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TMI Blog1980 (9) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... proposed construction and that the existing structure would be demolished to utilise the land for multi-storeyed constructions. On the basis of the aforesaid they valued the land by what is known as the "belting method". The front belt value of the land up to a depth of 100 ft. was found to be Rs. 30,000 per cottah. The final computation was as follows: I Belt 24.525K: 24.525 X 1 24.525 units II Belt 3.913K : 3.913 X 1 2.935 units 11 Belt 22.033K: 22.033 x 2/3 14.689 units 11 Belt 13.51OK: 13.510 x(3/4 x 2/3) 6.755 units Recess III Belt 0.671K: 0.671 X 1/2 0.335 units Total, 64.652K: 49.239 units Less 5% for size 2.462 units 46.777 units Co-efficient 46.777 0.72 units 64.652 The average land value was determined at Rs. 30,000 x 0.72=21,600 per cottah which was rounded off to Rs. 22,000. The value of 16.642 cottahs was thus estimated at about Rs. 14,22,000. On the above report, the offer of the transferee for the purchase of the property was accepted by the shareholders of the transferor and on the 29th September, 1973, the transferor applied under s. 230A of the I.T. Act, 1961, for a certificate required for the registration of the propose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of this court in Nityagopal Sen Poddar v. Secretary of State, AIR 1933 Cal 25. He also took note of the contemporaneous transactions in property in the area. Taking into account the general appreciation in the value of land in Calcutta by 331% to 50% since 1972, he found that the value of the land in question would not be less than Rs. 30, 000 per cottah even on the average. He came to the conclusion that the reasonable fair market value of the property on the date of the transfer would not be less than Rs. 19,44,600 and exceeded the apparent consideration by 34%. He recorded as follows: "On the facts and circumstances certain legal consequences follow. Under section 269C(2)(a) it shall be conclusive proof that the consideration agreed to between the parties has not been truly stated in the instrument of transfer. Further, under s. 269C(2)(b), it shall be presumed, unless contrary is proved, that the consideration as agreed to between the parties has not been truly stated with such objects as mentioned in cls. (a) and (b) of s. 269C(1). I, as Competent Authority, Acquisition Range XII, Calcutta, have, therefore, reason to believe that the immovable property of fair marke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransfer was registered on the 26th April, 1974. The value of the land worked out at Rs. 28,800 per cottah. (d) Premises No. 14, Mayfair Road, Calcutta, containing 24 cottahs of land with an old building covering 6,300 sq.ft. sold for Rs. 6,00,000 and the transfer was registered on the 2nd July, 1974. The value of the land worked out at Rs. 25,000 per cottah. It was stated in this letter that the said properties at the Mayfair Road were to the east of Syed Amir Ali Avenue whereas the property in this case was situated at about the same distance to the west of the said avenue in a more aristocratic area. By its letter dated the 18th December, 1978, to the Competent Authority the transferor disputed that the value of land in the area had increased by 33 1/2% to 50% since 1972. Thereafter, on the 23rd March, 1976, the Commissioner of Income-tax, West Bengal II, addressed a notice to the transferor stating, inter alia, that he proposed to pass an order for the acquisition of the property. The transferor was asked to show cause why the said proposal should not be approved on or before the 30th March, 1976. On the 29th March, 1976, the transferor and the transferee submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the instant case, the big plot would have a further advantage in providing for a set-back as required by the rules of the Corporation. The selling rates as also the income-yielding rates of the front and the rear apartments in high rise buildings would not vary much. He also criticised the reduction of 5% allowed by M/s. Talbot Co. on account of the size of the property and held that such a reduction was not justified as the belting method had been applied. The site plan prepared by M/s. Talbot Co. showed open passages both at the eastern and the western side of the property which the Competent Authority held would be of added advantage in the proposed constructions for complying with the fire regulations. The Competent Authority also noted the provision in the conveyance for payment of the agreed consideration in instalments as also the low rate of interest agreed for such delayed payment and held that the purchaser was in fact receiving a deferred value which meant that the apparent consideration on the date of transfer was much less than what was stated in the conveyance. As such, the fair market value of the property would exceed the apparent consideration thereof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Competent Authority the average price still works out at Rs. 21,000 per cottah. It was submitted that the other transactions in property noted and considered by the Competent Authority were not