Punjab-Haryana High Court
The Commissioner Of Income Tax, Rohtak vs Sh. Shanti Parshad Jain, Advocate, ... on 15 February, 2002
Author: N.K. Sud
Bench: N.K. Sud
JUDGMENT N.K. Sud, J.
1. By this order we are disposing of Gift Tax Reference No. 1 of 1987 and Gift Tax Case No. 2 of 1987 as they relate to a common order dated July 3, 1986 passed by the Income Tax Appellate Tribunal (for short 'the Tribunal'), Delhi Bench 'A', New Delhi. The assessee is an individual. He has three sons namely Jitender Kumar, Devendra Prasad and Satendra Kumar. The assessee had purchased certain lands at Hisar from one Anand Dev under Regd. Sale Deed dated March 28, 1954. The lands so purchased included land bearing Khasra Nos. 4960 and 4962 to 4969 measuring 77 Bighas 8 Biswas. Out of the total land, an area measuring 9 Bighas 11 Biswas in Khasra No. 4960 and 4962 was acquired by the Municipal Committee, Hisar. The assessee was, therefore, left with 72 Bighas 17 Biswas of land in Khasra No. 4963 and 4969. With reference to the said area of 72 Bighas 17 Biswas the assessee's three sons filed a declaratory suit No. 181 of 1970 in the Court of Senior Sub Judge, Hisar for a declaration that they were entitled as co-owners to the extent of 3/4th area therein. The parties appointed Shri Dulat Ram Jain, Advocate, as the sole Arbitrator who, vide his award dated March 18, 1970, accepted the claim of the assessee's sons. The said award was made a rule of the Court vide order dated March 28, 1970 there was a gift by the assessee to his three sons which attracted gift tax. Accordingly, he initiated gift tax assessment proceedings against the assessee by issuing a notice dated March 29, 1979 under Section 16(1) of the Gift-Tax Act, 1958 (for short 'the Act'). This notice could not be served as according to the report of the Process Server the assessee had gone to Delhi. The IAC (A) vide order dated March 31, 1979 recorded his satisfaction that the assessee was keeping out of the way for the purpose of avoiding service of notice, accordingly, he ordered that the notice be served on the assessee by affixation on some conspicuous part of his house as provided under Order V Rule 20 of the Code of Civil Procedure. Notice dated March 31, 1979 was, therefore, affixed by the Process Server on the same day on the assessee's house in Katla Ram Leela, Hisar.
2. The assessee filed a Nil return alongwith a covering letter dated December 16, 1980 in which it was stated that the return was being filed under protest as there was no valid order for service by affixation and therefore, there was no valid service. According to the assessee there was no occasion to resort to the substituted service by affixation. He further stated that he had come to know about the gift-tax proceedings in respect of the assessment year 1970-71 from the inspection of gift-tax file for the assessment year 1973-74. He also denied having made any gift. However, during the course of proceedings the assessee made the following offer which was recorded by the IAC(A) on January 23, 1981:-
"Shri Gulab Singh Jain, Advocate, Shri Shanti Parshad Jain and Sh. Devinder Parshad Jain are present. State in Income-tax Wealth-tax and Gift-tax proceedings, the department is treating the following lands situated within the Municipal Limits of Hisar Town and since acquired by the State Govt. as entirely belonging to Shri Shanti Parshad Jain:-
i) Land opposite model town, Hisar being old Khasra Nos. 4960,4963, 4965, 4966, 4968 & 4969 measuring 85 bighas and 1 biswa (85050 sq.yds) purchased in the name of Sh. Shanti Parshad Jain on 20.3.54 for Rs. 18,000/-
ii) Land bearing old Khasra No. 4958 measuring 1 bigha and 1 biswa (1050 sq. yds.) purchased in the name of Shri Shanti Parshad Jain on 19.5.1954 for Rs. 2,000/-
iii) Land bearing old Khasra Nos. 4949 and 4971 measuring 10 bighas and 7-1/2 biswas (10375 sq. yds.) purchased in the name of Shri Shanti Parshad Jain on 11.10.57 for Rs. 3,000/-
iv) Land bearing old Khasra Nos. 11357/4951, 11361/4962, 11353/4950, 11356/4951, 11353/4950, 11359/4952, 11355/4951 and 4953 measuring 25 bighas and 5 biswas (25250 sq. yds.) in the name of S/Shri Jainender Kumar, Shri Devinder Parshad and Sh. Satinder Kumar, sons of Shri Shanti Parshad Jain for Rs. 18,000/-
If the Department changes its aforesaid stand in income-tax, wealth-tax and Gift-tax proceedings and accepts that 3/4th of the lands mentioned in Sr. Nos. (i) & (ii) above became the property of the son of Sh. Shanti Parshad Jain after the Court decree dated 28.2.1970 in declaratory suit, and that the land at Sr. No. (iv) above was acquired by the sons ofSh. Shanti Parshad Jain with the sums of Rs. 18,500/- received by them as gift from M.P. Jain and was as such their property right from the date of purchase the assessee i.e. Shri Shanti Parshad Jain would agree to the following;-
a) That the Gift-tax proceedings in his case for assessment year 1970-71 were validly initiated.
