Citation Codes

Equivalent Citations

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Case Number

Income Tax Appeal No. 3 of 1977

Attorney(S)

Ashok Bhan Senior Advocate with Ajay Mittal, Advocate,
Bhagirath Dass Sr. Advocate, B.B Ahuja, Advocate and Ashok Gandhi, Advocate.

Judges

S.P Goyal
G.C Mital, JJ.

Acts

Sub-section (1) that the provision of Clause (a) of Sub-section (2) of Section 269C
INCOME TAX ACT 1961
Section 34 of the 1922 Act (section 147 of the present Act),
provisions of Clause (a) of Sub-section (2) of Section 269C
Clauses (a) and (b) of Sub-section (2) of Section 269C
provisions of Sub-section (2)(a) of Section 269C
provisions of Sub-section (2) of Section 269C
Clause (a) and Clause (b) of Sub-section (1).
Clause (a) and Clause (b) of Sub-section (2)
Clause (a) or Clause (b) of Sub-section (1).
Income-tax Act or the Wealth-tax Act.
Sub-section (2)(b) of Section 269C
provisions of Sub-section (2)(a)
Clause (b) of Sub-section (2),
Sub-section (2)(b),

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Smart Summary

Structured Summary of the Opinion

Factual and Procedural Background

This judgment disposes of 15 Income-tax Appeals (Nos. 1 to 12 of 1977 and Nos. 1 to 3 of 1978) filed under Section 269H of the Income-tax Act, 1961, against a common judgment of the Appellate Tribunal dated October 30, 1976. The appeals raise similar questions of law.

The transferor, Messrs Sultej Chit Fund and Financiers Private Limited, purchased a vacant site from the Government in 1971 and constructed 20 shops (each 608 sq. ft.) known as Sutlej Market. Shops Nos. 6–12 were completed by March 1972 and the rest by September 1973. Eleven shops (Nos. 6–12 and 17–20) were sold between February and December 1973 for an apparent consideration of Rs. 20,000 each.

The Competent Authority obtained reports from the Assistant Valuation Officer / Inspector who assessed fair market value (FMV) per shop as Rs. 67,500 (rent capitalisation method) and Rs. 65,200 (land and building method). Believing that the apparent consideration was less than FMV and that the transfer instrument did not truly state consideration with an object of facilitating tax evasion, the Competent Authority initiated proceedings under Section 269D by publishing a notice in the Official Gazette and serving/publishing notices as required under Section 269D(2).

Objections were filed by the transferor and transferees, who contended the consideration was not understated and that FMV did not exceed Rs. 25,000. Following hearing, the Competent Authority held FMV of each disputed shop to be Rs. 52,162 (exceeding the apparent consideration by more than 15% and by more than 25%) and concluded the instrument did not truly state consideration with the requisite object. Consequently, the Competent Authority ordered acquisition of the eleven shops under Section 269F(6). The parties failed before the Appellate Tribunal and brought these appeals under Section 269H.

Legal Issues Presented

Whether the material constituting the reasons for the Competent Authority's "reason to believe" (that apparent consideration was less than FMV and that consideration was not truly stated with the object of tax evasion) had to be supplied to the appellants before initiating proceedings.
Whether the presumption in Section 269C(2) (specifically Clause (b) and Clause (a)) that an apparent consideration less than FMV indicates the instrument is untrue with a prohibited object is available to the Competent Authority prior to the publication of the notice in the Official Gazette initiating acquisition proceedings (i.e., at the stage of forming the belief under Section 269C(1)).
Whether the Competent Authority correctly assessed FMV of the shops and whether the rent-capitalisation method adopted was a proper or legally permissible method as opposed to other recognised methods (e.g., comparable sales or land-and-building valuation).
Whether appeals by vendees challenging Tribunal dismissal as barred by time raised any question of law cognisable under Section 269H.

Arguments of the Parties

Appellants' Arguments

The material constituting the reasons to believe was not supplied to the appellants (i.e., non-communication of material supporting the Competent Authority's belief).
There was no reason to believe that the apparent consideration had been understated with the object of evading tax or concealing income/assets (i.e., challenge to the sufficiency of the material for the inference of intent).
The Competent Authority incorrectly assessed FMV and used a method (rent-capitalisation) not recognised by law; in particular, a more favourable method to the assessee should have been adopted or comparable sales should have been used if available.

