TMI Blog1979 (1) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... ive instruments of transfer of February 5, 1973, and had not been truly stated with the ulterior object of tax evasion and/or facilitating concealment of income or assets. Since the questions raised in both these appeals before us are identical, and also because the facts and circumstances of both the cases are similar, we intend to dispose of these two appeals by this common judgment. In order to appreciate the rival contentions raised in these two appeals before us in proper perspective, it would be profitable to set out, briefly, the nature of the property, the history of transfer, how the proceedings were initiated by the competent authority, what opportunity of hearing was given to the persons interested --whether known or unknown--in the course of the proceedings, what material was collected and relied upon by the said authority for reaching the conclusion as he did, how he did ascertain the fair market value of the properties in question, and what influenced him in spelling out the ulterior object of the transferor or transferee in stating the consideration for transfer of the properties, arid certain other connected relevant developments. The two properties with which we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tructure is only having a roof over it with all sides open. It is also an admitted fact that the respondent-transferee in each case was desirous of purchasing the respective shed as her husband had a factory in the adjoining sheds in partnership with his brothers. It is not disputed that each of the respondent-transferees had purchased shares of BIDCO of the face value of Rs. 18,600 in all which the transferor-company was holding under the original scheme of allotment in pursuance of which they were holding as allottees, as well as under the ownership scheme in pursuance of which they purchased. Under the original scheme of allotment of BIDCO, there were different charges for the right of occupation of these sheds of different types, and accordingly, the relevant rules known as " Baroda Industrial Estate Rules, 1958 " prescribed Rs. 180 per month by way of charges for occupying A-type block. These charges were raised to Rs. 304.50 per month with effect from July 1, 1963. There is some dispute as to the nature of these charges, whether they were in the nature of rent or they were in the nature of licence fees by way of compensation for occupation. We shall refer to it at the appropr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... June 27, 1973, for initiating the proceedings for the acquisition of the aforesaid two industrial sheds and invited objections, if any, to be filed by the transferor-company, respondent-transferee and M/s. Jyoti Ltd., being the occupier of the premises, or by any other person interested in the said immovable properties, within the stipulated period as prescribed under s. 269D(1) and (2) of the I.T. Act 1961. Shortly stated, the material part of the reasons recorded by the competent authority for initiation of proceedings under s. 269C(1) are as under: " 2... Although the transferee contended that the cost of the property will be more, because to purchase one shed within the Industrial Developing Corporation Compound, buyer has to take up shares of the Baroda Industrial Development Corporation worth Rs. 18,000 the return on the investment by way of rent is quite substantial. One M/s. Jyoti Ltd. have occupied the property, and they pay a rent of Rs. 1,583 per month (agreement to this effect has been executed). In view of this, apparent consideration is too low to be accepted. 3. Further, factors which help the transferor to fetch a consideration substantially more than what is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -occupier on July 5, 1973, as required under s. 269D(2)(a). Strangely, it was published in the Gazette of July 7, 1973, as required under s. 269D(1) while it was published, as required under s. 269D(2)(b) in the office of the competent authority as well as in the locality by affixing a copy thereof to a conspicuous place in the office and a conspicuous part of the property as well as by the beat of drum on December 3, 1973. These dates have relevance since a serious grievance has been made about the validity of the proceedings. It appeared that the respective respondent-transferees on receipt of the notice on 5th July, 1973, sought for a fortnight's time for filing objections. She also by her letter of August 1, 1973, inquired from the competent authority as to what were the reasons which made him to believe that the apparent consideration fell short of the fair market value of the prescribed limit and that there was ulterior prohibited objective. She also wanted to know whether her chartered accountant would be allowed to inspect the records and documents in connection with the aforesaid notice. The competent authority had, by his letter of August 1, 1973, informed the respondent- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... competent authority she was furnished with a certified copy of the notice published in the locality. Meanwhile by the letter of December 15, 1973, the competent authority requested the respondent to attend before him on January 4, 1974, with necessary documentary evidence in support of the objections preferred by her. In reply to this letter of the competent authority, the respondent again requested the authority to give inspection of the files and the reasons recorded for initiating the acquisition proceedings, and to determine the fair market value according to the directions given in the Government of India, Circular No. F132(15)/72-TPL of November 25, 1972. She also annexed the report of her valuer with the aforesaid letter of December 31, 1973. She also contended in the said letter that only the standard rent of the property can be considered to be her yield in the matter and invited the attention of the competent authority to the various decisions of the Supreme Court as well as other High Courts in that behalf. It appears that the respondent could not attend the hearing before the competent authority at Baroda on account of the disturbances in connection with the Navnirman ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of each shed would be Rs. 1,00,001 while the apparent consideration was only Rs. 29,521 and, therefore, the presumption about the ulterior object of tax evasion or concealment of income arose since the consideration for transfer was not truly stated. In the opinion of the competent authority, the presumption was not rebutted since no evidence was led by the transferee who had admittely not disclosed the source of income prior to the purchase of the property in question. He, therefore, concluded as under : " ...... It is, therefore, reasonable to infer that the under-statement in the value of the property was with the object to facilitate the concealment of income/moneys which had not been disclosed for the purpose of the Indian Income-tax Act, 1922, or this Act. Thus, investment made by her to the extent of the difference between the fair market value and the apparent consideration stated in the instrument of transfer represents income from