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Wealth Tax - Amendment made to Sec 40(3) vide FAs 1983 & 1988 is substantive in nature and that is why it cannot be retrospective: HC

By TIOL News Service

NEW DELHI, SEPT 22, 2017: THE ISSUE BEFORE THE COURT IS - Whether the amendment made to Sec 40(3) vide FAs 1983 & 1988 is substantive in nature and that is why it cannot be retrospective. YES is the verdict.

Facts of the case:

The Assessee-company, had agreed to purchase a tenanted property namely, Scindia House property in New Delhi by way of an agreement dated 31st January, 1979. A sale deed in respect of the said property was executed on 31st May, 1980 and thereby the Assessee became its owner and was entitled to receive the rent from the tenants. The Assessee categorised the rental income from the said property in its return for AYs 1980-81, 1981-82 as 'business income'. For AY 1980-81, the AO held the rental income to be taxable as 'income from other sources'. After the CIT(A) agreed with the AO, an appeal was filed by the Assessee before the Tribunal, who agreed with the Assessee that letting out of the property was only incidental to its main business and therefore, the rental income should be treated as business income. However, for AY 1992-93, the Tribunal changed its view and held that the Assessee was not the owner of the property in AY 1980-81 but became the owner from AY 1981-82 onwards, hence, it made erroneous in accepting the claim of the Assessee that the rental income was a business income. A Special Bench (SB) was also constituted, where it held that the rental income earned from the said property was taxable as 'income from house property' and not 'business income' f or the AYs 1990-91 upto 1999-2000.

For the wealth tax assessments for AY 1984-85, the Assessee filed its return under the WTA not including the Scindia House property as part of its assets. The WTO referred the issue of valuation of the said property to the DVO. The WTO completed the assessment taking the value of the said property at Rs. 1,38,15,000 and accordingly, the wealth tax was determined. However, the CWT set aside the assessment order u/s 25(2) and directed the WTO to make a fresh assessment after making enquiries. The WTO then framed a fresh assessment whereby the claim of the Assessee that the said property constituted its stock-in-trade and, therefore, not liable to wealth tax, was rejected. The Assessee preferred four appeals for AYs 1984-85, 1986-87, 1987-88 and 1988-89 before the CWT(A). The CWT(A) agreed with the Assessee that if the property was taxable then its valuation of the asset had to be in terms of Schedule III to the WTA which was retrospective. However, the other ground of the Assessee that the amendment to Section 40(3) of the FA 1983 by the FA 1988 was retrospective was rejected.

the High Court held that,

++ the Court is unable to agree with the reasoning of the Karnataka High Court in Prakashi Talkies Pvt. Ltd's case. It is plain from the language of the amendment, and the Memorandum explaining it that the amendment was prospective. It was to take effect from 1st April 1989. The amendment was substantive and not merely procedural. There was no warrant for attributing retrospectivity to such an amendment;

++ in Allied Motors (P) Limited's case, the Supreme Court held that if an amendment was remedial it could be retrospective. However, there the Court was not concerned with an amendment that was substantive in nature but a procedural one. The Court is, therefore, unable to agree with the decisions of the Madhya Pradesh High Court in Devshree Cinema's case and the Rajasthan High Court in Jodhan Real Estate Development Co. P. Ltd's case. The Court concurs with the reasoning and conclusion of the Madras High Court in Varadharaja Theatres (P) Ltd's case;

++ the additional question for AYs 1984-85 to 1988-89 is answered in favour of the Revenue and against the Assessee by holding that the amendment to Section 40(3) of the FA 1983 by the FA 1988 is not retrospective and will not apply to a period prior to 1st April 1989.

(See 2017-TIOL-1986-HC-DEL-WT)


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