1981 (3) TMI 70 - HC - Income Tax

Summary

Issues Involved:
1. Applicability of the presumption under sub-s. (2) of s. 269C of the I.T. Act, 1961.
2. Stage when the competent authority has to form his belief under sub-s. (1) of s. 269C of the Act.
3. Validity of the impugned notices issued by the competent authority.

Summary:

1. Applicability of the presumption under sub-s. (2) of s. 269C of the I.T. Act, 1961:
The principal point in this appeal is whether the presumption under sub-s. (2) of s. 269C applies at the stage when the competent authority forms his belief under sub-s. (1) of s. 269C. The court held that the presumption under sub-s. (2) of s. 269C is not applicable at the stage of forming the belief. The presumption is only applicable in any proceedings initiated under Chap. XX-A, which occurs after the competent authority has formed his belief and initiated proceedings. The court emphasized that the first stage involves administrative functions and preparation for initiating proceedings, while the second stage involves judicial proceedings.

2. Stage when the competent authority has to form his belief under sub-s. (1) of s. 269C of the Act:
The court clarified that sub-s. (1) of s. 269C consists of two stages: the formation of belief by the competent authority and the initiation of proceedings. The competent authority must have reason to believe in four matters before initiating proceedings: (i) the fair market value exceeds Rs. 25,000, (ii) the apparent consideration is less than the fair market value by more than 15%, (iii) the consideration has not been truly stated, and (iv) the untrue statement aims to evade taxes. The court held that the first stage, where the competent authority forms his belief, is not a proceeding under sub-s. (2) of s. 269C, and thus, the presumption under sub-s. (2) does not apply at this stage.

3. Validity of the impugned notices issued by the competent authority:
The court found that the competent authority issued the impugned notices without proper jurisdiction and illegally. The competent authority's belief that the consideration was not truly stated was based on erroneous assumptions, including the incorrect assumption that Hindusthan Building Society Ltd. was a transferor. The court noted that the Life Insurance Corporation of India (LIC), being a statutory body, would not engage in tax evasion, and thus, the competent authority had no justification for his belief. Consequently, the court affirmed the judgment of the learned judge, quashed the impugned notices, and made the rule nisi absolute.

Conclusion:
The appeal by the revenue was dismissed, and the judgment of the learned judge was affirmed. The court also denied the revenue's oral prayer for a certificate for appeal to the Supreme Court under art. 134A of the Constitution of India.