sources which had not been disclosed to the department. No evidence has been led to the contrary. " In that view of the matter, he ordered that the property in question should be acquired under s. 269F(6) of the I.T. Act, 1961. Both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... instrument of transfer (in the deed of conveyance of February 5, 1973) was Rs. 29,521, and the Tribunal was clearly in error in accepting the case of the respondent-transferee that since she was required to purchase the shares of the BIDCO of the nominal value of Rs. 18,000 held by the transferor, it should also be considered as a part of the consideration and, therefore, the transferee should be held to have been paid in all Rs. 48,121. Secondly, the learned Government Pleader contended that the Tribunal has committed an error of law in holding that the order of acquisition was bad in law and void because the competent authority has published the notice as prescribed under s. 269D(2)(b) beyond the period of limitation prescribed under s. 269E for filing objections and, therefore, the condition precedent for initiation of proceedings was not satisfied. Thirdly, the Tribunal was clearly in error in law in holding that the order of acquisition was bad in law and void as it violated the principles of natural justice and fair play, inasmuch as the competent authority did not disclose the materials gathered by him to the respondent-transferee because he was under no obligation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the competent authority lacked the initial jurisdiction to initiate proceedings because there were no reasons for the formation of the belief contemplated by s. 269C(1) since they must have a direct nexus or live link with the material coming to the notice of the competent authority. As a matter of fact, according to the learned advocate for the respondent-transferees, there was no material whatsoever which could have furnished the reasons to the competent authority in holding the belief. In the submission of the learned advocate the reasons recorded in the order of June 27, 1973, for initiation of the proceedings have no basis. It is not clear as to from what material the competent authority assessed the value of land at Rs. 4 per sq. ft. or the value of structure at the rate of Rs. 15 per sq. ft. and on the basis thereof estimated the fair market value of Rs. 1,00,001. The learned advocate for the respondent-transferees made a serious grievance that the competent authority was influenced by an absolutely extraneous and irrelevant consideration while considering the possible tax effect of not stating the fair market value correctly in the instrument of transfer. While considerin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the competent authority ought to have given an opportunity to the respondent-transferees to examine her/their valuer for purposes of explaining his report as well as for establishing the infirmities in the report of the Valuation Officer relied upon by the competent authority, and that the Tribunal committed an error of law in not appreciating this aspect of the matter about the failure of the competent authority to comply with the principles of justice in recording the evidence of the valuer. Lastly, it was urged that proceedings under Chapter XX-A for acquisition of the property to counteract evasion of tax are quasi-criminal and the consequences being penal in nature, it is obligatory on the competent authority to establish for initiation of the proceedings and making the order of acquisition ultimately that the fair market value definitely exceeded the apparent consideration beyond the permissible limits by cogent, unequivocal and uncontroverted evidence. If in a given case the tentative as well as final conclusion rests on slender, tenuous, vague and indefinite materials, the proceedings must fail. In any case, in the perspective of such sweeping powers of acquisition of prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y known or recognized method of valuation of property which may be beneficial solely to the revenue or is he required to adopt the least of those valuations arrived at after applying all the known and recognized methods ? (8) What are the obligations which the Commissioner has to fulfil before he grants his approval to a proposed order of acquisition by the competent authority ? We will deal with these questions seriatim in the same order in which they have been framed. We will also examine the respective findings of the Tribunal as challenged in appeal or cross-objections, as the case may be, with reference to each of our answers to the above questions. Re. Question No. 1: In order to find out the nature of the power under s. 269C of the I.T. Act, and the proceedings in connection therewith as contained in Chap. XX-A, it would be advisable to bear in mind the legislative background of this provision. A committee was constituted by the Government of India under the Chairmanship of justice Wanchoo to suggest ways and means for effectively dealing with the problems of black money, tax evasion and tax arrears. Wanchoo Committee, otherwise known as " Direct Taxes Enquiry Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of notice in the Gazette. These objections are to be filed before the competent authority in writing. Thereupon the competent authority has to fix a day for hearing with prior notice to the person objecting to the acquisition, and to the transferee irrespective of the fact of his filing the objections. Every such person objecting and the transferee have a right to be heard at the time of hearing so fixed. The competent authority is empowered to make such further inquiry as he thinks fit before disposing of the objections. He has to give his decision in respect of every such objection by reasons in writing. On consideration of the objections, and the relevant materials on his record, the competent authority may make an order for acquisition of the property in question before him, if he is satisfied that the consideration specified in the instrument of tranfer by the parties in respect of the immovable property having a fair market value of more than Rs. 25,000, falls short of the fair market value thereof by more than 15% with an ulterior object of tax evasion by the transferor or concealment of income by the transferee, subject to the approval of the CIT. This order of acquisit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure of the power is a penal power and the proceedings in respect thereto are quasi-criminal. The learned Government pleader, however, urged that the power under s. 269C and the proceedings in connection therewith should not be considered penal and quasi-criminal because, in effect and substance, it is a power to acquire the property for public purpose, viz., curbing the evil of black money and it is only by way of consequential provision that Parliament has provided that the difference between the amount of compensation and the fair market value should be treated as if it was penalty realised by the Central Government. In support of this submision, he has invited our attention to the various observations made in the final report of the Direct Taxes Enquiry Committee