TMI Blog1985 (12) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... tained from the Assistant Valuation Officer/Inspector who assessed the fair market value of each shop at Rs. 67,500 according to the rent capitalisation method and Rs. 65,200 as per land and building method, having reason to believe that the apparent consideration was less than the fair market value of the property and that the consideration for the transfer as agreed to between the parties has not been truly stated in the instrument of transfer with the object of facilitating evasion of the liability of the transferor to pay tax under the Act in respect of any income arising from the transfer, initiated proceedings under section 269D of the Act by publishing a notice in the Official Gazette. Notices were also served on the transferor and the transferees under section 269D(2)(a) as well as got published under subsection (2)(b) by affixation at a conspicuous place in his office and in the locality. Objections were filed to the proposed action both by the transferor and the transferees who stated that the sale consideration was not understated nor was the fair market value of the disputed shops more than Rs. 25,000. After hearing the objections, the Competent Authority found that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng as it stands concluded by judgment of the Supreme Court in S. Narayanappa v. CIT [1967] 63 ITR 219. In that case, to challenge the reassessment order under section 34 of the 1922 Act (section 147 of the present Act), one of the arguments raised was that the reasons recorded by the assessing authority to institute the proceedings under section 34 of the Act were not communicated to the assessee. The contention was repelled with the observation that there was no requirement in any of the provisions of the Act or any section laying down as a condition for the initiation of the proceedings that the reasons which induced the Commissioner to accord sanction to proceed under section 34 must also be communicated to the assessee. It is one thing to say that the reasons were not communicated and a totally different one not to make known the material constituting the belief and sought to be relied upon against the vendor or the vendee. The communication of the reasons as held by the Supreme Court in the above-noted case is neither required nor fatal. However, if the material relied upon is not disclosed, it would certainly result in the denial of adequate opportunity and violation of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -section (1). The learned counsel, however, urged that the said presumption is not available to the issuance of the notice initiating proceedings under Chapter XX-A for the acquisition of the immovable property, the subject-matter of the sale. To substantiate this contention, the learned counsel referred to the opening words of section 269C(2) and argued that the presumption would be available only during the proceedings under Chapter XX-A and the proceedings, according to him, are not initiated till the notice is published in the Official Gazette under section 269D. Reliance, for this proposition, was placed on CIT v. Smt. Vimlaben Bhagwandas Patel [1979] 118 ITR 134 (Guj) ; Competent Authority, IAC v. Smt. Bani Roy Chowdhury [1981] 131 ITR 578 (Cal), CIT v. Amrit Sports Industries [1984] 145 ITR 231 (P H) and Unique Associates Co-operative Housing Society Ltd. v. Union of India [1985] 152 ITR 114 (Bom). Reference was also made to a single Bench decision of the Calcutta High Court in Smt. Bani Roy Chowdhury v. Competent Authority, IAC (Acquisition Range-II) [1978] 112 ITR 111, which was relied upon in three single Bench decisions of the same court. But as the decision in Smt. Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gazette, because the word " proceedings ", according to the learned judge, has to be interpreted carrying the same meaning throughout the whole Chapter. With due respect to the learned judge, we are unable to subscribe to this view. The word " proceedings " has to be interpreted in the context in which it has been used in the various sections. The word " proceedings " has been used in sub-section (1) but is qualified by the words "for the acquisition of such property". Similarly, this word has been qualified in sub-section (1) of section 269D. The word " proceedings " in the above context obviously means the proceedings for the acquisition of the property under the said Chapter. However, in subsection (2), the words used are " any proceedings under this Chapter " and not " proceedings for the acquisition of such property ". The word " proceedings " in sub-section (2), therefore, does not signify the proceedings for the acquisition of such property which are initiated only after the publication of the notice in the Official Gazette under section 269D. When the Competent Authority has to form an opinion under section 269C(1), there has to be some material to support the same. Obvious ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances available rebutting the presumption, the word " may " shall operate like " shall " and the Competent Authority has to initiate proceedings in discharge of the obligation imposed upon him by virtue of the provisions of section 269C. So far as the third reason is concerned, we regret our inability to appreciate as to how the mandatory requirement of recording the reasons has any bearing on the points at issue. The reasons are not confined only to the objects contained in clause (a) and clause (b) of sub-section (1). The reasons have to be recorded to justify the belief that the consideration has been understated. For the belief qua the object of such understatement, if the other requirements are satisfied, the Competent Authority can have resort to the presumption available under sub-section (2)(b). Reliance on the presumption for the formation of the belief that the consideration has been understated with one of the objects enumerated in clause (a) or clause (b) of sub-section (1) would certainly be a valid reason for the belief and thus compliance with the requirement of the proviso. The efficacy of the last ground is again highly doubtful. No doubt clause (b) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is