ORDER UNDER S. 269F–Joint transfer by five transferors by a common instrument
Ratio :
Separate orders qua each transfer was required to be passed where each transferor was having independent title.
Held :
Each of the five transferors had got specified property which was the subject of transfer by common instrument of transfer. It is, therefore, clear that each transferor transferred only the item of property of which he was the owner. There was no transfer by an association of persons because nobody can transfer a better title than what he has. Each transferor could only transfer the title to the property which he owns. Merely because a single document was executed no transferor could, or did, transfer property which belonged to any of the other transferors. Therefore, there should have been separate orders, of acquisition passed qua each of the transferors 1 to 5. A single order passed would not be void, but a single order is severable.
Income Tax Act 1961 s.269C
ORDER
Per Shri Gorge Cheriyan, Vice President – These four appeals have been filed by the transfers under the provisions of section 269G of the Income-tax Act, 1961 (hereinafter referred to the as the Act). The present appeals arise out of the order of the competent authority passed under section 269F (6) of the Act dated 7th March, 1988.
2. The first two paragraphs of the order of the competent authority read as under :-
“Sri N. Subramanian & others residing at 301/302, Mowbrays Road, Madras-18 executed a sale deed in favour of Mrs. Rama and Others. The extent of the land transferred was 12 grounds and 1218 sq. ft. since demolished was not specified in the Form 37G. The sale document was registered at Madras Central Sub-Registry (DOC No. 415/85). The apparent consideration as per sale deed was Rs. 30,00,000.
2. The then Inspecting Assistant Commissioner had reason to believe that the Fair Market Value of the property exceeded the apparent consideration by more than 25 per cent and the consideration was understated in the document of sale with a view to facilities tax evasion. Accordingly, a notice under sec. 269D (1) of the IT Act, 1961 initiating acquisition proceedings was issued by the then IAC in respect of the transferred property on 28-11-1985 and it was also published in the Gazette of India. Copies of the notice under sec. 269D (1) of the IT Act, 1961, were issued to the parties to the transaction.”
3. As many of the arguments adduced before us by the learned counsel for the transfers as well as by the learned Standing Counsel for the Revenue and the learned Departmental Representative revolve around the validity of the assumption of jurisdiction by the competent authority and also the powers of the competent authority to continue the acquisition proceedings, even if they were validly initiated, qua the subject matter of the transfer, we consider that it would be appropriate for us to elaborate on the particulars relating to the transferors, the transferee and the subject matter of acquisition.
4. There is only one “instrument of transfer” within the meaning of section 269A (f) of the Act. This instrument of transfer is a deed of sale executed on 24th April, 1985 (copy at pages 70 to 102 of the paper book). According to this document the transferors are :
“(1) Mr. N. Subramanian, aged 78 years, son of Mr. Narayana Sastrigal, residing at No. 301/302, Mowbrays Road, Madras-600 018.
(2) Mr. S. N. Gopalakrishnan, aged 41 years, son of Mr. N. Subramanian, for himself and as karta of the Hindu Undivided Family consisting of himself and his only son G. Shyam Sundar, Minor, aged 14 years, residing at No. 301/302, Mowsbrays Road, Madras-600 018.
(3) Mrs. Uma Pattammal, aged 49 years, wife of Mr. M. P. Venkataram, residing at Yeshwant Club Road, Indore, Madhya Pradesh.
(4) Mrs. Lakshmi, wife of Mr. L. C. Srinivasan, aged 47 years, residing at No. 12, Plot No. 27, Kumara Park West Extension, Bangalore -560 020.
(5) Mrs. Usha Vaisalakshi Jayaraman, aged 34 years, wife of Mr. K. Jayaraman, residing at No. 38, 10th Avenue, Ashok Nagar, Madras-600 083.”
The transferees are :
(1) Mrs. Rama, aged 24 years, wife of Mr. C. Chandiramani.
(2) Miss. Uma, aged 18 years, D/o Mr. K. V. Ram, both residing at No. 28, Pose Gardens, Madras-600 086.
(3) Mrs. Kalavathy, aged 30 years, wife of Mr. K. Balaraman, residing at No. 15, Kennedy First Street, Mylapore, Madras-600 004.
(4) Mrs. Padma Gopikrishnan, aged 23 years, wife of Mr. G. Gopikrishnan, residing at A/6, Arundathi Flats, 97, C. P. Ramaswamy Iyer Road, Alwarpet, Madras-600 018.
The transferees are the applicants before us. As far as it could be ascertained, there is no appeal by any of the transferors. The document narrates how the transferors acquired title to the properties, which were the subject matter of transfer. According to the document Shri N. Kuppuswami, the brother of Sri N. Subramanian, the first transferor, had purchased the property out of HUF funds and the property was held as HUF property comprising of N. Kuppuswami, the transferor, and another brother N. Ramchandran. There was subsequently an oral partition in 1970. Declaration in this regard is dated 22-11-1973 (pages 13 to 16 of the paper book) amongst the three brothers in respect of properties belonging to the HUF and the property to the extent of 30,018 sq. ft. i.e. 12 grounds and 1218 sq. ft. fell to the share of the first transferor N. Subramanian.
5. Subsequently there was another oral partition on 29-1-1974, which was later recorded in writing by a deed of declaration dated 18- 10-1975 (pages 17 and 18 of the paper book). By this partition land to the extent of 5 grounds and 656 sq. ft. more particularly demarcated in the schedules, fell to the share of the first transferor N. Subramanian, 4 grounds and 1457 sq. ft. fell to the share of the second transferor HUF of S. N. Gopalakrishnan and in an area of 2 grounds and 1505 sq. ft. both the first and second transferors had an equal share. The shares which fell to each persons were more explicity spelt out in the annexure to the deed of transfer.
6. In due course Sri N. Subramanian, the first transferor made settlement on 7-5-1977 of certain specified portions out of 5 grounds and 656 sq. ft. which fell to his share, by registered settlement deed each dated 7-5-1977 in favour of each of his three daughters, i.e. transferor No. 3 Mrs. Uma Pattammal (1 ground and 85 sq. ft.). transferor No. 4 Mrs. Lakshmi (1 ground and 120 sq. ft.) and transferor No. 5 Mrs. Usha Visalakshi Jayaraman (1 ground and 120 sq ft.).
7. The first transferor also conveyed by separate sale deed dated 27- 11-1978 duly registered an extent of 355 sq. ft. in favour of Mrs. Uma Pattammal.
8. The instrument of transfer now under consideration contains as an annexure thereto a plan indicating the properties which were transferred by each of the transferors. We append as an annexure to this of the transferors had obtained by the was of partition, settlement etc. and which each transferor in turn conveyed through the instrument of transfer dated 24-4-1985. In the said plan the five transferors are indicated by the symbols “T1, T2, T3, T4 and T5” respectively.
9. To identify the transfers specifically, the transfers were as under :
By
Portion marked
Area
T1
F
2322 sq. ft.
”
G
(1/2 interest)
3152 sq. ft.
”
D
2454 sq. ft.
7928 sq. ft.
T2
E
11057 sq. ft.
”
G
(1/2 interest)
3152 sq. ft.
14209 sq. ft.
T3
A
2485 sq. ft.
”
H
355 sq. ft.
2840 sq. ft.
T4
B
2520 sq. ft.
T5
C
2520 sq. ft.
10. According to the instrument of transfer dated 24th April, 1985 now under consideration the transferors received as consideration the following amounts :
Transferor No.
Proportionate sales consideration
Rs.
1
7,93,000
2
14,20,000
3
2,83,000
4
2,52,000
5
2,52,000
Total
30,00,000
The instrument of transfer further specified (pages 81 to 84 of the paper book) the manner in which each of the transferors received the total aggregate consideration mentioned aforesaid. It may be mentioned at this stage that the consideration of Rs. 14,20,000, which was the amount receivable by the second transferor S. N. Gopalakrishnan, consisted of Rs. 7,10,000 paid to him directly and Rs. 7,10,000 received by a pay order in the name of S. N. Gopalakrishnan and all the four purchasers to be converted and deposited into capital gains units in the same joint names for such period till the minor Shyamsunder attains majority and such amount to be released by the purchasers to Shyamsunder upon his executing the necessary instrument of ratification on his attaining majority.
