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L.B. Kharawala Vs. Income-tax Officer, Company Circle-v, Ahmedabad - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberSpecial Civil Application No. 117 of 1979
Judge
Reported in(1984)38CTR(Guj)278; [1984]147ITR67(Guj)
ActsIncome Tax Act, 1961 - Sections 34(1), 45, 48, 52, 52(1), 52(2), 147 and 148; ;Wealth Tax Act, 1957 - Sections 16A and 16A(5)
AppellantL.B. Kharawala
Respondentincome-tax Officer, Company Circle-v, Ahmedabad
Appellant Advocate K.H. Kaji, Adv.
Respondent Advocate S.N. Shelat, Adv.
Cases ReferredSupreme Court Kantamani Venkata Narayana and Sons v. First Addl.
Excerpt:
direct taxation - reassessment - sections 52 (1) and 147 (b) of income tax act, 1961 - petitioners challenged reassessment of income - in instant case neither impugned notice nor show cause notice indicated that before initiating proceedings for reassessment under provisions of sections 52 (1) and (2) there was reasonable belief regarding understatement of consideration in respect of transfer of property in question - held, respondent acted in excess of jurisdiction in initiating proceedings under section 147 (b) and proceedings for reassessment ultra vires. - - those conditions must be first satisfied in order to confer jurisdiction upon the ito to initiate proceedings for reassessment of income under s. 147(b). in other words, both these conditions are conditions precedent to be.....p.d. desai, j. 1. the petitioner is the legal representative of one b. t. kharawalka who died on march 28, 1974. b. t. kharawala owned a piece or parcel of land bearing s. no. 340-341 (part) situate in village ghodasar, taluka city, district ahmedabad. some time in the year 1960, b. t. kharawala constructed factory sheds were separatly let to jeeka industries, a partnership firm, and m/s. bhagwandas tejaji kharawala pvt. ltd. the rent per mensem was rs. 600 in the case of jeeka industries and rs. 300 in the case of bhagwandas tejaji kharawala pvt. ltd. 2. the cost of the land and suprestructures was rs. 1,70,000 as per the entries made in the books of account maintained by b. t. kharawala. in the course of proceedings for his assessment to wealth-tax up to the assessment year 1967-68, the.....
Judgment:

P.D. Desai, J.

1. The petitioner is the legal representative of one B. T. Kharawalka who died on March 28, 1974. B. T. Kharawala owned a piece or parcel of land bearing S. No. 340-341 (Part) situate in village Ghodasar, Taluka City, District Ahmedabad. Some time in the year 1960, B. T. Kharawala constructed factory sheds were separatly let to Jeeka Industries, a partnership firm, and M/s. Bhagwandas Tejaji Kharawala Pvt. Ltd. The rent per mensem was Rs. 600 in the case of Jeeka Industries and Rs. 300 in the case of Bhagwandas Tejaji Kharawala Pvt. Ltd.

2. The cost of the land and suprestructures was Rs. 1,70,000 as per the entries made in the books of account maintained by B. T. Kharawala. In the course of proceedings for his assessment to wealth-tax up to the assessment year 1967-68, the net wealth was computed on the basis of the valuation of the said asset as per the balance-sheet. In the course of proceedings for his assessment to income-tax, the taxable income was determined by including therein the aforesaid rental income received from the said property.

3. In the year 1967, B. T. Kharawala obtained the valuation report of an approved value in respect of the said property. The valuer, in the course of his report dated October 10, 1968, estimated the market value of the property at Rs. 1,21,000 as in November 1967. The valuation was arrived at on the basis of the rental yield. In the court of proceedings for assessment to wealth-tax for the assessment years 1968-69, 1969-70 and 1970-71, the market value as determine by the valuer was accepted as the value of the said asset and the net wealth was computed on the said basis. In the year 1971, B. T. Kharawala once again got the said property valued by an approved valuer and in the valuation report dated November 15, 1971, the market value was estimate to be Rs. 1,25,000 as on October 30, 1970. The said valuation was also arrived at on the basis of the rental yield. In the course of proceedings for assessment to wealth-tax for the assessment years 1971-72 and 1872-73 the market value as determined by the approved valuer was accepted and the net wealth was computed on the said basis.

4. On June 9, 1972, B. T. Khaerawala sold the said property for a total consideration of Rs. 1,50,000 to the two sitting tenants, namely Jeeka Industries and M/s. Bhagwandas Tejaji Kharawala Pvt. Ltd. The property was conveyed to the two vendees under two separate sale deeds. For the property sold to Jeeka Industries the consideration was Rs. 70,000 and far that the sold to M/s. Bhagwanji Tejaji Kharawala Pvt. Ltd., the consideration was Rs. 80,000.

