Income-tax (Amendment) Act, 1981--Explanatory notes on the provisions of - Income Tax - 344/1982

Income-tax (Amendment) Act, 1981--Explanatory notes on the provisions of Circular No. 344 Dated 22/6/1982 Existing provisions of Chapter XXA in brief. 1.1 The Income-tax (Amendment) Bill, 1981, was passed by both Houses of Parliament during the monsoon session last year and received the assent of the President on 4th September, 1981. It has been enacted as the Income-tax (Amendment) Act, 1981, and published in the Gazette of India (Extraordinary) dated 4th September, 1981, as Act No.22 of 1981. The Income-tax (Amendment) Act, 1981 (hereinafter referred to as the Amending Act), has amended several provisions of the Income-tax Act, 1961, in relation to the acquisition of immovable, properties in certain cases of transfer to counteract evasion of tax. By a notification dated 23rd April, 1982, the Central Government has notified 1st July, 1982, as the date on which the provisions of this Act shall take effect. In other words, any transfer of an immovable property of the nature referred to in the new enactment taking effect on or after 1st July, 1982, will be governed by the provisions of the Amending Act. 1.2 It may be mentioned that the Taxation Laws (Amendment) Act, 1972, had inserted a new Chapter XXA in the Income-tax Act for acquisition of immovable properties in certain cases of transfer to counteract evasion of tax. The provisions of this Chapter empowered the Central Government to acquire any immovable property having a fair market value exceeding Rs.25,000 in cases where the consideration declared in the instrument of transfer was less than the fair market value of the property on the date of execution of the instrument of transfer. This power is available only in cases where there is reason to believe that the consideration agreed to between the parties has not been truly stated with a view to facilitating tax evasion by the transferor or the transferee. It is not permissible to initiate proceedings for acquisition of any property unless its fair market value exceeds the declared consideration by more than 15% of such consideration. For this purpose, the power to initiate proceedings for acquisition of immovable properties has been vested in the Assistant Commissioners of Income-tax who are designated as the competent authority. Before passing the order of acquisition, the competent authority obtains the approval of the Commissioner of Income-tax. Where the property is acquired, the Central Government pays compensation in any amount equal to the consideration stated in the instrument of transfer plus 15% of such consideration. An appeal against the competent authority's order lies to the Income-tax Appellate Tribunal. An appeal lies to the High Court against the Appellate Tribunal's order only on questions of law. Extension of the provisions of Chapter XXA through the Amending Act. 2.1 The Amending Act has extended the provisions of Chapter XXA of the Income-tax Act to cover:- (i) transfer of flats or premises owned through the medium of co-operative societies and companies; (ii) agreements of sale followed by part performance as visualised in section 53A of the Transfer of Property Act, 1882; and (iii) long-term leases (that is to say, lease for a period of not less than 12 years). Definition of "apparent consideration". 3.1 Clause (a) of section 2 of the Amending Act has amended clause (a) of section 269A of the Income-tax Act, being the definition of the expression "apparent consideration". Prior to the amendment, the expression "apparent consideration" in relation to any immovable property transferred by way of sale meant the consideration of sale as specified in the instrument of transfer as registered under the Registration Act, 1908. Where the immovable property was transferred by way of exchange for any thing or things, the apparent consideration meant the price that such thing or things will ordinarily fetch on sale in the open market on the date of execution of the instrument of transfer. Where the consideration for exchange consists of a thing or things and a sum of money, the apparent consideration means the aggregate of the price that such thing or things would ordinarily fetch on sale in the open market on the date of execution of the instrument of transfer and such sum. 3.2 The Amending Act has inserted new item (iii) in sub-clause (1) of clause (a) of section 269A to provide that the expression "apparent consideration", in relation to transfer by way of lease for a term of not less than twelve years means:- (a) where the consideration for the transfer consists of premium only, the amount of premium as specified in the instrument of transfer; (b) where the consideration for the transfer consists only of rent, the aggregate of the moneys payable by way of rent as also the amounts for the service or things which form part of or constitute the rent as specified in the instrument of transfer; (c) where the consideration for the transfer consists of premium and rent, the aggregate of the amount of the premium, the moneys payable by way of rent as also the amounts for the service or things which form part of or constitute the rent, as specified in the instrument of transfer. 