11. The instrument of transfer also stated that the purchasers had borne the sale consideration in the ratio of 20 per cent, 20 per cent, 30 per cent and 30 per cent respectively. The aforesaid properties were transferred jointly to the four transfers by the instrument of transfer now under consideration and the aggregate consideration was Rs. 30,00,000.
12. The competent authority had addressed a preliminary enquiry letter in the form of a notice dated 19-11-1985 which contains the names of each of the transfers (page 129 of the paper book) and information was sought on various points. A reply was filed dated 25-11-1985 (page 131 of the paper book) signed by R. Rama describing it as for self and others. The letter was also described as from R. Rama and others. It gave information on the points sought by the preliminary notice. On 26-11-1985 the order sheet shows the following entry recorded by the Income-tax Inspector :
“Please see letter dated 25-11-1985 with details received and filed.
No response from transferor. Please see report filed.”
The remark “no response from the transferors” apparently was because the preliminary notice which was issued in the name of S. N. Subramanian and other transferors and addressed to the addressed given of the properties sold No. 301/302, Mowbrays Road, Madras, does not appear to have been served. The report referred to reads as under :
“Report – The property transferred is land and buildings at Door No. 301/302, Mowbrays Road, Madras, 18 for an AC of Rs. 30 lakhs.
(i) Extent of site
12 grounds and 1218 sft.
(ii) Plinth area of superstructurer : Ground Floor
3900 sft. Madras
442 sft. RCC
1919 sft. Managalore tiles
900 sft. ACC sheet
First Floor
1085 sft. Managalore tiles 540 sft. ACC sheet
(iii) Age of the building
50 years
The FMV of the property may be fixed as under :
1. Value of site :
The property is situated in a highly good commercial as well as residential locality in Alwarpet area, Madras. Hence a reasonable rate of Rs. 3 lakhs per ground may be adopted and the value works out to (12 1/2 grounds Rs. 3 lakhs per ground) = 37,50,000
2. Value of building :
Madras terrace 3900 @ Rs. 120 sft.
4,68,000
RCC 442 sft. @ Rs. 120 per sft.
53,040
Managalore tiles 1919+1085 = 3004 sft. @ Rs. 80 each
2,40,320
ACC sheet 900+540 = 1440 sft. @ Rs. 60 each
86,400
Total
8,47,760
Less : Depreciation @ 1.5% for 50 years (75%)
6,35,820
2,11,940
Fair market value
39,69,940
AC + 15% (30,00,000 + 4,50,000) = 34,50,000.
As the FMV exceeds the AC by more than 15% this is a first case calling for action u/s. 269C and notice u/s. 269D (1) may be issued.
After the issue of notice u/s. 269D (1), this case may be referred to Valuation Cell for report.”
Thereafter there is the following endorsement by the competent authority :
“Please see report filed.
I have reason to believe that RC is understated. I estimate FMV at Rs. 40 lacs. Issue under sec. 269D (1).”
The publication in the Official Gazette as prescribed under section 269D (1) of the Act was made in the Gazette of India dated January 4, 1986 (copy at page 160 of the Paper Book). This Gazette notification refers to the document number of the instrument of transfer, describes the transfers their separate names were set out. The Schedule describes the property as that at Door No. 301/302, Mowbrays Road, Madras-18, Madras Central/Door No. 415/85.
13. The first contention of the learned counsel was that the initiation of proceedings was ab initio void because the reasons as recorded by the competent authority could not have led to the belief that the fair market value exceeded the apparent consideration by more than 15 per cent. He submitted that the report of the Inspector, which fixed the value per ground at Rs. 3 lakhs, did not give any comparable case and the evaluations were made on mere ad hoc estimates.
14. The second contention, on which great strees was placed by the learned counsel, was that under the provisions of sec. 269(1) it was not sufficient if the competent authority had reason to believe that the fair market value of the property exceeded the apparent consideration by more than 15 per cent., but the competent authority should also have reason to believe that the consideration for the said transfer as agreed to between the parties was not truly stated in the instrument of transfer with the object of –
(a) facitilitating 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 transfer 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).
In this regard the learned counsel submitted that the presumption in section 269C (2), which read as under :
“(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 l be presumed, unless the contrary is proved, that the consideration for such transfer as agreed to between the parties has not been truly stated in the instrument of transfer with such object as is referred to in clause (a) or clause (b) of sub-section (1).”
were not applicable at the stage prior to the initiation of the acquisition proceedings which was by publication in the official gazette. If this presumption could not be invoked, the learned counsel submitted that, in the present case there was not an iota of evidence on the basis of which the competent authority could have considered that there was nay object of reducing or evading tax liability by the transferor or for facilitating the concealment of any income assessable by the transfree. He stated that in reply to the preliminary notice issued by the competent authority a letter was sent in reply on 25-11-1985 (copy at page 131 of the paper book) answering the queries and to which letter the income-tax assessment orders ofR. Rama, R. Uma and Kalavathy were enclosed. In the case of Mrs. Padma Gopikrishnan, it was stated that she was assessed in file No. 751004/P, City Circle VII (9) and that no order of assessment had yet been received. Mrs. Kalavathy and Mrs. Padma were stated to have been not assessed to wealth- tax and the latest wealth-tax order of R. Rama and R. Uma were also enclosed. He stated that the letter categorically showed the sources from which the amount of Rs. 34,20,000 (including stamp charges, etc.) had been received by the transferees. Rs. 2,41,000 was from R. Rama, Rs. 2,86,000 from R. Uma and Rs. 28,93,000 represents amount borrowed from M/s Rama Property Developers and Investments (P.) Ltd. Therefore, as far as the transferees were concerned, the source of apparent consideration was fully explained. As far as the transferor was concerned, the learned counsel submitted that there was no material to show that any extra consideration had passed and this being the position, having regard to the ratio of the judgment of the Supreme Court in the case of K. P. Varghese v. ITO (1981) 131 ITR 597, it was clear that the provisions of sec. 52(2) would not apply. Therefore, even if the fair market value was presumed to exceed apparent consideration by more than 15 per cent, there was no question of assessing any capital gains in the hands of the transferors by invoking the provisios of sec. 52(2) and, therefore, the competent authority could not presume that there was any abjective on the part of the transferors to evade or reduce the tax liability.
15. In support of his proposition that the presumptions under sec. 269C (1) of the Act would not apply anterior to the point of publication of notification in the gazette, the learned counsel relied on a catena of judicial pronouncements : CIT v. Smt. Vimlaben Bhagwandas Patel (1979) 118 ITR (134) (Guj.), Subhkaran Chowdhury v. IAC (1979) 118 ITR 777 (Cal.), CIT v. Amrit Sports Industries (1984) 145 ITR 231 (Punj. & Har.) and Unique Associates Co-operative Housing Society Ltd. v. Union of India (1985) 152 ITR 114 (Bom.). He submitted that all these decisions were unanimous on the point that the presumption of evasion of tax could not arise at a stage prior to the decision of the competent authority for initiation of proceedings. He stated that certain observations, which ex facie might give a different view in the judgment of the Delhi High Court did not help in advancing the argument that the presumption arose at any stage prior to the initiation of the proceedings. The learned counsel also stated that the Delhi High Court in Himland Exports (P.) Ltd. v. ITAT (1987) 167 ITR 478 only stated that admittedly the presumptions were available at the stage of final determination.
16. In the present case, since according to the learned counsel there was no evidence at all that there was any objective for avoidance or evasion ofs tax by the transferors or the transferees, the competent authority at the stage of initiation could not have formed such a belief which was a pre-requisite to valid initiation of proceedings. Where no belief at all could be formed, the initiation of proceedings was ab initio void and he submitted that on this score the acquisition proceedings require to be quashed.
