M/S. Mahabir Metal Works Pvt. Ltd. And Another Petitioners v. Union Of India And Another S

V.S Deshpande, J.:— Is Chapter XXA of the Income Tax Act, 1961 as inserted therein by Taxation laws (Amendment) Act, 1972 (hereinafter called the Act of 1972) wholly or partly a law enacted “for the purpose of imposing or levying any tax or penalty” within the meaning of Article 31 (5) (b) (i) and/or is it a “law giving effect to the policy of the State towards securing the principles specified in clause (b) or clause (c) of Article 39” within the meaning of the first part of Article 31C of the Constitution ? If not, is it wholly or partly unconstitutional as being an unreasonable restriction on the fundamental right to hold property under Article 19 (1) (f) or as authorising the State to acquire property otherwise than for a public purpose thus contravening Article 31 (2) of the Constitution or as discriminating between similarly situated persons who evade tax liability and conceal income contrary to Article 14 of the Constitution ? The following is the background of law and facts out of which these twin questions have arisen for decision.

The Direct Taxes Enquiry Committee chaired by Shri Justice K.N Wanchoo, retired Chief Justice of India, was appointed by the Government in March 1970, inter alia.

“ (a) to recommend concrete and effective measures:

(i) to unearth black money and prevent its proliferation through further evasion;

(ii) to check avoidance of tax through various legal devices, including the formation of trusts; and

(iii) to reduce tax arrears.”

As observed in the final Report of the Committee (paragraphs 2.25, 2.26 and 2.197) despite the steps taken by the Government from 1936 onwards the twin problems of “black money and tax evasion” have continued unabated. In December 1970, the Committee made an interim Report to deal with them and the Taxation laws (Amendment) Act, 1972 was enacted to implement their recommendations. The salient features of the Act of 1972 are as follows: —

(1) An Assistant Commissioner of Income-tax scrutinises registered instruments of transfer of immoveable property of a fair market value exceeding rupees twenty-five thousand. If he has reason to believe 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 reducing or evading tax liability on income arising from the said transfer and/or concealing income or assets which ought to have been disclosed and that the fair market value of the property exceeds the apparent consideration by more than 15 per cent thereof, he may initiate a proceeding for the acquisition of such property.

(2) Every person interested in the property would be noticed and heard and the final order for acquisition of the property is not to be passed except with the approval of the Commissioner of Income-tax. The order is appealable to the Appellate Tribunal out of which a reference on a question of law to the High Court may also arise.

(3) Fair market value of the property is to be found with the help of qualified valuation officers. If it does not exceed the stated consideration by more than 15 per cent, the proceedings would be dropped. If it exceeds the stated consideration by more than 25 per cent, it shall be presumed, unless the contrary is shown during the hearing of the persons, that the consideration as agreed between the parties has not been truly stated in the instrument of transfer. Where the stated consideration is less than the fair market value of the property, it shall be presumed, unless the contrary is proved, that such understatement of the consideration or undervaluation of the property in the transfer deed was done with the object of reducing or evading the tax liability on the income arising from such transfer or for concealing any income or assets which ought to have been disclosed.

(4) The purchase of the property is viewed as consisting of two parts, namely, (a) the purchase of a part of the property the fair market value of which is equal to the consideration stated in the instrument of transfer, and (b) the purchase of the rest of the property for consideration which has not been stated in the transfer deed. The whole of the property is acquired by the Government and vests in the Government on such acquisition. The amount of compensation payable to the purchaser of the property would be the consideration stated in the transfer deed plus 15 per cent. The amount by which the compensation so paid falls short of the amount which would have been payable had the property been acquired under the Land Acquisition Act shall be deemed to have been realised by the Central Government as a penalty from the transferee for being a party to a transfer with the object of evading tax liability and or concealing income. This being done, no other penalty would be leviable on the purchaser on this account.

(5) The seller of the property who is also a party to the understatement of the consideration and undervaluation of the property in the sale deed and who is also supposed to have received more consideration than is stated in the instrument of transfer would be dealt with separately, for instance, under section 52 of the Income-tax Act, 1961. The relevant part of the Act of 1972 is inserted in the Income-tax Act, 1961 as Chapter XXA.

The Act came into force on 15th November 1972. The Taxation Laws (Amendment) Bill, 1971 was introduced in Parliament on 12th August 1971. The instrument of transfer was executed in favour of the petitioner by the seller of the property on 31st May 1972 for a stated consideration of Rs. 1,10,000/- of which Rs. 1,00,000/- is said to have been paid as earnest money and only Rs. 10,000/- has been paid before the Sub-Registrar when the deed was presented for registration. The deed was actually registered on 31st January 1973. Proceedings under Chapter XXA of the Income-tax Act were then initiated against the petitioner who challenges in the present writ petition the validity of the proceedings on the following grounds, namely: —

(1) That Chapter XXA of the Income-tax Act is a taxing statute and is not a law for the compulsory acquisition of property. A taxing power of the Legislature cannot be used primarily or incidentally for the acquisition of property. Such acquisition would be unconstitutional because (a) it is not a law “for the purpose of imposing or levying any tax or penalty” within the meaning of Article 31 (5) (b) (i) or for the purpose of “giving effect to the policy of the State towards securing the principles specified in clause (b) or clause (c) of Article 39” within the meaning of the first part of article 31c of the constitution, and therefore (b) it contravenes Article 19 (1) (f) by imposing an unreasonable restriction on the fundamental right of the petitioner to hold property and Article 31 (2) inasmuch as it purports to authorise acquisition of property otherwise than for a public purpose. The Act is also contrary to Article 14 of the Constitution inasmuch as some persons may genuinely deal with properties for muchless than their fair market value. Also all those who evade tax and conceal their income are similarly situated and form one class. While all persons who evade tax and conceal income are dealt with under the rest of the Income-tax Act, only those persons who purport to buy immoveable properties by understating the consideration are dealt with under Chapter XXA of the Income-tax Act. The latter are punished more severely inasmuch as their property which is a subject-matter of the transfer is itself acquired in addition to be deemed imposition of penalty while the former are only asked to pay a monetary penalty for concealment of income. Again, the seller of such a property is as much a party to this transaction as the buyer. But he is dealt with lose severely, for instance, under section 52 of the Income-tax Act, while the buyer is dealt with more severely inasmuch as he loses his property altogether.

(2) The Assistant Commissioner of Income-tax could not be said to have “reason to believe” that the fair market value of the immoveable property purchased by the petitioner on 31st May 1972 exceeded the consideration stated in the transfer deed by more than 15 per cent of such stated consideration. He had thus no jurisdiction to initiate the proceedings. And (3) The Act of 1972 was not retrospective in its operation. It could not, therefore, apply to the transfer of the property to the petitioner inasmuch as the title of the petitioner to the property dated back to 31st May 1972 even though the transfer deed was actually registered after 15th November 1972 when the Act came into force.