comparable with the transaction in the instant case. In premises No. 9, Mayfair Road, the average price per cottah was much less than the average price in the instant case. In premises Nos. 10 and 14, Mayfair Road, the purchasers had utilised the existing buildings in the said properties for residence. As for premises Nos. 11 and 13, Mayfair Road, Calcutta, if the value of the land was calculated by adopting the depth factor it would be the same as that in the instant case. It was contended that neither the Valuation Officer nor the Competent Authority had, found any fault in the various belts adopted by M/s. Talbot Co. and as such the valuation arrived at thereby should not be disturbed. It was also contended on behalf of the appellants that the Competent Authority was not justified in taking recourse to sub-s. (2) of s. 269C of the Act, drawing a presumption thereunder and thereby forming the belief that the instant transaction had been entered into with the objects mentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in forming a belief that a transaction had been entered into with the objects mentioned in sub-s. (1) of the said section. The Tribunal took the view that the main dispute was whether the entire property should be valued at a uniform rate as contended by the revenue or whether it should be valued under what was known as the belting method as contended by the parties to the transaction. The Tribunal found that there was no dispute that the portion of the property abutting on Gurusaday Road, i. e., the front belt was of the value of Rs. 30,000 per cottah. Following Mathura Prosad Rajgharia, AIR 1971 SC 465 and Nityagopal Sen Poddar, AIR 1933 Cal 25, the Tribunal held that the belting method was appropriate in determining the market value of the property and it rejected the opinion of the Valuation Officer that this method was obsolete. The Tribunal found that by applying this method on the basis of depth factor the valuation of the property came to a figure less than that in the valuation of M/s. Talbot Co. The Tribunal noted that the Competent Authority had not disputed the width of the various belts adopted by M/s. Talbot Co., which were the same as those in Mathura Prosad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Rs. 35,000 per cottah and that the price of land in the area had increased by at least 33 1/2% since September, 1973. The latter observation had been recorded in the judgment of the Tribunal. Therefore, the conclusion of the Tribunal that there was no dispute that the first belt of the land had to be valued at Rs. 30,000 per cottah was incorrect and should be deleted. It was contended that the observations of the Tribunal that both M/s. Talbot Co. and the District Valuation Officer had adopted the rate of Rs. 30,000 per cottah was incorrect inasmuch as the revenue had adopted an average rate of Rs. 3,000 per cottah whereas M/s. Talbot Co. had adopted an average rate of only Rs. 22,000 per cottah. It was also contended that calculations having been submitted by the parties to the transaction to arrive at the per front foot length prices of land in the case of premises Nos. 11 and 12, Mayfair Road, and the instant property by application of the depth factor method at the hearing before the Tribunal, for the first time, an opportunity should be given to the revenue to examine such calculations and make further submissions. By its order dated the 21st October, 1976, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpetent Authority empowered under s. 269L of the Act had duly required the Valuation Officer to determine and report about the fair market value of a property for the purpose of initiating the proceedings. On the report of the Valuation Officer, the Competent Authority had sufficient reasons to believe that the property had been transferred for an apparent consideration which is less than its fair market value and on the basis of the aforesaid the Competent Authority was further justified in drawing the presumption under s. 269C(2) that the real consideration had not been truly stated in the instrument with the object of reduction or evasion of tax or to facilitate the concealment of undisclosed income or assets. Learned counsel for the revenue thereafter drew our attention to the scheme of the sections in Chap. XX-A of the Act and submitted that subs.(2) had been introduced in s. 269C by way of an amendment. The introduction of this sub-section in the section as also the report of the Select Committee which recommended the amendment made it amply clear that it was the intention of the Legislature that the Competent Authority would draw the presumptions introduced even at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the land acquired was estimated separately, the entire land was valued as one unit. On an appeal to this court from a decision of the District Court on a reference, the valuation was upheld. This court observed as follows: " As observed in the case of Government of Bombay v. Karim Tar Mohomed [1908] ILR 33 Bom 328, it cannot be taken as a hard and fast rule that back land must be worth half the frontage of land. " (b) Raghunath Das v. Collector or Dacca [1911] 11 CLJ 612. This is a decision