1990 (4) TMI 51 - HC - Income Tax

Summary

Issues Involved:
1. Validity of notices u/s 269D(1) and u/s 269F(1) of the Income-tax Act, 1961.
2. Jurisdiction of the competent authority u/s 269C of the Income-tax Act, 1961.
3. Valuation of the property and its classification as tenanted property.
4. Limitation and procedural fairness in the initiation and continuation of acquisition proceedings.

Summary:

1. Validity of Notices u/s 269D(1) and u/s 269F(1):
The petitioner, a Co-operative Housing Society, challenged the notices dated September 19, 1977, u/s 269D(1) and December 24, 1985, u/s 269F(1) of the Income-tax Act, 1961. The court noted that the notice u/s 269D(1) was served on July 4, 1978, and published in the Official Gazette on October 8, 1977. However, no further action was taken for over eight years until the notice u/s 269F(1) was issued on December 24, 1985. The court found this delay to be unreasonable and violative of Article 14 of the Constitution.

2. Jurisdiction of the Competent Authority u/s 269C:
The court examined the conditions u/s 269C, which include the competent authority having "reason to believe" that the property was transferred for an apparent consideration less than its fair market value, and that the consideration was not truly stated with the objective of tax evasion or concealment of income. The court found that the competent authority's belief was based solely on the District Valuation Officer's report, which was not a sufficient basis for initiating proceedings.

3. Valuation of the Property and Classification as Tenanted Property:
The court held that the suit property was a tenanted property protected under section 12(1) of the Bombay Rent Act. The valuation should have been done by capitalizing the rental income, not by the land and building method. The court cited the Supreme Court decision in Mrs. Dossibai N. B. Jeejeebhoy v. Khemchand Gorumal, which clarified that leased land for residential construction falls under "premises" as per the Bombay Rent Act. The court concluded that the valuation report was flawed and could not form a sound basis for the initiation of proceedings.

4. Limitation and Procedural Fairness:
The court observed that the proceedings were dormant for over eight years, which indicated a case of dropping or abandoning the proceedings. The re-initiation of proceedings with the second notice u/s 269F(1) was found to be barred by limitation and arbitrary. The court emphasized that the respondents did not file an affidavit-in-reply, thus the petitioner's averments were accepted as correct.

Conclusion:
The court ruled in favor of the petitioner, making the rule absolute in terms of prayer clauses (a) and (b), and quashed the impugned notices. No order as to costs was made.