G.G. Sohani, Actg. C.J.
1. By this petition under Article 226 of the Constitution of India, the petitioner has challenged the vires of Rule 5(2) of the Wealth-tax (Exemption of Heirloom Jewellery of Rulers) Rules, 1958 (hereinafter referred to as "the Rules"), the order dated December 12, 1980, passed by the Central Board of Direct Taxes in pursuance of Rule 5(2) of the Rules and the demand notices collectively marked as annexure "G", issued in that behalf by respondent No. 1, the Wealth-tax Officer.
2. The material facts giving rise to this petition, briefly, are as follows :
On an application made by H. H. Maharaja Yeshwantrao Holkar, the Ruler of the erstwhile Holkar State, the Secretary of the Central Board of Revenue, by his letter dated September 19, 1959 (annexure "A"), conveyed to H. H. Maharaja Yeshwantrao Holkar, the approval of the Central Board of Revenue to the recognition of certain articles of jewellery specified in that letter as heirloom jewellery for the purpose of Clause (xiv) of Sub-section (1) of Section 5 of the Wealth-tax Act, 1957 (hereinafter referred to as "the Act").
3. On the death of H. H. Maharaja Yeshwantrao Holkar on December 5, 1961, the petitioner was recognised as his successor by the Government of India, By virtue of Rule 4 of the Rules, recognition accorded by the Central Board of Revenue in respect of the aforesaid jewellery as heirloom, which was available to H. H. Maharaja Yeshwantrao Holkar, also became available to the petitioner. The petitioner accordingly claimed in the assessment proceedings under the Act for the assessment years 1962-63 to 1971-72, exemption u/s 5(1)(xiv) of the Act, in respect of the aforesaid heirloom jewellery. Some time in the year 1971, in order to pay the estate duty amounting to about Rs. 1.14 crores, the petitioner sold certain articles of heirloom jewellery. The petitioner has averred that information in that behalf was given by her to the Central Board of Direct Taxes and this fact has not been traversed by the respondents.
4. On March 31, 1977, a notice was issued to the petitioner by the Central Board of Direct Taxes, under Rule 5(2) of the Rules, to show cause why an order be not passed by the Central Board withdrawing recognition in respect of the heirloom jewellery sold by the petitioner retrospectively with effect from the date on which recognition was granted. The petitioner showed cause by her letter dated May 20, 1977, but by the order dated December 12, 1980, the Central Board overruled the objections raised by the petitioner and the recognition accorded by order dated September 19, 1959, was withdrawn in respect of the items of heirloom jewellery disposed of by the petitioner, retrospectively with effect from September 19, 1959. A copy of the order was sent to the Commissioner of Income Tax, Bhopal, with the following endorsement :
"Copy to the Commissioner of Income Tax, Bhopal, with a request to direct the Wealth-tax Officer to raise the demand simpliciter and serve the demand notice on Smt. Usha Devi, legal representative and successor in status of H. H. Maharaja Yeshwantrao Holkar, Manik Bagh Palace, Indore, M.P./Windmere, Cuffe Parade, Colaba, Bombay-5 ".
5. In compliance with the aforesaid direction, even though the final orders of assessment of the petitioner under the Act for the assessment years in question were passed on March 31, 1979, the Wealth-tax Officer issued on March 6, 1981, demand notices, collectively marked annexure "G", calling upon the petitioner to make further payment of Rs. 13,37,587 by way of wealth-tax. Hence, the petitioner has filed this petition challenging the vires of Rule 5(2) of the Rules, the order dated December 12, 1980, passed by the Central Board of Direct Taxes in pursuance of Rule 5(2) and the demand notices issued by respondent No. 1 in that behalf.
6. Though a number of grounds were raised in the petition, the main contentions advanced by Shri Palkhivala, learned counsel for the petitioner, were that while conveying approval of the Central Board to the recognition of certain articles of jewellery as the heirloom jewellery of H. H. Maharaja Yeshwantrao Holkar, the Central Board had not imposed any restriction on the power of H. H. Maharaja Yeshwantrao Holkar or his successor to sell those articles ; that even if such restriction ha''d been imposed, it would have been illegal; that Rule 5(2) of the Rules empowering the Central Board to withdraw the recognition in the event of sale or disposal of heirloom, was in excess of the rule-making power conferred on the Central Government by Section 5(1)(xiv) of the Act, and that, in any event, the power to withdraw recognition retrospectively could not be conferred on the Central Board by the rules framed by the Central Government in exercise of powers conferred by Section 5(1)(xiv) of the Act. It was further contended that Rule 5(2) of the Rules, which provided for the manner in which the market value of the heirloom sold would have to be determined, was inconsistent with the provisions of the Act providing for determination of the value of any asset for the purposes of the Act and hence was ultra vires. It was also contended that the orders of assessment for the assessment years in question were passed on March 31, 1979, and the finality of those orders could not be disturbed except in accordance with the provisions of the Act and that there was no provision in law empowering the Wealth-tax Officer to raise a demand for wealth-tax simpliciter, without complying with the provisions of law and the principles of natural justice.