17. Coming to the gazette notification, the submission of the learned counsel was that though the date of the gazette, i.e. 4-1-1986, was within the stipulated period of nine months from the last day of the month in which the instrument of transfer was registered, the gazette itself was received in the Connemara Public Library only much after. The stipulated period of publication in the gazette as envisaged under the Act can be only the date when the gazette came to the notice of the public and not the date of printing. For this proposition support was sought from the ratio of the judgment of the Allahabad High Court in U. S. Awasthi v. IAC (1977) 107 ITR 796. He very fairly pointed out that there was a contrary view taken by the Gujarat High Court in the case of CIT v. Shilaben Kanchanlal Rana (1980) 124 ITR 420. Since the gazette notification, according to the learned counsel, in the Allahabad view, was beyond the prescribed time limit, the proceedings, the learned counsel submitted, require to be quashed on this ground also. He submitted that he had addressed the Controller of Printing for the exact date when the gazette was issued to the public, but a reply in this regard was being awaited.
18. The next set of submissions centered around the property transferred. According to the learned counsel each of the transferors had a definite property. All of them may have joined and executed a single sale deed but each had transferred only his separate property for which separate consideration had been received. Therefore, each item of transfer had to be separately considered under the provisions of section 269C (1) because the said section contemplated only transfer of immovable property by one person to another person. Where each of the transferor, was possessed of separate property, he submitted that the initiation of a single proceeding for acquisition in the single form and a single order was void.
19. Alternatively the submission of the learned counsel was that in the case of transfer Nos. 3, 4 and 5, i.e. Uma Pattammal, Lakshmi and Usha Visalakshi, the apparent consideration of the property transferred was only Rs. 2,83,000, Rs. 2,53,000 and Rs. 2,52,000 respectively. Hence, according to the learned counsel, the cases of these three persons fell squarely within the terms of Circular No. 455 dated 16th May, 1986 (159 ITR Statutes, p. 105) and which Circular clearly stated that where acquisition proceedings had to be dropped if the apparent consideration of immovable property was below Rs. 5 lakh. Inasmuch as in the present case the acquisition order has been passed only on 7-3-1988, the learned counsel submitted the acquisition proceedings in respect of these three transfers in any event void.
20. The learned counsel also stated that the market value had to be considered qua the transfer of each property and making an aggregate valuation of the market value of all the separate properties transferred by the different transferors through a single document was not in conformity with the statute and in this regard also the proceedings require to be quashed. The other contentionn of the learned counsel was to the effect that it was mandatory to serve notice of acquisition seperately as required by sec. 269D (2) (a) on each of the transferors, each of the transferees, the persons in occupation of the property case and therefore also the order of the competent authority should be declared void.
21. On merits the learned counsel sought to submit that the determination of fair market value was not in order.
22. Since matters of considerable importance relating to the assumption of jurisdiction had been raised, we considered it necessary to have full arguments on the part of the Revenue. We have had the benefit of the arguments of the learned Standing-counsel in addition to those of the learned Departmental Representative on each of the points. The first submission of the learned Standing-counsel was that the Inspector of Income-tax had made a spot valuation of the Inspector of Income-tax had made value taken of Rs. 3 lakh per ground and the cost of construction adopted etc. were all estimates on the basis of his local knowledge and unless the values estimated were such as to shock the conscience of the Court, and in the present case they were not so, there were sufficient material for the competent authority to believe that the fair market value came to Rs. 40 lakh in round figures. The learned counsel stated that as long as there were some reasons it was not open to us to go into the adequacy of the reasons which weighed with the competent authority for forming the belief that the fair market value was Rs. 40 lakh at a stage prior to the initiation. Therefore, as far as the formation of belief that the fair market value was Rs. 40 lakh was concerned, the learned counsel submitted that it was bona fide arrrived at by the competent authority.
23. The learned Standing-counsel submitted that the vires of the provisions of sec. 269C has not been challenged before any court. The section stood as it was and therefore, the presumption in sec. 269C (2), which spoke of such presumption being drawn “in any proceedings under this Chapter” would clearly apply from the state where the competent authority had reason to believe that the fair market value of the property exceeded the apparent consideration. The proviso to sec. 269C (1) only states that no proceedings should be initiated where the market value did not exceed the apparent consideration by more than 15 per cent. The presumptions necessary for initiation and continuation of acquisition proceedings, the learned counsel submits, were the same and there was no warrent for making a differentiation between stages at which the presumption would operate. The learned counsel referred to a Circular of the Borad No. 96 dated 25th November, 1972, which elucidated the scope of the provisions and particularly dealt with special rules of evidence (see in this regard pages 4701 to 4705 as modified by subsequent amentments of the Commentary on Income-tax Law by Chaturvedi and Pithisaria, Third Edition, Vol. 5). This Circular expressly stated :
“The rules of evidence set forth in the preceding paragraph will apply at the stage of initiation of proceedings also. Under one of these rules, the fact that the fair market value of any immovable property, exceeds its apparent consideration by more than 25 per cent of such apparent consideration shall be conclusive proof of the fact that the consideration for such transfer, as agreed to between the parties, has not been truly stated in the instrument of transfer. It, therefore, follows that where the competent authority has reason to believe that the difference between the apparent consideration and the fair market value of the immovable property exceeds the aforesaid margin he must proceed on the basis that the instrument of transfer does not correctly represent the consideration that has actually passed.
Under the second rule of evidence, once the competent authority has reason to believe that anny immovable property has been transferred for an apparent consideration which is less than its fair market value, he shall presume unless the contrary is proved, that (i) the consideration for such transfer as agreed to between the parties has not been truly stated in the instrument; and (ii) that the understatement has been made with a view to facilitating tax evasion by the transferor or the transferee. The presumptions under this rule are rebuttable. The effect, therefore, is that competent authority shall, where he has reason to believe that the apparent consideration is less than the fair market value of the property, ordinarily proceed on the basis that the consideration for the transfer has not been truly stated with a view to facilitating tax evasion by the transferor or the tranferee. Where, however, the parties concerned have been given ann opportunity of being heard before commencement of acquisition proceedings, they will be entitled to lead evidence explained in the preceding sub-paragraph. In other words, it will be open to the parties to claim that the object of understating the consideration in the instrument of tranferee and also, where the diffenence between the fair market value and the apparent consideration exceeds 15 per cent but does not exceed 25 per cent of the apparent consideration, to prove that the consideration had been truly stated in the instrument, and if the competent authority is satisfied with the evidence produced, he will not initiate proceedings for acquisition of property. In this connection, it may be mentioned that it is not incument on the competent authority to give the parties concerned an opportunity of being heard before initiating the proceedings.”
24. The view put forth in the departmental circular, the learned Standing- counsel submitted, was exactly the same as that referred to in the judgement of the Delhi High Court in the case of Mahavir Metal Works (P.) Ltd. (supra) where there were the following observations at page 225 :
“The last question is whether the competent authority had reason to believe within the meaning of section 269C of the Act that immovable property of a fair market value exceeding Rs. 25,000 has been transferred with the object of evading tax liability and/or concealing income. The competent authority asked a valuer to find out the fair market value of the property which was the subject-matter of the transfer in the present case. According to that valuation the fair market value was Rs. 1,97,209. As the consideration stated in the transfer deed was only Rs. 1,10,000 the competent authority had reason to believe that the fair market value of the property transfered was more than the stated consideration. On this date, the presumption under section 269C (2) arose that the consideration agreed to between the parties had not been truly stated and that this was done with a view to evade tax liability and conceal the income. It cannot be said, therefore, on the strength of this date, that the competent authority had no reason to believe that the transaction attracted the provisions of the Act. The proceedings initiated were, therefore, with jurrisdiction. The petitioner has also stated that he had got the property valued before he bought it. Obviosuly, this valuation is not accepted by the respondents who got it valued independently is not accepted by the respondent. There is a lot of difference between the two valuations. In the counterr affidavits the respondents have also stated that even the letting value in the Sadar Bazar area where the property is situated is Re. 1 per sq. ft. The area of the property is substantial. The competent authority will be better fitted to decide the valuation of the property as a question of fact. If it finds that the fair market value of the property does not exceed the consideration stated in the sale deed by more than 15 per cent it will drop the proceedings. It is only if it finds that the fair market value exceeds the consideeration stated in the deed by more than 15 per cent that the proceedings would contiune. Even thereafter the approval of the Commissioner would be necessary for the final acquisition of the property. Then there are all the usual remedies of appeal to the Income-tax Appellate Tribunal and reference to the High Court open to the petitioner. It is not possible, therefore, to decide the question of valuation of this writ petition as the versions of the parties as to valuation are divergent a disputed question of a fact which cannnot be decided without oral evidence arises as to the valuation.