5. In the course of proceedings for assessments to income-tax for the assessment year 1973-74, B. T. Kharawala claimed that the net result of the computation under the head 'Capital gains' arising on the sale of the said property was a loss in the sum of Rs. 40,000. The claim was advanced on the footing that the cost of acquisition of the said property and that of improvements made thereon was Rs. 1,90,040, whereas the consideration received upon the transfer of the property was Rs. 1,50,000. The difference between the two amounts was claimed as a loss under the head 'Capital gains'. Before the assessment could be completed B. T. Kharawala died and, therefore, the assessment proceedings were continued against the petitioner as the legal representative of the deceased. In the course of a communication dated March 11, 1976, addressed by the petitioner to the ITO in charge of the assessment proceedings, the petitioner explained the basis on which the claim for loss in the sum of Rs. 40,040 under the head 'Capital gains' was put forward on behalf of the assessee. The ITO by his assessment order dated March 15, 1976, accepted the claim advanced on behalf of the assessee and completed the assessment on the footing that the net result of the computation under the head 'Capital gains' was a loss in the sum of Rs. 40,040.

6. It appears that meanwhile, for the purpose of making assessment under the W.T. Act, 1957, the WTO had referred the question of valuation of the property in question to the Valuation Officer under s. 16A of the said Act. The Valuation Officer issued a notice dated August 25, 1976, to the petitioner as the legal representative of B. T. Kharawala to show cause why the value of the property as on November 2, 1967 (valuation date for the assessment year 1968-69) should not be taken to be Rs. 5,08,000 in place and stead of Rs. 1,21,000 as per the report of the approved valuer submitted to the WTO in the course of the proceedings for assessment to wealth-tax for the assessment year 1968-69. The petitioner, in the course of his reply dated September 6, 1976, set out his objections to the proposed valuation. The valuation Officer, however, estimated the fair market value of the said property at Rs. 4,49,000 as on November 2, 1967, in his report dated October 6, 1976. The valuation was arrived at on the basis of the land and building method as against the rental yield method on the basis of which the valuation was earlier determined by the approved valuer. Be it stated at this stage that the proceedings for assessment to wealth-tax fair the assessment years 1969-70, 1970-71, 1971-72 and 1972-73 were still pending when the valuation Officer made his report dated October 6, 1976. Even then the net wealth for those assessment years was computed by the assessment orders made on January 28, 1977, on the basis that the fair market value of the property on the relevant dates was as per the concerned valuation report of the approved valuer that is Rs. 1,21,000 or Rs. 1,25,000, as the case may be.

7. By a notice dated January 31, 1978 (Ex B collectively) served upon the petitioner in his capacity as the legal representative of B. T. Kharawakla by the respondent (ITO Company Circle V, Ahmedabad), the petitioner was called upon to show cause why the proceedings for reassessment of income for the assessment year 1973-74 should not be initiated under s. 147(b) of the I.T. Act, 1961 (hereinafter referred to as 'the Act'). The show-cause notice proceeded to set out the reasons for the initiation of the reassessment proceedings in the following material words :

'It has been brought to the notice of this office that property at Nos. 340 and 341 at Ghodasar sold by you during the previous year has been valued at Rs. 4,49,000 by the Valuation Officer, Unit I for A.Y. 1968-69 in your W.T. case. In view of the above, it is clear that provisions of section 52(2) are applicable in your case.

In view of the connection between you and the purchase, the provisions of section 52(1) are also applicable. Thus, in view of the valuation of the Valuation Officer, I have information in my possession that the fair market value for A.Y. 1973-74 would be considerably higher. Thus, I have information in my possession that income chargeable to tax for A.Y. 1973-74 has escaped assessment'.

8. The petitioner showed caused by his communication dated February 7, 1978 (Ex. B collectively) and he objected to the proposed reassessment inter alia, on the ground that merely because the relatives of B. T. Kharawala were partners and sharesholders respectively in the partnership firm and the private limited company, who were sitting tenants and to whom the property was sold in separate lots, the provisions of s. 52(1) of the Act were not attracted. The petitioner also asserted that the declared value was the real value as per the sale deed executed by B. T. Kharawala during his lifetime in favour of the two vendees.

9. On February 10, 1978, the petitioner in his capacity as the legal representative of B. T. Kharawala was served with a notice under s. 148, Ex. C, by the respondent calling upon him to deliver a return in the prescribed form for the assessment year 1973-74 in view of the fact that the he had reason to believe that income chargeable to tax for the said assessment year had escaped assessment within the meaning of s. 147 of the Act. In response to the said notice, the petitioner submitted a return on March 16, 1978, under protest and without prejudice to his right to challenge the validity of the reassessment proceedings. In the said return, the petitioner returned the same income as was assessed in the original assessment proceedings.

10. On Janurary 11, 1979, the petitioner instituted the present writ petition praying for an appropriate writ, direction and or order quashing and setting aside the notice dated February 10, 1978 (Ex. C), and seeking a permanent innuction so as to restrain the authorities from taking any further proceedings and from passing assessment orders and raising demands against the petitioner in pursuance of the impugned notice. The petitioner also sought interim relief in terms similar to those in which the substantive prohibitory relief was claimed. By a subsequent amendment introduced in the petition, the petitioner challenged the constitutional validity of s. 52, sub-ss (1) and (2) of the Act. Rule nisi was issued on the petition on January 17, 1979, and interim relief restraining the respondent (ITO) from issuing demand notices was granted although the assessment proceedings were allowed to continue.