b) That the transfer of the lands by Sh. Shanti Parshad Jain to his three sons through court decree dated 28.3.1970 in declaratory suit constituted a gift of the lands on 28.3.1970 by Sh. Shanti Parshad Jain to his sons assessable to gift-tax in the Asstt. year 1970-71.
c) That Gift-tax as per provisions of the Gift-tax Act is leviable on the gift of the lands by Sh. Shanti Parshad to his sons mentioned at Sr. No. (b) above.
d) That the question of valuation of the lands mentioned at Sr. Nos. (b) & (c) for gift-tax purpose will remain open (i.e. there is no agreement between the assessee and the Department on the question of valuation of the lands for gift-tax purpose.
e) Or in short that Shri Shanti Parshad Jam will not challenge the Gift-tax assessment made in his case for the Asstt. year 1970-71 in respect of the land transferred to his sons through Court decree dated 28.3.1970 on any ground, except on the question of valuation of the lands gifted.
f) That all matters other than those listed above will remain open.
g) That Shri Shanti Parshad Jain is agreeable to the above terms subject to the further condition that no penalty for concealment or prosecution shall be launched against him for the assessment year 1970-71 and also accepts the mutual partition between Shri Shanti Parshad and his sons effected through partition order of the revenue Court."
3. The assessee also filed a revised return declaring the value of the taxable gift at Rs. 1,84,975/- by adopting the value of the land at Rs. 3.52 per sq. yard. The IAC (A) accepted the settlement offered by the assessee to put an end to the multifarious litigation that had arisen in the income-tax, wealth-tax and gift-tax cases. Since the only matter thereafter open before the IAC (A) was in respect of the valuation of the gifted property, he referred the question of valuation to the District Valuation Officer, who vide his report dated March 18. 1981 determined the value of the gifted land as on March 28 1970, the date of gift at Rs. 11,02,500/- For this purpose he relied inter alia on the fact that in respect of the land acquired by the State Government, the District Judge had fixed the value at Rs. 27/- per sq. yard. The IAC (A) rejected the assessee's claim that the land was agricultural and therefore the District Valuation Officer was not competent to value it. He also held that even if the land was agricultural, it has to be valued keeping in view its future potential, accordingly, the valuation of the taxable gift was taken by him at Rs. 11,02,500/- and the assessment was completed accordingly. The IAC(A) also initiated penalty proceedings for late filing of the return.
4. The assessee filed an appeal before the Commissioner of Gift Tax (Appeals), Chandigarh raising as many as 13 grounds of appeal. However, during the course of arguments, he only raised the dispute about the valuation of the gifted land. The Commissioner of Gift Tax (Appeals) dismissed the appeal as according to him, the valuation adopted by the IAC(A) was reasonable.
5. The assessee filed further appeal before the Tribunal. The Tribunal vide its order dated May 17, 1983 quashed the assessment proceedings on the ground that the service of notice under Section 16, which is a condition precedent for the assumption of jurisdiction to make an assessment was invalid. While deciding this appeal, the Tribunal did not take into account the settlement which had been offered by the assessee and accepted by the department. Thus the Department moved a Misc. Application pointing out this error. That application was allowed vide order dated November 21, 1983 and the appellate order passed on May 17, 1983 was recalled. The appeal was accordingly reheard by the Tribunal.
