TMI Blog2008 (8) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... atar, Mr.V.S.Jayakumar, Mr.K.Vaitheeswaran, Mr.N.L.Rajah, Mr.J.Balachandar, Mr.S.Raveendran, Respondent Represented by: Mr.N.Muralikumaran, Mrs.Pushya Sitaraman COMMON ORDER (Order of the Court was delivered by K.RAVIRAJA PANDIAN, J.) In all these cases, the constitutional validity of Section 50C of the Income-tax Act, 1961 introduced by Finance Act 2002 with effect from the assessment year 2003-2004 is questioned. 2. The grounds of attack and argument made for and against are one and the same, though the transferred capital asset involved and the consideration received is different in each of the case, which is immaterial to decide the validity of the provision. Hence, Writ Petition No.4387 of 2003 is taken up as a typical case for the purpose of narration of facts: The writ petitioner K.R.Palanisamy is an assessee on the file of the Income-tax Officer, Tirupur. The assessee on 3.6.1981 purchased plot Nos.9 and 10 from one S.Krishnamoorthy and S.Subramani and was in possession and enjoyment of the same. The assessee decided to sell the said property. Plot No.9 was sold to one E.Vignesh Velavan on 15.7.2002. He was able to get only a sale consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 773. 5. It is further contended that Section 50C levies capital gains tax in all cases where the full market value is more than the sale consideration. It fails to take note of genuine cases, where the sale consideration would be less than the full market value. For varied reasons, the assessee may be compelled to sell the capital assets for lower price than the market price. However, under the impugned provision, there is no remedy for the assessing officer to grant the reliefs in genuine cases. Reliance has been made to the decisions of K.T.MOOPIL NAIR VS. STATE OF KERALA, AIR 1961 SC 552, STATE OF KERALA VS. HAJI KUTTY, AIR 1969 SC 378 and NEW MANECK CHOWK SPINNING AND WEAVING MILLS VS. AHMEDABAD MUNICIPALITY, AIR 1967 SC 1801. 6.The measure of tax must be on the income received on the transfer of capital assets. The full market value is a fictional value. Undue emphasis should not be placed on the full market value. Reliance has been made on R.SAI BHARATHI VS. J.JAYALALITHA, (2004) 2 SCC 9 and SAKTHI CO. VS. C.DESIGACHARY, 2006 (2) CTC 433. 7. It is further elaborated that the guideline value is normally fixed for survey numbers or particular area. Within that area ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then there is no justification to exclude such companies/firms which have the highest sales of such lands/buildings. 11. It is also further contended that Section 50C creates "conclusive evidence" that any difference between guideline value and sale consideration is deemed consideration. Any presumption about attempts to evade tax are rebuttable and an opportunity must be given to the assessee to show cause that such presumption drawn is incorrect. In case of immovable property, there could be several bona fide considerations which may induce the seller to sell the property less than the market value. Hence, in the absence of any opportunity to the assessee, the provision is violative of principles of natural justice. Reliance has been made in the case of C.B.GAUTAM VS. UNION OF INDIA, (1993) 1 SCC 78= 199 ITR 530. 12. It is further contended that there are various "special provisions" prescribing a particular percentage as the quantum of taxable profits like Sections 44AC, 44AD and 44BBB. In each of these Sections, an opportunity is given to the assessee to show that the amount of profit is less than the prescribed percentage. But in the impugned provision, that opport ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sset and the cost of any improvement thereto." Section 50C of the Income-tax Act reads as follows: "Special provision for full value of consideration in certain cases.(1) Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed by any authority of a State Government (hereafter in this section referred to as the stamp valuation authority) for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer. (2) Without prejudice to the provisions of sub-section (1), where (a) the assessee claims before any Assessing Officer that the value adopted or assessed by the stamp valuation authority under sub-section (1) exceeds the fair market value of the property as on the date of transfer ; (b) the value so adopted or assessed by the stamp valuation authority under sub-section (1) has not been disputed in any appeal or revision or no reference has been made before any other au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suo motu or otherwise, within five years from the date of registration of any instrument or conveyance, exchange, gift, release of benami right or settlement, not already referred to him under sub-section (1), call for and examine the instrument for the purpose of satisfying himself as to the correctness of the market value of the property which is the subject matter of conveyance, exchange, gift, release of benami right or settlement, and the duty payable thereon and if after such examination, he has reason to believe that the market value of the property has not been truly set forth in the instrument, he may determine the market value of such property and the duty as aforesaid in accordance with the procedure provided for in sub-section (2). The difference, if any, in the amount of duty,shall be payable by the persons liable to pay the duty: Provided that nothing in this sub-section shall apply to any instrument registered before the date of commencement of the Indian Stamp (Tamil Nadu Amendment) Act, 1967. (4) Every person liable to pay the difference in the amount of duty under sub-section (2) or sub-section (3) shall, pay such duty within such period as may be prescribed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lows: "4. Procedure on receipt of reference under section 47-A. - (1) On receipt of a reference under sub-section (1) of Section 47-A, from a registering officer, the Collector shall issue a notice in Form I, (a) to every person by whom, and (b) to every person in whose favour the instrument has been executed, informing him of the receipt of the reference and asking him to submit to him his representations, if any, in writing to show that the market value of the property has been truly set forth in the instrument, and also to produce all evidence that he has in support of his representation, within 