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Mohammed Mahboob Ali Saheb And Others v. Inspecting Assistant Commissioner Of Income-Tax
Factual and Procedural Background
This appeal under Section 269H of the Income-tax Act challenges the order of the Income-tax Appellate Tribunal, Hyderabad Bench, which dismissed the appellants' appeal against an order of the Inspecting Assistant Commissioner of Income-tax, Acquisition Range, Hyderabad (competent authority) dated May 3, 1975.
The material facts as stated in the opinion are:
- One Smt. Ashrafunnisa Begum and her two sons sold an open plot (Municipal No. 16-7-767 near Chaderghat Bridge, Hyderabad) to Mohammed Mahboob Ali, his wife and son (the appellants). The sale deed was registered on April 30, 1973.
- The sale deed covered 594 sq. yards (496 sq. metres) and recited consideration of Rs. 25,000, whereas a departmental enquiry estimated the market value at Rs. 60,000.
- The competent authority formed an opinion that the property was transferred for an apparent consideration less than fair market value to evade tax or facilitate concealment of income, and initiated acquisition proceedings by publishing a notice in the Official Gazette under Section 269D.
- Notice was served only on one of the three transferors (Ashrafunnisa Begum) and on all three transferees. Two transferors (the sons) were not served notice.
- One of the transferees, Mohammed Mahboob Ali, filed objections on December 24, 1973. Ashrafunnisa Begum did not file objections.
- The competent authority recorded and negatived the objections on May 8, 1974, gave the transferee an opportunity to be heard, and passed an acquisition order after obtaining the Commissioner's approval. The Appellate Tribunal upheld that order, prompting the present appeal.
Legal Issues Presented
- Whether the mandatory service requirement in Section 269D(2) — that the competent authority "shall cause a notice ... to be served on the transferor" — requires service on each transferor, and whether failure to serve notice on all transferors vitiates the acquisition proceedings.
- Whether service of notice on one transferor (the mother) can be treated as service on her other transferors/children (including one represented by power of attorney and another physically present) for the purposes of Section 269D(2).
Arguments of the Parties
Appellant's Arguments (as presented in the opinion)
- The appellants, through learned counsel Mr. T. Ramachandra Rao, contended that the proceedings are vitiated because notices were not served on all transferors as required by Section 269D(2); compliance with that sub-section is mandatory.
Respondent's (Revenue) Arguments (as presented in the opinion)
- The revenue, through learned counsel Mr. Rama Rao, argued that it was not necessary to serve notice on all transferors because notice served on Ashrafunnisa Begum should be deemed to be notice to her two sons (one of whom was represented by a power of attorney in the sale deed).
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Narinderjit Singh v. State of U.P. (Supreme Court) | Failure to comply with mandatory service/public-notice requirements under Section 4(1) of the Land Acquisition Act vitiates acquisition proceedings. | The court relied on this authority to support the proposition that mandatory procedural compliance (here, service under Section 269D(2)) is essential and that non-compliance vitiates the proceedings. |
| Khub Chand v. State of Rajasthan (Supreme Court) | Earlier decision cited as part of the line of authority holding that non-compliance with Section 4(1) (Land Acquisition Act) renders proceedings invalid. | Referred to as part of the Supreme Court's earlier decisions supporting the view that failure to observe mandatory notice requirements vitiates acquisition proceedings. |
| State of Mysore v. Abdul Razak Sahib (Supreme Court) | Non-compliance with Section 4(1) of the Land Acquisition Act renders the acquisition proceedings illegal. | Used to analogise and reinforce that mandatory notice provisions must be complied with under statutory acquisition regimes; applied to conclude non-compliance under Section 269D(2) vitiates proceedings. |
| Income-tax Officer v. Maramreddy Sulochanamma (Supreme Court) | Addressed factual inquiries about possession, management and representation of legal representatives; the Court remanded for fact-finding and did not hold that notice to one legal representative is notice to all. | The court distinguished this authority from the revenue's position, holding that it does not support treating notice to one legal representative as notice to all; the decision did not aid the revenue's contention. |
Court's Reasoning and Analysis
The court's analysis proceeded in a stepwise manner, derived directly from the text of the opinion:
- Construction of Section 269D(2): The court examined the language of Section 269D(2)(a), which requires that "The competent authority shall cause a notice ... to be served on the transferor, the transferee, the person in occupation ... and on every person whom the competent authority knows to be interested in the property." The court held that this provision is mandatory.