11. Though the impugned notice is challenged in the petition on several grounds and all those grounds were pressed into service at the hearing of the petitioner, we need to advert to only ground which in our opinion clinches the issue in favour of the petitioner. The ground is that having regard to the provisions of sub-ss (1) and (2) of s. 52, which were invoked in aid by the respondent for the initiation of proceedings under s. 147(b), it was essential for him to have entertained an opinion or belief that there was an under statement of consideration in respect of the transfer that is to say the consideration declared in respect of the transfer was shown at a lesser figure than that actually received and that unless such opinion or belief was entertained, the power to initiate reassessment proceedings could not have been exercised on the ground that in consequence of the information in his possession there was reason to believe that income chargeable to tax had assessment for the assessment year in question. No such opinion or belief is, however, shown to have been entertained in the instant case and the proceedings for reassessment were initiated merely because in the report of the Valuation Officer the property in question was valued at a future higher than that at which the property was declared to have been sold. Under the circumstances, the proceedings for the reassessment are wholly without power authority and jurisdiction. In support of this submission, reliance was placed upon the decision of the Supreme Court in K. P. Varghese v. ITO : [1981]131ITR597(SC) .

12. Section 147(b) empowers the ITO, subject to the provisions of ss. 148 to 153, to assess or reassess in the income or recompute the loss or the depreciation allowance, and the case, may be for any assessment year if he has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for the concerned assessment year. This provision operates to disturb the finality of an assessment already made and authorises the reassessment of the income etc., which has been received by or has accrued to an assessee in the previous year relevant to the assessment year in question. Such action is bound to result in considerable anxiety and harassment to the assessee. The Legislature has, therefore, imposed two conditions, subject to which alone the ITO can reopen an assessment which is already completed : firstly the ITO must have reason to believe that income chargeable to tax has escaped assessment for any assessment year and, secondly, such belief must have been entertained by him in consequence of information in his possession. Those conditions must be first satisfied in order to confer jurisdiction upon the ITO to initiate proceedings for reassessment of income under s. 147(b). In other words, both these conditions are conditions precedent to be satisfied before the ITO could have jurisdiction to issue a notice for reassessment of income.

13. In the present case, though the impugned notice, Ex. C, issued under s. 148 decided ones not amplify entertained by the respondent for believing that income chargeable to tax for the assessment year 1973-74 had escaped assessment within the meaning of s. 147(b) it is clear, upon reading the show-cause notice, Ex. B collectively which preceded the issue of the impugned notice, that the proceedings for reassessment were initiated on the strength of the report tasted October 6, 1976, made by the Valuation Officer under s. 16A(5) of the W.T. Act, 1957, estimating the value of the property in question at Rs. 4,49,000 as on November 2, 1967. The contents of the said show-cause notice disclose that the respondent had treated the said report as 'information' for the purpose in the previous year relevant to the assessment year 1973-74 was considerably higher than that declared by the assessee to be the value of the consideration in respect of its sale to the two sitting tenants and that, under those circumstances the provisions of sub-ss. (1) and (2) of s. 52 of the Act were attracted and he had, therefore, reason to believe that income chargeable to tax had escaped assessment in the relevant assessment year. Against this background it is apparent that before the respondent could have initiated proceedings for reassessment under s. 147(b), it was essential for him to have correctly understood the true scope and effect of sub-ss. (1) and (2) of s. 52 and to have entertained an opinion or belief that the ingredients of those subsections were satisfied. It, therefore, becomes necessary to advert to the provisions of sub-ss. (1) and (2) of s. 52.

14. Sub-section (1) of s. 52 provides that where an assessee transfer a capital asset and in respect of the transfer two conditions are satisfied, namely, (i) the transferee is a person directly or indirectly connected with the assessee; and (ii) the ITO has reason to believe that the transfer was effected with the object of avoidance or reduction of the liability of the assessee to tax on capital gains, the fair market value of the capital asset on the date of the transfer shall be taken to be the full value of the consideration for the transfer and the assessee shall be taxed on capital gains on that basis. Sub-section (2) is a provision which is enacted with a view to extending the coverage of the provision in sub-s. (1) to cases not falling within sub-s (1). Sub-section (2), in substance, provides that where an assessee transfers a capital assets and if in the opinion of the ITO the fair market value of the capital assets as on the date of the transfer exceeds the full value of the consideration declared by the assessee in respect of such transfer by an amount of not less than 15% of the value so declared, the full value of the consideration for such capital asset shall be taken to be its fair market value on the date of its transfer, subject to the previous approval of the IAC. These two sub-section have received interpretation at the hands of the Supreme Court in K. P. Varghese v. ITO : [1981]131ITR597(SC) and it would, therefore, be profitable to refer to the said decision at this stage.