21 days from the date of service of the notice. (2) The Collector may, if he thinks fit, record a statement from any person to whom a notice under sub-rule (1) has been issued. (3) The Collector may for the purpose of his enquiry - (a) call for any information or record from any public office, officer or authority under the Government or any local authority; (b) examine and record statements from any member of the public, officer or authority under the Government or the local authority; and (c) inspect the property after due notice to the parties concerned. (4) Aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (vii) fluctuation in rates; (viii) any other features that have bearing on the value; (ix) property tax with reference to taxation records of local authority concerned; (x) the purpose for which the building is being used and the income if any, by way of rent per annum secured on the building; and (xi) any special feature of the case represented by the parties. (d) Properties other than lands, house sites and buildings - (i) the nature and condition of the property; (ii) purpose for which the property is being put to use; and (iii) any other special features having a bearing on the valuation of the property." 16. Section 48 of the Income-tax Act provides for mode of computation of capital gains. Section 50C has been introduced from 1.4.2003 by the Finance Act, 2002. The conspectus of the provision is that it is a special provision for full value of consideration in certain cases. It applies to all cases of transfer of capital assets. If the consideration received or accruing as a result of the transfer by an assessee, of land or building or both, is less than the value adopted or assessed by the State authority for the purpose of payment of stamp duty in resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to extend to all ancillary or subsidiary matters which can fairly and reasonably be said to be comprehended by it. The expression "income" as defined in the Income-tax Act under Section 2(24) cannot be read back into Entry 82 of List 1 of the VII Schedule to the Constitution. Even the said definition is an inclusive one and has been expanding from time to time. Several items have been brought within the definition from time to time by various amending acts. The said definition cannot therefore be read as exhaustive of the meaning of the expression "income" occurring in Entry 82 of List I of the VII Schedule. The said Entry should be widely and liberally construed so as to enable a Legislature to provide by law for the prevention of evasion of Income Tax. Tax could be evaded by breaking the law or could be avoided in terms of the law. When there is a factual avoidance of tax in terms of law, the Legislature steps into amend the income tax law to catch such an income within the net of taxation. (See Punjab Distilling Industries Vs. C.I.T., AIR 1965 SC 1862, (Constitution Bench), Balaji Vs. C.I.T., AIR 1962 SC 123 (Constitution Bench), Bhagavandoss Jain VS. Union of India, AIR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion particularly in economic matters is essentially empiric and it is based on experimentation or what may one call trial and error method and therefore it cannot provide for all possible situations or anticipate all possible abuses. There may be crudities and inequities in complicated experimental economic legislation but on that account alone it cannot be struck down as invalid. The courts cannot, as pointed out by the United States Supreme Court in Secretary of Agriculture v. Central Reig Refining Company, be converted into tribunals for relief from such crudities and inequities. There may even be possibilities of abuse, but that too cannot of itself be a ground for invalidating the legislation, because it is not possible for any legislature to anticipate as if by some divine prescience, distortions and abuses of its legislation which may be made by those subject to its provisions and to provide against such distortions and abuses. Indeed, howsoever great may be the care bestowed on its framing, it is difficult to conceive of a legislation which is not capable of being abused by perverted human ingenuity. The court must therefore adjudge the constitutionality of such legislatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Central Legislature to frame the provision impugned. 22. For the foregoing reasons, and in the light of the judgments of the Apex Court referred to above, we are of the considered view that the provision impugned is validly enacted and not hit by legislative incompetence of Central Legislature. Point No.2: Whether the impugned provision is arbitrary because of adoption of guideline value, violative of Article 14, principles of natural justice and no opportunity is given : 23. It is contended that the Section fixes the guideline value as full value against the declared value and fails to take note of the genuine cases where the sale consideration would be less than the fair market value as determined by the authorities under the Stamp Act on the premise that for varied reasons a person may compel to sell the capital goods for lower price than the market value and the guideline value cannot form basis for determination of the full value and no opportunity is given to the assessee to establish the real sale consideration. 24. Every safeguard has been provided under the provisions of the Stamp Act to the petitioner to establish before the authorities as to the real valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h determination of the market value within a specified time. The Collector shall also hear the parties on their objections on a specified date. Thereafter the Collector would consider the representations in writing and those urged at the time of hearing and evidence available with him and pass an order within three months from the date of first notice determining the market value of the properties and the duty payable on the instrument and communicate the order so passed. 27. As per sub-section (5) of Section 47-A, any person aggrieved by an order of the Collector may appeal to Chief Controlling Revenue Authority. As against the appellate order, a remedy of further appeal is also available under sub-section 10 of Section 47A to the High Court. 