3.3 It has also been provided that where the whole or any part of the consideration for the transfer by way of lease is payable on any date or dates falling after the date of such transfer, the value of the consideration payable after the date of the transfer shall be taken at the discounted value of such consideration by adopting the rate of interest at 8% per annum. In other words, the present value of the apparent consideration on the date of transfer by way of lease will be taken as the amount or the aggregate of the amounts payable after the date of such transfer by taking the discounted value of such amounts at 8% per annum. 3.4 The expression "apparent consideration" in relation to transfers of the nature specified in clause (b) of sub-section (1) of section 269AB has been defined in sub-clause (2) of clause (a) of section 269A. Clause (b) of sub-section (1) of section 269AB refers to every transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or arrangement of any other nature), whereby a person acquires any rights in or with respect to any building or part of a building which has been constructed or which is to be constructed. The said clause, however, does not include any transaction by way of sale, exchange or lease of such building or part of such building which is required to be registered under the Registration Act, 1908. Sub-clause (2) of clause (a) of section 269A has defined the expression "apparent consideration", in relation to the transfer of any immovable property referred to in clause (b) of sub-section (1) of section 269AB to mean:- (a) where the consideration for the transfer consists of a sum of money only, such sum; (b) where the consideration for transfer consists of a thing or things only, the price that thing or things which would ordinarily fetch on sale in the open market on the date of the transfer; (c) where the consideration for the transfer consists of a thing or things and a sum of money, the aggregate of the price that such thing or things would ordinarily fetch on sale in the open market on the date of such transfer and such sum of money. 3.5 However, where the whole or any part of the consideration for such transfer is payable on any date or dates falling after the date of such transfer, the value of the consideration payable after such date will be taken at its discounted value as on the date of the transfer by adopting the rate of interest at 8% per annum. Amendment of the definition of the expression "fair market value". 4.1 Clause (b) of section 2 of the Amending Act has amended clause (d) of section 269A of the Income-tax Act. Prior to the amendment, the expression "fair market value", in relation to any immovable property transferred, meant the price the immovable property will ordinarily fetch on sale in open market on the date of execution of the instrument of transfer of such property. The Amending Act has retained this definition in sub-clause (i) of section 269A in relation to the transfer of immovable properties by way of sale or exchange. The Amending Act has inserted a new sub-clause (ii) of clause (d) which defines the expression "fair market value", in relation to any immovable property transferred by way of lease, to mean the premium that such transfer would ordinarily fetch in the open market on the date of execution of the instrument of transfer of such property if the consideration for such transfer had been payable by way of premium only. In other words, the fair market value of the immovable property transferred by way of lease means the premium which such transfer would ordinarily fetch in the open market on the date of the execution of the agreement of the long-term lease, that is to say, lease for a period of 12 years or more. 4.2 Further, the Amending Act has inserted a new sub-clause (iii) in clause (d) to define the expression "fair market value", in relation to any immovable property of the nature referred to in clause (e)(ii), that is to say, any rights of the nature referred to in section 269AB(1)(b) to mean the consideration in the form of money that on such transfer such rights would ordinarily fetch in the open market on the date of the transfer, if such transfer has been made only for consideration in money. It may be mentioned that the provisions of section 269AB(1)(b) have been explained in Para 3.4 above. In other words, the fair market value of the transfer of any shares in a co-operative society, company or other association of persons or an agreement or arrangement whereby any rights in or with respect to any building or part of a building constructed or to be constructed which takes place will be the consideration in money which such transfer would ordinarily fetch in the open market on the date of the transfer. Amendment of the expression "immovable property". 