Tube Suppliers Limited v Inspecting Assistant Commissioner of Income Tax and Another

Calcutta High Court

10 November 1978

The Judgment was delivered by M. N. ROY J.

M. N. Roy J.The petitioner No. 1, M/s. Tube Mill (India) Private Limited (hereinafter referred to as the “said company”), is a company registered and incorporated under the Companies Act, 1956, and the petitioner No. 2, Sri Satya Narayan Mundhra, is a director and shareholder of the same. The said company is stated to be a regular assessee and duly assessed under the provisions of the Income-tax Act (hereinafter referred to as “the said Act”). It has been alleged that the said company held on lease a land under a lease deed between one Juggi Lal Kamalapat and Sri Jagadish Rai Jain, one of the directors of the said company. The said deed was executed on 25th April, 1962. It has been stated further that by the said deed, it was agreed by and between the parties that the lessor would not give notice of termination of the lease for a period of 10 years from 1st March, 1962. The lease in question was in respect of a total land of 5 bighas 1 cottah and 14 chataks 32 sq. ft. of land. It has also been stated that although, as a lessee, the name of Jagadish Rai Jain appeared in the aforesaid deed, he held the property for and on behalf of the said company. The term of the lease admittedly is to expire on 21st April, 1982, as the lease in question would be valid for 20 years from the date as mentioned hereinbefore, the same is to continue at a monthly rental of Rs. 2, 150 M/s. Juggi Lal Kamlapat published an advertisement in the daily issues of “The Statesman” on 7th June, 1972, to sell the entire land holdings, being approximately 28 bighas at 27, Malipanchghara Street, Bally, Howrah, and in pursuance of such advertisement, although there were offers by various intending purchasers, none of those offers could materialise because a low price was offered in view of the fact that the premises was subject to an existing lease. It has been contended that, thereafter, one Smt. Poonam Devi Jain and Smt. Rashmi Devi Jain expressed their willingness for the purchase of the premises and these lands in question and ultimately for a sum of Rs. 80, 000, 5 bighas 1 cottah 14 chataks and 32 sq. ft. of land was sold to them by the said Shri Juggi Lal Kamlapat. The petitioners have alleged that since the property was held by the said company and as the subsequent purchaser as mentioned above found it extremely difficult to eject the said company, they agreed to sell 1/2 of their respective shares of land to the said company at a sum of Rs. 60, 000 and in fact such transfer between those transferees on the one hand and the said company on the other was effected under two deeds of conveyances dated 29th September, 1973, and 27th September, 1973, respectivelyThese apart, it has been contended that after such purchase, the said company has been in due possession of the lands in question as aforesaid and also of the balance of the lands on purchase for Rs. 60, 000 and thereon constructed structures and boundary walls, not only on the lands so purchased, but also on the lands for which they were lessees, with the stipulation that on the expiry of the lease they would get the price of the said construction as settled or would remove the structures as constructed. It has also been alleged by the petitioners that at the time of the purchase of the property, the title to the same was fully and duly investigated, that no notices of ejectment, acquisition or anything of a like nature or any notice under s. 269D(1) of the said Act, was served upon their vendors

It appears that on 23rd August, 1973, and 31st August, 1973, one Shri B. P. Gupta, describing himself as a valuation officer of the I.T. department, came to the premises which was occupied by the said company as a lessee and, thereafter, the said company was asked to be present before the Valuation Officer concerned for ascertainment of certain facts regarding the construction of structures as referred to hereinbefore. The petitioners have alleged that they have informed and intimated to the said Valuation Officer on 7th September, 1973, that according to the lease agreement between the said company and M/s. Juggi Lal Kamlapat, it would appear that there were and are some structures and boundary walls on the land in question. Those constructions and structures were very old. It was also stated that after sometime, those old structures and boundary walls fell down and with the verbal permission of M/s. Juggi Lal Kamlapat, the said company repaired the boundary walls and also constructed new structures on the understanding that, at the time of the expiry of the lease, either the said company would mutually settle the price or they would remove the structures thereon. It has been stated that thereafter, on 9th August, 1974, the said company was served with a notice dated 1st August, 1974, being annex. “C” to the petition and treating the said company as a person interested in the property, having purchased one-half share in the same on 29th September, 1973. From that notice it would appear that acquisition proceedings under Chap. XXA in respect of the property at 57, Malipanchghara Street, as aforesaid, was started, calling in question the registration, bearing registration deed No. 1867 of 1973, which was registered before the Registrar of Assurances, Calcutta, on 31st March, 1973. By the said notice, the hearing of the acquisition proceeding and the petition filed under s. 269A of the said Act was fixed on 21st August, 1974, before the IAC, Acquisition Range III, Calcutta, who has been described as the competent authority within the meaning of Chap. XXA of the said Act. The said notice also disclosed that a valuation was made under s. 269L(1) and was to the following effect

“for determination of the fair market value of the property on the date of the transfer in question and on the basis of a report purported to have been submitted by the Valuation Officer wherein he has estimated the valuation of the property as Rs. 1, 32, 140 whereas for a consideration of Rs. 80, 000 only the entire land of 5 bighas 1 cottah 10 chataks and 32 sq. ft. was purchased by the ladies as mentioned above. In the notice it has also been stated that the competent authority recorded reasons on 20th September, 1973, and by virtue of the application under section 269C(2)(a) and (b) of the said Act, which are to the following effect

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

(b) where the property has been transferred for an apparent consideration which is less than its fair market value, it shall be presumed, unless the contrary is proved, that the consideration for such transfer as agreed to between the parties has not been truly stated in the instrument of transfer with such object as is referred to in cl. (a) or cl. (b) of sub-section (1)