The writ petition was opposed by the Union of India and the Assistant Commissioner of Income-tax who has initiated the proceedings under Chapter XXA of the Income-tax Act against the petitioner. They point out that the relevant part of the Act of 1972, namely, Chapter XXA of the Income-tax Act, 1961, was enacted to meet the widespread evil of tax evasion and black money. Insofar as Chapter XXA of the Income-tax Act imposes a penalty on the petitioner for evasion of tax liability and/or concealment of income, it is a law enacted “for the purpose of imposing or levying any tax or penalty” within the meaning of Article 31 (5) (b) (i) of the Constitution. The provisions of Article 31 (2) of the Constitution would not, therefore, apply to it. The acquisition of properly is an integral part of the scheme of the Act of 1972 which is to impose a penalty on the petitioner. The acquisition of property is either a part of the penalty measure or is incidental to the imposition, of the penalty. It does not, therefore, have to be for a public purpose. Alternatively, the acquisition of the property is necessary to punish persons who have entered into such transactions to evade tax liability and to conceal their income. In this way, the twin evils of tax evasion and black money are being fought. This itself is a public purpose. Therefore, even if Article 32 (2) were to apply, the acquisition would be justified thereunder as being for a public purpose. Further, the State is directed by clauses (b) and (c) of Article 39 to direct its policy towards securing “that the ownership and control of the material reasources of the community are so distributed as best to subserve the common good” and “that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment”. The object of the Act 1972 is to give effect to the policy of the State towards securing these principles. The Act is, therefore, covered by the first part of Article 31C of the Constitution. It is, therefore, immune from any challenge on the ground that it is inconsistent with or takes away or abridges any of the rights conferred by Articles 14, 19 and 31. The Act is not discriminatory or contrary to Article 14 inasmuch as innocent persons are not likely to be hit by it. On the other hand, it deals not with the ordinary tax evaders but only with those who not only evade tax liability by also conceal their income by entering into such transactions. They thus constitute different classes of persons. Of course, the seller and the buyer could not be treated exactly similarly inasmuch as the property can be acquired only from the buyer but not from the seller. As for the jurisdiction of the Assistant Commissioner of Income-tax to initiate proceedings against the petitioner in respect of the transfer dated 31st May 1972, a valuer's report dated 2-7-1973 was received by the Assistant Commissioner. It appeared from the said report that the fair market value of the said property would be Rs. 1,97,209/-. The Assistant Commissioner thereafter recorded his reasons and initiated proceedings against the petitioner inasmuch as he certainly had reason to believe that the consideration in the transfer deed was understated with the object of evading tax liability and concealing income. Lastly, the question of retrospective operation of the Act did not arise. The Act applies to a transaction of transfer of immoveable property of the fair market value of more than Rs. 25,000/- only if the transfer is made by an instrument registered under the Indian Registration Act. The event which attracts the application of the Act is thus the registration of the transfer deed. This event took place after 15th November 1972 when the Act came into force. The Act was, therefore, applicable to this transfer even though the title of the transferee to the property dated back to the date of the execution of the transfer deed, namely, 31st May 1972.

Logically, the first question to be decided should be whether Chapter XXA of the Income-tax Act, 1961 as inserted therein by the Act of 1972 is a “law giving effect to the policy of the State towards securing the principles specified in clauses (b) or clause (c) of Article 39” of the Constitution. clauses (b) and (c) of Article 39 are as follows: —

“39. The State shall, in particular, direct its policy towards securing —

(b) that the ownership and control of the material resources of the community are so distributed as best to subserve the common good;

(c) that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment”.

This has to be understood in the context of the Constitution as a whole. According to the Preamble of the Constitution, the people of India have given to themselves the Constitution —

“to secure to all its citizens, Justice, social, economic and political; Liberty of thought, expression, belief, faith and worship; Equality of status and of opportunity; and to promote among them all Fraternity assuring the dignity of the individual and the unity of the Nation”.

The words “to secure to all its citizens” the rights and objectives stated in the Preamble recall the following words of the American Declaration of Independence of 1776: —

“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these life, liberty and the pursuit of happiness. That to secure these rights governments are instituted among men”.

The underlined words were adopted as a motto by the Committee appointed by the President of the United States and as the title of their Report on Civil Rights in the United States (1947). But the contrast between the American and the Indian documents is significant. The former in 1776 in the land of opportunity and affluence puts the rights of the individual above the institution of the Government. But the latter in 1950 in the land of scarcity facing problems of poverty and inequality places justice, social, economic and political, equality of status and opportunity along with fraternity assuring the dignity of the individual and the unity of the Nation at the forefront and refers only to the one cherished liberty, namely, liberty of mind, that is, of thought, expression, belief, faith and worship. It does not refer to the other rights of the individual such as property. The difference reflects also the change in political thought from individualism to socialism. The modern concept of Constitutional liberty is based on the concept of social, economic and political justice. In his contribution on “Constitutional Liberty and the Concept of Justice” in “NOMOS VI — JUSTICE” (1963), John Rawls thus lays down justice as the basis of liberty in the following words: —

“One may distinguish the various kinds of constitutional liberty as liberty of the person, liberty of conscience and freedom of thought, political liberty, freedom of movement, and equality of opportunity. It is characteristic of these liberties in a constitutional democracy that they are equal liberties; in respect to these liberties, no person is favoured over another. Since the constitution is the foundation of the social and political structure, the highest-order system of positive rules regulative in relation to other institutions, the constitutional liberties define and establish an initial position of equal liberty for all citizens within the basic social system in which everyone must begin to have a place . . . . the concept of justice is, therefore, the most national ground for a common public understanding of the basis of these fundamental liberties.”

The Constitution itself including the Preamble, the Fundamental Rights and the Directive Principles is the culmination of an evolution. The objectives embodied in Article 39 (b) and (c) were formulated in “the resolutions of the Congress in 1929, 1931 1945 and the Objectives Resolution of January 22, 1947 (adopted by the Constituent Assembly) and the resolution of All-India Congress working Committee in 1947” as pointed out by Ray, J., in Kesavananda Bharti v. State of Kerala, (1973) 4 S.C.C 225, Paragraph 1013. (1) As Ray J., observed in paragraph 1916 —

“Every citizen asserts enjoyment of fundamental rights under the Constitution. It becomes the corresponding duty of every citizen to give effect to fundamental rights of all citizens, dignity of all citizens, by allowing the State to achieve the Directive Principles. The duty of the State is not limited to the protection of individual interest but extends to acts for the achievement of the general welfare ill all cases where it can safely act . . . . . Popular sovereignty means that the interest which prevails must be the interest of the mass of men. If rights are built upon property those who have no property will have no rights. That is why the State has to balance interest of the individual with the interest of the society. Industrial democracy is the necessary complement to political democracy. The State has to serve its members by organising an avenue of consumption. This can be done by socialisation of those elements in the common welfare which are integral to the well beings of the community.”

