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income-tax Officer Vs. Mirza Wala Qader Baig - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Hyderabad
Decided On
Judge
Reported in(1984)9ITD70(Hyd.)
Appellantincome-tax Officer
RespondentMirza Wala Qader Baig
Excerpt:
.....been accepted by the authorities. the only basis for invoking action under section 64 was that the market value of the property was higher than the amount of rs. 25,000 fixed as consideration on the date of release. thus, no new case can be entertained at this stage though the learned counsel for the assessee argues that on facts it is a case of prompt dower and that is why it was accepted by the authorities on both times. we cannot go into the new case sought to be canvassed before us as the facts already on record do not provide the factual foundation for such a claim. the appeal itself is misconceived because the order of the first appellate authority is more favourable to the revenue than the order of the ito.we will, however, consider the ito's action on merits in relation to the.....
Judgment:
1. The departmental appeal and the assessee's cross-objection arise out of the AAC for the assessment year 1979-80.

2. The assessee is an employee of Nizam Charitable Trust. A property was purchased for Rs. 50,000 on 19-10-1962 in the joint names of the assessee and his wife. It was the assessee's case that Rs. 25,000 towards the cost was on account of meher account of Rs. 25,000 payable by the assessee out of the meher stipulated at Rs. 50,000 at the time of their marriage on 18-2-1949. This was accepted and 50 per cent of income alone was considered in the assessee's hands. The assessee thereafter made an oral release of interest in this property towards the balance of meher payable at Rs. 25,000. This was also reduced to writing in an affidavit, dated 23-6-1974. The formal deed of release was executed on 14-1-1976 and registered on 25-2-1976. It was the assessee's case that the assessee had ceased to have any interest in the property thereafter. The ITO, however, valued the half interest released at Rs. 60,000. He accepted the consideration of balance of meher at Rs. 25,000. He, therefore, took the view that the balance of Rs. 35,000 (the difference between Rs. 60,000 and Rs. 25,000) represented gift without consideration. On this basis he included five-twelfth of 50 per cent of the income from the property purportedly under Section 64(1)(iv) of the Income-tax Act, 1961 ('the Act'). The first appellate authority revalued half the portion released at Rs. 65,000 as against Rs. 60,000 adopted by the ITO and worked out that the income assessable should be four-fifth of 50 per cent of the property income. In other words, he practically enhanced the assessment.

3. The revenue has come up in appeal stating that the appeal should have been dismissed overlooking the facts that the revenue is in better position as a result of the appellate order. When this was pointed out to the learned departmental representative, it was claimed that his argument is that he is disputing the set off of meher amount of Rs. 25,000 allowed by both the ITO as well as the AAC on the ground that there was no discharge of meher debt as it was not shown that it was the prompt dower payable in the manner it was done. This is a new case which does not arise in appeal as both the first part of meher set off at the time of purchase of the property as well as the further set off of the balance at the time of release has been accepted by the authorities. The only basis for invoking action under Section 64 was that the market value of the property was higher than the amount of Rs. 25,000 fixed as consideration on the date of release. Thus, no new case can be entertained at this stage though the learned Counsel for the assessee argues that on facts it is a case of prompt dower and that is why it was accepted by the authorities on both times. We cannot go into the new case sought to be canvassed before us as the facts already on record do not provide the factual foundation for such a claim. The appeal itself is misconceived because the order of the first appellate authority is more favourable to the revenue than the order of the ITO.We will, however, consider the ITO's action on merits in relation to the cross-objection which also is on the same question.