5.1 Clause (c) of section 2 of the Amending Act has amended clause (e) of section 269A of the Income-tax Act. Clause (e) of section 269A prior to its amendment has defined "immovable property" to mean any land or any building or part of a building and includes such machinery, plant, furniture, fittings and other things also where any land or any building or a part of a building is transferred together with any machinery, plant, furniture, fittings and other things. It has also been specifically provided that land, building, part of a building, machinery, plant, furniture, fittings and other things will also include any rights therein. The Amending Act has amended clause (e) of section 269A which defines the expression "immovable property" by retaining the existing definition as sub-clause (i) of clause (e) and has inserted a new sub-clause (ii) to provide that the expression "immovable property" will also mean any rights of the nature referred to in clause (b) of sub-section (1) of section 269AB. 5.2 The provisions of section 269AB have been explained in paragraph 3.4 above. Amendment of definition of the expression "instrument of transfer. 6.1 Clause (d) of section 2 of the Amending Act has amended clause (f) of section 269A of the Income-tax Act. Prior to the amendment made by the Amending Act, the expression "instrument of transfer" meant the instrument of transfer registered under the Registration Act, 1908. The Amending Act has extended the definition of the expression "instrument of transfer" to also mean the statement registered under section 269AB with the competent authority. Amendment of the definition of the expression "transfer". 7.1 Clause (e) of section 2 of the Amending Act has amended clause (h) of section 269A of the Income-tax Act containing the definition of the term "transfer". Prior to the amendment made by the Amending Act, the expression "transfer" in relation to any immovable property meant transfer of such property by way of sale or exchange. The Amending Act has extended the definition of the expression "transfer" to mean in relation to any immovable property being any land or building referred to in clause (e)(i), a lease for a term of not less than 12 years and also includes allowing the possession of such property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act. 7.2 The Explanation to sub-clause (i) of section (h) of section 269A provides that a lease which provides for extension of the term thereof by a further term or terms will be deemed to be a lease for a term of not less than 12 years, if the aggregate of the term for which such lease has been granted and further term or terms for which it can be so extended is not less than 12 years. In other words, where the lease has been originally granted for a period of, say, 6 years but the lease deed contains a stipulation that the lease can, within the approval of the lessor, extended the period of lease for a further period of 6 years or more, the lease will be considered to be a lease for a period of not less than 12 years by virtue of the provision in the Explanation to sub-clause (i) of clause (h). 7.3 The necessary conditions for the application of section 53A of the Transfer of Property Act, relating to part performance of a contract, are the following:- (i) There is a contract in writing to transfer an immovable property for consideration; (ii) The contract is signed by or on behalf of the transferor; (iii) The term necessary to constitute the transfer shall be ascertained with reasonable certainty from the contract; (iv) The transferee has, in part performance of the contract, taken possession of the property or any part thereof or, being already in possession, continues in possession in part performance of the contract; (v) He has done some act in furtherance of the contract, and has performed or is willing to perform his part of the contract. For transactions in the nature of part performance dealt with in section 53A of the Transfer of Property Act, registration of the transfer is not essential. 7.4 The expression "transfer", in relation to any immovable property of the nature referred to in clause (e)(ii) of section 269A, that is to say, transfer of property referred to in section 269AB(1)(b) means the doing of anything (whether by way of transfer of shares in a co-operative society or company or by way of any agreement or arrangement or any other manner whatsoever), which has the effect of transferring or enabling the enjoyment of such property. In other words, the expression "transfer", for the purpose of transfer of immovable property referred to in section 269AB(1)(b), means the doing of any act which may be of the nature of transfer of shares in a co-operative society or a company or entering into any agreement or arrangement which results in transferring the rights, interest and ownership in the immovable property in favour of the transferee. [Section 2 of the Amending Act] Registration of certain transactions 8.1 The Amending Act has inserted a new section 269AB, relating to the registration of certain transactions under Chapter XXA of the Income-tax Act. Section 269AB provides that the transactions specified in clause (a) and clause (b) of sub-section (1), shall be reduced to writing in the form of a statement by each of the parties to the transaction or by any of the party to such transaction who acts on behalf of himself and on behalf of the other parties. The transactions specified in clause (a) and clause (b) of sub-section (1) are the following, namely:- (i) every transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882; (ii) every transaction (whether by way of becoming a member of or acquiring shares in a co-operative society, company