The opinion does not contain a detailed account of the respondent's separate legal arguments in the same organized form as the appellants' contentions; the court's answers and references to authority reflect the Revenue's position as addressed by the court.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
S. Narayanappa v. CIT [1967] 63 ITR 219	Communication of the reasons recorded for initiating proceedings is not required by the statute; non-communication of reasons alone is not fatal though non-disclosure of the material relied upon may violate natural justice.	The court relied on this decision to reject the appellants' first point that mere non-communication of recorded reasons invalidated the Competent Authority's action, holding that the objection confined to non-communication had no merit.
Smt. Bani Roy Chowdhury v. Competent Authority, IAC (Acquisition Range-II) [1978] 112 ITR 111 (Cal) (Single Bench) / affirmed [1981] 131 ITR 578 (Cal) (Division Bench)	Held that the presumption in Section 269C(2) would not be available until proceedings are initiated by publication of notice under Section 269D (i.e., presumption available only after initiation).	The court reviewed the reasons given by the Calcutta High Court, examined and rejected them. It found the interpretation that the presumption is only post-initiation unsound and explained why the word "proceedings" and the legislative scheme support availability of the presumption at the stage of forming belief under Section 269C(1).
CIT v. Smt. Vimlaben Bhagwandas Patel [1979] 118 ITR 134 (Guj)	Adopted the view that the presumption in Section 269C(2) is not available until proceedings are initiated by Gazette notice under Section 269D.	The court explicitly disagreed with the Gujarat High Court's conclusion and recorded reasons for not following that view.
Mahavir Metal Works P. Ltd. v. Union of India [1974] 95 ITR 197 (Delhi)	Held that presumptions in Section 269C(2)(a) and (b) are rebuttable (the Delhi High Court treated them as rebuttable) and discussed availability of presumptions.	The present court agreed with the Delhi High Court on the point that the presumptions in Clause (a) and Clause (b) of Section 269C(2) are available to the Competent Authority at the stage of forming belief under Section 269C(1), and relied on this case to support that view (while rejecting the characterization of Clause (a) as rebuttable when the statutory text provides an irrebuttable presumption once the condition precedent is established).
Special Land Acquisition Officer, Davangere v. P. Veerabhadarappa, AIR 1984 SC 774	Observation: capitalisation of rent (or profits) should not normally be resorted to for market valuation if there is evidence of comparable sales or other direct evidence for market value.	The court acknowledged the Supreme Court's observation but found it inapplicable here because there was no reliable evidence of comparable sales for the commercial sites in question; therefore rent-capitalisation was a permissible method on the facts.
A. Premchand v. IAC [1985] 153 ITR 774 (Karnataka)	Emphasised the concept of fair market value under Section 269A(d), giving primacy to comparable sales/sales analysis where possible and regarding other methods (capitalisation, rental) as fallback only when comparable-sales data is unavailable.	The court accepted that comparable-sales method should be adopted if possible but noted comparable-sales evidence was absent or unreliable in this case; thus use of capitalisation was permitted on the facts.
Jaswant Rai v. CWT [1977] 107 ITR 477 (P & H)	Observation that the method more favourable to the assessee should be followed; noted as not laying down a proposition of law.	The court observed that the cited observation is not a binding proposition of law and declined to treat the choice-of-method issue as requiring a larger bench; it emphasised that choice of method depends on facts and is not per se a question of law.
CIT v. Shri Radhey Mohan [1985] 153 ITR 399	Division Bench held that whether the Tribunal applied one recognised method and not another in valuing property does not per se constitute a question of law.	The court relied on this authority to hold that challenge to the chosen valuation method is generally a factual appreciation and not a question of law under Section 269H; therefore the appellants could not re-agitate valuation on appeal to this court as a question of law.
CIT v. Amrit Sports Industries [1984] 145 ITR 231 (P & H)	Noted in the text as a case where the order initiating proceedings had been quashed because it contained no reasons.	The court mentioned this authority to distinguish the present case (where reasons were recorded) from cases in which initiation orders were quashed for absence of reasons.
Unique Associates Co-operative Housing Society Ltd. v. Union of India [1985] 152 ITR 114 (Bom)	Relied on the Gujarat decision without advancing new reasons (as noted in the opinion).	The court noted that this Bombay case added no new reasons and thus did not affect the court's analysis rejecting the post-notice-only view of the presumption.

Court's Reasoning and Analysis

The court structured its analysis around the three principal points advanced by the appellants' counsel and additional procedural points raised by vendees.

1. Communication of Reasons / Supply of Material

The court relied on the Supreme Court decision in S. Narayanappa v. CIT to distinguish between (a) non-communication of reasons recorded by the authority and (b) non-disclosure of the material constituting the belief. The court held that the statute does not require communication of the reasons recorded for initiating proceedings and that non-communication of reasons alone is not fatal. However, the court acknowledged that if the material relied upon were not disclosed, that could amount to denial of adequate opportunity and breach of natural justice. In the present case, the appellants confined their attack to non-communication of reasons (not to non-disclosure of material), so this ground had no merit.

2. Availability of Presumption under Section 269C(2) prior to Gazette Notice

A central legal dispute was whether the evidentiary presumption in Section 269C(2) (Clause (b) and Clause (a)) is available to the Competent Authority at the stage when it forms the belief under Section 269C(1), or only after proceedings are formally initiated by publication of the notice in the Official Gazette under Section 269D.

The court examined the language of Sub-section (2) ("in any proceedings under this Chapter") and held that "proceedings" must be interpreted contextually. It concluded that the acts performed by the Competent Authority to collect material and form a belief under Section 269C are themselves "proceedings under this Chapter." Thus the presumption in Sub-section (2) is available at the stage of forming the opinion under Section 269C(1), and need not be confined to the post-publication stage.

The court addressed and rejected the reasoning of the Calcutta High Court (Bani Roy Chowdhury) and the Gujarat decision (Vimlaben Patel) which had limited the presumptions to post-initiation stages. The court found several of their reasons untenable: (i) that "proceedings" must refer only to acquisition proceedings initiated by Gazette notice; (ii) that availability of a presumption at the initial stage would remove the Competent Authority's discretion to initiate proceedings (court explained discretion can remain where rebutting circumstances exist); (iii) that the statutory requirement to record reasons makes the presumption inapplicable earlier (court found recording of reasons is compatible with forming belief using a presumption); and (iv) that absence of the 15% threshold wording in Sub-section (2)(b) means the presumption can arise only later (court held the 15% threshold in Sub-section (1) is a pre-requisite for initiation and does not prevent reliance on the presumption at the belief-formation stage).

