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TMI Blog1988 (5) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... issioner had reason to believe that the Fair Market Value of the property exceeded the apparent consideration by more than 25 per cent and the consideration was understated in the document of sale with a view to facilitate tax evasion. Accordingly, a notice under sec. 269D(1) of the IT Act, 1961 initiating acquisition proceedings was issued by the then IAC in respect of the transferred property on 28-11-1985 and it was also published in the Gazette of India. Copies of the notice under sec. 269D(1) of the IT Act, 1961 were issued to the parties to the transaction." 3. As many of the arguments adduced before us by the learned counsel for the transferees as well as by the learned Standing Counsel for the Revenue and the learned Departmental Representative revolve around the validity of the assumption of jurisdiction by the competent authority and also the powers of the competent authority to continue the acquisition proceedings, even if they were validly initiated, qua the subject matter of the transfer, we consider that it would be appropriate for us to elaborate on the particulars relating to the transferors, the transferee and the subject matter of acquisition. 4. There is only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. Subsequently there was another oral partition on 29-1-1974, which was later recorded in writing by a deed of declaration dated 18-10-1975 (pages 17 and 18 of the paper book). By this partition land to the extent of 5 grounds and 656 sq. ft. more particularly demarcated in the schedules, fell to the share of the first transferor N. Subramanian, 4 grounds and 1457 sq. ft. fell to the share of the second transferor HUF of S.N. Gopalakrishnan and in an area of 2 grounds and 1505 sq. ft. both the first and second transferors had an equal share. The shares which fell to each persons were more explicitly spelt out in the annexure to the deed of transfer. 6. In due course Sri N. Subramanian, the first transferor made settlement on 7-5-1977 of certain specified portions out of 5 grounds and 656 sq. ft. which fell to his share, by registered settlement deed each dated 7-5-1977 in favour of each of his three daughters, i.e. transferor No. 3 Mrs. Uma Pattammal (1 ground and 85 sq. ft.), transferor No. 4 Mrs. Lakshmi (1 ground and 120 sq. ft.) and transferor No. 5 Mrs. Usha Visalakshi Jayaraman (1 ground and 120 sq. ft.). 7. The first transferor also conveyed by separate sale deed date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were transferred jointly to the four transferees by the instrument of transfer now under consideration and the aggregate consideration was Rs. 30,00,000. 12. The competent authority had addressed a preliminary enquiry letter in the form of a notice dated 19-11-1985 which contains the names of each of the transferees (page 129 of the paper book) and information was sought on various points. A reply was filed dated 25-11-1985 (page 131 of the paper book) signed by R. Rama describing it as for self and others. The letter was also described as from R. Rama and others. It gave information on the points sought by the preliminary notice. On 26-11-1985 the order sheet shows the following entry recorded by the Income-tax Inspector : " Please see letter dated 25-11-1985 with details received and filed. No response from transferor. Please see report filed." The remark "no response from the transferors" apparently was because the preliminary notice which was issued in the name of S.N. Subramanian and other transferors and addressed to the address given of the properties sold No. 301/302, Mowbrays Road, Madras, does not appear to have been served. The report referred to reads as under : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et value exceeded the apparent consideration by more than 15 per cent. He submitted that the report of the Inspector, which fixed the value per ground at Rs. 3 lakh, did not give any comparable case and the evaluations were made on mere ad hoc estimates. 14. The second contention, on which great stress was placed by the learned counsel, was that under the provisions of sec. 269(1) it was not sufficient if the competent authority had reason to believe that the fair market value of the property exceeded the apparent consideration by more than 15 per cent, but the competent authority should also have reason to believe that the consideration for the said transfer as agreed to between the parties was not truly stated in the instrument of transfer with the object of --- (a) facilitating the reduction or evasion of the liability of the transferor to pay tax under this Act in respect of any income arising from the transfer ; or (b) facilitating the concealment of any income or any moneys or other assets which have not been or which ought to be disclosed by the transferee for the purposes of the Indian Income-tax Act, 1922 (11 of 1922), or this Act in the Wealth-tax Act, 1957 (27 of 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the source of apparent consideration was fully explained. As far as the transferor was concerned, the learned counsel submitted that there was no material to show that any extra consideration had passed and this being the position, having regard to the ratio of the judgment of the Supreme Court in the case of K.P. Varghese v. ITO [1981] 131 ITR 597, it was clear that the provisions of sec. 52(2) would not apply. Therefore, even if the fair market value was presumed to exceed apparent consideration by more than 15 per cent, there was no question of any capital gains in the hands of the transferors by invoking the provisions of sec. 52(2) and, therefore, the competent authority could not presume that there was any objective on the part of the transferors to evade or reduce the tax liability. 