2009 (12) TMI 112 - HC - Income Tax

Offences under sections 276AB read with 269UC and 269UL(2) Purchase of immovable property by central government property owned as a single unit - Learned special public prosecutor submitted that the property sold by the accused is a single unit property and to avoid the legal obligation, the accused sold the same by splitting the same into two units under two different sale deeds in order to defeat the provisions contained in section 26915C of the Act and to avoid filing Form No. 37-I. Transfer of equal undivided shares by two sale deeds it would amount to violation of section 269UC Held that complaint had been filed at the instance of the Appropriate Authority represented by one of its members and hence the complaint was maintainable Held that there was no provision in the Act to prosecute the registering authority for violation of the provisions contained under section 269UC by the owners of the immovable properties subjected for transfer Held that there is no provision requiring notice prior to prosecution

Issues Involved:

1. Alleged contravention of sections 269UC and 269UL(2) of the Income-tax Act, 1961.
2. Validity of the complaint filed by a single member of the Appropriate Authority.
3. Whether the sale transactions were artificially split to evade legal obligations under Chapter XX-C of the Income-tax Act.
4. Necessity of a show-cause notice before prosecution.
5. Relevance of the registering authority's acceptance of sale deeds.
6. Impact of the repeal of Chapter XX-C on the prosecution.

Issue-wise Detailed Analysis:

1. Alleged contravention of sections 269UC and 269UL(2) of the Income-tax Act, 1961:
The petitioners, first and second accused, are facing trial for alleged offences under sections 276AB read with 269UC and 269UL(2) of the Income-tax Act. The complaint alleges that the property in question was sold by the first accused to the fourth accused through two sale deeds, each for Rs. 20 lakhs, totaling Rs. 40 lakhs. This was purportedly done with the intention to evade legal obligations under Chapter XX-C of the Act, which mandates filing Form 37-I for transactions exceeding Rs. 25 lakhs. The court found that the property was indeed a single unit and splitting it into two transactions was a deliberate attempt to circumvent the provisions of the Act.

2. Validity of the complaint filed by a single member of the Appropriate Authority:
The petitioners contended that the complaint could not be filed by a single member of the Appropriate Authority, as section 279 of the Act requires the whole body to act. However, the court noted that the Appropriate Authority had specifically authorized one of its members to file the complaint. This authorization was deemed sufficient, referencing the Supreme Court decision in T. S. Baliah v. T. S. Rangachari, ITO, which held that a complaint could be filed at the instance of the Appropriate Authority by its authorized member.

3. Whether the sale transactions were artificially split to evade legal obligations under Chapter XX-C of the Income-tax Act:
The court examined whether the property sold was a single unit and whether the transactions were split to evade the provisions of Chapter XX-C. It concluded that the property was indeed a single unit, and the division into two sale deeds was a tactic to avoid filing Form 37-I. The court referenced the Supreme Court's decision in Appropriate Authority v. Smt. Varshaben Bharatbhai Shah, which emphasized that the real nature of the transaction should be considered, not an artificial division.

4. Necessity of a show-cause notice before prosecution:
The petitioners argued that the show-cause notice issued was defective and did not relate to the property in question. The court clarified that under section 276AB, there is no requirement to issue a show-cause notice before prosecution. The show-cause notice is relevant for the Appropriate Authority's decision to purchase the property, not for initiating prosecution for violations of section 269UC.

5. Relevance of the registering authority's acceptance of sale deeds:
The petitioners claimed that since the registering authority accepted and registered the sale deeds, there was no violation of the Act. The court dismissed this argument, stating that the registering authority's actions do not absolve the accused of their obligation to comply with section 269UC. There is no provision in the Act to prosecute the registering authority for such violations.

6. Impact of the repeal of Chapter XX-C on the prosecution:
The petitioners argued that since Chapter XX-C was repealed by the Finance Act of 2002, the complaint filed on June 29, 2002, was in haste and intended to harass. The court held that prosecution for offences committed while the Act was in force is permissible even after its repeal. Therefore, the timing of the complaint did not invalidate it.

Conclusion:
The court dismissed the criminal original petitions, directing the Additional Chief Metropolitan Magistrate, Egmore, Chennai, to dispose of the case within six months. The court found that the accused had indeed violated sections 269UC and 269UL(2) of the Income-tax Act by splitting the property transaction to evade legal obligations, and the complaint filed by an authorized member of the Appropriate Authority was valid. The necessity of a show-cause notice before prosecution and the registering authority's acceptance of the sale deeds were deemed irrelevant to the accused's obligations under the Act.

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