| SooperKanoon Citation | sooperkanoon.com/68588 |
| Court | Income Tax Appellate Tribunal ITAT Cochin |
| Decided On | Jun-20-1996 |
| Reported in | (1982)1ITD115(Coch.) |
| Appellant | Mathew M. Thomas |
| Respondent | inspecting Assistant |
632/1-2-3, 625/5 and 699/1 in Ernakulam village. The last property is a poramaboke land leased out to the transferor by the Cochin Corporation.
The extent of the land is detailed in the order of the IAC (Aqn.). Two buildings were situate in the first item of property while there was one building used as a residential house by one of the transferors in the second item of property. As mentioned earlier, these three properties are contiguous and together form one strip of land with buildings with the frontage on M. G. Road in Ernakulam. Only on document of transfer was executed fro these properties. The executants of the document are Narayanan Iyer and Smt. Chellammal. These properties belonged to one late Parameswara Iyer, elder brother of Narayanan Iyer and husband of Smt. Chellammal. He died on 14-10-1963.
At the time of his death, the building in the first property had been let out to Associated Engineering Corporation (P.) Ltd., while he and his wife used the building in the second property for the purpose of their residence. He died leaving a will which provided a life interest to Smt. Chellammal in the three properties and a reversionary interest to Narayana Iyer.
2. As mentioned earlier only one document was executed by these two persons, namely, Narayana Iyer and Chellammal, transferring their respective interests in the three properties. The following recital in the English translation of the document would appear to be relevant for the purpose of this appeal and, therefore, extracted : "Accordingly for all our rights in the properties, a sum of Rs. 1,85,000 determined at the price of the right of the first of us and of Rs. 60,000 as the price of the right of the second of us was agreed to be paid by you under an agreement dated 15the September, 1977 under which a sum of Rs. 10,001 was received by a cheque and we have received today the sum of Rs. 2,34,999 making a total of Rs. 2,45,000 (Rupees two lakhs forty thousand only). We are relinquishing all our rights in the schedule properties and are handing over the possession of the lands and of the building in the second property with the key thereof".
The transferees under the document are five persons, namely Mathew M.Thomas, a shareholder in Associated Engineering Corporation (P.) Ltd., and his four children. The transfer of the properties under the document is made jointly in favour of all the five transferees without specifying any particular part of the property being transferred to any particular transferee. It would appear that the advance in respect of this purchase was paid by Mathew M. Thomas under an agreement to sell.
The date of the document was 15-9-1977. The notice under section 269D of the Income-tax Act, 1961 ("the Act") was issued on 16-8-1978. It was published on 19-8-1978 in the Gazette of India. AT the time of the issue of the notice the competent authority had not obtained a valuation report of the engineer attached to the valuation cell of the department. He, however, obtained a report from the Inspector attached to him. The initiation of the proceedings under this Chapter on acquisition has been made on the basis of the report received by the competent authority. In addition it is the case of the transferees that the competent authority has also relied on the presumptions contained in section 269C. It may be clarified that the report of the Inspector was on the market value of the property.
3. In this order, the competent authority has adverted to the initiation of the proceedings under section 269D in the end of the first paragraph. This is what has been stated by him : "The building was inspected departmentally and since there was reason to believe that the fair market value of the property exceeded apparent consideration by more than 15 per cent of such apparent consideration and the consideration for such transfer as agreed to between the parties had not been truly stated in the instrument of transfer with the object of (a) facilitating the reducation or evasion of 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 income or any moneys or other assets which had not been or which ought to be disclosed by the transferee for the purpose of Income-tax Act, 1961, or the Wealth-tax Act, 1957, proceedings under section 269D was initiated." 4. After the initiation a reference was made to the valuation cell which estimated the fair market value of the property at Rs. 7,24,000 as against the stated consideration of Rs. 2,45,000. The competent authority took into account this valuation and then resorted to the presumption under section 269C (2) of the Act and held that the disparity between the market value and the stated consideration is sufficient to establish that there was conclusive proof that consideration for such transfer as agreed to between the parties has not been truly stated in the instrument of transfer. Various contentions were raised on behalf of the transferees before the competent authority regarding the correctness of the determination of the fair market value by the valuation cell and the correctness of the jurisdiction assumed by the competent authority based upon the presumptions contained in section 269C. The competent authority did not accept these contentions and held that the property should be acquired under section 269F (6) of the Act. Hence this appeal by the transferees.