The court agreed with the Delhi High Court in Mahavir Metal Works that the presumptions in Section 269C(2) are available to the Competent Authority at the initial stage. The court further explained that Clause (a) creates an irrebuttable presumption once its condition precedent (FMV exceeds apparent consideration by more than 25%) is established, while Clause (b) raises a rebuttable presumption; but that in any event the condition precedent must first be shown (and can be attacked during objections/determination of valuation).

3. Method of Valuation and Assessment of Fair Market Value

The court considered the appellants' contention that the rent-capitalisation method was improper or impermissible, relying on authorities urging primacy of comparable-sales evidence. The court acknowledged the guidance in the Supreme Court's P. Veerabhadarappa decision and the Karnataka decision in A. Premchand that comparable-sales or sales-analysis method is the preferred starting point; other methods (capitalisation, rental, land-and-building) are acceptable only where comparable-sales data is not available or reliable.

Applying those principles to the facts, the court found no reliable comparable-sales evidence on the record (the sale instances produced related to vacant plots with different commercial potential and thus were rightly rejected by the Competent Authority). Given absence of comparable-sales data, the Competent Authority's use of the rent-capitalisation method was permissible. The court emphasised that which recognised method is most efficacious depends on the particular facts and circumstances; choosing one recognised method over another is ordinarily an exercise of fact-finding and does not per se raise a question of law (citing CIT v. Shri Radhey Mohan). As appeals under Section 269H lie only on questions of law, the court declined to reappraise the valuation findings on merits.

4. Time-bar and Scope of Appeal under Section 269H

Two appeals (Income-tax Appeals Nos. 1 and 2) were filed by vendees against the Tribunal's order dismissing their appeals under Section 269G as time-barred. The court observed that an appeal to this court under Section 269H lies only on a question of law, and as no question of law was pointed out by counsel in those appeals, they had to be dismissed on that short ground.

Overall Analytical Conclusion

On the combined analysis, the court found no sufficient legal ground to disturb the Competent Authority's formation of belief, the invocation of statutory presumptions at the pre-publication stage, or the valuation approach adopted on the facts. The valuation findings are factual and not open to challenge in these appeals under Section 269H.

Holding and Implications

Holding: The appeals fail and are dismissed. The court dismissed the appeals without any order as to costs.

Implications and consequences:

The direct effect on the parties: the Competent Authority's order ordering acquisition of the eleven shops under Section 269F(6) stands, and the appeals filed under Section 269H are dismissed.
The court held, as a matter of statutory interpretation in this opinion, that the evidentiary presumptions in Section 269C(2) (both Clause (a) and Clause (b)) are available to the Competent Authority at the stage of forming the belief under Section 269C(1) and need not await the formal publication of a notice under Section 269D. This was applied to validate the Competent Authority's reliance on the valuation material when initiating proceedings.
The court reaffirmed that the communication of recorded reasons (as distinct from disclosure of material relied upon) is not a statutory pre-condition to institution of proceedings; non-disclosure of material, however, could raise natural justice concerns (a point not raised successfully in this case).
The choice of an appropriate valuation method (comparable-sales, land-and-building, rent-capitalisation, etc.) depends on facts; where comparable-sales data is unavailable or unreliable, resort to capitalisation methods is permissible. The selection of a recognised method is principally a question of fact and valuation, not ordinarily a question of law for purposes of an appeal under Section 269H.
No costs were ordered against the appellants (appeals dismissed without order as to costs).

This summary is strictly confined to the issues, reasoning and outcomes expressly addressed in the provided opinion and does not add or infer information beyond the text of the judgment.

Judges signing the opinion: G.C. Mital, J. (with concurrence).

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Sutlej Chit Fund And Financiers (Pvt.) Ltd., Jullundur City v. Commissioner Of Income Tax .

1. This judgment will dispose of 15 Income-tax Appeals Nos. 1 to 12 of 1977 and Income-tax Appeals Nos. 1 to 3 of 1978 which have been filed under Section 269H of the Income-tax Act, 1961 (hereinafter called "the Act"), against a common judgment of the Appellate Tribunal dated October 30, 1976, and involve similar questions of law.

2. Messrs Sultej Chit Fund and Financiers Private Limited, transferors, purchased a vacant site from the Government at the rate of Rs. 750 per marla in the year 1971 and constructed 20 shops on a part thereof popularly known as Sutlej Market, each shop having an area of 608 sq. ft. Shops Nos. 6 to 12 were completed by March, 1972, and the remaining by September, 1973. Eleven shops bearing numbers 6 to 12 and 17 to 20 were sold between February to December, 1973, each for a consideration of Rs. 20,000. The Competent Authority, on the basis of the reports obtained from the Assistant Valuation Officer/Inspector who assessed the fair market value of each shop at Rs. 67,500 according to the rent capitalisation method and Rs. 65,200 as per land and building method, having reason to believe that the apparent consideration was less than the fair market value of the property and that the consideration for the transfer as agreed to between the parties has not been truly stated in the instrument of transfer with the object of facilitating evasion of the liability of the transferor to pay tax under the Act in respect of any income arising from the transfer, initiated proceedings under Section 269D of the Act by publishing a notice in the Official Gazette. Notices were also served on the transferor and the transferees under Section 269D(2)(a) as well as got published under Sub-section (2)(b) by affixation at a conspicuous place in his office and in the locality.

