TMI Blog1970 (4) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... ing on 31st December, 1965, was fixed at Rs. 97,890, and he was assessed accordingly. He had purchased an item of house property situate within the municipal town of Ernakulam in 1958, for a consideration of Rs. 16,500. On 25th December, 1965, he sold it for the same consideration in favour of a daughter-in-law and five of his children. On 4th April, 1968, the Income-tax Officer issued a notice, exhibit P-1, to the petitioner under section 148 of the Act, stating that he had reason to believe that the petitioner's income chargeable to tax for the year 1966-67 had escaped assessment, and he proposed to reassess the said income, and requiring the petitioner to submit a return in the prescribed form within 30 days of the service of the notice. Exhibit P-1 did not disclose any particulars of the income alleged to have escaped assessment. The petitioner, however, filed a return. Subsequently, the Income-tax Officer, by his letter, exhibit P-3, dated 4th March, 1969, disclosed to the petitioner what was the escaped income, which he proposed to assess. Exhibit P-3 stated that the Income-tax Officer proposed to fix the fair market value of the property sold by him on 25th December, 1965, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revious year of a person who is a resident includes all income from whatever source derived which- (a) is received or is deemed to be received in India in such year by or on behalf of such person ; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year ; or (c) accrues or arises to him outside India during such year : Provided that, in the case of a person not ordinarily resident in India within the meaning of sub-section (6) of section 6, the income which accrues or arises to him outside India shall not be so included unless it is derived from a business controlled in or a profession set up in India. " Sections 7, 8 and 9 of the Act deal with "deemed incomes " which I may have to consider later. Chapter IV of the Act contains sections 14 to 39, and it deals with computation of total income. Section 14 enumerates the heads of income, and it reads as follows: " 14. Heads of income.--Save as otherwise provided by this Act, all income shall, for the purposes of charge of income-tax and computation of total income, be classified under the following heads of income :-- A.- Salaries. B.- Interest on securities. C.- Income from house pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irrevocable trust. " The word " gift " is not defined in this Act. But it is defined both in section 122 of the Transfer of Property Act, 1882, and section 2(xii) of the Gift-tax Act, 1958. Section 122 of the Transfer of Property Act reads : " 'Gift' is the transfer of certain existing movable or immovable property made voluntarily and without consideration, by one person, called the donor, to another, called the donee, and accepted by or on behalf of the donee. Such acceptance must be made during the lifetime of the donor and while he is still capable of giving. If the donee dies before acceptance, the gift is void. Section 2(xii) of the Gift-tax Act reads : " 'gift' means the transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or money's worth, and includes the transfer of any property deemed to be a gift under section 4. " Section 4 of the Gift-tax Act reads : " Gift to include certain transfers.--For the purposes of this Act,- (a) where property is transferred otherwise than for adequate consideration, the amount by which the market value of the property at the date of the transfer e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the transfer of a capital asset " as provided in section 45, but also any profits or gains deemed to arise from the transfer of a capital asset under any provision of the Act. Then he relied on section 48, which lays down the method of computation of " Capital gains ", and section 52 which deals with consideration for transfer in cases of under-statement. Section 48 provides that capital gains shall be computed by deducting from the full value of the consideration " received or accrued " as a result of the transfer of the capital asset, the cost of its acquisition and improvements thereto and the expenditure incurred in connection with the said transfer. Now I come to the controversial section 52, which I have already quoted. According to the learned counsel for the revenue, the case falls under sub-section (1) and, at any rate, it falls under sub-section (2) ; and, in either case, the full value of the transfer shall be taken to be the fair market value of the capital asset on the date of its transfer. The term " fair market value " is defined in section 2(22A) of the Act, and it is as follows : " (22A) 'fair market value', in relation to a capital asset, means- (i) the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arisen to him under section 52. The learned counsel for the petitioner next contended that this being a case where the transferee is directly or indirectly connected with the assessee, it must fall under sub-section (1) provided the other conditions mentioned therein are satisfied, and that sub-section (2) has no application to such a case. I am unable to accept this argument. Sub-section (2) is " without prejudice to the provisions of sub-section (1) " ; and the question whether sub-section (2) applies to a case depends on its own provisions. It would obviously apply to a case where the fair market value of the capital asset transferred exceeds " the full value of the consideration declared by the assessee " in respect of the said transfer. The question is whether this is such a case. I again come back to the same question whether income-tax is chargeable on capital gains not only on profits or gains arising under section 45, but also on profits or gains which would be deemed to have arisen under section 52. The learned counsel for the revenue submitted that income-tax is chargeable under the Income-tax Act not only on income received by, or accruing or arising to, a person, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said incomes. Section 64 of the Act also