M.M. Dutt, J.
1. In this appeal, the revenue has challenged the propriety of the judgment of R. M. Datta J. : [1978]112ITR111(Cal) whereby the learned judge has made the rule nisi obtained by the respondent No. 1, Smt. Bani Roy Chowdhury, on her application under Article 226 of the Constitution, absolute.
2. By a registered conveyance dated December 11, 1972, the respondent No. 1 purchased from the respondent No. 4, the Life Insurance Corporation of India, two plots of laud being plots Nos. 29/NA (E. P.) and 29/NA (W. P.) of Block B of the New Alipore Development Scheme, measuring 7 cottahs, at Rs. 5,000 per cottah. In the conveyance, the respondent No. 5, Hindusthan Building Society Ltd., was the confirming party. The said Society having been the controlled business of the Hindusthan Co-operative Insurance Society Ltd., its assets and liabilities were transferred to and vested in the Life Insurance Corporation of India on the appointed day, namely, September 1, 1956, by virtue of Section 7 of the Life Insurance Corporation Act, 1956. The said conveyance was preceded by an agreement for sale dated January 25, 1972, entered into between the respondent No. 1 and the Hindusthan Building Society Ltd. with the approval of the Life Insurance Corporation of India. Immediately, after such purchase, the respondent No. 1 had improved the land and started construction thereon and also on a contiguous one cottah plot of land purchased by her subsequently from the Life Insurance Corporation of India.
3. The respondent No. 1 received two notices, both dated June 18, 1973, issued under Section 269D(1) of the I.T. Act, 1961, by the competent authority wherein it was stated, inter alia, that the competent authority had reason to believe that the immovable property, namely, the said two plots of land, having a fair market value exceeding Rs. 25,000 had been transferred for an apparent consideration which was less than the fair market value of the property, that the competent authority had also reason to believe that the fair market value of the property exceeded the apparent consideration thereof, by more than 15% of such apparent consideration, and that the consideration for such transfer as agreed to by and between the transferor and the transferee had not been truly stated in the said instrument of transfer with the object of facilitating the reduction or evasion of liability of the transferor to pay tax in respect of an income arising from the transfer and/or facilitating the concealment of any income or any monies or other assets which had not been paid or which ought to have been disclosed by the transferee for the purpose of the Indian I.T. Act, 1922, the I.T. Act, 1961 or the W.T. Act, 1957. The competent authority, as stated in the said notices initiated proceedings in pursuance of Section 269C of the I.T. Act, 1961, by issuing the said notices to the Life Insurance Corporation of India, Hindusthan Building Society Ltd., and to the respondent No. 1, Smt. Bani Roy Chowdhury. Both the Life Insurance Corporation of India and the Hidusthan Building Society Ltd. were described as transferors and the respondent No. 1 was described as the transferee. Further, it was stated that objections, if any, to the acquisition of the said property should be made within the time as specified in the notices.
4. The respondent No. 1, Smt. Bani Roy Chowdhury, filed a written objection to the impugned notices and the proposed acquisition of the said two plots. Thereafter, a reference was made to the valuation officer under Section 269L(1)(a) of the I.T. Act, 1961, for valuing the property. The respondent No. 1 produced the conveyance before the valuation officer. There was a hearing by the competent authority, but nothing in favour of respondent No. 1 having resulted, she moved the writ petition and obtained the rule nisi out of which this appeal arises.
5. The revenue entered appearance in the rule nisi and opposed the same by filing an affidavit-in-opposition sworn by the IAC (Acqn.) Range-II, the competent authority. Annexure 'A' to the affidavit-in-opposition is a copy of the reasons recorded by the competent authority before he issued the impugned notices. The competent authority relied on certain materials and observed that he was convinced that the fair market value of 7 cottahs of land purchased by respondent No. 1 could not be less than Rs. 1,12,000 even if valued at Rs. 16,000 per cottah. In recording its reason to believe that the consideration for the transfer as agreed to between the transferor and the transferee has 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, etc., the competent authority relied on the presumption under Clause (b) of Sub-section (2) of Section 269C of the I.T. Act, 1961.
