COMMISSIONER OF INCOME TAX Vs. VIMLABEN BHAGWANDAS PATEL
LAWS(GJH)-1979-1-3
HIGH COURT OF GUJARAT
Decided on January 25,1979

COMMISSIONER OF INCOME TAX Appellant
VERSUS
SMT. VIMLABEN BHAGWANDAS PATEL Respondents

JUDGEMENT

B.K.MEHTA, J. - (1.) THESE two appeals under S. 269H of the IT Act, 1961, at the instance of the CIT, Gujarat II, Ahmedabad, are directed against the common order of the ITAT, Ahmedabad Branch, Ahmedabad, of 25th July, 1975 allowing the two appeals filed by the respective respondent transferee herein from the order of the IAC, Acquisition Range II, Ahmedabad, passed on 16th Jan., 1975, acquiring two industrial sheds of type A bearing block Nos. 1/3 and 1/4 situate in the Industrial Estate set up by the Baroda Industrial Development Corporation (hereinafter referred to as 'BIDCO' for the sake of convenience) under S. 269F(6) of the aforesaid Act as the fair market value of the respective shed exceeded the apparent consideration in the respective instrument of transfer of 5th Feb., 1973, and had not been truly stated with the ulterior object of tax evasion and/or facilitating concealment of income or assets. Since the questions raised in both these appeals before us are identical, and also because the facts and circumstances of both the cases are similar, we intend to dispose of these two appeals by this common judgment. In order to appreciate the rival contentions raised in these two appeals before us in proper perspective, it would be profitable to set out, briefly, the nature of the property, the history of transfer, how the proceedings were initiated by the Competent Authority, what opportunity of hearing was given to the persons interested whether known or unknown in course of the proceedings, what material was collected and relied upon by the said authority for reaching the conclusion as he did, how did he ascertain the fair market value of the properties in question, and what influenced him in spelling out the ulterior object of the transferor or transferee in stating the consideration for transfer of the properties, and certain other connected relevant developments.
(2.) THE two properties with which we are concerned in these appeals are the two industrial sheds of A type bearing block Nos. 1/3 and 1/4 situate in the Industrial Estate of BIDCO in the city of Baroda. These two sheds are standing on the plots of land of S. Nos. 1034 and 1035 respectively, each admeasuring 6424 sq. ft. having built up structure of 4927 sq. ft. out of which pucca structure is occupying a built up area of 2427 sq. ft. while temporary structure is occupying 2467 sq. ft. in each of plots leaving the remaining plot of land open. It should be noted that there is a marginal discrepancy of about 31 ft. in the total built up area as compared to the break up of the area of the permanent and temporary structures as given in the order of the Tribunal. The respective respondent transferee of each of these appeals has paid a consideration of Rs. 29,521 to the transferor M/s. Sigil (India) Services Pvt. Ltd., which had its factory in the sheds for manufacturing diesel engines which they shifted to some other area in the city of Baroda with the result that they decided to dispose of the two sheds. The deed of conveyance was executed by and between the principal officer of M/s. Sigil (India) Services Pvt. Ltd., and the respective respondent transferee on 5th Feb., 1973. It has been, inter alia, stated in the respective deed of conveyance that the transferor company was the original allottee of the two sheds from BIDCO and consequently purchased the same in pursuance of the ownership scheme of the State Government, which prompted BIDCO to sell the sheds to their original allottees, and accordingly, the transferor company had acquired the sheds by purchase under the deed of conveyance of 19th Aug., 1970 for a consideration of Rs. 19,105 and since the respective transferees were desirous of purchasing the sheds in question in view of their requirement, the transferor company had agreed to sell the sheds in question with the permission of 25th Nov., 1972 accorded by the Board of Directors of BIDCO for a consideration of Rs. 29,521 to each transferee on the condition to observe the approved terms of the ownership scheme. It is common ground that both the sheds are of the same type viz. type A, and of the same size and having the same built up area of permanent as well as temporary structures. The permanent structure is a pucca built up industrial shed while the temporary structure is only having a roof over it with all sides open. It is also an admitted fact that the respondent transferee in each case was desirous of purchasing the respective shed as her husband had a factory in the adjoining sheds in partnership with his brothers. It is not disputed that each of the respondent transferees had purchased shares of BIDCO of the face value of Rs. 18,600 in all which the transferor company was holding under the original