15. In support of his proposition that the presumptions under sec. 269C(1) of the Act would not apply anterior to the point of publication of notification in the gazette, the learned counsel relied on a catena of judicial pronouncements : CIT v. Smt. Vimlaben Bhagwandas Patel [1979] 118 ITR 134 (Guj.), Subhkaran Chowdhury v. IAC [1979] 118 ITR 777 (Cal.), CIT v. Amrit Sports Industries [1984] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the gazette notification, according to the learned counsel, in the Allahabad view, was beyond the prescribed time limit, the proceedings, the learned counsel submitted, require to be quashed on this ground also. He submitted that he had addressed the Controller of Printing for the exact date when the gazette was issued to the public, but a reply in this regard was being awaited. 18. The next set of submissions centered around the property transferred. According to the learned counsel each of the transferors had a definite property. All of them may have joined and executed a single sale deed but each had transferred only his separate property for which separate consideration had been received. Therefore, each item of transfer had to be separately considered under the provisions of section 269C(1) because the said section contemplated only transfer of immovable property by one person to another person. Where each of the transferor, was possessed of separate property, he submitted that the initiation of a single proceeding for acquisition in the single form and a single order was void. 19. Alternatively the submission of the learned counsel was that in the case of transferor Nos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -tax had made a spot valuation of the market value of the property. The land value taken of Rs. 3 lakh per ground and the cost of construction adopted etc. were all estimates on the basis of his local knowledge and unless the values estimated were such as to shock the conscience of the Court, and in the present case they were not so, there were sufficient material for the competent authority to believe that the fair market value came to Rs. 40 lakh in round figures. The learned counsel stated that as long as there were some reasons it was not open to us to go into the adequacy of the reasons which weighed with the competent authority for forming the belief that the fair market value was Rs. 40 lakh at a stage prior to the initiation. Therefore, as far as the formation of belief that the fair market value was Rs. 40 lakh was concerned, the learned counsel submitted that it was bona fide arrived at by the competent authority. 23. The learned standing-counsel submitted that the vires of the provisions of sec. 269C has not been challenged before any court. The section stood as it was and therefore, the presumption in sec. 269C(2), which spoke of such presumption being drawn "in any p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at for the purposes of initiating proceedings for acquisition the competent authority shall, where he has reason to believe that the apparent consideration is less than the fair market value of the property, ordinarily proceed on the basis that the consideration for the transfer has not been truly stated with a view to facilitating tax evasion by the transferor or the transferee. Where, however, the parties concerned have been given an opportunity of being heard before commencement of acquisition proceedings, they will be entitled to lead evidence to rebut the aforesaid presumptions subject to the rules of evidence explained in the preceding sub-paragraph. In other words, it will be open to the parties to claim that the object of understating the consideration in the instrument of transfer was not facilitation of tax evasion by the transferor or the transferee and also, where the difference between the fair market value and the apparent consideration exceeds 15 per cent but does not exceed 25 per cent of the apparent consideration, to prove that the consideration had been truly stated in the instrument, and if the competent authority is satisfied with the evidence produced, he will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale deed by more than 15 per cent it will drop the proceedings. It is only if it finds that the fair market value exceeds the consideration stated in the deed by more than 15 per cent that the proceedings would continue. Even thereafter the approval of the Commissioner would be necessary for the final acquisition of the property. Then there are all the usual remedies of appeal to the Income-tax Appellate Tribunal and reference to the High Court open to the petitioner. It is not possible, therefore, to decide the question of valuation of this writ petition as the versions of the parties as to valuation are divergent a disputed question of a fact which cannot be decided without oral evidence arises as to the valuation." [Emphasis supplied] 25. The learned standing counsel also referred us to the commentary in the Chapter of Acquisition of Immovable Properties at pages 4628 onwards in the commentary by Sampath Iyengar on Law of Income-tax, Seventh Edition, Vol. 5. It was pointed out that at page 4646 the author had referred to cases where circumstances could easily be conceived of where there could be no intention to motivate understatement of consideration by parties such as close ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lished within the due date. The fact that it may not have reached a particular library within the stipulated time, the learned counsel submitted, was of no consequence. 