1985-VIL-256-DEL-DT

Equivalent Citation: [1986] 157 ITR 308, 49 CTR 119, 25 TAXMANN 159

DELHI HIGH COURT

Date: 14.03.1985

COMMISSIONER OF INCOME-TAX

Vs

ARUN MEHRA

BENCH

Judge(s)  : D. K. KAPUR., S. RANGANATHAN

JUDGMENT

The judgment of the court was delivered by

D. K. KAPUR J.-There are four appeals under section 269H of the Income-tax Act, 1961, before us relating to the sale of a plot situated at M-1, Road No. 5, Greater Kailash-11, New Delhi, measuring 19.5 sq. yards. The agreement to sell was dated December 21, 1981, and the consideration was Rs. 5,50,000. The sale deed was executed on February 5, 1982, and the possession delivered shortly after.

The Competent Authority under section 269C of the Act held a preliminary enquiry regarding the valuation of the property. An approved valuer, Shri P. D. Sharma, furnished a valuation report whereby he estimated the value of the plot at Rs. 5,46,000 on February 5, 1982. The Competent Authority also obtained a valuation report from the Valuation Officer, Shri Manohar Lal. By a report dated July 30, 1982, Shri Lal worked out the fair market value at Rs. 5,85,000 on the basis that the land was worth Rs. 3,000 per square yard. A subsequent report by the same Valuation Officer dated September 6, 1982, determined the fair market value at Rs. 10,53,000 on the basis that the valuation was at Rs. 5,400 per square yard. There was then a notice to the transferor and the transferee and eventually the Competent Authority rejected the plea that the acquisition was not initiated in accordance with law and held that the proceedings had been validly initiated under Chapter XX-A of the Income-tax Act, 1961. He also held that the fair market price of the plot was Rs. 8,16,667 and thus the apparent consideration of Rs. 5,50,000 was not only 15% below but also 25% below the true market value. The conditions of the Act being fulfilled, the acquisition of the plot was directed.

The purchasers, who were Shri Kishori Lal Mehra and his three sons, filed appeals to the Income-tax Appellate Tribunal under section 269G. After narrating all the facts and the circumstances of the case, the Tribunal came to the conclusion that there was a vast discrepancy between the two valuation reports submitted by the Valuation Officer to the Competent Authority. In one of these reports, the fair market value was Rs. 5,85,000 and, in the other, it was determined at Rs. 10,53,000. It was further noted that the Competent Authority had not discussed both the valuation reports and had not even examined the Valuation Officer about the glaring discrepancy in the valuation. The argument before the Tribunal was that this showed that there was a lack of proper application of mind to the question and the impugned order had been passed in a routine and stereotyped manner thus vitiating the initiation of proceedings as well as the resultant order acquiring the property. The Tribunal observed as under ;

"That apart, a reading of the valuation report communicated to the learned Competent Authority by the Valuation Officer as per his letter, dated September 6, 1982, makes it abundantly clear that there is no material on record either on the file of the learned Competent Authority or else in the valuation report acted upon by the learned Competent Authority for acquiring the subject-matter as to how the price of Rs. 2,500 was arrived at and how the 'fair market value' of the subject-matter has been arrived at the rate of Rs. 5,400 per sq. yd."

Learned counsel for the Department has urged before us that the report of the Valuation Officer showing that the market value was Rs. 10,53,000 enabled the Competent Authority to initiate proceedings under section 269C and these observations of the Tribunal showed that there had been an error of law.

The provisions of section 269C show that the Competent Authority can initiate proceedings if he has reason to believe that any property whose fair market value exceeds Rs. 25,000 (since enhanced to Rs. 1,00,000) has been transferred to another person for an apparent consideration which is less than the fair market value of the property and the consideration has not been truly stated in the instrument of transfer or with the object of facilitating the reduction or evasion of the liability of the transferor to pay tax or to facilitate the concealment of any income, etc., on the part of the transferee. In other words, if the Competent Authority has reason to believe that there is an understatement of the consideration at the time of the transfer in order to facilitate evasion of tax by the transferor or to facilitate the concealment of income or monies, etc., by the transferee, the action contemplated by this Chapter can be taken.

The learned counsel stressed that there was a presumption, unless the contrary was proved, that there had been understatement of the consideration in the instrument of transfer and for this purpose he referred to section 269C(2) and referred to certain cases on this question.

However, the real controversy in this case is quite different. There were two reports by the Valuation Officer, one dated July 30, 1972, and another dated September 6, 1982, which gave different amounts as the fair market value. The market value shown in these two reports is not based on any particular evidence but on applying a multiplier in respect of certain earlier transactions. For instance, in the report dated September 6, 1982, the report states that the price of a residential plot in July, 1981, was Rs. 2,500. For the time gap 10% was added and the result multiplied by 2.4 giving an amount of Rs. 6,600. A discount was given in respect of a three-year period of litigation that was proposed by applying a multiplier of 0.79, thus reducing the value to Rs. 5,214. Then there was an addition of Rs. 261 making the total to Rs. 5,400 in round figures. Obviously, by using suitable multipliers, the value can be enhanced to any amount in this way.

In the valuation report dated July 30, 1982, which is reproduced in full in the Tribunal's order, the same multiplier of 2.4 was used giving the value of Rs. 6,600 which was multiplied by 0.71, but this was divided by an " F.A.R. " of 1.63, thus giving a figure of Rs. 2,875 to which was added Rs. 144 for the corner plot making Rs. 3,000 (in round figures) per sq. yard.

