Gujarat High Court
Commissioner Of Income-Tax, ... vs Indiraben Jaisukhlal Desai on 26 December, 1979
JUDGMENT B.K. Mehta, J.
1. These appeals arise out of an order of the Income-tax Appellate Tribunal, Ahmedabad, setting aside the order of acquisition of the property comprising of a commercial building known as "Motisagar" bearing S. No. 896 situate at Dhebar Road within the city of Rajkot. There were shops and offices in the said building which were let out at a gross monthly rent of Rs. 1,551 to different tenants. It appears that on the Sub-Registrar of Rajkot reporting to the IAC, Acquisition Range I, Ahmedabad, who is the competent authority in these matters that the commercial building known as "Motisagar" consisting of shops and offices was transferred by Shri Kanubhai Chhaganlal Pandya and others by a registered deed of conveyance of May 10, 1973, to Smt. Induben Jaisukhbhai Desai, who is the respondent before us, for an apparent consideration of Rs. 92,000 the competent authority required the valuation officer concerned to determine the fair market value of the property in question and he submitted his valuation report on October 23, 1973, determining the fair market value at Rs. 1,99,200 as against the apparent consideration of Rs. 92,000. It appears further that the competent authority had directed his inspector to make inquiry and submit his report in connection with the fair market value of the property which he did. The competent authority, therefore, initiated acquisition proceedings by publishing a notice in the Official Gazette on November 10, 1973, and served individual notices to the transferors and the transferee on November 7, and November 9, 1973, respectively, and the locality notice was proclaimed on March 31, 1974.
2. Pursuant to these individual notices, the transferors as well as the transferee filed their objections. However, the occupants of the different business premises did not file their objections, though they were served with notices on different dates. The competent authority, on consideration of the material on record before him, concluded that the property in question was situated in the best commercial locality of Rajkot where a number of buildings put to commercial use were situate. He also concluded that the fair market value of the property in question was Rs. 1,99,200, after applying the yield method for purposes of valuation. For purposes of reaching the said conclusion, he considered the detailed break-up of the receipts and outgoings of the property in question as per the report of the Valuation Officer, as per the report of the transferee's valuer and as per the submissions of the transferee's counsel. The Valuation Officer has estimated the net return from the property at Rs. 14,940 while according to the valuer of the transferee it was Rs. 14,398 as against the estimate of the transferee's counsel of Rs. 11,630. The District Valuation Officer has capitalised the net return at 7 1/2% as against the claim of the registered valuer at 15% and that of the transferee's counsel at 12%. After considering these details, the competent authority reached the conclusion that the fair market value of the property in question far exceeded the apparent consideration which justified the acquisition. The competent authority recorded his findings in the following terms:
"From the above table it will be seen that there is not much difference between the return, determined by the valuation officer and by the transferee's valuer. The transferee's valuer, however, has taken the annual repairs at 1/6th whereas the Valuation Officer has taken the same at 10% of the gross annual rent. For the purpose of working out the property income, 1/6th of the gross annual letting value has to be allowed as a statutory deduction under the I.T. Act. In valuation matters, however, the rate of 10% allowed as deduction by Valuation Officer is quite appropriate and sensible. The vacancies, collection charges, etc., have been allowed at 7% by the Valuation Officer as against 6% claimed by the transferee's valuer. As regards the computation made by the transferee's counsel, he has taken repair charges at 1/6th of the gross annual rent which is not correct for the reasons mentioned above. He has claimed extra deduction on account of common light, etc. In this connection, it may be stated that the Valuation Officer has already taken into account the gross annual rent at Rs. 18,000 as against the actual at Rs. 18,618 and thus allowed a deduction of Rs. 618 on this account. As regards vacancies, collection charges, etc., the deduction of 7% of the gross rental income allowed by the Valuation Officer is reasonable and the transferee's counsel has inflated the figures of deduction on this score. The other deductions claimed by the counsel have not been considered fit enough by the transferee's own registered valuer. For the reasons mentioned in the Valuation Officer's comments, reproduced hereinabove, the rate of 7 1/2% applied by the Valuation Officer is considered fair and reasonable in contrast to the rates of 15% and 12%, respectively, by the transferee's representatives. Thus, I hold that the fair market value of the property in question as on the date of transfer was Rs. 1,99,200 as against the apparent consideration of Rs. 92,000. Thus, there is a difference of (Rs. 1,99,200 minus Rs. Rs. 92,000) Rs. 1,07,200 between the fair market value and the apparent consideration."
