Citation Codes

Equivalent Citations

citation codes

Case Number

Second Appeal from Order No. 37 of 1976

Judges

K.N Singh
K.M Dayal, JJ.

Acts

s. 269H of the I.T Act, 1961,
Rent Control Act,

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Smart Summary

Summary of the Opinion (K.N. Singh, J.)

Factual and Procedural Background

The Assistant Commissioner (Competent Authority under s.269A, I.T. Act, 1961) received information that House No. 117-N/73, Kakadeo, Kanpur, had been transferred by Smt. Kamini Devi to Sri Prem Narain Tandon for a stated consideration of Rs. 49,500. After obtaining a report from the official valuer, the Competent Authority issued show-cause notices to the transferor, transferee and the tenant on the ground that the apparent consideration appeared to be less than fair market value and the instrument might have understated consideration to evade tax, invoking Chap. XX-A of the I.T. Act.

The transferor (Smt. Kamini Devi) and transferee (Sri Prem Narain Tandon) both appeared and filed objections. The transferor said she sold due to tenant problems and family circumstances and received a price she regarded as fair; the transferee challenged the departmental valuer and relied on a private valuer (Shri H.C. Kaushal) and rent-capitalisation evidence.

The Competent Authority accepted the departmental valuer's report (fair market value Rs. 77,700 by land-and-building method), found the sale consideration understated by more than 15% and, after approval by the CIT, ordered acquisition under Chap. XX-A. The transferee appealed to the Income-tax Appellate Tribunal (ITAT), which set aside the Competent Authority's order, holding the apparent consideration of Rs. 49,500 to be the fair market value (the Tribunal applied a rent-capitalisation method and rejected the departmental valuer's large addition for a "Kanpur Index"). The Commissioner appealed to the High Court under s.269H of the Act.

Legal Issues Presented

Whether the appeal to the High Court under s.269H is maintainable — specifically, whether the appeal involves any "question of law" (s.269H allows appeal to the High Court on questions of law only).
Whether the Appellate Tribunal acted perversely or in error of law in rejecting the departmental (official) valuer's report—i.e., whether the Tribunal's valuation findings raised a question of law cognisable in an appeal under s.269H.
Whether it was permissible to produce the departmental valuation officer before the High Court when the officer had not been produced before the Appellate Tribunal (i.e., whether the department could supply that explanation at the High Court stage).

Arguments of the Parties

Transferor's Arguments (Smt. Kamini Devi)

The transferor asserted that three-quarters of the house was occupied by a tenant who had not been paying rent and there was pending litigation; her husband was old and disabled and she sought to sell and move.
She said she received an offer of Rs. 54,000 which was accepted; an agreement for sale was entered on 5 August 1972 and she received Rs. 10,000 as advance; sale deed was executed in August 1973 after District Magistrate permission.
She maintained that the price she received was the fair market price and there was no intention to conceal or understate the consideration to evade tax.

Transferee's Arguments (Sri Prem Narain Tandon)

The transferee challenged the departmental valuer's report and maintained that, if market price were determined on rent-capitalisation basis, the sale consideration was fair market value.
He relied on a report from Shri H.C. Kaushal, an approved valuer, which assessed the pre-sale value at Rs. 38,412.
He stated that the property had been let since 29 November 1971 at monthly rent Rs. 225 but the tenant was not paying; municipal (Nagar Mahapalika) assessment for quinquennial period showed annual letting value Rs. 3,300 and house/water tax assessments (Rs. 288.75 and Rs. 206.25 respectively).

Appellant's / Department's Arguments (Commissioner / Competent Authority)

The Competent Authority adopted the official valuer's land-and-building valuation (fair market value Rs. 77,700) and held the apparent consideration understated by more than 15%, justifying acquisition under Chap. XX-A and clauses (a) and (b) of sub-s. (1) of s.269C.
Before the High Court, learned counsel for the appellant contended that the Tribunal acted perversely in rejecting the official valuer's report, which had added 65% for a "Kanpur Index" (about Rs. 21,000) to land-and-building cost.
The Department sought permission to produce the official valuer before the High Court to explain the 65% addition, arguing that this would justify the departmental valuation.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
CIT v. S.S. Shanmughanatha Nadar, [1979] 120 ITR 80 (Mad)	That determination of market value and depreciation of a building (including whether a sale was a distress sale) are questions of fact; the High Court in an appeal under s.269H cannot interfere on matters of fact.	The court relied on this authority to hold that the Appellate Tribunal's valuation findings were findings of fact and that the High Court's jurisdiction under s.269H is confined to questions of law; accordingly the appeal was not maintainable on facts alone.