in paragraphs 2.6, 2.25, 2.26, 2.194, 2.204 and 2.209 of Chap. 2 dealing with black money and tax evasion. The observations made in paragraphs 2.25 and 2.26 have been specially emphasised by the learned Government Pleader. We have considered these observations only so far as they are relevant to trace the history of this new innovation in the I.T. Act, 1961. But we do not think that any new light is thrown in this conne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .T. Act, 1922, held that the gist of the offence under the said section is not giving a false explanation but concealment of the particulars of his income or deliberately furnishing inaccurate particulars thereof, and that there is a difference between assessment proceedings and penalty proceedings, because assessment proceedings are taxing proceedings while penalty proceedings are criminal proceedings. The Supreme Court in CIT v. Anwar Ali [1970] 76 ITR 696 approved the decision of the Bombay High Court in Gokuldas's case [1958] 34 ITR 98 and the view of the Gujarat High Court in CIT v. L. H. Vora [1965] 56 ITR 126 and of the High Court of Patna in CIT v. Mohan Mallah [1964] 54 ITR 499 that proceedings under s. 28(1)(c) were penal in nature and it was for the department to establish that the assessee was guilty of concealment of particulars of income. Grover J., speaking for the court, posed the problem as to the nature of penalty proceedings in the following terms : " The first point which falls for determination is whether the imposition of penalty is in the nature of a penal provision. The determination of the question of burden of proof will depend largely on the penalty p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present proceedings which are essentially in the nature of acquisition proceedings. We are afraid this is too broad a submission which we cannot accede to for the simple reason, as we have stated, that it is not merely the untrue statement of consideration in the instrument of transfer that attracts the exercise of the power under s. 269C but coupled with that untrue statement, the ulterior motive of tax evasion or concealment of income is the gist of the offence, and till that ulterior motive is established and found, the power in question cannot be exercised. It is no doubt true that some artificial rules of evidence have been provided by Parliament ; but none the less, it is this evidence which will furnish the proof of gist of the offence, namely, concealment of income or evasion of tax, and since for purposes of effectuating the said objective, the immovable properties are transferred, Parliament has, in its legislative wisdom, thought fit to provide for the acquisition thereof at something more than grossly under-stated consideration, and consequently providing for forfeiture of the amount in difference between the consideration and the fair market value to the Governmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sdiction to issue notice under section 148 in respect of an assessment beyond the period of four years but within a period of eight years from the end of the relevant year ...... Both these conditions must co-exist in order to confer jurisdiction on the Income-tax Officer. It is also imperative for the Income-tax Officer to record his reasons before initiating proceedings as required by section 148(2) ...... The grounds or reasons which lead to the formation of the belief contemplated by section 147(a) of the Act must have a material bearing on the question of escapement of income of the assessee from assessment because of his failure or omission to disclose fully and truly all material facts. Once there exist reasonable grounds for the Income-tax Officer to form the above belief, that would be sufficient to clothe him with jurisdiction to issue notice. Whether the grounds are adequate or not is not a matter for the court to investigate. The sufficiency of the grounds which induce the Income-tax Officer to act is, therefore, not a justiciable issue ...... The existence of the belief can be challenged by the assessee but not the sufficiency of the reasons for the belief. The expre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of the competent authority of June 27, 1973, there is no material whatsoever before the competent authority from which it could have been satisfied about the aforesaid condition precedent for initiation of proceedings. In paragraph 1 of his aforesaid order, he referred to the measurement of the open plot of land and that of the built up area thereof and to the apparent consideration and the average rate worked out on the basis thereof. In para. 2, there is a reference to the reason which prompted the transferor-company to dispose of these two sheds and the contention of the transferee regarding the obligation to purchase shares for Rs. 18,000 of BIDCO and to the yield of Rs. 1,583 per month earned by the transferee from M/s. Jyoti Ltd. In para. 3, the reference is to the location, position and nature of the holding of the land and potentiality thereof. The learned advocate for the respondent-transferee, therefore, made a grievance that when the competent authority stated in para. 4 that " in view of the above facts (paras. 2 and 3) the estimated fair market value of the immovable property on the date of the sale would at least be as under .......... ", the inference draw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of findings of fact out of which some were found to be nonexisting could be sustained. The court ruled that if the order of dismissal may be supported on any finding as to substantial misdemeanour for which the punishment can lawfully be imposed, it is not for the court to consider whether that ground alone would have weighed with the authority in dismissing the public servant. The Supreme Court reiterated the same principle in Railway Board, New Delhi v. Niranjan Singh, AIR 1969 SC 966. In State of Maharashtra v. Babulal Kriparam Takkamore, AIR 1967 SC 1353, a similar question arose for consideration before the Supreme Court where the order superseding the Municipal Corporation of the City of Nagpur was under challenge. The High Court of Bombay held that the State Government exercised its power under s. 408 of the City of Nagpur Corporation Act, 1950, on the grounds which were not reasonably related to its legitimate exercise and the finding upon which the order was passed was rationally impossible on the materials before the State Government, with the result that the said order of supersession was set aside. The State of Maharashtra went in appeal before the Supreme Court. It w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Full Bench in order to sustain the said detention order on the principle of severance, Divan C.J., speaking for the Full Bench, observed as under : " State of Maharashtra v. B. K. Takkamore, AIR 1967 SC 1353, was a case in which there was no doubt the subjective satisfaction of a statutory authority but it was on determination of facts which must exist indepenently and objectively ...... Looking to the fact that the opportunity of show-cause notice was to be given and also looking to the fact that default in the performance of the duties imposed upon the Corporation under the Corporation Act or any other law for the time being in force, the objective facts and the satisfaction of the State Government though subjective was required to be arrived at in respect of objective facts, a different principle appears to have been laid down, namely, that the rule of severance and exclusion of bad grounds should be applied ...... It may also be pointed out that in this case before the Supreme Court it was found as a matter of fact that the satisfaction of the State Government was based on its conclusions on each of the grounds separately and also on the basis of all the grounds collec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e yield theory and make his meticulous finding in consequence thereof. Even if we ignore his observations in paras. 