2016 (5) TMI 149 - HC - Income Tax

Restrictions on transfer of immovable property - benefit of scheme called Kar Vivad Samadhan Scheme 1998 - immunity certificate in favour of the vendor towards full and final settlement of tax arrears - Held that - A reply was sent by the vendor as well as the purchasers stating that each of the sale deed was executed in respect of the one-sixth of undivided share of the property for a consideration of 9, 00, 000. When the property purchased under each of the sale deed is 9 lakhs and it is less than 10 lakhs they are not having any legal obligation to submit form 37-I of the Act. Conveniently the Department has not taken any action on the basis of the reply submitted by the vendor as well as the purchasers to the show-cause notices issued by the Department till a certificate was issued to the vendor under the scheme. After eight months from the date of issuing the immunity certificate prosecution came to be launched against the vendor and the purchasers. Therefore it is very clear that the declaration which has been filed by the vendor was in connection with and inclusive of the complaint complained in the show-cause notice which emanated in the assessment proceedings subsequent to the raid. When once the vendor submitted her application under the scheme and availed of the benefits thereof including obtaining an immunity certificate it also includes the violation which has been complained in the show-cause notice relating the the provisions contained under section 269UC of the Act. While so is it not now open for the Department at this stage to say that the declaration is only pursuant to the order of assessment or payment of tax component and it does not form part of the declaration in so far as it relates to the violation under section 269UC of the Act. This court in the writ petition filed by the vendor has issued direction to the trial court to consider whether the immunity already granted to the vendor under the scheme was the subject matter of the complaint on its file or not. On such direction the trial court rightly concluded that the immunity granted to the vendor covers the past transaction relating to the sale made by her which was the subject matter of the complaint before it. Further this court once again directed the trial court by the order in the Criminal Original Petition once again directed the lower court to consider the petition filed by the respondents herein and to pass orders. Taking into consideration such direction issued by this court the trial court passed the order under the direction and authority of this court. In any event the trial court has rightly considered the issue as to whether the declaration also includes the proceedings contemplated under sections 269UC and 276AB of the Act and held in the affirmative. No reason to interfere with such well-considered order passed by the trial court.

Issues Involved:
1. Legality of the prosecution against the vendor and purchasers for non-filing of Form 37-I.
2. Impact of the immunity certificate obtained under the Kar Vivad Samadhan Scheme on the prosecution.
3. Obligation of purchasers under Section 269UC of the Income-tax Act.
4. Validity of the trial court's order discharging the respondents from prosecution.

Detailed Analysis:

1. Legality of the prosecution against the vendor and purchasers for non-filing of Form 37-I:
The prosecution's case was based on the assertion that the vendor sold the property at a grossly undervalued price to evade tax and did not file Form 37-I as required under Section 269UC of the Income-tax Act. The purchasers contended that each of them bought only 1/6th undivided share of the property for Rs. 9,00,000, which did not necessitate filing Form 37-I. The court noted that the property was sold in six separate sale deeds, each below Rs. 10,00,000, thus not exceeding the threshold for filing Form 37-I. The trial court concluded that there was no legal obligation on the part of the vendor or purchasers to file Form 37-I, leading to their discharge from prosecution.

2. Impact of the immunity certificate obtained under the Kar Vivad Samadhan Scheme on the prosecution:
The vendor had availed of the Kar Vivad Samadhan Scheme and obtained an immunity certificate for the tax arrears for the block period from April 1, 1986, to October 3, 1996. The court observed that the immunity certificate covered the sale transaction in question, which took place in March 1995. The prosecution was launched eight months after the issuance of the immunity certificate. The court held that the immunity certificate granted to the vendor protected her from prosecution for non-filing of Form 37-I, as the certificate covered all past transactions, including the disputed sale transaction.

3. Obligation of purchasers under Section 269UC of the Income-tax Act:
The purchasers argued that they had no obligation to obtain clearance from the Income-tax Department before purchasing the property, as each sale deed was for Rs. 9,00,000, below the threshold of Rs. 10,00,000. The court agreed, noting that the purchasers were only required to jointly sign with the vendor, who had to submit Form 37-I. Since the vendor had obtained a no-objection certificate from the Department for the sale deeds, there was no obligation on the purchasers to file Form 37-I.

4. Validity of the trial court's order discharging the respondents from prosecution:
The trial court had discharged the vendor and purchasers from prosecution, considering the immunity certificate and the lack of obligation to file Form 37-I. The Department's contention that the immunity certificate did not cover the violation of Section 269UC was rejected. The court noted that the immunity certificate included any proceedings related to the tax arrears, which encompassed the alleged non-filing of Form 37-I. The court found no reason to interfere with the trial court's order, as it was based on a detailed analysis of the evidence and the legal provisions.

Conclusion:
The court dismissed the criminal revision cases, upholding the trial court's decision to discharge the vendor and purchasers from prosecution. The immunity certificate obtained under the Kar Vivad Samadhan Scheme protected the vendor from prosecution for non-filing of Form 37-I, and there was no legal obligation on the purchasers to file the form, given the value of the individual sale deeds.

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