1978 (9) TMI 15 - HC - Income Tax

Summary

Issues Involved:

1. Conditions precedent to the commencement of acquisition proceedings under Section 269C of the Income-tax Act, 1961.
2. Definition and determination of "fair market value" under Section 269A(d) of the Income-tax Act, 1961.
3. Validity of initiation of proceedings by notice under Section 269D(1) and Section 269D(2) of the Income-tax Act, 1961.
4. Consideration of additional evidence by the Tribunal.

Detailed Analysis:

1. Conditions Precedent to the Commencement of Acquisition Proceedings under Section 269C of the Income-tax Act, 1961:

The appellants argued that certain conditions must be satisfied before the acquisition proceedings can be commenced under Chapter XX-A. These conditions include:
- Transfer of immovable property with a fair market value exceeding Rs. 25,000.
- The transfer should not be to a relative for a consideration less than the fair market value.
- The Competent Authority must believe that the fair market value exceeds the apparent consideration by more than 15%.
- The consideration for the transfer has not been truly stated in the instrument of transfer.
- The understatement of the consideration was with the object of tax evasion.
- The Competent Authority must record reasons for initiating proceedings.
- Proceedings must be initiated within the period prescribed by Section 269D.

The court held that the Competent Authority and the Tribunal failed to consider relevant factors affecting the fair market value, such as ongoing litigation, the condition of the property, and potential risks. This oversight vitiated the impugned judgments.

2. Definition and Determination of "Fair Market Value" under Section 269A(d) of the Income-tax Act, 1961:

The court analyzed the definition of "fair market value" as the price that the immovable property would ordinarily fetch on sale in the open market on the date of execution of the transfer deed. The court emphasized that the fair market value must consider the specific property effectively transferred, not the purported transfer. The court noted that the property was subject to litigation, which would affect its market value. The Competent Authority and the Tribunal erred in taking the market value of the entire property without considering these factors.

3. Validity of Initiation of Proceedings by Notice under Section 269D(1) and Section 269D(2) of the Income-tax Act, 1961:

The appellants contended that the initiation of proceedings by publication of notice under Section 269D(1) was necessary, and the notice under Section 269D(2) was illegal. The court held that the notices under Section 269D(1) were duly published in the Gazette and served on the appellants. The purpose of the notice was to inform the concerned parties about the initiation of proceedings, which was achieved. The court found no substance in the appellants' argument and held that the notices were valid.

4. Consideration of Additional Evidence by the Tribunal:

The appellants argued that the Tribunal erred in not considering additional evidence, including a compromise petition and decree, which were not available before the Competent Authority's order. The court held that the Tribunal should have considered these documents as they were relevant to determining the extent of the share transferred. The court remanded the cases to the Tribunal for rehearing, allowing the parties to present further relevant evidence.

Conclusion:

The court allowed the appeals and remanded the cases to the Tribunal for rehearing, directing the Tribunal to consider additional evidence and relevant factors affecting the fair market value. The court emphasized the need for the Competent Authority to determine the extent of the share transferred to avoid difficulties in acquiring and taking possession of the property. The parties were directed to bear their own costs.