3 and 4 of his order for initiation of proceedings regarding the location of the property, the nature of holding of land, vacant possession, etc., or the price of the land and structure, it cannot be said that his satisfaction was based on material which was irrelevant or non-existent. In that view of the matter, therefore, we are of the opinion that the Tribunal was clearly in error in holding that the decision of the competent authority in initiating proceedings was vitiated. Re. question No. 3: It is common ground between the revenue and the respective respondent-transferees that the conditions mentioned in s. 269C(1) and s. 269D(1) should be fulfilled before the proceedings can be initiated. In other words, the conditions precedent for exercise of the jurisdiction, according to both the sides, are, (i) transfer of immovable property worth more than Rs. 25,000 in value; (ii) excess fair market value of the property over the apparent consideration by 15% ; (iii) ulterior motive of tax evasion or concealment of income for such untrue statement of apparent considera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der s. 269E for filing objections would render the entire acquisition proceedings non est since the said requirements are mandatory provisions of law. In Raza Buland Sugar Co. Ltd. v. Municipal Board, AIR 1965 SC 895, it was held that the question, whether a particular provision of a statute which ex facie appears mandatory since it has used the word " shall " or is merely directory, cannot be resolved by any general formula and that it is a question of fact in each case which the court can answer having regard to the nature of the provision, the intention of the legislature in making it, the serious general inconvenience or injustice to persons resulting from it being considered mandatory or directory, the relation of a particular provision or other provisions dealing with the same subject and other relevant considerations of a particular case including the language of the provision. The provisions contained in s. 269D(2)(a) and (b) are, in our opinion, mandatory provisions having regard not only to the legislative mandate expressed by the use of word " shall " but also having regard to their purpose and nature, namely, to afford to persons likely to be affected prejudicially an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and as found by the Tribunal. In Dhirendra Nath Gorai v. Sudhir Chandra Ghosh, AIR 1964 SC 1300, a question arose whether non-observance of the provision of s. 35 of the Bengal Money Lenders Act, 1940, which prescribed the contents of sale proclamation which, inter alia, should specify the property to be sold would vitiate the proceedings as nullity since that provision was a mandatory provision of law. Subba Rao J., as he then was, speaking for the court, posed this neat question of law-whether an act done in breach of a mandatory provision is perforce a nullity ? He quoted with approval the passage from the judgment of Mukerjee J. in Ashutosh Sikdar v. Behari Lal [1908] ILR 35 Cal 61, 72 [FB] : " ...an irregularity is a deviation from a rule of law which does not take away the foundation or authority for the proceeding, or apply to its whole operation, whereas a nullity is a proceeding that is taken without any foundation for it, or is so essentially defective as to be of no avail or effect whatever, or is void and incapable of being validated." and also considered the workable test laid down by Justice Coleridge in Holmes v. Russel [1841] 9 Dowl 487 as to whether a party ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 of 1972 challenging the aforesaid order of the ITO. A consent order was made in the said writ petition on April 6, 1972, agreeing that the impugned order be quashed and the department be permitted to look into the matter afresh after giving an opportunity to the respondent-firm to place its case before the department in respect of the contention that the property belonged to the firm and not to Pooranmall individually, and the case was to be finalised within two months. After the disposal of the writ petition, the ITO duly held a fresh inquiry and passed an order on June 5, 1972, holding that the silver bars belonged to Pooranmall individually and not to the respondent-firm. The respondent-firm and its other partner filed another Writ Petition No. 595 of 1972 contending, inter alia, that the ITO had no jurisdiction to pass the impugned order beyond the period prescribed in sub-s. (5) of s. 132. The revenue sought to repel this contention by urging that the limitation provided in s. 132(5) is for the benefit of the person concerned and it was competent for him to waive this benefit which the respondent-firm waived by allowing the consent order to be made. Upholding the contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), in which the official liquidator sought the direction of the court to sell the property under s. 457(1) of the Companies Act without taking out summons for the direction and, consequently, therefore, without notice to the petitioning-creditor as required by r. 139 of the Companies (Court) Rules, 1959. The Full Bench, distinguishing that decision in East India Co.'s case [1970] 11 GLR 457 ; 40 Comp Cas 297 (Guj), referred and followed the decision of the Supreme Court in Dhirendra Nath Gorai v. Sudhir Chandra Ghosh, AIR 1964 SC 1300, and observed as under in paragraph 19 : " It should not be forgotten that the Town Planning Officer strictly complied with the requirements of sub-rule (1) of rule 21 as that constituted an essential requirement before the publication of the draft scheme. That publication had to be made under sub-rule (1) of rule 21 in public interest. It is for that reason that publication in one or more newspapers published in the regional language and circulating within the jurisdiction of the local authority is prescribed. There is a further requirement of posting the notice in prominent places at or near the area comprised in the scheme and also at the office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GLR 1152 ; AIR 1977 Guj 23, that a right to individual notice under r. 21(3) and (4) was not so mandatory as to have a nullifying consequence since they were merely additional procedural safeguards and were not essential minimum requirements and the violation of such an additional procedural safeguard which was not in the nature of an essential minimum procedural requirement as