28. Sub-sections 2 and 3 of Section 50C provides further safeguard to the assessee, in the sense that if the assessee claims before the assessing officer that the value adopted by the stamp duty authorities exceeds the fair market value and the value so adopted or assessed for the purpose of stamp duty has not been disputed in any appeal or revision before any authority, the assessing officer could refer the valuation of the capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o ascertain whether the transaction has resulted in any offence so as to give a pecuniary advantage to one party or the other. In the Full Bench decision of this Court referred above, the question that arose for consideration was, which is the criteria that has to be taken into account by the Rent Controller for fixing the fair rent i.e., whether the guideline value as contained in the revenue records or the market value. While answering the issue, the Full Bench of this Court has held that the guideline value is fixed for locality and not for particular survey number. But market value for a survey number is result of bargain between parties. The guideline value maintained in Basic Valuation Register by the revenue Department or Municipality cannot form basis for determination of the market value and held that the determination of the market value based on guideline value is illegal. The value determinable under Section 50C, which is under consideration, is the value adopted or assessed by the stamp Act authorities for the purpose of Section 48 and deemed to be the full value of consideration received or accruing as a result of transfer. The principle for determining the mark ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssification is justified if it is not palpably arbitrary. .....6. The law can make and set apart the classes according to the needs and exigencies of the society and as suggested by experience. It can recognise even degree of evil, but the classification should never be arbitrary, artificial or evasive. 7. The classification must not be arbitrary but must be rational, that is to say, it must not only be based on some qualities or characteristics which are to be found in all the persons grouped together and not in others who are left out but those qualities or characteristics must have a reasonable relation to the object of the legislation. In order to pass the test, two conditions must be fulfilled, namely, (1) that the classification must be founded on intelligible differentia which distinguishes those that are grouped together from others, and (2) that that differentia must have a rational relation to the object sought to be achieved by the Act." 31. It is well-settled that the latitude for classification in a taxing statute is much greater and, in order to tax something, it is not necessary to tax everything. These basic postulates have to be borne in mind whil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ification, summarised the principles applied, as under (at page 89) : " . . . it must be remembered that the State has, in view of the intrinsic complexity of fiscal adjustments of diverse elements, a considerably wide discretion in the matter of classification for taxation purposes. Given legislative competence, the Legislature has ample freedom to select and classify persons, districts, goods, properties, incomes and objects which it would tax, and which it would not tax. So long as the classification made within this wide and flexible range by a taxing statute does not transgress the fundamental principles underlying the doctrine of equality, it ZS not vulnerable on the ground of discrimination merely because it taxes or exempts from tax some incomes or objects and not others. Nor is the mere fact that a tax falls more heavily on some in the same category, by itself a ground to render the law invalid. It is only when, within the range of its selection, the law operates unequally and cannot be justified on the basis of a valid classification, that there would be a violation of article 14. (See East India Tobacco Co. v. State of Andhra Pradesh, [1962] 13 STC 529 ; [1962] AIR 196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of "palpable arbitrariness" in the context of felt needs of the times and societal exigencies informed by experience to determine the reasonableness of the classification. (vide Federation of Hotel and Restaurant Association of India v. Union of India (1989) 178 ITR 97 (SC) and Kerala Hotel and Restaurant Association v. State of Kerala, (1990) 77 STC 253 (SC) = (1990) AIR 1990 SC 913). 37. In SAKHAWAT ALI VS. STATE OF ORISSA (AIR 1955 S.C. 166), the Supreme Court held that the legislation enacted for the achievement of a particular object or purpose need not be all embracing. It is for the Legislature to determine what categories it would embrace within the scope of legislation and merely because certain categories which would stand on the same footing as those which are covered by the legislation are left out would not render the legislation which has been enacted in any manner discriminatory and violative of Article 14. 38. The legislative history reveals that prior to the insertion of the impugned provision, Section 52(2) was there in the statute, which was the subject matter of K.P.VARGHESE VS. INCOME-TAX OFFICER, (1981) 131 ITR 597, which is also one to check the avo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egislative incompetence, the contention as to reading down of the provision has to be rejected and there is no such necessity as well. As the provision impugned is held to be valid, Varghese case and Gautam's case are not applicable. 41. A supplementary contention has been made on behalf of the petitioner that neither the memorandum explaining the Finance Bill 2002 nor the Circular of CBDT dated 27.8.2002 explained the object of the provision impugned and hence the provision has to be struck down. The said contention has been raised only for rejection. 42. The intention of the Legislature can very well be gathered from the language employed in the provision of the Act itself, particularly, where the language is plain and unambiguous. In taxing statute, it is not possible to assume any intention or governing purpose of statute more than what is stated in the plain language. Hardship and equity has no role to play in determining the validity of the provision, vide CIT Vs. V.M.R.P.Firm Muar, AIR 1965 SC 1216), and M/s.SEEMA SILK SAREES ANOTHER VS. DIRECTORATE OF ENFORCEMENT OTHERS, 2008(4) SUPREME 419. It is obvious that the provision has been introduced only to check t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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