1976 (6) TMI 5 - HC - Income Tax

Acquisition Proceedings, Assessment Year, High Court, Immovable Property, Market Value, Movable Property, Reason To Believe

Summary

Issues Involved:
1. Validity of the notice under Section 269D(1) of the Income-tax Act.
2. Proper formation of "reason to believe" by the competent authority.
3. Applicability of presumptions under Section 269C(2) at the stage of forming "reason to believe".
4. Jurisdiction of the writ court despite the availability of alternative remedies.
5. Timeliness of the publication in the Official Gazette.
6. Constitutional validity of Chapter XXA of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Validity of the notice under Section 269D(1) of the Income-tax Act:
The petitioner challenged the notice dated 18th June 1973, published in the Official Gazette, arguing that the notice was void ab initio. The notice incorrectly identified Hindusthan Building Society Ltd. as a transferor, whereas it was merely a confirming party. The court found that the notice was based on erroneous assumptions, rendering it invalid.

2. Proper formation of "reason to believe" by the competent authority:
The competent authority must independently form a "reason to believe" that the property was transferred for less than its fair market value by more than 15%, with the object of evading tax. The court noted that the competent authority misled itself by assuming incorrect facts, such as considering Hindusthan Building Society Ltd. as a transferor. This misguidance could have led to a different conclusion if the correct facts were considered.

3. Applicability of presumptions under Section 269C(2) at the stage of forming "reason to believe":
The court held that the presumptions under Section 269C(2) are matters of proof and are applicable during the hearing stage of the proceedings, not at the initial stage of forming "reason to believe". The competent authority must independently form its belief without relying on these presumptions.

4. Jurisdiction of the writ court despite the availability of alternative remedies:
The court asserted its jurisdiction to entertain the writ petition, noting that the conditions precedent for initiating proceedings under Section 269C were not fulfilled. The court emphasized that the writ jurisdiction was appropriate given the fundamental errors in the competent authority's process.

5. Timeliness of the publication in the Official Gazette:
The petitioner argued that the publication in the Official Gazette was delayed. However, the court found that the proceedings were initiated within the statutory period, as evidenced by the Gazette copy provided.

6. Constitutional validity of Chapter XXA of the Income-tax Act:
The petitioner questioned the constitutional validity of Chapter XXA, arguing it was penal in nature and did not serve a public purpose. The court did not address this issue in detail, as it was unnecessary given the findings on other points. The issue was left open for future consideration.

Conclusion:
The court concluded that the petitioner succeeded on the primary grounds that the notice was invalid due to erroneous assumptions and that the competent authority did not properly form its "reason to believe". Consequently, the rule was made absolute, and the petitioner was awarded costs. The operation of the order was stayed for a fortnight.