The said competent authority had initiated the proceedings under Chap. XXA for the acquisition of the transferred property. That apart, it has further been alleged that the notice under s. 269D(1) of the said Act was thus duly and properly issued. From the said notice, it would also appear that a copy of the same is alleged to have been affixed to the notice board and also in a conspicuous place in the property and the substance of the notice is alleged to have been made known in the locality by the beating of drums. It has also been alleged that the copies of the notices were also sent, inter alia, to the principal officer of the said company and also to the ladies as mentioned hereinbefore, who has sold the immovable property in questionOn receipt of the notice, the said company by a letter of 20th August, 1974, requested the IAC of Income-tax, Acquisition Range III, respondent No. 1, to adjourn the hearing at least for 6 weeks, as the principal officer dealing with the matter was away from Calcutta. By the said letter, it was also intimated to the officer concerned that no notice prior to that of 1st August, 1974, was received by the said company. It has also been categorically alleged by the said company that the entire proceedings, so far as they were concerned, was unconstitutional, against the principles of natural justice and as such was invalid. These apart, the correctness of the valuation, as referred to in the notice in question, was also disputed. Thereafter, the matter on being adjourned from time to time, was finally fixed for consideration on 20th August, 1974, when again time was asked for by the said company. The respondent No. 1 as aforesaid refused such prayer and finally fixed the case for disposal on 31st August, 1974

It has been contended by the petitioner that since the Valuation Officer of the department has himself valued the property at Rs. 1, 32, 140 and the said company has purchased half of the entire 5 bighas 1 cottah 14 chataks and 32 sq. ft. of land at Rs. 60, 000 and the other half also was sold by a sale deed at Rs. 60, 000, the entire land was ultimately sold to them or acquired by them for Rs. 1, 20, 000 and in that view of the matter it cannot be alleged that the price at which the said company has purchased is less than 15% of the alleged fair market value as determined by the said Valuation Officer. Thus, it has also been submitted that the property of the said company cannot be taken away without questioning the validity of the transfer dated 29th September, 1973, and also without serving the requisite notices under Chap. XXA of the said Act. In view of the above, it has further been contended that the proceedings, so far as the petitioners are concerned, was a nullity and entirely without jurisdiction. It has also been stated by the said company that it purchased the property only, and at a proper market value, apart from the fact that the consideration for the same was truly stated. In fact, it has been contended that there has been neither any understatement of the consideration as paid nor the consideration as paid has been shown at a lower figure. As such, it has been contended that, in the instant case, there was no question of facilitating the reduction or evasion of the liability to pay tax under the said Act or any attempt to conceal income either under the said Act or under the W.T. Act. The said company has further alleged to have improved the property after purchaseIt is the categorical assertion of the said company that in his attempt to take steps in the matter, the respondent No. 1 has intentionally and deliberately started a fishing or roving enquiry and there has been or is no material, on which he could have formed the opinion or had reasons to believe that the dealings in the instant case were contrary to law and were for the purposes as mentioned in the notice. It has been categorically alleged that the power under s. 269C, which is quoted hereunder”

269C. (1) Where the competent authority has reason to believe that any immovable property of a fair market value exceeding twenty-five thousand rupees has been transferred by a person (hereafter in this Chapter referred to as the transferor) to another person (hereafter in this Chapter referred to as the transferee) for an apparent consideration which is less than the fair market value of the property and that the consideration for such transfer as agreed to between the parties has not been truly stated in the instrument of transfer with the object of–

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

(b) facilitating the concealment of any income or any moneys or other assets which have not been or which ought to be disclosed by the transferee for the purposes of the Indian Income-tax Act, 1922 (11 of 1922), or this Act or the Wealth-tax Act, 1957 (27 of 1957)

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

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

Provided further that no such proceedings shall be initiated unless the competent authority has reason to believe that the fair market value of the property exceeds the apparent consideration therefor by more than fifteen per cent. of such apparent consideration(2) In any proceedings under this Chapter in respect of any immovable property, —

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

(b) where the property has been transferred for an apparent consideration which is less than its fair market value, it shall be presumed, unless the contrary is proved, that the consideration for such transfer as agreed to between the parties has not been truly stated in the instrument of transfer with such object as is referred to in cl. (a) or cl. (b) of sub-s. (1) ”

read with s. 269D, which is to the following effect

” 269D. (1) The competent authority shall initiate proceedings for the acquisition, under this Chapter, of any immovable property referred to in section 269C by notice to that effect published in the Official Gazette

Provided that no such proceedings shall be initiated in respect of any immovable property after the expiration of a period of nine months from the end of the month in which the instrument of transfer in respect of such property is registered under the Registration Act, 1908 (16 of 1908)

Provided further that–

(a) in a case where it is determined under sub-s. (4) of section 269B by the competent authority who has initiated proceedings for the acquisition of any immovable property under this Chapter or by the Board that such competent authority has no jurisdiction to initiate such proceedings, the competent authority having jurisdiction may initiate such proceedings within–

(i) the period of nine months specified in the foregoing proviso ; or(ii) a period of thirty days from the date of such determination

whichever period expires later;

(b) in a case where proceedings for the acquisition of any immovable property under this Chapter could not be initiated during any period of time by reason of any injunction or order of any court prohibiting the initiation of such proceedings or preventing the examination of documents or other materials required to be examined for the purpose of determining whether such proceedings should be initiated, the time of the continuance of the injunction or order, the day on which it was issued or made and the day on which it was withdrawn shall be excluded in computing the period during which such proceedings may be initiated under this sub-section

(2) The competent authority shall–

(a) cause a notice under sub-s. (1) in respect of any immovable property to be served on the transferor, the transferee, the person in occupation of the property, if the transferee is not in occupation thereof, and on every person whom the competent authority knows to be interested in the property ;