3. Objections were filed to the proposed action both by the transferor and the transferees who stated that the sale consideration was not understated nor was the fair market value of the disputed shops more than Rs. 25,000. After hearing the objections, the Competent Authority found that the fair market price of each of the disputed shops was Rs. 52,162 which exceeded the apparent consideration by more than 15 per cent. He further held that as the fair market value of the said shops exceeded the apparent consideration by more than 25 per cent., 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 evasion of the liability of the transferor to pay tax under the Act in respect of the income arising from the transfer. Consequently, he ordered acquisition of all the eleven shops under Section 269F(6) of the Act. Having failed before the Tribunal as well, the transferor and the transferees have come up in these appeals under Section 269H of the Act.

4. Income-tax Appeals Nos. 1 and 2 have been filed by the vendees against the order of the Tribunal dismissing their appeals under Section 269G as barred by time. An appeal to this court under Section 269H lies only on a question of law. As no question of law arising out of the order of the Tribunal was pointed out by the learned counsel, these appeals have to be dismissed on this very short ground.

5. Mr. Bhagirath Dass, learned counsel in Income-tax Appeal No. 3 of 1977, challenged the impugned order only on the ground that a proper method was not adopted in determining the fair market price. As this ground was fully covered by the laborious and elaborate arguments of Mr. B.B. Ahuja, we do not propose to notice or deal with it separately.

6. Mr. Ahuja initially formulated several propositions, but ultimately confined his arguments to the following three law points:

1. That the material constituting the reasons to believe that the apparent consideration was less than the fair market value and that the consideration as agreed to between the parties has not been truly stated in the instrument of transfer with the object of evasion of the liability of the transferor to pay tax under the Act, was not supplied to the appellants.

2. That there was no reason to believe that the apparent consideration has not been truly stated with the object of evasion of the liability of the transferor to pay the tax.

3. That the Competent Authority has not correctly assessed the fair market value of the shops in dispute and in assessing the same has employed a method not recognised by law.

7. The first point need not detain us long as it stands concluded by a judgment of the Supreme Court in S. Narayanappa v. CIT [1967] 63 ITR 219. In that case, to challenge the reassessment order under Section 34 of the 1922 Act (section 147 of the present Act), one of the arguments raised was that the reasons recorded by the assessing authority to institute the proceedings under Section 34 of the Act were not communicated to the assessee. The contention was repelled with the observation that there was no requirement in any of the provisions of the Act or any section laying down as a condition for the initiation of the proceedings that the reasons which induced the Commissioner to accord sanction to proceed under Section 34 must also be communicated to the assessee. It is one thing to say that the reasons were not communicated and a totally different one not to make known the material constituting the belief and sought to be relied upon against the vendor or the vendee. The communication of the reasons as held by the Supreme Court in the above-noted case is neither required nor fatal. However, if the material relied upon is not disclosed, it would certainly result in the denial of adequate opportunity and violation of the principles of natural justice. But this is not the objection raised and the attack is confined to the non-communication of the reasons only. The legality of the order of the Competent Authority, therefore, cannot be challenged on the ground that the reasons recorded for initiating the proceedings were not communicated to the appellant and the first point urged, therefore, has no merit.

8. A great stress was laid by the learned counsel on the second point. It was contended that the only material available with the Competent Authority at the time when the notice for initiating the proceedings was published, was a report of the Assistant Valuation Officer or of the Inspector. Neither of these reports could possibly provide any material to form an opinion that the consideration was understated with the object of facilitating the reduction or evasion of the liability of the transferor to pay tax in respect of any income arising from the transfer or of facilitating the concealment of any income or any monies or other assets which have not been or which ought to have been disclosed by the transferor for the purpose of the Income-tax Act or the Wealth-tax Act. The report relied upon in the present case by the Competent Authority contains only the material on the basis of which the fair market price was determined and as such could not provide any reason for the Competent Authority to believe that the understatement of the consideration had been made with the said object. But Sub-section (2)(b) of Section 269C provides that 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). By virtue of this presumption, the very material which provided the Competent Authority with the reasons to believe that any immovable property of a fair market value exceeding Rs. 25,000 has been transferred by a person to another person for an apparent consideration which is less than the fair market value of the property, would also provide reason to believe that the understatement consideration has been mentioned with the objects enumerated in Clause (a) or Clause (b) of Sub-section (1). The learned counsel, however, urged that the said presumption is not available to the issuance of the notice initiating proceedings under Chapter XX-A for the acquisition of the immovable property, the subject-matter of the sale. To substantiate this contention, the learned counsel referred to the opening words of Section 269C(2) and argued that the presumption would be available only during the proceedings under Chapter XX-A and the proceedings, according to him, are not initiated till the notice is published in the Official Gazette under Section 269D. Reliance, for this proposition, was placed on CIT v. Smt. Vimlaben Bhagwandas Patel [1979] 118 ITR 134 (Guj); Competent Authority, IAC v. Smt. Bani Roy Chowdhury [1981] 131 ITR 578 (Cal), CIT v. Amrit Sports Industries [1984] 145 ITR 231 (P & H) and Unique Associates Co-operative Housing Society Ltd. v. Union of India [1985] 152 ITR 114 (Bom). Reference was also made to a single Bench decision of the Calcutta High Court in Smt, Bani Roy Chowdhury v. Competent Authority, IAC (Acquisition Range-II) [1978] 112 ITR 111, which was relied upon in three single Bench decisions of the same court. But as the decision in Smt. Bani Roy Chowdhury's case [1978] 112 ITR 111 was affirmed by the Division Bench in Smt. Bani Roy Chowdhury's case [1981] 131 ITR 578 (Cal), it is not necessary to notice them separately.

