and of procedure and not as a rule of substantive law. These were held to be applicable to pending assessments of the assessee even though such assessments related to the assessment years prior to the date of the coming into force of those rules. In that case, the Tribunal has held these rules to be that of procedure and retrospective in nature and the revenue went to the High Court against the decision of the Tribunal and following question was referred to the Hon’ble High Court

“Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that rules 1C and 1D introduced by the Wealth-tax (Amendment) Rules, 1967, by notification dated 6-10-1967, do not have any retrospective effect and could not be applied for the valuation of the unquoted shares for the assessment years in question as the relevant valuation dates thereof preceded 6-10-1967 ?”

Their Lordships relying upon the ratio of the decision of the Hon’ble Supreme Court in the case of Izhar Ahmad Khan v. Union of India1962 Indlaw SC 432 upheld the finding of the Tribunal and the revenue met with failure

In the case of CWT v. Sripat Singhania 1976 Indlaw ALL 132 (All.), the Tribunal approved the assessee’s method of valuation in respect of unquoted shares in preference to the valuation adopted by the wealth-tax authorities as per provisions of rule 1D, and here also the revenue went to the High Court against the order of the Tribunal, the stand of the revenue being that rule 1D was applicable and the order of the Tribunal was misconceived on facts and in law, the stand of the revenue was upheld and the Hon’ble High Court held that the Tribunal was not justified in approving the assessee’s method of valuation which was not in accordance with rule 1DWhereas in Laxmipat Singhania’s case, the Tribunal held rule 1D was applicable, the revenue went to the Hon’ble High Court against that order and met failure while in Sripat Singhania’s case, the stand of the revenue was that the Tribunal should have applied rule 1D and its stand was upheld

Rule 1D and rule 1BB are identical in nature since both rules provide “modes for valuation of assets, viz., unquoted equity shares and ‘houses”, and while the revenue holds it that rule 1D is retrospective in nature and applies to all pending assessments, its stand that rule 1BB is not retrospective in nature does not stand to reason. For this proposition, we rely on the ratio laid down by their Lordships of the Hon’ble Supreme Court in the case of Ashok Service Centre v. State of Orissa, decided on 18-2-1983 in C. A. Nos. 1408-16, 2650-67, 2498-2524, 2640-47, 1874-79, 2127-38 and 3255 of 1982, being appeals by special leave from the judgments and orders of the Hon’ble Orissa High Court. Their Lordships observed as under

“We are of the view that it is necessary to read and to construe the two Acts together as if the two Acts are one, and while doing so to give effect to the provisions of the Act which is a later one in preference to the provisions of the principal Act wherever the Act has manifested an intention to modify the principal Act. The following observations of Lord Simonds in Pondech Investment Trust Co. v. IRC [1945] 2 All E.R. 140(HL) made in connection with the construction of certain fiscal statutes are relevant here. He said at page 144

‘My Lords, I do not doubt that in constructing the latest of a series of Acts dealing with a specific subject-matter, particularly where all such Acts are to be read as one, great weight should be attached to any scheme which can be seen in clear outline and amendments in later Acts should if possible be construed consistently with that scheme.’”

10. In this view of the matter and the ratio laid down by their Lordships of the Hon’ble Supreme Court, if rule 1D was a procedural one, retrospective in nature and applied to all pending assessments, there is no reason why rule 1BB be also not held likewise. We do hold, accordingly, with the result that we again come to the conclusion that the answer to common question No. 1 sought for by the revenue in the present reference applications is self-evident and need not be referred to the Hon’ble High Court