does not deal with any deemed income. It provides that, in computing the total income of any individual, there shall be included all such incomes are arising directly or indirectly to the spouse or a minor child of the individual or to any other person under the special circumstances mentioned therein. So the provisions contained in the above sections do not lend any support to the contention of the learned counsel for the revenue. It is relevant to note in this context that the validity of the corresponding provision in the Indian Income-tax Act, 1922, was sustained by the Supreme Court in Balaji v. Income-tax Officer, on the ground that it was a provision enacted for preventing evasion of tax and was, therefore, within the competence of the Central Legislature. I am, however, concerned only with the provisions in the Income-tax Act, 1961, relating specifically to " capital gains " ; and in my view section 45 is categorical that profits or gains arising from the transfer of a capital assets alone are chargeable to income-tax under the head " Capital gains ". The words " any profits or gains arising from the transfer of a capital asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, have made but is made to appear that the gain as shown by the consideration for the transaction to be much less or nil. We are not persuaded to think that the proviso discourages or avoids honest transactions made out of love and affection or for other conceivable reasons on pain of being on an assumption, hauled up, if we may use the expression, for having attempted to avoid or reduce the tax liability and on that basis made liable to tax on the difference between the consideration for the transaction and the fair market value. That simply as we read the proviso, is not its purpose. It does not treat what is not an actual capital gain as a deemed capital gain. In fact, occurring as it does as the first proviso to sub-section (2) dealing with the procedural aspect of computation, it should, we think, be interpreted as limited to escaped capital gain, which is so in truth and in fact, and not intended to bring about fictional gain on an assumption and charge the same. " The position is the same with regard to section 52(1) of the Income-tax Act, 1961, and the sentence, which I have underlined in the above passage agrees with my view on the question. The following statement appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on stated : " The head-note to the report of the case of Hammersmith and City Ry. Co. v. Brand seems to me to state fairly the result of that decision, as being that 'the headings of different portions of a statute are to be referred to, to determine the sense of any doubtful expression in a section ranged under any particular heading.' Lord Chelmsford said, in giving judgment : 'The sections of the Railways Clauses Acts are, as your Lordships know, arranged in order under different heads, which indicate the general object of the provisions immediately following : and these may be usefully referred to, to determine the sense of any doubtful expression in a section ranged under a particular heading. " The following statement appearing in the speech of Lord Dilhorne in Fisher v. Raven would also indicate the extent to which the heading of a section can be put to use in construing that section. The House of Lords was in that case concerned with the construction of section 13 in the Debtors Act, 1869. The learned Lord stated : " It is also to be noted that the Debtors Act, 1869, is entitled 'An Act for the Abolition of Imprisonment for Debt, for the punishment of fraudulent deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... new sub-section (2) in section 52 of the Income-tax Act with a view to countering evasion of tax on capital gains through the device of an understatement of the full value of the consideration received or receivable on the transfer of a capital asset. The provision existing in section 52 of the Income-tax Act before the amendment (which has now been renumbered as sub-section (1)), enables the computation of capital gains arising on transfer of a capital asset with reference to its fair market value as on the date of its transfer ignoring the amount of the consideration shown by the assessee, only if the following two conditions are satisfied : (a) the transferee is a person who is directly or indirectly connected with the assessee ; and (b) the Income-tax Officer has reason to believe that the transfer was effected with the object of avoidance or reduction of the liability of the assessee to tax on capital gains. In view of these conditions, this provision has a limited operation and does not apply to other cases where the tax liability on capital gains arising on transfer of capital assets between parties not concerned with each other, is sought to be avoided or reduced b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neral Clauses Act, the definition in the Gift-tax Act should be adopted for the purposes of the Income-tax Act in preference to the definition in the Transfer of Property Act. Then the difference between the fair market value and the actual consideration received by or accruing to an assessee, from the transfer of a capital asset is a gift as defined in the Gift-tax Act ; and it is excluded in computing capital gains by virtue of section 47(iii) of the Income-tax Act. In other words, the capital gains has to be computed on the basis of the actual consideration. I find considerable force in this argument. In the first place, if the definition in the Gift-tax Act is adopted, section 52 of the Income-tax Act can never yield to the interpretation which the learned counsel for the revenue seeks to put on it ; and the unreasonable result which arises from such an interpretation of the said section, which I have already indicated, can be avoided. Secondly, the income-tax, the wealth-tax, the gift-tax and the expenditure-tax form different heads of an integrated system of taxation ; and they are all administered by officers of the income-tax department. The imposition of tax under one head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned counsel on both