(b) cause such notice to be published–

(i) in his office by affixing a copy thereof to a conspicuous place ;

(ii) in the locality in which the immovable property to which it relates is situate, by affixing a copy thereof to a conspicuous part of the property and also by making known in such manner as may be prescribed the substance of such notice at convenient places in the said locality

“and, more particularly, the necessary power under Chap. XXA of the said Act have been sought to be utilised as a mere cloak or pretence for the purposes as mentioned above, and, as such, the entire action was absolutely unwarranted by law, irregular, improper and unauthorised. These apart, it has been contended that the IAC concerned, respondent No.1, has not recorded any reason before initiation of the connected proceeding and even if reasons have been recorded, they are no reasons at all. The petitioners have also argued on the constitutional validity of Chap. XXA, as added by theTaxation Laws Amendment Act, 1972, and contended the same to be violative of arts. 19(1)(f) and (g), 31 and 31A of the Constitution of India. It has been categorically contended that the provisions for acquisition of property as embodied in Chap. XXA of the said Act are beyond the legislative competence of Parliament. Since there was no public purpose involved in the acquisition, the petitioner also contended the action to be improper and irregular apart from being illegal and unauthorisedThe appearing respondents, in their return to the rule, have stated that the notice under s. 269D(1), which was dated 20th September, 1973, was issued in respect of the property as purchased by these ladies as mentioned above. Such purchase was admitted to be effected on 31st March, 1973, on a consideration shown at Rs. 80, 000. But it has been alleged that the fair market value of the property, according to the valuation estimate, as made on 14th September, 1973, should be about Rs. 1, 32, 140. It has been stated that on the above basis, the competent authority, on 20th September, 1973, duly recorded the reasons and initiated the concerned proceedings under Chap. XXA of the said Act. The notice in question has been stated to be issued duly and properly by the predecessor-in-office of the deponent to the affidavit and was appropriately served on both the transferor and the transferees, who again, have filed their objection. It has been stated further that, afterwards, it was found that the ladies as mentioned above had sold the property in question on 29th September 1973, to the petitioners and to one Shri Pranlal Trivedi for a total consideration of Rs.1, 20, 000, without any improvement to the same, since their purchase

The respondents have stated that notices of hearing of objection were duly served on both the transferror and the transferees and also to the said company and the said Shri Pranlal Trivedi because of the subsequent knowledge of their interest in the same. At the stage of hearing of objections, the said Shri Trivedi prayed for time, the said company appeared through their representative and the ladies concerned obtained copies of the reasons as recorded and so also the Valuation Officer’s report and filed detailed statements by their letter of 27th August, 1974. It has been stated that although those ladies effectively represented their case, yet they wanted an adjournment on behalf of the said company on 28th August, 1974. Such prayer was allowed and the case was fixed on 31st August, 1974. It has been alleged by the respondents that after obtaining such time, the present rule has been obtained on 30th August, 1974, and this was certainly not a bona fide actThese apart, it has been contended that the notice under s. 269D(1) was duly served on all concerned. The proceeding has been stated to have been initiated on account of sale effected on 31st March, 1973, by Shri Juggi Lal Kamlapat to the ladies as mentioned above. It has also been stated that the property was subsequently sold to the petitioners on 29th September, 1973, and the proceedings for acquisition of the said property had already been started by the issue of the notice dated 20th September, 1973. The respondents have stated that since the notices sent to the correct and last known address of the petitioners were sent by registered post and they have been returned with the postal endorsement “not known”, which was very difficult to believe, such service should be deemed to be good service

The respondents, on being directed, produced the reasons for initiation of the proceedings under s. 269D. I direct the copy of the said reasons, as produced, to be kept in the record as Ex. 1 and I further quote the said reasons, which are to the following effect”

Information was received from the Registrar of Assurances, Calcutta, that on 2-4-1973 Sri Juggilal Kamlapat, 7, Council House Street, Calcutta, had sold a plot of land at 57, Malipanchghara Street, Bally, Howrah, to Smt. Punam Debi Jain and Smt. Roshni Debi Jain at a purchase consideration of Rs. 80, 000. The matter was, thereafter, referred to me for valuation by the Valuation Officer, Unit VII, Calcutta. The Valuation Officer submitted his report on 14-9-73 valuing the property at Rs. 1, 32, 140. The fair market value thus exceeds the admitted price by more than 25% under sub-section (2), cl. (a) of section 269C. It is conclusive proof that the amount of consideration mentioned in the instrument of transfer has not been truly stated.

Further, under cl. (b) it can be presumed that the price has not been truly stated in the instrument of transfer with such object as has been mentioned in cls. (a) & (b) of sub-s. (1) of section 269C. In the context, I find that the fair market value is more than 25% of the admitted price of Rs. 80, 000. The provision of cls. (a) and (b) of sub-s. (2) of section 269C are thus clearly attracted. I, therefore, issue notice u/s. 269D(1) to initiate proceeding to acquire the property ……..