Court's Reasoning and Analysis

The court proceeded by first examining the scope of s.269H. It emphasised that s.269H permits an appeal to the High Court only on questions of law and that no appeal under s.269H lies to reappraise findings of fact. The court observed that counsel for the appellant had not shown any question of law arising from the Tribunal's order.

The court noted that the Appellate Tribunal had considered both the departmental (official) valuer's report and the report of Shri H.C. Kaushal and had recorded findings after appraisal of material on record. Those findings related to valuation methodology and fact-based assessment of fair market value and therefore did not constitute questions of law. The court relied on the cited precedent to reinforce that market-value disputes and questions such as whether a sale is a distress sale are questions of fact not open to the High Court in an appeal under s.269H.

On the department's contention that the Tribunal acted perversely in rejecting the departmental valuer's addition of 65% for the "Kanpur Index," the court examined the official valuer's report and observed that the report did not explain the basis for adding 65%. The Tribunal had concluded that excluding that addition, the departmental valuer's own figures yielded a value of about Rs. 55,000, which would be less than 15% above the sale consideration.

The court refused the department's request to summon the valuation officer before the High Court, because the valuation officer had not been produced before the Appellate Tribunal. The court explained that s.269L(3) gives the Competent Authority an opportunity to produce the valuation officer before the Appellate Tribunal; lacking that, it was open to the Tribunal to weigh the evidence and reach its own conclusion. The High Court's role is confined to questions of law and it was inappropriate to permit a reappraisal based on oral explanation from the valuer at the High Court stage.

The court reviewed the Tribunal's use of the rent-capitalisation method. The Tribunal observed that three-fourths of the house was let and adopted an annual rental figure (netting an allowance) and applied a multiplier (16) to arrive at approximately Rs. 48,000, finally adjusting to about Rs. 50,000. The court found no error in applying this recognised method of valuation (citing that valuation on annual rental basis is well recognised and the Legislature has provided for such an approach under W.T. Rules, r.1BB).

The court emphasised the stringent nature of Chap. XXII-A affecting property rights and noted that authorities must strictly follow statutory procedure and fairly place all material before the Appellate Tribunal. Because the Competent Authority did not produce the valuation officer before the Tribunal, the Tribunal was entitled to reject or discount the unexplained addition and determine value on available material. Consequently, the Tribunal's decision did not amount to perversity or error of law and there was no question of law for the High Court to decide.

Holding and Implications

Holding: The appeal is dismissed. The High Court found that the appeal under s.269H did not involve any question of law and was therefore not maintainable; furthermore, the Appellate Tribunal acted within its jurisdiction in setting aside the Competent Authority's order.

Implications:

The direct effect is that the Appellate Tribunal's order setting aside the Competent Authority's acquisition order stands and the appeal by the Commissioner is dismissed with costs.
The decision underscores that appeals to the High Court under s.269H are confined to questions of law and that factual determinations (including valuation disputes and whether a sale is a distress sale) are not reviewable in such an appeal.
The opinion stresses that where the Competent Authority proposes acquisition under Chap. XXII-A (which affects property rights) it must place all material, including the valuation officer, squarely before the Appellate Tribunal; failure to do so may permit the Tribunal to reject unexplained valuation additions.
The court did not set aside or create a new principle of law beyond applying existing limits on s.269H jurisdiction; the ruling rests on the facts and statutory jurisdictional constraint and does not establish any broader novel precedent beyond its application to the facts before it.

Result: Appeal dismissed with costs.

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Commissioner Of Income-Tax, Kanpur-I v. Prem Narain Tandon.

K.N Singh, J.:— The Commissioner of Income-tax has filed this appeal under s. 269H of the I.T Act, 1961, against the order of the Income-tax Appellate Tribunal, Allahabad, dated May 21, 1976, setting aside the order of the competent authority, directing the acquisition of the property in dispute under Chap. XX-A of the I.T Act, 1961.

2. Briefly, the facts giving rise to this appeal are that the Assistant Commissioner, Income-tax, competent authority, appointed under s. 269A of the Act, received information that House No. 117-N/73 Kakadeo, Kanpur, was transferred by Smt. Kamini Devi, wife of Shri K.N Mehotra, to Sri Prem Narain Tandon for consideration of rupees 49,500. After obtaining the report of the official valuer, the competent authority initiated proceedings and issued notice to the transferor and the transferee as well as to the tenant occupying the house to show cause as to why the property should not be acquired under the provisions of Chap. XX-A of the Act. The notice was issued as the competent authority had reason to believe that the property was sold by the transferor to the transferee for an apparent consideration which was less than the fair market value of the property and the consideration for such transfer as agreed to between the parties was not truly stated in the instrument of transfer with the object of facilitating evasion of liability of the transferor to pay tax in respect of the income arising from the transfer by the transferor for the purpose of income-tax.