in the case of r. 21(1) of a general notice would not render the scheme null and void or as transgressing the jurisdictional limits so as to entitle a party to challenge the same under art. 226. In view of this settled legal position, therefore, we have to consider whether the provisions contained in s. 269D(2)(a) and (b) of the I.T. Act, 1961, can be said to be provisions conceived in public interest so as to constitute essential minimum procedural requirements, the violation of which would have consequences of nullifying the entire acquisition proceedings, or they are in the nature of additional safeguards so as to enable the persons interested or the persons affected by the proposed acquisition to appear before the competent authority and file their objections. It cannot be gainsaid that the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sition Act. The legislature would have said in no uncertain terms by prescribing that the competent authority shall initiate proceedings for acquisition of immovable property by a notice to that effect published in the official Gazette as well as by individual and locality notices. There was no necessity, if the legislative intent had been to treat individual and locality notices as jurisdictional facts or conditions precedent for exercise of the jurisdiction, to provide for such notices in sub-s. (2) instead of in sub-s. (1). The Full Bench of this court in Dungarlal Harichand's case [1976] 17 GLR 1152 (Guj) as well as in Saiyed Mohammed's case [1977] 18 GLR 549 (Guj) [FB] construed new sub-r. (3) of r. 21 of the Bombay Town Planning Rules as merely additional safeguards and not jurisdictional facts or conditions precedent for exercise of powers by the Town Planning Officer. The said sub-r. (3) provided as under : " (3) The Town Planning Officer shall before proceeding to deal with the matters specified in clauses (i), (ii) and (xiii) of sub-sec. (1) of sec. 32 publish a notice in the Official Gazette and in one or more newspapers circulating within the jurisdiction of the local ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) or before he receives a notice under s. 22(2), gets a form of return from the ITO and submits his return, and it would be futile to contend that the ITO is not entitled to assess the party or that the party is not liable to pay any tax because a notice had not been issued to him. The learned advocate for the respondents attempted to persuade us that inasmuch as limitation has been prescribed under s. 269E for filing objections with reference to the date of publication of the Gazette notice, it must be construed that the individual notice as well as locality notice are also conceived and prescribed in the public interest and must necessarily precede the Gazette notice, otherwise persons interested or affected and not known to the competent authority may not have an opportunity of filing objections and being heard in the matter of the proposed acquisition. This is too broad a submission with which, we are afraid, we cannot agree. It is no doubt true that s. 269E provides a period of limitation for filing objections by transferor, transferee, occupant and any other known interested person, of 45 days from the publication of the Gazette notice or 30 days from the service of the indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to that effect is published in the Official Gazette by the competent authority. The want of individual notice or the locality notice may render the proceedings illegal if any interested or affected person, known or unknown, who suffers the evil consequences as a result of breach thereof, appears and objects on that ground. We do not think that the individual notice or the locality notice should necessarily precede the Gazette notice and that any change in the sequence would render the proceedings a nullity. The right of the interested or affected person to file his objections against the proposed acquisition under s. 269E would be time barred only if he files the objections beyond the prescribed period of limitation from the date of actual or constructive knowledge of the proposed acquisition. In that view of the matter, therefore, we must hold that the Tribunal was clearly in error in holding that non-publication of the locality notice within the period of limitation prescribed under s. 269E would render the acquisition proceedings a nullity. A subsidiary contention was urged in the course of the discussion of the above question, viz., as to when the competent authority is under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthority 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 sub-s. (2)(a) of s. 269C. It does not appear to be fair and just that there should be any presumption by an artificial rule of evidence that mere disparity between the apparent consideration and the fair market value by a prescribed margin of 25% would be conclusive proof that the parties to a transfer have been untruthfully stating the agreed consideration in the instrument of transfer since there may be countless bona fide cases where the agreed consideration may be lower than the fair market value on the date of the execution of sale deed. We have been to our wit's end to find out as to whether the legislature really intended that the presumption Provided in sub-s. (2)(a) and (b) would operate before the proceedings are initiated, and if so, what is its practical value since sub-s. (3) of s. 269E permits an objector to rebut the presumption raised in cl. (a) of sub-s. (2) of s. 269C. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 cornpetent authority for initiation of the proceedings. Re : question No. 4: We do not feel any doubt that having regard to the nature of the power which is, as held above, penal, and also having regard to the nature of the proceedings, which are quasi-criminal, the competent authority must be held to be a quasi-judicial authority. The real question before us is, whether the competent authority should conduct the inquiry as if it is a regular trial or whether he is not fettered by any rules of evidence and can collect any material from any source and can act upon such material after disclosure to the person affected or interested in the property sought to be acquired. It is a trite position of law that the ITO is not bound by any technical rules of the law of evidence and it is open to him to collect materials to facilitate assessment even by private inquiry, but if he desires to use such material, he must disclose it to the assessee, who mus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this court in CIT v. S. P. Bhatt [1974] 97 ITR 440 (Guj) [FB] and Addl. CIT v. I. M. Patel Co. [1977] 107 ITR 214 (Guj) [FB]. It appears to have been taken as settled law by now that an order imposing penalty is the result of quasi-criminal proceeding (vide : Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 ; [1970] 25 STC 211 (SC)). Penalty proceedings are penal in character ex facie. In Khemka Co. (Agencies) Pvt. Ltd. v. State of Maharashtra [1975] 35 STC 571 (SC), the Supreme Court ruled that imposition of penalty gives rise to a substantive liability which can be viewed as a fine for the infringement of law also, and is comparable to a