7. In reply, Shri Mukati, learned counsel for the respondents, contended that in the application submitted for recognition of certain articles of jewellery as heirloom, it was declared by the erstwhile Ruler of Holkar State that the heirloom jewellery would not be disposed of, that there was breach of that condition and that the Central Board of Direct Taxes had power under Rule 5(2) to withdraw the recognition from the date of the recognition. It was further contended that Rule 5(2) of the Rules could not be held to be ultra vires.
8. Having heard learned counsel for the parties, we have come to the conclusion that the petition deserves to be allowed on the short ground that Rule 5(2) of the Rules must be held to be ultra vires. But before we proceed to give our reasons in that behalf, it would be useful to refer to the relevant provisions of the Act and the Rules in force at the material time. Section 3 of the Act provides that subject to the other provisions contained in the Act, there shall be charged for every assessment year commencing on and from the first day of April, 1957, wealth-tax in respect of the net wealth on the corresponding valuation date of every individual, Hindu undivided family and company at the rate or rates specified in the Schedule. "Valuation date" in relation to any year for which the assessment is to be made under this Act, is defined by Section 2, Clause (q) of the Act, to mean the last day of the previous year, as defined in Section 3 of the Income Tax Act, if an assessment were to be made under that Act for that year. Section 7 of the Act provides that subject to the rules made in that behalf, the value of any asset, other than cash, for the purposes of the 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. Section 5 of the Act deals with exemptions and the material provisions of Section 5(1)(xiv) of the Act are as follows :
"5. (1) Subject to the provisions of Sub-section (1A), wealth-tax shall not be payable by an assessee in respect of the following assets, and such assets shall not be included in the net wealth of the assessee--...
(xiv) jewellery in the possession of any Ruler, not being his personal property, which has been recognised before the commencement of this Act, by the Central Government as his heirloom or, where no such recognition exists, which the Board may, subject to any rules that may be made by the Central Government in this behalf, recognise as his heirloom at the time of his first assessment to wealth-tax under this Act."
9. Now, in exercise of the powers conferred by the aforesaid Clause (xiv) of Sub-section (1) of Section 5 of the Act, the Central Government has made Rules subject to which the Central Board of Revenue may recognise certain jewellery of Rulers as their heirloom (jewellery) for purposes of exemption from wealth-tax under the said clause. Rule 2 of the Rules provides for an application for recognition of jewellery as heirloom and conditions of recognition are specified in Rule 3. Rule 5 deals with withdrawal of recognition and Sub-rule (2) of Rule 5, which is material for the purpose of this petition, reads as under
"5. (2) In the event of sale or disposal of the article subsequent to the date of recognition, the Central Board of Revenue shall withdraw the recognition, retrospectively with effect from the date when the recognition first became available to the Ruler and in such a case wealth-tax shall become payable by the Ruler or his successor, as the case may be, for all the assessment years for which the jewellery was exempted on account of the recognition and, for this purpose, the proceeds from the sale or disposal of the jewellery or the price which, in the opinion of the Wealth-tax Officer, it would fetch if sold in the open market on the date of sale or disposal, whichever is higher, shall be taken to be the market value thereof on each successive valuation date relevant for the assessment years aforesaid :
Provided that the aggreggte amount of the wealth-tax payable in respect of the jewellery for all the said assessment years shall not, in any case, exceed 50% of its market value as determined under this sub-rule."
