M.B. Shah, J.
1. By an agreement dated June 25, 1984, between the petitioner (Messrs. Indian Dyestuff Industries Ltd.) and respondent No. 2 (Messrs. Ambalal Sarabhai Enterprises Ltd.), the petitioner agreed to purchase the industrial undertaking of respondent No. 2 which was known as S. G. Chemicals and Dyes unit at Ranoli as a going concern. The agreed slump price was Rs. 18.81 crores with a specific condition that all employees of the undertaking were to be taken over by the petitioner on the basis of continuity of service on the existing terms. As per the memorandum of understanding, dated October 1, 1984, the petitioner took over the delivery and charge of the undertaking and started running it. Thereafter, the petitioner filed with respondent No. 1 (the Inspecting Assistant Commissioner of Income-tax (Acquisition), Range-I and II, Ahmedabad), Form No. 37EE under rule 48DD read with section 269AB(2) of the Income-tax Act. It is the further say of the petitioner that the competent authority referred the matter for determination of the fair market value of the property and, therefore, the District Valuation Officer of the Income-tax Department sought details and documents from the petitioner.
2. By the letter (exhibit 'L') dated June 24, 1985, the petitioner sent details to the District Valuation Officer along with a note on various specific aspects to the District Valuation Officer along with a note on various specific aspects relating to plant and machinery as well as land and buildings. As per the note, it was pointed out that the unit was making substantial losses from 1981 onwards; was having inadequate power supply; there was labour unrest and the plant was shut down during February to March, 1984, which led to corrosion of various pipelines and other connections relating to utilities ancillary to the plant; the plant was more than 20 years old; the management has found additional funds and working capital as well as fund needed for repairing, overhauling the above plant and other aspects were pointed out in detail so that the usual method of valuation, viz., replacement cost as new, minus depreciation for use made, wherever applicable, cannot be taken as the true market value of the assets; valuation of an undertaking should be made as a going concern basis. Thereafter, the petitioner received notice (exhibit 'M') dated March 21, 1986, under section 269D(1) of the Income-tax which was published in the Official Gazette on August 24, 1985, and a copy of the reasons recorded as well as a valuation report. The Income-tax Inspector has estimated the fair market value of the property purchased by the petitioner at Rs. 21,59,22,650 as against the consideration of Rs. 16,51,00,000 stated in the agreement executed in favour of the petitioner. As per the reasons recorded by the Inspecting Assistant Commissioner of Income-tax (Acquisition), the difference between the fair market value and the apparent consideration is more than 25 per cent. He further arrived at the conclusion as under.
'2. Coming to the tax implication, the transferor is liable to tax on the income arising from the transfer of the property, whereas the transferee has to explain the investments made in the purchase of the said transfer could reasonably be believed to be with the object to facilitate reduction/evasion of the liability of the transferor and the concealment of income and moneys in the hands of the transferee.
In view of the above, I am satisfied that the property in question is one whose fair market value Rs. 25,00,00,000. The fair market value of the said property exceeds the apparent consideration by more than 15 per cent. and further that the consideration for transfer as agreed to between the parties has not been truly stated with the apparent object of :
(a) facilitating the reduction/evasion of liability of the transferor to tax in respect of income, profit or gain arising from the transfer and/or.
(b) facilitating concealment of income or any moneys or other assets which have not been or ought to be disclosed by the transferee for purpose of income-tax assessment proceedings.
Accordingly, I hereby direct that notice under section 269D(1) of the Income-tax Act, 1961, be issued for publication in the Official Gazette for initiating proceedings for acquisition of the property in question. Notices should also be served on the parties concerned and a proclamation made in accordance with rule 48E.'
3. The petitioner has challenged the aforesaid notice (exhibit 'M') dated March 21, 1986, and the reasons (exhibit 'N') recorded for issuance of a notice under section 269D(1) of the Income-tax Act, 1961, by filing this petition.
4. In the petition, it has been, inter alia, stated that Valuation Officer or the Inspector of respondent No. 1 had not valued the property fairly. He has not taken into consideration the fact that the property was purchased as a going concern and the concern was running into huge losses in the three years immediately preceding the agreement to sell dated June 25, 1984. The Valuation Officer has not taken into consideration the fact that the petitioner purchased the losing unit so that hundreds of workers do not lose their employment and their moneys already invested in the ailing unit do not go waste as in response to the Government's policy. Respondent No. 1 has not taken into consideration the fact that the petitioner is a public limited company and that the seller is also a public limited company and the managements of the two companies are not related to each other and there is no reason, basis or evidence with respondent No. 1 at the time of recording of reasons to think that this was a transaction not at the market price or that any unacquainted moneys were paid by the petitioner to the vendor or that there was any attempt at tax evasion by the petitioner or the vendor as required by the provisions of section 269C(1).