3. The competent authority, therefore, by his order of February, 17,1977, decided to acquire the property in question.
4. Being aggrieved by this order of acquisition, the transferee went in appeal before the Income-tax Appellate Tribunal, Ahmedabad. A number of contentions were urged on behalf of the appellant about the invalidity of initiation of the acquisition proceedings, inter alia, on the ground that there was inordinate delay in the proclamation of the locality notice which deprived the affected persons of their right to file objections. The transferee also assailed the initiation of acquisition proceedings as in her submission the reasons recorded by the competent authority did not warrant the initiation. A grievance was also made that the competent authority did not summon and examine the registered valuer, Shri Dilipkumar Mehta, representing the transferee. It was also urged that the District Valuation Officer has estimated the fair market value only on the basis of the application of the yield method and alternative method of comparable sale instances was not pressed into service. All these contentions were rejected by the Tribunal. However, on one short ground, the Tribunal upset the order of acquisition since the Tribunal found that the said infirmity in the case was sufficient to rebut the presumption about the object underlying the untrue statement of apparent consideration in the instrument of transfer in the present case that the parties were motivated for evasion of tax and/or concealment of income. This is what the Tribunal has found in its order in this behalf in paras. 44 to 46 for upsetting the order of acquisition:
"44. We are inclined to accept this contention of Shri Shah. We do not find any force in the argument of Shri Deodhar, the learned departmental representative, that the department could reopen these assessments. Admittedly, the assessments are not reopened and till then they are final as they stand. The proceedings under this Chapter have to fall if it is shown that there is not even an allegation in the respective assessments of the transferor and the transferee that there was any attempt at evasion of tax or concealment of income or assets by the transferor or the transferee even if such a nefarious object could be presumed in the case of any one of the two parties, the proceedings would be justified. However, here the assessments indicate that there is no such allegation.
45. In the case of the transferor there is one more difficulty, viz., if this transaction is in the course of the transferor's business, unless it can be shown or presumed that the transferor has charged more than the apparent consideration (that is the amount mentioned in the deed), nothing more can be held to be business income of the transferor; if it is the transfer of capital asset, section 52(2) gives power to the Income-tax Officer to take fair market value as the full value of the consideration. There is no such provision in any of the sections dealing with business income, i.e., sections 28 to 44.
46. We would also like to note that the transferee is also a dealer in building. It is not clear whether the building under consideration, i.e., Moti Sagar, is a business asset of the transferee. Neither the assessment nor copies of statements relating to the transferee clarify this position. If it is a business asset, under-statement of the value would be adverse to the transferee's interest in the long run though no doubt in one assessment year she may be faced with higher taxation in case she is not able to explain the source of funds paid in addition to the apparent consideration."
5. In that view of the matter, the Tribunal allowed the transferee's appeal and set aside the acquisition by its order of October 27, 1977. It is this order of the Tribunal which is the subject-matter of First Appeal No. 123/78.
6. It should be noted that similarly the transferors had preferred an appeal from the order of acquisition which was also allowed by a short order for the same reasons stated in the order allowing the appeal of the transferee. This order of the Tribunal in the transferor's appeal is the subject-matter of First Appeal No. 124/78, before us at the instance of the Commissioner of Income-tax, Gujarat III.
