COMMISSIONER OF INCOME TAX Vs. INDIRABEN JAISUKHLAL DESAI
LAWS(GJH)-1979-12-30
HIGH COURT OF GUJARAT
Decided on December 26,1979

COMMISSIONER OF INCOME TAX Appellant
VERSUS
INDIRABEN JAISUKHLAL DESAI Respondents

JUDGEMENT

B.K.MEHTA, J. - (1.) THESE appeals arise out of an order of the ITAT, Ahmedabad, setting aside the order of acquisition of the property comprising of a commercial building known as "Motisagar" bearing S.No. 896 situate at Dhebar Road within the city of Rajkot. There were shops and offices in the said building which were let out at a gross monthly rent of Rs. 1,551 to different tenants. It appears that on the Sub Registrar of Rajkot reporting to the IAC, Acquisition Range I, Ahmedabad, who is the Competent Authority in these matters, that the commercial building known as "Motisagar" consisting of shops and offices, was transferred by Shri Kanubhai Chhaganlal Pandya and others by a registered deed of conveyance of 10th May, 1973, to Smt. Induben Jaisukhbhai Desai, who is the respondent before us, for an apparent consideration of Rs. 92,000 the Competent Authority required the Valuation Officer concerned to determine the fair market value of the property in question and he submitted his valuation report on 23rd Oct., 1973, determining the fair market value at Rs. 1,99,200 as against the apparent consideration of Rs. 92,000. It appears further that the Competent Authority had directed his Inspector to make inquiry and submit his report in connection with the fair market value of the property which he did. The Competent Authority, therefore, initiated acquisition proceedings by publishing a notice in the Official Gazette on 10th Nov., 1973, and served individual notices to the transferors and the transferee on 7th Nov., and 9th Nov., 1973, respectively, and the locality notice was proclaimed on 21st March, 1974.
(2.) PURSUANT to these individual notices, the transferors as well as the transferee filed their objections. However, the occupants of the different business premises did not file their objections, though they were served with notices on different dates. The Competent Authority, on consideration of the material on record before him, concluded that the property in question was situated in the best commercial locality of Rajkot where a number of buildings put to commercial use were situate. He also concluded that the fair market value of the property in question was Rs. 1,99,200, after applying the yield method for purposes of valuation. For purposes of reaching the said conclusion, he considered the detailed break up of the receipts and outgoings of the property in question as per the report of the Valuation Officer, as per the report of the transferee's valuer and as per the submissions of the transferee's counsel. The Valuation Officer has estimated the net return from the property at Rs. 14,940 while according to the valuer of the transferee it was Rs. 14,398 as against the estimate of the transferee's counsel of Rs. 11,630. The District Valuation Officer has capitalised the net return at 7 1/2% as against the claim of the registered valuer at 15% and that of the transferee's counsel at 12%. After considering these details, the Competent Authority reached the conclusion that the fair market value of the property in question far exceeded the apparent consideration which justified the acquisition. The Competent Authority recorded his findings in the following terms : "From the above table it will be seen that there is not much difference between the net return, determined by the Valuation Officer and by the transferee's valuer. The transferee's valuer, however, has taken the annual repairs at 1/6th whereas the Valuation Officer has taken the same at 10% of the gross annual rent. For the purpose of working out the property income, 1/6th of the gross annual letting value has to be allowed as a statutory deduction under the IT Act. In valuation matters, however, the rate of 10% allowed as deduction by the Valuation Officer is quite appropriate and sensible. The vacancies, collection charges, etc., have been allowed at 7% by the Valuation Officer as against 6% claimed by the transferee's valuer. As regards the computation made by the transferee's counsel, he has taken repair charges at 1/6th of the gross annual rent which is not correct for the reasons mentioned above. He has claimed extra deduction on account of common light, etc. In this connection, it may be stated that the Valuation Officer has already taken into account the gross annual rent at Rs. 18,000 as against the actual at Rs. 18,618 and thus allowed a deduction of Rs. 618 on this account. As regards vacancies, collection charges, etc., the deduction of 7% of the gross rental income allowed by the Valuation Officer is reasonable and the transferee's counsel has inflated the figures of deduction on this score. The other deductions claimed by the counsel have not been considered fit enough by the transferee's own registered valuer. For the reasons mentioned in the Valuation Officer's comments, reproduced hereinabove, the rate of 7 1/2% applied by the Valuation Officer is considered fair and reasonable in contrast to the rates of 15% and 12%, respectively, by the transferee's representatives. Thus, I hold that the fair market value of the property in question as on the date of transfer was Rs. 1,99,200 as against the apparent consideration of Rs. 92,000. Thus, there is a difference of (Rs. 1,99,200 minus Rs. 92,000) Rs. 1,07,200 between the fair market value and the apparent consideration." The Competent Authority, therefore, by his order of 17th Feb., 1977, decided to acquire the property in question.
(3.) BEING aggrieved by this order of acquisition, the transferee went in appeal before the ITAT, Ahmedabad. A number of contentions were urged on behalf of the appellant about the invalidity of initiation of the acquisition proceedings, inter alia, on the ground that there was inordinate delay in the proclamation of the locality notice which deprived the affected persons of their right to file objections. The transferee also assailed the initiation of acquisition proceedings as in her submission the reasons recorded by the Competent Authority did not warrant the initiation. A grievance was also made that the Competent Authority did not summon and examine the registered valuer, Shri Dilipkumar Mehta, representing the transferee. It was also urged that the District Valuation Officer has estimated the fair market value only on the basis of the application of the yield method and the alternative method of comparable sale instances was not pressed into service. All these contentions were rejected by the Tribunal. However, on one short ground, the Tribunal upset the order of acquisition since the Tribunal found that the said infirmity in the case was sufficient to rebut the presumption about the object underlying the untrue statement of apparent consideration in the instrument of transfer in the present case that the parties were motivated for evasion of tax and/or concealment of income. This is what the Tribunal has found in its order in this behalf in paras 44 to 46 for upsetting the order of acquisition : "44. We are inclined to accept this contention of Shri Shah. We do not find any force in the argument of Shri Deodhar, the learned departmental representative, that the Department could reopen these assessments. Admittedly, the assessments are not reopened and till then they are final as they stand. The proceedings under this Chapter have to fall if it is shown that there is not even an allegation in the respective assessments of the transferor and the transferee that there was any attempt at evasion of tax or concealment of income or assets by the transferor or the transferee even if such a nefarious object could be presumed in the case of any one of the two parties, the proceedings would be justified. However, here the assessments indicate that there is no such allegation. 45. In the case of the transferor there is one more difficulty, viz., if this transaction is in the course of the transferor's business, unless it can be shown or presumed that the transferor has charged more than the apparent consideration (that is, the amount mentioned in the deed), nothing more can be held to be business income of the transferor; if it is the transfer of capital asset, S. 52(2) gives power to the ITO to take fair market value as the full value of the consideration. There is no such provision in any of the sections dealing with business income, i.e., ss. 28 to 44. 46. We would also like to note that the transferee is also a dealer in building. It is not clear whether the building under consideration, i.e., Moti Sagar, is a business asset of the transferee. Neither the assessment nor copies of statements relating to the transferee clarify this position. If it is a business asset, understatement of the value would be adverse to the transferee's interest in the long run though no doubt in one assessment year she may be faced with higher taxation in case she is not able to explain the source of funds paid in addition to the apparent consideration." In that view of the matter, the Tribunal allowed the transferee's appeal and set aside the acquisition by its order of 27th Oct., 1977. It is this order of the Tribunal which is the subject matter of First Appeal No. 123/78.;


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