Income Tax Appellate Tribunal - Jaipur
Jodhana Real Estate Development Co. ... vs Assistant Commissioner Of Wealth Tax. ... on 10 July, 1995
Equivalent citations: (1996)54TTJ(JP)552
ORDER
PRADEEP PARIKH, A. M. :
All these appeals and cross-appeals pertain to asst. yrs. 1984-85 to 1988-89. All these appeals involve common issues and hence are disposed of by this consolidated order.
2. The assessee is a private limited company which is a wholly owned subsidiary of Jodhana Investment & Finance Corporation Pvt. Ltd. The holding company is a closely held company wherein the shares are held by H. H. Shri Gaj Singhji of Jodhpur and his family members. By virtue of the main objects as set out in the memorandum of association of the assessee-company, the main business of the company is that of dealing in real estate, purchasing and developing of land, acquire, take on lease, sub-lease, etc., any property and to invest and deal in lands, buildings, shares, debentures, etc. The company was incorporated on 31st March, 1971. In the same year the company had purchased the following properties for consideration as mentioned against each of them from H. H. Shri Gaj Singh :
Rs.
Jawahar Khana 48,000 Saloon House 1,57,000 Lake House Mt. Abu 46,000 Land near Stadium Jodhpur 77,000 Land to the East & West of Circuit House 80,000 The assessee also constructed a cinema house known as Darpan Cinema on the land near Stadium at a cost of Rs. 50.67 lakhs, which started functioning from June, 1985. The sale consideration for the properties purchased in 1971 was not paid upto asst. yr. 1988-89. Whereas the property of Darpan Cinema is shown as a fixed asset in the balance sheet of the company, the other properties have been shown as stock-in-trade valued at cost amounting to Rs. 4,30,500.
4. On account of the revival of levy of wealth-tax in the case of closely held companies by s. 40 of the Finance Act, 1983, the assessee filed its return of wealth for the asst. yr. 1984-85 on 30th March, 1985 declaring total wealth of Rs. 14,52,800. On assessment, the Assessing Officer (AO) enhanced the valuation of each property and computed the net wealth at Rs. 1,14,62,300. Similarly assessments for the remaining years under consideration were completed as mentioned below :
Asst. yr.
Net Wealth (Rs.) 1985-86 1,61,74,000, 1986-87 1,91,36,850, 1987-88 2,26,58,700, 1988-89 2,66,75,000,
5. However, by the time these assessments were completed, s. 40(3) of the Finance Act, 1983 was amended by Finance Act, 1988, whereby it was provided that certain assets which were held by a company as stock-in-trade in a business carried on by it, such assets shall not form part of the net wealth of the company for the purpose of levy of wealth-tax.
6. The assessee was, no doubt, aggrieved by the enhanced assessment in all the years under consideration and had, therefore, preferred an appeal before the first appellate authority. But the assessee was also of the opinion that the amendment carried out by Finance Act, 1988 exempting certain business assets from the levy of wealth-tax, was of a clarificatory nature and hence had retrospective operation. The first ground of appeal taken by the assessee before the first appellate authority, was, therefore, the denial of the very chargeability of wealth-tax on the assets declared by it. The rest of the grounds were, of course, pertaining to the valuation of various properties.
7. The learned CWT(A), after hearing the assessee as well as the AO, held that the amendment brought about by the Finance Act, 1988 was effective from 1st April, 1989 and hence the assessee could not claim any exemption for the assessment years under consideration. The learned CWT(A) also decided on the valuation of the properties involved, and after his combined order dt. 28th Feb., 1991 for all the five years, the comparative position of valuation in respect of each property stood as follows :
Asst. yr.
Value returned Value as per AO Value as per CWT(A) 1 2 3 4 (1) Jawahar Khana :
Rs.
Rs.
Rs.