- Purpose of the mandatory requirement: The court explained the object of serving notice on those with title, possession and interest — to ensure that such persons are not deprived of property without opportunity to be heard and to allow transferors/transferees to show that there was no understatement of consideration or that fair market value did not exceed the instrument's consideration by the statutory margin.
- Application to facts: It was admitted that two of the transferors (the sons) were not served with notice. The court noted the sale deed language, explaining the vendors' identities, the mother's execution on behalf of one son through power of attorney, and the second son as a co-executant.
- Relevance of personal law and ownership: The court observed that under Mahomedan law there is no concept of a joint Hindu family or tenancy-in-common recognized in the same way as Hindu law; the property devolved as "Matruka" on the wife and two sons, and each transferor was entitled to a share under their personal law. Therefore, each transferor had separate entitlement to notice.
- Power of attorney versus notice to a co-transferor: The court accepted that, to the extent a son (Sultan Naseeruddin) was represented by a power of attorney and resident abroad, a notice to the mother could, arguably, be notice to that son. However, the court held that this could not be extended to infer that notice to the mother amounted to notice to the other son (Sultan Raheemuddin), who was a separate transferor and co-executant.
- Analogy to Land Acquisition Act authorities: The court drew on Supreme Court precedents under Section 4(1) of the Land Acquisition Act (Narinderjit Singh and related cases) to reason that where statutory notice requirements are mandatory, non-compliance vitiates the entire acquisition proceedings. The court applied that principle by analogy to Section 269D(2).
- Rejection of revenue's reliance on Maramreddy Sulochanamma: The court analysed the Maramreddy Sulochanamma decision and concluded it did not hold that notice to one legal representative is notice to all; therefore it did not support the revenue's contention that notice to the mother sufficed for both sons.
- Conclusion from analysis: Because two transferors who had title, possession or interest were not served with statutorily prescribed notice, they were denied the valuable statutory right to file objections. That denial vitiated the acquisition proceedings under Section 269D(2).
Holding and Implications
Holding: THE APPEAL IS ALLOWED; THE IMPUGNED ORDERS ARE SET ASIDE.
Direct implications for the parties:
- The acquisition order and related proceedings initiated under Sections 269C/269D (as challenged) were held to be illegal and void for non-compliance with the mandatory notice requirement of Section 269D(2).
- The appeal was allowed with costs. The court awarded costs and fixed an advocate's fee of Rs. 250.
Broader precedent: The opinion applied existing Supreme Court authorities as analogies to reinforce the importance of mandatory notice requirements; the court did not state that it was announcing a new principle of law beyond applying and distinguishing the cited precedents.
1. This appeal preferred under section 269h of the income-tux act is directed against the order of the Income-tax Appellate Tribunal, Hyderabad Bench, dismissing the appeal preferred by the appellants against, the order of the Inspecting Assistant Commissioner of Income-tax, Acquisition Range, Hyderabad (competent authority) dated May 3, 1975.
2. The facts leading to the filing of this appeal are these : One Smt Ashrafunnisa Begum and her two sons sold an open plot of land bearing Municipal No. 16-7-767 near Chaderghat Bridge, Hyderabad to Mohammed Mahboob Ali, his wife and son, who are the appellants before us. The sale deed was registered on April 30, 1973. The total area covered by the sale deed is 594 sq. yards (496 sq. metres) and the consideration specified in the instrument of transfer is Rs. 25,000. The department caused enquiries to be made through one of its inspectors and he submitted a report estimating the value of the property at Rs. 60,000 as against the consideration specified in the sale deed. The competent authority then initiated proceedings having formed an opinion that the property has been transferred for an apparent consideration, which is less than the fair market value in order that the transferor may evade the liability to pay tax and in order to facilitate the concealment of income by the transferee. The competent authority initiated proceedings by publishing a notice as required under Section 269D in the Official Gazette. The competent authority caused a notice to be served only on one of the three transferors and all the three transferees. Thereafter, Mohammed Mahboob Ali, one of the transferees, filed his objections to the notice on December 24, 1973. Smt. Ashrafunnisa Begum, one of the transferors, on whom a notice was served, did not file any objections. The competent authority recorded the objections raised by the transferee on May 8, 1974, and, thereafter, after giving him an opportunity of being heard, passed an order negativing all the objections raised by the transferee. On the material collected by the department and placed before him by the transferee, he passed the order for acquisition of the property in question after obtaining the approval of the Commissioner of Income-tax. That order was carried in appeal to the Appellate Tribunal and the Appellate Tribunal agreed with the findings recorded by the competent authority and saw no reason to interfere with the order appealed against. Hence the present appeal under Section 269H of the Income-tax Act.