9. The question, as to whether the provisions of Sub-section (2) of Section 269C would be available to the Competent Authority prior to the publication of the notice in the Official Gazette initiating proceedings for the acquisition of the property or not was first considered by Ramendra Mohan Datta J. in Smt. Bani Roy Chowdhury's case [1978] 112 ITR 11l (Cal). It would, therefore, be proper to notice in extenso the process of reasoning which led the learned judge to come to the conclusion that the said presumption was only available after the initiation of the proceedings has taken place by publication of the notice in the Official Gazette, The main reason given was that the expression "any proceedings" in the opening words of Sub-section (2) means proceedings at the various stages commencing from the initiation of those proceedings which are provided under Chapter XX-A, It was further stated that even after the formation of the belief, the Competent Authority still has the discretion to initiate proceedings or not. But if the presumption would be available at that stage, the matter would be a fait accompli and no discretion would be left with the authority not to initiate the proceedings. The third reason adopted was that there is a mandatory provision contained in the proviso that before initiating the proceedings, the Competent Authority must record its reasons for doing so and, lastly, it was said that under Clause (b) of Sub-section (2), a presumption would be raised in spite of the fact that the fair market price exceeds the apparent consideration by more than 15 per cent. or not which necessarily means that it can only be raised at the final stage because at the time of the initiation of the proceedings, one of the provisos requires that the fair market value must exceed the apparent consideration by more than 15 per cent. Let now each of the reasons be examined to find out if any one of them justifies the view expressed by the learned judge.

10. The words used in the opening part of Sub-section (2) are "in any proceedings under this Chapter". The reason given is that the proceedings are initiated under Section 269D(1)only when the notice is published in the Official Gazette, because the word "proceedings", according to the learned judge, has to be interpreted carrying the same meaning throughout the whole Chapter. With due respect to the learned judge, we are unable to subscribe to this view. The word "proceedings" has to be interpreted in the context in which it has been used in the various sections. The word "proceedings" has been used in Sub-section (1) but is qualified by the words "for the acquisition of such property". Similarly, this word has been qualified in sub-section (1) of section 269d. The word "proceedings" in the above context obviously means the proceedings for the acquisition of the property under the said Chapter. However, in Sub-section (2), the words used are " any proceedings under this Chapter" and not "proceedings for the acquisition of such property". The word "proceedings" in Sub-section (2), therefore, does not signify the proceedings for the acquisition of such property which are initiated only after the publication of the notice in the Official Gazette under Section 269D, When the Competent Authority has to form an opinion under Section 269C(1), there has to be some material to support the same. Obviously, he has to probe into the matter and collect some material which will provide reasons to believe that the consideration has been understated with the objects specified in Clause (a) or Clause (b) of the said Sub-section. The Competent Authority would have no authority to do so except in exercise of the powers under Section 269C. All these acts would be nothing but proceedings under Section 269C which necessarily means proceedings under Chapter XX-A. After collecting the necessary data, the Competent Authority has to form an opinion and record his reasons for the same, though the formation of the opinion is subjective but based on objective data. The act of the formation of the belief would again be done in exercise of the powers under Section 269C which necessarily means taking of proceedings under the said provision. The recording of the reasons, though held to be an administrative act by the Supreme Court in 5. Narayanappa's case [1967] 63 ITR 219, still it would be a constituent of the proceedings which ultimately culminate in the publication of the notice under Section 269C. Thus, all the steps taken prior to the stage of the publication of notice are nothing but proceedings undertaken by virtue of the provisions of Section 269C, that is, under Chapter XX-A of the Act.

11. The second reason that if the presumption would be available at the initial stage, then the Competent Authority would have no option but to initiate the proceedings is equally untenable. In spite of the presumption available, there may be inherent circumstance in the instrument of sale which may negative the presumption. Take, for example, that a property is sold by "A" to "B" for a consideration of Rs. 50,000. In the deed itself, it is recited that the market price of the property is about rupees one lakh but it is being transferred for half the price because of the services rendered and love and affection between the parties. Under these circumstances, although the presumption would be available under Sub-section (2)(b), still the Competent Authority may not initiate proceedings if he is of the opinion that the presumption stands rebutted from the other circumstances narrated in the instrument of transfer itself. So, the discretion conferred on the Competent Authority in no way would be fettered by the presumption available under Sub-section (2)(b). However, if there are no such circumstances available rebutting the presumption, the word "may" shall operate like "shall" and the Competent Authority has to initiate proceedings in discharge of the obligation imposed upon him by virtue of the provisions of Section 269C.

12. So far as the third reason is concerned, we regret our inability to appreciate as to how the mandatory requirement of recording the reasons has any bearing on the points at issue. The reasons are not confined only to the objects contained in Clause (a) and Clause (b) of Sub-section (1). The reasons have to be recorded to justify the belief that the consideration has been understated. For the belief qua the object of such understatement, if the other requirements are satisfied, the Competent Authority can have resort to the presumption available under Sub-section (2)(b). Reliance on the presumption for the formation of the belief that the consideration has been understated with one of the objects enumerated in Clause (a) or Clause (b) of Sub-section (1) would certainly be a valid reason for the belief and thus compliance with the requirement of the proviso.