5. At the time of hearing of this petition, learned counsel for the petitioner submitted that the notice issued by respondent No. 1 under section 269D(1) of the Income-tax Act is on the face of it illegal as there was no material with respondent No. 1 for arriving at the conclusion that the consideration for the transfer as agreed to between the parties has not been truly stated for the apparent object of (a) facilitating the reduction/evasion of liability of the transfer to tax in respect of income, profit or gain arising from the transfer, and/or (b) facilitating concealment of income or any moneys or other assets which have not been or ought to be disclosed by the transferee for purposes of income-tax assessment proceedings. He further submitted that the notice is also vague because respondent No. 1 had not definitely stated whether it is for object (a) or object (b) as stated above as the words used in the notice are 'and/or'.
6. In support of the aforesaid contentions, Mr. Shah relied upon the decision of this court in the case of CIT v. Vimlaben Bhagwandas Patel : [1979]118ITR134(Guj) . After considering the provisions of section 269C and 269D and the various decisions cited at the Bar the court observed that, in the context of section 269C of the Income-tax Act, the competent authority must have reason to believe about the ulterior motive of the transferor of tax evasion or tax reduction or of the transferee about the concealment of income which he should disclose for tax purposes. This is an objective fact about which the competent authority must be satisfied besides another objective fact that the fair market value of the property in question exceeds by the prescribed margin the apparent consideration thereof. The court thereafter held that it is common ground between the Revenue and the respective respondent-transferee that the conditions mentioned in section 269C(1) and section 269D(1) should be fulfilled before 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 per cent.; (iii) ulterior motive of tax evasion or concealment of income for such untrue statement of apparent consideration in the instrument of transfer of such property; (iv) recording of reasons by the competent authority; and (v) publication of notice to that effect in the Official Gazette. The court further held that the presumption under section 269C(2) would not operate at any stage prior to the decision of the competent authority can initiate proceedings for acquisition under section 269C on a condition precedent being satisfied only by an appropriate notice in the Official Gazette.
7. The aforesaid decision in the case of Vimlaben Bhagwandas Patel : [1979]118ITR134(Guj) was relied upon by a Division Bench of this court in the case of Sarabhai M. Chemicals (P.) Ltd. v. P. N. Mittal : [1980]126ITR1(Bom) . The court held that the satisfaction of the competent authority for the initiation of proceedings for the acquisition of an immovable property is the subjective satisfaction on the objective facts stated in the section. The reasons for the formation of the belief must have a direct connection with the material coming to the notice of the competent authority though the question of sufficiency or adequacy of the material is not open to judicial review. The presumption prescribed in clauses (a) and (b) of sub-section (2) of section 269C will not operate at any stage prior to the decision of the competent authority to initiate proceedings. The court thereafter negatived the contention raised on behalf of the respondents that though presumptions under section 269C(2) are not available at the stage of formation of the belief contemplated by section 269C(1), it would be open to the competent authority to draw an inference on the same lines as presumption set out in clauses (a) and (b) of section 269C(2). The court thereafter held that there was nothing transfer as agreed to between the parties has not been truly stated in the instrument of transfer with such object as mentioned in section 269C(1)(a); from the valuer's report the competent authority could show that the apparent consideration was less than the fair market value of the property and the property which was involved in the transaction was of a fair market value exceeding Rs. 25,000, but in the transaction was of a fair market value exceeding Rs. 25,000, but in the absence of the presumption arising under section 269C(2)(a), there was no material to show that the consideration for such transfer as agreed to between the parties had not been truly stated in the instrument of transfer.
8. In the present case also, it is apparent that there is no material with the respondents for forming the opinion that : (a) the object of not truly stating the consideration is to facilitate the reduction/evasion of liability of the transfer to pay tax in respect of any income, profit or gain arising from the transfer; or (b) of facilitating the concealment of any income or any moneys or other assets which had not been or which ought to be disclosed by the transferee for purposes of income-tax assessment proceedings. In the reasons recorded by the respondent which are at annexure 'C' to this petition, there is no such statement that the respondent has not stated anything which would indicate that the respondent had gathered such material except that 'in the facts of the case, there is material to show that the consideration is not truly stated in the instrument of transfer, since there is a huge difference between the apparent consideration stated in the instrument and the fair market value of the property'. Considering section 269C(1) and the ratio of the decisions in the cases of Vimlaben Bhagwandas Patel : [1979]118ITR134(Guj) and Sarabhai M. Chemicals (P.) Ltd. v. P. N. Mittal : [1980]126ITR1(Bom) before arriving at the conclusion that clauses (a) and/or (b) of section 269C(1) are satisfied, the competent authority must have some material from which it can be stated that consideration for such transfer as agreed to between the parties has not been truly stated in the instrument of transfer with with the objection of facilitating the reduction of tax or evasion of the liability of the transferor of pay tax or facilitating the concealment of any income or moneys or other assets of the transferee.