punishment for the commission of an offence. The Full Bench of this court in I. M. Patel's case [1977] 107 ITR 214 (Guj), therefore, held that the penalty contemplated in s. 271(1)(a) and other sections in Chap. XXI of the I.T. Act, 1961, can be imposed by an ITO as distinguished from regular criminal court and the proceedings in, relation thereto are quasi-criminal proceedings and they provide for offences which can be dealt with by the departmental authorities. In R.S. Joshi, STO v. Ajit Mills Ltd. [1977] 40 STC 497 (SC), the Suprem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen, therefore, Parliament entrusts it with judicial duties, Parliament must be taken, in the absence of any declaration to the contrary, to have intended it to follow the procedure which is its own and is necessary if it is to be capable of doing its work efficiently." In De Verteuil v. Knaggs [1918] AC 557 (PC), the Judicial Committee of the Privy Council, in the context of the powers of the Governor under s. 2 of the Immigration Ordinance of Trinidad, spelt out a duty on the part of the Governor, " of giving to any person against whom the complaint is made a fair opportunity to make any relevant statement which he may desire to bring forward and a fair opportunity to correct or controvert any relevant statement brought forward to his prejudice ". In University of Ceylon v. Fernando [1960] 1 All ER 631 (PC) an inquiry was held into an allegation by one student, B, that another, F, had cheated in an examination. B gave evidence when F was not present. The allegation was found proved. F alleged that the decision was void as contrary to the rules of natural justice, in that the inquiry officer had not tendered B for cross-examination. The Privy Council said that this could not i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Norfolk [1949] 1 All ER 109 (CA) : ' There are, in my view, no words which are of universal application to every kind of inquiry and every kind of domestic tribunal. The requirements of natural justice must depend on the circumstances of the case, the nature of the inquiry, the rules under which the tribunal is acting, the subect-matter that is being dealt with, and so forth. Accordingly, I do not derive much assistance from the definitions of natural justice which have been from time to time used, but, whatever standard is adopted, one essential is that the person concerned should have a reasonable opportunity of presenting his case '." The Supreme Court thereafter examined the power of a STO under the Kerala General Sales Tax Act to make the best judgment assessment under s. 17(3) of the said Act. The proviso to sub-s. (3) enjoins the STO to give an opportunity of being heard to the dealer whose return is found to be incorrect or incomplete so as to afford him an opportunity to prove the correctness or completeness of such return. The majority court, therefore, read in this proviso that the proof of a fact can be furnished by production of evidence, and evidence includes or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was urged on behalf of the respondent-transferees that s. 269E(3) permits the objector to object that the fair market value of the property does not exceed the apparent consideration by 25% and/or the property had not been transferred with an ulterior motive of tax evasion as termed under s. 269C(2)(b). In other words, the objector can prove that the consideration has not been untruly stated by proving that the fair market value does not exceed the apparent consideration by 25% and/or in any case the object of difference, if any, in the statement of consideration was not with any ulterior motive of tax evasion. The objector can prove this only by evidence and the evidence would include documentary as well as oral evidence. The objector, therefore, has a right not only to lead and adduce oral and/or documentary evidence that may be necessary in this connection, but also to cross-examine the witnesses whose statements the competent authority might have recorded. The objector can also pray before the competent authority that the evidence of persons concerned, who can throw light on the question at issue or the materials that may be collected before or in the course of inquiry held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase. The competent authority did not furnish the respondent-transferee with the valuation report of the Valuation Officer till 18th April, 1974, in spite of repeated requests and demands by her. The most disappointing part of this case before us is that the respondents were not permitted to have inspection of the files of their own cases in spite of repeated requests and reminders in the matter and willingness to pay the necessary charges for holding the inspection. The competent authority informed the respondent-transferee that she may have an inspection only of those papers and documents filed by her and not of the entire file. It is high time that these authorities should appreciate the role envisaged for them and the powers which they wield and the far-reaching repercussions their decisions have in matters like acquisition of property, to counteract the evasion of tax under Chap. XX-A of the I.T. Act, 1961. Courts have on every occasion reminded these authorities having power to impose penalties that they are independent quasi-judicial authorities acting in quasi-criminal proceedings the decisions of which visit the persons affected with evil consequences and, therefore, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a fresh inquiry from the point where it was found defective. In the view which we are taking we will consider this request of the learned Government Pleader at the time of making final order in these appeals. Re. Question No. 5 :--The term " apparent consideration " is defined to mean, in the case of transfer by way of sale, the consideration for such transfer as specified in the instrument of transfer, and in the case of a transfer by way of exchange of thing or things the market price thereof and in the case of a thing or things and sum of money, the aggregate of the market price and such sum. We are concerned with the question as to what was the apparent consideration in the present case before us. It should be recalled that the Tribunal has accepted the case of the respondent-transferees that since each of the respondent-transferees was required to purchase the shares of BIDCO of the nominal value of Rs. 18,600 held by the transferor, it should also be considered as a part of the consideration and, therefore, each transferee should be held to have paid in all Rs. 48,121 comprising of Rs. 29,521 as the price of the structure and Rs. 18,600 as the price of shares. We do not th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide by the terms and conditions prescribed under the ownership scheme of BIDCO in pursuance of which the transferor purchased the said sheds from BIDCO. Now, it is not in dispute that under the ownership scheme conceived at the instance of the Governor of the State of Gujarat and adopted in the extraordinary general meeting of the members of BIDCO held on 24th March, 1969, the selling cost of A-type block was Rs. 19,105 being the cost of block along with land