25. The learned standing counsel also referred us to the commentary in the Chapter of Acquisition of Immovable Properties at pages 4646 the author had referred to cases where circumtances could easily be conceived of where there could be no intention to motivate understatement of consideration by parties such as close relationship between the parties or appreciation in the value of properties between the date of agreement to sell and the actual sale etc. Barring such circumstances, according to the standing counsel, where the difference between the fair market value and the apparent consideration exceeded 25 per cent, the presumption that it was to aviod or evade tax by the transferor and the transferee should be drawn even at the stage anterior to initiation. If the aforesaid view was not accepted, the provisions of sub-section (2) of section 269C, the learned counsel submitted, would really be rendered otiose and such a construction should not be placed on the statute having due regard to the rule ennuciated in Heydons case which had been set out by the Supreme Court in the case of K. P. Varghese (supra) at pages 607 and 608 as under :
“It is a sound rule of construction of a statute firmly established in England as far back as 1584 when Heydons case [1584] 3 Co. Rep. 7a was decided that :
…. for the sure and true interpretation of all statutes in general …. four things are to be discerned and considered : (1) what was the common law before the making of the Act, (2) what was the mischief and defect for which the common law did not provide, (3) what remedy the Parliament hath resolved and appointed to cure the disease of the Commonwealth, and (4) the true reason of the remedy; and then the office of all the judges is always to make such construction as shall suppress the mischief, and advance the remedy….”
For all the aforesaid reasons, the learned standing counsel submitted that the presumptions applied in the present case and since the fair market value determined of Rs. 40 lakhs in round figures (by the Inspector at Rs. 39,40,000) was in excess of the apparent consideration of Rs. 30 lakhs by more than 25 per cent, it had to be presumed that the transfer was made with the object of evading or avoiding of tax by the transferor and the transferee and, therefore, the forming of such belief by the Competent Authority could not be assailed. Therefore, the inititaition of proceedings in the present case, it was submitted, was in order.
26. Coming to the point of publication of notice in the gazette, the learned standing counsel relied on the decision of the Gujarat High Court in the case of Shilaben Kanchanlal Rana (supra) and submitted that the gazette had been published within the due date. The fact that it may not have reached a particular library within the stipulated time, the learned counsel submitted, was of no consequence.
27. The learned standing counsel stated that the instrument of transfer in the present case was a single one and, therefore, a single notification in the gazette satisfied the requirements of valid initiation. If it was considered that any principles of natural justice were violeted by the individual notice not being served on the transferor or any particular transferee, then that was a defect which could be curred and could be cured and could not render the proceedings void. In support of this proposition, reliance was placed on the decision of the Full Bench of the Punjab and Haryana High Court in the case of CIT v. Amrit Sports Industries [1983] 144 ITR 113 and of the Gujrat High Court in the case of Smt. Vimlaben Bhagwandas Patel (supra).
28. Since the document was a single one, it was also submitted that the fair market value was correctly determined with reference to the entire property which was covered by the document and the proposition put forth on behalf of the assessee that separate acquisition proceedings should have been initiated in respect of the property transferred by each transferor was not tenable.
29. Since the property was transferred by a single document, the learned standing counsel stated, the applicability of the Boards Circular had to be considered with reference to the total consideration of Rs. 30 lakhs and not with reference to any bifurcated consideration as contended for by the appellants. Finally, a reference was made to the decision in the case of K. P. Varghese (supra) could not be pressed into service forr taking a view that there could be no aviodance of capital gains when the statute in sec. 269C (2) expressly provided forr certain presumptions of evasion and aviodance being made where the difference between the fair market value and the apparent consideration exceeded certain percentages.
30. We have considered the rival submissions. In considering whether there was a reason to believe that the fair market value exceeded the apparent consideration etc., We have the criteria which had been laid down by the Calcutta High Court in the case of Rai Bahadur G. V. Swaika Estate (P.) Ltd. M. N. Tiwari [1980] CTR (Cal.) 75 where there are the following observations :- S. 269C (1) involved the exercise of not judicial or quasi-judicial but administrative powers. In forming its belief for initiation of subjective satisfaction which is arrived at upon application of his mind to certain objective factors. But in initiating such a proceeding the Competent Authority cannot act arbitrarily and he has to form its beleif after applying his mind to the relevant factors specified in sub-section (1) of sec. 269. Therefore, although the court exercising its writ jurisdiction cannot question the sufficiency or adequacy of the reasons for forming of the belief by the Competent Authority that an acquisition proceeding should be initiated the court may ascertain whether or not all the conditions precedent for formation of such a belief exist and whether the competent authority had applied his mind to the said relevant conditions. At the stage of initiation the Competent Authority who acts in his adminstrative capacity does not arrive at its finding but forms a prima faice opinion (vide the observation of the Supreme Court in respect of the Courts power vis-a-vis initiation of proceedings u/s. 34 of the Indian IT Act 1922 and sec. 148 of the IT Act 1961 in the Calcutta Discount Co. Ltd. v. ITO AIR 1961 SC 372. S. Narayanappa v. CIT AIR 1967 SC 523, Chhugamal Rajpal AIR 1971 SC 730 and ITO v. Lakshmi Keval Das AIR 1976 SC 1753.”
as also the subsequent observations of the Calcutta High Court in the case of CIT v. Madho Properties Ltd. [1981] 131 ITR 380 at p. 409. which are as under :
“As the stage of intiation of the proceedings, the Competent Authority is not required to proceed by way of proof. It is only rerquired that he should record reasons for the belief that, inter alia, the consideration had been understated with the aforesaid object or objects
31. We, therefore, proceed to consider the facts of the case in the light of the aforesaid criteria, as also the observations in the judgement of the Calcutta High Court in the case of Mahmudabad Properties (P.) Ltd. v. CIT [1972] 85 ITR 500 where their Lordships observed at page 518 as follows :
“From the above illuminating observations of Lord Evershed M. R. it is patent that a clearr and firm distinction is being drawn between matters which may be said to be a matter of local jurisdiction. This is a knowledge which is derived by such judges or members of the tribunals as having come to their possessions as persons in the locality or to quote the words of Lord Evershed “of persons who are intelligently concerned in the relevant local affairs.” This “local knowledge” is, however, quite distinct from what has been described as specialised knowledge or personal specialised knowledge which is an individual knowledge of the person himself and which may have been derived by him as a result of some association of a specilised nature with that particular branch of human affairs. The above decision is a clear authority for the proposition that if a particular finding is based on local knowledge it is not vitiated as having taken into consideration something which is inadmissible. If the finding is, however, based on specialised personal or individual knowledge it would be taking into account something which is not admissible.”
In the present case, the Inspector of Income-tax had given a report about the property which we have set out in full earlier. He has given particulars of extent of site, the constructed area and age of the building and described it as in a good commercial as well as residential locality in Alwarpet area. He has mentioned the reasonable rate at Rs. 3 lakhs per ground. It would of course have been better had he referred to a comparative case but we can consider that looking to the quantum and particulars stated, this is a figure based on his local knowledge. As far as the cost of construction is concerned, he has applied certain rates and has also allowed for a depreciation of 75 per cent. Difference of opinion perhaps may be possible on the figures taken but what we have to see is whether the Competent Authority acting in the administrative capacity could form a prima facie opinion that the market value was Rs. 39,61,940. We are of the view that such a belief could have been formed by the Competent Authority and since we cannot go into the adquacy of the reasons, we would come to the view that the Competent Authority had reason to believe that the market value was Rs. 39,61,940. This figure exceeds the apparent consideration by more than 25 per cent and we now come to the next question as to whether the Competent Authority had reason to believe that the apparent consideration was not truly stated in the instrument of transfer with the object of facilitating the reduction or evasion of the liability to tax of the transferor or facilitating the concealment of any income or any monies by the transferee. We have already set out the factual information on record. There is not an iota of evidence to show that any extra consideration had passed. Therefore, if one is to go by the purely factual aspect, the Competent Authority could not have formed the belief that the apparent consideration stated was with the object of tax evasion or avoidance by either the transferor or the transferee.