5. It is submitted firstly on behalf of the transferees that the transferors were two, the transferees five and there were three different properties conveyed under the instrument and, therefore, in actually there were 30 transfers and not just one transfer as considered by the competent authority. It is contended that there is no provision for aggregation. It is also submitted that if the sale consideration is distributed over the 30 transfers then the consideration for each transfer would be less than Rs. 25,000 and, therefore, the provisions of the acquisition Chapter would not come into play. Reliance is placed in this regard on the decision of the Kerala High court in CIT v. T. V. Suresh Chandran (1980) 121 ITR 985 and also in the earlier decision of the Supreme Court in CGT v. R.Valsala Amma (1971) 82 ITR 828.
6. The second submission made on behalf of the transferees is this. The competent authority in the end of para 1 of his order refers merely to a departmental inspection and the presumptions in section 269C to initiate action under section 269D. It is submitted that the presumptions under section 269C are not available to the competent authority for the purpose of initiating proceedings under this Chapter.
It is the contention that the IAC (Aqn.) should have, independently of the presumptions under section 269C, reason to believe that the sale consideration was understated in the document with a view on the part of the transferor to avoid the capital in the document with a view on the part of the transferor to avoid the capital gains tax and on the part of the transferees to avoid tax liability under the Income-tax Act and the Wealth-tax Act. It is the contention that the material that was before the competent authority at the time of the issue of the notification under sections 269D was the departmental inspection report which might have indicated the market value of the properties in the opinion of the official who inspected the property. The further requirement for assuming jurisdiction under section 269D, namely, the requirement as to show prima facie that both the transferors and the transferors entertained objects of avoiding the tax liability as enumerated in section 269C have not been satisfied. The competent authority has not adduced any material to show that such objects were entertained either by the transferors, or by the transferees buy has merely relied upon the presumption in section 269C to come to the conclusion that the transferors and the transferees entertained such objects. It is submitted that the jurisdiction thus assumed by the competent authority is not a valid jurisdiction thus assumed by the competent authority is not a valid jurisdiction. Reliance in this regard is placed on several decision of the High Court and particularly on the following : CIT v. Smt. Vimlaben Bhagwandas Patel and Smt.
Kamlaben Kanjibhai Patel (1979) 118 ITR 134 (Guj.); Jai Kumar Kankara v. Competent Authority (1981) 130 ITR 595 (Cal.) and Sarabhai M.Chemicals (P.) Ltd. v. P. N. Mittal, Competent Authority (1980) 126 ITR 1 (Guj.).
7. It is pointed out that the valuation by the valuation cell was subsequent to the initiation. Even if it is to be conceded that the valuation by the valuation cell of the fair market value is correct, the report was not available to the competent authority at the time of the initiation of the proceeding under section 269D and, therefore, there was in fact no material that there was an understatement of consideration. In the absence of any such material there was also no material for the belief entertained by the IAC (Aqn.) that there was an object of tax evasion entertained either by the transferors or by the transferees.
8. It is thus seen that the jurisdiction assumed by the competent authority under section 269D read with section 269C has been assailed by the transferees on two counts. The first count is that actually there were 30 transfers in respect of three different immovable properties while the competent authority has considered all the three immovable properties and the 30 transfers together as one transaction.
The second count is that the conditions prescribed in section 269C are not fully satisfied.
9. On the two questions the department has the following submissions to make. There has been only one transfer as evidenced by the document itself. The document itself shows that the two transferors had transferred their respective interests in the three immovable properties in this particular transaction keeping all the three properties as one joint whole. The three properties are physically situated contiguously and could form one single property. The transferees have purchased this contiguous whole of the properties which were originally acquired by the transferors in three separate lots. No specific part of these contiguous properties has been given individually to the five transferees. All the transferors have come to own the immovable property, considered in the particular transfer deed, jointly, without any specific allocation physically of any part of these properties. In this respect, the transaction under consideration is different from the transaction in the case before the Kerala High Court in T. V. Suresh Chandran (supra) where identifiable parts of the transferred property were given to the different transferees. Hence this is only one transfer of one property purchased jointly by the six transferees. They have come together for the purpose of purchasing the property and, therefore, would form a single body, whether it be called association of persons or a body of individuals.
10. It is submitted that the words "reason to believe" appearing in section 269C should not be interpreted in the same sense in which the words have been considered to have been used in section 147. Section 147 upsets a concluded thing, namely, a completed assessment and in order to so upset a concluded matter rigorous conditions are required.