of a Division Bench of this court on a similar appeal under the Land Acquisition Act. The appellants had claimed that the land acquired should be divided into belts and the valuation should be made accordingly. It was observed in the judgment as follows: " It was pointed out by this court in the case of Secretary of State v. India General Steam Navigation Company that the mode of valuation by division into belts is artificial and does not always afford a reliable guide to the ascertainment of the market value, and this view was subsequently affirmed by the judicial Committee. It may further be observed that if the mode of valuation by division into belts was adopted, a great deal would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction in value between front lands and back lands everywhere but that distinction would not obviously justify a recourse to the belting system in each and every case. It is a highly artificial system and cannot be resorted to as a hard and fast rule." (e) Mathura Prosad Rajgharia v. State of West Bengal, AIR 1971 SC 465. The dispute in this case arose in respect of compensation awarded under the Land Acquisition Act. On a reference under s. 18 of the Act to the Calcutta Improvement Tribunal the initial compensation was enhanced. A further appeal to the High Court resulted in further enhancement. The claimants took up the matter to the Supreme Court on final appeal. The Supreme Court observed as follows (p. 469): " Where a large area of land in an urban locality is sought to acquired in determining the market value, 'the method of belting' is appropriate. It is common knowledge that lands having frontage on the main roads in urban areas are always more attractive than the lands which have no such frontage. No objection was raised before us against the adoption of 'the method of belting'. It was also accepted that of the land under acquisition the front belt would be 100 feet d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... possible in all cases to have reliable material from which that valuation can be accurately determined." (g) S. Narayanappa v. CIT [1967] 63 ITR 219 (SC). In this case, the assessees challenged the reassessment of their income under s. 34(1) of the Indian I.T. Act, 1922. Being unsuccessful up to the Tribunal the assessees invited a reference to the High Court. The question whether the ITO had jurisdiction to initiate reassessment proceeding under s. 34(1)(a) of the Indian I.T. Act, 1922, was answered by the High Court in favour of the revenue. The assessee thereafter went up on appeal to the Supreme Court. One of the grounds urged by the assessees before the Supreme Court was that before initiating the reassessment proceeding the ITO should have communicated to them the reasons for the initiation of the impugned reassessment proceeding which the ITO refused to do in spite of a request. The Supreme Court held that the assessees were not entitled to such a communication. In this connection, the Supreme Court discussed the nature of the reassessment proceedings and observed as follows (p. 222): " The proceedings for assessment or reassessment under section 34(1)(a) of the Income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds, as mentioned in the circulars of the Board and the principles enunciated in the several decisions of the court as noticed before. (4) Which one of the various methods would be suitable for a particular case must depend upon the nature of the property, the location of the property, the purpose for which the property is used and several other objective factors, viz., the time when the valuation is made, the prospect of buying and selling in respect of the property at the relevant time and also special features in respect of the property, if there be any. Taking all these factors into consideration it is, therefore, necessary to determine which one of the various methods will be most suitable to reach as accurate as possible a guess as to the valuation on the valuation date. (5) Another factor that has to be borne in mind is that such a method should be preferred which has more objective reliable data to rely upon than mere subjective opinions. For instance, if there are more objective data to work out in respect of one method more reliable than another then that method for a particular land should be preferred. If, however, there is any objective reliable evidence of any tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of evidence at any such earlier stage. In the instant case, it was submitted, proceedings were initiated without the formation of the requisite beliefs and, therefore, the same were entirely without jurisdiction. Learned counsel submitted that ss. 269C and 269D of the Act left no doubt that proceedings under Chap. XX-A could only be initiated by issue of the preliminary notice under s. 269D. Sub-s. (1) of s. 269C, compared with sub-s. (2) thereof, clearly brought out the distinction between the initiation of a proceeding and the proceeding itself. Learned counsel submitted that if it was intended that sub-s. (2) of s. 269C would apply even at the stage of initiation of proceeding it would not have been necessary to require the Competent Authority