15. In K. P. Varghese's case, the assessee was the owner of a house which he had purchased in 1958 for a consideration of Rs. 16,500. On December 25, 1965, the assessee sold the house for the same price (Rs. 16,500) to his daughter-in-law and five of his children. The assessment of the assessee for the assessment year 1966-67 was duly completed in the normal course and in the said assessment, no amount was included by way of capital gains since the house was sold at the same price at which it was purchased. Subsequently, however, a notice under s. 148 was issued seeking to reopen the assessment for the assessment year 1966-67. The notice itself did not state what was the income alleged to have escaped assessment but a subsequent communication intimated to the assessee that it was proposed to fix the fair market value of the house at Rs. 65,000 against the consideration of Rs. 16,500 for which it was sold and to assess the difference of Rs. 48,500 as capital gains. An order of reassessment was ultimately passed including a sum of Rs. 48,500 as capital gains and bringing it to tax. The provisions of s. 52, sub-s. (1) could not be invoked in aid for bringing the sum of 48,500 to tax because there was admittedly no understatement of consideration in respect of the transfer of the house and it was, therefore, not possible to say that the transfer was effected with the object of avoidance or reduction of his liability under s. 45. The decision to assess the sum of Rs. 48,500 as capital gains was, therefore, rested on sub-s. (2) of s. 52 taking the view that the said sub-section did not require as a condition precedent that there should be understatement of consideration in respect of the transfer. The assessment was challenged in a writ petition and the learned single judge who heard the writ petition came to the conclusion that the understatement of consideration in respect of the transfer was a necessary condition for attracting the applicability of sub-s. (2) of s. 52 and that since there was admittedly no understatement of consideration and the transaction was a perfectly bone fide transaction, sub-s. (2) had no application and the sum of Rs. 48,500 could not be brought to tax as capital gains under that provision. When the matter was carried in appeal to the Division Bench, it was referred to a Full Bench having regard to the importance and complexity of the question involved. The Full Bench in its decision took the view that in order to bring a case within sub-s. (2), it was not at all necessary that there should be understatement of consideration in respect of the transfer and that once it was found that the fair market value of the property as on the date of the transfer exceeded the full value of the consideration declared by the assessee in respect of the transfer by an amount of not less than 15% of the value so declared, sub-s. (2) was straightway attracted and the fair market value of the property as on the date of the transfer was liable to be taken as the full value of the consideration for the transfer. The matter was then carried to the Supreme Court and the principal question which arose for determination in the said appeal turned on the true interpretation of sub-s. (2) of s. 52. However, in order to arrive at the proper interpretation of sub-s. (2), which was introduced in s. 52 by s. 13 of the Finance Act, 1964, with effect from April 1, 1964, the Supreme Court ascertained the object and purpose of the enactment and the context and collocation and the state of existing law at the time of the introduction of the said sub-section. In the process, the Supreme Court interpreted the provisions of sub-s (1) which, prior to the introduction of sub-s. (2), was the only provision contained in s. 52. The relevant observations of the Supreme Court bearing on the interpretation of sub-s (1) are to be found at p. 606 and they are as follows :

'This sub-section provides that where an assessee transfer a capital asset and in respect of the transfer two conditions are satisfied, namely, (i) the transferee is a person directly or indirectly connected with the assessee; and (ii) the ITO has reason to believe that the transfer was effected with the object of avoidance or reduction of the liability of the assessee to tax on capital gains, the fair market value of the capital assets on the date of the transfer shall be taken to be the full value of the consideration for the transfer and the assessee shall be taxed on capital gains on that basis. The second condition obviously involves an understatement of the consideration in respect of the transfer because it is only by showing the consideration for the transfer at a lesser figure than that actually received that the assessee can achieve the object of avoiding or reducing his liability to tax on capital gains. And that is why the marginal note to s. 52 reads : 'Consideration for the transfer in cases of understatement'. But, it must be noticed that for the purpose of bringing a case within sub-s. (1) it is not enough merely to show understatement of consideration but it must be further shown that the object of the understatement was to avoid or reduce the liability of the assessee to tax on capital gains. Now, it is necessary to bear in mind that when capital gains are computed by invoking sub-s. (1) it is not any fictional accrual or receipt of income which is brought to tax. Sub-section (1) does not deem income to accrued or to be received which in fact never accrued or was never received. It seeks to bring within the net of taxation only that income which has accrued or is received by the assessee as a result of the transfer of the capital asset. But since the actual consideration received by the assessee is not declared or disclosed and in most of the cases, if not all it would not be possible for the ITO to determine precisely what is the actual consideration received by the assessee or in other words how much more consideration is received by the assessee than that declared by him sub-s. (1) provides that the fair market value of the property as on the date of the transfer shall be taken to be the full value of the consideration for the transfer which has accrued to or is received by the assessee. Once it is found that the consideration in respect of the transfer is understated and the conditions specified in sub-s. (1) are fulfilled, the ITO will not be called upon to prove the precise extent of the under-valuation or in the other words the actual extent of the concealment and the full value of the consideration received for the transfer shall be computed in the manner provided in sub-s. (1). The net effect of this provision is as if a statutory best judgment assessment of the actual consideration received by the assessee is made, in the absence of reliable materials'.

