Pukhraj Jain v Income Tax Officer, Ward 6(4), Hyderabad

Income Tax Appellate Tribunal

HYDERABAD

30 September 2005

Gift Tax Appeal No. 8 (Hyd.) of 2003

The Judgment was delivered by : SUDHAKARREDDY (ACCOUNTANT MEMBER)

This is an appeal filed by the assessee, directed against the order of the CIT

(Appeals) IV, Hyderabad, dated 11-8-2003, for assessment year 1998-99, on the following grounds :-

“1. The learned CIT (Appeals) has erred in law and in the facts and circumstances of the case in confirming assessment of Rs. 22, 70, 450 as deemed gift under section 4(1)(a) of the Act adopting the stamp duty values of 5 plots sold by the appellant during the year.

2. The learned CIT (Appeals) ought to have accepted the contention of the appellant that all the facts and circumstances of the case taking into account the location of the property and other factors the sale consideration as per the sale deed was not less than the prevailing market price of the properties and hence there is no deemed gift.

3. The learned CIT (Appeals) ought to have accepted the contention of the appellant that the learned Assessing Officer ought to have made a reference to the Valuation Officer and has completely erred in not doing so and straightaway adopting stamp duty rates for valuation and consequently the assessment is not in accordance with the provisions of law and is liable to be struck down.”

Brief facts of the case are as follows :

2. A survey operation was conducted on the assessee’s premises under section 133A of the Income-tax Act, 1961. During the survey operation it came to the notice of the Assessing Officer that five open plots had been sold by the assessee to different persons. A perusal of the registered sale deeds indicated that the Sub-Registrar, while registering the sales, fixed the market value at Rs. 600 per sq. yd. for the purpose of levy of stamp duty. The Assessing Officer noticed that there was a difference in the value adopted in the registered sale deed and the value fixed by the Sub-Registrar. He concluded that the properties were transferred for inadequate consideration and invoked the provisions of section 4(1)(a) of the Gift-tax Act and levied gift-tax. Aggrieved, the assessee carried the matter in first appeal without success. Further aggrieved, the assessee has filed this appeal.

3. The submissions of the learned counsel for the assessee are these : The sale consideration mentioned in the registered sale deeds was the prevailing market value of the property and the purchasers of the plots were in no way related to the assessee. The Sub-Registrar’s office adopted a rate of Rs. 600 per sq. yd. as there was an upward revision in the market price by Government of Andhra Pradesh just before execution of the sale deeds by the assessee. The land was located in an interior place and it is water logged. The rate adopted by the SRO was for a particular area and not applicable to these plots of land as the depressing factor for value of the plots was not considered by SRO. The Assessing Officer had examined the buyers of these lands and all of them confirmed that the sale consideration was only that which had been mentioned in the registered sale deeds. There was no deemed gift as the sale consideration as per the sale deeds was in fact the prevailing market price of the property in view of the location and other factors of the plots in question. Stamp duty values are not relevant for arriving at the market price. The Assessing Officer ought to have referred the subject-matter of valuation to the Valuation Officer as mandatorily required.

4. The learned counsel for the assessee placed reliance on Board’s circular No. 96, which explains the provisions of section 16A of the Wealth-tax Act, 1957, which corresponds to section 15(6) of the Gift-tax Act, 1958. He further contended that reference to valuation can be made only during the pendency of assessment proceedings, and as the mandatory requirement of reference to Valuation Officer was not met, the assessment itself was liable to be cancelled. For the proposition that the values that are fixed for levy of stamp duty are not relevant for the purpose of arriving at the market value, he relied on the following decisions :

Kodisetty Suryanarayana v. GTO 1992 Indlaw ITAT 165 (Hyd.)

ITOv. Islam Mujtaba Khan 1997 Indlaw ITAT 74 (Delhi)

G.T.O. v. Vinod Kumar Hissaria 2003 (131) Taxman 134 (Jodh.) (Mag.)

G.T.O. v. Smt. Achla Tikku 1996 Indlaw AAR 9 (Indore) (Mag.) Asstt. CGT v. Sh. Mohan Khan 2004 (1) SOT 43 (Jodh.)

For the proposition that the Assessing Officer should have referred the valuation of the property to the Valuation Officer, and this is mandatory, he relied on the following case laws :-

L.K. Kasliwal v. GTO 1991 Indlaw ITAT 125 (Jp.)

