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TMI Blog1988 (5) TMI 86X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 s. 269D(1) of the IT Act, 1961 initiating acquisition proceedings was issued by the then IAC in respect of the transferred property on 28th Nov., 1985 and it was also published in the Gazette of India. Copies of the notice under s. 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 one "instrument of transfer" within the meaning of s. 269(a)(f) of the Act. This instrument of transfer is a de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 7th May, 1977 of certain specified portions out of 5 grounds and 656 sq. ft., which fell to his share, by registered settlement deed each dt. 7th May, 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 dt. 27th Nov., 1978, duly registered, an extent of 355 sq. ft. in favour of Mrs. Uma Pattammal. 8. The instrument of transfer now under consideration contains as an annexure thereto a plan indicating the properties which were transferred by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... points. A reply was filed dt. 25th Nov., 1985 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 26th Nov., 1985 the order sheet shows the following entry recorded by the IT Inspector: "Please see letter dt. 25th Nov., 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: Report --The property transferred is land and building at Door No. 301/302, Mowbrays Road, Madras 18 for an AC of Rs. 30 lakhs. (i) Extent of site 12 grounds and 1218 sft. (ii) Plinth area of superstructure: Ground Floor 3900 sft Madras 442 sft RCC 1919 sft Mangalore tiles 900 sft ACCsheet First Floor 1085 sft Mangalore tiles 540 sft ACCsheet (iii) Age of the building 50 years The FMV of the propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 IT Act, 1922 (11 of 1922), or this Act or the WT Act, 1957 (27 of 1957). In this regard the learned counsel submitted that the presumptions in s. 269 (2), which read as under : "(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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors by invoking the provisions of s. 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 s. 269C(1) of the Act would not apply anterior to the point of publication in the gazette the learned counsel relied on the catena of judicial pronouncements : CIT vs. Smt. Vimlaben (1979) 118 ITR 134 (Guj), Subkaran Choudhary & Ors. vs. IAC (1979) 118 ITR 777 (Cal), CIT vs. Amrit Sports Industries (1983) 37 CTR (P&H) 290: (1984) 145 ITR 231 (P&H) and Unique Associates Co-operative Housing Society Ltd. vs. Union of India & Ors. (1985) 152 ITR 114 (Bom). He submitted that all these decisions were unanimous on the point that the presumption of evasion of tax could not arise at a stage prior to the decision of the competent authority for initiation of proceedings. He stated that certain observations, which ex facie might give a different view in the judgment of the Delhi High Court in Mahavir Metal Works P. Lrd. vs. Union of India (1974) 95 ITR 197 (Del) at page 226, have been expressly considered in the subsequent decisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efinite 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 provision of s. 269C(1) because the said section contemplated only transfer of immovable property by one person to another person Where each of the transferors 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. 3.4 and 5, i,e, Uma Pattammal, Lakshmi and Usha Visalakshi, the apparent consideration of the property transferred was only Rs. 2,83,000 Rs. 2,53,000,and Rs. 2,52,000, respectively Hence according to the learned counsel, the cases of these three persons fell squarely with in the terms of circular no. 455 dt.16th May, 1986 (1986)54 CTR (ST 27 (1986) 159 ITR (Statutes) 105 and which Circular clearly stated that where acquisition proceedings had been initiated by issue of notice under s. 269D the proceedings had to be dropped if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the initiation. Therefore, as far as the formation of belief that the fair market value was Rs. 40lakh 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 s. 269C has not been challenged before any Court. The section stood as it was and, therefore, the presumption in s. 269C(2), which spoke of such presumption being drawn "in any proceedings under this Chapter" would clearly apply from the stage where the competent authority had reason to believe that the fair market value of the property exceeded the apparent consideration. The proviso to s. 269C(1) only states that no proceedings should be initiated where the market value did not exceed the apparent consideration by more than 15per cent. The presumptions necessary for initiation and continuation of acquisition proceedings, the learned counsel submits, were the same and there was no warrant for making a differentiation between stages at which the presumption would operate. The learned counsel referred to a Circular of the Board No. 96 dt. 25th Nov., 1972, which elucidated the scope of the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fair market value and the apparent consideration exceeds 15per cent but does not exceed 25per 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 not initiate proceedings for acquisition of property. In this connection, it may be mentioned that it is not incumbent on the competent authority to give the parties concerned an opportunity of being heard before initiating the proceedings." 