TMI Blog2001 (1) TMI 71X X X X Extracts X X X X X X X X Extracts X X X X ..... . A certificate of incorporation, memorandum of association and the articles have been produced as exhibit P-2 in the original petition. The petitioners were the sole two directors of the company so registered. The idea was to set up a hotel complex on the plot of land jointly belonging to the petitioners, in their individual names, in the City of Cochin. They had approached the Kerala State Industrial Development Corporation Limited (KSIDC) for financial assistance. It is stated that a term loan of Rs. 250 lakhs had been sanctioned. The project cost and the means of finance of the project was agreed to be met by them on condition that the properties in the name of the promoter directors were to be got registered in the name of the company, so that the company could mortgage it in favour of the KSIDC, by way of security. The transfer was necessitated in the aforesaid circumstances. The project cost, according to the petitioners, had been reckoned by considering the cost of the land acquired by the promoters and by adding to it the conveyance charges. The agreement as envisaged under section 269UC had been drafted, and the statement had been furnished to the appropriate authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t were illegal and unwarranted. The main contention is that the orders suffer from errors apparent on the face of the records and they are vitiated. It is submitted that the object sought to be achieved by the statutory provision invoked had been thoroughly overlooked and the nature and purport of the transaction had been completely omitted to be appreciated and in a deliberate manner. It was also submitted that the reply to the show-cause notice had been totally overlooked and there was miscarriage of justice. There is also an allegation that the order was in gross violation of the principles of natural justice and the materials that had been stated as collected and relied on by the first respondent have not been divulged. It is also stated that the relevant aspects had been totally overlooked and the order has been issued on conjectures and surmises. In short, the petitioners submit that there was total miscarriage of justice and the decisions are, therefore, liable to be set aside. Counter affidavits had been filed by the appropriate authority and they have resorted to a stand that what has been done in the case at hand was perfectly legal. They had come to a proper finding on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hibit P-8 further proceeded to say that though the property is situated in Cochin City, it was lying on a by-lane which connects Chitoor Road to M. G. Road and the property that had been referred to exhibit P-7 is not comparable by any stretch of imagination. Reference had also been made to transactions which had taken place, where properties were sold at lower prices than the value shown by the petitioners. The petitioners had also urged that a higher price commensurate with the market rate and far greater than the price paid by them for acquiring the abovesaid property in 1994 was shown. The Department had not made objections when an application had been filed in respect of the very same property in the year 1994. Notwithstanding the above, as pointed out earlier, by exhibit P-9, discretion was exercised for pre-emptive purchase as had been proposed by exhibit P-7. It was observed that on comparison the fair market value of the subject property cannot be less than Rs. 4 lakhs per cent and, therefore, they are satisfied that the apparent consideration shown in the sale agreement is below the market value by almost 50 per cent. Undervaluation with a view to evade tax was highligh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... officers who had discharged their duties most efficiently and no interference is called for. Chapter XX-C of the Income-tax Act had been introduced in October, 1986. This was since it was found that the scheme brought in for acquisition of immovable properties by the Central Government in certain cases of transfer to counteract evasion of tax, did not achieve its objects. The present scheme empowers the Government to purchase immovable properties which are being offered for sale in the market at the price agreed to by the transferor and in selected cities. The only exemption is when the transfer is to close relatives and where the documents indicate that such conveyance was out of love and affection. There cannot be, therefore, any dispute for the proposition that it was a case of transfer and the petitioners were obliged to file a statement and it was the duty of the appropriate authority to examine the issue and pass orders. Counsel for the petitioners had heavily relied on the decision of the Supreme Court, namely, State of U. P. v. Renusagar Power Co. [1991] 70 Comp Cas 127. The Hindustan Aluminium Company had been allowed to expand its aluminium production capacity on con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... succinctly stated by Lord Halsbury L. C. (Tennant v. Smith [1892] 3 TC 158, 164). The essence of the matter, it is submitted, is that there need be profit realised or realisable under the concept of income. When a company sells its trading assets for fully paid shares in another company, the profit on the transaction is assessable although no cash passes (Californian Copper Syndicate v. Harris [1904] 5 TC 159 (C of Exchq). Counsel also adverted to the decisions reported in CIT v. Sir Homi Mehta's Executors [1955] 28 ITR 928 (Bom) and CIT v. B. M. Kharwar [1969] 72 ITR 603 (SC), but it appears that these principles do not come to support the stand of the Department, since the nature of the transaction in the case at hand is rather unique. Both sides had relied on C. B. Gautam's case [1993] 199 ITR 530 (SC), referred to earlier. It was a case where the petitioner, the intending purchaser had challenged the decision of the appropriate authority. The validity of the section had been upheld by the Supreme Court and the court had examined in detail the purpose of the legislation, and the principles which are to be borne in mind while exercising powers under section 269UD. Examining the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here properties are offered for sale in the market, i.e., to outsiders, the Government had visualised to intercept and proposed to reserve powers for pre-emptive purchase. The purpose behind the legislation was to see that there was no evasion of tax by undervaluation. If that be so, as pointed out by counsel for the petitioners, the substantial contention raised by them has practically gone unnoticed. It was not a case where there was a transfer which involved payment of cash. The transfer was in fact against the will of the petitioners and they were directed to effect the transfer in favour of a company in which they were directors and only for the purpose highlighted in exhibit P-4. They had to incur a stamp duty of about Rs. 9 lakhs. A higher price shown would have enured to their advantage only. Only out of compulsion, these exercises were attempted and it is hardly a case where the powers vested in the Revenue under section 269UD of the Act were to be employed. The petitioners had also pointed out the circumstances that the self same property had been purchased by them a couple of years back and in comparison with the price paid the figure shown in the statement was eminently ..... X X X X Extracts X X X X X X X X Extracts X X X X
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