1. These are appeals against the order of the competent authority, IAC Acquisition Range, Jalandhar, acquiring a piece of agricultural land in Village Miranpur, Tehsil Philiaur. IT (Acq.) Appeal No. 1 (Asr.) of 1982 is the appeal filed by the transferor, Shri Balkar Singh, through his General Attorney, Shri Kartar Singh and IT (Acq.) Appeal No. 2 (Asr.) of 1982 is the appeal of transferee, Shri Gurnam Singh. Both the appeals were heard together and are disposed of by a common order.
2. The facts may now be briefly stated. The transferor sold a piece of agricultural land measuring 18 Kanal, 12 Marias in Village Miranpur, Tehsil PhilJaur, to the transferee, Shri Gurnam Singh, for Rs. 40,000 vide Registration Deed No. 123, dated 14-4-1980. The undisputed position is that the Jand sold is agricultural and was not situated in an area mentioned as an exception in Section 2(14)(iii) of the Income-tax Act, 1961 ('the Act'). In other words, the land is situated in a village, which is not comprised within the jurisdiction of a municipality, etc, as described in item (a) or any area described in item (b) of the aforementioned provision. The action for acquisition under Chapter XXA of the Act started on the basis of a complaint dated 7-7-1980 received by the IAC. The IAC asked the Inspector to make enquiries and after getting his report dated 1-9-1980 initiated the acquisition proceedings by order-sheet entry dated 3-9-1980, quoted below : The immovable property as described in Registered Deed No. 123 of 14-4-1980 registered in the office of the Registering Officer, Phillaur, was sold at an apparent consideration of Rs. 40,000.
Enquiries reveal that the fair market value of this property at the time of sale was Rs. 61,612.50 which exceeded the apparent consideration by more than 25 per cent of such apparent consideration have thus (sic) reason to believe that: (i) the fair market value of this property in question exceeded Rs. 25,000; (ii) the fair market value of this property exceeds the apparent consideration thereof by more than 15 per cent of such apparent consideration ; and (iii) the consideration for such transfer as agreed between the parties has not been truly stated in the instrument of the transfer with the object of facilitating of reduction or evasion of tax liability of the transferor to pay tax under the Income-tax Act, 1961 in respect of any income arising from the transfer or facilitating the concealment of any income or any money or the other assets which have not been or which ought to be disclosed by the transfer for the purpose of Income-tax, 1922, Income-tax Act, 1961 or Wealth-tax Act, 1957.
Hence in pursuance of Section 269C of the Income-tax Act, 1961. I hereby initiate the proceedings for the acquisition of the aforesaid property by the issue of notice under Section 269D() of the said Act.
Send the notice under Section 269D(1) of the Income-tax Act, 1961 accordingly to the concerned persons. Also send a copy of the notice for publication in the Official Gazette. A copy of this notice should be affixed to a conspicuous place of this office. Further the substance of the notice should be made known at the convenient places of the locality in which the property is situated by proclamation through a convenient mode.
The relevant part of the Inspector's report dated 1-9-1980 is also reproduced below: Land measuring 18 Kanal, 12 Marias has been transferred by way of sale deed for Rs. 40,000. The land falls in Village Miranpur. This is complaint case. The complainant has made allegations that in this deed agreement for 18 Kanals, 12 Marias was done for Rs. 61,612.50 as per copy of the agreement filed by the complainant. As per registration deed the apparent consideration comes to Rs. 40,000 against the agreement of Rs. 61,612.50. This is clear understatement [of] consideration and proceeding is recommended. In this case fair market value will come to Rs. 61,612.50, against the apparent consideration of Rs. 40,000.
Information regarding the source of investment is being sent to the Income-tax Officer, Phagwara.