16. The supreme court then proceeded to observe that the scope of sub-s. (1) was extremely restricted because it is applied only where the transfer is a person directly or indirectly connected with the assesee and he object of the understatement is to avoid or reduce the income-tax liability of the assessee to tax on capital gains. There may be cases, however, where the consideration for the transfer is shown at a lesser figure than that actually received by the assessee but the transferee is not a person directly or indirectly connected with the assessee or the object of understatement of the consideration is unconnected with tax on capital gains. Such cases would not be within the reach of sub-s. (1) and the assessee, though dishonest, would escape the rigour of the provision enacted in that sub-section. The Supreme Court pointed out that sub-s. (2) was, therefore, enacted with a view to extending the consideration. Having thus considered the object and purpose of the enactment of sub-s. (2) against the background of the law then existing and having made reference to the speech of the Finance Minister while moving the amendment introducting the said sub-section, the Supreme Court held at p. 609 as follows :

'We must, therefore, accept as the underlying assumption of sub-s. (2) that there is an understatement of consideration in respect of the transfer and sub-s. (2) applies only where the actual consideration received by the assessee is not disclosed and the consideration declared in respect of the transfer is shown at a lesser figure than that actually received'.

17. At p. 610, the Supreme Court made the following observations after adverting to the marginal note in respect of s. 52 :

'The marginal note to s. 52, as it now stands was originally a marginal note only to what is presently sub-s. (1), and significantly enough, this marginal note remains unchanged even after the introduction of sub-s. (2), suggesting clearly that it was meant by Parliament to apply to both sub-section of s. 52 and it must, therefore be taken as indication that like sub-s. (1) sub-s. (2) is also intended to deal with cases where there is an understatement of the consideration in respect of the transfer'.

18. The Supreme Court then referred to the two circulars issued by the CBDT which were in the nature of contemporanea expositio furnishing legitimate aid in the construction of sub-s. (2) and pointed out that those two circulars understood sub-s. (2) as limited to cases where the consideration for the transfer has been understated by the assessee. It was observed that the view taken by the CBDT, which was the highest authority entrusted with the execution of the provision of the Act, must be regarded as a strong circumstance supporting the construction which the court was inclined to place on sub-s. (2). It was further observed that those circulars were legally binding on the Revenue and that the said binding character attached to the two circulars even if they were found not in accordance with the correct interpretation of sub-s. (2). At p. 614, the Supreme Court then proceeded to make the following pertinent observations on the interpretation of sub-s. (2) :

'Thus, it is not enough to attract the applicability of sub-s (2), that the fair market value of the capital asset transferred by the assessee as on the date of the transfer by not less than 15% of the value so declared, but it is furthermore necessary that the full value of the consideration in respect of the transfer is understated or, in other words shown at a lesser figure than that actually received by the assessee. Sub-section (2) has no application in the case of an honest and bona fide transaction where the consideration in respect of the transfer has been correctly declared or disclosed by the assessee even if the condition of 15% difference between the fair market value of the capital asset as on the date of the transfer and the full value of the consideration declared by the assessee is satisfied. If, therefore, the Revenue seeks to bring a case within sub-s. (2), it must show not only that the fair market value of the capital asset as on the date of the transfer exceeds the full value of the consideration declared by the assessee by not less than 15% of the value so declared, but also that the consideration has been understated and the assessee has actually received more than what is declared by him. There are two distinct conditions which have to be satisfied before sub-s. (2) can be invoked by the Revenue and the burden of showing that these two conditions are satisfied rests on the Revenue. It is for the Revenue to show that each of these two condition is satisfied and the Revenue cannot claim to have discharged this burden which lies upon it, by merely establishing that the fair market value of the capital asset as on the date of the transfer exceeds by 15% or more the full value of the consideration declared in respect of the transfer and the first condition is, therefore, satisfied. The Revenue must go further and prove that the second condition too is fulfilled, because even in a case where the first condition of 15% difference is satisfied, the transaction may be a perfectly honest and bona fide transaction and there may be no understatement of the consideration. The fulfillment of the second condition has, therefore, to be established independently of the first condition and merely because the first condition is satisfied, no inference can necessarily follow that the second condition is also fulfilled. Each condition has got to be viewed and established independently before sub-s. (2) can be invoked and the burden of doing so is clearly on the Revenue. It is a well-settled rule of law that the onus of establishing that the conditions of taxability are fulfilled is always on the Revenue and the second condition being as much a condition of taxability as the first, the burden lies on the Revenue to show that there is an understatement of the consideration and the second condition is fulfilled'.