3. The transferor and the transferee both appeared and filed objections. The transferor, Smt. Kamini Devi, pleaded that ¾th of the house in dispute was occupied by a tenant, who had not been paying rent and a suit had been going on between her and the tenant. Her husband was old and disabled. She wanted to sell the property and move to another locality. She got an offer from the transferee, Prem Narain Tandon, for Rs. 54,000, which was accepted, and on August 5, 1972, parties entered into an agreement for sale and the transferor received a sum of Rupees 10,000 as advance sale money from the transferee. After obtaining permission of the District Magistrate she executed the sale deed in August, 1973. She asserted that the price received by her was the fair market price of the property and there was no attempt to make any concealment or underestimate the price.

4. Prem Narain Tandon, the transferee, also contested the proceedings. He challenged the report of the departmental valuer and asserted that if the market price of the property was determined on rent capitalisation basis it would be found that the sale consideration represented the fair market price. He relied upon the report of one Shri H.C Kaushal, an approved valuer, who had assessed the value of the house before the sale. According to his report the value of the property before the transfer was Rs. 38,412 only. Sri Tandon further pleaded that the sale money paid by him was the fair market value of the property. He stated that the property had been let out to a tenant since 29th November, 1971, on monthly rent of Rs. 225 and the tenant was not paying the rent. The property had been assessed by the Nagar Mahapalika, Kanpur, in the quinquennial assessment for 1973-74 to 1978-79, on the annual letting value of Rs. 3,300 and the house tax and water tax was assessed at Rs. 288.75 and Rs. 206.25, respectively.

5. The Competent Authority after hearing the transferor and the transferee held that since the property was not covered by the Rent Control Act, the method of determining the market price on the basis of annual rental value was not applicable; instead, the market value of the property was to be determined by the land and building method. The Competent Authority rejected the report of Sri Kaushal and accepted the report of the official valuer, according to which the fair market value of the property on the date of sale was Rs. 77,700. The Competent Authority further held that the transferor's plea that it was a distress sale was not convincing. On these findings the Competent Authority held that the fair market value of the property exceeded the apparent consideration by more than 15% and the consideration as agreed to between the transferor and the transferee was not truly stated in the instrument of transfer with such objects as is referred in clauses (a) and (b) of sub-s. (1) of s. 269C. After obtaining the approval of the CIT, the Competent Authority passed an order for acquisition of the property under Chap. XX-A of the Act. Aggrieved, the transferee filed appeal before the Income-tax Appellate Tribunal, Allahabad, under s. 269G of the Act. The Tribunal, on appraisal of evidence available on record and after hearing the department and the transferee, held that the apparent consideration shown in the transfer sale deed at Rs. 49,500 was the fair market value of the property and as such the provisions of Chap. XX of the Act could not be applied and the property in dispute could not be acquired. On these findings the Tribunal set aside the order of the Competent Authority. Aggrieved, the Commissioner preferred this second appeal under s. 269H of the Act against the order of the Tribunal.

6. Section 269H provides that the Commissioner or any person aggrieved by the order of the Appellate Tribunal under s. 269G may, within 60 days, prefer an appeal against the order to the High Court on any question of law (Emphasis* supplied). No appeal under s. 269H is permissible against the order of the Appellate Tribunal before the High Court on a question of fact as the jurisdiction conferred on the High Court is in the nature of a second appeal. The Legislature has specifically provided that the appeal before the High Court which is against the order of the Appellate Tribunal will be maintainable on a question of law only. The counsel for the appellant has failed to point out that the appeal involves any question of law. The Appellate Tribunal considered the report of the official valuer as well as the report of Sri H.C Kaushal; it took into consideration the annual rental value of the property in determining the fair market value of the property. These findings were recorded on an appraisal of the material on record. The Tribunal did not decide any question of law nor any such question is involved. In CIT v. S.S Shanmughanatha Nadar, [1979] 120 ITR 80 (Mad), a Division Bench held that the question as to what was the market value of the property on the date of sale and what depreciation should be granted in respect of a building are questions of fact which do not enable the High Court to interfere with the order of the Tribunal in an appeal under s. 269H of the Act. The Bench further held that the question that a sale was distress sale, was also a question of fact. On these findings the Bench dismissed the appeal without going into the merits of the case. In the instant case also the Appellate Tribunal has recorded findings of fact and no question of law is involved in the appeal. This appeal is liable to be dismissed on this ground alone without going into merits.