6. The assessee had raised a number of grounds in his appeal. The first ground relating to the assumption of jurisdiction on the basis of substituted service of notice dated March 31, 1979, was considered as a basic question going to the root of the matter. The assessee challenged the validity of the order dated March 31, 1979 passed by the IAC(A) under Order V Rule 20 CPC authorising service of notice by affixation. According to him, there was no material before the Gift Tax Officer to show that the assessee was evading service of notice. He also took the objection that the house in Katla Ram Leela on which the said notice was allegedly affixed was not the residential house of the assessee as he was residing in a building at Delhi Road, Hisar. On behalf of the Department it was submitted that in view of the offer made by the assessee and accepted by the IAC(A), the question of service could not be raised by the assessee. He had accepted the order of the IAC(A) dated March 31, 1979 recording satisfaction that the assessee was evading service. It was, therefore, maintained that the service by affixation was valid and proper and the notice had been affixed at the correct residential address given by the assessee himself. This was apparent from a number of papers in the departmental record where the address of assessee was given as Katla Ram Leela. In reply, it was submitted on behalf of the assessee that the department had not honoured its part of the agreement as the IAC(A) had initiated penalty proceedings for late filing of the return in contravention of the terms of settlement. The assessee also contended that the illegality in assumption of jurisdiction by the IAC (A) could not be waived by the assessee and, therefore, could be challenged at any stage.
7. The Tribunal found that the assessee was not right in saying that the penalty proceedings for late filing of the return had been initiated in contravention of the terms of settlement. It was held that Clause (g) of the said settlement was only to the effect that no penalty proceedings for concealment or prosecution were to be initiated or launched against the assessee. There was no undertaking for not initiating penalty proceedings for the late filing of the return. The Tribunal duly noticed that as per Clause (a) of the settlement, the validity of the gift-tax proceedings had been accepted by the assessee. It further noticed that as per Clause (e) the assessee had agreed not to challenge the gift-tax assessment on any ground except on the question of valuation of the gifted land. However, the Tribunal was of the view that the question whether the requirements of Order V Rule 20 CPC were satisfied or not so as to permit substituted service by affixation was one on which the valid assumption of jurisdiction by the IAC(A) depended. It was, therefore, held that such an objection which went to the very root of the IAC(A)'s power to make the assessment could be raised before it for the first time. Accordingly by relying on the following judicial pronouncements. The Tribunal held that principles of acquiescence or waiver did not come in the way of assessee in challenging the validity of the assumption of jurisdiction by the IAC(A) in the present case:-
(1) CIT v. Ramsukh Moti Lal (1955) 27 ITR 54 (Bomb.) (2) Chidambaram Chettiar v. CIT. (1956) 29 ITR 842 (Mad.) (3) CIT v. Maharaja Partap Singh Bahadur (1956) 30 ITR 484 (Patna)
8. The Tribunal, therefore, allowed the assessee to raise his objection against the validity of service of notice by affixation. According to the Tribunal, the notice under Section 16(1) of the Act issued to the assessee on March 29, 1979 had been returned un-served by the Process Server with his report dated March 30, 1979 to the effect that the assessee had gone to Delhi. No other notice was sent to the assessee either before or after this notice. The notice dated March 31, 1979 had been served by affixation in view of the order of the IAC(A) recording his satisfaction that he had reason to believe that the assessee was keeping out of the way for the purpose of evading service. The Tribunal further observed that the assessee being an Advocate could go to Delhi in connection with his work among other things. Accordingly, it was held that the IAC(A) had no material on the basis of which he could entertain the belief that the assessee was keeping out of the way for the purpose of evading service of the notice. The Tribunal also observed that it was not the case of the Department that the assessee had not gone to Delhi, but was merely hiding somewhere or that successive notices sent to him had been returned unserved. Further the notice sent on March 29, 1979 was also not attempted to be served on any authorised agent or any adult member of the assessee's family. According to the Tribunal the onus was on the Revenue to show that the assessee was evading service and the revenue had placed no material on record on the basis of which a reasonable person could come to the conclusion that either of the conditions contemplated by Order V Rule 20 CPC was satisfied. The satisfaction contemplated under the aforesaid provision has to be objective and not subjective one. The Tribunal was of the view that from the mere fact that the Process Server could not find the assessee, the conclusion could not be reached that the assessee was keeping out of the way for the purpose of evading service. Accordingly, it was held that the service of notice by affixation on March 31, 1979 was invalid and, therefore, the IAC (A) could not be said to have assumed a valid jurisdiction to make the gift-tax assessment in question as contemplated under Section 16 of the Act. In view of this finding, the question of affixation at the correct house was held to be immaterial. Still after examining the facts, the Appellate Tribunal found that the objection of the assessee that the notice had been affixed at the wrong address was not sustainable.