7. At the time of hearing of these two appeals, the learned Govt. pleader, appearing on behalf of the revenue urged that the Tribunal committed a serious error of law in reaching the conclusion that it did by holding that the presumptions which have been raised under s. 269C(2)(a) and (b) were rebutted on account of the inaction on the part of the revenue to take appropriate proceedings in the individual assessment of the transferors and the transferee, inasmuch as they failed to add profit or the income which they had concealed by this dubious instrument of transfer. It was urged by the learned Govt. pleader that powers of assessment as well as power of acquisition operate in different fields, and the perspective, which would govern the respective question of assessment and acquisition, is totally different. The authorities having jurisdiction in the matter of assessment as well as acquisition are different authorities with different jurisdictions and, therefore, inaction in the field of assessment cannot rebut the presumptions which are prescribed by the Legislature under s. 269C(2)(a) and (b) of the I.T. Act, 1961.
8. On the other hand, on behalf of the respondents, the order of the Tribunal was sought to be supported on the ground that if gist of the offence justifying the acquisition of a property involved therein is the ulterior motive of tax evasion and/or concealment of income, the present acquisition must fail on the facts and in the circumstances of the case, because, the transferee is a dealer in immovable properties and there is no provision in the group of the relevant sections, viz., ss. 28 to 44 of the 1961 Act which brings to tax the difference between the consideration stated in an instrument of transfer and the notional value thereof on the basis of the fair market value of the property. It was urged that in the absence of the provision like the one which is made in s. 52(2) in the aforesaid group of sections of the 1961 Act, there is no question of taxing the alleged difference between the consideration and the fair market value of a property and, therefore, there is no scope for raising any presumption in law and/or fact for reaching the conclusion that there was an ulterior object of tax tax evasion.
9. It is in the context of these rival contentions that we have to determine, whether the Tribunal was right in reaching the conclusion that the presumption permitted to be raised under s. 269(2)(a) and (b), and in fact raised in the present case, was rebutted by any action not being taken in the individual assessment of the transferors and the transferee. It should be noted that so far as the transferors are concerned, they may be exposed to the consequences of s. 52(2) as a result of these acquisition proceedings. What has really weighed with the Tribunal in the present case is that since the transferee was a dealer in immovable properties and since there is no provision which brought to tax the alleged difference between the consideration for transfer and the fair market value of the property concerned, there was no scope for raising the presumption about the ulterior motive, as prescribed under s. 269C(2)(b) of the 1961 Act. We must frankly state at the outset that we are not impressed by this contention urged on behalf of the transferee and we find ourselves unable to agree with the view which has been taken by the Tribunal. The learned Government pleader was perfectly justified when he urged that the power of assessment and power of acquisition operate in two different fields. The authorities wielding the respective powers and their jurisdictions are also different. We do not think that inaction on the part of the assessing authorities in the case of the individual assessment of the transferees would by itself rebut the presumption permitted to be raised under s. 269C(2)(b). The contention urged on behalf of the respondents before us answers the problem which has been posed in these appeals. It has been urged on behalf of the respondents that since the difference between the income returned and the income actually received in respect of a transfer of an immovable property, though taxable, cannot be brought to tax merely on the ground of fair market value being more than apparent consideration stated in the instrument of transfer, there cannot be any presumption about the ulterior motive of tax evasion or concealment of income. This contention urged on behalf of the respondents answers the problem raised by the transferors and the transferee. It is not disputed that this alleged difference is taxable. What has been urged in effect and substance is that it cannot be brought to tax merely on the ground that the fair market value is more than the apparent consideration. It is, therefore, more a question of a matter of proof or the quantum of evidence, which is required to bring this income, which is in the nature of alleged difference, to tax. It has not been even faintly suggested that the market price of a property cannot be substituted in place of the price or value agreed to between the parties to a transaction under any circumstances. In CIT v. Keshavlal Chandulal [1966] 59 ITR 120 a Division Bench of this High Court consisting of J. M. Shelat C. J. and Bhagwati J. (as they then were) held that the taxing authorities have no right to substitute the market price in place of the price or the value agreed to between the parties to a transaction unless the transaction has been shown to be a sham and/or the value shown was not the value in the books of account.