13. The efficacy of the last ground is again highly doubtful. No doubt Clause (b) of Sub-section (2) does not in so many words require that the apparent consideration must be less by more than 15 per cent. of the fair market value but this requirement has necessarily to be read in this clause. The second proviso to Sub-section (1) provides that no proceedings for the acquisition of the property shall be initiated unless the Competent Authority has reason to believe that the fair market value of such property exceeds the apparent consideration therefor by more than 15 per cent. of such apparent consideration. If no proceedings can be initiated unless the fair market value exceeds by more than 15 per cent. than the apparent consideration, the question of resorting to the presumption for the formation of belief as to the object of the understatement of the consideration would not arise. It would be only when the said pre-requisite condition is satisfied that the Competent authority would be required to form any opinion as to the object of the understatement of the consideration. So, the non-repetition of the extent of the understatement in Clause (b) of Sub-section (2) is of no consequence and as such would provide no reason for the view that the said presumption would not be available at the initial stage and can be resorted to only after the initiation of the proceedings under Section 269D of the Act.

14. The judgment of the learned single judge in Smt. Bani Roy Chowdhury's case [1978] 112 ITR 111 (Cal) was affirmed by the Division Bench and it is reported in Smt. Bani Roy Chowdhury's case [1981] 131 ITR 578 (Cal). One, of the reasons adopted was the same, namely, that at the first stage, there are no proceedings and the acts of the Competent Authority relate to the preparation for the initiation of the proceedings. This matter has already been discussed at length above. The Bench put forward another reason for upholding the view of the learned single judge which is contained in the following passage (at pp. 586 and 587):

"If the contention of the Revenue that the stage when the competent authority forms his belief under Sub-section (1) is a proceeding within the meaning of the expression 'any proceeding under this Chapter' occurring in Sub-section (2) is accepted, then such belief of the competent authority will be conclusive proof that the consideration as agreed to between the parties has not been truly stated in the instrument of transfer, which is absurd and will render the provisions for filing objections, determination of valuation and decision of the competent authority meaningless and nugatory. While Clause (a) provides for conclusive proof, Clause (b) raises a presumption. If for the purpose of clause (a) of sub-section (2), the stage at which the competent authority forms his belief under Sub-section (1) is not a proceeding as contemplated by Sub-section (2), it will be quite unreasonable to think that it is a proceeding for raising the presumption under Clause (b) of Sub-section (2). The presumption under Clause (b) will arise if the fair market value of the property exceeds the apparent consideration. The fair market value has to be determined on' evidence, including what may be adduced by the parties, and cannot, in our opinion, be the subject-matter of the belief of the competent authority for the purpose of raising the presumption under Clause (b)."

15. The Bench appears to have been influenced in its view by the conclusive presumption contained in Clause (a) of Sub-section (2). This Clause provides that where the market value of such property exceeds the apparent consideration therefor by more than 25 per cent. of its 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. The conclusive presumption would arise only if the pre-requisite that the fair market value of such property exceeds by more than 25 per cent. the apparent consideration is established. Even though the Competent Authority may have formed an opinion that the fair market price exceeds the apparent consideration by more than 25 per cent., the opinion is open to challenge and is not conclusive as is apparent from sub-section (3) of section 269e which provides that an objection may be made under Sub-section (1) that the provision of Clause (a) of Sub-section (2) of Section 269C did not apply in relation to any immovable property on the ground that the fair market value of such property does not exceed the apparent consideration therefor by more than 25 per cent. of such apparent consideration. No doubt, if the party concerned fails to produce reliable material and dislodges the belief formed by the Competent Authority as to the excess between the fair market price and the apparent consideration, an irrebuttable presumption would come into play but that does not mean that the filing of the objection or the determination of the valuation by the Competent Authority is meaningless or insignificant as the party can prevent the operation of the irrebuttable presumption by showing that the fair market price does not exceed the apparent consideration by more than 25 per cent. So, the observation of the Bench that the belief of the Competent Authority will be conclusive proof that the consideration, as agreed to between the parties, has not been truly stated in the instrument of transfer which is absurd and will render the provisions for filing the objections, determining the value and decision of the Competent Authority meaningless and nugatory, is hardly justified and appear to have been made because of the non-noticing of the provisions of Section 269E(3) of the Act.

16. The only other decision worth noticing is that of the Gujarat High Court in Smt. Vimlaben Bhagwandas Patel's case [1979] 118 ITR 134, because in Unique Associates Co-operative Housing Society's case [1985] 152 ITR 114 (Bom), the learned judge relied for his view on the former case without advancing any new reasons and in Amrit Sports Industries' case [1984] 145 ITR 231 (P & H), the order initiating the proceedings had been quashed because it contained no reasons. The decision in Smt. Vimlaben Bhagwandas Patel's case [1979] 118 ITR 134 (Guj) again proceeds on the reasoning that the said presumption would not be available unless the proceedings are initiated and the proceedings are initiated only when a notice is published under Section 269D in the Official Gazette. We have already recorded our reasons in detail for not following this view which need not be repeated again. However, it would be necessary to record our view on the doubt expressed by the Bench as to the rationality of the irrebuttable assessment contained in Sub-section (2)(a) and the view expressed by the Delhi High Court in Mahavir Metal Works P. Ltd. v. Union of India [1974] 95 ITR 197 that even the provisions of Sub-section (2)(a) raise a rebuttable presumption. The Delhi High Court in Mahavir Metal Work's case [1974] 95 ITR 197 held that the presumption contained in both Clauses (a) and (b) of Sub-section (2) of Section 269C are rebuttable on the following ratio (at p. 218):

"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 transferor 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."

