Subhkaran Chowdhury ... v. Inspecting Assistant...

Sabyasachi Mukharji, J.:— In this application, under art. 226 of the Constitution, the petitioners who claim to be the purchasers of premises No. 5, Narayan Prosad Babu Lane, Calcutta, at a price of Rs. 1,35,000, challenge the proceedings initiated under s. 269D(1) of the I.T Act, 1961, for the acquisition of the said premises and notices issued thereunder. It appears that the petitioners had entered into an agreement with one Omrao Devi Tulsan for purchase of premises No. 5, Narayan Prosad Babu Lane, Calcutta, for a sum of Rs. 1,35,000. The agreement was entered into on the 14th July, 1972. On the 15th July, 1972, the petitioners had paid a sum of Rs. 15,000 by cheque as earnest money. On the 8th September, 1972, Sri S.K Das Gupta had valued the said property at Rs. 1,32,000 on rental method as the said property was fully tenanted. On the 15th November, 1972, the petitioners registered the deed of conveyance in respect of the said property and obtained possession from the vendors. On the 23rd April, 1973, the respondent No. 1 issued notice under s. 269D(1) of the I.T Act, 1961, for the purpose of acquisition of the said property. Thereupon, the petitioners on 12th June, 1973, had filed objection to the said notice and the respondent No. 1 issued notice on the 9th/10th April, 1974, fixing the date of hearing of the objection on the 25th April, 1974. Thereafter, on the 19th/20th August, 1974, the respondent No. 1 issued a letter enclosing a copy of the valuation report made by the Valuation Officer for the department and fixing the date of hearing of the objection of the petitioner on the 29th August, 1974. The said valuation report is undated. The property was inspected, it appears, from the report by the said Valuation Officer on the 22nd May, 1974. In this application, under art. 226 of the Constitution, moved on the 6th September, 1974, the petitioners challenge the said proceedings and the initiation of the said proceedings.

2. There are various grounds taken in this petition. It was contended that Chap. XX-A containing ss. 269A to 269S was unconstitutional as these violated the fundamental rights of the petitioners and imposed unreasonable restriction on the petitioners' right to hold and dispose of property and also because these violated the provisions of art. 14 of the Constitution. In the view I have taken on the other aspect of the matter, upon which the petitioners have based their challenge to the impugned proceedings, it is not necessary, in my opinion, to express any view on this aspect of the matter.

3. I may, however, incidentally mention that the Division Bench of the Delhi High Court in the case of Mahavir Metal Works P. Ltd. v. Union of India, [1974] 95 ITR 197, has upheld the constitutional validity of Chap. XX-A of the I.T Act, 1961. It may also be mentioned that the Division Bench was of the opinion that presumptions both under els. (a) & (b) of s. 269C(2) of the I.T Act, 1961, are rebuttable. According to the Division Bench, s. 269E(3) clearly showed that the parties to the proceedings were not precluded from showing that the consideration for the transfer was duly stated in the instrument of transfer. The presumptions raised under s. 269C(2) were reasonable because justice required, according to the Division Bench, that a person who acquired property for a consideration less than the market value of the property should be required to displace the presumptions. If the purchaser was a genuine one, he should be able to rebut the presumptions. In this connection, it may be appropriate to refer to s. 269C, as it is relevant for the present purpose, which reads as follows:

“269C. Immovable property in respect of which proceedings for acquisition may be taken.— (1) Where the competent authority has reason to believe that any immovable property of a fair market value exceeding twenty-five thousand rupees has been transferred by a person (hereafter in this Chapter referred to as the transferor) to another person (hereafter in this Chapter referred to as the transferee) for an apparent consideration which is less than the fair market value of the property and 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—

(a) facilitating the reduction or evasion of the liability of the transferor to pay tax under this Act in respect of any income arising from the transfer; or

(b) facilitating the concealment of any income or any monies or other assets which have not been or which ought to be disclosed by the transferee for the purposes of the Indian Income-tax Act, 1922 (XI of 1922), or this Act or’ the Wealth-tax Act, 1057 (XXVII of 1957),

the competent authority may, subject to the provisions of this Chapter, initiate proceedings for the acquisition of such property under this Chapter:

Provided that before initiating such proceedings, the competent authority shall record his reasons for doing so:

Provided further that no such proceedings shall be initiated unless the competent authority has reason to believe that the fair market value of the property exceeds the apparent consideration therefor by more than fifteen per cent, of such apparent consideration.

(2) In any proceedings under this Chapter in respect of any immovable property,—

(a) where the fair market value of such property exceeds the apparent consideration therefor by more than twenty five per cent, of such apparent consideration, it shall be conclusive proof that the consideration for such transfer as agreed to between the parties has not been truly stated in the instrument of transfer;

(b) where the property has been transferred for an apparent consideration which is less than its fair market value, 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 in the instrument of transfer with such object as is referred to in clause (a) or clause (b) of sub-section (1)”.