or other association of persons or by way of any agreement or arrangement of whatever nature), by which a person acquires any rights in or with respect to any building or part of a building which has been constructed or which is to be constructed. For this purpose, any transaction by way of sale, exchange or lease of such building or part of the building which is required to be registered under the Registration Act is not included in the category of transaction referred to in clause (b) of sub-section (1) of section 269AB. 8.2 Sub-section (6) of section 269AB provides that every statement in respect of a transaction which is specified in sub-clause (1) will be in a form to be prescribed by the Board and shall set forth such particulars as may be prescribed and shall also be verified in the prescribed manner. Each such statement will be required to be registered with the competent authority in such manner and within such time as may be prescribed by the Board. [Section 3 of the Amending Act] Amendment of provisions relating to the jurisdiction of the competent authority. 9.1 Section 269AB provides for the jurisdiction of the competent authority. Under sub-section (2) of section 269B, where the property in question is situated within the local limits of jurisdiction of only one competent authority, that competent authority will perform the functions in relation to that property. Where, however, the property is situated within the local limits of the jurisdiction of two or more competent authorities, the functions are performed by the competent authority within whose jurisdiction the office of the Registering Officer under the Registration Act, 1908, which has registered the relevant instrument of transfer is situated. 9.2 Section 4 of the Amending Act has inserted a new Explanation in sub-section (2) of section 269AB to provide that an immovable property of the nature referred to in section 269AB(a)(b) which has been constructed or which is to be constructed will be deemed to be situated at the place where the building has been constructed or is to be constructed. In other words, the jurisdiction of the competent authority will depend upon the place where the immovable property which is the subject matter of transfer for the purpose of the transaction referred to in section 269AB(1)(b) has been constructed or is to be constructed. [Section 4 of the Amending Act] Amendment of the provisions relating to preliminary notice. 10.1 Section 269D(1) of the Income-tax Act provides that the competent authority will initiate proceedings for the acquisition on any immovable property under Chapter XXA by notice to that effect published in the Official Gazette. For this purpose, no such proceedings can be initiated in respect of any immovable property after the expiration of a period of 9 months from the end of the month in which the instrument of transfer in respect of such property is registered under the Registration Act, 1908. 10.2 Clause (a) of sub-section (5) of the Amending Act has amended the provisions of section 269D to provide that no proceedings shall be initiated in respect of any immovable property after a period of 9 months from the end of the month in which the instrument of transfer in respect of such property has been registered under the Registration Act, 1908, or, as the case may be, under section 269AB of the Income-tax Act. 10.3 Clause (b) of section 5 has inserted a new Explanation in sub-section (2) of section 269D to provide that the Explanation to section 269B(2) which has been inserted by section 4 of the Amending Act and which has been explained in paragraph 9.2 above will apply for the purposes of sub-section (2) of section 269D as it applies for the purpose of sub-section (2) of section 269B. [Section 5 of the Amending Act] Amendment to the provisions of section 269F relating to hearing of objection. 11.1 Sub-section (9) of section 269F provides that in any proceedings under Chapter XXA in respect of any immovable property, no objection will be entertained on the ground that although the apparent consideration of the property is less than the fair market value of the property on the date of the execution of the instrument of transfer, the consideration as agreed to between the two parties has been truly stated in the instrument of transfer because such consideration was agreed to having regard to the price that such property would have ordinarily fetched on sale in the open market on the date of the execution of the property except where such agreement has been registered under the Registration Act, 1908. 11.2 Clause (a) of section 6 of the Amending Act has amended sub-section (9) of section 269F to provide that in relation to property of the nature referred to in section 269A(e)(ii), that is to say, any rights referred to in section 269AB(1)(b), no objection shall be entertained in any proceeding under Chapter XXA on the ground that although the apparent consideration of the property is less than the fair market value of the property on the date of the transfer, the consideration was agreed to having regard to the price that such property would have ordinarily fetched on such transfer on the date of the conclusion of the agreement, except where the agreement had been registered under the Registration Act. [Section 6 of the Amending Act] Amendment of section 269-I relating to vesting of property in Central Government. 