6. At the hearing of the rule nisi, it was, inter alia, contended on behalf of respondent No. 1, that there was no material before the competent authority for the formation of his belief under Section 269C(1), and that the competent authority was not legally entitled to rely on the presumption under Sub-section (2) of Section 269C. Further, it was contended that the competent authority having proceeded on the assumption that, the Hindusthan Building Society Ltd. was also one of the transferors, though the said society was only a confirming party, such erroneous assumption vitiated the formation of his belief and, consequently, the impugned notice.
7. The learned judge, after considering the facts and circumstances of the case and the submissions made on behalf of either party came to the finding, inter alia, that the competent authority took into its consideration any and every material that were available to him without even considering that the same were not material for the purpose of arriving at the correct and fair market value of the property. The learned judge observed that the competent authority completely failed to consider the fact that a party usually joins in a conveyance as a confirming party not in the capacity of a transferor, but mainly for the purpose of making out a good marketable title to the property so that in future there might not be any difficulty in the matter of passing title in the property to the vendee. Further, it was observed that if the competent authority had appreciated that fact, he might not have any reason to believe that the Life Insurance Corporation of India could possibly have tried to evade the tax by entering into such an agreement with respondent No. 1 and might have reached a different conclusion. As to the presumption under the provision of Sub-section (2) of Section 269C, the learned judge took the view that the said provision related to matters of proof for the purpose of simplifying the law of evidence in so far as the competent authority was concerned. Further, the expression 'any proceedings' cannot, in the opinion of the learned judge, include the administration stage when the competent authority has to arrive at an independent reason to believe that proceedings ought to be initiated, inter alia, for the reason that the transferor and transferee agreed to give untrue consideration in the instrument of transfer with the object of evasion of tax. Accordingly, the learned judge held that as the presumption did not apply, there was no material before the competent authority for the formation of the belief that the consideration as agreed to between the transferor and the transferee was not truly stated in the instrument of transfer. In the aforesaid view of the matter, the learned judge quashed the impugned notices and made the rule nisi absolute. Hence this appeal by the revenue.
8. The principal point that is involved in this appeal is as to the applicability of the presumption under Sub-section (2) of Section 269C of the I.T. Act, 1961, and the stage when the competent authority has to form his belief under Sub-section (1) of Section 269C of the Act. It may be stated here that Chap. XX-A containing Sections 269A to 269S was incorporated in the I.T. Act, 1961, by the T.L. (Amend.) Act, 1972. The provisions of Chap. XX-A relate to the acquisition of immovable properties in certain cases of transfer to counteract the evasion of tax. It is urged on behalf of the revenue that when the competent authority considers the question of issuing the notice, it is a proceeding as contemplated by Section 269C(2) of the Act and, as such, the competent authority is entitled to rely on the presumption under Clause (b) of Section 269C(2). On the other hand, the contention of respondent No. 1 is that the competent authority is not so entitled, for, there is no proceeding before the notice is served on the parties. In order to consider the point, namely, whether prior to the issuance of the notice there is a proceeding or not for applying the presumption, it is necessary to refer to the provision of Section 269C, which reads as follows ;
'269C. Immovable property in respect of which proceedings for acquisition may be taken.--(1) where the competent authority has reason to believe that any immovable property of a fair market value exceeding twenty-five thousand rupees has been transferred by a person (hereafter in this Chapter referred to as the transferor) to another person (hereafter in 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 transferor to pay tax under this Act 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 the 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 valueof the property exceeds the apparent consideration therefor by more than fifteen per cent. of such apparent consideration.
(2) In any proceedings under this Chapter in respect of any immovable property,--
(a) where the fair market value of such property exceeds the apparent consideration therefor by more than twenty-five per cent. of such apparent consideration, it shall be conclusive proof that the consideration for such transfer as agreed to between the parties has not been truly stated in the instrument of transfer ;
(b) where the property has been transferred for an apparent consideration which is less than its fair market value, it shall be presumed, unless the contrary is proved, that the consideration for such transfer as agreed to between the parties has not been truly stated in the instrument of transfer with such objects as is referred to in Clause (a) or Clause (b) of Sub-section (1).'