sides in support of the rival contentions. It is well established that the relief under article 226 of the Constitution is discretionary. This article confers very wide powers on the High Courts ; but it has to be exercised along recognised lines and subject to certain self-imposed limits. Existence of an alternative remedy does not bar the jurisdiction of the court to issue a writ under article 226 ; but it is a material circumstance to be taken into consideration in exercising the discretion in granting the writs. S. R. Das C.J. in State of U. P. v. Mohommad Nooh stated : " It is well established that, provided the requisite grounds exist, certiorari will lie although a right of appeal has been conferred by statute, (Halsbury's Laws of England, 3rd edition, volume 11, page 130, and the cases cited there). The fact that the aggrieved party has another and adequate remedy may be taken into consideration by the superior court in arriving at a conclusion as to whether it should, in exercise of its discretion, issue a writ of certiorari to quash the proceedings and decisions of inferior courts subordinate to it and ordinarily the superior court will decline ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereby bypass the statutory machinery. That is not to say that the High Court will never entertain a petition against the order of the taxing officer. The High Court has undoubtedly jurisdiction to decide whether a statute under which a tax is sought to be levied is within the legislative competence of the legislature enacting it or whether the statute defines constitutional restrictions or infringes any fundamental rights, or whether the taxing authority has arrogated to himself power which he does not possess, or has committed a serious error of procedure which has affected the validity of his conclusion or even where the taxing authority threatens to recover tax on an interpretation of the statute which is erroneous. The High Court may also in appropriate cases determine the exigibility to tax of transactions the nature of which is admitted, but the High Court normally does not proceed to ascertain the nature of a transaction which is alleged to be taxable. The High Court leaves it to the taxpayer to obtain an adjudication from the taxing authorities in the first instance. " Reference may also be made to another decision of the Supreme Court in Commissioner of Income-tax v. A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the matter, however, the plea of limitation sought to be raised by Mr. Pathak was not even specifically made as it should have been in the writ petition filed before the High Court. One of the grounds taken in the writ petition was that the Appellate Assistant Commissioner had 'instead of treating the assessment order as a nullity and having the same set aside, illegally remanded the case back to the Income-tax Officer to save limitation'. It would be noticed that, at its highest, this ground can mean that the result of the remand order was to attempt to save limitation ; it has no relevance on the point sought to be raised by Mr. Pathak that the notice issued against his client initially was barred by time. But, as we have already indicated, a plea of this kind cannot be permitted to be raised in writ proceedings, and so we refused Mr. Pathak permission to develop this point. " The learned counsel submitted that bar of limitation is a matter which affects the jurisdiction of the Income-tax Officer, and that the above decision is an authority for the proposition that even such a matter falls properly for the decision of the Income-tax Officer and the High Court should not interf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the appellant appeared to be determined to adopt dilatory proceedings and delay the final disposal of the proceedings taken against him. The appellant filed an appeal from the remanding order before the Appellate Tribunal. When these matters were pending, the writ petition was filed by him to quash the order of assessment and the notices sent to him by the Income-tax Officer pursuant to the order of remand, requiring the appellant to appear before the Income-tax Officer and give his evidence. The High Court summarily dismissed the petition. Special leave was obtained to appeal from the decision of the High Court on the ground that the statute under which the impugned proceedings had been commenced was invalid ; and the appellant obtained also an order of stay of proceedings from the Supreme Court. This was the only ground of law and jurisdiction taken in the petition for special leave. At the hearing of the appeal, Mr. Pathak, the learned counsel for the appellant, conceded that he was not in a position to justify or substantiate that contention ; and he attempted to raise and argue a new point, namely, the proceedings initiated by the Income-tax Officer were time-barred. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Bihar, have also laid down the above proposition. These are cases where tax was attempted to be levied under an invalid law. The same would be the position if a tax is attempted to be levied without any authority of law. It would be an infringement of articles 265 and 19(1)(f) of the Constitution. In Shivram Poddar v. Income-tax Officer, the Supreme Court stated that the Income-tax Act provides a complete machinery for the assessment of tax and relief in respect of improper or erroneous orders made by the revenue authorities and that resort to the High Court in exercise of its extraordinary jurisdiction under article 226 of the Constitution in matters relating to assessment, levy and collection of income-tax may be permitted only when questions of infringement of fundamental rights arise or when on undisputed facts the taxing authorities are shown to have assumed jurisdiction which they do not possess. In the present case the facts are not disputed ; and in my view what the Income-tax Officer has assessed as capital gains is something which is neither capital gains nor income falling under any other head under the Income-tax Act. The petitioner is, therefore, entitled to invoke t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
