PETITIONER: C.W.T. Vs. RESPONDENT: SHARVAN KUMAR SWARUP & SONS DATE OF JUDGMENT22/09/1994 BENCH: VENKATACHALLIAH, M.N.(CJ) BENCH: VENKATACHALLIAH, M.N.(CJ) AGRAWAL, S.C. (J) CITATION: 1994 SCC (6) 623 JT 1994 (6) 446 1994 SCALE (4)413 ACT: HEADNOTE: JUDGMENT:
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
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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-
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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 betweensubstantive 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 actiones pertinet
– 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
asfollows:
“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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