32. The question that next arises is whether the presumptions as laid down in section 269C (1) apply. We have already set out the observations of the Delhi High Court on which the learned standing counsel placed reliance in the case of Mahavir Metal Works (P.) Ltd. (supra). In the case of Smt. Vimlaben Bhagwandas Patel (supra), the decision of the Delhi High Court in Mahavir Metal Works (P.) Ltd.s case (supra) was relied upon by the Revenue. The Gujarat High Court considered the contention and the observations of the court on the arguments are as under :-
“The learned Government pleader for the revenue, in this connection, invited our attention to a decision of the Delhi High Court in Mahavir Metal Works (P.) Ltd. v. Union of India [1974] 95 ITR 197, where the Delhi High Court has held that if the fair market value of the property as determined by the department valuer is higher by the prescribed margin than the consideration stated in the deed, then in view of section 269C (2) the competent authority must be taken to have reason to believe that the consideration has not been truly stated in the deed and the understatement was made with the object of tax evasion. We must frankly admit that we have not been able to appreciate the rationale underlying the rule of evidence contained in sub-section (2) (a) of section 269C. It does not appear to be fair and just that there should be any presumption by an artificial rule of evidence that mere disparity between the apparent consideration and the fair market value be a prescribed margin of 25 per cent would be conclusive proof that the parties to a transfer have been untruthfully stating the agreed consideration in the instrument of transfer since there may be countless bona fide cases where the agreed consideration may be lower than the fair market value on the date of the execution of sale deed. We have been to our wits end to find out as to whether the legislature really intended that the presumption provided in sub-section (2) (a) and (b) would operate before the proceedings are initiated, and if so, what is its practical value since sub-section (3) of section 269E permits an objector to rebut the presumption raised in clause (a) of sub-section (2) of section 269C. The Delhi High Court was, therefore constrained to hold that the presumption raised by clause (a) of sub-section (2) was rebuttable in view of sub-section (3) of section 269E. The presumption prescribed in clause (a) of sub-section (2) is clearly a rebuttable provision in every case including a case falling under clause (a). The most question which has been raised is, whether this presumption would arise at the stage prior to the decision of the competent authority to initiate acquisition proceedings. We are of the opinion that the submission made by the learned Government pleader does not appear to be well founded for the obvious reason that the competent authority may, on satisfaction of the two conditions mentioned in section 269C (1) initiate proceedings for acquisition of such property under Chap. XX-A subject to the provisions of the Chapter, and the competent authority can initiate proceedings for acquisition under the Chapter, section 269C, by a notice to that effect published in the Official Gazette as provided in section 269D. In our opinion, the competent authority can initiate proceedings for acquisition on the conditions precedent being satisfied only by an appropriate notice in the Official Gazette to that effect. Therefore, it follows that till the appropriate notice in the Gazette is not published the proceedings for acquisition under Chapter XX-A of an immovable property referred to in section 269C are not initiated. The learned Government pleader, therefore, attempted to persuade us, that the decision of the competent authority to initiate proceedings for acquisition is “subject to the provisions of this Chapter and, therefore, the presumptions prescribed in clause (c) and (b) of sub-s. (2) of s. 269C would govern such a decision. We are afraid the learned Government pleader is reading more in the clauser subject to the provisions of theis Chapter than what is warranted. The decision of the competent authority to initiate proeedings is subject to the other provisions made in the chapter which would onlymean that subject to the publiction of the preliminary notice in the Gazette as well as individual and locality notices so far as may be applicable and subjeect to the important limitation in particular hat he connot initiate proceedings unless the fair market value of the propety exceeds the apparent considerationby more than 15 per cent, none the less, the proceedings would be initiated only after a notice to that effect in the Gazette. In that view of the matter, therefore, we are of the opinion that he presumpition prescribed in cls. (a) and (b) of sub-s, (2) of s. 269C would not oerate at any stage prior to thedecision of the competent authority for initiation of the proceedings.”
The Court took the ivew that the words “Subject to the Provisions of this Chapter” do not advance the case of the Revenue in hlding that the presumptions apply anterior to the point of gazetting.
33. The decision of the Delhi HIgh Court in Mahavir Metal Works (p.) Ltd.s case (supra) was also considered by the Calcutta High Court in Subhkaran Chowdhurys case (supra) and it was observed by the Calcutta Hgh Court at pages 784 and 785 under :-
“The evidentiary value of presumptions which sub-sec. (2) of sec. 269 postulates are not attracted at the time of the initiation, because if that is so then there is no question of rebutting those presumpitions upon which basis the Division Benceh ofthe Delhi Hich Court proceeded and, in my opinion, with great respect, that must be the correct position, as otherwise there was no scope for cl. (b) in sub-sec. (2) of sec. 269C providing that it shall be open for the party tosay that the correct vlue has been stated. This has also been the view tken by Mr. Justice R. M. Dutta in the decision in the case of Smt. Bani Roy Chowdhury v. Competent Authority, IAC [1978] 112 ITR (Cal.). On this aspect of the matter, I respectfully agree with the aforesaid view of the learned judge. If that is the position then there was no material least no material has been indicated by the IAC to form the belief as required by the Act. In that view of the matter, the conditions precedent for the initiation of the proceddings were not fulfilled and, therefore, in my opinion, the proceedings are without jurisdication. I need not go to the other aspects of the matter as indicated above.
34. The decision of the Delhi High Court was also canvassed be are the Bombay High Court in Unique Associates Co-operative Housing Society Ltd.s casse (supra) and at page 127, it was observed as under :-
“The learned counsel also argued with reference to sub-sec. (2) of sec,. 269C that it is open to the competent authority to presume that the consideration stated in the document has not been truly stated with the object of evading the tax. The submission over looks tha fact thaat presumption under sub-s. (2) is available not at the stage of initiation of the proceedings, but only at the later stage when an inquiry is to be concluded. The decisions of the Gujarat High Court and the Calcutta High Court, which is have followed with respect, are clear on the point taht the presumption is not available at he initial stage. Shri Joshi relied upon the decision of the Delhi High Court in Mahavir Metal Works (P.) Ltd. v. Union of INdia [1974] 95 ITR 197, but in my judgment, this decision would not asset the learned counsel in claiming that the presumption under sub-s. (2) is available even at the initial stage while initiating the proceedings.”
35. The aforesaid observations show tha the High Court of Gujarat, Calcutta and Bombay have given their reasons for distinguishing the observation of the Delhi High Court on which reliance was placed for the Revenue to hold that the presumptions in sec. 269C (2) applied even at the stage anterior to gazetting.
36. The Punjab and Haryana High Court in the case of Anrit Sports Industries (supra) has experessly approved of the ratio of the judgment ofthe Gujarat High Court in the case of Smt. Vimlaben Bhagwandas Patel (supra) and has observed at page 237 as under :-
“It is for the Competent Authority to belived that there exis reasons to conclude that the considration of the transfer as agreed tobetween the parties had not been truly stated in the instrument of transfer with the object of facilitating the reducation or evasion of tghe liability to pay tax or facilitating the ocncealent of any income, etc., and not for any other authority to have his own opinion in the matter. Keeping that purpose in view, it was obligatiory on the part of the Competent Authority to apply his own mind to the material before it and to come tohis own independent conclusion and record the same by giving reasons for initiating the proceedings. In the present case, since the Coimpetent Authority did not record any reasons as required, it is manifest that he never applied his mind and passed the order to initise the proceedings mechanically which was not warranted by the statute. Under the circumstances, it is held that the Competent Authority has assumbed jurisdication to intiate the proceedings in this case arbitrarily without following the statutory requirements. Thus, the whole proceedings taken by the Competent Authority are ivitiaged being illegal.”
37. Even the Delhi High Court in the later case of himland Exports (P.) Ltd. (supra) has only observed at page 482 that admittedly the presumptions are available at the stage of final determination.