9. Even though the question of valuation did not remain material in view of quashing of the assessment order on the ground of want of proper service, the Tribunal noticed that the assessee had a good case on merits in that regard also. The Departmental Valuation Officer had valued the land in question @ Rs. 27/- per sq. yard. In doing so, he did not rely on the report of the assessee's valuer on the ground that the land in question had been approved for commercial/residential use under a scheme approved by the Municipal Committee. The Tribunal also noticed that the Departmental Valuation Officer was not an expert for valuing agricultural land, whereas the assessee's approved valuer was a specialist in valuation of agricultural lands. He had valued the land in question @ Rs. 17,000/- per acre considering the location, quality and scope for development: His report mentioned that the average sale price was not available as the agricultural land in Hisar was under consolidation. He also mentioned that 249.52 acres (in which the land in question is included) was declared as unbuilt by the Governor of Punjab and Haryana on April 29, 1966 and so its use could not be converted into residential one without further orders. So far as the agricultural nature of land is concerned, the Tribunal referred to various documents on the basis of which it was held that the same was established. The Land Acquisition Collector had awarded compensation vide his award dated September 5, 1973 by dividing the land into three blocks, 'A', 'B', and 'C'. He had awarded compensation at the rates of Rs. 20,000/-, Rs. 12,000/- and Rs. 8,000/- per acre respectively for these blocks. Accordingly, the value taken by the assessee's approved valuer was held to be quite fair. So far as the order dated January 23, 1979 of the Additional District & Sessions Judge is concerned, the Appellate Tribunal noticed that he had taken the market value of the land on the date of notification i.e. October 30, 1973 at Rs. 27/- per sq. yard at a flat rate. The Tribunal also held that mere claim of the assessee before the Hon'ble High Court at Rs. 40/- per sq. yard could not prove that it was the market value. Therefore, holding that the land was agricultural on March 28, 1970, the date of gift, the valuation as declared by the assessee on the basis of the report of the approved valuer was held to be justified. Resultantly, the Tribunal allowed the appeal of the assessee vide his order dated July 3, 1986.
10. Aggrieved by the order of the tribunal, the Revenue filed an application under Section 26(1) of the Act requiring the Tribunal to refer the following questions of law arising out of its order dated July 3, 1986 for the opinion of this Court :-
"1 Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the IAC(A) did not assume a valid jurisdiction on the basis of substituted service of notice under Section 16(1) of the G.T. Act as the requirements of Order V Rule 20 CPC were not satisfied and the assessee could not waive the objection regarding assumption of jurisdiction by the IAC (Asstt.) on the basis of service by affixture.
2. Whether on the facts and in the circumstances of the case and having regard to Clause (a) of the agreement dated 23.1.1981 between the assessee and the IAC (Asstt.) the Tribunal was right in law in holding that the service of notice Under Section 16(1) of the G.T. Act was not valid and IAC(A) did not assume a valid jurisdiction to make the gift-tax assessment?
3. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the lands, which were subject matter of gift, were agricultural lands and valuation of Rs. 1,89,975/- declared by the assessee on the basis of the report of approved valuer for agricultural land was justified as against value of Rs. 11,02,500/- assessed by the IAC(Asstt.) on the basis of report of Departmental valuer.