27. The learned standing counsel stated that the instrument of transfer in the present case was a single one and, therefore, a single notification in the gazette satisfied the requirements of valid initiation. If it was considered that any principles of natural justice were violated by the individual notice not being served on the transferor or any particular transferee, then that was a defect which could be cured and could not render the proceedings void. In support of this proposition, reliance was placed on the decision of the Full Bench of the Punjab and Haryana High Court in the case of CIT v. Amrit Sports Industries [1983] 144 ITR 113 and of the Gujarat High Court in the case of Smt. Vimalaben Bhagwandas Patel. 28. Since the document was a single one, it was also submitted that the fair market value was correctly determined with reference to the entire property which was covered by the document and the proposition put forth on behalf of the assessee that separate acquisition proceedings should have been in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvation of the Supreme Court in respect of the Court's power vis-a-vis initiation of proceedings u/s. 34 of the Indian IT Act 1922 and Sec. 148 of the IT Act 1961 in the Calcutta Discount Co. Ltd. v. ITO AIR 1961 SC 372, S. Narayanappa v. CIT AIR 1967 SC 523, Chhugamal Rajpal AIR 1971 SC 730 and ITO v. Lakshmi Kewal Das AIR 1976 SC 1753." [Emphasis supplied] as also the subsequent observations of the Calcutta High Court in the case of CIT v. Madho Properties Ltd. [1981] 131 ITR 380 at p. 409, which are as under : "At the stage of initiation of the proceedings, the Competent Authority is not required to proceed by way of proof. It is only required that he should record reasons for the belief that, inter alia, the consideration had been understated with the aforesaid object or objects." [Emphasis supplied] 31. We, therefore, proceed to consider the facts of the case in the light of the aforesaid criteria, as also the observations in the judgment of the Calcutta High Court in the case of Mahmudabad Properties (P.) Ltd. v. CIT [1972] 85 ITR 500 where their Lordships observed at page 518 as follows : " From the above illuminating observations of Lord Evershed M.R., it is patent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the apparent consideration by more than 25 per cent and we now come to the next question as to whether the Competent Authority had reason to believe that the apparent consideration was not truly stated in the instrument of transfer with the object of facilitating the reduction or evasion of the liability to tax of the transferor or facilitating the concealment of any income or any monies by the transferee. We have already set out the factual information on record. There is not an iota of evidence to show that any extra consideration had passed. Therefore, if one is to go by the purely factual aspect, the Competent Authority could not have formed the belief that the apparent consideration stated was with the object of tax evasion or avoidance by either the transferor or the transferee. 32. The question that next arises is whether the presumptions as laid down in sec. 269C(1) apply. We have already set out the observations of the Delhi High Court on which the learned standing counsel placed reliance in the case of Mahavir Metal Works (P.) Ltd. In the case of Smt. Vimlaben Bhagwandas Patel the decision of the Delhi High Court in Mahavir Metal Works (P.) Ltd.'s case was relied upon b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on that the competent authority may, on satisfaction of the two conditions mentioned in s. 269C(1) initiate proceedings for acquisition of such property under Chap. XX-A subject to the provisions of the Chapter, and the competent authority can initiate proceedings for acquisition under the Chapter, s. 269C, by a notice to that effect published in the Official Gazette as provided in s. 269D. In our opinion, the competent authority can initiate proceedings for acquisition on the conditions precedent being satisfied only by an appropriate notice in the Official Gazette to that effect. Therefore, it follows that till the appropriate notice in the Gazette is not published the proceedings for acquisition under Chapter XX-A of an immovable property referred to in s. 269C are not initiated. The learned Government pleader, therefore, attempted to persuade us, that the decision of the competent authority to initiate proceedings for acquisition is 'subject to the provisions of this Chapter' and, therefore, the presumptions prescribed in cls. (a) and (b) of sub-s. (2) of s. 269C would govern such a decision. We are afraid the learned Government pleader is reading more in the clause 'subject to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pinion, the proceedings are without jurisdiction. I need not go to the other aspects of the matter as indicated above." 34. The decision of the Delhi High Court was also canvassed before the Bombay High Court in Unique Associates Co-operative Housing Society Ltd.'s case, and at page 127, it was observed as under : --- " The learned counsel also argued with reference to sub-sec. (2) of sec. 269C that it is open to the competent authority to presume that the consideration stated in the document has not been truly stated with the object of evading the tax. The submission overlooks the fact that the presumption under sub-s. (2) is available not at the stage of initiation of the proceedings, but only at the later stage when an inquiry is to be concluded. The decisions of the Gujarat High Court and the Calcutta High Court, which I have followed with respect, are clear on the point that the presumption is not available at the initial stage. Shri Joshi relied upon the decision of the Delhi High Court in Mahavir Metal Works (P.) Ltd. v. Union of India [1974] 95 ITR 197, but in my judgment, this decision would not assist the learned counsel in claiming that the presumption under sub-s. