Commissioner Of Income-Tax v. Rattan Chand Sood And Others

S. Ranganathan, J.:— A piece of land, bearing No. 126, Raja Garden, New Delhi, was sold by Rattan Chand Sood to Om Prakash under a sale deed dated February 28, 1973, for a consideration, stated in the sale deed, to be Rs. 19,992. Om Prakash in turn sold the property to Piara Singh by a sale deed dated July 20, 1973, for Rs. 47,000. Piara Singh, in his turn, put Up a construction on the plot and transferred the plot and the building to Mool Chand Nayyar and Bimla Devi under two sale deeds dated April 30, 1975, for a consideration of Rs. 48,000 each.

2. In respect of the first of the above sales, viz., the one dated February 28, 1973, a notice under section 269D(1) of the Income-tax Act, 1961, (hereinafter referred to as “the Act”) was published in the Official Gazette on July 28, 1973. Subsequently, notices were also served on the transferee (namely, Om Prakash) as well as a tenant who was stated to be in possession of the property, one Shri Kharbanda. In the course of these proceedings, the Department came to know about the subsequent transfers and thereupon notices were also issued to Piara Singh as well as Mool Chand and Bimla Devi. The Competent Authority eventually came to the conclusion that the property had been transferred by Rattan Chand Sood to Om Parkash for an apparent consideration which was less than its fair market value and that the consideration, as agreed to between the parties, had not been truly stated in the instrument of transfer with the twin objects mentioned in section 269F(6) of the Act. Therefore, after obtaining the approval of the Commissioner of Income-tax, the Competent Authority passed an order under section 269F(6) acquiring the property under Chapter XXA. Rattan Chand Sood and the two transferees affected by the order, viz., Mool Chand and Bimla Devi, filed separate appeals to the Income-tax Tribunal from the order of acquisition. On behalf of the appellants, it was contended that the proceedings were barred by limitation and also that the consideration, set out in the document, reflected the true market value of the property. These two contentions were rejected by the Tribunal. The Tribunal, however, set aside the order of the acquisition on the view that Chapter XXA should be construed as taking into account only a single incident of transfer by a transferor to a transferee involving understatement of consideration and did not envisage a situation where the property changes hands again between the date of the first impugned transfer and the date of passing of the order of acquisition.

3. The Commissioner of Income-tax has preferred these three appeals against the three respondents. When these appeals came to be heard by us, a statement was made before us by counsel for the respondents that Mool Chand, one of the respondents, had died about 5 years ago. Counsel also stated that he wanted to withdraw even from representing Bimla Devi. It has further come to our knowledge that Mool Chand and Bimla Devi also transferred the property to Sushila Madan on October 6, 1978. The result of this development was that none of the three respondents to these appeals had any live interest therein. They have sold away the property and received the moneys in respect thereof and they will not in any manner be affected by the acquisition order that has been passed and is sought to be got restored by the Department.

4. On a later date to which the appeals had been adjourned, the husband of Sushila Madan appeared. He stated that he had received a notice in respect of the appeals only on the previous day from the Inspecting Assistant Commissioner and he requested that an opportunity may be given to enable her to engage counsel to argue the matter. He, however, also brought to our notice an order dated July 20, 1981, passed by the Competent Authority (Inspecting Assistant Commissioner of Income-tax, Acquisition Range II, New Delhi). This order was apparently passed in proceedings initiated under section 269D in respect of the transfer of the property by Mool Chand and Bimla Devi to Sushila Madan for a consideration of Rs. 1,20,000. By this order, the Competent Authority recorded that, after considering the objections filed and the entire material on record, she was satisfied that this was not a fit case for passing an acquisition order under section 269F(6) of the Income-tax Act, 1961. She, therefore, declared under section 269F(7) that “the property in question shall not be acquired under Chapter XXA of the Income-tax Act, 1961 Shri Madan submitted that the transfer of the property in favour of his wife could no longer be impugned by the Department in view of this declaration given under section 269F(7) of the Act by the Competent Authority.

5. The Department's contention in these appeals is that the proceedings under Chapter XXA, which are under consideration, relate to the transfer of the property by Rattan Chand to Om Parkash on February 28, 1973, for a consideration of Rs. 19,992. The Tribunal, having come to the conclusion that these proceedings had been initiated within time and also having agreed with the Department that the consideration had been understated in the document in question, namely, the sale deed dated February 28, 1973, with the objects referred to in section 269F(6), was not justified in setting aside the order dated January 31, 1976. He submitted that the order had been passed after giving notice to all persons interested in the property including Mool Chand and Bimla Devi and that there was nothing in Chapter XXA which required subsequent transfers to be taken into account for deciding the question of acquisition. Counsel contended that if the order under section 269F(6) was justified on the basis of the circumstances relating to the sale deed dated February 28, 1973, it has to be upheld, and, that, once it is upheld, the consequence will be that the subsequent purchases alleged to have been made by Piara Singh as well as Mool Chand and Bimla Devi will confer no title on them, since, under the initial transfer, Piara Singh himself did not acquire valid title. He submitted that the Tribunal had erroneously reversed this process and invalidated the earlier acquisition order on the ground that subsequent transfers were not affected by the Acquisition Chapter. This, he admitted, is not a correct approach to the statutory provision.