38. On a careful study of the aforesaid decisons, while all the HighCourts are agreed that the presumptions admittedly are available at the stage of final determination, all decided cases barring the observations in the judgment ofthe Delhi High Court in the case of Mahavir Metal Works (P.) Ltd. (supra) are of the view that the presumptions are not available at the stage anterioor to the gazeting of intention to acquire. The vires of the provision of sec. 269C (2) may not have been challenged before any of the HighCours because the provisions certainly come to apply at the final stage but arguments have been canvassed and have been fully gone into as to whether the presumptions can be invoked at a stage priour togazetting. On a consideration of the various facets which were put forth, the idfferent Hich Courts have come to the conclusion that these presumption are not available at the stage anteriror to gazetting. The considered view therefore, is tha the presumptions as enunciated under sec. 269C (2) are not available prior to the stage of gazetting.
39. In the case of K. P. Varghese (supra) Mr. Justice Bhagwati, speaking for the Supreme Court observed at page 614 as under :
“This it is not enough to attract the applicabilityof sub-s. (2) that the fair maket falue of the capital asset transferred bythe assessee as on the date of the transfer exceed the full value of the consideration declared in respect of the transfer by not lesss than 15 per cent of the value so declared, but it is futher more secessary that the full value of the ocnsideration in respect of the transfer is understaned or, in other words, shown at a lesser figure than that actually received by the assessee. Sub- section (2) has no application in the case of an honest and bona fide transaction where the ocnsideration in respect of the transfer and the full value of the consideration declared by theassessee is satisfied. If, therefore, the revenue seeks tobring a case within sub-s. (2), it must show not only that the fair market vlue of the capital asset as on the transfer exceeds fthe full value of the consideration declared by the assessee by not lesss than 15 per cent of ther value declared, but also that the consideration has been understated and the assessee has actually received more that what is declared by him. There are twodistinct conditions which have to be statisfed befor sub-s. (2) can be invoked by the revenue and the of showing that these two conditions are satisfind rests on the revenue. It is for the revenue to show that each of these two additions is satisfied and the revenue cannot claim to have dischargecd this buden which lies upon it, by merely establishing that the fair market value ofthe capital asset an on the date of the transfer exceeds by 15 per cent orr more the full value of the consideration declared in respect ofthe transfer, and th efirst condition ism, therefore, satisfied. The revenue must go further and that the second condition is also satisfied. Merely by showing that the first condition issatisfied, the revenue cannot ask the part to presume that the second condition too is fulfilled, becasue even in a case where the first condition of 15 per cent difference is satisfied, the transaction may be a perfectly honest and bona fide transation and tere may be no understatement of the consideration. The fulfilment of the second condition has, therefore, to be established independently of the first condition and merely becsuse the first ocndition is also fulfilled. Each condition has got tobe viewed and established independedntly before sub-s. (2) can be invoked, and the burden of doing so is clearly on the revenue., It is a well-settled rule of law that the onus of establishing that the conditions of taxability are fulfilled is always ion the revenue and the second condition being as much a condition of taxability as the first, the burden lies on the revenue to show that there is an understatment of the consideration and the second condtition is fulfilled. Moreover, to throw the burden of showing that there is no understatement of the consideration, of the assessee, would be to cast an alsmot impossible burden upon him to establish a negative, namely, that hje did not receive any consideration beyond that declared by him.
These observation has been reproduced by the Bombay High Court in the case of Unique Associates Co-operative Housing Society Ltd. (supra) and it was expresslystated by the Bombay High Court at page 126 as under :-
“The observations of the Supreme Court, though in a different context, can well be applied while construing the provisions of s. 269C of the Act. Indeed, the powers to be exercised under s. 269C of the Act are circumscribed by various conditions which are set out in the section itself. In my judgment, the submission of Shri Dastur that the Competent authority had no jurisdication to initiate the proceedings because there was no material whatsoever to come to the conclusion that the consderation stated in the instrument of transfer was not the true consideration and such statement was made with the object of facilitating the reduction or evasion of tax deserves acceptance. The pwers under sec. 269C could be exercised provided the requisite conditions for exercise of the powers are satisfied. In my judgment, in the basence of any material whatsoever available to the competent authority, it was impossible for any reasonable or prudent man to reach the conclusion tha the considertion stated in the instrument of transfer was untrue and that was done with the object of facilitating the reduction or evasion of tax.”
40. On behalf of the revenue, reliance was placed on the Circular of the Board No. 86 dated 25-11-1972, the relevant extract of which we have already set out in paragraph 23 of our order. In that circular, the Board had stated that the rules of evidence set forth relating to presumptions would apply at the stage of initiation of proceedings also. When by the Finance Bill of 1986, the provisions of Chapter XXA relating to acquisition were being dropped, the memo explaining the provisions to the Finance Bill of 1986 stated as under :
“Discontinuance of the provisions relating to acquisition of immovable properties :
The existing provisions of Chapter XX-A envisage acquisition by the Central Government of immovable properties, etc., on payment of the consideration shown in the instrument of transfer and 15 per cent of the said amount. Before these provisions can be invoked, it has to be proved that the consideration for transfer of an immovable property as agreed to between the parties 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 or transferee to pay tax or for concealing any income or asset. These provisions have not proved effective and generated a great deal of lititgation and harassment.
In view of the aforesaid, it is proposed to provide that no proceeding under section 269C of this Chapter shall be initiated in respect of the properties transferred after 30th September, 1986.
As a consequential measure, section 276AA of the Act is proposed to be omitted.
These amendments shall take effect from 1st October, 1986.”
The view stated in the aforesaid memo is that before the provisions can be invoked it has to be proved that the consideration for transfer of an immovable property as agreed to between the parties has not been truly stated in the instrument of transfer with the object of avoidance of tax etc., by the transferor or the transferee. This view has put forth in the memo explaining the provisions to the Finance Bill of 1986 whereby amendments were effected for dropping the Chapter of Acquisition with effect from 1-10-1986. It is in conformity with the ratio of the decisions of the Gujarat, Calcutta, Bombay, Punjab and Haryana High Courts extracts from the judgments of which courts we have set out in extenso. It can, therefore, be considered that the view that the presumptions relating to avoidance do not apply at a stage anterior to the initiation of proceeding finds acceptance in the aforesaid reasons, the conclusion being that prior to the initiation it has to be proved that consideration has not been truly stated with the object of avoidance of tax, dehors the presumptions which become available only subsequent to the valid initiation. We, therefore, come to the conclusion on consideration of the submissions of the parties, the judicial pronouncements on the point etc., which we have discussed at length, that the presumptions contained in section 269C (2) do not apply at the stage anterior to the initiation of proceedings.
In the present case, therefore, if the presumptions are left out of consideration, as we have already observed, there is no iota of evidence to lead to the belief that any extra consideration had passed and, therefore, we have to hold that the competent authority could not have had reasons to believe that the consideration had not been truly stated with the object of facilitating the reduction or evasion of liability of the transferor or the transferee as contemplated in section 269C (1) (a) or (b). On this ground, therefore, the entire acquisition proceedings would have to be quashed.
41. Another contention put forth on behalf of the revenue was that since there was only a single instrument of transfer it had to be considered that the transcations were between association of persons. It is not necessary for us to dwell on what would be the status if an income-tax assessment were to be made if capital gains resulted from such transaction and the income was to be assessed. As far as transfers of property are concerned, such an argument was considered in acquisition proceedings in the case of CIT v. T. V. Suresh Chandran [1980] 121 ITR 985 by the High Court of Kerala. The Kerala High Court emphasised at page 995 that section 269C speaks of a transfer by a person to another person. Prior to that, their Lordships had referred to the decision of the Supreme Court in the case of CGT v. R. Valsala Amma [1971] 82 ITR 828 and quoted from the judgment of the Supreme Court as under :
“Considering this question the Supreme Court said thus (p. 830) :
“Now the question is in what capacity the gift was made by the assessee. Did they do it as an association or as a body of individuals or as individuals. The property received by the assessees under the will of their mother was admittedly received by them as co-tenants. Each one of them had half share in that property. The question whether they divided that property or not is not a material question. In law each one of them had half the right in the property that they gifted to their brother. They were holding that property as tenants-in-common and not as joint tenants. Hence they made the gifts as tenants-in-common and not as joint tenants. Each one must be held to have made a gift of her share of the property though the gifts is made through one single document. It is surprising that the Income-tax Officer or the Appellate Assistant Commissioner or the Tribunal should have over thought that the gift in question was by an association or by a body of individuals. The Gift-tax Act did not change the general law relating to the rights to property. It merely sought to tax a gift of the property owned by a person. As mentioned earlier the property with which we are concerned in this case is a property owned by two persons as tenants- in-common, each one have definite share”.
