N.N.MATHUR, J. - (1.) THE Tribunal, Jaipur Bench, Jaipur has made the instant reference under section 27(1) of the Wealth Tax Act seeking opinion of this court on the following questions. 1. 'Whether, on the facts and in the circumstances of the case the Tribunal was justified in holding that the amendment made by the Finance Act, 1988 removing wealth -tax on stock -in -trade was a substantive law and hence not retrospective in operation
(2.) WHETHER , on the facts and in the circumstances of the case the Tribunal was legally justified in directing that the immovable properties be valued as per Schedule III to the Wealth Tax Act for the assessment of assessment year 1984 -85 whereas the said Schedule III came into existence with effect from assessment year 1989 -90? Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in holding that the decision of the Hon'ble Supreme Court in the case of CWT v. Sharvan Kumar Sawarup and Sons : 1995ECR425(SC) given in respect of WT Rules was applicable to the provisions of Schedule III to the Wealth Tax Act and thereby in giving retrospective effect to the provisions contained in Schedule III to the Wealth Tax Act ?' 2. The material facts necessary for answering the reference are that the assessee M/s Jodhana Real Estate Development Co. (P) Ltd. is a wholly -owned subsidiary of Jodhana Investment and Finance Corporation (P) Ltd. The holding company is a closelyheld company wherein the shares are held by Shri Gaj Singh of Jodhpur and his family members. The main business of the company is that of dealing in real estate, purchasing and developing of land, acquire, take on lease, sublease, etc., any property and to invest and deal in lands, buildings, shares, debentures, etc. The company purchased following properties for consideration as mentioned against each of them from Shri Gaj Singh : Rs. Jawahar Khana 48,000 Saloon House 1,57,000 Large House, Mt. Abu 46,000 Land near Stadium, Jodhpur 77,000 Land to the East and West of Circuit House 80,000 The assessee also constructed a cinema hall in the name of Darpan Cinema costing Rs. 50.67 lakhs. The cinema was made open for public in June, 1985. The sale consideration for properties purchased in the year, 1971, was not paid upto assessment year 1988 -89. The property of Darpan Cinema was shown as fixed asset in the balance sheet of the company, other properties have been shown as stock -in -trade valued at cost amounting to Rs. 4,30,500. On account of revival of levy of wealth -tax in the case of closely -held companies by section 40 of the Finance Act, 1983, the assessee filed its return of wealth for the assessment year 1984 -85 on 30 -3 -1985, declaring a total wealth of Rs. 14,52,800. The assessing officer enhanced the valuation of the properties and computed the net wealth at Rs. 1,14,62,300. The assessments for the remaining years i.e. 1985 -86, 1986 -87, 1987 -88, and 1988 -89, were also completed. However, by the time the assessments were completed, section 40 of the Finance Act was amended whereby it was provided that certain assets which were held by the 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. The Commissioner of Wealth Tax (Appeals) held that the amendment brought by the Finance Act, 1988, was effective from 1 -4 -1989, and as such the assessee was not entitled to any exemption for the assessments from 1985 to 1989. He, however, revised the valuation of various properties. The Tribunal also held that the amendment by the Finance Act, 1988, removing the levy of wealth -tax on stock -in -trade being in the realm of substantive law, does not have a retrospective operation. The Tribunal accordingly directed the assessing officer to value the properties as per Schedule III of the Wealth Tax Act, 1957. Question No. 1 3. This question has been referred at the instance of the assessee. It is submitted by Mr. Rajendra Mehta, learned counsel for the assessee, that by the Finance Act, 1988, thereby certain amendments were carried out excluding stock -in -trade from purview of the wealth -tax. The said amendment was brought to remove the unintended hardship caused by section 40 of the Finance Act, 1983. As such it is declaratory in nature. It is argued that while reviving the levy of the wealth -tax of the companies the intention was to impose tax on unproductive assets in closely -held companies. This necessitated the clarification. Thus, the amendment has to be treated as retrospective in nature. It is submitted that the assets which were held by the assessee in stock -in -trade from the beginning, they should not be visited with levy of wealth -tax for the period 1984 -85 to 1988 -89, only. On the other hand, it is submitted by Mr. Bhandawat, learned counsel appearing for the revenue, that the amended provision being substantive in nature, it cannot have the retrospective effect.
(3.) BEFORE dealing with the contentions of the respective parties it will be apposite to look into the background in which the subject amendment has been introduced. The net wealth of the companies was taxable under the Wealth Tax Act till 1960. Thereafter by Finance Act, 1960, the banking companies, insurance companies, finance companies, shipping companies and registered companies under section 25 of the Companies Act were exempted from tax liability. The rationale underlying the revival of the levy of wealth -tax in respect of certain assets held by the closely -held companies was to curb the tendency of avoidance of personal tax liability by forming closely -held companies and transferring the unproductive assets like real estate, jewellery, etc. to such companies. Thus, under section 40 of the Finance Act, 1983, a provision was made to levy wealth -tax on certain companies. The object was highlighted by the Finance Minister while introducing the Bill as follows : 'It has come to my notice that some persons have been trying to avoid personal wealth -tax liability by forming closely -held companies to which they transfer many items of their wealth, particularly, jewellery, bullion and real estate. As companies are not chargeable to wealth -tax, and the value of the shares of such companies does not also reflect the real worth of the assets of the company, those who hold such unproductive assets in closely -held companies are able to successfully reduce their wealth -tax liability to a substantial extent. With a view to circumventing tax avoidance by such persons, I propose to revive the levy of wealth -tax in a limited way in the case of closely -held companies. Accordingly, I am proposing the levy of wealth -tax in the case of closely -held companies at the rate of two per cent, on the net wealth represented by the value of specified assets, such as, jewellery, gold, bullion, buildings and lands owned by such companies. Buildings used by the company as factory, godown, warehouse, hotel or office for the purposes of its business or as residential accommodation for its low paid employees will be excluded from net wealth.' ;