19. At pp. 616-617, the same view was again reiterated in the following words :

'It is, therefore, clear that sub-s. (2) cannot be invoked by the Revenue unless there is understatement of the consideration in respect of the transfer and the burden of showing that there is such understatement is on the Revenue. Once it is established by the Revenue that the consideration for the transfer has been understated or, to put it differently, the consideration actually received by the assessee is more than what is declared or disclosed by him, sub-s. (2) is immediately attracted, subject of course to the fulfillment of the condition of 15% or more difference, and the Revenue is then not required to show what is the precise extent of the understatement or in other words, what is the consideration actually received by the assessee. That would in most cases be difficult, if not impossible, to show and hence sub-s. (2) relieves the Revenue of all burden of proof regarding the extent of understatement or concealment and provides a statutory measure of the consideration received in respect of the transfer. It does not create any fictional receipt. It does not deem as receipt something which is not in fact received. It merely provides a statutory best judgment assessment of the consideration actually received by the assessee and brings to tax capital gains on the footing that the fair market value of the capital asset represents the actual consideration received by the assessee as against the consideration untruly declared or disclosed by him. This approach in the construction of sub-s. (2) falls in line with the scheme of the provisions relating to tax on capital gains. It may be noticed that s. 52 is not a charging section but is a computation section. It has to be read along with s. 48 which provides the mode of computation and under which the starting point of computation is 'the full value of the consideration received or accruing'. What in fact never accrued or was never received cannot be computed as a capital gains under s. 48. Therefore, sub-s. (2) cannot be construed as bringing within the computation of capital gains an amount which, by no stretch of imagination, can be said to have accrued to the assessee or been received for the transfer is understated and since in such cases it is very difficult, if not impossible, to determine and prove the exact quantum of the suppressed consideration, sub-s. (2) provides the statutory measure for determining the consideration actually received by the assessee and permits the Revenue to take the fair market value of the capital asset as the full value of the consideration received in respect of the transfer'.

20. In fine, the Supreme Court made the following declaration of law at p. 618 :

'We must, therefore, hold that sub-s. (2) of s. 52 can be invoked only where the consideration for the transfer has been understated by the assessee or, in other words the consideration actually received by the assessee is more than what is declared or disclosed by him and the burden of proving such an understatement or concealment is on the Revenue. This burden may be discharged by the Revenue by establishing facts and circumstances from which a reasonable inference can be drawn that the assessee has not correctly declared or disclosed the consideration received by him and there is an under statement or concealment of the consideration in respect of the transfer. Sub-section (2) has no application in the case of an honest and bona fide transaction where the consideration received by the assessee has been correctly declared or disclosed by him, and there is no concealment or suppression of the consideration'.

21. On the facts of the case, the Supreme Court found that it was not the contention of the Revenue that the property was sold by the assessee to his daughter-in-law and five of his children for a sum of more than Rs. 16,500 shown to be consideration in the instrument of transfer and that there was an understatement or concealment of the consideration in respect of the transfer. Under the circumstances, sub-s. (2) had no application and the ITO could have no reason to believe that any part of the income of the assessee had escaped assessment so as to justify the issue of a notice under s. 148.

22. The decision in K. P. Varghese's case : [1981]131ITR597(SC) , establishes beyond doubt that before a case could be brought within sub-s. (1), two conditions must be shown to exist : (a) that the transferee is a person directly or indirectly connected with the assessee; and (b) that the ITO has reason to believe that the transfer was effected with the object of avoidance or reduction of liability regarding capital gains tax. The second condition postulates that there was an understatement of the consideration in respect of the transfer because it is only by showing the consideration for the transfer at a lesser figure than that actually received that the assessee could have achieved the object of avoiding or reducing hi liability to tax on capital gains. Once it is established that the consideration in respect of the transfer is understated and the conditions specified in sub-s. (1) are fulfilled, the Revenue will not be called upon to prove the prices extent of the undervaluation. In the other words, the actual extent of the concealment and the full value of the consideration received for the transfer are, in such a case required to be computed in the manner provided in sub-s. (1) Sub-s. (2) like sub-s. (1), is also intended to deal with cases where there is an understatement of the consideration in respect of the transfer. Obviously, its operation is not restricted to cases such as those which fall within the ambit of sub-s. (1) and it provides a winder coverage of cases of understatement of consideration not specifically falling within sub-s. (1). Still, however, having regard to its object and purpose and against the background of the law at the time of its enactment and the interpretation placed upon it by those whose duty it is to execute and apply the law, it is apparent that the underlying assumption of sub-s. (2) is that there is an understatement of the consideration in respect of the transfer and that the said sub-section would apply only where the actual consideration received by an assessee is not disclosed and the consideration declared in respect of the transfer is shown at a lesser figure than that actually received.

