1979 (2) TMI 92 - HC - Income Tax

Summary

Issues Involved:

1. Constitutionality of Chapter XX-A of the I.T. Act, 1961.
2. Conditions precedent for the initiation of proceedings u/s 269C.
3. Material and reasons for the belief that the fair market value exceeded the apparent consideration by more than 15%.
4. Method of valuation of the property.

Summary:

1. Constitutionality of Chapter XX-A of the I.T. Act, 1961:
The petitioners contended that Chapter XX-A containing sections 269A to 269S was unconstitutional as it violated their fundamental rights and imposed unreasonable restrictions on their right to hold and dispose of property, and also violated Article 14 of the Constitution. However, the court did not find it necessary to express a view on this aspect, noting that the Division Bench of the Delhi High Court in Mahavir Metal Works P. Ltd. v. Union of India [1974] 95 ITR 197 had upheld the constitutional validity of Chapter XX-A, finding the presumptions under sections 269C(2)(a) and (b) to be rebuttable.

2. Conditions precedent for the initiation of proceedings u/s 269C:
The court emphasized that before initiating proceedings u/s 269C, the competent authority must record reasons, have material for such reasons, and believe that the property was transferred for a consideration less than its fair market value with the object of tax evasion or concealment of income. The court found that the IAC's reasons were based on an estimation of land value without considering that the property was fully tenanted, which was a material aspect.

3. Material and reasons for the belief that the fair market value exceeded the apparent consideration by more than 15%:
The IAC estimated the value of the land at Rs. 30,000 per cottah, concluding that the fair market value exceeded the apparent consideration by more than 25%. However, the court noted that the IAC did not consider the rental method of valuation, which was appropriate for tenanted properties. The court found that the IAC did not have sufficient material to form the belief required by the Act.

4. Method of valuation of the property:
The court highlighted that the property was fully tenanted and should be valued on the rental method, as per the prevalent view and several Supreme Court decisions. The IAC's estimation based on land value alone was not appropriate. The court noted that the IAC did not consider the rental method or the fact that the property was tenanted, which was a relevant factor in determining the fair market value.

Conclusion:
The court quashed the proceedings initiated u/s 269D(1) on the 23rd April, 1973, and restrained the respondents from proceeding further, as the conditions precedent for the initiation of the proceedings were not fulfilled, rendering the proceedings without jurisdiction. The rule was made absolute, with no order as to costs.