RaniBaiv. GTO 1996 Indlaw ITAT 147 (Jp.)

Nb. Jaffar Ali Khan v. Asstt. CWT 2002 Indlaw ITAT 253 (Hyd.)

SharbatiDeviJhalaniv. CWT 1985 Indlaw DEL 115 (Delhi)

Raj Paul Oswalv. CWT 1987 Indlaw PNH 361987 Indlaw PNH 36 (Punj. & Har.)

For the proposition that the assessment itself has to be cancelled as it was made without reference to Valuation Cell, he relied on the following case laws :-

Smt. Nawal Kanwar v. WTO 1980 Indlaw RAJ 37 (Raj.)

Smt. Uma Devi Jhawar v. WTO 1982 Indlaw CAL 561982 Indlaw CAL 56 (Cal.)

CWT v. Master Kairas Tarapore 1985 Indlaw RAJ 1491985 Indlaw RAJ 149 (Raj.)

Smt. Bella Cajeton Travasso v. WTO 1986 Indlaw MUM 47251986 (1) Taxman 187 (Bom.)

KM. Ramdas Prabhu v. First WTO 1986 Indlaw KAR 1301986 Indlaw KAR 130 (Kar.)

M.V.Kibe v. CWr 1987 Indlaw MP 17334 Taxman 364 (MP); 1987 Indlaw MP 164 (MP)

CWT v. Ravi Choloor 1989 Indlaw KER 98 [47 Taxman 61] (Ker.)

Shantilal Bhogilal Jhaveri v. WTO 1990 Indlaw MUM 53021990 Indlaw MUM 5302 (Bom.)

Lakmi Devi Jain v. WTO 1991 Indlaw ALL 171 (All.)

Jain V.K. v. WTO 1991 Indlaw ALL 3351991 Indlaw ALL 335 ] (All.).

The learned counsel also placed on record an extract of CBDT circular No. 96 dated 25-11-1972.

5. The learned departmental representative submitted a paper book running into 61 pages and submitted that from the sale deeds executed by the assessee, it can be seen that there was alteration in the value. He referred to page 21 of the paper book, which is internal page 2 of the sale deed executed by M/s. Pawan Industries represented by its proprietor Shri H. Pukhraj Jain, in favour of M/s. Sree Rama C.N.C. Tech. I.E., Patancheru, dated 30-4-1997, and submitted that the original figure in that sale deed was Rs. 5, 85, 600 and this figure was struck off and in its place the figure of Rs. 1, 63, 196 was put. Copies of registered sale deeds show that they were registered at much below the market rate. He also filed copies of Indian Stamp Act, 1899, and drew our attention to section 47A as well clauses (iii) and (vi) of section 47A(3A) of that Act and submitted that an elaborate procedure has been prescribed in the Indian Stamp Act wherein the assessee could have objected to the market value of Rs. 600 per sq. yd. fixed by the Sub-Registrar for the purpose of stamp duty, if at all the prevailing market rate was much lesser than that value. He filed copies of The Andhra Pradesh Stamp (Prevention of Under-valuation of Instruments) Rules, 1975, and referred to rule 3 as well as rule 5, wherein the principles for determination of market value are stated. He argued that the assessee had without objecting to the valuation as stated by the Sub-Registrar, had, on the contrary, accepted the same as the true market value and paid stamp duty and now he is wrongly contending that the land in question was a low-lying area which is water-logged and is located in an interior place. He vehemently contended that having accepted the valuation before one Government authority, it is not open for the assessee to dispute the same before another Government authority. He submitted that section 4(1)(a) of the Gift-tax Act comes into play only when there is a genuine transfer and the mere fact that the transfer was made to strangers who are not in any way related to the assessee, is not a consideration that has prevailed with the Assessing Officer for the purpose of treating the transaction as a deemed gift. He pointed out that no gift-tax returns were filed by the assessee. He vehemently contended that when the assessee files return of gift and when the Assessing Officer takes a different view, then only reference to Valuation Cell is compulsory. He submitted that valuation is. available by way of basic register value of the Sub-Registrar’s office and the Assessing Officer was perfectly justified in adopting that value. In this connection, he submitted that the decision of the Hon’ble Madras High Court in the case of CGT v. Indo Traders Agencies (Madras) (P.) Ltd.[ 1979 Indlaw MAD 104, is in his favour. He relied on the judgment of the Hon’ble Madhya Pradesh High Court in the case of UOI v. Ku. Vijaya Raje1998 Indlaw MP 100, and submitted that reference to Valuation Cell is discretionary. Referring to the Schedule in the sale deed, he submitted that it refers to Industrial plot and this shows that on facts the assessee is wrong in claiming that the properties are located at a distance. He concluded by submitting that the method valuation by Sub-Registrar’s office is a scientific method and hence the Assessing Officer was right in adopting the same for arriving at the deemed gift.