The High Court of Kerala then went on to state at page 995 as follows :
“When four persons take sale deeds for different plots of land from the same vendor and when each one of the transferees get absolute title to the property transferred to him there is no jointness in the purchase of the transferees. The fact that they may make or put to common use the property purchased by them is a factor which will have no bearing on the purchase itself. We are concerned here with the purchase only and that purchase is conceded to be in favour of four persons of four different properties for different considerations. In A schedule the first of the transferees alone has right and the three others have no right. So is the case with the other three schedules. If so, there is no conveyance of the property to all the four persons. Had the sales been effected by four different instruments it is agreed that the case now urged by the revenue may not have arisen. It would make no difference merely because the four sales are covered by one instrument. This is what has been said by the Tribunal in its order”.
42. If we apply the ratio of the judgment of the Supreme Court which has been referred to in the judgment of the Kerala High Court and the ratio of the judgment of the Kerala High Court itself to the facts of the present case what we find is that each of the five transferors had got specific property which was the subject of transfer by common instrument of transfer. This property was received by the transferors as a result of partition, settlement etc. The title acquired by each transferor was a valid title in law because oral partitions are recognised. A document which refers to a partition does not require registration unless the partition is effected through the document. In the present case, there were only declarations of earlier partitions which were oral and, therefore, the documents of declaration did not require registration. The members got property validly on partition. Thereafter registered settlement deeds were effected and the transferors got the property again by valid registered documents. In one case, the transfer was by a sale document. We have adverted to all these facts in paragraphs 4 to 8 of our order. In paragraph 9 we have identified each property which was transferred by each particular transferor designated as T1, T2, T3, T4 and T5. In the plan (referred to in para 8) attached to this order, we have indicated specifically also the portions which were transferred by each transferor. In paragraph 10 we have set out the sale considerations which has been received by each transferor. It is, therefore, clear that each transferor transferred only the item of property of which he was the owner. There was no transfer by an association of persons because nobody can transfer a better title than what he has. Each transferor could only transfer the title to the property which he owns. Merely because a single document was executed no transferor could, or did, transfer property which belonged to any of the other transferors. Therefore, there should have been separate orders of acquisition pased qua each of the transferors 1 to 5. We do not hold that a single order passed would be void, but we have to consider a single order as severable, and consider the validity of acquisition vis-a-vis each transfer separately.
43. Transferors, 3, 4 and 5 i.e., T3, T4, and T5 Mrs. Uma Pattammal, Mrs. Lakshmi and Mrs. Usha Visalakshi Jayaraman had transferred properties of 2,840 sq. ft., 2,520 sq. ft. and 2,520 sq. ft. only respectively consisted of A & H, B and C respectively in the Plan attached to this order for apparent consideration of Rs. 2,83,000, Rs. 2,52,000 and Rs. 2,52,000 respectively. The question that arises is whether even were we have have held that the initiation of acquisition proceedings was valid we could have upheld the completion of the acquisition order vis-a-vis transferors 3, 4 and 5 assuming the other subsequent conditions were also satisfied. According to the learned counsel for the transferees, the Circular No. 455 dated 16-5-1986 (159 ITR St. 105) of the Central Board of Direct Taxes precluded an acquisition order being passed by the Competent Authority acquiring the properties transferred by transferors 3, 4 and 5. This Circular reads as under :
“Circular No. 455, dated 16th May, 1986.
Subject : Acquisition of immovable properties under Chapter XXA of Income- tax Act, 1961-Guidelines-Regarding.
The Finance Bill, 1986, has proposed that no proceedings shall be initiated under section 269C of the Income-tax Act, 1961, in respect of a property transferred after the 30th day of September, 1986. The Bill also proposes to insert Chapter XXC providing for purchase by Central Government of Immovable properties in certain cases of transfer.
With a view to achieve early finalisation of proceedings under the existing Chapter XXA of the Income-tax Act, 1961, the Board has decided that w.e.f. 1st April, 1986 acquisition proceedings under section 269C will not be initiated in respect of an immovable property for which the apparent consideration is Rs. 5 lakhs or less and that where acquisition proceedings have been initiated by issue of notice under section 269D, the proceedings will be dropped if the apparent consideration of the immovable property is below Rs. 5 lakhs”.
We have already set out the memo explaining the provisions for dropping the Chapter relating to the acquisition proceedings set out in 158 ITR 130 (sic). There it was stated that “these provisions have not proved effective and generated a great deal of litigations and harassment”. The Board, therefore, decided that to bring to quick and of all pending matters relating to acquisition of properties no further proceedings were to be initiated in respect of immovable properties for which the apparent consideration was Rs. 5 lakhs or less or where acquisition proceedings had been initiated by issue of notice under section 269D, the proceedings would be dropped if the appalent consideration of immovable property was below Rs. 5 lakhs. The relevant portion of the term “apparent consideration” stood defined in section 269A (1) as under :
“269A. Definitions. -In this Chapter, unless the context otherwise requires,-
(a) apparent consideration,-
(1) in relation to any immovable property transferred, being immovable property of the nature referred to in sub-clause (i) of clause (c) means,-
(i) if the transfer is by way of sale, the consideration for such transfer as specified in the instrument of transfer.”
44. In the present case, the transfers by each of the transferors T3, T4 and T5 was of an apparent consideration of less than Rs. 5 lakhs being Rs. 2,83,000 Rs. 2,52,000 and Rs. 2,52,000 respectively. In the case of K. P. Varghese (supra), the Supreme Court has clarified the position relating to the effect of the instructions issued by the Board under section 119 as under at pages 612 and 613 :
“The two circulars of the CBDT to which we have just referred are legally bindng on the revenue and this binding character attaches to the two circulars even if they be found not in accordance with the correct interpretation of sub-sec. (2) and they depart or deviate from such construction.
It is now well settled as a result of two decisions of this court, one in Navnit Lal C. Javeri v. K. K. Sen, AAC [1965] 56 ITR 198 and the othr in Bilerman Lines Ltd. v. CIT [1971] 82 ITR 913 that circulars issued by the CBDT under s. 119 of the Act are binding on all officers and persons employed in the execution of the Act even if they deviate from the provisions of the Act.”
The Supreme Court has categorically stated that the Circulars issued by the Board are binding on all Officers and persons employed in the execution of the Act even if they deviate from the provisions of the Act. Such is the law as laid down by the Supreme Court as far as the beneficial circulars are concerned. Adverting specifically to acquisition matters and circulars issued therender, the High Court of Karnataka in the case of B. M. Marappa v. IAC [1986] 160 ITR 642 (the circular was a different one than the one under consideration), observed as under :
“Sri Srinivasan contends for affirming the acquisition without reference to the circular of the Board issued during the pendency of these appeals before this Court.
When the Tribunal and the Inspecting Assistant Commissioner decided the cases, the 1976 Act had not been enacted and the Board issuing circular instructions thereunder did not arise. But the Board with due regard to the later enactment, has issued circular instructions on November 17, 1975, which it was competent to do under the Central Boards of Revenue Act, 1963 (Act No. 63 of 1963), under which it has been constituted as also section 119 of the Act which are binding on all the authorities functioning under the Act.
** ** ** ** ** **
This generated circular issued by the Board is undoubtedly binding on all the authorities under the Act. We are exercising our powers in these cases as an appellate authority under the Act and, therefore, we are bound to take notice of the subsequent events and the circular instructions issued by the Board and regulate these appeals on that basis. What is true of this court is also true of the other authorities under the Act.”