6. The point raised is not free from difficulty. In one sense, learned counsel for the Department is correct in laying emphasis on the fact that what we are concerned with is the question, whether the transfer dated February 28, 1973, is liable to be set aside as fulfilling the requirements of section 269F(6) read with section 269C. However, the question for consideration is as to how far this will be conclusive in the face of the several other circumstances which have been pointed out by the Tribunal, the result of which is to work great hardship on persons who have purchased the property bona fide and for adequate consideration. As already pointed out, it is not the case of the Department that the sum of Rs. 47,000 stated to be the consideration for the transfer from Om Parkash to Piara Singh was in any way understated; on the other hand, this has been used as one of the circumstances to justify the estimate of the fair market value of the property on February 28, 1973, at Rs. 43,000. Again, it is not alleged that the consideration of Rs. 90,000, set out in the transfer document between Piara Singh on the one hand and Mool Chand and Bimla Devi on the other, was not the proper price for the property as improved as on that date. Now, it transpires that there has been a still later transfer in 1978 by Mool Chand and Bimla Devi to Sushila Madan for Rs. 1,20,000. This consideration is not only in doubt but proceedings have been instituted under section 269C in respect of this transfer and cleared by the order passed by the same Competent Authority under section 269F(7) on July 20, 1981. The fact that even the Competent Authority, dealing with the case of the very property in question in 1981 was not aware that there had been an earlier order acquiring the property under section 269F(6) (which was, at that time, the subject matter of these appeals) indicates the difficulties of any prospective purchaser in easily laying his hands on the proceedings, if any, initiated under Chapter XXA of the Act and their result. Unfortunately, there is no requirement in the Chapter either that the notice issued under section 269D or that the orders passed under sections 269F, 269G or 269H should be registered with the Registrar of Assurances so that any person intending to deal with the property may easily ascertain whether there is any notice earlier issued initiating proceedings for acquisition or any order passed earlier, either acquiring the property or clearing it under section 269F(7). It has been rightly pointed out by the Tribunal that all the purchasers except Om Parkash in this case have acted bona fide and purchased the property for full consideration and that the effect of the impugned order of the Competent Authority would be to deprive them of the property which they have so acquired. Also, by way of compensation, they will be able to receive from the Department only the value of the property as it was in 1973 together with a solatium and they will not be entitled to the value of the improvements that have taken place subsequently in the property. There is also no specific provision in Chapter XXA corresponding to section 281 of the Act which enables the avoidance even of collusive and fraudulent transfers not to speak of a case like this where the subsequent transferees have acted bona fide. In these circumstances, the question for consideration is whether in enacting the provisions under Chapter XXA, all these difficulties can be envisaged as having been taken into account and they can be construed as applicable even where subsequent bona fide transfers have taken place or whether, as held by the Tribunal, they should be construed in such a way as to restrict their application to cases where there is only the one transfer which is impugned and no subsequent transfer in respect of the property.

7. We do not wish to express any opinion on the issue at this stage. During the earlier stages in the proceedings, we were feeling that, whatever may be the legal rights of the parties, this was a case in which the Department should administratively drop the proceedings having regard to the equities and the unintended hardship to persons who have acted bona fide and we had directed the Department's counsel to seek instructions in the matter. The Department was apparently then unwilling to drop the proceedings. But the subsequent transfer of the property by Mool Chand and Bimla Devi to Sushila Madan, reinforced by the order dated July 20, 1981, which has been brought to our notice recently, has only further accentuated the inequity of upholding the order under section 269F(6) of January 31, 1976. In our view, the Department should take a fresh look at the issue in the light of this recent development. For, even if we have to hear the appeals and dispose them of, we cannot do so without giving Sushila Madan an opportunity of being heard but, before proceeding to do so, we should like to give the Department an opportunity of reconsidering the matter in the light of what has been stated above and in the light of what is stated in the next paragraph.

8. We have just come across a recent circular issued by the Central Board of Direct Taxes, viz., Circular No. 455 (F. No. 316/38/85-WT) dated May 16, 1986—[1986] 159 ITR (Statutes) 105 issued in consequence of the amendments to Chapter XXA by the Finance Bill (now Act) of 1986. The Finance Act, 1986, has repealed Chapter XXA with effect from September 30, 1986, and substituted a modified Chapter XXC enabling the purchase by the Central Government of immovable property in certain cases of transfer. The circular reads as under:

“With a view to achieve early finalisation of proceedings under the existing Chapter XXA of the Income-tax Act, 1961, the Board has decided-that with effect from April 1, 1986, acquisition proceedings under section 269C will not be initiated in respect of an immovable property for which the apparent consideration is Rs. 5 lakhs or less and that where acquisition proceedings have been initiated by issue of notice under section 269D, the proceedings will be dropped if the apparent consideration of the immovable property is below Rs. 5 lakhs.”

9. The intention of the authorities clearly is that, after April 1, 1986, proceedings earlier initiated but subsisting should be dropped unless the apparent consideration exceeds Rs. 5 lakhs. In this case, the proceedings were initiated by the Competent Authority and finalised by him in 1976. But this was subject to orders in appeal and, as a result of the order of the Tribunal and the appeal to this court, the position is as if those proceedings are pending as on date. In this case, the apparent consideration is only the petty sum of Rs. 19,992 and it would seem, in view of the declaration by the Central Board of Direct Taxes and in view also of the various circumstances pointed out by us, that this is clearly not a case in which the proceedings should be allowed to drag on further. For the reasons stated above, we are not disposing of the appeals now. We are simply adjourning these appeals after impleading Sushila Madan also as a respondent in each of them and we direct them to be listed again for orders on December 19, 1986, after notice to Sushila Madan. We hope that, by that time, the Department will reconsider the matter and take a decision in the light of our observations. In case no such decision is taken or it is decided that the proceedings cannot be dropped, we shall proceed to dispose of these appeals after hearing the counsel for the department as well as counsel for the most recent transferee of the property, namely, Sushila Madan.

10. Ordered accordingly. A copy of this order may be sent also to the Central Board of Direct Taxes so as to enable them to take necessary action in the matter on the lines indicated therein. List the appeals again on December 19, 1986, by which time the appellant should communicate the Department's decision to this court.