“As a consideration of the same would be relevant on the arguments of Mr. Bhattacharjee, amongst others, viz., that there was no material either relevant for the formation of the reasons or the reasons as formed were not on due and necessary compliance with the requirements of law and, furthermore, the reasons were not the reasons of a reasonable man. It was contended by Mr. Bhattacharjee, apart from the contentions as mentioned hereinbefore, that the powers under s. 269C read with s. 269D of the said Act have in fact and, in the facts of the case, sought to be used and utilised as a mere cloak or pretence for making a roving enquiry or fishing investigation, and, as such, and that too, also on the reasons as recorded, it is apparent that the conditions precedent for the exercise and assumption of jurisdiction have not been duly followed or complied with and in fact such circumstances do not at all exist. It was also contended that such exercise of power in the instant case was not bona fide and was a colourable use of the same and in fact, the conditions precedent for the assumption of jurisdiction under s. 269C read with s. 269D of the said Act have not been satisfied and such shortfall has made the entire initiation void, illegal, bad and inoperative. In fact, it was categorically submitted by Mr. Bhattacharjee that since the notice in question did not disclose any material on which the IAC concerned, respondent No. 1, had reasons to believe as alleged, the same was inoperative and bad because that was issued mechanically and without application of the mind. On the construction of s. 269C, Mr. Bhattacharjee contended that the competent authority was required to form the opinion, which would again be his reasons to believe that, (1) immovable property of a fair market value exceeding Rupees twenty-five thousand has been transferred, (2) such transfer must be by the transferee for an apparent consideration which is less than the fair market value of the property, and (3) that too without stating truly in the instrument of transfer with the object of–(a) facilitating the reduction or evasion of the liability of the transferor to pay tax under the said Act in respect, of any income arising from the transfer, or (b) facilitating the concealment of any income or any moneys or other assets which have not been or which ought to be disclosed by the transferee for the purposes of the Indian I.T. Act, 1922, or the said Act or the W.T. Act, 1957. It was conceded by Mr. Bhattacharjee that if the above requirements were satisfied, then the competent authority, in the instant case, the respondent No. 1, could have initiated the proceedings subject to the further requirements of the said s. 269C and as mentioned in the two provisos. As mentioned hereinbefore, the categorical and firm stand of Mr. Bhattacharjee was that in the instant case the mandatory requirements of the sections were neither fulfilled nor complied with, and as such the initiation was void ab initio. On the language of s. 269C, which uses the terms”

the competent authority may, subject to the provisions of this Chapter, initiate proceedings ……..

“read with the requirements of the provisos, Mr. Bhattacharjee supplemented his arguments that the fulfilment of the conditions were mandatory and the necessary and due procedures were required to be taken prior to the initiation. On facts, it was contended that since the enhancement of rate as shown on the estimates as prepared by the authorities concerned, amittedly, did not exceed 15%, the initiation on that basis was also bad and improper. It was also contended by Mr. Bhattacharjee that the findings under s. 269C(2) are also required to be arrived at independent of the findings under s. 269C(1) and the requirements under sub-s. (2) exclude and, as mentioned hereinbefore, are independent of those under sub-s. (1) of s. 269(C). In fact, it was contended by Mr. Bhattacharjee that both sub-ss. (1) and (2) of s. 269C have been applied in the instant caseIn support of his submissions that the primary satisfaction under s. 269C(2) was not arrived at either duly or at all, Mr. Bhattacharjee referred to the determinations in the case of Smt. Bani Roy Chowdhury v. Competent Authority, IAC 1976 Indlaw CAL 66 (Cal). In that case, there was a transfer of immovable property by the Life Insurance Corporation to the petitioner in 1962. The competent authority issued a notice in 1973 under s. 269D of the I.T. Act, 1961, whereby proceedings were initiated for acquisition of this property from the petitioner. On the petition for a writ to set aside the notice it had been observed that the reasons recorded by the competent authority showed that it had failed to appreciate the fact that the transfer had been made by a statutory body and one of the confirming parties had been shown as one of the transferors. The competent authority had taken into account transfers in areas situated in more central places in the city and in accounting years subsequent to the relevant accounting year and had applied both cls. (a) and (b) of sub-s. (1) of s. 269C. The petitioner is entitled to succeed as the acquisition proceedings had not been validly initiated and were liable to be set aside

In that case, it has also been laid down, on the arguments as advanced, that proceedings can be initiated for the acquisition of immovable property under s. 269C of the I.T. Act, 1961, only if the competent authority has reason to believe that, (i) the property concerned which is sought to be transferred has a fair market value exceeding Rs. 25, 000 ; (ii) it has been transferred for an apparent consideration which is less than the fair market value of the property by 15% or more ; and (iii) the consideration has not been truly stated in the instrument of transfer with the object of facilitating the reduction or evasion of the liability of the transferor to pay tax under the I.T. Act or with the object of facilitating the concealment of any income or assets which ought to be disclosed by the transferee for the purpose of the I.T. Act or the W.T. Act. The word “or” occurring between cls. (a) and (b) of sub-s. (1) of s. 269C shows that it is sufficient if any one of them applies ; and (iv) it is incumbent on the competent authority to record his reasons for initiating the proceedings and the reasons for the formation of the belief must have a rational connection with or relevant bearing to the formation of the belief. Rational connection postulates that there must be a direct nexus between the material coming to the notice of the competent authority and the formation of his belief. The provisions of sub-s. (2) of s. 269C relate to matters of proof for the purpose of simplifying the law of evidence in so far as the competent authority is concerned. The language of sub-s. (2) makes it clear that it is not applicable at the initial stage when the competent authority has to form its reason to believeThese apart, Mr. Bhattacharjee, on a reference to s. 269D of the said Act, argued that the issue of a notification was also a condition precedent for the exercise of jurisdiction and power, and in the instant case such notification not having been duly and appropriately made and published, the entire proceedings also became void and inoperative, apart from being without jurisdiction. Such contentions about the non-publication of the notification was contested by Mr. Pal and he produced a copy of the Gazette of India dated 13th October, 1973, Part III, sec. 1, p. 4476, showing the publication of the notification. I direct the said copy of the Gazette to be kept in the record marked as Ex. 2. The date of the notification under s. 269D(1) is 20th September, 1973, which, as mentioned hereinbefore, was published on 13th October, 1973, and the same has been in the following terms