7. Learned counsel for the appellant urged that the Tribunal acted in a perverse manner in rejecting the report of the official valuer. The official valuer of the Department had determined the market value of the property at rupees 77,700 on land and building method. According to him the value of the land was Rs. 27,990 and the cost of building represented Rs. 49,734. In determining the aforesaid amount the official valuer added 65% of the cost for Kanpur Index. Thus he included an additional amount of Rs. 21,000 towards the value of the property. The Appellate Tribunal observed that the addition of 65% on the total cost of the land and building was unjustified and if that was excluded the market value of the property, according to the departmental valuer itself, would come to about Rs. 55,000, which has less than 15% of the amount for which the property was sold. On a perusal of the report of the official valuer it is apparent that it does not contain any reason for adding 65% for Kanpur Index over and above the value of the land and the cost of building. Learned counsel for the Department wanted to produce the official valuer before us to explain the addition of 65% for Kanpur Index but we refused to grant him permission for the same, as the Department had not produced the official valuer before the Appellate Tribunal to explain his valuation report. Section 269L(3) of the Act provides opportunity to the Competent Authority to produce the valuation officer before the Appellate Tribunal so that the Tribunal could hear him to assess the fairness or otherwise of the valuation made by the valuation officer. The valuation officer was not produced before the Tribunal. In the absence of the valuation officer, it was open to the Tribunal to weigh the pros and cons and come to its own conclusion on the question of fair market value of the property. Since the valuation officer was not produced before the Appellate Tribunal, the Department was not entitled to produce the valuation officer before this court as the jurisdiction of this court is confined to the questions of law and it is not permissible to reappraise the report of the valuer or record a finding on the basis of submissions made by the valuation officer before us. In our opinion, since the competent authority failed to produce the valuation officer before the Appellate Tribunal, it was Open to the Tribunal to discard the addition of 65% for Kanpur Index in determining the market value of the property.

8. The provisions of Chap. XXII-A of the I.T Act affect the property right of a citizen. These provisions are stringent which result in an appropriation of property by the State. The authorities administering these laws should not lightly invoke these provisions. When proceedings for acquisition of property of a citizen are initiated by the Competent Authority the provisions of the Act should be strictly followed. In cases where the Competent Authority proposes to acquire a citizen's property he should place all material fairly and squarely before the Appellate Tribunal, which is the appellate authority under the Act on questions of fact and law. The appellate authority has jurisdiction to accept or to reject-the valuation report of the valuation officer. The Competent Authority failed to place the report of the valuation officer before the Tribunal for the purpose of substantiating his evaluation of the property in dispute. In the circumstances the appellate authority was free to determine the valuation on the material on record and it would be unfair to hold that the ultimate decision of the Tribunal is a perverse order. The Tribunal, in our opinion, did not commit any error in rejecting the addition of 65 per cent, for Kanpur Index.

9. The Appellate Tribunal held that the Competent Authority was not justified in discarding the capitalisation method of determining the market price of the house in dispute on the basis of its annual rental value. The appellate authority observed that since ¾th portion of the house was let out to a tenant on rent, the market value of the property could be determined on its annual rental value. Since ¾th of the property was let out on a rent of Rs. 3,000 per annum, the Tribunal determined the rent of the entire property at Rs. 4,000 and after making an allowance to the extent of 25% for the rent, taxes etc., it determined the net rental value on the basis of Rs. 3,000 per annum. The Tribunal applied a multiple of 16 to the annual rental value and thereby determined the fair market value of the property at Rs. 48,000. The Tribunal further added 30% to the value, as the sale transaction had taken place in August, 1973, whereas the house in dispute was constructed in 1968, and thus the value of the property was determined at Rs. 50,000. We find no error in the approach of the Tribunal in determining the value of the property on annual rental value. The mode of determining the value of the building on the basis of annual rental value is well recognised. Even the Legislature has prescribed this method under the W.T Rules, r. 1BB, which permits the valuation of a building on the basis of the annual rental income by applying a multiple of 10%. The Tribunal, in our opinion, did not commit any error or transgress its jurisdiction in determining the market value of the property on the basis of the annual rental value.

10. In view of the above discussion, we are of the opinion that the Appellate Tribunal acted within its jurisdiction in setting aside the order of the appraisal of the material available on the record which does not suffer from any error of law or fact. However, the appeal does not involve any question of law; as such it is not maintainable.

11. In the result the appeal fails and is accordingly dismissed with costs.

Commissioner Of Income-Tax, Kanpur-I v. Prem Narain Tandon.

Summary of the Opinion (K.N. Singh, J.)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Transferor's Arguments (Smt. Kamini Devi)

Transferee's Arguments (Sri Prem Narain Tandon)

Appellant's / Department's Arguments (Commissioner / Competent Authority)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Commissioner Of Income-Tax, Kanpur-I v. Prem Narain Tandon.

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