12.1 Section 7 of the Amending Act has inserted two new sub-sections (5) and (6) in section 269-I of the Income-tax Act relating to vesting of property in Central Government. The new sub-sections (5) provides that notwithstanding anything contained in sub-section (4) or any other law or any instrument or any arrangement for the time being in force where an order for acquisition of an immovable property which represents the rights of the nature referred to in section 269AB(1)(b) in or with respect to any building or part of a building which has been constructed or which is to be constructed has become final, then such orders shall have the effect, by its own force, of vesting such rights in the Central Government and placing the Central Government in the same position in relation to such rights as the person in whom such rights would have continued to vest if such order would not have become final. In other words, where in relation to the rights of the nature referred to in section 269AB(1)(b), any order of acquisition of the property is passed by the competent authority, the Central Government steps into the shoes of the transferee and shall have all the rights which would have been enjoyed by the transferee. However, the competent authority may issue such directions to any persons concerned for taking the necessary steps for ensuring compliance with the provisions relating to vesting of such rights in the Central Government and for placing the Central Government in the same position in relation to rights in the case of the transferee. 12.2 New sub-section (6) provides that in relation to the rights of the nature referred to in section 269AB(1)(b) in or with respect to any building or part of a building, the provisions of sub-section (1), sub-section (2) and sub-section (3) of section 269-I shall have effect as if the reference to immovable property therein were a reference to such building or part of a building. [Section 7 of the Amending Act] Amendment of section 269J relating to compensations. 13.1 Sub-section (1) of section 269J provides that where any immovable property is acquired under Chapter XXA, the Central Government will pay for such acquisition compensation in an amount equal to the aggregate of the amount of the apparent consideration for its transfer and 15% of the said amount. Section 8 of the Amending Act has inserted a proviso in sub-section (1) of section 269-O to provide that in a case where under an agreement between the parties concerned, the whole or any part of the consideration for the transfer of such immovable property is payable on any date or dates falling after the date on which such property is acquired, the compensation which is payable by the Central Government will be the aggregate of the following amounts, namely:- (i) an amount equal to 15% of the apparent consideration; (ii) the amount which has become payable in accordance with such agreement on or before the date on which such property was acquired under Chapter XXA; and (iii) the amount payable after the date on which such property was acquired under Chapter XXA. [Section 8 of the Amending Act] Amendment of section 269K relating to the payment or deposit or compensation . 14.1 Sub-section (1) of section 269K provides that the amount of compensation payable in accordance with the provisions of section 269J for the acquisition of any immovable property will be tendered to the person or persons entitled to it as soon as may be after the property has vested in the Central Government under section 269-I(4). Section 9 of the Amending Act has renumbered the existing proviso as the second proviso and in its place a new first proviso has been inserted to provide that in a case falling under the proviso to section 269J(1), the amounts which are referred to in clause (i) and clause (ii) of that proviso will be tendered to the person or persons entitled to that amount as such as may be after the property became vested in the Central Government under section 269-I and the amounts specified in clause (iii) of that proviso will be tendered on the date on which it would be payable in accordance with the agreement between the parties concerned and where such amount is payable in instalments on different dates, such amounts shall be payable in such instalments on those dates. [Section 9 of the Amending Act] Failure to comply with the provisions of section 269AB and section 269-I. The Amending Act has inserted a new section 276AA in the Income-tax Act regarding failure to comply with the provisions of section 269AB or section 269-I. The new section 276AA provides that any person who without reasonable cause or excuse fails to comply with the provisions of section 269AB or with any direction issued under section 269-I(5) will be punishable with rigorous imprisonment for a term which may extend to two years and also be liable to fine. The proviso to section 276AA provides that in the absence of special and adequate reason to the contrary to be recorded in the judgment of the court, such imprisonment will not be for less than 6 months. [Section 10 of the Amending Act] [F.No.131(33)/82-TPL]