GOVERNMENT OF INDIA

OFFICE OF THE INSPECTING ASSTT. COMMISSIONER

OF IN COME-TAX, ACQUISITION RANGE III

Calcutta-1, the 20th September, 1973, No. C-44/Acq/R-III/73-74. Whereas, I, S. K. Chakravarty, being the competent authority under section 269B of the Income-tax Act, 1961

(b) facilitating the concealment of any income or any moneys or other assets which have not been or which ought to be disclosed by the transferee for the purposes of the Indian Income-tax Act, 1922 (11 of 1922), or the Income-tax Act, 1961 (43 of 1961), or the Wealth-tax Act, 1957 (27 of 1957)

And whereas the reasons for initiating proceedings for the acquisition of the aforesaid property in terms of Chapter XXA of the Income-tax Act, 1961 (43 of 1961), have been recorded by me

Now, therefore, in pursuance of section 269C, I hereby initiate proceedings for the acquisition of the aforesaid property by the issue of the notice under sub-s. (1) of section 269D of the Income-tax Act, 1961 (43 of 1961), to the following persons namely :–

(1) M/s. Juggi Lal Kamlapat (Transferor)

(2) Smt. Punam Devi Jain and Smt. Reshmi Debi Jain (transferee)

Objections, if any, to the acquisition of the property may be made in writing to the undersigned :–

(a) by any of the aforesaid persons within a period of 45 days from the date of publication of this notice in the Official Gazette or a period of 30 days from the service of notice on the respective persons, whichever period expires later ;

(b) by any other person interested in the said immovable property within 45 days from the date of the publication of this notice in the Official Gazette

It is hereby notified that a date and place for hearing the objections, if any, made in response to the notice against the acquisition of the immovable property will be fixed, and notice thereof shall be given to every person who has made such objection, and the transferee of the propertyIt is hereby further notified that every person to whom notice is given under the preceding paragraph shall have a right to be heard at the hearing of the objections

Explanation.–The terms and expressions used herein as are defined in Chapter XXA of the Income-tax Act, 1961 (43 of 1961), shall have the said meaning as given in that Chapter

THE SCHEDULE

A plot of land measuring 5 Bighas 1 Cottah 14 Chittacks and 32 sq. ft. together with one single storeyed building situated at 57, Malipanchghara Street, Bally, Howrah

S. K. Chakravarty

Competent Authority

Inspecting Assistant Commissioner

of Income-tax

Acquisition Range-III, P.-13, Chowringhee

Square, Calcutta-1.”

Mr. Bhattacharjee further sought to argue that the incorporation of the period of nine months from the end of the month in which the instrument of transfer in respect of such property is registered under the Registration Act, 1908, as substituted in s. 269D by I.T. (Amend.) Act, 1973, and with effect from 15th November, 1972, was void and inoperative and thus the retrospective effect, as was sought to be given to transfers from the end of the month of registration of the document in question, was also inoperative. Such points, as pointed out by Mr. Pal, have not been specifically and categorically made out in the pleadings and, as such, he was justified in contending that the respondents have been deprived of producing or furnishing the necessary particulars in their defence. Even then, in view of the determinations in the case of Basudev Sahu v. Union of India 1975 Indlaw ORI 31 (Orissa), to which reference was made by Mr. Pal, I think the arguments of Mr. Bhattacharjee are of no substance. In that case, the validity of Chap. XXA, incorporating ss. 269A to 269S of the said Act, came up for consideration before the Orissa High Court and, on the facts of that case and on the arguments as advanced, it has been observed thus

“While the right to hold property has been protected by arts. 19(1)(f) and 31, reasonable restrictions over the said right in the interests of the general public have been built into the right from the commencement of the Constitution. Property rights of the individual citizen have to be balanced by the interests of the society embodied in the Directive Principles of State Policy contained and enumerated in Part IV of the Constitution. Since art. 37 holds out a mandate to the State to apply the principles of State Policy into the process of legislation, a law enacted to implement one or more of the directive principles so enumerated cannot be considered as introducing an unreasonable restriction. Legislation giving effect to a directive principle has got to be regarded as a reasonable restriction on the corresponding fundamental right ; otherwise, the provisions in Part III and Part IV cannot co-exist. The duty of the State is not limited to the protection of individual interest but extends to acts for the achievement of the general welfare in all cases where it can safely act

Art. 19(5) authorises reasonable restrictions on the exercise of the right to acquire, hold and dispose of property in the interest of the general public. The menace of black money and evasion of tax which had been ruining the economy of the country had to be tackled and it was for the said purpose that the provisions of Chapter XXA of the Act were incorporated by amendment. The amended provision is covered by art. 19(5)

Legislation introducing Chapter XXA is in furtherance of the principles in article 31-C. Land is scarce goods and is an important factor in the process of production. The mischief which the amendment seeks to hit and eradicate is concentration of lands in the hands of a few. The impugned provisions, therefore, squarely come within the ambit of article 31-C of the Constitution, and, therefore, even if the petitioner’s contention that the right to acquire, hold and dispose of property conferred under art. 19(1)(f) is affected, the petitioner is not entitled to raise any challengeNextly, it was contended that it was under entry 82 of List 1 of the Seventh Schedule of the Constitution authorising legislation relating to taxes on income other than agricultural income that the impugned provisions were enacted, that the true purpose of Chapter XXA of the Act is beyond the purview of the entry and, therefore, Parliament had no legislative competence to enact the Amending Act of 1972 which introduced Chapter XXA. The ambit of each entry is of the widest amplitude and law is settled beyond doubt that, if by the pith and substance test, the legislative entry supports legislation, a statute is not open to attack on the ground of want of competence. Undoubtedly, the Income-tax Act is a legislation in exercise of legislative powers under entry 82. So is the provision now impugned. The impugned Chapter makes provision for imposition of penalty and for checking evasion of law, because such a position is concomitant to the power to raise taxes. Such supplementary provisions are necessary for administering the statute effectively and for meeting the purpose for which the law is made. The scheme under the impugned provision for compulsory buying of the property at the stated consideration together with fifteen per cent. thereof in the event of a clandestine deal to evade tax is not foreign to the law of income-tax. Parliament was initially satisfied with the levy of penalty. By experience it appeared that that was not sufficient to meet the growing evil. Consequently, the Amending Act was passed. The Amending Act, in these circumstances could not be held to be beyond the range of legislative competence.”