While the right to property was protected by Articles 19 (1) (f) and 31, reasonable restrictions on the said right in the interest of the general public were built into the right itself from the very inception of the Constitution. Further, the property right of the individual was to be balanced by the interests of the society embodied in the directive principles of State Policy enumerated in Part IV of the Constitution. As Article 37 expressly directs the State to apply the principles of State policy in making laws, a law enacted to implement one or more directive principles of State policy is as much an effort to promote social interest as would be the corresponding fundamental right to protect the interests of the individual. A harmonious construction of the Constitution would reconcile the two. A law giving effect to a directive principle of State Policy could always be regarded as a reasonable restriction on the corresponding fundamental right. As both the fundamental rights and the directive principles of State Policy are parts of the same Constitution, the intention of the framers of the Constitution must be that the laws effectuating the directive principles of State Policy would be necessity harmonise with the fundamental rights. It would be rare, therefore, for such laws to come into conflict with the fundamental rights. However, in the process of actual interpretation, conflicts between such laws and the right to property arose which led to the First, Fourth, Seventeenth and finally the Twenty-fifth Amendment of the Constitution. The possibility of conflict between laws implementing the directive principles and the right to property was largely diminished by the enactment of articles 31a, 31b and 31c. these provisions introduced by successive amendments to the Constitution to restrict the scope of judicial review were not based on any new principle. The Constitution as originally enacted also contained clauses (4), (5) and (6) of Article 31 showing that the framers of the Constitution were anxious that the protection of the individual right of property should be subordinated to the interests of the society in ensuring that property is not used contrary to social interest. For, property has two aspects. Firstly, it is in the possession of the individual for the purpose of consumption such as a house to live in and land sufficient for the needs of the family. Secondly, property, beyond the needs of the consumption of an individual and his family, has a social aspect. The excess property is used as a means of production. Its possession gives economic power. It is the second aspect of property which has to be regulated by laws made to give effect to the principles of State Policy embodied in clauses (b) and (c) of Article 39.

The first part of Article 31C has been held to be constitutional by the majority of the 13 judges' bench in Keshavanand Bharati v. State of Kerala. In construing its scope, an interesting situation developed. The minority on this particular point led by Sikri, C.J, anxious to show that section 3 of the Twenty-fifth Amendment enacting Article 31C was unconstitutional, accepted the argument of the counsel for the petitioner Keshavanand Bharati that its language was so wide that a law made thereunder could abrogate all fundamental rights protected by Articles 14, 19 and 31. The Solicitor-General arguing for the respondents, on the other hand, pointed out that “the law enacted under it will operate on “material resources”, “concentration of wealth” and “means of production”. The legislative effort would generally involve: (i) nationalisation of material resources of the community and (ii) imposition of control on the production, supply and distribution of the products of key industries and essential commodities. It, therefore, impinges on a particular kind of economic system only.” (Keshavanand Bharati v. State of Kerala, para 598). According to the decision of the majority on this point led by Ray, J., a law which has a reasonable nexus to the implementation of the principles embodied in clauses (b) and (c) of Article 39 would be protected by Article 31C against challenges based on Articles 14, 19 and 31. This decision of the majority is helped by the argument which has appealed to the minority that even a tenuous connection between such a law and clauses (b) and (c) of Article 39 would be sufficient to enable such a law to withstand challenges based on Articles 14, 19 and 31. In view of the majority decision holding the first part of Article 31C to be valid, the observations by the minority have resulted in giving support to the validity of laws enacted to implement the principles embodied in clauses (b) and (c) of Article 39 rather than in opposing their validity. It is in the background of this authoritative interpretation of the scope of Article 31C that we have to consider the validity of the Act of 1972 as inserted in Chapter XXA of the Income-tax Act, 1961.

Article 39 (b): —

The science of Economics recognises land to be a scarce goods. It is a factor of production. It is strictly limited in quantity. It is therefore, a part, perhaps the most important one, of the “material resources of the community” within the meaning of Article 39 (b). The same remarks apply to constructions made on land. The thrust of the Act of 1972 is to penalise certain kinds of transfer of immoveable property, namely, a part of the material resources of the community. The effect of action under the Act is to deprive the owner of such immoveable property the purchase of which was used by him to evade tax liability and/or to conceal his income. If he were to be allowed to achieve this purpose, namely, to obtain the ownership and control of immoveable property by evading tax liability and concealing his income, it could be said that the result of his action would be contrary to the common good. The use of obtaining ownership and control of immoveable property for the purpose of tax evasion and concealment of income would amount to the use of such ownership and control against the interests of the community. For, if such a person is not, allowed to use the purchase of property as a means for tax evasion and concealment of income, the following consequences would have followed.

Firstly, the property would be properly valued. Secondly, the purchaser would have contributed to the common good by paying the proper stamp duty, the proper registration fees and the proper amount of income-tax and wealth-tax. India is a welfare State. The revenue derived by the State from the taxes is spent for the common good by the State. If illegitimate undervaluation of property is allowed, then two consequences adverse to the common good would follow. Firstly, such property would continue to be used as a means for further transfer in which consideration would be similarly understated. This would mean not only one person but several persons in succession would be able to use the transfer of such property as a means of tax evasion and concealment of income. Secondly, this would result in evasion of payment of proper stamp duty, registration fees, income-tax and wealth-tax. The tax revenue of the State would suffer. The tax evader would also be able to conceal his income and operate a parallel economy with the use of black money. According to the final Report of the Direct Taxes Enquiry Committee (1971) transfers of immoveable property have been widely used as a means of tax evasion and concealment of income (paragraph 2.6). This means that the ownership and control of the material resources of the community are being used against the interests of the society. If persons who indulge in such malpractices are deprived of the ownership and control of immoveable property so misused by them, it is arguable that these material resources of the community would be better distributed as best to subserve the common good. It is sometimes argued that acquisition of property by State would mean concentration of property in the hands of the State. This would not be distribution contemplated by Article 39 (b). While this argument may have plausibility regarding such property as would be permanently owned and controlled by the State, it is entirely out of place in regard to the immoveable properties, the transfers of which are hit by the Act of 1972. These immoveable properties are not like factories or large farms which could be owned and controlled by the State itself. On the other hand, these immoveable properties are spread out all over the country in the hands of numerous individuals. They cannot be fused together. They will always remain separate from each other. Each of them is too small to be owned and controlled by the State. It is obvious, therefore, that these properties could not be owned and controlled by the State permanently inasmuch as they cannot be used and operated by the State as each of them is too small and scattered for State ownership and control. The State may, therefore, be compelled at some stage or other to distribute these properties; various distribution techniques may then be adopted. They may be either sold to the highest bidders or they may be given to causes which serve social interest. In either case, they will be distributed to subserve the common good. Obtaining the best price for them would encourage making these properties “white”. They would no longer be used as “black”, namely, to enable their transfers for tax evasion and concealment of income. Competitive sales of them may also increase the State revenues. Their allotment for deserving social causes would also serve the common good. We are of the view, therefore, that the impugned Act has a reasonable connection to the implementation of the object contained in Article 39 (b) of the Constitution.