6. Replying to the contention of the revenue, the learned counsel for the assessee submitted that survey operations were carried out on 21-8-2000 and the gift-tax assessment was completed on 17-2-2003 and that the income-tax assessment was completed on 30-3-2001. He submitted that though income-tax proceedings were completed before the gift-tax proceedings, no observation A whatsoever on the alleged under-valuation was made in the income-tax proceedings. If the case of the revenue was that certain extra amounts had passed between parties over the amount mentioned in the registered sale deeds, then it was for the Assessing Officer to invoke his power under section 148 of the Income-tax Act, 1961. He referred to the statement of the assessee, which is filed at pages 60 and 61 of the department’s paper book, and submitted that the assessee had clearly stated that the corrections made were due to typographical mistakes and he had initialled all the corrections. Thus, he submitted that once the corrections were accepted by the Sub-Registrar before registering the documents, it is no longer open for the Department to harp on the corrections in the documents. He pointed out that the Assessing Officer had in the assessment order itself brought out the fact that the assessee had filed gift-tax return for the assessment year 1998-99 on 25-10-2001, wherein he had declared gift at Nil’. Even otherwise, he submitted, for the purposes of section 4(1)(a) or section 15(6) of the Gift-tax Act, filing or non-filing of the return has no relevance under the Act. He relied on the judgment of the Hon’ble Rajas than High Court in the case of 2002 (256) ITR 402, for the proposition that the value adopted for income-tax purposes should be adopted for gift-tax purposes also. He submitted that when the value for the purpose of capital gain was adopted as that which was mentioned in the registered sale deeds, the same should be adopted for gift-tax also.

7. We have heard rival contentions. On a careful consideration of the facts and circumstances of the case, we are of the considered opinion that the issue is covered in favour of the assessee by the order of the Jaipur Bench of the Tribunal in the case of L.K. Kasliwal (supra), wherein it was held as follows (head note):

“The provisions of section 15(6) which were inserted by Taxation Laws Amendment Act, 1972 with effect from 1-1-1973 are very clear. These provisions indicate that the jurisdiction and powers of the GTO have been curtailed and have been assumed either by the registered valuer or by the Valuation Officer because in a case falling under clause (a) if the GTO does not make a reference to the Valuation Officer, he should be presumed to have accepted the position that the returned value of the asset is not less than its fair market value. In other words, he has to accept the returned value for assessment purposes. On the other hand, if he chooses to make a reference to the Valuation Officer, is bound to adopt the value as reported by the Valuation Officer.”

Similar is the decision of the Jaipur Bench of the Tribunal in the case of Rani Bai (supra), wherein it was held as follows (head note):-

“Before the substitution of section 7 of the Wealth-tax Act and section 6 of the Gift-tax Act with effect from 1-4-1989, under both the Acts, the concept of ‘market value’ existed, as is evident from the words ‘. . .if sold in the open market…’ used therein. Though the rules under the Gift-tax Act did not provide elaborately for the method of valuation, the rules as prescribed under the Wealth-tax Act were applied for gift-tax purposes also. And even when the concept of market value was there, the Supreme Court in the case of Bharat Hari Singhania v. CWT 1994 Indlaw SC 1335 Taxman 3, held that rule 1D of the Wealth-tax Rules was mandatory. The rules prescribed under the Wealth-tax Act were also applied for the taxation of gifts as they prescribed one of the recognised methods of valuation. This received statutory recognition from 1-4-1988 when Schedule II was inserted in the Gift-tax Act, prescribing that the value of gifted properties shall be determined as per Schedule III of the Wealth-tax Act. This statutory recognition not only brought harmony between the two direct tax legislations but also emphasised that the concept of ‘market value’ was done away with. Further, the mandatory character is also reinforced by the fact that not only the procedural provision, namely, Schedule II to the Act, used the word ‘shall’, but the substantive provision in section 6(1) also uses the word ‘shall’.”