In the instant case, admittedly, the assistance of a valuer was taken for the purpose of obtaining the valuation, which was contended by Mr. Bhattacharjee to be irregular, void and unauthorised under the scheme of the said Act. It seems, on the arguments in reply by Mr. Pal, that such argument is of little avail or consequence, in view of the provisions of s. 269L of the said Act which is to the following effectSection 269L

(1) The competent authority may, —

(a) for the purpose of initiating proceedings for the acquisition of any immovable property under section 269C or for the purpose of making an order under section 269F in respect of any immovable property, require a Valuation Officer to determine the fair market value of such property and report the same to him ;

(b) for the purpose of estimating the amount by which the compensation payable under sub-s. (1) of section 269J in respect of any immovable property may be reduced or, as the case may be, increased under cl. (a) or cl. (b) of sub-s. (2) of that section, require the Valuation Officer to make such estimate and report the same to him

(2) The Valuation Officer to whom a reference is made under cl. (a) or cl. (b) of sub-section (1), shall, for the purpose of dealing with such reference, have all the powers that he has under section 38A of the Wealth- tax Act, 1957 (27 of 1957)

(3) If in an appeal under section 269G against the order for acquisition of any immovable property, the fair market value of such property is in dispute, the Appellate Tribunal shall, on a request being made in this behalf by the competent authority, give an opportunity of being heard to any Valuation Officer nominated for the purpose by the competent authority.

“The said section authorises the competent authority to take the help and assistance of Valuation Officers, which have the same meaning as in s. 2(r) of the W.T. Act, 1957

In answer to the main arguments of Mr. Bhattacharjee, Mr. Pal, on a reference to s. 269E of the said Act, which lays down that”

269E. (1) Objections against the acquisition of the immovable property in respect of which a notice has been published in the Official Gazette under sub-s. (1) of section 269D may be made–(a) by the transferor or the transferee or any other person referred to in cl. (a) of sub-s. (2) of that section, within a period of forty-five days from the date of such publication or a period of thirty days from the date of service of notice on such person under the said clause, whichever period expires later ;

(b) by any other person interested in such immovable property, within forty-five days from the date of such publication

(2) Every objection under sub-s. (1) shall be made to the competent authority in writing

(3) For the removal of doubts, it is hereby declared that objection may be made under sub-s. (1) that the provisions of cl. (a) of sub-s. (2) of section 269C do not apply in relation to any immovable pro-perty on the ground that the fair market value of such property does not exceed the apparent consideration therefor by more than twenty-five per cent. of such apparent consideration ”

contended, that since notice to object under the section has been given and no objection has admittedly been filed, the present proceedings are premature, as till now, there is no present or existing grievance of the petitioners and in fact they have not as yet been able to establish any such grievance. In fact, Mr. Pal contended that since no penal action has as yet been taken, the petition, at this stage, would not be maintainable. In support of his contentions, Mr. Pal relied on the determination in the case of Chanan Singh v. Registrar, Co-operative Societies, Punjab, 1976 Indlaw SC 115. That was a case, where the disciplinary proceedings against an employee dropped by an authority who was not competent to impose punishment, were revived by a competent officer, by issuing a fresh showcause notice against the dismissal and a writ petition challenging the said revival had been found to be premature as no punitive action was taken yet and there was no present grievance which can be ventilated in courtMr. Pal sought to distinguish the determination in the case of Smt. Bani Roy Chowdhury v. Competent Authority 1976 Indlaw CAL 66 (Cal) on merits and on the facts from the present case. He submitted that, in that case, valuation was arrived at on the basis of insertions in newspapers, which is not the case here, as admittedly, in the instant case, valuation was duly made on the basis of help and assistance received from approved valuers under s. 269L of the said Act