scheme of allotment in pursuance of which they were holding as allottees as well as under the ownership scheme in pursuance of which they purchased. Under the original scheme of allotment of BIDCO, there were different charges for the right of occupation of these sheds of different types, and accordingly the relevant rules known as "Baroda Industrial Estate Rules, 1958" prescribed Rs. 180 per month by way of charges for occupying A type block. These charges were raised to Rs. 304.50 Ps. per month with effect from 1st July, 1963. There is some dispute as to the nature of these charges, whether they were in the nature of rent or they were in the nature of licence fees by way of compensation for occupation. We shall refer to it at appropriate time. The allottee of A type block was under obligation, under the aforesaid rules, to purchase four shares of BIDCO of the nominal value of Rs. 1,000 each. The extraordinary general meeting of the BIDCO was convened on 24th March, 1969 to consider, and if though fit, to pass, with or without modification, a resolution that the sheds be sold to the existing holders for a consideration of Rs. 19,105 for an A type shed provided the holder subscribes and purchases at par 13 shares of Rs. 1,000 each of BIDCO besides one share from the shareholder of BIDCO not being a holder of a shed of the nominal value of Rs. 1,000 at Rs. 1,600. The resolution adopted at the aforesaid meeting has not been placed on the record of the Competent Authority or before the Tribunal, but it transpires from the copy of the letter of 10th Jan., 1974, addressed to the respondent transferee of First Appeal No. 1105/75 by the Secretary of BIDCO that at the instance of the Government of Gujarat, the ownership scheme was passed in the aforesaid extraordinary general meeting of the Company held on 24th March, 1969, and the selling cost for A type shed was Rs. 19,105 being the cost of the block besides Rs. 18,600 being the value of shares. It appears that each respondent transferee has given on leave and licence basis the pucca shed to M/s. Jyoti Ltd., one of the leading public limited companies manufacturing electrical motors, switches etc. at the net rate of Rs. 1,583 per month exclusive of all outgoings by way of charges for occupation with effect from 1st April, 1973. Each of the temporary sheds has been let out by the respective respondent transferee with effect from 1st Sept., 1973 to M/s. Ashok Engineering Works, in which husbands of the transferees before us are partners, for net rent of Rs. 500 per month under the two lease deeds of 29th Dec., 1973. Each of the respondent transferees thus could manage to earn Rs. 2,083 for each industrial shed with the result that the net annual yield which each of them realised was to the tune of about Rs. 24,996. The IAC, Acquisition Range II, Ahmedabad, therefore, decided to issue notices under S. 269D(1) for initiating acquisition proceedings of the two sheds in question by his order of 27th June, 1973 for the reasons recorded by him in the said order. Accordingly he issued a notice under S. 269D(1) of the IT Act, 1961, on 27th June, 1973 for initiating the proceedings for the acquisition of the aforesaid two industrial sheds and invited objections, if any, to be filed by the transferor company, respondent transferee and M/s. Jyoti Limited being the occupier of the premises, or by any other person interested in the said immovable properties, within the stipulated period as prescribed under S. 269D(1) and (2) of the IT Act, 1961. Shortly stated, the material part of the reasons recorded by the Competent Authority for initiation of proceedings under S. 269C are as under: "2......Although the transferee contended that the cost of the property will be more, because to purchase one shed within the Industrial Developing Corporation Compound, buyer has to take up shares of the Baroda Industrial Development Corporation worth Rs. 18,000 the return on the investment by way of rent is quite substantial. One M/s. Jyoti Ltd. have occupied the property, and they pay a rent of Rs. 1,583 per month (agreement to this effect has been executed). In view of this, apparent consideration is too low to be accepted. 3. Further, factors which help the transferor to fetch a consideration substantially more than what is stated in the instrument of transfer are : (i) Location : Property is situated in the industrial area of Baroda city and it is encircled by different types of industries. (ii) Possession : Transferee got vacant possession. 4. In view of the above facts (para 2 and 3) the estimated fair market value of the immovable property on the date of sale would at least be as under : 5. From the above, it is evident (prima facie) that the estimated fair market value exceeds the apparent consideration by more than 25% of such consideration. 6. This brings us to the possible tax effect in the hands of transferor and transferee