The words in section 269C come into play at the time of the initiation of the original proceedings and, therefore, they should not be given the same meaning as have been given in respect of the interpretation of section 147. Distinguishing the decision of the Calcutta High Court in Smt. Bani Roy Choudhury v. Competent Authority (1978) 112 ITR 111, on the ground that the competent authority in that case did not appreciate the fact that the transferor was the Life Insurance Corporation and, therefore, had misdirected himself, it is submitted that that decision may not be an authority to rule out an action by a competent authority under section 269D read with section 269C on an appreciation of the prima facie position obtaining in any other case. It is submitted that most of the cases did concede that the disparity in paying the apparent consideration and the fair market value could be a prima facie ground for initiating action under section 269C. Reliance is placed in this regard on the decision of the Delhi High Court in Mahavir Metal Works (P.) Ltd. v. Union of India (1974) 95 ITR 197 and of the decisions of the Gujarat High Court and Calcutta High Court in Sarabhai M. Chemicals (P.) Ltd. (supra) and Rai Bahadur G. V. Swaika Estate (P.) Ltd. v. M.N. Tewari (1980) 126 ITR 310 (Cal.). It is submitted that the IAC (Aqn.) in initiating the proceedings under section 269D in the instant case had based his action on the report of the departmental inspector, who being different from the valuation officer and being an authority under the Income-tax Act could express an opinion not only about the disparity in values but also about the scope for entertaining the belief as outlined in section 269C. The IAC (Aqn.) cannot be considered to have resorted to the presumptions contained in section 269C for the purpose of initiating proceedings under section 269C. He has based his action solely on the report of the Inspector which has given a computation of the market value of the property to the best of the judgment of the inspector and which has also suggested that the case would be covered under section 269C. It is further submitted that even if the IAC (Acq.) is considered to have had recourse to the presumptions contained in section 269(2), it would still be valid for initiating the proceedings under section 269D. Reliance is placed in this regard on the decision of the Delhi High Court in Mahavir Metal Works (P.) Ltd. (supra) 11. We have carefully considered these submissions made by both sides on the question of the jurisdiction assumed by the IAC (Aqn.). AS mentioned earlier, the transferees have attacked the jurisdiction both on the ground that there were more than one transfer involved and on the ground that there was no basis in fact for the IAC (Aqn.) to entertain the belief as outlined in section 269C. We do not agree with the assessee that the transaction as evidenced by the document under consideration here should be considered as evidencing 30 transfers.
There were three immovable properties because the properties were acquired at different times. Because there were five, buyers there were five transferees; but this arithmetical position would not really convert what is in fact and in law a single transaction into 30 different transactions. It is not even as though that each property was separately owned by each transferor. The transferors had different interest in the same three properties. The properties are situated contiguously and, therefore, it would form one property for the purpose of this particular transaction even though that one property was acquired in three different lots by the predecessor owner. The ratio of the decision of the Kerala High Court in T. V. Suresh Chandran (supra) cannot help the transferees here because in that case what was transferred were identifiable separate plots of land to the different transferees even though the document was only one. Here not merely the document is only one but the property has been transferred jointly without any specific shares to the five persons. We are, therefore, unable to accept this submission made on behalf of the transferees that there would have been 30 separate proceedings initiated under section 269D.12. We, therefore, consider that the other ground through which the jurisdiction of the IAC (Aqn.) has been assailed by the transferees should prevail. We have perused the report of the Inspector. In this report the Inspector has given a description of the location of the property, the measurement of the two buildings, the state of repairs of the buildings at the relevant time, the rent that is derived in respect of the property adjoining M. G. Road that was let out and an item of sale on 27-2-1975 at the rate of Rs. 15,000 per cent of a land by the side of M. G. Road. After detailing all these the Inspector worked out a fair market value of the property at Rs. 3,24,000 on the basis of a value of Rs. 12,000 per cent for the land. In doing this he had made sme reducations from the recorded sale of Rs. 15,000 per cent for the expenditure that would be incurred to vacate the tenant in this property. He concluded the report by saying that "there is, therefore, prima facie case for initiating action under section 269C". The IAC (Aqn.), after perusing this report, the records of the case and after discussion with the Inspector, has recorded that he was satisfied on the evidence that this was a fit case for action under section 269C. It is on the basis of this that the departmental representative has contended that the competent authority had not resorted to the presumptions contained in section 269C (2).