also to be satisfied as to the genuineness of the consideration of the transfer and about the objects for which the consideration was understated and to record the reasons for such satisfaction. The interpretation suggested on behalf of the revenue would make the later part of sub-s. (1) of s. 269C redundant. It was further submitted that a property might be sold at a price less than its fair market value on the date of the transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I.T. Act, 1961, was impugned in a proceeding under art. 226 of the Constitution, inter alia, on the ground that powers under the said section could not be invoked for the collateral purpose of the investigation. It was held that s. 131 could be invoked for all the purposes of the Act and all proceedings incidental thereto including investigation for reopening of an assessment. It was observed in the judgment as follows (p. 472): " The purpose of the Income-tax Act is not only to make the assessments ; to make investigations to find out whether reassessment was necessary and proceedings for reassessment should be initiated or not is also within the purpose of the Act. The Income-tax Officer has stated that there were allegations against the petitioner regarding the concealment of huge income arising out of export business and if to investigate regarding the completed assessments and for the purpose of future assessments, the documents, books and papers were required by the Income-tax Officer as was suggested by him in his affidavit, in my opinion it cannot be characterised that the same was not for the purpose of the Act." This judgment was affirmed on appeal. (b) Smt. Bani Ro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bruary, 1979 [since reported-Subhkaran Chowdhury v. IAC [1979] 118 ITR 777 (Cal)] was also cited on behalf Of the respondents. In this case, a proceeding for acquisition of a premises under Chap. XX-A of the Act was challenged by the purchaser in an application under art. 226 of the Constitution on, inter alia, the ground that the conditions precedent for initiation of such proceeding had not been fulfilled. It was held by Sabyasachi Mukharji J., following Smt. Bani Roy Chowdhury [1978] 112 ITR 111 (Cal), that in initiating such proceedings the Competent Authority must have material before it to believe that the fair market value of the property being transferred had not been correctly stated in the instrument of transfer in order to facilitate the reduction or evasion of tax liability of the transferor or concealment of income or money or assets of the transferee. The learned judge held further that the evidentiary value of presumption under sub-ss. (2) of s. 269C was not attracted at the stage of initiation of such proceedings as in that case there would be no further question of rebutting such presumption. We are unable to accept the contention of the revenue that in valuing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We are unable to accept the contention of the revenue that the Tribunal failed to note that the land in the instant case was to be utilised for the construction of multi storeyed buildings. The contention of the revenue that the Tribunal failed to take into account the contemporaneous transactions in land in the neighbourhood and proceeded solely on the artificial belting method is equally untenable. From the judgment of the Tribunal, it appears that other instances of sale of land relied on by the revenue were duly considered and tested by applying the belting method. Relevant calculations were furnished by the parties to the transaction and were duly gone into. The further contention of the revenue has been that the Tribunal wrongly assumed that the width and/or the depth of the belts of the land as determined by M/s. Talbot Co. and the difference in their respective values were not in dispute and had proceeded on such erroneous basis. The Tribunal, it was submitted, also failed to consider the increase in the price of land area between the date of the agreement and the date of the conveyance. The calculations in respect of several transactions cited for comparison submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tness. He cannot just raise objections in his memorandum of appeal and leave it to the appellate court to give its decision on those points after going through the records and determining the correctness thereof. It is not for the appellate court itself to find out what the points for determination can be and then proceed to give a decision on those points." The above observations, though made with reference to an appellant, in our view, apply equally to a respondent to an appeal who does not make his case at the hearing. It appears to us that the so-called "belting method" is nothing more than a method of calculation in which the value of the portion of land nearest to the main thoroughfare, i. e., the front belt is first ascertained in the usual manner on objective data. Thereafter, the value of the other portions are determined taking into account the progressive decrease in value according to the distance from the front. In the instant case, the value of the front belt has been considered and determined by