4. As for the cross-objection, it repeats the claim before the ITO that no part of the income from property is includible in the assessee's hands. The assessee 'sold' his half interest in the property for Rs. 25,000 towards the balance of meher amount being Rs. 25,000 due to his wife. This happens to be the cost to the husband and is the value that has been adopted by the parties. We do not think that it is open to the ITO to rewrite the document adopting a value different from what the parties had agreed. Even in respect of such a right specifically conferred on the ITO by the statute for capital gains purposes under Section 52 of the Act, the Supreme Court in the case of K.P. Varghese v. ITO [1981] 131 ITR 597 held that bonafide transactions did not get hit by the section. Hence, the substitution of a different consideration in the document relating to a transaction between a husband and his wife cannot apparently be treated as permissible under law. A Full Bench of the Patna High Court in the case of CIT v. Syed Saddique Imam [1978] 111 ITR 475 has held that a transfer of gift properties by Mohammedan to his wife in lieu of a dower debt is a sale and not a gift. In this case also the decision went against the taxpayer only because this being a sale, it required a registered instrument which is present in the assessee's case if it is a sale. If it were a sale simpliciter, the question of treating any part of the income from the said property as in the assessee's hands does not arise. However, it is certainly open to the authorities to consider the adequacy of consideration and hold that there is an element of gift to the extent of such inadequacy. If the ITO could invoke Section 64 to the extent of such inadequacy even as pointed out by the Madras High Court in the case of Smt. V. Amirtham Ammal v. CIT [1976] 102 ITR 350, the inadequacy should be such on facts as to warrant the application of Section 64. The Bombay High Court in CGT v. Cawasji Jehangir Co. (P.) Ltd. [1977] 106 ITR 390 held that though the market value of shares on the date of actual reduction of share capital as per the Court's order (the date of transfer) was more, the consideration could be taken as per date of resolution. In this context it observed as under in Cawasji Jehangir Co. (P.) Ltd.'s case (supra): ... In my opinion, the expression 'adequate consideration' has to be construed in a broad sense, and merely because there may be some difference between the consideration for a transfer, and the true value of the property transferred, the same would not attract the applicability of Section 4(a) of the Act. In order that the Court may hold that a particular transfer is not for adequate consideration, the difference between the true value of the property transferred, and the consideration that passed for the same must be appreciable in the context of the facts and figures of the particular case. It may be that in a given case a few hundred rupees would lead to the conclusion of inadequacy of consideration, whereas in another case, a few lakhs of rupees may not lead to such conclusion. The expression 'adequate consideration' cannot be construed with precision but, as already stated above, it must be construed in relation to the facts and figures of each particular case....

The Madras High Court, while dealing with a similar question interpreting the words 'adequate consideration' in respect of a transaction as between a company and firm in which the parties interested were common, reviewed the English law on the phrase and after endorsing the Bombay High Court decision in Cawasji Jehangir Co.

(P.) Ltd.'s case (supra) proceeded to observe in the case of CGT v.Inch Traders & Agencies (Madras) (P.) Ltd. [1981] 131 ITR 313 as under: ... If the Legislature had contemplated as a universal rule that market value should alone be the criterion for testing the adequacy of consideration, the provision would have been differently worded.

The wording would then have been, 'where the property is transferred for less than its market value, then the difference between the market value and the consideration stipulated, shall be deemed to be the gift made by the transferor'. Parliament not having made any such provision, it would not before us to take the market value of the property for determining the adequacy of consideration in all events.

Though the above observation was made in the context of the words 'adequate consideration' under Section 4(1) of the Gift-tax Act, 1958 ('the 1958 Act') the interpretation should exactly apply for the Act as well since the Act also does not give any specific power to the ITO to reckon the 'market' value of asset on the date of transfer as the basis for measuring adequacy. The Madras High Court in Indo Traders & Agencies (Madras) (P.) Ltd.'s case (supra) has held that only a consideration that shocks the conscience of the Court will be considered inadequate in the following words: The considerations which weighed with the Courts in examining the adequacy of the consideration in respect of the sale by a minor or in respect of a relief for specific performance would also apply in the examination of a transaction under Section 4(1)(a). Unless the price was such as to shock the conscience of the Court that it cannot be the reasonable consideration at all, it would not be possible to hold that the transaction is otherwise than for adequate consideration. In fact, in the Full Bench judgment of the Patna High Court, it is mentioned by Chief Justice Harries, that the adequacy of consideration is a matter for the parties. (See [1941] 9 ITR 137, 148). The judgment of the Patna High Court has been approved by the Supreme Court in a later decision--Tulsidas Kilachand v. CIT [1961] 42 ITR 1 (sic). Of course it is not enough if a transfer is for 'good consideration'. It should also be for adequate consideration.