45. In the light of the aforesaid pronouncements, it is clear that we are bound to take note of the circular instructions issued by the Board and to regulate our appellate decision on that basis. We have no choice in the matter. If that be so, we have to hold that in the present case, the acquisition proceedings even if validly initiated should have been dropped against the transfers made by transferors T3, T4 and T5-Mrs. Uma Pattammal, Mrs. Lakshmi and Mrs. Usha Visalakshi Jayaraman. The Competent authority could not have passed orders of acquisition in respect of these properties and the Commissioner of Income-tax who was also bound by the Circular could not have granted his approval to the same under section 269F (6). Therefore, the order of the Competent Authority qua the transfers made by the three transferors indicated as T3, T4 and T5 respectively in this order would, in any event, fall to be quashed.
46. Another issue which arises relates to the statutory requirement of service of notice under sec. 269D (2) (a) and (b) which read as under :-
“269D (2) The competent authority shall-
(a) cause a notice under sub-section (1) in respect of any immovable property to be served on the transferor, the transferee, the person in occupatio 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) inhis 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.”
The contention on behalf of the transferees was that if such individual notices were not served, then the proceedings would be void. On behalf of the Revenue, the contention of the learned counsel was that the proceedings would never become void but if it was considered in any particular case if the principles of natural justice were violated, then of course an adequate opportunity could be given to see that such grievance stands effacted.
47. The High Court of Andhra Pradesh in Mohammed Mahboob Ali Saheb v. IAC [1078] 113 ITR 167 has held that service of notice under sec. 269D (2) (a) being a mandatoryprovision, any violation of the same vitiated the entire acquisition proceedings and the proceedings would be rendered illegal and void.
48. The matter had come up for consideration before the Full Bench of the Punjab and Haryana High Court in Amrit Sports Industries case (supra) and the Full Bench held that the assumption of jurisdiction by the competent authority arises from publication of notice in the gazette and the proceedings under sec. 269D (2) being procedural and supplementary, are in no way jurisdictional. Any defect or irregularity therein could not, therefore, affect the assumption of jurisdiction by the competent authority and would not in any way vitiate the initiation of poceedings once validly done. At the highest it pertains to the exercise of the power given under the Act and it was well-settled that an erroneous exercise of power did not vitiate the proceedings but merely call for correction, be it in the appellate, revisional or any other jurisdiction. The view taken by the Gujarat High Court in Smt. Vimlaben Bhagwandas Patels case (supra) is to similar effect. The decision of the Karnataka High Court in IAC v. Laxmichand [1986] 159 ITR 730, which was also adverted to in the course of arguments, does not alter the ratio of the Full Bench decision of the Punjab and Haryana High Court.
49. The persons most vitally concerned in acquisition proceedings are (a) the transferor, (b) the transferee. The person interested in the property could stand on a somewhat different footing if the fact of such person being interested in the property is not known to the competent authority. The service of notice on the transferor and the transferee under sec. 269D (2) (a) is mandatory. In the present case, there is no material to show that such notice was served on the transferors. The notices were also not addressed to each of the transferors. The notices were also not addrerssed to each of the transferor separately. So, were we to hold that the acquisition proceedings were validly initiated and further that they could have been continued in respect of the transferors 3, 4 and 5, we would have still considered it necessary to set aside to be redone, the entire order in a proper manner after giving notice to each of the transferors as required under sec. 269D (2) (a) and after finally evaluating the fair market value etc. in respec of the specific properties transferred by the specific transferors. It appears that in the present case at certain stages replies have been filed in a manner which shows that each of the transferees had taken constructive notice. We, therefore, do not go into this aspect as far as this case is concerned furhter because the issue in any event becomes academic and would not alter the decision to be arrived at.
50. To put it succinctly, the conditions precedent for the exercise of jurisdiction to initiate acquisition proceedings as culled out from the judicial pronouncements are as under :
(i) There should have been transfer of immovable property worth more than Rs. 1 lakh in value;
(ii) There should be the mtoive for reduction, or evasion of tax liability, on income arising out of the transfer, by the transferor, or concealment of income or wealth by the transferee, for the making of any untrue statement of the apparent consideration in the instrument of transfer relating to such property;
(iii) Reasons should be recorded by the competent authority for initiating the proceedings;
(iv) The fair market value of the property should exceed the apparent consideration by at least 15 per cent; and
(v) There should be publication of notice in the official gazette within the prescribed time.
In the present case, on the facts set out aforesaid, condition No. (i) is satisfied.
On the facts set out, since the presumptions do not operate prior to the stage of initiation and there is a total absence of any evidence, to which we have referred, which would suggest the object of reducing or evading a tax liability, condition No. (ii) is not satisfied.
Conditions No. (iii) and (iv) are satisfied in the present case, except that the competent authority did not have any reason to believe that the apparent consideration stated was at a lower figure with the object of reduction or evasion of tax liability.
Condition No. (v) is satisfied having regard to the date of the gazette.
51. The conditions are disjunctive and each of them should be satisfied before a proceeding for acquisition can be validly initiated. Since in the aforesaid analysis, some of the conditions are not satisfied, the initiation of the acquisition proceedings is hereby held to be invalid and, therefore, on that ground the proceedings are quashed.
52. Our second conclusion is that even if the proceedings were held to have been validly initiated, since the proceedings in relation to the transfers made by the transferors T3, T4 and T5, i.e., Uma Pattammal, Mrs. Lakshmi and Mrs. Usha Visalakshi Jayaraman should have been dropped in view of the mandatory terms of the Boards Circular and this not having been done, the proceedings qua these persons and the properties transferred by them are quashed.
53. Our third conclusion is that even if the entire proceedings were not quashed and even if the proceedings against the properties transferred by transferors 3, 4 and 5 did not stand quashed, still the order of the competent authority would have to be set aside to be re-done after proper service of notice as required under se. 269D92) (a) and complying with the other requirements of sec. 269D (2).
54. On behalf of the revenue, reliance was placed on a decision of the Tribunal in the case of Ashwini Kumar (supra), where, in paragraph 20, the Tribunal had stated as under :-
“On behalf of the appellants, reliance was also placed on K. P. Varghese v. ITO [1981] 131 ITR 597 (SC). That was a case involving the assessment of capital gains and it was held by the Honble Supreme Court that the burden lies on the revenue to prove that the full value of consideration in respect of the transfer is shown at a lesser figure than that actually received by the assessee. the learned counsel pointed out that in the case before us there is not evidence to show that the appellants actually paid something more than Rs. 47,50,000 or that the purchasers recived more than that and that in the absence of such proof the acquisition was argument by referring to the provisions of section 269C (2) which creates a presumption in favour of the revenue in case the fair market value exceeds the apparent consideration by more than 25 per cent. the learned departmental representative contended that in provisions relating to assessment of capital gains no such presumption has been created and, therefore, the law as laid down by the Honble Supreme Court in the aforesaid case cannot be applied to acquisition proceedings. We are in complete agreement with this argument. Special provisions have been made in sub-section (2) of section 269C creating a presumption in favour of the revenue and, therefore, the principles laid in the case of K. P. Varghese (supra) cannot properly be applied.”
55. We have already analysed in the light of the contentions of the parties the observations of the Delhi High Court regarding presumptions becoming applicable at the stage anterior to gazetting vis-a-vis the decisions of the High Courts of Calcutta, Gujarat, Bombay and Punjab and Haryana. The view taken by the Delhi Bench of the Tribunal is in accordance with the then prevailing reported observations of the High Court of Delhi in the case of Mahavir Metal Works (P.) Ltd. (supra). As we have pointed out after referring to the various subsequent decisions, the High Court of Delhi itself in Himland Exports (P.) Ltd.s case (supra) Judgment dated October 6, 1986 but reported only in 1987 subsequent to the decision of the Delhi Bench of the Tribunal in Ashwani Kumars case (supra), has only stated that it is not in dispute that the presumptions apply at the final stage. The conclusion that we have arrived at is on a consideration of all relevant judicial pronouncements and therefore, we do not dwell on this argument any furhter as it stands completely covered.
56. In the view that we have taken, we do not go into the merits.
57. In the result, the order of the Competent Authority dated 7th March, 1988 is hereby annulled.