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Commissioner of Income-tax Vs. Prem NaraIn Tandon - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberSecond Appeal from Order No. 37 of 1976
Judge
Reported in(1983)33CTR(All)226; [1984]145ITR359(All)
ActsIncome Tax Act, 1961 - Sections 269H
AppellantCommissioner of Income-tax
RespondentPrem NaraIn Tandon
Excerpt:
.....tribunal considered the report of the official valuer as well as the report of sri h. in our opinion, since the competent authority failed to produce the valuation officer before the appellate tribunal, it was open to the tribunal to discard the addition of 65% for kanpur index in determining the market value of the property. the competent authority failed to place the report of the valuation officer before the tribunal for the purpose of substantiating his evaluation of the property in dispute. the mode of determining the value of the building on the basis of annual rental value is well recognised......by the transferor to the transferee for an apparent consideration which was less than the fair market value of the property and the consideration for such transfer as agreed to between the parties was not truly stated in the instrument of transfer with the object of facilitating evasion of liability of the transferor to pay tax in respect of the income arising from the transfer by the transferor for the purpose of income-tax. the transferor and the transferee both appeared and filed objections. the transferor, smt. kamini devi, pleaded that 3/4th of the house in dispute was occupied by a tenant, who had not been paying rent and a suit had been going on between her and the tenant. her husband was old and disabled. she wanted to sell the property and move to another locality. she got.....
Judgment:

K.N. Singh, J.

1. The Commissioner of Income-tax has filed this appeal under Section 269H of the I.T. Act, 1961, against the order of the Income-tax Appellate Tribunal, Allahabad, dated May 21, 1976, setting aside the order of the competent authority, directing the acquisition of the property in dispute under Chap. XX-A of the I.T. Act, 1961.

2. Briefly, the facts giving rise to this appeal are that the Assistant Commissioner, Income-tax, competent authority, appointed under Section 269A of the Act, received information that House No. 117-N/73 Kakadeo, Kanpur, was transferred by Smt. Kamini Devi, wife of Shri K. N. Mehotra, to Sri Prem Narain Tandon for consideration of rupees 49,500. After obtaining the report of the official valuer, the competent authority initiated proceedings and issued notice to the transferor and the transferee as well as to the tenant occupying the house to show cause as to why the property should not be acquired under the provisions of Chap. XX-A of the Act. The notice was issued as the competent authority had reason to believe that the property was sold by the transferor to the transferee for an apparent consideration which was less than the fair market value of the property and the consideration for such transfer as agreed to between the parties was not truly stated in the instrument of transfer with the object of facilitating evasion of liability of the transferor to pay tax in respect of the income arising from the transfer by the transferor for the purpose of income-tax. The transferor and the transferee both appeared and filed objections. The transferor, Smt. Kamini Devi, pleaded that 3/4th of the house in dispute was occupied by a tenant, who had not been paying rent and a suit had been going on between her and the tenant. Her husband was old and disabled. She wanted to sell the property and move to another locality. She got an offer from the transferee, Prem Narain Tandon, for Rs. 54,000, which was accepted, and on August 5, 1972, parties entered into an agreement for sale and the transferor received asum of Rupees 10,000 as advance sale money from the transferee. After obtaining permission of the District Magistrate she executed the sale deed in August, 1973. She asserted that the price received by her was the fair market price of the property and there was no attempt to make any concealment or underestimate the price.

3. Prem Narain Tandon, the transferee, also contested the proceedings. He challenged the report of the departmental valuer and asserted that if the market price of the property was determined on rent capitalisation basis it would be found that the sale consideration represented the fair market price. He relied upon the report of one Shri H. C. Kaushal, an approved valuer, who had assessed the value of the house before the sale. According to his report the value of the property before the transfer was Rs. 38,412 only. Sri Tandon further pleaded that the sale money paid by him was the fair market value of the property. He stated that the property had been let out to a tenant since 29th November, 1971, on monthly rent of Rs. 225 and the tenant was not paying the rent. The property had been assessed by the Nagar Mahapalika, Kanpur, in the quinquennial assessment for 1973-74 to 1978-79, on the annual letting value of Rs. 3,300 and the house tax and water tax was assessed at Rs. 288.75 and Rs. 206.25, respectively.

4. The Competent Authority after hearing the transferor and the transferee held that since the property was not covered by the Rent Control Act, the method of determining the market price on the basis Of annual rental value was not applicable; instead, the market value of the property was to be determined by the land and building method. The Competent Authority rejected the report of Sri Kaushal and accepted the report of the official valuer, according to which the fair market value of the property on the date of sale was Rs. 77,700. The Competent Authority further held that the transferor's plea that it was a distress sale was not convincing. On these findings the Competent Authority held that the fair market value of the property exceeded the apparent consideration by more than 15% and the consideration as agreed to between the transferor and the transferee was not truly stated in the instrument of transfer with such objects as is referred in Clauses (a) and (b) of Sub-section (1) of Section 269C. After obtaining the approval of the CIT, the Competent Authority passed an order for acquisition of the property under Chap. XX-A of the Act. Aggrieved, the transferee filed appeal before the Income-tax Appellate Tribunal, Allahabad, under Section 269G of the Act. The Tribunal, on appraisal of evidence available on record and after hearing the department and the transferee, held that the apparent consideration shown in the transfer sale deed at Rs. 49,500 was the fair market value of the property and as such the provisions of Chap. XX of the Act could not be appliedand the property in dispute could not be acquired. On these findings the Tribunal set aside the order of the Competent Authority. Aggrieved, the Commissioner preferred this second appeal under Section 269H of the Act against the order of the Tribunal.