13. We would, for the sake of argument, accept this contention advanced on behalf of the department. Requirements of section 269C have been analyzed in the following decisions and more particularly in the decision of the calcutta High Court in Competent Authority v. Smt. Bani Roy Chowdhury (1981) 7 Taxman 105, Sarabhai M. chemicals (P.) Ltd. v.P. N. Mittal (supra), Tube Mill (India) (P.) Ltd. v. IAC (1980) 122 ITR 72 (Cal.) and CIT v. Madho Properties Ltd. (1981) 131 ITR 380 (CAl.).
It has been held that the four requirements under section 269C for initiating the proceedings are not disjunctive but conjunctive in respect of three of them, the fourth being an alternative to the last of the three other requirements. these requirements are that the fair market value of the immovable property must exceed Rs. 25,000, that the apparent consideration for the transfer should be less than the fair market value of the property and that the consideration for the transfer has not been truly stated in the instrument of transfer, with one of the two objects of tax evasion enumerated in clauses (a) and (b) of sub-section (1) of section 269C. Clause (a) relates to the reduction or evasion of the liability to pat tax under the Act in respect of any income arising from the transfer, while clause (b) deals with the possibility of evasion both under the Income-tax Act and under the Wealth-tax Act on the part of the transferee. It has been held that the first two conditions and one or there other of the last two conditions must be satisfied in order to validly initiate action under section 269D. In the instant case, it can be said that the fist two conditions are satisfied. The fair market value of the property is higher than the sum of Rs. 25,000 stipulated in the section. It may also be said that the fair market value of the property is more than the apparent consideration. Nevertheless it cannot be said that there was any valid basis for the competent authority to entertain the belief regarding the object of tax evasion either by the transferor or by the transferee or by both of them. It is clear from the report of the Inspector and the order passed by the competent authority in such report that the competent authority has merely, on the basis of the disparity between the fair market value and the stated consideration in the document come to the conclusion that either of the two positions given in clauses (a) and (b) of sub-section (1) of section 269C are satisfied. In this connection we have to take into account the recent decision of the Supreme Court in the case of K. P. Varghese v. ITO (1981) 7 Taxman 13.
It has been held in connection with the interpretation of section 52(2) of the Act that understatement of the consideration in respect of the property transferred was one of the necessary conditions and that the onus of proving understatement, i.e., that the impugned assessee had received something over and above what is stated to be the consideration, was on the revenue. In the absence of such material evidence pointing to an understatement of the consideration, it has been held that the mere fact that the fair market value of the property was in excess of the consideration stated in the document would not enable the revenue to bring to tax the difference between the fair market value and the cost of acquisition of the capital asset. this decision in respect of the provisions of section 52(2) would have relevance in respect of the provisions of section 269C, especially clauses (a) and (b) of sub-section (1). It is necessary for the competent authority to form belief on rational, relevant and cogent material that the transferor had an object of reducing or evading the tax on the income arising from the transaction in question. In order to entertain this belief, we consider that there must be some material before the competent authority which would indicate that the consideration received by the transferor is more in fact than the consideration stated in the document. Without evidence to this effect there will be no basis in fact for a belief that the transferor entertained an object of tax evasion. Similar would be the position in respect of the transferee under clause (b) which refers not only to evasion of income-tax but also to evasion of wealth-tax. It seems to be contemplated by this particular clause that the transferee, by not accounting for the entire consideration paid in the document, is seeking to keep out of assessment the part of his income, that is not so accounted from the liability to both income-tax and the wealth-tax.
Even for this there must be some material before the competent authority to show that something more than the stated consideration in the document has passed between the transacting parities. We are, therefore, of the opinion that in the absence of any material indicating such a position there was no basis for the competent authority to entertain the belief that there was an object of tax evasion either on the part of the transferor or on the part of the transferee. The requirements of section 269C cannot, therefore, be considered to have been fully satisfied. Therefore, the initiation of the proceedings under section 269D by the IAC (Aqn.) cannot be considered to have been fully satisfied. Therefore, the initiation of the proceedings under section 269D by the IAC (Aqn.) cannot be considered to have been validly made. On this ground the order of the IAC (Aqn.) is cancelled as one without the requisite jurisdiction.
14. Several submissions have been made regarding the correctness of the estimation of the fair market value by the Valuation Officer. The Valuation Officer was also hear in this regard. We do not consider it necessary to deal with these submissions made by both the transferees and by the department as the IAC (Aqn.) cannot be considered to have acted with valid jurisdiction.