3. Mr. T. Ramachandra Rao, the learned counsel appearing for the appellants, strenuously contended that the entire proceedings are vitiated as notices were not served on all the transferors. It is his case that the competent authority has to comply with the mandatory requirements of sub-section (2) of section 269d and that, as he has failed to cause notice served on all the transferors, the entire proceedings are illegal and void.
4. Mr. Rama Rao, the learned counsel appearing for the revenue, contended that it is not necessary that notices should be served under Subsection (2) of Section 269D on all the transferors in this case since a notice, has been served on Ashrafunnisa Begum who should be deemed to be the representative of her two sons also.
5. The validity or otherwise of the notice required to be served under sub-section (2) of section 269d depends upon the construction to be placed upon that sub-section. It is admitted by Mr. Rama Rao that no notices were served upon the two sons of Smt. Ashrafunnisa Begum, who are also the vendors. The sale deed recites:
[1 "We, Ashrafunnisa Begum, wife of the late Janab Sultan Qutubuddin Saheb, aged 45 years, occupation household, r/o Bashir Bagh, H. No. 3-6-69, Hyderabad, A.P.
Sultan Naseeruddin, son of Janab Sultan Qutubuddin Saheb, aged 2.5 years, occupation trade, residing at present at Germany, through attorney Ashrafunnisa Begum Saheba, r/o H. No. 3-6-69, Bashir Bagh, Hyderabad, A.P.
Sultan Raheemuddin, son of Janab Sultan Qutubuddin Saheb, aged 22 years, occupation student, residing at H. No. 3-6-69, Bashir Bagh, Hyderabad, A.P.
In the enjoyment of sound senses and understanding without any coercion or duress and of our own free will and intention do hereby affirm and declare.....
That the above-said sold property is a property purchased by my husband registered at serial No. 361 of 1960. After his death, it came into the possession of us, the vendors in succession."
6. It was executed by Ashrafunnisa Begum on her own behalf and on behalf of Sultan Naseeruddin as power-of-attorney holder. The, third executant of the sale deed is her second son, Sultan Raheemuddin.
7. There is no such thing as a joint Mahomedan family nor does the law recognise a tenancy-in-common in a Mahomedan family. When the members of a Mahomedan family live in commensality, they do not form a joint family in the sense in which that expression is used in the Hindu law (see Chapter VI, Mulla's Principles of Mahomedan Law, seventeenth edition, pages 44 and 54).
8. Even assuming that a notice served upon Ashrafunnisa Begum would be notice not only to her, but to her son, Sultan Naseeruddin, who was residing in Germany, as there was a power-of-attorney in her favour, it cannot be inferred that service of notice on her amounts to service of notice on Sultan Raheemuddin, her other son. Chapter XX-A of the Income-tax Act has been introduced for acquisition of immovable properties in certain cases of transfer to counteract evasion of tax. Section 269C deals with immovable properties in respect of which proceedings for acquisition may be taken. This section lays down conditions precedent to commencement of acquisition proceedings. The conditions to be satisfied are : (1) There should be a transfer of immovable property of a fair market value exceeding Rs. 25,000. (2) The competent authority should have reason to believe that the fair market value of the property exceeds the apparent consideration by more than fifteen per cent. of the apparent consideration. (3) He should also have reason to believe that the consideration for the transfer as agreed to between the parties has not been truly stated in the instrument of transfer. (4) Before he could proceed to take action under Section 269D, he has to form an opinion, on the basis of the material, that the understatement of the agreed consideration specified in the instrument of transfer was with the object of facilitating the reduction or evasion of the tax liability of the transferor in respect of any income arising from the transfer or facilitating the concealment of any income or wealth of the transferee; and he has to record the reasons therefor.