the Tribunal by taking into consideration the evidence produced including the reports, respectively, of the Valuation Officer and M/s. Talbot Co. The Tribunal has als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiated unless the competent authority has reason to believe that the fair market value of the property exceeds the apparent consideration therefor by more than fifteen per cent. of such apparent consideration. (2) In any proceedings under this Chapter in respect of any immovable property, (a) where the fair market value of such property exceeds the apparent consideration therefor by more than twenty-five per cent. of such apparent consideration, it shall be conclusive proof that the consideration for such transfer as agreed to between the parties has not been truly stated in the instrument of transfer; (b) where the property has been transferred for an apparent consideration which is less than its fair market value, it shall be presumed, unless the contrary is proved, that the consideration for such transfer as agreed to between the parties has not been truly stated in the instrument of transfer with such object as is referred to in clause (a) or clause (b) of sub-section (1)." " 269D. (1) The competent authority shall initiate proceedings for the acquisition, under this Chapter, of any immovable property referred to in section 269C by notice to that effect published in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its apparent consideration by more than fifteen per cent of such consideration. The Committee accordingly recommended that the fact that the fair market value of any property transferred exceeds its apparent consideration by more than twenty five per cent of such apparent consideration shall, in proceedings for acquisition of such property, be deemed to be conclusive proof of the fact that the consideration for the property has not been truly stated in the instrument of transfer; (iii) where any, property has been transferred for an apparent consideration which is less than its fair market value, it shall be presumed that the consideration for the transfer has not been truly state with the object of evasion of tax, at all stages of the acquisition proceedings and not merely at the stage of passing the order of acquistion. From the aforesaid sections, it appears that, acquisition proceedings can be validly initiated only when the conditions prescribed in ss. 269C and 269D are satisfied. Such conditions are that the Competent Authority must have reason to believe that: (a) The transfer involves immovable property of fair market value exceeding Rs. 25,000. (b) Such proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at section. We are unable to accept the contention of the revenue that the word " proceeding " in s. 269C include all initial steps to be taken by the Competent Authority prior to the issue of a notice under s. 269D. This contention appears to be untenable in the face of the clear language of s. 269D. It was also not open to the Competent Authority to draw any presumption under s. 269C at that stage for other reasons. The presumption under s. 269C(2) can be drawn only where the fair market value of the property exceeds the apparent consideration by a certain percentage (of the apparent consideration). In our view, such a presumption can be drawn only when the value of the property has been finally determined and not before. At the time of initiation of the proceeding, the Competent Authority is required only to record his reasons for his belief that the fair market value of the property exceeds the apparent consideration by the prescribed percentage. He is neither called upon nor empowered to come to any final conclusion regarding the value of the property and as such the question of drawing the presumption under sub-s. (2) of s. 269C can never arise at that stage. In any event, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to initiate proceeding under the said chapter is to record his reasons for his belief that the fair market value of the property being transferred has exceeded the apparent consideration by the prescribed percentage and nothing more. The Legislature has prescribed that the Competent Authority must also have reasons to believe that the consideration has been understated with the object of reduction, evasion or concealment of taxes and/or assets by the parties to the transfer and this part of s. 269C would become absolutely redundant if we accept the contentions of the revenue. For the reasons as aforesaid, we hold that all the necessary conditions precedent for initiation of acquisition proceedings in the instant case did not exist and/or were not satisfied. Learned counsel for the respondents did not seriously press the point whether the initiation of the impugned proceedings was bad also on the ground of non-publication of the notice under s. 269D in the Official Gazette and, accordingly, it is not necessary for us to adjudicate on the same. We only note that the decision of the Allahabad High Court in U. S. Awasthi [1977] 107 ITR 796 (All) is not of much relevance on this ..... X X X X Extracts X X X X X X X X Extracts X X X X
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