Article 39 (c): —

“According to Encyclopedia Americana (1970 Edn., Vol. 9, page 600) economic systems are forms of social organization for producing goods and services and determining how they will be distributed” (Keshavanand Bharti v. State of Kerala, para 426). Demand and supply resulting in buying and selling of immoveable properties are, therefore, an essential part of “the operation of the economic system” within the meaning of Article 39 (c). If in a transfer of immoveable property, the property is exchanged for money representing its fair market value, the seller and the purchaser will be both disclosing their incomes and paying the proper amount of the taxes on the incomes disclosed by the transfer. If, on the other hand, they are allowed to understate the consideration for transfer, they are thereby helped to retain in their hands more wealth than they would have been able to do had they stated the consideration of the transfer truly in the instrument of transfer. For, they are thereby enabled to conceal their incomes and evade the whole or part of their tax liabilities. Money saved is money gained. Such transfers, therefore, lead to ill-gotten gains both by the buyer and the seller. Making of such gains by them leads to concentration of wealth in their hands. This wealth being hidden from the State and the tax authorities can be used as black money in a parallel economy which, according to the Wanchoo Committee Report and according to common knowledge, is operating in the country. Such concentration of illegal gains in the hands of such buyers and sellers thus leads to “concentration of wealth” within the meaning of Article 39 (c) which works “to the common detriment”. It cannot be doubted that accumulation of money by evading tax liability and concealment of income results in concentration of wealth and also that such black money is used to the common detriment. Levy of taxes and penalties always results in reducing concentration of wealth. We are of the view, therefore, that there is a reasonable nexus between the implementation of the objective embodied in Article 39 (c) and the impugned Act.

Liberal construction of beneficial provisions contained in Article 39 (b) and (c) of the Constitution and in the impugned Act: —

The object of Article 39 (b) and (c) is to bring about an egalitarian society in India. The impugned Act has also a laudable social and economic objective. It would be the duty of the Courts, therefore, to liberally construe both these provisions so that their praise worthy objects are not defeated. The nexus between Article 39 (b) and (c) and the impugned Act should not, therefore, be examined in a pettifogging manner but broadly with a view to allow the objective to be fulfilled. It also seems to us that as long as the property which is the medium of these transactions in “black” is not taken away, the objective may become very difficult, if not impossible, to achieve. The analogy of the interpretation of article 31a of the constitution would provide an instructive guide in interpreting Article 39 (b) and (c). The Supreme Court has throughout tried to give effect to the objects of Article 31A by construing it broadly. Only in one decision namely, K.K Kochuni v. State of Madras, (1960) 3 S.C.R (887) (2) the scope of Article 31A was held to be narrow and confined to land reforms in the sense of reform of land tenures. But as pointed out in Ranjit Singh v. State of Punjab, (1965) 1 S.C.R, 82, (3) there was no reason to confine the scope of Article 31A narrowly. Agrarian reform was soon recognised as being broader than land reform. The question then arose whether forests would be included in the word “estates” used in Article 31A. After holding in the negative in Balmadies Plantations Ltd. v. State of Tamil Nadu, (1972) 2 S.C.C 133, (4) the Supreme Court again reverted to the view in Ranjit Singh's case and held that forests would also be included in agrarian reforms in Kannan Devan Hills Produce v. State of Kerala, (1972) 2 S.C.C 218, (5). The culmination of this progressively broad interpretation of Article 31A may now be found in the recent decision of the Supreme Court in State of Kerala v. Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd., AIR 1973 S.C 2734, (6) particularly the judgment by Krishna Iyer, J., at pages 2746 to 2751. It is hoped that the construction of Article 39 (b) and (c) would also be liberal enough to achieve the purposes of the legislation enacted to fulfil the objects embodied in Article 39 (b) and (c). At any rate, in the present case, we have followed this mode of liberal construction.

We find, therefore, that the impugned Act is placed beyond constitutional challenge based on alleged contraventions of Articles 14, 19 and 31 inasmuch as it has been enacted to implement the principles embodied in Article 39 (b) and (c).

Assuming, however, that the impugned Act is not protected by the first part of Article 31c, the next question is whether the impugned Act is law enacted “for the purpose of imposing or levying any tax or penalty” within the meaning of Article 31 (5) (b) (i) and, therefore, immune from the application of Article 31 (2). It is common ground between the parties that the main object of the Act is to impose a penalty on the purchaser of immoveable property by a transfer in which true consideration for the transfer is not stated. The provisions of the Act dealing with the imposition of penalty are, therefore, squarely covered by Article 31 (5) (b) (i) of the Constitution. It is, however, rightly argued by Shri G.C Sharma, learned counsel for the petitioner that the acquisition of property of the buyer cannot be said to be the imposition of either a tax or a penalty. That part of the impugned Act is not, therefore, covered by Article 31 (5) (b) (i). Shri Sharma argues that the provisions relating to acquisition of property are not either an integral part of or incidental to the provisions relating to imposition of penalty. They are not, therefore, covered by Article 31 (5) (b) (i). These provisions are, therefore, not immune from the application of Article 31 (2). Learned counsel then contends that the acquisition of property is not for any public purpose. He distinguishes between the duty of the State to penalise a tax evader and a public purpose for acquisition of property. According to him, even if it is assumed that the acquisition of property is made to punish the tax evader, such punishment cannot amount to a public purpose.

As we see it, the impugned Act is divisible into two parts, namely, one relating to the imposition of penalty and the other relating to the acquisition of property. Theoretically, Legislature could have chosen to deal with the buyer in the same way as it deals with the seller. It could have imposed only a monetary penalty on the buyer instead of acquiring the property of the buyer. It cannot be said, therefore, that the acquisition of the property of the buyer could not be avoided in imposing penalty on him. The acquisition of property is, therefore, not either comprised in the taxing or penalty part of the Act nor is it necessarily incidental to it. It is not, therefore, capable of being covered by Article 31 (5) (b) (i) of the Constitution. This does not mean, however, that the acquisition is not for a public purpose, within the meaning of Article 31 (2).

PUBLIC PURPOSE: —

The last words of the Fifth Amendment of the U.S Constitution stated —

“Nor shall private property be taken for public use without just compensation”.

There were two ways of interpreting the expression “public use”. It could either mean the physical use of the particular property by the State after its acquisition or it could mean that the property was acquired generally for a public purpose or a public object or in the interests of the public though the particular property may not be actually used by the State. In course of time, the former concept which was narrower yielded place to the latter which was wider. This development through caselaw in the United States is referred to in the following authoritative books on the American Constitutional law: —

(1) Professor Willis (Constitutional Law of United States, 1936 Edn., pages 817-818) asks the question “What is a public use ?” and answers it as follows: —

“On this question there have been two view-points. One may be called the older view-point and the other the newer view-point. According to the older view point, in order to have a public use, there must be a use by the public . . . . . According to the newer view-point, there is a public use if the thing taken is useful to the public. This makes public use for Eminent Domain practically synonymous with public purpose for taxation and somewhat like social interest for Police Power.”