in addition to Rs. 18,600 being the value of shares. In other words, the total value of the block comes to Rs. 37,705. The letter of the Secretary of BIDCO of January 10, 1974, addressed to Vimlaben B. Patel--the respondent-transferee of First Appeal No. 1105 of 1975-clearly establishes that any purchaser under the ownership scheme was bound to pay besides the price of the shed a sum of Rs. 18,600 being the value of the shares. It should be noted that under the regulations framed by BIDCO styled as " Baroda Industrial Estate Rules, 1958 " every concern or person taking a block was under an obligation to purchase a specified number of shares. In the case of A-type of block, the purchaser had to purchase in all four shares of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... January 10, 1974, bearing reference No. 6/74 of the secretary of BIDCO addressed to one of the respondent-transferees. The competent authority has also, in its order of June 27, 1973, recording reasons for initiating the proceedings under s. 269C, stated as under : Rs. "Apparent consideration (as indicated in the form No. 37-G) (considering shares worth Rs. 18,600) 47,521." The competent authority has in his final order of January 16, 1975, deciding to acquire the property, observed as under in para. 26 : "...It is not disputed that the amount specified in the instrument of transfer is only Rs. 29,521. The amount expended for the purchase of shares of BIDCO worth Rs. 18,600 has not been mentioned as consideration for transfer. That the bye-laws of BIDCO provide that every holder of the block must purchase shares worth Rs. 18,600 is a consideration which is extraneous and independent of the instrument of transfer. " The Tribunal in para. 40 of its common order, disposing of the two appeals preferred by the respondent-transferees, observed as under : " Now there is evidently no dispute in this case that the consideration stated in the instrument of transfer is Rs. 29,521 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... doubt, s. 23 prescribes that court shall take into consideration, amongst other things, the market value of the land at the date of publication of the notification under s. 4(1) while determining the amount of compensation. Courts in India have recognised the English principle of " reinstatement " in the matter of determining compensation for acquisition of land or property though it has not been specifically mentioned in s. 23(1). The principles for determining the market value have been fully expounded by the Privy Council in Rajah of Vizianagaram (Vyricherla Narayana Gajapathiraju) v. Revenue Divisional Officer, Vizagapatam (known as " Chemudu's case ") ILR [1939] Mad 532 ; AIR 1939 PC 98. The Judicial Committee in Chemudu's case defined the market value as price which a willing vendor might reasonably expect from a willing purchaser. It would, therefore, in our opinion, not be safe to wholly import the principles enunciated by courts in ascertaining the market value while determining the amount of compensation for acquisition of a property or a land since the perspective of the acquisition under the Land Acquisition Act and that under Chap. XX-A of the I.T. Act, 1961, are slig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Chap. II dealing with black money and tax evasion where it is recognized by the said Committee that an evil practice has developed to make an under-statement of the apparent consideration. Therefore, the competent authority as well as the court has to be vigilant in scrutinising such instruments of transfer in the locality or area where such evil practice has firmly gained the ground. The adverb " ordinarily " has got a nuance or the shape to indicate and imply that extraordinary consideration which might have prevailed with the transferee in purchasing the property should be generally ignored. The Supreme Court in Purshottam N. Amarsay v. CWT [1973] 88 ITR 417 (SC) quoted with approval the principle enunciated by the House of Lords in IRC v. Crossman [1937] AC 26 ; 2 EDC 537 (HL) that " if sold in the open market " it does not contemplate actual sale or the actual state of the market, but only enjoins that it should be assumed that there is an open market and the property can be sold in such a market, and on that basis, the value has to be found out. It is no doubt true that in order to initiate acquisition proceedings the competent authority must be satisfied about the fair ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year of assessment. The Supreme Court in Guntur Municipal Council's case, AIR 1971 SC 353, found itself unable to agree to make any distinction between buildings the fair rent of which had actually been fixed by the Rent Controller and those in respect of which no such rent had been fixed, and in the former case the municipal authorities have to arrive at their own figure of fair rent in accordance with the principles laid down in the Rent Control Act. On the other hand, in R. C. Cooper's case [1970] 40 Comp Cas 325 the Supreme Court ruled that for purposes of awarding compensation of land and building of an undertaking acquired under the Banking Companies (Acquisition and Transfer of Undertakings) Act on the basis of 12 times the amount of annual rent or the rent which the building may reasonably be expected to be let from year to year reduced by certain specific items was not a relevant principle of valuation of buildings. The court held as under : " This provision, in our judgment, does not lay down a relevant principle of valuation of buildings. In the first place, making a provision for payment of capitalised annual rental at twelve times the amount of rent cannot reasonabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and proceedings under Chap. XXA of the I.T. Act, 1961 ? The learned Government pleader invited our attention to the decisions of the Calcutta High Court in, J. N. Bose v. CWT [1976] 104 ITR 83 and in Debi Prosad Poddar v. CWT [1977] 109 ITR 760, where the Calcutta High Court spelt out three broad principles after referring to a number of decisions on the point under the Land Acquisition Act, W.T. Act and capital gains under the I.T. Act. The said three principles are that, (i) there is no fixed market for immovable property; (ii) there is bound to be some amount of guess work, but it must be an intelligent one " based on certain objective factors which have a rational nexus with the valuation " ; and (iii) there are different methods of valuation, and as to " which would be suitable for a particular property must depend upon the particular features of the property ". Of these methods, that one should be preferred which can provide more objective data for reliance. It was urged on behalf of revenue that having regard to the particular features of the properties in question before us, which are industrial sheds with temporary structures and open land appurtenant thereto, the only r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the Lands Tribunal that the contractor's basis was correct which gave the rateable value of pound 5,100. On the other hand, the Valuation Officer evaluated the property at pound 8,700 on an estimated profits basis. The Lands Tribunal rejected both these