9. Under Sub-section (1) of Section 269C, before initiating proceedings for the acquisition of any immovable property which has been transferred, the competent authority must have reason to believe in regard to four matters, namely, (i) the immovable property has a fair market value exceeding Rs. 25,000, (ii) the apparent consideration is less than such fair market value by more than 15% of the apparent consideration, (iii) the consideration as agreed to between the parties has not been truly stated in the instrument of transfer, and (iv) such untrue statement has been made with the object of evasion of taxes as mentioned in Clauses (a) and (b). Subsection (1) consists of two stages, the first one is for the formation of belief by the competent authority and the second one is for the initiation of proceedings. The second stage is dependent on the first. In other words, if there be no reason to believe in regard to the four matters specified above, there is no question of initiation of - proceedings. It, therefore, follows that in the first stage there is no proceeding, but it relates to preparation for the initiation of proceedings. The boundary between the first stage and the second stage is the existence of materials on the basis of which the competent authority may form his belief and, in order to reach the second stage for the purpose of initiating proceedings for acquisition, the boundary has to be crossed. The presumption under Sub-section (2) of Section 269C can be made in any proceedings under Chap. XX-A under which Section 269C has been placed. So the presumption is applicable to any proceeding that may be initiated at the second stage under Sub-section (1) of Section 269C. It will have no application at the first stage when the competent authority forms his belief on the basis of materials available to him for the simple reason, as stated already, that the first stage is preparatory to the initiation of a proceeding which is yet to be initiated. Really, in the first stage, the competent authority discharges some administrative functions in the matter of formation of belief on the subjective satisfaction on the basis of certain materials. When, however, a proceeding is initiated, he proceeds judicially.
10. We may consider the question from another point of view. Under Sub-section (1) of Section 269C, the competent authority must have reason to believe certain facts as mentioned in Sub-section (1). The formation of belief must be on the basis of some materials the sufficiency of which cannot be questioned. The competent authority has not to come to any firm finding about any of the matters under Sub-section (1) on evidence. He has only to form his belief on materials that may be available to him for initiating proceedings for acquisition. At that stage, he is alone and has no opportunity to hear the transferor or the transferee or to receive any evidence. It is only after the service of notice, the transferor or the transferee files objections, valuation of the property is made and evidence is adduced. The competent authority, after considering the evidence as to the fair market value of the property, comes to a finding about such market value. His finding may be in favour of the parties contrary to the formation of his belief. Under Clause (a) of Sub-section (2) of Section 269C, if the fair market value of the property exceeds the apparent consideration by more than 25% of the apparent consideration, it shall be conclusive proof that the consideration for such transfer as agreed to between the parties has not been truly stated in the instrument of transfer. So far as Clause (b) is concerned the presumption of untrue statement of consideration, as agreed to between the parties, in the instrument of transfer, will apply if the fair market value exceeds the apparent consideration. In the instant case, it appears from annex. 'A' to the affidavit-in-opposition containing the recorded reasons of the competent authority, that he had reason to believe that the property had been transferred for an apparent consideration of Rs. 35,000 which was less than the fair market value of Rs. 1,12,000. It is obvious that the fair market value of the property believed by the competent authority to be Rs. 1,12,000 exceeded, on the face of it, by 25% of the apparent consideration of Rs. 35,000. If the contention of the revenue that the stage when the competent authority forms his belief under Sub-section (1) is a proceeding within the meaning of the expression 'any proceeding under this chapter' occurring in Sub-section (2), is accepted, then such belief of the competent authority will be conclusive proof that the consideration as agreed to between the parties has not been truly stated in the instrument of transfer, which is absurd and will render the provisions for filing objections, determination of valuation and decision of the competent authority meaningless and nugatory. While Clause (a) provides for conclusive proof, Clause (b) raises a presumption. If for the purpose of Clause (a) of Sub-section (2), the stage at which the competent authority forms his belief under Sub-section (1) is not a proceeding as contemplated by Sub-section (2), it will be quite unreasonable to think that it is a proceeding for raising the presumption under Clause (b) of Sub-section (2). The presumption under Clause (b) will arise if the fair market value of the property exceeds the apparent consideration. The fair market value has to be determined on evidence, including what may be adduced by the parties, and cannot, in our opinion, be the subject-matter of the belief of the competent authority for the purpose of raising the presumption under Clause (b).