(2) Colley (Constitutional Limitations. Vol. II. pages 1139-40) expressed the same view as follows: —

“Two different theories are presented by the judicial attempts to describe the subjects to which the expression (public use) would apply. One theory of ‘public use’ limits the application to ‘employment’ — ‘occupation’. The more liberal and more flexible meaning makes it synonymous with ‘public advantage’, ‘public benefit’ . . . . As might be expected the more limited application of the principle appears in the earlier cases and the more liberal application has been rendered necessary by complex conditions due to recent developments of civilisation.”

(3) Corpus Juris, Vol. 20, Art. 30 at pages 552-553 concludes the discussion as follows: —

“No general definition of what degree of public good will meet the constitutional requirements for a ‘public use’, can be framed, as it is in every case a question of public policy.”

Public policy is essentially for the State to propound. For, the State acting through the democratic Government represents the public. The Legislature by making laws expresses the public policy. Such policy changes to meet “the felt necessities of the times”. To ensure more flexibility, therefore, our Constitution in Article 31 (2) used the expression “public purpose” in preference to the expression “public use” occurring in the U.S Constitution. In the first important decision in which the expression “public purpose” was considered by the Supreme Court, namely, State of Bihar v. Maharajadhiraja Sir Komeshwar Singh of Darbhanga, (1952) S.C.R 889, (7) the question was whether the abolition of the zamindaries or landed estates by the Bihar Land Reforms Act, 1950 and the acquisition of the zamindari lands by the State could be said to be for a “public purpose”. On this question, there was no difference among the different learned judges. They all agreed on giving a wide progressive and liberal interpretation to the expression “public purpose”. At page 996 of the report, Das, J., observed as follows: —

“. . . whatever furthers the general interests of the community as opposed to the particular interest of the individual must be regarded as a public purpose. With the onward march of civilisation our notions as to the scope of the general interest of the community are fast changing and widening with the result that our old and narrower notions as to the sanctity of the private interest of the individual can no longer stem the forward flowing tide of time and must necessarily give way to the broader notions of the general interests of the community”.

At page 997, the learned Judge observes: —

“. . . . . . a fresh outlook which places the general interest of the community above the interest of the individual pervades our Constitution . . . . . What were regarded only yesterday, so as to say, as fantastic formulae have now been accepted as directive principles of State policy prominently set out in Part IV of the Constitution.”

The learned Judge then refers specifically to the contents of Articles 38 and 39 and relies on them for the following conclusion: —

“The words “public purposes” used in article 23 (2) indicate that the Constitution uses those words in a very large sense. In the never-ending race the law must keep pace with the realities of the social and political evolution of the country as reflected in the Constitution. If, therefore, the State is to give effect to these avowed purposes of our Constitution (referred to in Articles 38 and 39) we must regard as a public purpose all that will be calculated to promote the welfare of the people as envisaged in these directive principles of State policy whatever else that expression may mean”.

Mahajan, J., also referred to Article 39 of the Constitution in considering the question whether the acquisition was for a public purpose and observed at page 941: —

“The legislature is the best judge of what is good for the community, by whose suffrage it comes into existence and it is not possible for this Court to say that there was public purpose behind the acquisition contemplated by the impugned statute.”

Whatever therefore, is considered by the legislature acting to give effect to the policy of Article 39 (b) and (c) to be in the public interest and for the public good must be regarded as being for a public purpose. The word “purpose” merely denotes the objective sought to be achieved by the State. It is not to be narrowly construed as any particular use of any particular property. The question, therefore, whether the acquisition of property under the impugned Act is for a public purpose is closely related to the question whether the impugned Act implements the objectives embodied in clauses (b) and (c) of Article 39. As it does so, the acquisition must be regarded for a public purpose. No reasonable person can suggest that the unearthing of black money and penalising tax evasion is not in the public interest or for a public good. It follows, therefore, that a statute which seeks to achieve these objects is made for a public purpose. The enforcement of the statute involves acquisition of immoveable property which also must be regarded as being for a public purpose within the meaning of Article 31 (2).

Even when the acquisition is made by the State for benefiting a small section of the public, it has been held to be for a public purpose. (State Of Bombay … v. R. S. Nanji…, 1956 S.C.R 18 (8) Babu Barkya Thakur v. State of Bombay, 1961-1 S.C.R 128 (9). Smt. Somavanti v. State of Punjab, 1963-2 S.C.R 774 (10) and Arnold Rodricks v. State of Maharashtra, 1966-3 S.C.R 885 (11). The dichotomy sought to be drawn by Shri Sharma between a public duty and a public purpose can at best be described as a distinction without a difference. In Somavanti's case (1963) 2 S.C.R 774, such a distinction was sought to be drawn between the need of the state which is a purpose and the actual purpose for which the land needed was to be used which was said to be not a public purpose. The distinction was disapproved by the Supreme Court at pages 797 and 798 of the report in the following words: —

“There is no justification for making such a dichotomy. By making it, not only will the language of the section be strained but the purpose of the law will be stultified. The expression must be regarded as one whole and the declaration held to be with respect to both the elements of the expression . . . . . There can be no “need” in the abstract. It must be a need for a public purpose”.

In State of Bombay v. Bhanji Munji, (1955) 1 S.C.R 777 (12), the requisitioning of premises for housing a person having no housing accommodation was upheld on the ground that this was a public purpose. The Supreme Court observed at page 783 of the report as follows: —

“A race of proprietors in the shape of rapacious landlords who thrived on the misery of those who could find no decent roof over their heads sprang into being . . . . Milder efforts to cope with the evil proved ineffective. It was necessary, therefore, for Government to take more drastic steps and in doing so they acted for the public weal. There was consequently a clear public purpose and an undoubted public benefit”.

The evils of black money and tax evasion have also been tackled by various general provisions such as Income-tax Act for the last many years. The particular field of investing black money and evading disclosure of income and taxes by buying large properties after disclosing in the sale deeds only a small part of the consideration threatens to undermine the very basis of an egalitarian society. The legislature, therefore, though it fit to use a more drastic remedy to curb this evil by acquiring the properties themselves. The object of the legislation is public good and, therefore, the acquisition was for a public purpose.

In State of Bihar v. Maharajadhiraja Sir Kameshwar Singh also the public purpose appeared only in the object of the legislation, namely, reduction of economic inequality and concentration of wealth in the hands of a few persons. But the Bihar Land Reform Act, 1950 was silent as to how the zamindari lands acquired by the State were to be used. It was said that a land Commission was constituted by the Government to recommend as to how these lands were to be used. But quite irrespective of that consideration, the acquisition was held to be for a public purpose. The reason was that the object of the acquisition was the good of the public. This made it for a public purpose. The use of the lands as may be recommended by the land Commission was irrelevant in determining the public purpose of the acquisition. In the present case also, it is the object to unearth black money, prevent tax evasion and penalise persons who indulge in these malpractices which is the object of the legislation and is, therefore, the public purpose for the acquisition of properties. The ultimate use to which these lands will be put by the State is not an element to be considered in deciding presently whether the acquisition is for a public purpose. This distinction brings out forcefully that it is the purpose of the acquisition which is relevant and is not the use to which the property may be put by the State. We find, therefore, that the acquisition of the property under the impugned Act is for a public purpose.