17. With due respect to the learned judges, we are constrained to say that the reasoning suffers from an apparent fallacy. As discussed above, before an irrebuttable presumption as provided in Sub-section (2)(a) can arise, the condition precedent has to be satisfied, namely, that the fair market price of the property in dispute exceeds the apparent consideration by more than 25 per cent. Once that is established, the presumption arising therefrom that the consideration was not truly stated in the instrument of transfer would be irrebuttable under the provisions of Section 269E(3). But it is open to the party to show that the condition precedent for raising the presumption under Sub-section (2)(a) is nonexistent. If a party fails to show that the fair market price does not exceed the apparent consideration by more than 25 per cent., the presumption arising therefrom would be irrebuttable and it would not be open to him to show that the apparent consideration was truly stated even though it fell short by more than 25 per cent. of the fair market price. Once the condition precedent is satisfied, it cannot by any stretch of reasoning be said that it was a rebuttable presumption. We are equally unable to persuade ourselves to agree with the observation of the Bench in Smt. Vimlaben Bhagwandas Patel's case [1979] 118 ITR 134 (Guj) that it was not fair and just to raise the presumption by an artificial rule of evidence that the disparity between the apparent consideration and the fair market value by a prescribed margin of 25 per cent. would be conclusive proof that the parties to a transfer have been untruthfully stating the agreed consideration in the instrument of transfer since there may be countless bona fide cases where the agreed consideration may be lower than the fair market value on the date of the execution of the sale deed. No doubt, sometimes there can be a case in which the consideration may have been truthfully stated in the instrument of sale even though the apparent consideration be far less than the fair market price of the property sold. For example, a person may sell his land for a nominal consideration to a registered society or a trust for being used for the welfare of the public at large or for charitable purposes. The consideration mentioned in such a case cannot be said to have been untruly stated. All the same, a presumption would arise under Sub-section (2)(a) that the consideration has not been truly stated. In spite of this presumption being available, it would not be possible for the Competent Authority to initiate any proceedings because of the absence of any object specified in Clause (a) or Clause (b) of Sub-section (1) and the said presumption would not be able to operate to the detriment of the vendor or the vendee in any manner. It is, therefore, evident that the presumption would only have any meaning or consequence if the transaction is not bona fide and the variance between the fair market price and the apparent consideration takes place with one of the objects contained in Clause (a) or Clause (b). On the contrary, if a property is sold for an apparent consideration which is half the fair market price, it would be almost impossible for the Competent Authority to prove on tangible reasons that the consideration has been untruly stated. In cases of such transactions which are, in fact, not bona fide, there could be no other way except to provide a presumption, as contained in Sub-section (2)(a), to establish that the apparent consideration has not been truly stated in the instrument of sale. So the provisions of Sub-section (2)(a) of Section 269C are neither unfair nor unjust and contain a rule of evidence most necessary to stem the ever-spreading menace of black money.

18. Now, we may notice our reasons for taking the view that the presumption contained in sub-section (2) of section 269c would be available even during the proceedings prior to the publication of the notice under Section 269D initiating proceedings for the acquisition of the property.

Firstly, if the material is already available on the record for the Competent Authority to form a belief that the consideration has been understated with the objects contained in Clause (a) or Clause (b) of Sub-section (1), there would be no necessity to make a provision for raising a presumption at the final stage of the proceedings. In such a situation, the vendor and the vendee would be confronted with the said material and required to prove the contrary. It would be then for the Competent Authority to arrive at its own conclusion after taking into consideration all the material available on the record including the material produced by the vendor and the vendee as to whether the consideration has been understated with one of the said objects or not. A resort to the presumption at the final stage in these circumstances would have no meaning.'

19. Secondly, the presumptions contained in Sub-section (2) are nothing but rules of evidence. The necessity to provide them was felt by the Legislature because the facts constituting the requisite ingredients are always in the special knowledge of the vendor or the vendee and it is very difficult, if not impossible for the Competent Authority, to prove them by tangible evidence. If the availability of this rule of evidence has any rationality at the final stage, it passes our comprehension as to why it would not be there at the initial stage or why a different rule of evidence should be made applicable by the Legislature at different stages of the proceedings under Chapter XX-A. The essential facts for passing the final order would invariably be the same as were at the initial stages. On the same facts, if a presumption can be raised when an order really detrimental to the vendor or the vendee can be passed, how can it be said that it would not be available at the initial stage for the purposes of the initiation of the proceedings which by itself cause no prejudice of any substantial nature to the party concerned. We, therefore, prefer to agree with the view expressed by the Delhi High Court in Mahavir Metal Works' case [1974] 95 ITR 197 and hold that the presumptions contained in Clause (a) and Clause (b) of Sub-section (2) would be available to the Competent Authority even at the stage of forming the belief under Section 269C(1) of the Act.