10. In CIT v. Calcutta Discount Co.,Ltd.,[1973] 91 ITR 8(SC), the facts were that there was a transfer by a company of shares to its subsidiary company at a rate below market price. A question arose, whether the profit can be computed by taking the market price. In that set up of facts, the Supreme Court ruled that where a trader transfers his goods to another trader at a price less than the market price, and the transaction is a bona fide one the taxing authority cannot take into account the market price of those goods, ignoring the real price fetched to ascertain the profit from the transaction. It, therefore, cannot be urged successfully that in no case profit cannot be computed at a price other than the agreed price, because in the case of a transaction which is a sham or not genuine, the revenue authorities have always a power to compute the profit at the real price at which the bargain is struck between the parties. It is only when the transaction is a bona fide one, the taxing authorities cannot take into account the market price of those goods ignoring the real price fetched to ascertain the profits from the transaction. In other words, the jurisdiction of the assessing authorities to compute profits at the market price in preference to the agreed price between the parties would depend on whether the transaction is a bona fide one, and whether there is sufficient proof to justify such a preference. We do not think that inaction on the part of the assessing authorities in not computing the profits at the market price would by itself rebut the presumption which is permitted to be raised for purposes of the acquisition of a property under s. 269C(2)(b). The learned advocate for the respondents urged that law nowhere requires that a trader should sell his property or goods at the market price because he is the best judge of the situation. In support of this contention reliance has been placed by the learned advocate on the decision of the Supreme Court in CIT v. A. Raman and Co. [1968] 67 ITR 11 at page 17. We do not think that this axiomatic position is required to be read from an authority. The pertinent question which arises is, whether the inaction on the part of the assessing authorities to bring to tax the alleged difference between the agreed price and the market price would be sufficient to rebut the presumption which is permitted to be raised under s. 269C(2)(b). We do not think that the inaction would result in a rebuttal of such a presumption because, in the ultimate analysis, it depends on the two subsidiary questions, as stated above, whether the transaction is a bona fide transaction, and whether there is sufficient proof about the difference between the market price and the price agreed between the parties to a transaction. It was urged by the learned advocate for the respondents that if a transferee is a trader in immovable properties, the fair market value of a property transferred cannot be substituted for a consideration stated in the instrument of transfer. We are afraid this is too specious contention to which we can adhere since it is not well founded on the matter of principle or authority. The obvious reason for our disagreement is that in assessment proceedings for want of proof about the sham or bogus nature of transaction or about the reliable evidence of market value of a given property, the assessing authority may find himself unable to substitute the market price in place of the agreed price and assess accordingly. These reasons for inaction for inaction have been eliminated by artificial rules of evidence prescribed by the legislature for the exercise of powers in the course of acquisition proceedings initiated under Chap. XX-A of the 1961 Act. In our view, therefore, the Tribunal clearly committed an error of law, inasmuch as it held that the inaction on the part of the assessing authorities in case of individual assessment the transferee or the transferor has rebutted the presumption raised under s. 269C(2)(b). We would like to add that the competent authority can always consider the fact that no action has been taken against the transferors or transferee for bringing the alleged difference to tax though it will not by itself, as stated above, rebut the presumption which has been raised. The competent authority may, with the above fact of inaction coupled with other sufficient circumstances, reach the conclusion that the presumption about the ulterior motive is or is not rebutted. To that extent the fact of the inaction may be relevant, but, in our opinion, it cannot by itself alone, rebut the presumption which is permitted to be raised under s. 269C(2)(b). In that view of the matter, therefore, these appeals should be allowed and the orders of the Tribunal should be set aside and the matter be sent back to the Tribunal for disposal thereof according to the correct principles as stated in this order.
11 In the result, these appeals are allowed accordingly with no order as to costs.