Article 19 (1) (f): —

After the Twenty-fifth Amendment of the Constitution, clause (2B) of Article 31 says: —

“Nothing in sub-clause (f) of clause (1) of Article 19 shall affect any such law as is referred to in clause (2) “.

As we have held above that firstly the impugned Act is beyond challenge based on Articles 14, 19 and 31 and secondly that it is also valid under Article 31 (2), the question of considering whether it imposes an unreasonable restriction on the right to hold property under Article 19 (1) (f) does not arise. We find so.

ARTICLE 14: —

It is first argued that every purchase of property, the market value of which exceeds the stated consideration by more than 15 per cent cannot in fact be said to be made with the object of evading tax liability or concealing income. At times a purchaser may be lucky to get a good bargain. It is, therefore, said that section 269 (2) of the Income-tax Act treats innocent purchasers in the same way as it treats those purchasers who have deliberately shown a lesser consideration in the sale deed than was actually paid with a view to conceal income and evade taxes. For the sake of argument, it may be conceded that a seller may be foolish and a buyer may be clever and a buyer may genuinely acquire a property for the stated consideration though the market value of the property is more than 15 per cent of such stated consideration. In such a case, it could not be said that the object of the transaction was either to conceal income or evade taxes. For, the whole of the actual consideration has been stated in the sale deed. It is equally true, however, that it is impossible to know in which case a buyer has genuinely secured such an advantage over the seller and in which case the seller and the buyer have colluded by understating the actual consideration which passed for the transfer. It must also be recognised that human nature being what it is, a seller would always try to sell his property for a price which is on a par or if possible above the market value of the property and would not agree to sell it too much below the market value. The legislature has to proceed on the basis of human nature and common sense. As it was impossible to exclude cases of genuine purchases of a high value property for a low price, the legislature had no option but to establish a uniform rule. In other words, absence of uniformity itself might help defeat the measure. This is why presumptions were raised by clauses (a) and (b) of sub-section (2) of section 269C of the Act, namely: —

(a) That if the fair market value exceeds the apparent consideration by more than 25 per cent, this shall be a conclusive proof that the consideration for such transfer as agreed between the parties has not been truly stated in the instrument of transfer;

and (b) where the apparent consideration is less than the market value of the property, 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 with the object of evading taxes and/or concealing income.

Though the words “conclusive proof” are used in section 269C (2) (a), a reading of the above provisions together does not show that the parties to the transaction are precluded from showing that the consideration for the transfer was truly stated in the instrument of transfer. This idea is made very clear by section 269E (3). During the enquiry that is to be held by the Assistant Commissioner the transferer and/or the transferee or any other person interested may show that the provisions of clause (a) of sub-section (2) of section 269C do not apply to the case concerned. The presumptions under both clauses (a) and (b) of sub-section (2) of section 269C are, therefore, rebuttable. The raising of a rebuttable presumption is justified when the fair market value of the property is found to exceed the consideration for the transfer stated in the instrument of transfer. In Somavanti's case, referred to above, one of the questions considered was whether a declaration by the Government that the acquisition was for a public purpose which was deemed to be “conclusive evidence that the land is needed for a public purpose” under section 6 (3) of the Land Acquisition Act, 1897, conflicted with the requirement of Article 31 (2) of the Constitution that the acquisition must in fact be for a public purpose. The Supreme Court pointed out various other provisions of statute in which such presumptions have been raised and concluded at page 794 of the report that the presumption raised under section 6 (3) did not violate any provision of the Constitution. It may be added that similar presumptions drawn under section 178A of the Sea Customs Act, 1878 and section 5 (3) of the Prevention of Corruption Act before its amendment in 1964 were held to be constitutional and valid by the Supreme Court.

If some innocent persons are treated in the same way as persons who have deliberately understated the consideration in the sale deed with a view to conceal income and evade taxes, then this was inevitable to achieve the main purpose of catching the guilty persons. Such inevitable treatment of a small number of innocent persons in the same way as the overwhelmingly large number of guilty persons would not amount to treating unequals as equals contrary to Article 14 of the Constitution. In Balaji v. Income-tax Officer, (1962) 2 S.C.R 983 at 991-992 (13), section 16 (3) (a) (i) and (ii) of the Income-tax Act, 1922 required that in computing the total income of an individual there shall be included so much of the income of a wife or a minor child of such individual as arises from the membership of the wife in a firm of which the husband is the partner and from the admission of the minor to the benefits of a partnership of which such an individual is a partner. This provision was challenged as being contrary to Articles 14 and 19 (1) (f) of the Constitution. At page 991 it was argued that there might be genuine partnerships between an individual and his wife and, therefore, there is no reasonable relation between the classification and the object sought to be achieved at any rate to the extent of those genuine cases. This contention was rejected by the Supreme Court in the following words: —

“But there is no classification between genuine and non-genuine cases; the classification is between cases of partnership between husband, wife and/or minor children, whether genuine or not, and partnerships between others. In demarcating a group, the net was cast a little wider, but it was necessary, as any further sub-classification as genuine and non-genuine partnerships might defeat the purpose of the Act”.

Similarly, in the present case, if a presumption were not to be drawn when a transaction is genuine and is to be drawn when it is not genuine, the impugned Act would be unworkable. For, it is impossible to find out, a priori as to which is a genuine case and which is a non-genuine case. The presumption is therefore, raised in every case. This is reasonable because justice requires that a person who acquires property for a consideration less than the market value of the property should be required to displace the presumption. If the purchase is a genuine one, he should be able to rebut the presumption. There is neither any discrimination contrary to Article 14 nor any unreasonable restriction on the right of property contrary to Article 19 (1) (f) in this legislative provision.

It was then argued that even among the non-genuine transactions, the equals were treated unequally. This argument was illustrated by the following chart* submitted by Shri Sharma for the petitioner. It was argued that the purchasers in transactions A, B and C were similarly situated because the amount of black money consideration paid by each of them in each transaction was Rs. 30,000/-.