3. Both the counsels of the transferee and the transferor contended that the competent authority cannot be said to have the reason to believe that any immovable property had been sold for an apparent consideration, which was less than the fair market value of the property with the object/objects specified in Section 269C(1) of the Act in the facts and the circumstances of the case. It was very emphatically argued that initiation of acquisition proceedings was invalid as the conditions precedent for taking such an action were not fulfilled and, consequently, the order passed was to be quashed. It was pointed out that there was no material available to the competent authority to show that the consideration of sale had been understated with the object of facilitating the concealment of any income or any moneys or other assets, which have not been or which ought to be disclosed by the transferee for the purposes of the Income-tax Act or the Wealth-tax Act or for facilitating the reduction or evasion of the liability of the transferor to pay tax under the Act in respect of any income arising from the transfer. The counsel of the transferee, who made submissions at great length, pointed out that the land sold was agricultural land situated in a village where it could not be treated even as a capital asset within the meaning of Section 2(14) and, therefore, there was no possibility of any capital gains arising on its sale. Next, it was submitted that the transferee was not liable to pay income-tax or wealth-tax, having no income or wealth liable to those taxes nor was any return pending for finalisation in his case. In any event, what was emphasised was that nothing was known to the competent authority at the time of initiating proceedings-whether transferee was liable to pay income-tax or wealth-tax or any return under those taxes was pending against him-and that it was amply clear from reading the order of the competent authority himself that enquiries in this regard began after the initiation of proceedings in January 1981 only. The transferee's counsel went to the length of pointing out that even what was found out after the initiation of acquisition proceedings in September 1980 was legally inadequate to hold that the transferee was carrying on money-lending business. Attention was invited to the relevant parts of the order of competent authority at pages 6 to 10 of his order. It was contended that execution of a single pronote in favour of the transferee in respect of a friendly loan cannot amount to carrying on of any money-lending business as the word 'business' connotes an organised course of action and he cited a Madhya Pradesh High Court decision in Madhya Pradesh State Industries Corporation Ltd. v. CIT [1968] 69 ITR 824. It was also submitted that a friendly loan against a pronote itself did not give rise to an inference of carrying on any legal or illegal business of money-lending. It was further contended that the competent authority at page 10 of the order has without any material concluded that the transferee had concealed income or concealed," a source of income and that was a, futile surmise when it is noted that the transferee had neither any income liable to income-tax nor wealth liable to wealth-tax. The counsel of the transferor also referred to the facts about the situation of land and its nature and particularly pointed out that there was no material whatsoever within the knowledge of the competent authority before initiation of acquisition proceedings or shown even in the order passed by him that understatement of consideration of sale was with the object of facilitating the reduction or evasion of the liability of the transferor to pay income-tax in respect of any income arising from the transfer. He prayed that the finding of the competent authority about transferor avoiding tax was unsupportable and should be deleted and in any case the acquisition proceedings were not properly initiated and this being so, the order of the competent authority be vacated.
4. It was urged by both the counsels that at the time of initiating of acquisition proceedings the competent authority must have material to entertain the reason to believe that an immovable property has been sold for an apparent consideration, which is less than the fair market value and with the object/objects specified relating to the reduction or evasion of tax either by the transferor or the transferee or both and that the presumptions in Section 269C(2) would not be available to the competent authority at that stage. A number of authorities mostly from the Calcutta High Court were cited and relied upon. These were Smt. Bani Roy Chowdhury v. Competent Authority, IAC [1978] 112 ITR 111 (Cal.), Subhkaran Chowdhury v. LAC [1979] 118 ITR 777 (Cal.), Tube Mill (India) (P.) Ltd. v. IAC [1980] 122 ITR 72 (Cal.), Competent Authority, IAC v. Smt. Bani Roy Chowdhury [1981] 131 ITR 578 (Cal.) and CIT v.Ganesh Builders [1979] 116 ITR 911 (Bom.).
5. On behalf of the revenue, it was contended that in this case the competent authority had found that fair market value of the property exceeded the apparent consideration thereof by more than 15 per cent and it also exceeded 25 per cent of such consideration as per agreement of sale dated 8-3-1980 and, therefore, the presumptions under Section 269C(2) were available to the competent authority even at the stage of initiating of acquisition proceedings. Reliance was placed on a Delhi High Court decision in Mahavir Metal Works (P.) Ltd. v. Union of India [1974] 95 ITR 197. It was also contended referring to the Supreme Court decision in Ganga Saran & Sons (P.) Ltd. v. ITO [1981] 130 ITR 1 that the Tribunal could not go into the question of adequacy of sufficiency of reasons, which weighed with the competent authority to initiate acquisition proceedings.