4. It is also necessary to refer to the definition of “fair market value” as indicated in s. 269A(d) of the Act which provides as follows:

“(d) ‘Fair market value’, in relation to any immovable property transferred, means the price that the immovable property would ordinarily fetch on sale in the open market on the date of execution of the instrument of transfer of such property.”

5. Section 269E deals with objections against the acquisition of the immovable property after notice had been published under s. 269D after initiation of the proceedings under s. 269C of the said Act.

6. This view of the Division Bench of the Delhi High Court was echoed by the Orissa High Court in the case of Basudev Sahu v. Union of India, [1976] 102 ITR 572. As I have indicated before, it is not necessary for me to go into this aspect of the matter in any greater detail. But I only note that the Delhi High Court had upheld the constitutional validity because it found sufficient safeguard and it also found that sub-s. (2) of s. 269C raised rebuttable presumptions only and, therefore, that rebuttable presumption could be rebutted at the stage subsequent to the initiation of the proceedings. The importance of this aspect of the matter would be relevant in considering the present question before me. On behalf of the petitioners, it was contended that the condition precedent for the initiation of the proceedings under s. 269C had not been fulfilled. It is evident that before initiation of the proceedings under that Chapter, the competent authority, in this case the IAC, must record his reasons. Secondly, there must be material for recording such reasons. Thirdly, such materials must have a nexus for the competent authority believing that the immovable property of a fair market value exceeding Rs. 25,000 has been transferred by the transferor to the transferee for a payment or consideration which is less than the fair market value of the property. Then, there must be materials for the formation of the belief that the consideration for such transfer, as agreed to between the parties, had not been truly stated in the instrument of transfer with the object of either facilitating the reduction or evasion of liability of the transferor to pay tax under this Act in respect of any income arising from the transfer or for facilitating the concealment of any income or any money or other asset which had not been or which ought to have been disclosed by the transferee for the purpose of the Indian I.T Act, 1922, or this Act or the W.T Act, 1957. It is also necessary that no proceedings shall be initiated unless the authority has reason to believe and there are materials for such belief to be formed that the market value of the property exceeded the apparent consideration thereforby more than fifteen per cent, of such apparent consideration. Now, in this case, according to the petitioners, there was no material for the fulfilment of the conditions precedent required. The recorded reasons have been annexed to the petition which only comply with the terms of the section. But the reasons have really been explained in the affidavit filed on behalf of the respondents by one Sailesh Kumar Chakraborty, the I AC. In para. 10 of the said affidavit he has stated, inter alia, as follows:

“I say that on or about 19th January, 1973, information was received by me that Sm. Omrao Devi Tulsan had sold her house property at 5, Narayan Prasad Babu Lane, Calcutta, for Rs. 1,35,000 to Sri Subhkaran Chowdhury and five others. The deed of conveyance was registered with the Registrar of Assurances, Calcutta, on 21st November, 1972, and bears the No. 5839 of 1972 being entered in Book No. 1, Volume 207, pages 162 to 175. Thereupon enquiries were conducted by the inspector in this behalf. The enquiries showed that the property in question was on an area of 6c. 7ch. and 10 sq. ft. of land situated in a busy business locality in the heart of Burrabazar area. It consists of a partly three storeyed and partly five storeyed brick-built building. The property was partly let out to business houses and partly used for dwelling house purpose. It was found that Narayan Prasad Babu Lane is a broad road with shops on both sides. Cost of land in Burrabazar area was reported to vary between Rs. 60,000 and Rs. 80,000 per cottah. Since the property in question is situated inside a lane, I estimated value of the land at the rate of Rs. 30,000 per cottah. On the basis, the value of the land was estimated at approximately Rs. 2 lakhs. Since the fair market value estimated in the aforesaid manner exceeds the apparent consideration of Rs. 1,35,000 by more than 25%, I, prima facie, came to the conclusion that the consideration for the property’ had not been truly stated in the instrument of transfer. After examination of all the relevant facts I was satisfied that the consideration had been understated with the object of facilitating reduction of liability of the transferor to pay tax under the Income-tax Act, 1961, in respect of income accruing to her out of the said transfer. I was also satisfied that the object of understatement of consideration was to facilitate the concealment of money, income or asset which ought to have been disclosed by the transferees. Accordingly, notice under section 269D of the Income-tax Act, 1961, was issued.”