The arithmetical way of valuations in this manner has led to the comment of the Tribunal that this did not show that the fair market value was Rs. 5,400 per sq. yard. We may mention here that there is statutory definition of " fair market value " given in section 269A. It is defined as a price that an immovable property would ordinarily fetch in the open market on the date of execution of the instrument of transfer. The transfer was made on February 5, 1982, which was registered on February 6, 1982. The Valuation Officer had to determine the fair market value as on that date.

In determining this market value, he merely took the price or the market value of a residential plot in July, 1981, and then arithmetically arrived at the value of Rs. 3,000 per sq. yard and then at the value of Rs. 5,400 per sq. yard. This is what the Tribunal was unable to accept as being a proper basis.

The Tribunal's objection was to the taking of the value of Rs. 2,500 and also presumably the multiplier used to reach two different rates mentioned in the two separate valuation reports.

Having come to the conclusion that the valuation was not properly done, the Tribunal eventually held as follows:

" In view of there being no material on record and in view of the fact that there were two reports by the Valuation Officer and both these valuation reports give different figures, it cannot be said that within the meaning of section 269C of the Act, the Competent Authority had reason to believe that the subject-matter of acquisition had been transferred for an apparent consideration which is less than the fair market value of property-the subject-matter of these proceedings or else that the consideration for transfer of the subject-matter as agreed to between the transferor and the transferee has not been truly stated. "

The Tribunal also held that the second proviso to section 269C was not satisfied. That proviso reads as follows:

"Provided further that no such proceedings shall be initiated unless the Competent Authority has reason to believe that the fair market value of the property exceeds the apparent consideration therefor by more than 15% of such apparent consideration."

On this aspect of the case, the learned counsel for the Department urged that there is a presumption in law that there is an understatement of the true consideration and it is for the party concerned to rebut this presumption. We think that such a contention is totally extreme and untenable. It not only makes the second proviso non-operative but it totally defeats the purpose of the Act. If the contention of the learned counsel is accepted, then the Department has to initiate acquisition proceedings in every case irrespective of how much the consideration is, because there is a presumption that the apparent consideration is more than 15% below the fair market value. We cannot interpret the section in this way because it will destory the effect of the second proviso.

The only reasonable way to interpret the proviso is in the manner that the Tribunal has done, i.e., that there must be, material before the Competent Authority showing that the fair market value was more than 15% above the apparent consideration. In other words, when the apparent consideration was Rs. 5,50,000, the fair market value must be more than Rs. 6,32,500.

The only material the Competent Authority had was valuation report which showed that the value was Rs. 10,53,000. As pointed out by the Tribunal, both these reports are based on theoretical calculations of the value and not of any market sale. It is also very surprising that two such reports should have been submitted by the (same) Valuation Officer. Learned counsel for the Department urges that the second report was submitted because there was a mistake in the first one. Both the reports have been quoted in full in the Tribunal's order. We asked the learned counsel what the mistake in the first report is and why the second report is more correct than the first report. No explanation at all was offered to us but it was stated that if the matter was remanded, then the valuation officer could be called to explain the basis of his report. We may hardly say that the Tribunal came to the conclusion that the Competent Authority had acted in a stereotyped and routine manner and he should have at least examined the Valuation Officer about the difference in the two prices. As we are unable to appreciate either of the valuation reports, we think that the initiation of the proceedings cannot again be permitted by remanding the matter to the Competent Authority.

Another important aspect in this matter is the fact that when the initiation proceedings depends on the market value of the plot, such initiation should not depend on a theoretical calculation. The market value is not determined by theoretical considerations. What has to be seen is the value in the market and not the value calculated in an abstract manner by applying a multiplier to some unknown sale in July, 1981. Neither the nature of the sale nor the nature of the property is mentioned in either of the valuation reports. It is also not clear as to why any multiplier at all has been applied to the said valuation of Rs. 2,500 per sq. yard. The basis of the calculation is, therefore, not apparent at all.

There is a further point that has emerged due to the existence of two reports. We have tried to ascertain whether the valuation officer has the authority to make two reports inconsistent with each other with nothing else on record to show that the second report is only to correct some glaring error or oversight in the first report. We find that section 269L allows the Competent Authority to require the Valuation Officer to determine the fair market value and report the same. There is no mention of two reports in section 269L. The powers of the Valuation Officer are stated in sub-section (2) of section 269L. That power is as follows:

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

There is no mention of any second report in section 38A. The section only gives powers of entry or inspection. The learned counsel for the Department urges that other provisions of the Wealth-tax Act would be attracted and the power of the Valuation Officer includes the power to rectify the initial report. For this purpose, reference was made to section 35(1)(aa) but that provision says that the Valuation Officer may amend an order passed by him under section 15A. We do not find any power in the Valuation Officer under section 269L even perhaps to rectify an earlier report much less to submit a second report altogether. We are, therefore, of the view that the second report has to be disregarded by the Competent Authority, but as it is, the basis of both these two reports has not been accepted by the Tribunal and we think rightly so. On this conclusion, the Tribunal has rightly held that the Competent Authority had no jurisdiction to initiate the proceedings.

We may note for the sake of convenience that the power under Chapter XX-A to acquire immovable property is meant to guard against evasion of tax. It is a power to make a compulsory acquisition of property. In order to justify the action, the necessary preliminary facts have to be established. It has to be found that the fair market value exceeds the apparent consideration by 15% and unless some material of this type is forthcoming, action cannot be initiated. If the learned counsel for the Department is right, the proceedings can be initiated in almost every case by merely making presumptions that the conditions are satisfied. We reject such a construction of the Act and do not think that this is a legally tenable interpretation of the provisions. Even the presumptions under section 269C(2) can operate only if there is some material on the basis of which the Competent Authority arrives at a prima facie estimate of the market value. We accordingly reject this appeal with costs.

 

 

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