The Tribunal vide its order dated March 1987 has referred only the following two questions:-
"1. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that the principles of acquiescence or waiver, did not come in the way of the assessee in challenging the validity of the assumption of jurisdiction by the IAC(A) to assess the assessee under the Gift-tax Act, 1958?
2. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that the affixture service made on the basis of the order dated March 31, 1979 of the G.T.O. was invalid and that the IAC(A) could not be said to have assumed a valid jurisdiction to make the gift-tax assessment under Section 16 of the Gift-tax Act, 1958?" These questions require our consideration in GTR No. 1 of 1987.
11. The question No. 3 as proposed by the Revenue relating to valuation of land was not referred by the Tribunal on the ground that its findings on that issue were pure findings of fact. However the Revenue has filed a petition under Section 26(2) of the Act, which is GTC No. 2 of 1987, seeking a direction to draw up a statement of the case and refer the following question for the opinion of this Court:-
"Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the lands, which were subject matter of gift, were agricultural lands and valuation of Rs. 1,89,975/- declared by the assessee on the basis of report of approved valuer for agricultural lands was justified as against value of Rs. 11,02,500/-assessed by the IAC (Assessment) on the basis of report of Departmental valuer?"
12. We shall first consider the questions of law referred to us in GTR No. 1 of 1987.
13. Mr. Rajesh Bindal, Advocate, appearing on behalf of the Revenue contended that the Tribunal was not justified in allowing the assessee to challenge the validity of the proceedings in view of the undertaking given by him while offering to settle the matter on January 23, 1981. He specifically referred to Clauses (a) and (e) of the agreement in which he had accepted that the proceedings had been validly initiated and had further given an undertaking that he will not challenge the assessment made in these proceedings on any grounds except on the question of valuation. He further contended that the offer made by the assessee had been accepted by the revenue and the revenue on its part had fulfilled all its obligations. It had modified its stand in the income-tax, wealth-tax and gift-tax proceedings. It had also not initiated penalty proceedings for concealment nor had launched any prosecution against the assessee. He further contended that since the assessee had given up the challenge to the order directing service by affixation, no further evidence was required to be led to prove that the assessee was trying to evade service. He also relied on the judgment of the Madras High Court in A.K.M. Govin-daswamy Chettiar (Deed.) and Ors. v. Income-Tax Officer (2000) 244 ITR 559 to contend that once the assessee had acted upon the notice and filed the return in pursuance thereof, the objection regrading validity of service loses its significance.
14. On the other hand, Mr. R.K. Jain, appearing on behalf of the assessee supported the findings of the Tribunal.
15. At the outset, we would like to mention that the purpose of notice is to inform the assessee. The mode is a matter of procedure. In the present case, the assessee was duly informed. The rest was a matter of detail. Further from the facts as noticed above, it is apparent that there was no question of waiver of any notice. It is undisputed that the noticed dated March 31, 1979 had duly been served by affixation at the residential address of the assessee. It is only the mode of service which was under challenge before the Tribunal. Thus the case cannot be equated with waiver of notice. It is not disputed that the IAC(A) did have the jurisdiction to proceed under Section 16(1) of the Act. Thus, there was no infirmity or lack of jurisdiction when notice under Section 16(1) of the Act was issued on March 29, 1979 or on March 31, 1979. The proceedings commence the moment a valid notice is issued. However, it is true that the jurisdiction to make an assessment requires a proper and valid service of notice. In the present case, the notice was admittedly served by affixation on March 31, 1979. It is only the mode of service which has been held by the Tribunal to be bad on the ground that the conditions required to be fulfilled for making an order for substituted service under Order V Rule 20 CPC were not satisfied. The satisfaction recorded by the IAC(A) in his order dated March 31, 1979 to the effect that the assessee was keeping out of the way to evade service was held to be based on no material and it is for this reason that the Tribunal has quashed the assessment on the ground of lack of jurisdiction. The Tribunal's approach, according to our considered view, is erroneous. When the assessee made the offer of settlement in which he agreed that the proceedings had been validly initiated and that he will not challenge the assessment made in these proceedings on any ground except on the question of valuation, he accepted the order of the IAC(A) dated March 31, 1979. Once he accepted the finding of fact recorded in that order that the assessee was keeping out of the way for the purpose of evading service, the said finding of fact became final. The revenue was not required to lead any further evidence to prove its case. The acceptance of these findings is also evident from the fact that the assessee never raised this point before the IAC(A) nor during the arguments before the Commissioner (Appeals). These findings of fact having become final on the basis of the agreement by the assessee himself, the Tribunal was not justified in holding that there was no material to support the satisfaction recorded by the IAC(A) vide order dated March 31, 1979 under Order V Rule 20 CPC. Once this order is held to be justified, no fault can be found in the service of notice by affixation. This being the only ground on which the assessment proceedings have been quashed, the order of the Tribunal on this issue cannot be sustained. In this view of the matter, question No. 2 is answered in the negative i.e. against the assessee and in favour of the Revenue.