It should be noted that one of the contentions of Mr. Bhattacharjee was that the said company cannot be said to have purchased the property at less than 15% of the alleged market value, even as determined by the valuer concerned, as it would be evident that the entire land of 5 bighas 1 cottah 14 chataks and 32 sq.ft. was valued by him at Rs. 1, 32, 140, whereas on the own showing of the respondents, the said company has purchased half of the said land at Rs. 60, 000 and the other half was also, sold for the same amount. Thus, the entire land was ultimately sold for Rs. 1, 20, 000. Mr. Pal of course wanted to establish and that too on the indenture in question, that since the actual consideration for transfer was Rs. 80, 000, the test of 15% as referred to hereinbefore was also satisfied. It is true that the proceedings before the respondent No. 1 were adjourned to 31st August, 1974, at the instance of the ladies as referred to hereinbefore, such adjournment was obtained on 27th August, 1974, and the present rule was obtained on 30th August, 1974. These facts, according to Mr. Pal, not only establish collusion between the parties, viz., those ladies and the petitioners herein, but also establish an unholy alliance between them to thwart the recovery of revenue, apart from mala fide because those ladies on the one hand obtained time to have themselves or their cases duly and properly represented in the connected proceedings, while on the other hand the petitioners have obtained this rule with the corresponding interim order and have frustrated the proceedingsIn reply to the arguments of Mr. Pal on the Gazette as produced, Mr. Bhattacharjee referred to the date of transfer which has been mentioned to have been completed by a registered deed of 2nd April, 1973, whereas the deed in question, it was submitted by him, on production of the same, to be of 31st March, 1973, and as such contended that the Gazette notification was also not in accordance with law or in terms of the requirements of the same. In fact, it was contended by Mr. Bhattacharjee that this wrong or mis-quotation of the date has made the entire notification, so far as the present initiation is concerned, invalid, inoperative, void and bad and has also established a non-application of the mind, He contended that, as such, the notification in question was not in accordance with the requirements of the statute and such non-application of mind, which was also reflected in the notice, established beyond any reasonable doubt that the conditions necessary for the exercise of power under s. 269C of the said Act, were not fulfilled, the more so when the answering respondents themselves, in the return to the rule, have mentioned the date of sale as 31st March, 1973. Mr. Pal of course tried to establish that the discrepancy in the date as referred to hereinbefore has occurred because in the information which has been received from the Registrar of Assurances the date of registration has been mentioned as 2nd April, 1973. The original deed was produced by Mr. Bhattacharjee and that appears to have been registered on 31st March, 1973, and entered in Book No. I, Volume No. 81, pages 237-261, being No. 1867 for the year 1973. On the question of entering the satisfaction and reasons to believe or the basis and background for such formation, Mr. Bhattacharjee referred to the determination of the Supreme Court in the case of ITO v. Lakhmani Mewal Das 1976 Indlaw SC 135, even though the said determination was made under ss. 147 and 148 of the said Act, because the principles as enunciated or laid down therein, according to him, would be applicable and available in this case. In that case, it has been observed amongst others that two conditions have to be satisfied before an ITO acquires jurisdiction to issue notice under s. 147 in respect of an assessment beyond the period of four years but within a period of eight years from the end of the relevant year, viz., (i) the ITO must have reason to believe that income chargeable to tax has escaped assessment, and (ii) he must have reason to believe that such income has escaped assessment by reason of the omission or failure on the part of the assessee, (a) to make a return under s. 139 for the assessment year to the ITO, or (b) to disclose fully and truly material facts necessary for his assessment for that year. Both these conditions must co-exist to confer jurisdiction on the ITO. It is also imperative for the ITO to record his reasons before initiating proceedings as required by s. 148(2). Another requirement is that before notice is issued after the expiry of four years from the end of the relevant assessment years, the Commissioner should be satisfied on the reasons recorded by the ITO that it is a fit case for the issue of such notice. The duty which is cast upon the assessee is to make a true and full disclosure of the primary facts at the time of the original assessment. Production before the ITO of the account books or other evidence from which material evidence could with due diligence have been discovered by the ITO will not necessarily amount to disclosure as contemplated by law. The duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts. Once he has done that, his duty ends. It is for the ITO to draw the correct inference from the primary facts. It is no responsibility of the assessee to advise the ITO with regard to the inference which he should draw from the primary facts. If an ITO draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening the assessment. The grounds or reasons which lead to the formation of the belief, contemplated by s. 147(a) of the Act, must have a material bearing on the question of escapement of income of the assessee from assessment because of his failure or omission to disclose fully and truly all material facts. Once there exist reasonable grounds for the ITO to form the above belief, it would be sufficient to clothe him with jurisdiction to issue notice. Whether the grounds are adequate or not is not a matter for the court to investigate. The sufficiency of grounds which induce the ITO is, therefore, not a justiciable issue. It is, of course, open to the assessee to contend that the officer did not hold the belief that there had been such non-disclosure. The existence of the belief can be challenged by the assessee but not the sufficiency of reasons for the belief. The expression “reason to believe” does not mean a purely subjective satisfaction on the part of the ITO. The reason must be held in good faith. It cannot be merely a pretence. It is open to the court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section. To this limited extent, the action of the ITO in starting proceedings in respect of income escaping assessment is open to challenge in a court of lawTo establish the mandatory nature and character of the requirements of s. 269D, reference was made by Mr. Bhattacharjee to the determination in the case of U. S. Awasthi v. IAC 1975 Indlaw ALL 43(All), wherein it has been observed amongst others that the preliminary notice which initiates the proceedings has to be given by publication in the Official Gazette. Unless this preliminary notice is published in the Official Gazette within nine months from the end of the month in which the instrument of transfer is registered proceedings cannot be said to have been initiated, and, in the absence of such publication within the statutory time, the commencement of acquisition proceedings under Chap. XXA of the Act will be without jurisdiction. It has also been observed that the fact that the individual notices were given to the petitioners within the prescribed period will not dispense with the requirement of the publication of the notice in the Official Gazette, and the requirements contained in sub-s.(1) of s. 269D of the publication of the notice in the Official Gazette within the prescribed time is a mandatory requirement and if this requirement is not met the entire proceedings fail

It has further been observed that publication contemplated by s. 269D(1) is that the notification not only must be printed in the Gazette but the Gazette containing the notification must also be available to the public within the statutory period