9. Section 269D(1) empowers the competent authority to initiate proceedings for acquisition of immovable property referred to in Section 269C by notice to that effect published in the Official Gazette. Section 269D(2)(a), with which we are now concerned, reads :
"The competent authority shall cause a notice under Sub-section (1) in respect of any immovable property to be served on the transferor, the transferee, the person in occupation of the property, if the transferee is not in occupation thereof, and on every person whom the competent authority knows to be interested in the property."
10. This provision is mandatory. Notice as specified in Sub-section (1) has to be served on the transferor of the immovable property, the transferee, the person in occupation of the property, if the transferee is not in occupation thereof, and on every person whom the competent authority knows to be interested in the property. The object in causing the notice served on the transferor, the transferee, the person in occupation of the property and on every person who is known to be interested in the property is to see that those who had title, possession and interest in the property are not deprived of that property without affording them an opportunity of being heard. Admittedly, no notice was served upon two of the transferors, though each of the transferors was entitled to a share in the immovable property in accordance with the personal law governing them. It has to be borne in mind that the property was purchased by the husband of Ashrafunnisa Begum and the "Matruka" property devolved upon his wife and two sons. When acquisition proceedings were initiated, all the transferors, who transferred their title, possession and interest in the property to the transferees, are entitled to be served with notice, as they could be proceeded against by the department for facilitating the reduction or evasion of the tax liability in respect of the income arising from the transfer.
11. If a section is mandatory and if there is non-compliance with the requirements of that section, the entire proceedings initiated would become vitiated. The Supreme Court, dealing with the requirements of Section 4(1) of the Land Acquisition Act, in Narinderjit Singh v. State of U. P., , clearly laid down that, where the Collector fails to cause public notice of the substance of the notification to be given at convenient places in the locality where the land sought to be acquired is situated, the whole acquisition proceedings are vitiated. In so holding, the Supreme Court followed its earlier decisions in Khub Chand v. State of Rajasthan, and C.A. No. 2361 of 1968 dated August 11, 1972 (State Of Mysore v. Abdul Razak Sahib ., ).
12. In another case arising under the Land Acquisition Act, State Of Mysore v. Abdul Razak Sahib ., , the Supreme Court had occasion to consider the question as to the validity of a notice issued under Section 4(1) of the Land Acquisition Act and held that non-compliance with the requirements of Section 4(1) would render the proceedings illegal. The right given to the transferor or transferee under Section 269D(2) is a valuable right to file objections objecting to the proceedings initiated for acquisition of the property sold. It would be open to the transferor as well as the transferee to show or establish that the fair market value of the property was the same as was specified in the sale deed or that the fair market value of the property did not exceed the apparent consideration by more than fifteen per cent. In this case, such an opportunity was denied to two of the transferors. The fact that notice was served on the mother of the two of the transferors will not satisfy the mandatory requirements of Section 269D, for each one of the transferors, if it was found that there was an understatement of the agreed consideration in the sale deed, would be guilty of facilitating the reduction or evasion of the tax liability in respect of the income arising from the transfer. They cannot be proceeded against for evasion of tax liability without due notice to them.
13. The learned counsel for the revenue sought to place reliance upon the decision in Income-tax Officer v. Maramreddy Sulochanamma . That was a case, where the Supreme Court remanded the case to the High Court for re-consideration after ascertaining certain facts regarding possession and management of the estate of the deceased-testator, regarding the execution of the will and its genuineness and as to who were all in possession of the properties of the deceased-testator under the terms of the compromise deed. The High Court was also asked to determine whether the Income-tax Officer had made any bona fide enquiry before issuing the notices or whether he had issued the notices to all the legal representatives of the deceased-testator. The Supreme Court did not say that notice to one of the legal representatives would be notice to all the legal representatives. The Supreme Court found fault with the Income-tax Officer for coming to the conclusion that the daughters of the deceased-testator alone were his legal representatives. Therefore, that decision renders no assistance to the proposition sought to be canvassed, viz., that Ashrafunnisa Begum was acting on behalf of her two sons. The fact that she did not choose to file objections does not by itself establish that the other two transferors had no objections to file in response to the proceedings initiated by the competent authority. We are of the opinion that a valuable right given by the statute, to file their objections questioning the commencement of the proceedings for acquisition has been denied to them and this denial of statutory right vitiates the entire proceedings and renders them illegal and void. We, therefore, set aside the impugned orders and allow the appeal with costs. Advocate's fee Rs. 250.
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