valuations and substituted its own by reaching a figure of pound 5,750 on the actual rent basis as adjusted for certain factors. The Valuation Officer carried the matter to the Court of Appeal. The Court of Appeal remitted the matter to the Tribunal to reconsider it in the light of the court's judgment since it had misdirected itself in limiting the inquiry to actual rent and making adjustments to it and should have taken into account the estimates given by the opposing valuers on the contractor's basis and the profits basis. Lord Denning M. R. and Winn L. J. in,their speeches said that admissible evidence was not confined to the best evidence but included all relevant evidence, its goodness or badness going only to weight and not to admissibility, while Russel L. J. said that it was by no means clear that the two rejected approaches could not be an aid in arriving at the estimation. It is, therefore, difficult to agree with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; and (iii) a number of years ' purchase of the actual or immediately prospective profits of the lands acquired. P. Jaganmohan Reddy J., speaking for the court, thereafter observed as under : " These methods, however, do not preclude the court from taking any other special circumstances into consideration, the requirement being always to arrive as near as possible at an estimate of the market value. In arriving at a reasonable correct market value, it may be necessary to take even two or all of those methods into account inasmuch as the exact valuation is not always possible as no two lands, may be the same either in respect of the situation or the extent or the potentiality nor is it possible in all cases to have reliable material from which that valuation can be accurately determined. " (Emphasis supplied by us) Therefore, in the perspective of the acquisition proceedings under Chap. XX-A of the I.T. Act, 1961, which are, as stated above, penal provisions having far-reaching repercussions, the competent authority must be satisfied and assured by cogent, reliable and relevant evidence that the fair market value of the property in question exceeds the apparent consideration by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letting value has two infirmities (i) presumption of the maintainability of rent over a long term of period and (ii) necessity to make allowances for all outgoings in the course of this long term (vide : Maintainable rent in Rating by Ryder). The choice of appropriate rate of capitalization for purposes of estimating the value by applying yield theory is also a vexed problem depending on many uncertainties and imponderables such as effect of economic policies, consequent legislation for effectuating them and market conditions emerging as a result thereof. The learned Government Pleader for the revenue was at pains to impress upon us that if the standard or control rent method is to be adopted as the basis for application of yield theory, the necessary and invariable consequence thereof must be that the rate of capitalization should be between 20% and 33% since that would be the yield of the gilt edged securities which are not prone to fluctuating market condition and price mechanism. We will presently indicate our view on this vexed problem but for the present purposes suffice it to say that the competent authority should not, in the course of proceedings under Chap. XX-A, prefer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and building method or any other method. It seems that the person interested may claim for the purpose of Chapter XXA that the minimum valuation of those arrived at by all the recognized methods is to be adopted. Justice requires that instead of taking a much too technical view in the matter of such valuation, a broadly practical and realistic approach, from the point of view of the willing purchaser, is to be taken. " A subsidiary contention which was debated in the course of the arguments is as to what should be the basis in the rental method of valuation for estimating the fair market value. In our opinion, the course which we have suggested above of comparing each of the estimations worked out by applying the recognized methods and comparing it with the municipal valuation for purposes of property tax would, by and large, meet with the contention urged on behalf of the respondent-transferees that in the application of rental method of valuation only the standard rent should be taken as the basis for purposes of annual yield of a property. The next subsidiary contention which was urged was as to what should be the suitable, appropriate and just rate of capitalisation for pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cs of Real Property endorsed the same view. The impression that properties in cities are appreciating in value is not well founded because if such property is fully tenanted, the rent which the property owners are likely to receive is governed by the rent legislation which will necessarily have effect on its value. It should also be borne in mind that investment in real properties is not necessarily out of the savings or earnings of an individual. A purchaser of a property has to rely on the borrowing from housing finance agencies or banks or Life Insurance Corporation. The lending rate of such institutions vary from 10 to as much as 14 or 15 per cent. The return on gilt-edged securities like 3% conversion loan or other Government securities works out between 5 to 6.44%. The prime money rates for advances by banks are between 14 to 15%. The net average yields of preference dividend is between 12 to 13% as indicated in the report of the Reserve Bank of India. The rate of capitalisation should, therefore, be not unreal and must have regard to the commercial rate of return after taking into consideration the various constraints and insecurities in the property market. Our attention ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion No. 8 : This question relates to the non-application of mind by the Commissioner while granting approval under s. 269F(6) to the order of acquisition of the property. It is no doubt true that the approval is not to be granted mechanically and the Commissioner has to apply his mind to all the relevant facts and circumstances as established before the competent authority from the materials and evidence gathered by him and he may hear the persons affected or interested if he thinks fit in the particular facts and circumstances of a case so that he may be apprised of the real question in dispute though it is not necessary for him to hear the affected or interested person/s as a matter of course in every case. In the present case, we must agree with the learned advocate for the respondent-transferees that the Commissioner had mechanically granted the approval without applying the mind since admittedly the materials in the nature of valuation report of the Bank of Baroda as well as particulars of the land rates in Makarpura and Gorva area of Baroda city have not been disclosed to the respondent-transferees and, therefore, the order of the Commissioner granting approval is without the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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