1984-85 19,745 1,00,000 48,000 1985-86 19,745 1,25,000 48,000 1986-87 19,745 1,50,000 48,000 1987-88 19,745 1,75,000 48,000 1988-89 19,745 2,00,000 48,000 (2) Saloon House 1984-85 3,48,445 3,48,445 3,48,445 1985-86 3,48,445 3,48,445 3,48,445 1986-87 3,48,445 3,48,445 3,48,445 1987-88 3,48,445 3,48,445 3,48,445 1988-89 3,48,445 3,48,445 3,48,445 (3) Lake House Mt. Abu 1984-85 4,13,000 4,13,000 4,13,000 1985-86 4,13,000 4,25,000 4,25,000 1986-87 4,13,000 4,50,000 4,50,000 1987-88 4,13,000 4,95,000 4,95,000 1988-89 4,13,000 5,50,000 5,50,000 (4) Land Near Stadium (4,500 sq. mts.) Asst. yr.
Value Returned Value as per AO Value as per CWT(A) Land Cinema Land Cinema Land Cinema Cons.
Cons.
Cons.
Rs.
Rs.
Rs.
Rs.
1984-85 22,500 25,88,774 39,73,125 25,88,774 1985-86 22,500 40,15,482 57,37,500 40,15,482 1986-87 32,35,000 1,05,31,875 Set aside 1987-88 61,54,000 1,14,63,250 1988-89 64,81,000 1,24,40,250 (5) Land to the East & West of Circuit House (8901 sq. mt) Asst. yr.
Value returned Value as per AO Value as per CWT(A) Rs.
Rs.
1984-85 2,94,505 58,90,100 1985-86 2,94,505 88,35,150 1986-87 2,94,505 1,17,80,200 Set aside 1987-88 2,94,505 1,17,25,250 1988-89 2,94,505 1,76,70,300
8. As the assessee was aggrieved by the order of the learned CWT(A) on the ground that he denied retrospective operation of the amendment made by Finance Act, 1988, as also on the ground that he sustained the enhancement in the values of certain properties, it gave rise to appeals before us which are numbered as WTA Nos. 138 to 142/Jp/91 for the five years under consideration. Similarly, as the learned CWT(A) had considerably reduced the valuation of Jawaharkhana property, the Department came up in appeals before us only on that ground for all the five years which are numbered as WTA Nos. 172 to 176/Jp/91. Since the learned CWT(A) had set aside the issue relating to the valuation of two properties for fresh consideration, the AO reassessed the same and was confirmed by the learned CWT(A). The assessee, therefore, filed fresh appeals against the combined order of the learned CWT(A) dt. 7th Oct., 1994 which are numbered as WTA Nos. 312 to 316/Jp/94. This is how the fifteen appeals are before us. In these fresh appeals also the assessee has taken up the ground relating to the applicability of the amendment carried out by the Finance Act, 1988.
9. The first issue to be decided, therefore, is whether the assessee company was liable for wealth-tax or not in the light of the amendment carried out by Finance Act, 1988.
10. It is not disputed by the Revenue that the assessee is in the business of real estate. The assessee has been showing various assets, except Darpan Cinema, as stock-in-trade in its balance sheets right from the beginning. This fact is also further corroborated by the income-tax assessments that have been completed by the Department right from 1971, that is, from the year in which the company was incorporated, the Department has always accepted this position. It is also accepted that with the passing of Finance Act, 1983, the assessee became liable to wealth-tax and accordingly started filing its WT returns. Finance Act, 1988, however, carried out certain amendments which, inter alia, excluded stock-in-trade from the purview of wealth-tax. The learned counsel for the assessee drew our attention to the Memorandum of Finance Bill, 1988 which stated that under the existing provisions, wealth-tax is leviable even in cases, where assets specified, are held as stock-in-trade or intended for industrial purposes. This resulted in unintended hardships. He also referred to the Budget Speech of the Finance Minister in 1983, while reviving the levy of wealth-tax on companies, wherein it was mentioned that the intention was to impose tax on unproductive assets in closely-held companies. Shri S. D. Pandey contended that since the amendment was to remove the unintended hardship caused by s. 40 of the Finance Act, 1983, it is of a clarificatory nature. If an amendment is of a clarificatory nature, and is intended to confer benefit on the assessee, its operation has to be treated as retrospective in nature. Accordingly, it was pleaded that the assets which were held by the assessee as stock-in-trade from the beginning, they should not be visited with the levy of wealth-tax right from asst. yr. 1984-85 and onwards.