CHART

Cost to Seller Actual consideration paid by buyer Fair Market Value under I.T Act, also under L.A Act Value stated instrument in Compensation under impugned provisions 1 2 3 4 5 Rs. Rs. Rs. Rs. Rs. A. 1,00,000 1,50,000 1,75,000 1,20,000 1,38,000 B. 1,00,000 1,80,000 2,00,000 1,50,000 1,72,000 C. 1,00,000 2,00,000 2,40,000 1,70,000 1,95,000 Compensation under Land Acq. Act Actual Black money passing Deemed penalty under impugned provisions Actual loss to buyer Actual gain to seller 6 7 8 9 10 Rs. Rs. Rs. Rs. Rs. 2,01,250 30,000 63,250 12,000 50,000 2,30,000 30,000 57,500 7,500 80,000 2,76,000 30,000 80,500 4,500 1,00,000

But the extent of penalties imposed on them differ widely. Similarly, the actual loss suffered by the buyer and the actual gain made by the seller also differ widely. Again it was said that the Act treated equals as unequals and was, therefore, discriminatory. This chart, in our view, is unrealistic. It would be against human nature and common sense that for three properties of which the fair market value was different from each other, the amount of black money consideration paid by the buyer would be the same particularly when even the actual consideration paid by the buyer for the three properties was different. Ordinarily, the amount of the hidden black money consideration would proportionately rise with the magnitude of the transaction. For instance, in a transaction of immovable property with a fair market value of Rs. 2,40,000/- the black money part of the concealed consideration would be much more than Rs. 30,000/- if in a transaction of an immoveable property of which the fair market value is Rs. 1,75,000/- the black money consideration is Rs. 30,000/- only. Vice versa, if the black money consideration in a transfer of immoveable property of the fair market value of Rs. 2,40,000/- is only Rs. 30,000/- then in a transfer of immoveable property of a market value of Rs. 1,75,000/- the black money consideration would be less than Rs. 30,000/-. In actual practice, therefore, it would be found that the larger the proportion of black money consideration in a transaction the greater would be the deemed penalty proportionately and similarly the compensation paid on the stated consideration would bear a similar proportion to the actual sale price. This is how it should be. The larger the proportion of the disclosed consideration in an instrument of transfer the lesser would be the proportion of the penalty and larger would be the proportion of compensation which the purchaser would get. The chart submitted by the petitioner is thus vitiated by an unreal and purely theoretical assumption that the amount of black money consideration could be the same even though the disclosed consideration and the fair market values of the properties were widely different.

Reliance was then placed on Kunnathat Thathunni Moppil Nair v. State of Kerala, (1961) 3 S.C.R 77, (14), for the proposition that lack of classification among transactions in which the amount of black money involved was the same created inequality of treatment among the purchasers. The said decision has no application to the present case. It rested on the reason that the difference in quality and productive capacity of the land which could be known were not taken into account in imposing a uniform rate of basic tax on such widely different pieces of land. The decision was distinguished later by the majority of the Supreme Court in Twyford Tea Company Ltd. v. State of Kerala, (1970) 3 S.C.R 383 (15). Hidayatullah, C.J, speaking for the majority observed at pages 389-90 as follows: —

“It may also be conceded that the uniform tax falls more heavily on some plantations than on others because the profits are widely discrepant. But does that involve a discrimination ? If the answer be in the affirmative hardly any tax direct or indirect would escape the same censure for taxes touch purses of different lengths and the very uniformity of the tax and its equal treatment would become its undoing. The rich and the poor pay the same taxes irrespective of their incomes in many instances such as the sales-tax and the profession tax etc.”

Reference was also made to 1. Karimbil Kunhikonan (In Petition v. No. 114 Of 61), (1962) Suppl, 1 S.C.R 829 (16), in which the progressive cuts made from compensation payable to larger landlords were held to be discriminatory. But under the impugned Act, larger the amount of concealment of consideration the larger will be the deemed penalty. The larger the deception, the larger the penalty. There is thus no discrimination. Similarly, the larger the disclosed consideration the larger will be the compensation. This is also no discrimination.

It was then said that the sellers and the purchasers were treated differently inasmuch as the purchaser lost the property itself while the seller could be dealt with only under the general Income-tax Act and be made subject to a monetary penalty only. This difference between the treatment is inevitable. It is only the buyer who has the property which can be acquired. The seller does not have the property and it cannot be acquired from him. It is then asked as to why the property should be acquired by the impugned Act at all from the buyer and why it should not be left with the buyer. The answer is that if there are two alternatives open to the Legislature in dealing with the buyers, it is primarily a question of public policy which is to be determined by the Legislature. Secondly, many reasons are apparent why the Legislature did not treat the buyers in the same way as the sellers are treated, namely: —

(a) It is extremely difficult, almost impossible, to determine what was the real consideration for a transfer when the stated consideration is shown to be below the fair market value of the property. It is only an approximation to say that the real consideration must have been equivalent to the fair market value. But the determination of the fair market value itself involves some intelligent guess work. It would also, therefore, be a matter of some guess work to find out how much income was concealed by the buyer and how much tax liability was evaded by him in a particular transaction. It was, therefore, more satisfactory to say that the extent of the deemed penalty would be the same as the extent of the difference between the fair market value and the stated consideration. It would not be equally satisfactory to determine the amount of money of the concealed consideration and to impose monetary penalty for the concealment of such income.

(b) By taking the buyer at his own word, the Legislature has achieved a master-stroke of policy. It has shown its perfect bonafides in enabling the income-tax authorities to acquire the buyer's property precisely for the consideration which he says he has paid for the transfer plus 15 per cent which he could have got if the property had been acquired under the Land Acquisition Act. The Legislature is, therefore, acting on the buyer's own admission and the buyer would find it difficult to show that his own admission was false.

(c) The Legislature also wanted to deter the occurrence of such malpractices in the future. The deterrent effect is heightened by the provisions for acquisition of properties used for such malpractices. Imposition of monetary penalties for concealment of income were provided for in the past before the Act of 1972 was enacted. These provisions did not deter some persons from taking recourse to buying immoveable properties for understated consideration. The Legislature was, therefore, justified in using a more drastic method in the hope that this would at least deter the people from indulging in such foul play.

(d) The transactions hit by the Act consist of two distinct parts. On the one hand, a disclosed consideration has been paid the value of which would be equal to the value of part of a property. On the other hand, undisclosed consideration is presumed to have been paid for the rest of the property. The first part of the transaction is legitimate. To that extent, that part of the property cannot be forfeited by way of a penalty by a law which could be justified as being one under Article 31 (5) (b) (i). No penalty could be imposed on the legitimate part of the transaction. This part of the bargain had, therefore, to be treated as legitimate. Therefore, in this respect, the method of dealing with the buyer was to acquire this part of the property for full compensation plus 15 per cent solatium putting the acquisition on the same level as an acquisition under the Land Acquisition Act. The rest of the transaction was illegitimate and the rest of the property could be forfeited by way of a penalty and this part of the law was justified under Article 31 (5) (b) (i). It would be extremely difficult and often impossible to separate physically the immovable property which is the subject-matter of such a transfer into two parts leaving one part to the buyer and forfeiting the other part by way of a penalty. The only alternative, therefore, was for the State to take the whole property but to deal with the two parts differently, namely, pay compensation for the first part and take away the second part by way of a penalty.

