1979 (12) TMI 38 - HC - Income Tax

Summary

Issues Involved:
1. Validity of initiation of acquisition proceedings.
2. Determination of fair market value.
3. Rebuttal of presumption under Section 269C(2)(a) and (b) of the Income Tax Act, 1961.
4. Relevance of inaction by assessing authorities in individual assessments.

Detailed Analysis:

1. Validity of Initiation of Acquisition Proceedings:
The transferee challenged the initiation of acquisition proceedings on the grounds of inordinate delay in the proclamation of the locality notice, which allegedly deprived affected persons of their right to file objections. The Tribunal rejected these contentions but found an infirmity sufficient to rebut the presumption about the object underlying the untrue statement of apparent consideration in the instrument of transfer. The Tribunal noted that the absence of allegations of tax evasion or concealment of income in the respective assessments of the transferor and transferee indicated no nefarious object.

2. Determination of Fair Market Value:
The competent authority determined the fair market value of the property at Rs. 1,99,200, significantly higher than the apparent consideration of Rs. 92,000. This determination was based on the yield method and involved a detailed analysis of net returns and deductions. The competent authority concluded that the fair market value far exceeded the apparent consideration, justifying the acquisition. The Tribunal, however, did not find fault with this valuation method but overturned the acquisition on other grounds.

3. Rebuttal of Presumption under Section 269C(2)(a) and (b):
The Tribunal held that the presumption under Section 269C(2)(a) and (b) was rebutted due to the lack of action by the revenue to add the concealed income to the assessments of the transferor and transferee. The Tribunal emphasized that the absence of allegations of tax evasion or concealment in the assessments indicated that the parties were not motivated by such objectives. However, the High Court disagreed, stating that the inaction by assessing authorities does not by itself rebut the presumption under Section 269C(2)(b). The High Court emphasized that the power of assessment and acquisition operate in different fields and that the presumption of ulterior motive is not automatically rebutted by the lack of action in individual assessments.

4. Relevance of Inaction by Assessing Authorities in Individual Assessments:
The High Court addressed the argument that the inaction of assessing authorities in individual assessments should rebut the presumption of tax evasion or concealment. The Court clarified that while inaction might be relevant, it cannot alone rebut the presumption under Section 269C(2)(b). The Court noted that the competent authority might consider inaction along with other circumstances to determine if the presumption is rebutted. The High Court concluded that the Tribunal erred in law by holding that inaction by assessing authorities in individual assessments rebutted the presumption under Section 269C(2)(b).

Conclusion:
The High Court allowed the appeals, set aside the Tribunal's orders, and remanded the matter back to the Tribunal for disposal according to the correct principles. The Court emphasized that the presumption under Section 269C(2)(b) is not automatically rebutted by the inaction of assessing authorities and must be considered in conjunction with other circumstances. The appeals were allowed with no order as to costs.