7. It is apparent, therefore, that the IAC has proceeded on the basis that the area of the premises in question was 6 cottahs 7 chittaks and 10 sq. ft. of land situated in a busy business locality in the heart of Burrabazar area. The IAC has further noted that it was let out to business houses and has used the expression “partly used for dwelling house purpose”. He has not stated whether it is partly used for dwelling house purpose by the tenants as such or by the transferor as such. The IAC has recorded that there was a report that cost of land in Burrabazar area was between Rs. 60,000 and Rs. 80,000 per cottah. But since the land in question was situated inside a lane, he estimated the value of the land at the rate of Rs. 30,000 per cottah. On this basis, he estimated the total value of land only at Rs. 2 lakhs. But the apparent consideration,.that is to say, the consideration indicated in the document, was Rs. 1,35,000. He, therefore, came to the conclusion that the real consideration exceeded more than 25%. On this basis, and on this basis alone, he had initiated proceedings. According to the valuation report of the petitioners, the value of the premises in question, which he has valued on the rental basis, because the entirety of the premises in question was let out to tenants, was Rs. 1,32,000. According to the valuation report of the Valuation Officer, appointed by the income-tax department, who inspected the premises in question, the value came to Rs. 1,94,000. The premises in question was, however, sold for Rs. 1,35,000. Both the valuer of the revenue department and the valuer of the petitioners have proceeded on the basis that the entirety of the premises was let out to tenants. On this point there is no dispute. Indeed, in the affidavit of the IAC it is stated that it was let out to business houses and is used for dwelling purposes, but he has not categorically stated that no portion is let out to tenants. If the premises in question is let out to tenants, then, according to the prevalent view, the premises in question has to be valued not on the basis of the value of the land but on the rental method. This has been the view of this court following several decisions of the Supreme Court as would be apparent from the decision in the case of Commissioner Of Income-Tax, West Bengal-Iii, Calcutta v. Panchanan Das, [1979] 116 ITR 272 (Cal) and in the case of Commissioner Of Income-Tax, West Bengal v. Smt. Ashima Sinha, [1979] 116 ITR 26 (Cal), but these two decisions were decisions in appeal from the order finally passed under Chapter XX-A acquiring the premises in question.

8. On behalf of the revenue counsel argued that whether rental method was the appropriate method in a case of this nature or whether the value of the land was the appropriate method is a debatable question which can and should be agitated in the proceedings initiated by the notice. But, it appears, that the IAC did not advert to the material aspect that the entire premises in question was let out. I must also mention that the IAC did not have the report of the Valuation Officer before he initiated the proceedings because the same was subsequent. Therefore, for the purpose of initiation of proceedings, that valuation report must be ignored. On this aspect counsel for the revenue contended that in that case pure rental method would not be the appropriate method because part of the premises was owned by the transferees. Therefore, the transferees by the transfer were getting the title, and the troubles and the difficulties which a purchaser of a tenanted house has to face, may not be faced to the fullest extent by the present purchasers of the premises in question. But, in judging the fair market value of a property, I have to proceed by the definition provided under cl. (d) of s. 269A of the Act, which says “fair market value” is value which a property would fetch in sale in open market. The value of a property to a particular purchaser or to a particular person is not the fair market value of the property. A particular purchaser or a particular tenant may have a particular value for the property. But, in respect of the entirety of the tenanted premises, that value to the particular tenant may be different from the fair market value and for the purpose of this section one has to proceed on the basis of fair market value, that is to say, the value which a tenanted premises would fetch in open market and on that basis the fact that the entirety of the premises was tenanted was a factor relevant in determining whether there has been under-valuation and that factor does not seem to have entered into the consideration of the IAC before initiation of the (proceeding.

9. Apart from this, the IAC must have before him material that the fair market value had not been stated either in order to facilitate the reduction or evasion of liability of the, transferor to pay tax under the Act or for facilitating the concealment of any income or any moneys or other assets as contemplated under cl. (b) of s. 269C(1). The evidentiary value of presumptions which sub-s. (2) of s. 269 postulates are not attracted at the time of the initiation, because if that is so then there is no question of rebutting those presumptions upon which basis the Division Bench of the Delhi High Court proceeded and, in my opinion, with great respect, that must be the correct position, as otherwise there was no scope for cl. (b) in sub-s. (2) of s. 269C providing that it shall be open for the party to say that the correct value has heen stated. This has also been the view taken by Mr. Justice R.M Dutta in the decision in the case of Smt. Bani Roy Chowdhury v. Competent Authority, [1978] 112 ITR 111 (Cal). On this aspect of the matter, I respectfully agree with the aforesaid view of the learned judge. If that is the position then there was no material—at least no material has been indicated by the IAC to form the belief as required by the Act in that view of the matter, the conditions precedent for the initiation of the proceedings were not fulfilled and, therefore, in my opinion, the proceedings are without jurisdiction. I need not go to the other aspects of the matter as indicated above.

10. There will, therefore, be an order quashing the proceedings initiated under s. 269D(1) on the 23rd April, 1973, and restraining the respondents from proceeding further in pursuance thereof. The rule is made absolute to the extent indicated above. There will, however, be no order as to costs.