9. Further, the contention of the respondent that there is difference in the fair market value (as assessed by the District Valuation Officer) and the consideration stated in the instrument of transfer would be sufficient for initiation of the proceedings requires to be rejected as it would result in rendering part (underlined portion) of section 269C(1) redundant. The relevant part of section 269C(1) is as under :
'269C. (1) Where the competent authority has authority has reason to believe that any immovable property of a fair market value exceeding one hundred thousand rupees has been transferred by a person (herein this Chapter referred to as the 'transferor') to another person (herein this Chapter referred to as the 'transferee') for an apparent consideration which is less than the fair market value of the property and that the consideration for such transfer as agreed to between the parties has not been truly stated in the instrument of transfer with the object of -
(a) facilitating the reduction or evasion of the liability of the transfer to pay tax in respect of any income arising from the transfer; or
(b) 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 purposes of the Indian Income-tax Act, 1922 (11 of 1922), or this Act or the Wealth-tax Act, 1957 (27 of 1957),
the competent authority may, subject to the provisions of this Chapter, initiate proceedings for the acquisition of such property under this Chapter :
Provided that before initiating such proceedings, the competent authority shall record his reasons for doing so : Provided further that no such proceedings shall be initiated unless the competent authority has reason to believe that the fair market value of the property exceeds the apparent consideration therefor by more than fifteen per cent. of such apparent consideration.'
10. From the above-quoted section, it is apparent that, for initiation of proceedings along with other conditions, the competent authority must have reason to believe, that is, it must have some material for arriving at the conclusion that, for ulterior motive of tax evasion or concealment of income, untrue statement with regard to consideration is made in the of income, untrue statement with regard to consideration is made in the instrument of transfer. Therefore, there must be some material with the authority to show that some amount over and above the consideration mentioned in the instrument of transfer has passed between the parties. If only inference was required to be drawn from the fair market value and from the consideration stated in the transfer deed, then there was no necessity of incorporating the underlined portion with clauses (a) and (b) of section 269C(1). That is, the Legislature would not have incorporated part of sub-section (1) beginning from the words 'and that the consideration for such transfer as agreed to between the parties has not been truly stated in the instrument of transfer with the objects as mentioned in clauses (a) and (b) of sub-section (1)'.
11. The decision of this court in the case of CIT v. Vimlaben Bhagwandas Patel : [1979]118ITR134(Guj) , is relied upon by the Company High Court in the case of All India Reporter Ltd. v. Competent Authority : [1986]162ITR697(Bom) . The court relied upon the following observations made by this court (At page 164) :
'In the context of section 269C of the Income-tax Act, the competent authority must have reason to believe about the ulterior motive of the transferor of tax evasion or tax reduction or of the transferee about the concealment of income which he should disclose for tax purposes. This is an objective fact about which the competent authority must be satisfied......'
12. The same view is taken by the Bombay High Court in the case of Udharam Aildas Thadani v. I.A.C. of I.T. : [1990]184ITR439(Bom) . The relevant observations are as under (at page 444) :
'In the absence of the assistance of Sub-section (2) of section 269C, satisfaction of this condition would require existence of some material to suggest that some amount over and above the consideration shown in the sale deed, as a matter of fact, passed between the vendors and the petitioners. This is what was held by the Supreme Court in the case of K. P. Varghese v. ITO : [1981]131ITR597(SC) , though in a difference context. Except for stating that the transaction was at arm's length and, therefore, there could not be any justification was at arm's length and, therefore, there could not be any justification for the vendor's selling the suit property at a concessional rate so that it must be assumed that some consideration must have passed between the parties beyond what was stated in the sale deed. Dr. Balasubramanian was not able to show any material which could even remotely satisfy this condition precedent for assumption of jurisdiction. As stated by me earlier, the presumption under sub-section (2) is not available for the assumption of jurisdiction under section 269C. If that presumption is not available, there has got to be some material. Since admittedly, there is no material to suggest that any amount was paid by the petitioners to the vendors over and above the consideration stated in the sale deed, it has to be held that the third condition is not satisfied.
Lastly, Shri Dastur placed reliance on a circular issued by the Board being Circular No. 461 dated July 9, 1986, published in : [1986]161ITR42(Bom) . This circular was issued by the Board to explain the reasons for introducing Chapter XX-C in the Act in the place of Chapter XX-A. The Board has categorically stated in that circular that, under the provisions of Chapter XX-A, before the provisions, meaning thereby section 269C and 269D, could be invoked, it has to be proved that the consideration for transfer of an immovable property as agreed to between the parties had not been truly stated in the instrument of transfer with the object of facilitating the reduction or evasion of the liability of the transferor to pay tax or concealing the income or assets of the transferee. Since that was an impossible task and the provisions proved ineffective, Chapter XX-C was introduced. Taking a clue from the Board's understanding of the provisions also, one can easily say that the conditions requisite mentioned in section 269C without the help of the presumptive clauses are required to be satisfied before the competent authority can assume valid jurisdiction to initiate proceedings for acquisition under section 269D/269C.'
13. In view of the settled legal position, in our view, as there was no material with respondent No. 1 to suggest that some amount over and above the consideration shown in the sale deed as a matter of fact passed between the vendors and the petitioner or that it was with the objects mentioned in clauses (a) and (b) of sub-section (1) of section 269C, the initiation of the proceedings under section 269C is invalid.
14. Having regard to the above discussion, it is not necessary to deal with the other contentions raised by the learned advocate for the petitioner.
15. In the result, the petition is allowed. The impugned notice (exhibit 'M') dated March 21, 1983, us quashed and set aside. The respondents are restrained from taking further action in pursuance of the said notice. Rule made absolute with no order as to costs.