(3.) THE aforesaid notice initiating proceedings was first served on the respondent transferees as well as the licensee occupier on 5th July, 1973 as required under S. 269D(2)(a). Strangely, it was published in the Gazette of 7th July, 1973 as required under S. 269D(1) while it was published, as required under S. 269D(2)(b) in the office of the Competent Authority as well as in the locality by affixing a copy thereof to a conspicuous place in the office and a conspicuous part of the property as well as by the beat of drum on 3rd Dec., 1973. These dates have relevance since a serious grievance has been made about the validity of the proceedings. It appears that the respective respondent transferee on receipt of the notice on 5th July, 1973 sought for a fortnight's time for (iii) Leasehold or freehold : Freehold. (iv) Potentiality of utilisation for maximum return : The property being an industrial shed can well be expected to fetch maximum return by way of rent because it enjoys all the facilities required for a factory. (i)Value of the land 6524 sq. ft. (@ Rs. 4 per sq. ft.) Rs. 26,096 (ii) Value of structure (@ Rs. 15 per sq. ft. for 4927 sq. ft.) Rs. 73,905 . Rs. 1,00,001 Now . Estimated fair market value Rs. 1,00,001 Apparent consideration (as indicated in the Form No. 37 G) considering shares worth Rs. 18,000 : Rs. 47,521 . Rs. 52,480 Excess estimated fair market value over apparent consideration : Rs. 52,480 (percentage of such excess about 110%) . (i) In the hands of the transferor The transferor,, M/s. Sigil (India) Services (P) Ltd., is manufacturing and selling diesel engines and pumps etc. and their turnover is understood to be more than 25 lacs and the company is having its head office at Bombay and (it is learnt) that it is assessed at Bombay. Capital gain arising from the transfer would increase the tax liability of the transferor. (ii) In the hands of the transferee The transferee is not assessed to tax. But,, it is reported that she has filed her return of income for the asst. year 1972 73 before the ITO, Baroda,, showing an income of Rs. 827 only. . Transferee owes an explanation of source of funds for investment in the property. In this case,, possibility of untaxed income or her husband covering the clandestine portion of price of the property cannot be ruled out." filing objections. She also by her letter of 1st Aug., 1973 inquired from the Competent Authority as to what were the reasons which made him to believe that the apparent consideration fell short of the fair market value of the prescribed limit and that it was stated for the ulterior prohibited objective. She also wanted to know whether her chartered accountant would be allowed to inspect the records and documents in connection with the aforesaid notice. The Competent Authority had, by his letter of 1st Aug., 1973, informed the respondent transferee in reply to her letter of 3rd July, 1973 that in no case extension of time beyond the period of limitation as prescribed under s. 269D(1) could be granted, and that she must file her objections within time. The respondent, therefore, by her letter of 3rd Aug., 1973 invited the attention of the Competent Authority to her letter of 1st Aug., 1973 requesting him to furnish certain information in connection with the notice. The Competent Authority took a strange stand and informed the respondent by his letter of 8th Aug., 1973 that it was not possible to divulge to her at this stage of the proceedings the reasons for initiating action for acquisition, though she was at liberty to file her objections against the acquisition proceedings. The respondent, therefore, by her letter of 12th Aug., 1973 contended that she could not be compelled to file her objections without knowing the reasons for initiation of the proceedings which were of a judicial nature. She, therefore, requested him to furnish reasons and also to let her know, whether she would have right to inspection of her files. Reminders were also sent in this connection on 23rd Aug., 1973 and 25th Aug., 1973. The Competent Authority, by his letter of 4th Sept., 1973, expressed his inability to furnish reasons since the question of adequacy thereof was within the competence of the judicial authority only. However, as regards the request of inspection of her files, she would be permitted to inspect the letters and the documents, if any, filed by her on payment of necessary charges. She inquired by her letter of 10th Sept., 1973 as to what charges she would be required to pay for inspection and to issue a challan accordingly and fix the date of inspection on 19th Sept., 1973. The correspondence rested there for sometime, and again it was revived by her letter of 6th Dec., 1973, when she requested the Competent Authority to give her notice published under S. 269D(2)(b), on coming to know that it had been affixed on the front wall of the shed on 3rd Dec., 1973. She again sent a reminder in that connection by her letter of 2nd Sept., 1974. The Competent Authority thereupon sent