24. The view put forth in the departmental circular, the learned Standing counsel submitted, was exactly the same as that referred to in the judgment of the Delhi High Court in the case of Mahavir Metal Works(Pvt.)Ltd. vs. Union of India (1974)95 ITR 197(Del) where there were the following observations at page 225: "The last question is whether the competent authority had 'reason to believe' within the meaning of s. 269C of the Act that immovable property of a fair market value exceeding Rs. 25,000 has been transferred with the object of evading tax liability and/or concealing income. The competent authority asked a valuer to find out the fair market value of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax, Seventh Edition, Vol.5. It was point out that at page 4646 the author had referred to cases where circumstances could easily be conceived of where there could be not intention to motivate understatement of consideration by parties such as close relationship between the parties or appreciation in the value of properties between the date of agreement to sell and the actual sale etc. Barring such circumstances, according to the standing counsel, where the difference between the fair market value and the apparent consideration exceeded 25per cent, the presumption that it was to avoid or evade tax by the transferor and the transferee should be drawn even at the stage anterior to initiation. If the aforesaid view was no accepted, the provisions of sub-s.(2) of s. 269C, the learned counsel submitted, would really be rendered otiose and such a construction should not be placed on the statute having due regard to the rule enunciated in Heydon's case which had been set out by the Supreme Court in the case of K.P. Varghese vs. ITO as under : "It is a sound rule of construction of a statute firmly established in England as far back as 1584 when Heydon's case(1584) 3 Co. Rep. 7a was decid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 for the on behalf of the assessee that separate acquisition proceedings should have been initiated in respect of the property transferred by each transferor was not tenable. 29. Since the property was transferred by a single document, the learned Standing counsel stated, the applicability of the Board's Circular had to be considered with reference to the total consideration of Rs. 30 lakhs and not with reference to any bifurcated consideration as contended for by the appellants. Finally, a reference was made to the decision of the Tribunal in Ashwani Kumar vs. IAC(1987) 20 ITD 643(Del) where the Tribunal had taken the view that the decision in the case of K.P. Varghese could not be pressed into service for taking a veiw that there could be no avoidance of capital gains when the statute in s. 269C(2) expressly provided for certain presumptions of evasion and avoidance being made where the difference between the fair market value and the apparent consideration exceeded certain percentages. 30. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. vs. CIT (1972) 85 ITR 500(Cal) where their Lordships observed at page 518 as follows :-- "From the above illuminating observations of Lord Evershed M.R., it is patent that a clear and firm distinction is being drawn between matters which may be said to be a matter of local knowledge for judges or Tribunal s having a local jurisdiction. This is a knowledge which is derived by such judges or members of the Tribunal s as having come to their possessions as persons in the locality or to quote the words or Lord Evershed "of persons who are intelligently concerned in the relevant local affairs". This "local knowledge" is, however, quite distinct from what has been described as "specialised knowledge" or "personal specialised knowledge" which is an individual knowledge of the person himself and which may have been derived by him as a result of some association of a specialised nature with that particular branch of human affairs. The above decision is a clear authority for the proposition that if a particular finding is based on "local knowledge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pply. 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. vs. Union of India. In the case of Company CIT vs. Vimlaben Bhagwandas Patel, the decision of the Delhi High Court in Mahavir Metal Works P. Ltd. was relied upon by the Revenue. The Gujarat High Court considered the contention and the observations of the Court on the argument are as under:- "The learned Government pleader for the Revenue, in this connection, invited our attention to a decision of the Delhi High Court in Mahavir Metal Works P. Ltd. vs. Union of India(1974) 95 ITR 197(Del), where the Delhi High Court has held that if the fair market value of the property as determined by the Department valuer is higher by the prescribed margin than the consideration stated in the deed, then in view of s. 269C(2)the competent authority must be taken to have reason to believe that the consideration has not been truly stated in the deed and the understatement was made with the object of tax evasion. We must frankly admit that we have not been able to appreciate the rationale underlying the rule of evidence contained in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the provisions of this Chapter" than what is warranted. The decision of the competent authority to initiate proceedings is subject to the other provisions made in the chapter which would only mean that subject to the publication of the preliminary notice in the Gazette as well as individual and locality notices so far as may be applicable and subject to the important limitation in particular that he cannot initiate proceedings unless the fair market value of the property exceeds the apparent consideration by more than 15per cent none the less, the proceedings would be initiated only after a notice to that effect in the Gazette. In that view of the matter, therefore, we are of the opinion that the presumptions prescribed in cls.(a) and (b) of sub-s.(2) of s. 269C would not operate at any stage prior to the decision of the competent authority for initiation of the proceedings." The Court took the view that the words "subject to the provisions of this Chapter" do not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decision of the Delhi High Court in Mahavir Metal Works P. Ltd. vs. Union of India(1974) 95 ITR 197 (Del), but in my judgment, this decision would not assist the learned counsel in claiming that the presumption under sub-s.