absurd and will render the provisions for filing objections, determination of valuation and decision of the competent authority meaningless and nugatory. While clause (a) provides for conclusive proof, clause (b) raises a presumption. If for the purpose of clause (a) of sub-section (2), the stage at which the competent authority forms his belief under sub-section (1) is not a proceeding as contemplated by sub-section (2), it will be quite unreasonable to think that it is a proceeding for raising the presumption under clause (b) of sub-section (2). The presumption under clause (b) will arise if the fair market value of the property exceeds the apparent consideration. The fair market value has to be determined on evidence, including what may be adduced by the parties, and cannot, in our opinion, be the subject-matter of the belief of the competent authority for the purpose of raising the presumption under clause (b)." The Bench appears to have been influenced in its view by the conclusive presumption contained in clause (a) of sub-section (2). This clause provides that where the market value of such property exceeds the apparent consideration therefor by more than 25 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asons and in Amrit Sports Industries' case [1984] 145 ITR 231 (P H), the order initiating the proceedings had been quashed because it contained no reasons. The decision in Smt. Vimlaben Bhagwandas Patel's case [1979] 118 ITR 134 (Guj) again proceeds on the reasoning that the said presumption would not be available unless the proceedings are initiated and the proceedings are initiated only when a notice is published under section 269D in the Official Gazette. We have already recorded our reasons in detail for not following this view which need not be repeated again. However, it would be necessary to record our view on the doubt expressed by the Bench as to the rationality of the irrebuttable assessment contained in sub-section (2)(a) and the view expressed by the Delhi High Court in Mahavir Metal Works P. Ltd. v. Union of India [1974] 95 ITR 197 that even the provisions of sub-section (2)(a) raise a rebuttable presumption. The Delhi High Court in Mahavir Metal Work's case [1974] 95 ITR 197 held that the presumption contained in both clauses (a) and (b) of subsection (2) of section 269C are rebuttable on the following ratio (at p. 218) "Though the words 'conclusive proof' are use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, sometimes there can be a case in which the consideration may have been truthfully stated in the instrument of sale even though the apparent consideration be far less than the fair market price of the property sold For example, a person may sell his land for a nominal consideration to a registered society or trust for being used for the welfare of the public at large or for charitable purposes. The consideration mentioned in such a case cannot be said to have been untruly stated. All the same, a presumption would arise under sub-section (2)(a) that the consideration has not been truly stated. In spite of this presumption being available, it would not be possible for the Competent Authority to initiated any proceedings because of the absence of any object specified in clause (a) or clause (b) of sub-section (1) and the said presumption would not be able to operate to the detriment of the vendor or the vendee in any manner. It is, therefore, evident that the presumption would only have any meaning or consequence if the transaction is not bona fide and the variance between the fair market price and the apparent consideration takes place with one of the objects contained in clause (a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent rule of evidence should be made applicable by the Legislature at different stages of the proceedings under Chapter XX-A. The essential facts for passing the final order would invariably be the same as were at the initial stages. On the same facts, if a presumption can be raised when an order really detrimental to the vendor or the vendee can be passed, how can it be said that it would not be available at the initial stage for the purposes of the initiation of the proceedings which by itself cause no prejudice of any substantial nature to the party concerned. We, therefore, prefer to agree with the view expressed by the Delhi High Court in Mahavir Metal Works' case [1974] 95 ITR 197 and hold that the presumptions contained in clause (a) and clause (b) of sub-section (2) would be available to the Competent Authority even at the stage of forming the belief under section 269C(1) of the Act. On the third point, the first contention raised was that the rent capitalisation method employed by the Competent Authority to assess the fair market price was not a proper and a permissible method. Reliance for this contention was placed on a Supreme Court decision in Special Land Acquisitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that out of the remaining two methods, that is, land and building valuation and rent capitalisation, the one more favourable to the assessee should have been adopted. Support for this contention was sought from a decision of this court in Jaswant Rai v. CWT [1977] 107 ITR 477. Before dealing with this contention, we may point out that the fair market value as defined in section 269A(d) means the price that the immovable property would ordinarily fetch on sale in the open market on the date of the execution of the instrument of transfer of such property. In other words, the fair market value would be the price which a willing purchaser might pay to a willing seller. In our view, none of the said two methods would be a proper method under all situations. A commercial building whose cost of the land and the construction is much less than the cost of construction of a residential site often fetches much higher sale price because of the return the owner gets from it. If the land and building method is employed qua such a building, it will not give proper figure as to its market price. But under certain circumstances, the land and building method may result in much higher estimate of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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