These case laws lay down the proposition that even in the case of a deemed gift it is mandatory for the Assessing Officer to refer the valuation to the Valuation Cell.

8. In the case of Sh. Mohan Khan (supra), the Jodhpur Bench of the Tribunal held that the value taken by the Sub-Registrar for stamp duty purposes cannot be taken to be the actual sale consideration in the absence of any material on record to establish that the actual sale consideration exceeds the declared consideration and, therefore, it could not be taken as the basis for working out the deemed gift. Similarly, the Indore Bench of the Tribunal, in the case of Smt. Achla Tikku(supra) held as follows (head note):-

“Section 4(1)(a) of the Gift-tax Act, 1958 – Deemed gift – Asses-see sold their joint property to strangers for a consideration -On basis of information that stamp duty and registration charges paid were more than sale consideration, Assessing

Officer treated difference as a deemed gift and brought to tax A – Whether where assessee and transferee were not related to each other and in absence of material to indicate that transaction was not bona fide and that it was with a view of evade tax, assessee could not be said to have transferred said property without adequate consideration, and as such, no deemed gift was assessable in assessees’ hands – Held, yes”

In the case of Vinod Kumar Hissaria (supra), Jodhpur Bench of the Tribunal held that the value taken by Sub-Registrar for stamp duty purposes could not be taken by the Assessing Officer as basis for working out a deemed gift. Hyderabad Bench ‘B’ of the Tribunal, in the case of Kodisetty Suryanarayana (supra) held as follows (head note):-

“Admittedly the Assessing Officer took the aid of the provisions of section 4(1)(a) considering the value fixed by the registra- tion authorities for purposes of registration of the sale deed of the property in question. No material was found on refund as to the manner or basis of the fixation of the market value of the said property by the registering authority. In the absence of such evidence it was not easy to discern whether the value fixed by the authorities for purposes of registration of transferred documents was the true and fair market value. It was, no doubt, true that the valuation of properties when referred to the valuation officers under the relevant provisions of the wealth-tax and gift-tax laws was arrived at on a more reasonable, rational and scientific basis and more or less conformed to the accepted principles of valuation.

In the instant case, apparently no enquiry or investigation was made by the Assessing Officer to find out about the adequacy or inadequacy of the consideration or whether or not the market value of the said property was fair or reasonable. In the absence of such a categorical finding it could not be held that the assessee had transferred the property in question without adequate consideration. Also, the assessee and the transferee were not related to each other. No material had been placed nor was available with the Assessing Officer to satisfy him that the transfer was not bona fide and that it was tainted with oblique motives, particularly to evade tax.”

9. Respectfully following the aforesaid decisions and in line with the Board’s circular No. 96 dated 25-11-1972, we uphold the contentions of the assessee. The value placed by the Sub-Registrar cannot be taken as the basis for fixing the market value of the property for the purpose of arriving at the deemed gift, especially in the absence of any other evidence or enquiry made by the Assessing Officer, and in the absence of reference to the Valuation Cell for the purpose of estimating the market value, which is mandatorily required under the Act. The assessee in this case made specific claim that, due to water logging, distance from road etc., the value was depressed. This argument was not met by the Assessing Officer. The learned departmental representative brings in extraneous factors such as procedure available under the Stamp Act, for claiming reduction of stamp duty, forgetting the fact that it is only the purchaser who pays the stamp duty. Even otherwise, not making claims before the registration authorities for reduction in stamp duty, does not in any way lead to a conclusion that extra purchase consideration had passed between the parties. The sellers on enquiry confirmed the figures of sale price. All the purchasers were not in any way connected to the seller. There is no iota of evidence to the contrary. The revenue has not brought on record any instance of sale in adjoining areas, around that period, to defend its rejection of the assessee’s claim. The sale price was accepted in the income-tax proceeding, which were concluded after the survey action. Thus, on facts as well as in law we uphold the arguments of the assessee and set aside the orders of the authorities below by granting relief to the assessee as prayed for in his appeal herein.

10. In the result, the appeal of the assessee is allowed.