(e) The Wanchoo Committee Report has observed that the recovery of taxes is also found to be difficult and tax arrears have been mounting. If the buyer was to be dealt with like the seller, then again, the remedy of the income-tax authorities would have been only to recover a monetary penalty from the buyer. Much of this recovery, like other taxes, would have fallen into arrears. But the acquisition of a property and the deemed penalty extending to the rest of the property ensure that no part of the penalty remains in arrears. The Act thus not only discourages such transactions but also ensures the full recovery of the penalty.

(f) The acquisition of the property instead of being merely an imposition of a monetary penalty also becomes necessary because the immoveable property has this peculiar quality of serving as a medium or a conduit pipe to facilitate concealment of income and evasion of taxes. People do not mind paying black money consideration though it is not stated in the sale deed because they get the full value for the consideration paid by them in the shape of the immoveable property. The intention of the Act is to take away this facility for being used for concealment of income and evasion of taxes. Indeed, this is the most distinctive feature of the Act. If the Act were not to provide for the acquisition of property, there was no need to enact it at all. The Act must, therefore, stand or fall with this feature of it.

The different treatment of buyers and sellers does not thus constitute and discrimination. The transactions hit by the impugned Act are sui generis. This is why this novel method of dealing with this novel problem had to be invented by the Legislature. The impugned Act has been enacted to penalise the tax evaders and to deter them from indulging in such malpractices. If, therefore, the provisions of the impugned Act operate harshly towards the tax evaders, it is they alone who are to be blamed. The action taken by the British Parliament against tax evaders was justified in Lord Howard Le Walden v. Inland Revenue Commissioners. (1942) 1 K.B 389 at 397 (17) by Lord Greene, M.R, in the following quotable words: —

“The section is a penal one, and its consequences, whatever they may be, are intended to be an effective deterrent which will put a stop to practices which the legislature considers to be against the public interest. For years a battle of manoenvre has been waged between the legislature and those who are minded to throw the burden of taxation off their own shoulders on to those of their fellow subjects. In that battle the legislature has often been worsted by the skill, determination and resourcefulness of its opponents of whom the present appellant has not been the least successful. It would not shock us in the least to find that the legislature has determined to put an end to the struggle by imposing the severest of penalties. It scarcely lies in the mouth of the taxpayer who plays with fire to complain of burnt fingers.”

The next question is whether the impugned Act applies to the transaction which was executed before the Act came into force but registered thereafter. The key provision of the Act in this respect is the definition of the “instrument of transfer” in section 269A (f) meaning the instrument of transfer registered under the Registration Act, 1908. It would follow that an instrument of transfer not so registered would not be covered by the definition. Then follows the definition of “transfer” in section 269A (h) which simply means that the transfer of any immoveable property by sale or exchange, namely, under the Transfer of Property Act. Under section 54 of the Transfer of Property Act, a transfer of immoveable property of the value of Rs. 100/- and above can be made only by a registered instrument. It would follow, therefore, that any transfer, to attract the provisions of the impugned Act, would have to be registered under the registration act. till then, the provisions of the impugned act would not apply to it. Shri Sharma contended that the title of the transferee dated back to the date of the execution of the sale deed in view of section 47 of the Registration Act and, therefore, the transfer in the present case should be regarded as having come into effect before the Act came into force.

There are various purposes for which the nature of a transfer may be considered. If the purpose were to know from what date the right of the transferee would be effective, section 47 of the Registration Act would be relevant. But in the present case, all that is necessary is to know when the property was transferred. For that purpose, section 54 is alone relevant. Thereunder, transfer of immoveable property is not effected till it is registered. It is only when there is a conflict between two buyers and the priority between the two is to be decided that section 47 of the Registration Act may be invoked. In the present case, the conflict is between the State and the petitioner and the only question for decision is as to which is the transfer on which the impugned Act can fasten. There can be no doubt that the transfer is the one which is effected by an instrument registered under the Registration Act. This transfer came into being only when the instrument was registered and when it was registered the Act had already come into force. As observed in Ram Saran Lall v. Mst. Domini Kuer, (1962) 2 S.C.R 474 at 479 (18) “the object of this section (section 47 of the Registration Act) is to decide which of two or more registered instruments in respect of the same property is to have effect . . . . . It has nothing to do with the completion of the registration and therefore nothing to do with the completion of a sale”. Their Lordships also observed at page 478 that “section 47 of the Registration Act does not, however, say when a sale would be deemed to be complete”. Their lordships referred to section 54 of the Transfer of Property Act at page 477 and observed that the sale of an immoveable property of the value of more than rupees hundred could be made only by a registered instrument and held that there would be no sale unless and until the instrument is registered. It is well known that an unregistered instrument is not sufficient to pass the title in the immoveable property. For these reasons, the transfer under the impugned Act must be taken to be effected only when the instrument of transfer was registered. Since this was done after the Act came into force, the provisions of the Act applied to the present transfer.

The last question is whether the Competent Authority had “reason to believe” within the meaning of section 269C of the Act that immoveable property of a fair market value exceeding Rs. 25,000/- has been transferred with the object of evading tax liability and/or concealing income. The Competent Authority asked a Valuer to find out the fair market value of the property which was the subject matter of the transfer in the present case. According to that valuation, the fair market value was Rs. 1,97,209/-. As the consideration stated in the transfer deed was only Rs. 1,10,000/-, the Competent Authority had reason to believe that the fair market value of the property transferred was more than the stated consideration. On this data, the presumptions under section 269C (2) arose that the consideration agreed to between the parties had not been truly stated and that this was done with a view to evade tax liability and conceal income. It cannot be said, therefore, on the strength of this data that the Competent Authority had no reason to believe that the transaction attracted the provisions of the Act. The proceedings initiated were, therefore, with jurisdiction. The petitioner has also stated that he had got the property valued before he bought it. Obviously this valuation is not accepted by the respondents who got it valued independently. There is a lot of difference between the two valuations. In the counter-affidavit the respondents have also stated that even the letting value in the Sadar Bazar area where the property is situated is Re. 1/- per square foot. The area of the property is substantial. The Competent Authority will be better fitted to decide the valuation of the property as a question of fact. If it finds that the fair market value of the property does not exceed the consideration stated in the sale deed by more than 15 per cent, it will drop the proceedings. It is only if it finds that the fair market value exceeds the consideration stated in the deed by more than 15 per cent that the proceedings would continue. Even thereafter the approval of the Commissioner would be necessary for the final acquisition of the property. Then there are all the usual remedies of appeal to the Income-tax Appellate Tribunal and reference to the High Court open to the petitioner. It is not possible, therefore, to decide the question of valuation in this writ petition as the versions of the parties as to valuation are divergent and a disputed question of fact which cannot be decided without oral evidence arises as to the valuation. The forum provided by the Act and not this Court acting under Article 226 of the Constitution is best fitted to deal with this disputed question of fact.

No other contentions were advanced. The Writ Petition, is, therefore, dismissed with costs.

[The Supplementary order of the same date (19-12-1973) relates to the grant of certificate of fitness to appeal to the Supreme Court, on the oral application of the counsel for the petition, and is not material for the purpose of this report. — Ed.].

Writ Petition dismissed.