a challan of Rs. 2.50 payable at the State Bank of Baroda branch in response to the aforesaid letter of the respondent of 2nd Sept., 1974. Under the cover of the letter of 30th Sept., 1974 of the Competent Authority she was furnished with a certified copy of the notice published in the locality. Meanwhile by the letter of 15th Dec., 1973 the Competent Authority requested the respondent to attend before him on 4th Jan., 1974 with necessary documentary evidence in support of the objections preferred by her. In reply to this letter of the Competent Authority, the respondent again requested the authority to give inspection of the files and the reasons recorded for initiating the acquisition proceedings, and to determine the fair market value according to the directions given in the Government of India, Circular No. F 132(15)/72 TPL of 25th Nov., 1972. She also annexed the report of her valuer with the aforesaid letter of 31st Dec., 1973. She also contended in the said letter that only the standard rent of the property can be considered to be her yield in the matter and invited the attention of the Competent Authority to the various decisions of the Supreme Court as well as other High Courts in that behalf. It appears that the respondent could not attend the hearing before the Competent Authority at Baroda on account of the disturbances in connection with the Navnirman movement in the city of Ahmedabad till 18th April, 1974 when the respondent appeared before the Competent Authority accompanied by her chartered accountant Shri J.P. Thakkar and filed a copy of the agreement with M/s. Jyoti Limited, Baroda. She was furnished with the valuation report of the Valuation Officer by the Competent Authority on that day and also the reasons recorded by the Competent Authority in his order of 27th June, 1973 for initiating acquisition proceedings so as to enable her to file her objections against the said order of the Valuation Officer and also against the said order of the Competent Authority and the next date was fixed on 6th May, 1974. It appears that on account of some misunderstanding, the Valuer of the respondent could not be heard by the Competent Authority and, therefore, the hearing was again fixed on 1st June, 1974. It is not clear from the sheet of the proceedings or from the records what was the nature of her objections before the Competent Authority on that day. It is not clear from the record whether the Competent Authority recorded the evidence of the registered valuer or merely heard him as a representative of the respondent transferee. It is disclosed from the letter dated 26th Aug., 1974 of the respondent that the Competent Authority has, after the hearing on 1st June, 1974, collected some information from the Agent, Bank of Baroda, Industrial Estate Branch, Baroda, on or about 8th Aug., 1974. She requested by her aforesaid letter to furnish her with the copy of the statement of the Agent recorded by the Competent Authority. By his letter of 4th Sept., 1974, the Competent Authority asked the respondent to furnish him with a copy of the lease deed and/or leave and licence agreement with M/s. Jyoti Limited, and also stated the date from which M/s. Ashok Engineering Works occupied a part of the said property and the amount of rent agreed between the parties. Shr furnished the leave and licence agreement entered into between the respondent and M/s. Jyoti Limited under the cover of letter of 24th Sept., 1974. The Competent Authority has thereafter passed an order on 16th June, 1975 rejecting all the objections of the respondent and holding that the fair market value of both the sheds exceeded the apparent consideration by more than 25% since in his opinion the fair market value on the date of transfer of each shed would be Rs. 1,00,001 while the apparent consideration was only Rs. 29,521 and, therefore, the presumption about the ulterior object of tax evasion or concealment of income arose since the consideration for transfer was not truly stated. In the opinion of the Competent Authority, the presumption was not rebutted since no evidence was led by the transferee who had admittedly not disclosed source of income prior to the purchase of the property in question. He, therefore, concluded as under: "......It is, therefore, reasonable to infer that the under statement in the value of the property was with the object to facilitate the concealment of income/moneys which had not been disclosed for the purpose of the Indian IT Act, 1922 or this Act. Thus, investment made by her to the extent of the difference between the fair market value and the apparent consideration stated in the instrument of transfer represents income from sources which had not been disclosed to the department. No evidence has been led to the contrary." In that view of the matter he ordered that the property in question should be acquired under s. 269F(6) of the IT Act, 1961.;


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