16. Since we have upheld the order dated March 31, 1979 ordering service of notice by affixation, there is no question of waiver of service of a valid notice by the assessee. Accordingly, the quest-on No. 1 has been rendered infructuous and is returned unanswered.
17. We shall now deal with GTR No. 2 of 1987 which is a petition filed by the Revenue under Section 26(2) of the Act seeking a direction to the Tribunal to refer the question about valuation of the property for the opinion of this Court. The Tribunal has dealt with this matter as under:-
"So far as the agricultural nature of land is concerned, it is established from the following:-
(1) Award of the L.A.C. in which compensation has been calculated per acre (2) Khasra Girdawari from 1967 to 1973 (Report of the Tehsildar, Hisar on the application of the assessee that the lands in question are agricultural and that crops were grown there in and land revenue was paid (4) statement dated 25.8.1981 of Jagdish Chand Patwari before the IAC (Asstt.) (5) Statement dated 25.8.1981 of Chaturbhuj Patwari before the IAC (Asstt.), (6) Statement of Secretary Municipal Committee, Hissar Under Section 131 to the effect that area was un-built and that land was being cultivated for agricultural purposes even upto 1976, (7) Affidavit dated 6.3.1981 of Shri Kulwant Rai Aggarwal and (8) affidavit of the assessee himself to the effect that till acquisition took place the land was used for agricultural purposes. So far as the Award dated 5.9.1973 of the IAC is concerned, he had awarded compensation by dividing the land into three blocks A, B, & C. He had awarded compensation @ Rs. 20,000/- @ Rs. 12,000/- and Rs. 8,000/- per acre respectively for these blocks. Thus the value taken by the assessee's approved valuer Rs. 17,000/- per acre appeared to be quite fair. So far as the order dated 23.1.1979 of the learned Additional District and Sessions Judge is concerned, he had taken the market value of the land on the date of notification (30.1.1973) at Rs. 27/- per sq. yd. at a flat rate. In its grounds of appeal against the order of the Additional District & Sessions Judge referred to above, the State had supported the rate on which compensation had been awarded by the LAC. No doubt, in the grounds of appeal filed by the assessee before the Hon'ble High Court against the order of the learned Additional District & Sessions Judge, it was said that a rate of Rs. 40/- per sq. yd. should have been granted. That appeal is reported to be still pending. Mere claim of the assessee would not show that the market rate of the land should be taken in terms of his claim. Therefore, on the basis of the material on the record and the land was agricultural on 28.3.1970, the date of the gift, the valuation of the land as declared by the assessee on the basis of the report of his approved valuer was quite justified. We are, therefore, of the view that even on the question of valuation the assessee must succeed,"
18. A perusal of the above shows that the findings of the Tribunal about the nature of land being agricultural and its valuation are duly supported by material on record. The Tribunal was right in observing that the crucial date in the present case is March 28, 1970 when the gift was made. Value of the land had to be seen on that date. Subsequent developments and acquisition and events occurring a decade later cannot be a valid basis. These findings are pure findings of fact and do not give rise to any referable question of law. Accordingly, the petition filed by the Revenue is dismissed.
19. In view of the partial success of both, the Revenue as well as the assesses, we make no order as to costs. Sd/- Jawahar Lal Gutpa, J.