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or to the gazetting of intention to acquire. The vires of the provisions of sec. 269C(2) may not have been challenged before any of the High Courts because the provisions certainly come to apply at the final stage but arguments have been canvassed and have been fully gone into as to whether the presumptions can be invoked at a stage prior to gazetting. On a consideration of the various facets which were put forth, the different High Courts have come to the conclusion that these presumptions are not available at the stage anterior to gazetting. The considered view therefore, is that the presumptions as enunciated under sec. 269C(2) are not available prior to the stage of gazetting. 39. In the case of K.P. Varghese Mr. Justice Bhagwati, speaking for the Supreme Court observed at page 614 as under : " This, it is not enough to attract the applicability of sub-s. (2), that the fair market value of the capital asset transferred by the assessee as on the date of the transfer exceeds the full value of the consideration declared in respect of the transfer by not less than 15 per cent of the value so declared, but it is further more necessary that the full value of the consideration in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. It is a well-settled rule of law that the onus of establishing that the conditions of taxability are fulfilled is always on the revenue and the second condition being as much a condition of taxability as the first, the burden lies on the revenue to show that there is an understatement of the consideration and the second condition is fulfilled. Moreover, to throw the burden of showing that there is no understatement of the consideration, on the assessee, would be to cast an almost impossible burden upon him to establish a negative, namely, that he did not receive any consideration beyond that declared by him." These observations have been reproduced by the Bombay High Court in the case of Unique Associates Co-operative Housing Society Ltd. and it was expressly stated by the Bombay High Court at page 126 as under :--- " The observations of the Supreme Court, though in a different context, can well be applied while construing the provisions of s. 269C of the Act. Indeed, the powers to be exercised under s. 269C of the Act are circumscribed by various conditions which are set out in the section itself. In my judgment, the submission of Shri Dastur that the Competent authority ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t October, 1986." [Emphasis supplied] The view stated in the aforesaid memo is that before the provisions can be invoked it has to be proved that the consideration for transfer of an immovable property as agreed to between the parties has not been truly stated in the instrument of transfer with the object of avoidance of tax etc., by the transferor or the transferee. This view has put forth in the memo explaining the provisions to the Finance Bill of 1986 whereby amendments were effected for dropping the Chapter of Acquisition with effect from 1-10-1986. It is in conformity with the ratio of the decisions of the Gujarat, Calcutta, Bombay, Punjab and Haryana High Courts extracts from the judgments of which courts we have set out in extenso. It can, therefore, be considered that the view that the presumptions relating to avoidance do not apply at a stage anterior to the initiation of proceeding finds acceptance in the aforesaid reasons, the conclusion being that prior to the initiation it has to be proved that consideration has not been truly stated with the object of avoidance of tax, dehors the presumptions which become available only subsequent to the valid initiation. We, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not as joint tenants. Hence they made the gifts as tenants-in-common and not as joint tenants. Each one must be held to have made a gift of her share of the property though the gifts is made through one single document. It is surprising that the Income-tax Officer or the Appellate Assistant Commissioner or the Tribunal should have ever thought that the gift in question was by an association or by a body of individuals. The Gift-tax Act did not change the general law relating to the rights to property. It merely sought to tax a gift of the property owned by a person. As mentioned earlier the property with which we are concerned in this case is a property owned by two persons as tenants-in-common, each one having definite share." The High Court of Kerala then went on to state at page 995 as follows : " When four persons take sale deeds for different plots of land from the same vendor and when each one of the transferees get absolute title to the property transferred to him there is no jointness in the purchase of the transferees. The fact that they may make or put to common use the property purchased by them is a factor which will have no bearing on the purchase itself. We are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he has. Each transferor could only transfer the title to the property which he owns. Merely because a single document was executed no transferor could, or did, transfer property which belonged to any of the other transferors. Therefore, there should have been separate orders of acquisition passed qua each of the transferors 1 to 5. We do not hold that a single order passed would be void, but we have to consider a single order as severable, and consider the validity of acquisition vis-a-vis each transfer separately. 