(2) is available even at the initial stage while initiating the proceedings." 35. The aforesaid observations show that the High Courts of Gujarat, Calcutta and Bombay have given their reasons for distinguishing the observations of the Delhi High Court on which reliance was placed for the Revenue to hold that the presumptions in s. 269C(2) applied even at the stage anterior to gazetting. 36. The Punjab and Haryana High Court in the case of CIT vs. Amrit Sports Industries has expressly approved of the ratio of the judgment of the Gujarat High Court in the case of CIT vs. Vimlaben Bhagwandas Patel and has observed at page 237 as under :-- "It is for the Competent Authority to believe that there exist reasons to conclude that the consideration for the transfer as agreed to between the parties had not been truly stated in the instrument of transfer with the object of facilitating the reduction or evasion of the liability to pay tax or facilitating the concealment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 15per cent of the value so declared, but it is furthermore necessary that the full value of the consideration in respect of the transfer is understated or, in other words, shown at a lesser figure than that actually received by the assessee. Sub-s.(2) has no application in the case of an honest and bona fide transaction where the consideration in respect of the transfer has been correctly declared or disclosed by the assessee, even if the condition of 15per cent difference between the fair market value of the capital asset as on the date of the transfer and the full value of the consideration declared by the assessee is satisfied. If therefore, the Revenue seeks to bring a case within sub-s.(2), it must show not only that the fair market value of the capital asset as on the date of the transfer exceeds the full value of the consideration declared by the assessee by not less than 15per cent of the value so declared, but also that the consideration has been understated and the assessee has actually received more than what is declared by him. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndeed, 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 had no jurisdiction to initiate the proceedings because there was no material whatsoever to come to the conclusion that the consideration stated in the instrument of transfer was not the true consideration and such statement was made with the object of facilitating the reduction or evasion of tax deserves acceptance. The powers under s. 269C could be exercised provided the requisite conditions for exercise of the powers are satisfied. In my judgment, in the absence of any material whatsoever available to the competent authority, it was impossible for any reasonable or prudent man to reach the conclusion that the consideration stated in the instrument of transfer was untrue and that was done with the object of facilitating the reduction or evasions of tax." 40. On behalf of the Revenue, reliance was placed on the Circular of the Board No. 86 dt. 25th Nov., 1972, the relevant extract of which we have already set out in paragraph 23 of our order. In that circular, the Boar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion has not been truly stated with the object of avoidance of tax, dehors(sic)the presumptions which become available only subsequent to the valid initiation. We, therefore, come to the conclusion of consideration of the submissions of the parties, the judicial pronouncements on the point etc. which we have discussed at length, that the presumptions contained in s. 269C(2) do not apply at the stage anterior to the initiation of proceedings. In the present case, therefore, if the presumptions are left out of consideration, as we have already observed, there is no iota of evidence to lead to the belief that any extra consideration has passed and, therefore, we have to hold that the competent authority could not have had reasons to believe that the consideration had not been truly stated with the object of facilitating the reduction or evasion of liability of the transferor or the transferee as contemplated in s. 269C(1)(a) or (b). On this ground, therefore the entire acquisition proceedings would have to be quashed. 41. Another contention put forth on behalf of the Revenue was that since there was only a single instrument of transfer it had to be considered that the transactions, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or put to common use the property purchased by them is a factor which will have no bearing on the purchase itself. We are concerned here with the purchase only and that purchase is conceded to be in favour of four persons of four different properties for different considerations. In "A" schedule the first of the transferees alone has right and the three others have no right. So is the case with the other three schedules. If so, there is no conveyance of the property to all the four persons. Had the sales been effected by four different instruments it is agreed that the case now urged by the Revenue may not have arisen. It would make no difference merely because the four sales are covered by one instrument. This is what has been said by the Tribunal in its order." 