23. The decision in K. P. Varghese's case : [1981]131ITR597(SC) , also leads to the conclusion that the onus of establishing that the conditions of taxability both under sub-ss. (1) and (2) are fulfilled is on the Revenue and before any assessment of reassessment can take place on the strength of those provisions, the Revenue will have to show that the condition with regard to the understatement of consideration is fulfilled.

24. Now, in the instant case, neither the impugned notice, Ex. C, nor the show cause notice, Ex. B collectively which preceded the impugned notice, indicated that before intiating the proceedings for reassessment on the strength of the provisions of sub-ss. (1) and (2) of s. 52, the ITO had entertained a reasonable belief that there was understatement of consideration in respect of the transfer of the property in question. In other words, the impugned notice as well as the show-cause notice contained no indication that the 'information' in possession of the respondent at the time when he initiated proceedings for reassessment under s. 147(b) had furnished him the reason to believe that the assessee had shown the consideration for the transfer at a lesser figure than that actually received by him so as to achieve the object of avoiding or reducing his liability to tax on capital gains. All that the show-cause notice shows is that on the basis of the report of the Valuation Officer who had valued the property at Rs. 4,49,000 on November 2, 1967, and which was treated as 'information' within the meaning of s. 147(b), the respondent had reached the tentative conclusion that the provisions of sub-ss. (1) and (2) of s. 52 were applicable because the report showed that the fair market value of the property in question on the date of its transfer was considerably higher and that, therefore, there was escapement of income. It is apparent, therefore, that the respondent initiated proceedings for reassessment under s. 147(b) on the assumption that once it was found that the fair market value of the property as on the date of the transfer was more than the value of consideration for the transfer as declared by the assessee, sub-s. (1) and/or sub-s. (2) of s. 52 was straightway attracted and the fair market value of the property as on the date of the transfer was liable to be taken as the full value of the consideration for the transfer, irrespective of whether the actual consideration received by the assessee in respect of the transfer was shown at a lesser figure than that actually received. In proceeding on this basis, the respondent has appparently misconstrued the provisions of sub-ss. (1) and (2) of s. 52 and has taken the first step in the process of reassessment of the income alleged to have escaped assessment by issuance of the impugned notice by omitting to take into account the relevant ingredient with regard to understatement of the consideration which must be read in the provisions of sub-ss. (1) and (2) of s. 52. The respondent has thus acted without and or in excess of jurisdiction in initiating proceedings under s. 147(b) and the proceedings for reassessment, are therefore, appearently ultra vires.

25. It would be pertinent to point in this connection that in para 13 of the petition, it was clearly averred that, on the facts and in the circumstances of the case, s. 52 was not attracted. In terms, the following contention was raised :

'The petitioner says that it is no one's case that as a result of the transaction, any amount exceeding Rs. 1,50,000 was received by Shri. B. T. Kharawala as consideration for the sale of the said property. Merely because according to the respondent the valuation of the property is a particular figure exceeding the sale price, it is not complete for the respondent to invoke the provisions of section 52. The petitioner says that virtually all the High Court in India have taken a consistent view as regards the correct construction of section 52 according to which unless there is some evidence that anything more than the consideration mentioned in the documents is received by the seller, provisions of section 52 are not attracted. The petitioner submits, therefore, that in law the respondent had no material to form any such belief that any income has escaped assessment even by resorting to the provisions of section 52 of the Act'.

26. Even though the decision in K. P. Varghese's case : [1981]131ITR597(SC) , had not been rendered when the petition was filed, the above point was specifically pleaded in view of the opinion on identical lines expressed by several High Courts on the true construction of s. 52. In spite of this specific challenge articulated in the petition, the affidavit-in-reply is totally silent on the question whether there was any material before the respondent which gave him reason to believe that there was, in fact, an understatement of consideration in respect of the transfer, that is to say, the actual consideration received by B. T. Kharawala was not disclosed and the consideration declared in respect of the transfer was shown at a lesser figure than that actually received. Paragraph 8 of the affidavit-in-reply filed by the respondent deals with the averments made in para. 13. All that is stated in para 8 is as follows :

'I deny the contention of the petitioner as is contained in paragraph 13 of the petition, that the provisions of section 52 of the Act can never be attracted. I deny that the income tax officer while reopening the assessment had no material to form any belief that any income had escaped assessment as alleged or otherwise. The valuation report as stated hereinabove constituted a valid information on facts on the basis of which the reopening of assessment was done'.

27. It would thus appear that even in the affidavit-in-reply it is not the case of the respondent that he had reason to believe that there was an understatement of the consideration for the transfer at a lesser figure than that actually received, the assessee had achieved his object of avoiding or reducing his liability to tax on capital gains. When questioned, counsel for the Revenue fairly conceded that even on record there was no material which is common to both sub-ss. (1) and (2) of s. 52, was present to the mind of the respondent and that he had tentatively reached the conclusion that there was an understatment of the consideration. Since it was essential for the respondent to proceedings for reassessment it is APPLICANT are that the impunged notice is without and/or in excess of jurisdiction.