11. So far so good, Shri Juneja, the learned counsel for the assessee, has contended that order of the Tribunal may give rise to a point of law but the point of law is different from question of law and it is only a question of law which is a substantial one and can be referred but the order of the Tribunal is based on material on record and is in the nature of finding of fact, hence, no question of law is involved since findings have not been challenged and for this proposition he has relied on the ratio of the decision in CIT v. Basanta Kumar Agarwalla 1981 Indlaw GUW 7 (Gauhati), CIT v. Chander Bhan Harbhajan Lal 1966 Indlaw SC 239 (SC), N. N. Seshadrinathan v. State of Madras 1965 Indlaw MAD 80 (Mad.) (FB), CIT v. Indian Mica Supply Co. (P.) Ltd. 1970 Indlaw SC 208 (SC) and Smt. Kusumben D. Mahadevia’s case all being that of the Hon’ble Supreme Court. Other judgments relied upon by him are, New Bijli Foundry v. CIT 1981 (135) ITR 593 (Punj. & Har.), CIT v. Tata Yadogawa Ltd. 1982 Indlaw BIH 8 (Pat.), Durga Associates v. State of U. P.1982 AIR(All) 490, Smt. Shanti Devi Jalan v. CIT 1978 Indlaw CAL 116 (Cal.), India Cements Ltd. v. CIT 1965 Indlaw SC 318 (SC), CIT v. Sri Meenakshi Mills Ltd. 1966 Indlaw SC 214 (SC), CIT v. Greaves Cotton & Co. Ltd. 1967 Indlaw SC 308 (SC) and1982 (135) ITR 60 (sic.). Further reliance has been placed on the decision of Bombay Dyeing & Manufacturing Co. Ltd. v. State of Bombay1957 Indlaw SC 73, Addl. CIT v. K. S. Sheik Mohideen 1978 Indlaw MAD 156 (Mad.) (FB) and CIT v. B. C. Srinivasa Setty 1974 Indlaw KAR 18 (Kar.). It has also been contended that in view of the proposition that rules prescribing the basis of valuation applied to all pending assessments and appeals and are binding on the assessee and the revenue, no question of law arises. Fortification is derived from the circular issued by the CBDT in relation to applicability of rule 1D which the CBDT has notified to be applicable to all pending matters—assessments and for this proposition, reliance is placed on the decisions of the Allahabad High Court, viz., Laxmipat Singhania’s case, Sripat Singhania’s case and CWT v. Padampat Singhania 1978 Indlaw ALL 75 (All.). Reliance has also been placed on the ratio of the decision of the Hon’ble Supreme Court in the case of Banarsi Debi v. ITO 1964 Indlaw SC 140. For the proposition that, it is a well-established principle of construction that, whether a word or phrase of doubtful meaning has received a clear judicial interpretation, a subsequent statute which incorporates the same word or the same phrase in a similar context must be construed so that word or phrase is interpreted according to the meaning that has been previously assigned to it. Again, reliance has been placed on the ratio of the decision of the Hon’ble Supreme Court in J. K. Steel Ltd. v. Union of India1968 Indlaw SC 360 at 1174 (DB), for the proposition that rule 1BB has to be taken as in pari materia with rule 1D and since rule 1D has been notified to be applicable to all pending assessments, rule 1BB also applies to pending assessments. The Hon’ble Supreme Court in the above case observed that the Acts in pari materia must be taken together for forming one system and as interpreting and enforcing each other and for this proposition, further reliance is placed on the decision as P. Vajravelu Mudaliar v. Special Deputy Collector for Land Acquisition1964 Indlaw SC 380, 1019. Further case law relied upon in1981 AIR(SC) 1279 (sic) and CIT v. Straw-Board Mfg. Co. Ltd. 1974 Indlaw PNH 22, 83 (Punj. & Har.). Circular No. 5 (WT), dated 13-8-1968 issued by the CBDT, interpreting rules 1C and 1D has also been relied upon. K. P. Varghese v. ITO 1981 Indlaw SC 334 (SC),1972 (83) ITR 236 (sic), CIT v. Kalu Valley Transport Co. (P.) Ltd. 1970 Indlaw SC 73 (SC), CIT v. Vegetable Products Ltd. 1973 Indlaw SC 336 (SC), Addl. CIT v. K. S. Sheik Mohideen 1978 Indlaw MAD 156 (Mad.) (FB), 1980 Excise Law Times, 521, 535 para 46 has also been pressed into service for the assessee. Jaswant Rai v. CWT 1977 Indlaw PNH 12 (Punj. & Har.), CIT v. Ochhavlal Laljibhai Dharia 1980 Indlaw GUJ 110, 320 (Guj.),1975 Indlaw SC 394, 2262 (sic), Shah Bhojraj Kuverji Oil Mills & Ginning Factory v. Subhash Chandra Yograj Sinha1961 Indlaw SC 472,1967 AIR(SC) 996 (sic),1961 AIR(SC) 1550 (sic), Sadhu Singh v. Dharam Dev1980 Indlaw SC 443, Bal Dosabi v. Mathurdas Govinddas1980 Indlaw SC 312 and1981 Indlaw SC 217(sic), has also been relied upon. All the case laws relied upon by the assessee relate to the proposition that in view of interpretation given by the CBDT to rules 1C and 1D, the same treatment has to be given to rule 1BB since all these rules are subordinates legislation under section 7 and all these prescribed modes of valuation

12. Since we have already held that the questions sought for by the revenue in the present applications are such that the answer to these questions is self-evident and since for this proposition we have relied upon the judgment order of the Hon’ble Delhi High Court in the case of CWT v. S. Bhagwant Singh (HUF) [WTC No. 127 of 1979] and further that of the Hon’ble Supreme Court in the case of Ashok Service Centre, we are not discussing the case law relied upon by the assessee

13. The net result is that we decline to draw up statement of the cases and reject the reference applications made by the revenue, however, before parting, we like to mention that in the case of Biju Patnaik, the Special Bench of the Tribunal has referred certain questions but in that case there was, so to say, no resistance from the assessee’s side and the Special Bench (Tribunal) was not seized of so much case law and the arguments did not proceed on the lines as have proceeded before us in the present reference applications. That apart the Special Bench of the Tribunal, did not have the benefit of the judgment order dated 25-1-1982 of the Hon’ble Delhi High Court in the case of S. Bhagwant Singh (HUF)

14. In the end, we like to express our appreciation of the valuable and brilliant exposition of the issue involved in the reference applications and the able assistance rendered by Shri P. L. Juneja, the learned counsel for the assessee, and the learned departmental representative

15. Reference applications rejected