42. If we apply the ratio of the judgment of the Supreme Court which has been referred to in the judgment of the Kerala High Court and the ratio of the judgment of the Kerala High Court itself to the facts of the present case, what we find is that each of the five transferors had got specific property which was the subject of transfer by common instrument of transfer. This property was received by the transferors as a res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsfers 3,4, and 5 assuming the other subsequent conditions were also satisfied. According to the learned counsel for the transferees, the Circular No. 455 dt. 16th May, 1986(1986)54 CTR (SC)27:(1986) 159 ITR (SC.)105 of the CBDT precluded an acquisition order being passed by the Competent Authority acquiring their properties transferred by transferors 3,4, and 5. This Circular reads as under: "Circular No. 455, dt. 16th May, 1986. Subject: Acquisition of immovable properties under Chapter XXA of IT Act, 1961 Guidelines Regarding. The Finance Bill 1986, has proposed that no proceedings shall be initiated under s. 269C of the IT Act, 1961, in respect of a property transferred after the 30th Sept., 1986. The Bill also proposes to insert Chapter XXC providing for purchase by Central Government of immovable properties in certain cases of transfer. With a view to achieve early finalisation of proceedings under the existing Chapter XXA of the IT Act, 1961, the Board has decided that w.e.f. 1st April, 1986 acquisition proceedings under s. 269C will not be initiated in respect of an immovable property for which the apparent consideration is Rs. 5 lakhs or less and that where acquisition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act even if they deviate from the provisions of the Act." The Supreme Court has categorically stated that the Circulars issued by the Board are binding on all Officers and persons employed in the execution of the Act even if they deviate from the provisions of the Act. Such is the law as laid down by the Supreme Court as far as the beneficial circulars are concerned. Advertising specifically to acquisition matters and circulars issued thereunder, the High Court of Karnataka in the case of B.M. Marappa and Others vs. IAC(1986) 160 ITR 642(Ker) (the circular was a different one than the one under consideration), observed as under : "Sri Srinivasan contends for affirming the acquisition without reference to the circular of the Board issued during the pendency of these appeals before this Court. When the Tribunal and the IAC decided the cases, the 1976 Act had not been enacted and the Board issuing circular instructions thereunder did not arise. But the Board with due regard to the later enactment, has issued circular instructions on 17th Nov., 1975, which it was competent to do under the Central Boards of Revenue Act, 1963(Act No.63 of 1963), under which it has been constituted a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otices were not served, then the proceedings would be void. On behalf of the Revenue, the contention of the learned counsel was that the proceedings would never become void but if it was considered in any particular case if the principles of natural justice were violated, then of course and adequate opportunity could be given to see that such grievance stands effaced. 47. The High Court of Andhra Pradesh in Mohammed Manboob Ali Saheb and Others vs. IAC(1978)113 ITR 167 (AP) has held that service of notice under s. 269D(2)(a) being a mandatory provision, any violation of the same vitiated the entire acquisition proceedings and the proceedings would be rendered illegal and void. 48. The matter had come up for consideration before the Full Bench of the Punjab and Haryana High Court in CIT vs. Amrit Sports Industries and the Full Bench held that the assumption of jurisdiction by the competent authority arises from publication of notice in the gazette and the proceedings under s. 269D(2) being procedural and supplementary, are in no way jurisdictional. Any defect or irregularity therein could not, therefore, affect the assumption of jurisdiction by the competent authority and would no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evasion of tax liability, on income arising out of the transfer, by the transferor, or concealment of income or wealth by the transferee, for the making of any untrue statement of the apparent consideration in the instrument of transfer relating to such property; (iii) Reasons should be recorded by the competent authority for initiating the proceedings; (iv) The fair market value of the property should exceed the apparent consideration by atleast 15per cent; and (v) There should be publication of notice in the official gazette within the prescribed time. In the present case, on the facts set out aforesaid, condition No.(i) is satisfied. On the facts set out, since the presumptions do not operate prior to the stage of initiation and there is a total absence of any evidence, to which we have referred, which would suggest the object of reducing or evading tax liability, condition No.(ii) is not satisfied. Conditions No.(iii)and (iv) are satisfied in the present case, except that the competent authority did not have any reason to believe that the apparent consideration stated was at a lower figure with the object of reduction or evasion of tax liability. Condition No(v) is sati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in provisions relating to assessment of capital gains no such presumption has been created and, therefore, the law as laid down by the Hon'ble Supreme Court in the aforesaid case cannot be applied to acquisition proceedings. We are in complete agreement with this argument. Special provisions have been made in sub-s.(2) of s. 269C creating a presumption in favour of the Revenue and, therefore, the principles laid in the case of K.P. Varghese cannot properly be applied." 55. We have already analysed in the light of the contentions of the parties the observation of the Delhi High Court regarding presumptions becoming applicable at the stage anterior to gazetting vis-a-vis the decisions of the High Courts of Calcutta, Gujarat, Bombay and Punjab and Haryana. The view taken by the Delhi Bench of the Tribunal is in accordance with the then prevailing reported observations of the High Court of Delhi in the case of Mahavir Metals Works P. Ltd. vs. Union of India. As we have pointed out after referring to the various subsequent decisions, the High Court of Delhi itself in Himland Exports (Pvt) Ltd. vs. Tribunal Judgment dt. 6th Oct., 1986 but reported only in 1987 subsequent to the de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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