2010 (3) TMI 468 - HC - Income Tax

Offences and prosecution- Purchase of immovable property by Central Government. Failure to file Form 37-I. purchase of immovable property by individual and his wife and sale thereof by individual deed. Prosecution launched against an individual and his wife. Held that- property were purchased individually by accused 1 and 2 and they were sold by them under the two independent sale deeds. When the purchase was of two independent units and two distinct persons holding them in their individual capacity had effected sale., it would not be proper to club such two independent purchases and red them as one transaction. The prosecution was not valid.

Issues Involved:
1. Whether the transfer of immovable property by the accused persons violated sections 269UC and 269UL(2) of the Income-tax Act, 1961.
2. Whether the prosecution under section 276AB of the Income-tax Act, 1961, was justified.
3. Whether the transactions involving the sale of property by the accused should be considered as one single transaction or two separate transactions.

Issue-wise Detailed Analysis:

1. Violation of Sections 269UC and 269UL(2) of the Income-tax Act, 1961:
The prosecution alleged that the accused persons violated sections 269UC and 269UL(2) of the Income-tax Act, 1961, by not filing Form No. 37-I and not obtaining a no-objection certificate from the Appropriate Authority. The accused Nos. 1 and 2 sold their respective undivided shares of a property, each valued at Rs. 15 lakhs, to accused No. 3 represented by accused No. 4. The prosecution argued that the property should be considered as a single unit valued at Rs. 30 lakhs, which required compliance with the aforementioned sections.

2. Justification of Prosecution under Section 276AB of the Income-tax Act, 1961:
The prosecution contended that the accused wilfully and deliberately split the sale transaction into two separate deeds to evade the legal obligation under section 269UC, thereby committing an offense punishable under section 276AB of the Act. The defense argued that each accused sold their individual property valued at Rs. 15 lakhs, thus not exceeding the threshold of Rs. 25 lakhs, and therefore, sections 269UC and 269UL(2) were not applicable.

3. Single Transaction vs. Two Separate Transactions:
The court examined whether the sale of the property by accused Nos. 1 and 2 should be treated as one single transaction or two separate transactions. The court noted that the accused were independent income-tax assessees and had sold their respective shares of the property independently. The court also referenced the Supreme Court's decision in Appropriate Authority v. Smt. Varshaben Bharatbhai Shah, which emphasized examining the real nature of the transaction rather than an artificial or technical interpretation.

Judgment:
The court found that there was confusion in the prosecution's complaint regarding whether the accused owned the entire property or just undivided shares. The court determined that the accused sold their respective undivided shares independently, and the transactions should not be clubbed together as a single unit. The court held that the legal principle from the Supreme Court case was not applicable in this context because the accused had entered into individual agreements for their respective shares, and the property was not a single unit.

The court rejected the additional contention that accused Nos. 3 and 4, being essentially one entity, should be considered as having made a single purchase. It was concluded that since the purchase was of two independent units from two distinct persons, it should not be read as one transaction.

Conclusion:
The criminal original petition was allowed, and the proceedings in EOCC No. 177 of 2005 on the file of the learned Additional Chief Metropolitan Magistrate (Economic Offences-I) Egmore, Chennai, were quashed. The court concluded that the accused did not violate sections 269UC and 269UL(2) of the Income-tax Act, 1961, and the prosecution under section 276AB was not justified. Consequently, the connected miscellaneous petition was also closed.

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