11. It is difficult to be persuaded by the contentions of Shri Pandey. We are not dealing with a procedural provision which can have retrospective operation. Whether a particular asset attracts wealth-tax or not is a substantive provision. It cannot be disputed that before the amendment, stock-in-trade was not out of the purview of wealth-tax. It is a different matter that it may have caused hardship to the assessee. No sooner the legislature realised that the provision is causing unintended hardship, it removed it by the amendment by specifically providing that the hardship will no longer remain from 1st April, 1989.
12. The distinction between substantive law and procedural law has been brought out very clearly in the Sixth Edition of Blacks Law Dictionary at page 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 prescribed the manner in which such rights and responsibilities may be exercised and enforced in a Court are procedural laws."
13. Whether a particular asset is to be charged with wealth-tax or not, is a part of the process which defines the rights and responsibilities between the State and the subject. There is no doubt, therefore, that we are dealing with a substantive provision.
14. By now it has been held in several cases that procedural law, generally speaking, is applicable to pending cases. But substantive law cannot apply to pending cases unless specifically provided for. There can be no intendment about the applicability of substantive law when the date of its applicability has been specifically provided for. Sec. 87 of the Finance Act, 1988 specifically provides that the amendment will be w.e.f. 1st April, 1989 ? Thus, we reject the contention made on behalf of the assessee that stock-in-trade would be exempt from wealth-tax retrospectively.
15. Having established, as discussed above, that the specified assets would attract wealth-tax, the question now remains as to the valuation of each property.
16. As mentioned in the earlier part of their order, the assessee had declared the assets in its WT returns at book value, the AO had adopted the values which in his opinion were the fair market values. In case of two properties, the matter was also referred to the DVO and the valuation in respect of those properties were adopted as per the DVOs report. Since the AO had made substantial enhancement in the value of all the assets, the assessee has raised those grounds also in the present appeals.
17. As per sub-s. (4) of s. 40 of the Finance Act, 1983, the basis for valuation is the open market price. The said open market price could be decided either by the AO or the DVO. Reference to s. 7(3) of the WT Act, as regards the value determined by the DVO, has been specifically made in s. 40(4) of the Finance Act, 1983.
18. With effect from 1st April, 1989, the entire s. 7 was substituted by a new s. 7. The effect of the amendment was that the newly inserted Schedule III was made mandatory and applicable to determine the value of the assets. The word "market" was dropped from the earlier phrase "market value" and the scope of reference to the DVO was restricted under s. 16A. As a consequence, sub-s. (3) of s. 7 was removed from the statute book. But interestingly, s. 40(4) of the Finance Act, 1983, which referred to s. 7(3) of the WT Act, was not amended. Thus w.e.f. 1st April, 1989, reference to s. 7(3) of the WT Act in s. 40(4) of the Finance Act has become redundant. The only effect of keeping this redundancy in s. 40 of the Finance Act is that Schedule III would be applicable in the case of the companies also. Sec. 7 has been held to be a machinery section and Schedule III referred to therein a procedural provision. It has been held by the Supreme Court in the case of CWT vs. Sharvan Kumar Swarup & Sons (1994) 210 ITR 886 (SC) that procedural law applies to all pending proceedings. The Supreme Court in the case cited supra, quoted the following words with approval of Lord Justice Mellish in Republic of Costa Rica vs. Erlanger :
"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."
19. In the instant case, the proceedings not having reached finality as yet, and sub-s. (4) of s. 40 of the Finance Act, 1983 having been rendered redundant, we remand back the matter to the learned CIT(A) with a direction that the impugned properties be valued as per Schedule III to the WT Act for all the years under consideration.
20. In the result, appeals bearing WTA Nos. 138 to 142/Jp/1991 by the assessee are partly allowed, WTA Nos. 172 to 176/Jp/1991 by the Revenue are treated as allowed for statistical purposes and WTA Nos. 312 to 316/Jp/1994 by the assessee are treated as partly allowed.