20. On the third point, the first contention raised was that the rent capitalisation method employed by the Competent Authority to assess the fair market price was not a proper and a permissible method. Reliance for this contention was placed on a Supreme Court decision in Special Land Acquisition Officer, Davangere v. P. Veerabhadarappa, AIR 1984 SC 774 and the Karnataka High Court decision in A. Premchand v. IAC [1985] 153 ITR 774. In P. Veerabhadarappa's case, AIR 1984 SC 774, the Supreme Court observed that normally, the method of capitalising the actual or immediately prospective profits or the rent of a number of years' purchase should not be resorted to if there is evidence of comparable sales or other evidence for computation of the market value. The Karnataka High Court in A. Premchand's case [1985] 153 ITR 774, relying on the definition of "fair market value" under Section 269A(d), observed that the said definition brings to the fore the concept of comparable sales method or the sales analysis approach or a mythical willing seller who is under no compulsion to sell and a willing buyer who is under no compulsion to buy. It further observed that in. many cases, it becomes difficult to resort to this method and determine the market value and, therefore, courts and valuers have adopted other modes or methods called "capitalisation method" and "rental value method". But the other methods must be resorted to only when the fair market value cannot be determined applying the comparable sales method or the sales analysis approach and not otherwise. Before the Supreme Court, the market price of only agricultural land was in question and as such the observations made therein provide no proper guidance so far as the determination of the market price of a commercial building is concerned. So far as the views expressed in A. Premchand's case [1985] 153 ITR 774 (Kar) are concerned, there cannot be any dispute that preliminarily comparable sales method should be adopted, if possible. In the present case, no argument was advanced in this regard before the Tribunal, and rightly so, because there was no evidence of comparable sales available on the record. No doubt, the transferees did prove some sale instances but those related to vacant plots which being away from the G. T. Road had no potential of being used as commercial sites. The sale instances were, therefore, ruled out by the Competent Authority and rightly no reliance was placed on them before the Tribunal by the appellant. It is thus evident that in the present case, the comparable sales method could not be employed because of the absence of proper data in this regard.

21. It was then contended that out of the remaining two methods, that is, land and building valuation and rent capitalisation, the one more favourable to the assessee should have been adopted. Support for this contention was sought from a decision of this court in Jaswant Rai v. CWT [1977] 107 ITR 477. Before dealing with this contention, we may point out that the fair market value as defined in Section 269A(d) means the price that the immovable property would ordinarily fetch on sale in the open market on the date of the execution of the instrument of transfer of such property. In other words, the fair market value would be the price which a willing purchaser might pay to a willing seller. In our view, none of the said two methods would be a proper method under all situations. A commercial building whose cost of the land and the construction is much less than the cost of construction of a residential site often fetches much higher sale price because of the return the owner gets from it. If the land and building method is employed qua such a building, it will not give proper figure as to its market price. But under certain circumstances, the land and building method may result in much higher estimate of the market price than the rent capitalisation method. For example, in areas where the rent restriction laws are applicable at the time of the sale, the value as per land and building may be much higher but the building which was constructed a decade prior might be fetching only a nominal rent. In these circumstances, the land and building method may be a more proper method. Similar would be the situation with regard to a residential building as well. So, it is for the Competent Authority to decide in a given situation as to which method would be more efficacious to determine the fair market value. The use of the method would thus entirely depend on the particular facts and circumstances of the case and it was probably for this reason that a Division Bench of this court in CIT v. Shri Radhey Mohan [1985] 153 ITR 399, ruled that the question whether the Tribunal was correct in applying one recognised method in determining the fair market value of the property and not another will not per se constitute a question of law. Consequently, the determination of the fair market price by employing the rent capitalisation method would not be open to challenge on the ground that the other method which was more favourable to the assessee should have been adopted. No doubt, in Jaswant Rai's case [1977] 107 ITR 477 (P & H), it was observed that it is fair and proper that the benefit of the method which is more favourable to the assessee should be followed and the choice of the method to be adopted for determining the value of the property should be left to the assessee but as this observation has not laid down any proposition of law, we do not propose to refer the case to a larger Bench. The question before the authorities is of the determination of the fair market value of the property. Which method would be more suitable to determine that value, as observed above, depends on the facts and circumstances of each case. The question of the use of the method which is favourable to the assessee or to the Revenue has no bearing because it is the fair market value which is to be determined and not the price which is favourable either to the assessee or the Revenue. Consideration of a particular method being favourable to the assessee, therefore, would be wholly irrelevant and the Competent Authority is enjoined by law to adopt only that method which is most efficacious to determine the fair market value of the property sold.

22. Lastly, the learned counsel for the appellant sought to attack the finding of the authorities on a ground which entirely falls within the domain of appreciation of evidence. It was contended that the report of the valuer produced by the appellant was wrongly rejected on wholly untenable reasons and the value fixed was highly excessive. We are afraid, it is not open to us to scrutinise the evidence again or to disturb the finding as to the fair market price on merits because the appeal to this court under Section 269H is maintainable only on a question of law. It is, therefore, not open to the appellant to challenge the correctness of the fair market price assessed by the authorities below on such a ground and the contention of the learned counsel has to be overruled.

23. In the result, these appeals fail and are hereby dismissed but without any order as to costs.

G.C. Mital, J.

24. I agree.

Sutlej Chit Fund And Financiers (Pvt.) Ltd., Jullundur City v. Commissioner Of Income Tax .

Structured Summary of the Opinion

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellants' Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

1. Communication of Reasons / Supply of Material

2. Availability of Presumption under Section 269C(2) prior to Gazette Notice

3. Method of Valuation and Assessment of Fair Market Value

4. Time-bar and Scope of Appeal under Section 269H

Overall Analytical Conclusion

Holding and Implications

Sutlej Chit Fund And Financiers (Pvt.) Ltd., Jullundur City v. Commissioner Of Income Tax .

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