11. Now, we may consider the decisions cited at the Bar. Mr. Balai Pal, learned counsel for the revenue, has placed reliance on a decision of the Delhi High Court in Mahavir Metal Works P. Ltd. v. Union of India : [1974]95ITR197(Delhi) . In that case, the competent authority before forming his belief got the property valued by a valuer. According to that valuation, the fair market value exceeded the stated value. It was observed that the presumption under Section 269C(2) that the consideration agreed to between the parties had not been truly stated in the instrument of transfer arose. It does not, however, appear that the point was specifically raised and argued in the case.
12. On the other hand, Mr. Pranab Pal, learned counsel for respondent No. 1, has cited before us a decision of the Gujarat High Court and a few decisions of this court. In Sarabhai M. Chemicals P. Ltd. v. P.N. Mittal : [1980]126ITR1(Guj) , the Gujarat High Court has taken the same view as we have, that the presumption under Sub-section (2) of Section 269C is not available at any stage prior to the initiation of proceedings and the issue of notice under Section 269D(1) of the I.T. Act, 1961. The same view has been taken in some single Bench decisions of this court in Subhkaran Chowdhury v. IAC : [1979]118ITR777(Cal) (Sabyasachi Mukharji J.), Tube Mill (India) P. Ltd. v. IAC : [1980]122ITR72(Cal) (M. N. Roy J.) and Rai Bahadur G.V. Swaika, Estate P. Ltd. v. M.V. Tewari : [1980]126ITR310(Cal) (Chittatosh Mookerjee J.). In the last mentioned case, it has been observed by Mookerjee J. that the word 'proceedings' in Section 269C(2) refers to judicial proceedings under the Act and not pre-initiation administrative steps taken by the competent authority and the competent authority cannot, therefore, rely on Section 269C(2) for forming his belief under Section 269C(1). Recently, a Division Bench of this court consisting of D. K. Sen and C. K. Banerji JJ. has also expressed a similar view in CIT v. Madho Properties Ltd. (Income-tax Appeals Nos. 9 and 10 of 1976, disposed of on September 12, 1980) : [1981]131ITR380(Cal) . Thus, it appears that this court has persistently taken the view that the presumption under Clause (b) of Section 269C(2) of the Act is not applicable to the stage when the competent authority forms his belief under Sub-section (1) of Section 269C, for, there is no proceeding at that stage.
13. Under Sub-section (1) of Section 269C of the Act, the competent authority has, inter alia, to form his belief that the consideration as agreed to between the parties has not been truly stated in the instrument of transfer. Such untrue statement is obviously due to the collusion of the transferor and the transferee. Where the transferor or the transferee is the Government or a statutory body there cannot be any scope for such collusion between the parties. The untrue statement about the agreed consideration is made only for the purpose of evasion of tax. When Government or any statutory body is a party to the transfer, the question of evasion of tax does not arise. Now, if the presumption under Clause (b) of Section 269C(2) is applied, it will mean that the untrue statement regarding the agreed consideration is made also at the instance of the Government or the statutory body, which is absurd. In the instant case, the LIC is the transferor and it is impossible to think that it would allow respondent No. 1 to make an untrue statement in the conveyance regarding the consideration as agreed to between them. The competent authority had, therefore, no justification for his belief that the consideration agreed to between the parties had not been truly stated in the instrument of transfer. The competent authority completely overlooked the fact that the Hindusthan Building Society Ltd. was merely a confirming party and not one of the transferors and, it was because of that, he assumed that the agreed consideration had not been truly stated in the conveyance. The competent authority also failed to notice that the property in question, namely, the said two plots, was the property of the LIC and not of the said society. Be that as it may, we are of the opinion, that the competent authority issued the impugned notices illegally and without jurisdiction and the learned judge was perfectly justified in quashing the same.
14. For the reasons aforesaid, the judgment of the learned judge is affirmed and this appeal is dismissed. In view of the facts and circumstances of the case, there will be no order for costs.
15. Mr. Ajit Sengupta, learned counsel appearing on behalf of the revenue, prays for a certificate for appeal to the Supreme Court under Article 134A of the Constitution of India. In our opinion, in view of the fact that the LIC was the transferor, there could not be any question of untrue statement about the agreed consideration in the instrument of transfer on the basis of which the impugned notices were issued and, accordingly, we are not inclined to grant the certificate 'for appeal as prayed for. The oral prayer fora certificate is disallowed.
A.K. Sarkar, J.
16. I agree.