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1990 (4) TMI 37 - HC - Income Tax

Issues:
1. Validity and legality of a notice issued under section 269D(1) of the Income-tax Act, 1961.
2. Whether the conditions for assuming jurisdiction under section 269C are satisfied.
3. Application of presumptions under section 269C(2) for acquiring jurisdiction.
4. Whether the sale consideration was truly stated in the sale deed.
5. Whether there was an understatement of sale consideration with the intent to evade tax liability.
6. Whether the Competent Authority applied its mind while issuing the notice.
7. Interpretation of the Board's circular in relation to the understatement of sale consideration.

Analysis:
The High Court of Bombay addressed a petition challenging the validity of a notice issued under section 269D(1) of the Income-tax Act, 1961. The case involved a cooperative society formed by individual purchasers who bought blocks and godowns in a building. The Competent Authority sought to determine if the property was transferred at its fair market value. The Authority issued a notice under section 269D(1) based on a valuation report estimating the fair market value of the property. The petitioner argued that the formation of belief regarding the conditions under section 269C(1) was not satisfied, which is a condition precedent for assuming jurisdiction under the Act.

The court emphasized the requirement under section 269C to establish whether the property was transferred for an apparent consideration below the fair market value with the intent to facilitate tax evasion or concealment of income. The court analyzed whether the sale consideration was truly stated in the deed and if there was an understatement for tax evasion purposes. It was noted that the Competent Authority did not specify the intent behind the understatement in the notice, leading to a lack of clarity in the decision-making process.

The judgment referenced a previous case to determine the availability of presumptions under section 269C(2) for acquiring jurisdiction. It was held that the presumptions could not be used for assuming jurisdiction but could be applied after valid assumption of jurisdiction. The court concluded that, independent of the presumption clauses, the sale consideration in this case was not understated, considering the circumstances of the property transfer to the cooperative society. The court also highlighted the Competent Authority's failure to specify the intent behind the understatement, indicating a lack of proper application of mind.

Additionally, the court referred to a Board circular regarding the introduction of Chapter XXC in the Income-tax Act, emphasizing the need for the Competent Authority to establish understatement of sale consideration for tax evasion purposes. The circular supported the court's decision in this case. Ultimately, the court found that the conditions necessary for assuming valid jurisdiction under section 269C were not satisfied, leading to the success of the petitioner's petition.

 

 

 

 

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