2010 (3) TMI 813 - HC - Income Tax

Reference to Valuation officer - A perusal therefore reveals that under section 50C the value adopted by stamp valuation authority or assessed for the purpose of section 48, shall be deemed to be the full value of the consideration received or accruing as a result of the transfer - Section 50C is a measure provided to bridge the gap as it was found that assessees were not correctly declaring the full value of the consideration or in other words resorting to the practice of undervaluation - It is not the case of the petitioner that the valuation could not have been done under the provisions of the Bombay Stamp Act, 1958 and/or that the Collector acted contrary to law in levying stamp duty under Schedule I article 5(ga) - Petition is dismissed

Issues Involved:
1. Validity of Section 50C of the Income-tax Act, 1961.
2. Demand notice issued under the Bombay Stamp Act, 1958.
3. Competency of Parliament to legislate Section 50C under Entry 82, List I of the Seventh Schedule of the Constitution of India.
4. Alleged discrimination and violation of Article 14 of the Constitution of India.
5. Alleged infringement of fundamental rights under Article 19 and Article 300A of the Constitution of India.

Detailed Analysis:

1. Validity of Section 50C of the Income-tax Act, 1961:
The petitioner challenged Section 50C of the Income-tax Act, 1961, arguing that it must have a direct nexus with Section 45, which is the charging section of the Act. They contended that Section 50C arbitrarily determines the valuation based on the stamp valuation authority, which is not in consonance with the actual profits and gains arising from the transfer of a capital asset. The court referred to the judgment of the Madras High Court in K.R. Palanisamy v. Union of India, which upheld the constitutional validity of Section 50C. The court noted that Section 50C is a measure to prevent tax evasion and under-valuation of transactions, and it is only a standard of measure for imposing tax, not the subject-matter of the tax itself.

2. Demand Notice Issued Under the Bombay Stamp Act, 1958:
The petitioner also sought to quash the demand notice dated October 23, 2008, issued by the respondent under the Bombay Stamp Act, 1958. The court observed that the developer had sought a reference under Section 31 of the Bombay Stamp Act, and the competent authority had given the valuation, pursuant to which the duty and penalty were paid. As there was no longer a demand notice to be complied with, the court held that this challenge was not maintainable.

3. Competency of Parliament to Legislate Section 50C Under Entry 82, List I of the Seventh Schedule of the Constitution of India:
The petitioner argued that Section 50C is beyond the legislative competence of Parliament as it falls outside the scope of Entry 82, List I of the Seventh Schedule. The court rejected this argument, referring to the Supreme Court's judgment in A. Sanyasi Rao, which held that the measure for computing tax (in that case, the purchase price) does not alter the nature and basis of the levy, which remains a tax on income. The court concluded that Section 50C is within the legislative competence of Parliament.

4. Alleged Discrimination and Violation of Article 14 of the Constitution of India:
The petitioner contended that Section 50C results in illegal and unreasonable discrimination, violating Article 14 of the Constitution. The court held that Section 50C is a special provision aimed at preventing tax evasion and under-valuation of transactions. The classification under Section 50C pertains to a specific class of capital assets (land or building) and is not arbitrary or unreasonable. The court found no merit in the argument of discrimination.

5. Alleged Infringement of Fundamental Rights Under Article 19 and Article 300A of the Constitution of India:
The petitioner argued that Section 50C infringes upon the fundamental right to carry on any occupation or trade under Article 19 and violates Article 300A of the Constitution. The court noted that the valuation rule under the Stamp Act is for the purpose of computation of income and is only a standard of measure for imposing tax. The court held that Section 50C does not violate the fundamental rights of the petitioner.

Conclusion:
The court dismissed the writ petition, upholding the constitutional validity of Section 50C of the Income-tax Act, 1961. The court found no merit in the arguments regarding discrimination, legislative competence, or infringement of fundamental rights. The challenge to the demand notice under the Bombay Stamp Act was also not maintainable. The rule was accordingly discharged, with no order as to costs.

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