5. Section 269H provides that the Commissioner or any person aggrieved by the order of the Appellate Tribunal under Section 269G may, within 60 days, prefer an appeal against the order to the High Court on any question of law. No appeal under Section 269H is permissible against the order of the Appellate Tribunal before the High Court on a question of fact as the jurisdiction conferred on the High Court is in the nature of a second appeal. The Legislature has specifically provided that the appeal before the High Court which is against the order of the Appellate Tribunal will be maintainable on a question of law only. The counsel for the appellant has failed to point out that the appeal involves any question of law. The Appellate Tribunal considered the report of the official valuer as well as the report of Sri H. C. Kaushal; it took into consideration the annual rental value of the property in determining the fair market value of the property. These findings were recorded on an appraisal of the material on record. The Tribunal did not decide any question of law nor any such question is involved. In CIT v. S.S. Shanmughanatha Nadar : [1979]120ITR80(Mad) , a Division Bench held that the question as to what was the market value of the property on the date of sale and what depreciation should be granted in respect of a building are questions of fact which do not enable the High Court to interfere with the order of the Tribunal in an appeal under Section 269H of the Act. The Bench further held that the question that a sale was distress sale, was also a question of fact. On these findings the Bench dismissed the appeal without going into the merits of the case. In the instant case also the Appellate Tribunal has recorded findings of fact and no question of law is involved in the appeal. This appeal is liable to be dismissed on this ground alone without going into merits.

6. Learned counsel for the appellant urged that the Tribunal acted in a perverse manner in rejecting the report of the official valuer. The official valuer of the Department had determined the market value of the property at rupees 77,700 on land and building method. According to him the value of the land was Rs. 27,990 and the cost of building represented Rs. 49,734. In determining the aforesaid amount the official valuer added 65% of the cost for Kanpur Index. Thus he included an additional amount of Rs. 21,000 towards the value of the property. The Appellate Tribunal observed that the addition of 65% on the total cost of the land and building was unjustified and if that was excludedthe market value of the property, according to the departmental valuer itself, would come to about Rs. 55,000, which has less than 15% of the amount for which the property was sold. On a perusal of the report of the official valuer it is apparent that it does not contain any reason for adding 65% for Kanpur Index over and above the value of the land and the cost of building. Learned counsel for the Department wanted to produce the official valuer before us to explain the addition of 65% for Kanpur Index but we refused to grant him permission for the same, as the Department had not produced the official valuer before the Appellate Tribunal to explain his valuation report. Section 269L(3) of the Act provides opportunity to the Competent Authority to produce the valuation officer before the Appellate Tribunal so that the Tribunal could hear him to assess the fairness or otherwise of the valuation made by the valuation officer. The valuation officer was not produced before the Tribunal. In the absence of the valuation officer, it was open to the Tribunal to weigh the pros and cons and come to its own conclusion on the question of fair market value of the property. Since the valuation officer was not produced before the Appellate Tribunal, the Department was not entitled to produce the valuation officer before this court as the jurisdiction of this court is confined to the questions of law and it is not permissible to reappraise the report of the valuer or record a finding on the basis of submissions made by the valuation officer before us. In our opinion, since the competent authority failed to produce the valuation officer before the Appellate Tribunal, it was open to the Tribunal to discard the addition of 65% for Kanpur Index in determining the market value of the property.

7. The provisions of Chap. XXII-A of the I.T. Act affect the property right of a citizen. These provisions are stringent which result in an appropriation of property by the State. The authorities administering these laws should not lightly invoke these provisions. When proceedings for acquisition of property of a citizen are initiated by the Competent Authority the provisions of the Act should be strictly followed. In cases where the Competent Authority proposes to acquire a citizen's property he should place all material fairly and squarely before the Appellate Tribunal, which is the appellate authority under the Act on questions of fact and law. The appellate authority has jurisdiction to accept or to reject the valuation report of the valuation officer. The Competent Authority failed to place the report of the valuation officer before the Tribunal for the purpose of substantiating his evaluation of the property in dispute. In the circumstances the appellate authority was free to determine the valuation on the material on record and it would be unfair to hold that the ultimate decision of the Tribunal is a perverse order. The Tribunal, in our opinion,did not commit any error in rejecting the addition of 65 per cent. for Kanpur Index.

8. The Appellate Tribunal held that the Competent Authority was not justified in discarding the capitalisation method of determining the market price of the house in dispute on the basis of its annual rental value. The appellate authority observed that since the portion of the house was let out to a tenant on rent, the market value of the property could be determined on its annual rental value. Since 3/4th of the property was let out on a rent of Rs. 3,000 per annum, the Tribunal determined the rent of the entire property at Rs. 4,000 and after making an allowance to the extent of 25% for the rent, taxes etc., it determined the net rental value on the basis of Rs. 3,000 per annum. The Tribunal applied a multiple of 16 to the annual rental value and thereby determined the fair market value of the property at Rs. 48,000. The Tribunal further added 30% to the value, as the sale transaction had taken place in August, 1973, whereas the house in dispute was constructed in 1968, and thus the value of the property was determined at Rs. 50,000. We find no error in the approach of the Tribunal in determining the value of the property on annual rental value. The mode of determining the value of the building on the basis of annual rental value is well recognised. Even the Legislature has prescribed this method under the W.T. Rules, Rule 1BB, which permits the valuation of a building on the basis of the annual rental income by applying a multiple of 10%. The Tribunal, in our opinion, did not commit any error or transgress its jurisdiction in determining the market value of the property on the basis of the annual rental value.

9. In view of the above discussion, we are of the opinion that the Appellate Tribunal acted within its jurisdiction in] setting aside the order of the appraisal of the material available on the record which does not suffer from any error of law or fact. However, the appeal does not involve any question of law; as such it is not maintainable.

10. In the result the appeal fails and is accordingly dismissed with costs.


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