Adequate consideration is not necessarily what is ultimately determined by someone else as market value."Ku. Sonia Bhatia v. State of U.P. AIR 1981 SC 1274, dealing with a gift hit by the U.P. Imposition of Ceiling on Land Holdings Act, 1961, had dealt with the meaning assigned to the words 'consideration', 'adequate consideration', etc., under the Transfer of Property Act, 1882, and the Indian Contract Act, 1872. It quoted with approval the definition of 'consideration' in Black's Law Dictionary which defines 'consideration' as under: Consideration is not to be confounded with motive, consideration means something which is of value in the eye of the law, moving from the plaintiff, either of benefit to the plaintiff or of detriment to the defendant.

The word 'adequate', it was noticed, was defined in Webster's Dictionary as 'legally sufficient' such as is lawfully and reasonably sufficient. A definition of the phrase 'adequate consideration' in Words and Phrases (Permanent edition, vol. 2) as noticed by the Supreme Court was as under: 'Fair consideration in money or money's worth' is consideration which under all circumstances is 'honest reasonable, and free from suspicion', whether or not strictly 'adequate' or 'full'.

The Supreme Court emphasized the words 'adequate' and 'full' in the above definition. After review of various definitions, it summed up the position as under: From a consepectus, therefore, of the definitions contained in the dictionaries and the books regarding a gift or an adequate consideration, the inescapable conclusion that follows is that 'consideration' means a reasonable equivalent or other valuable benefit passed on by the promisor to the promisee or by the transferor to the transferee, similarly, when the word 'consideration' is qualified by the word 'adequate', it makes consideration stronger so as to make it sufficient and valuable having regard to the facts, circumstances and necessities of the case. It has also been seen from the discussions of the various authorities mentioned above that a gift is undoubtedly a transfer which does not contain any element of consideration in any shape or form. In fact, where there is any equivalent or benefit measured in terms of money in respect of a gift the transaction ceases to be a gift and assumes a different colour. It has been rightly pointed out in one of the books referred to above that we should not try to confuse the motive or the purpose of making a gift with the consideration which is the subject-matter of the gift. Love, affection, spiritual benefit and many other factors may enter in the intention of the donor to make a gift but these filial considerations cannot be called or held to be legal considerations as understood by law. It is manifest, therefore, that the passing of monetary consideration is completely foreign to the concept of a gift having regard to the nature, character and the circumstances under which such a transfer takes place ....

Though the above extract from the Supreme Court decision was in relation to a different issue, it is clear that the position of law as noticed by us earlier has its support. Consideration is adequate where it is 'sufficient and valuable having regard to facts'. In the assesssee's case the assessee has transferred his half interest in a property at cost to his wife. Half share in a property is valued at Rs. 25,000. Value of half share does not mean that it will be half of the market value of the building. It is because a stranger would not have paid half the market value of the property for the joint ownership with the assessee's wife. The property is under owner's occupation. The registered instrument itself records relinquishment a few years earlier. Hence, the comparison of market value as on date of registration of relinquishment itself may not be quite correct for inferring reasonableness of price. These factors have not been considered. The inadequacy besides has been inferred on the basis of notional rent which was capitalised. There is no objective criteria with reference to which the inadequacy to the extent that it should shock the conscience of anyone has been established. The ITO has proceeded as though it were open to him to fix the market value in every case of transaction between relations within the meaning of Section 64 and bring the proportionate income attributable to the difference between such market value and the stated consideration to tax under Section 64. This, in our opinion, is an over-simplification not warranted by law. It is because the ITO has to show that the stated consideration to be so low as to shock the conscience of a Court which may direct avoidance of the sale itself; if, for example, it were made by a minor at that price. On the facts and in the circumstances of the assessee's case, we find that there is no scope for application of Section 64 as we are not convinced that the stated consideration is not bonafide or otherwise 'inadequate' so as to justify inference of a segment of gift in this transaction of relinquish-ment/sale of half interest to the co-owner, his wife.

5. In view of the conclusion in the preceding paragraph the cross-objection is allowed. Additional alternative grounds sought to be raised in the cross-objection are not considered as the cross-objection has succeeded. Departmental appeal is dismissed.


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