6. On carefully considering the rival submissions, we are of the view that this is a case where the competent authority acting as a prudent person could not be said to have any reason to believe about the existence of the object or objects specified in Section 269C(1), which is a prerequisite for initiating acquisition proceedings. The land sold is an agricultural land situated in a village where its sale cannot even give rise to the charging of any capital gains under the Act. It was stated before us that both the transferor and the transferee are agriculturists. In such a situation, the acquisition proceedings will not lie unless it is found that tax evasion or reduction of tax liability under the income-tax or wealth-tax in the case of a transferor and/or the transfere, as the case may be, could be the motive for the understatement of apparent consideration for sale. To ascertain this position, it will be relevant to go into the reasons recorded by the competent authority, IAC, Acquisition Range, which are reproduced above. There is nothing in them to suggest that there was any material to show that either the transferor or the transferee were liable to income-tax or wealth-tax at all or any evasion of or reduction in the liability of either income-tax or wealth-tax was involved in the case under consideration. Such information must be shown in the reasons recorded so as to afford the competent authority the necessary reason to believe. However, we have even looked into the Inspector's report which too is quoted above. This too lacks any such material. The Inspector merely noted that there was understatement of consideration and recommended the proceedings for acquisition. It is further clear from a sentence towards the end in the report that about the source of investment also there was nothing known to him and he merely passed on the information to ITO, Phagwara. There is nothing either in the report of the Inspector or in the reasons recorded to show as to whether the transferor or transferee were at all liable to income-tax or wealth-tax or both, as the case may be. A copy of the complaint dated 7-7-1980 was also placed on record by the departmental representative. This complaint was made to point out that less court fee, meaning thereby registration stamp duty, was paid and that the complainant wanted to purchase the land at the price of Rs. 61,612 given in the agreement to sell dated 8-3-1980.
7. It is further clear from reading pages 6 to 10 of the order of the competent authority that while finalising the acquisition proceedings the competent authority was alive to the question of the transferee having any income liable to income-tax. We find force in the submissions of the transferee's counsel that the competent authority has miserably failed in that attempt. However, what is material to consider is not what is found after starting enquiries in January 1981 but what was the material available at the time of initiation of acquisition proceedings to hold that transferee was liable to payment of either income-tax or wealth-tax or both. We have pointed out above that this aspect both in respect of transferor and the transferee was completely overlooked by the competent authority. Even in the order passed there is no material about tax evasion in respect of the transferor. It has, therefore, to be held that the grievance of the transferor and the transferee about the absence of objects for understatement of sale consideration is well founded. It is regretfully a case where the competent authority started a highly penal proceedings for acquisition against the transferee without even making the preliminary important enquiry in regard to the existence of prerequisite conditions.
8. The next question that arises is and this is the only defence of the revenue-whether presumptions in Section 269C(2) can be pressed into service even for the purposes of the reason to believe to be entertained by the competent authority before initiating the acquisition proceedings. There is ample authority pointed out by the counsels of the transferor and the transferee to support their line of reasoning that these presumptions will not be available to the revenue.
The leading case from the Calcutta High Court is the Single Judge decision in Smt. Bani Roy Chowdhury v. Competent Authority, IAC's case (supra) which has been affirmed by a Division Bench of the same High Court in Competent Authority, IAC v. Smt. Bani Roy Chowdhury (supra).
It has been clearly held by the Division Bench that the presumption under Clause (b) of Section 269C(2) is not applicable to the stage when the competent authority forms his belief under Sub-section (1) of Section 269C because there is no 'proceeding' at that stage. The authorities relied upon by the departmental representative appear to us to be of no assistance to its case. In Ganga Saran & Sons' case (supra), the Supreme Court has laid down with reference to similarly used words in Section I47(a) of the Act that words 'has reason to believe' are stronger than the words is satisfied' and has reiterated the principles laid down in the earlier decision of ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC). It was reiterated that the belief entertained must not be arbitrary or irrational and it must be based on reasons, which are relevant and material. In the instant case, the question of liability to income-tax or wealth-tax of the transferor and the transferee is obviously a very important one for initiating action for acquisition and to meet the requirements of Section 269C(1) and when it is found that there is no material available to show that either of them was liable to income-tax or wealth-tax, it cannot be said that the competent authority had rationally speaking any reason to believe. The Calcutta High Court has clearly held that presumptions cannot be invoked for initiating proceedings for acquisition and in Competent Authority, IAC v. Smt. Bani Roy Chowdhury's case (supra), the High Court has distinguished the ruling in Mahavir Metal Works case (supra), cited by the departmental representative.
9. In view of the above discussion, we must hold that the proceedings for acquisition have not been validly initiated by the competent authority in this case and the order acquiring the land is unsustainable. It may be stated at this stage that some arguments on merits against the order passed for acquiring the land were addressed by the counsel of the transferee and these were also replied to by the departmental representative. We consider it unnecessary to go into that aspect of the case at present as the transferor and the transferee have succeeded on the ground of invalidity of proceedings initiated. We cancel the acquisition order of the competent authority and allow both the appeals.