43. Transferors 3, 4 and 5 i.e., T3, T4 and T5 Mrs. Uma Pattammal, Mrs. Lakshmi and Mrs. Usha Visalakshi Jayaraman had transferred properties of 2,840 sq. ft., 2,520 sq. ft. and 2,520 sq. ft. only respectively consisted of A H, B and C respectively in the Plan attached to this order for apparent consideration of Rs. 2,83,000, Rs. 2,52,000 and Rs. 2,52,000 respectively. The question that arises is whether even were we to have held that the initiation of acquisition proceedings was valid we could have upheld the completion of the acquisition order vis-a-vis transferors 3, 4 and 5 assuming the other subsequent conditions were also satisfied. According to the learned cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure referred to in sub clause (i) of clause (c) means,--- (i) if the transfer is by way of sale, the consideration for such transfer as specified in the instrument of transfer. " 44. In the present case, the transfers by each of the transferors T3, T4 and T5 was of an apparent consideration of less than Rs. 5 lakhs being Rs. 2,83,000, Rs. 2,52,000 and Rs. 2,52,000 respectively. In the case of K.P. Varghese, the Supreme Court has clarified the position relating to the effect of the instructions issued by the Board under section 119 as under at pages 612 and 613 : " The two circulars of the CBDT to which we have just referred are legally binding on the revenue and this binding character attaches to the two circulars even if they be found not in accordance with the correct interpretation of sub-sec. (2) and they depart or deviate from such construction. It is now well settled as a result of two decisions of this court, one in Navnit Lal C. Javeri v. K.K. Sen, AAC [1965] 56 ITR 198 and the other in Bilerman Lines Ltd. v. CIT [1971] 82 ITR 913 that circulars issued by the CBDT under s. 119 of the Act are binding on all officers and persons employed in the execution of the Act even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o bound by the Circular could not have granted his approval to the same under section 269F(6). Therefore, the order of the Competent Authority qua the transfers made by the three transferors indicated as T3, T4 and T5 respectively in this order would, in any event, fall to be quashed. 46. Another issue which arises relates to the statutory requirement of service of notice under sec. 269D(2)(a) and (b) which read as under : --- " 269D(2) The competent authority shall --- (a) cause a notice under sub-section (1) in respect of any immovable property to be served on the transferor, the transferee, the person in occupation of the property, if the transferee is not in occupation thereof, and on every person whom the competent authority knows to be interested in the property (b) cause such notice to be published --- (i) in his office by affixing a copy thereof to a conspicuous place ; (ii) in the locality in which the immovable property to which it relates is situate by affixing a copy thereof to a conspicuous part of the property and also by making known in such manner as may be prescribed the substance of such notice at convenient places in the said locality." The contenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The notices were also not addressed to each of the transferor separately. So, were we to hold that the acquisition proceedings were validly initiated and further that they could have been continued in respect of the transferors 3, 4 and 5, we would have still considered it necessary to set aside to be redone, the entire order in a proper manner after giving notice to each of the transferors as required under sec. 269D(2)(a) and after finally evaluating the fair market value etc. in respect of the specific properties transferred by the specific transferors. It appears that in the present case at certain stages replies have been filed in a manner which shows that each of the transferees had taken constructive notice. We, therefore, do not go into this aspect as far as this case is concerned further because the issue in any event becomes academic and would not alter the decision to be arrived at. 50. To put it succinctly, the conditions precedent for the exercise of jurisdiction to initiate acquisition proceedings as called out from the judicial pronouncements are as under : (i) There should have been transfer of immovable property worth more than Rs. 1 lakh in value ; (iii) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er service of notice as required under sec. 269D(2)(a) and complying with the other requirements of sec. 269D(2). 54. On behalf of the revenue, reliance was placed on a decision of the Tribunal in the case of Ashwani Kumar, where, in paragraph 20, the Tribunal had stated as under : --- " On behalf of the appellants, reliance was also placed on K.P. Varghese v. ITO [1981] 131 ITR 597 (SC). That was a case involving the assessment of capital gains and it was held by the Hon'ble Supreme Court that the burden lies on the revenue to prove that the full value of consideration in respect of the transfer is shown at a lesser figure than that actually received by the assessee. The learned counsel pointed out that in the case before us there is no evidence to show that the appellants actually paid something more than Rs. 47,50,000 or that the purchasers received more than that and that in the absence of such proof the acquisition was invalid. The learned departmental representative countered this argument by referring to the provisions of section 269C(2) which creates a presumption in favour of the revenue in case the fair market value exceeds the apparent consideration by more than 25 p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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