10. By Act No. 54 of 1972, which came into force on September 9, 1972, a proviso has been added to Clause (xiv) of Section 5(1) of the Act but it is common ground that that proviso is not attracted to the instant case, because the proviso is attracted only in the case of jewellery recognised by the Central Government as heirloom before the commencement of the Act. In the instant case, it is not disputed that the recognition of jewellery as heirloom of H. H. Maharaja Yeshwantrao Holkar was by the Central Board, as provided by the Rules framed by the Central Government in exercise of the powers conferred by Clause (xiv) of Section 5(1) of the Act. It has further to be borne in mind that apart from, the provisions of Clause (xiv) of Section 5(1) of the Act, no power has been conferred by the Act on the Central Government to make rules for carrying out the purposes of the Act. Our attention was invited by learned counsel for the Revenue to Section 46 of the Act but that provision confers power on the Board to make rules for carrying out the purposes of the Act. We are not, in the instant case, concerned with any rule made by the Board u/s 46 of the Act. The Rules (Wealth-tax (Exemption of Heirloom Jewellery of Rulers) Rules, 1958) have been framed by the Centra! Government in exercise of the powers conferred by Section 5(1)(xiv) of the Act. Therefore, the only source of power for making those rules is to be found in Section 5(1)(xiv) of the Act. That power is limited to making rules subject to which the Board may recognise the jewellery of any Ruler as his heirloom. The Rules can, therefore, legitimately prescribe conditions for recognition and can also prescribe conditions for withdrawal of that recognition. The contention advanced on behalf of the petitioner that no rule can be made u/s 5(1)(xiv) for withdrawal of recognition cannot be upheld. In our opinion, the power to prescribe conditions subject to which any jewellery can be recognised by the Board as heirloom, carries with it, by necessary implication, the power to withdraw recognition. But in Sub-rule (2) of Rule 5, not only has provision been made for withdrawal of recognition, but provision has also been made providing for the period for which the liability to pay wealth-tax is incurred and the manner in which that liability would be determined for all the assessment years for which the jewellery was exempted on account of recognition. It is well settled that an authority vested with the power of making subordinate legislation has to act within the limits of its powers and cannot transgress the same. As already observed, in framing Sub-rule (2) of Rule (5) of the Rules, the Central Government has not only provided for withdrawal of recognition but has also provided for the determination of the liability to pay wealth-tax for a certain period in a certain manner. Moreover, the manner so prescribed, is totally inconsistent with the provisions of the Act. We have already referred to the provisions of Section 7 of the Act which provide that the value of any asset for the purpose of this Act would be that price which in the opinion of the Wealth-tax Officer it would fetch if sold in the open market on the valuation date. Rule 5(2) of the Rules, however, lays down that in case of withdrawal of recognition of any jewellery as heirloom, wealth-tax would be payable by the Ruler or his successor, as the case may be, for all the assessment years for which the jewellery was exempted and, for that purpose, the proceeds from the sale or disposal of the jewellery or the price, which in the opinion of the Wealth-tax Officer it would fetch if sold in the open market on the date of sale or disposal, whichever is higher, would be taken to be the market value thereof on each successive valuation date relevant for the assessment years in question. This provision providing for the determination of the value of an asset for the purpose of the Act is inconsistent with the provisions of Section 7 of the Act which provide for determination of the market value of an asset prevailing on the valuation date. It is true that Section 7 of the Act provides that the determination of the value of any asset, for the purposes of the Act, as provided by Section 7, would be subject to any rules made in that behalf but the rules referred to therein are those rules which could be made u/s 46 of the Act by the Board providing for the manner in which the market value of any asset may be determined. There is no provision in the Act empowering the Central Government to frame rules providing for the manner in which the market value of any jewellery, in respect of which recognition as heirloom has been withdrawn, is to be determined. After the withdrawal of recognition, the period for which and the manner in which the wealth-tax should be computed in respect of any jewellery derecognised as heirloom, are not matters which the Central Government has been empowered to deal with while framing rules u/s 5(1)(xiv) of the Act. Sub-rule (2) of Rule 5 of the Rules thus goes far beyond the powers conferred on the Central Government by Clause (xiv) of Section 5(1) of the Act to frame rules for recognition by the Central Board of any jewellery of a Ruler as heirloom. The doctrine of severability was not invoked before us on behalf of the respondents to contend that the valid and the invalid provisions of Rule 5(2) of the Rules are not inextricably mixed up and are separable. It is, therefore, not necessary to deal with that aspect of the matter. Under the circumstances, Sub-rule (2) of Rule 5 of the Rules cannot but be held to be ultra vires. It follows that the impugned order dated December 12, 1980, passed by the Central Board in pursuance of Rule 5(2) of the Rules and the notices of demand issued by the Wealth-tax Officer in compliance with that order deserve to be quashed. For all these reasons, this petition is allowed. The order dated December 12, 1980, passed by the Central Board of Direct Taxes under Rule 5(2) of the Rules and the demand notices, annexure "G", issued by the Wealth-tax Officer in compliance with the aforesaid order are quash ed. In the circumstances of the case, parties shall bear their own costs of this petition. Security amount, if any, be refunded to the petitioner.