The fact that the ladies as mentioned above took all steps to have their cases effectively represented, thereafter got adjournment and then the said company moved and obtained this rule with the corresponding interim order, do give rise to some suspicion and I am of the view that perhaps such steps were taken by them in collusion with the said company and that too for helping their cause. I find from the records (Ex. 2) and the evidence as disclosed that the conditions precedent for the issue of a notification and the publication of the same, as required under s. 269D of the said Act, have been duly satisfied and complied with and the explanation as given by the respondents regarding the discrepancy in the date and the deed in question and the notification is reasonable and can be accepted. These apart, in respectful agreement with the views and reasons in the case of Basudev Sahu v. Union of India 1975 Indlaw ORI 31 (Orissa), I find that there is no substance in the arguments of Mr. Bhattacharjee on the question of the validity of Chap. XXA, whereby ss. 269A to 269S of the said Act have been incorporated. On a reference to the provisions of s. 269L of the said Act, I also find that the competent authority in the instant case duly and authorisedly took the help and assistance of a valuation officer and as such the arguments of Mr. Bhattacharjee on that aspect are also without any substanceThus, we are now left with the consideration of the main arguments of Mr. Bhattacharjee to the effect that power under s. 269C read with s. 269D of the said Act, and more particularly, the necessary powers under Chap. XXA, have been sought to be utilised as a mere cloak or pretence and as such the entire action was unwarranted, irregular, improper and unauthorised, apart from the fact that the IAC concerned has not duly recorded any reasons, before initiating the proceedings and even if reasons have been recorded, they are no reasons or reasons of a reasonable man at all. The material facts on which such arguments have been based have been mentioned hereinbefore. The main plank of the reply of Mr. Pal, in answer to the aforesaid submissions of Mr. Bhattacharjee, was based on a reference to the provisions of s. 269E of the said Act. It was specifically contended by him, on a reference to the said section, that since no objection, in terms of the requirements of the said section has been filed, the present writ application would be premature and since there has also been no present grievance in view of the determinations in the case of Chanan Singh v. Registrar, Co-operative Societies, 1976 Indlaw SC 115, interference in this jurisdiction should not be made. The aforesaid was of course the submissions of Mr. Pal, in addition to his submissions that the opinion in the instant case was duly, reasonably and appropriately formed and that too on relevant materials and on an application of mind, before the initiation of the proceedings, by the issue of the concerned notice. In view of the Supreme Court case as cited and mentioned above, if the proceedings have not been duly, properly and legally initiated and otherwise or more particularly the initiation itself is bad, void, irregular, unauthorised and without jurisdiction, then the said determination would not hold good and would not be applicable. The points at issue in the instant case were specifically in issue in the determination in the case of Smt. Bani Roy Chowdhury v. Competent Authority 1976 Indlaw CAL 66 (Cal) and as such if Mr. Pal fails in his submissions to prove the conditions necessary and precedent for the initiation of proceedings in the instant case under s. 269C read with s. 269D of the said Act to be followed, then following the determination in the Calcutta decision as referred to above, this rule will have to be made absolute as I feel that as a judge of the co-ordinate jurisdiction, the said decision should be followed by meIt is true, and as submitted by Mr. Bhattacharjee, a wrong date of transfer has been mentioned in the Gazette and more particularly in the Gazette it has been mentioned that the transfer was completed on 2nd April, 1973, whereas the deed as produced showed such date to be 31st March, 1973. But this, in my view, would not establish the alleged non-application of mind, in view of the explanation as given. On the question of entering the satisfaction and reasons to believe or the basis and the background for such formation, the notice in Ex. 1, which has been quoted hereinbefore, will have to be scrutinised and tested on the basis of the determination in the case of ITO v. Lakhmani Mewal Das 1976 Indlaw SC 135 (SC). Even though that determination was under ss. 147 and 148 of the said Act, the principles as laid down therein, as submitted by Mr. Bhattacharjee, can be applied in the instant case and on the challenge as thrown. From a reference to Ex. 1, it appears that no opinion has been formed that the fair market value of the immovable property exceeding twenty-five thousand rupees has been transferred, the transfer in question is by the transferee for an apparent consideration which is less than the fair market value of the property and that too without stating truly in the instrument of transfer, with the object of facilitating the reduction or evasion of the liability of the transferor to pay tax under the said Act in respect of any income arising from the transfer or for facilitating the concealment of any income or any money or other assets which have not been or which ought to be disclosed by the transferee, for the purpose of the Indian I.T. Act, 1922, or the said Act or the W.T. Act. The aforesaid, in agreement with the submissions of Mr. Bhattacharjee, I hold are the mandatory requirements of s. 269C, subject to the provisos as mentioned thereunder. Since the requirements as mentioned above have not been fulfilled or complied with, the initiation as made, in view of the above, and also in view of the determination in the case of Smt. Bani Roy Chowdhury v. Competent Authority [1978] 112 ITR Ill (Cal), which was under s. 269C(2), must be held to be void and irregular. It is true that in the instant case both sub-ss. (1) and (2) of s. 269C have been applied. But on the construction of the said sub-sections, I find that the findings under them should be made and arrived at independently and the findings under them exclude each otherIn view of the above, although the conduct of the petitioner is not absolutely bona fide, the rule will have to be made absolute, only on the point regarding the non-fulfilment of the necessary conditions or conditions precedent for initiation of proceedings under s. 269C and, furthermore, considering Ex. 1, I find that the same has not disclosed any material relevant for the formation of the reasons and in fact the reasons as sought to be formed were not on due and necessary compliance with the requirements of the section as aforesaid and in fact the powers under s. 269C read with s. 269D have been sought to be used as a mere cloak or pretence for making a roving enquiry or fishing investigation. Thus, the initiation on the basis of Ex. 1, for the reasons as aforesaid, apart from the other reasons as disclosed, should be deemed to be inoperative, bad, unauthorised and without jurisdiction. Since the initiation was without jurisdiction, the proceedings as initiated should also be deemed to be void ab initio and as such the existence of “other remedy”, if any, or the non-existence of any present grievance, as was argued by Mr. Pal as a bar to the power of interference by this court at this stage and in this jurisdiction, would also be of no avail and substance

So, the rule is made absolute. There will, however, be no order as to costs

This order will not of course prejudice the respondents from proceeding afresh in the matter and to make appropriate determination in accordance with law, if such course is available to them in law

The prayer, for stay of operation of this order is refused