28. Counsel for the Revenue urged, in the first place, the satisfaction of the condition that the consideration declared in respect of the transfer is shown at a lesser figure than that actually received is not required for the applicability of sub-s. (1) of s. 52 and that the decision in K. P. Varghese's case : [1981]131ITR597(SC) , cannot be invoked in aid for reading such requirement in sub-s. (1) because in that case the provisions of sub-s. (2) of s. 52 alone were require to be construed and the observations, if any, made on the interpretation of sub-s. (1) were mere passing observations which were not binding on this court. We are afraid, the submission cannot be accepted. Before sub-s. (1) could be attracted, one of the conditions which is required to be satisfied is that the ITO has reason to believe that the transfer was effected with the object of avoidance or reduction of the liability of the assessee to tax on capital gains. This condition apparently involves understatement of the consideration in respect of the transfer, because it is only by showing the consideration for the transfer at a lesser figure than that actually received that the assessee can achieve the object of avoiding or reducing his liability to tax on capital gain. But apart from this obvious interpretation of sub-s. (1) the question is no longer integra. The decision in K. P. Varghese's : [1981]131ITR597(SC) , in terms, lays down that understatement of the consideration in respect of the transfer, that is to say the consideration in respect of the transfer having been shown at a lesser figure than that actually received is an essential ingredient of sub-s. (1). It is true that in K. P. Varghese's case, the principal question which arose for determination turned for its decision on the true interpretation of sub-s. (2) and that the true scope and effect of sub-s. (1) did not directly fall for consideration. However, in order to arrive at a proper interpretation of sub-s. (2) in the light of the existing law at the time of the enactment of the said sub-section, the Supreme Court expressed it view on the true scope and effect of sub-s. (1) after careful and analytical consideration. The opinion expressed by the Supreme Court was deliberately and advisedly given in order to comprehend the true effect of s. 52 in all it was material parts. The observation of the Supreme Court on the true interpretation of sub-s. (1) cannot, therefore, be regarded as mere passing observations. At the highest, they may be treated as an obiter dictum, that is to say the expression of opinion on a point which it was not necessary for the decision of the case. Even if they are conceivably regarded as obiter dictum it is settled that if an opinion is expressed by the supreme court on the interpretation of a section after careful consideration and such opinion is deliberately and advisedly given, the opinion would be binding on the High Court see Mohandas Issardas v. A. N. Sattanathan (1955) 56 BLR 1156 : : AIR1955Bom113 . Under these circumstances, were are unable to accede to this submission made on behalf of the Revenue.

29. It was next submitted on behalf of the revenue that the stage of the issue of notice under s. 148 it was not essential for the respondent to have reached even a tentative conclusion that there was understatement of the consideration for the transfer of the property in question and that, in any case, the very fact that the respondent and invoked in aid sub-ss. (1) and (2) of s. 52 was sufficient to indicate that he was satisfied that the actual consideration received by B. T. Kharawala was not disclosed and the consideration declared in respect of the transfer was shown at a lesser figure than that actually received. We are unable to accept either limb of this submission. As earlier pointed out, one of the conditions which must be satisfied in order to confer jurisdiction upon the ITO to initiate proceedings for assessment of income under s. 147(b) read with s. 52 is that the ITO must have reason to believe on the strength of information in his possession, that income chargeable to tad has escaped assessment for any assessment year and that such escapement has taken place because the actual consideration received by the assessee was not disclosed and the consideration in respect of the transfer was shown at a lesser value than that actually received. Before assuming jurisdiction for reassessment by issuance of a notice under s. 148 it is essential for the ITO to reach such tentative conclusion in consequence of the information in his possession. The mere reference to the provisions of sub-s. (1) and/or sub-s. (2) of s. 52 in the notice issued under s. 148 or in a communication which might have preceded or followed upon such notice would not help the ITO in cases where the notice is challenged in a court of law specifically on the ground that there was no material before the ITO as regards the satisfication of the said pre-condition or where it is alleged that even a tentative conclusion in that behalf was not reached by the ITO before initiating proceedings for reassessment. In such a case, even if the notice itself does not contain an averment that the requisite tentative conclusion was reached by the ITO, it may be still open to the ITO to place before the court other independent evidence that in fact the notice was issued after such tentative opinion had been formed and that there was thus a valid exercise of the power for initiating reassessment proceedings. In the present case, as earlier pointed out, the affidavit-in-reply falls short of establishing the satisfaction of the said pre-condition. In fact, it was fairly conceded that the mind of the ITO was not at all applied to the relevant aspect before the motive was issued. It is apparent on an overall view of the all facts and circumstances of the case, that the respondent assumed jurisdiction for reassessment on a total misconstruction or misapprehension of the true scope and effect of sub-ss. (1) and (2) of s. 52. For these reasons, it is not possible to accede to the submission made by the revenue.

30. It was lastly submitted on behalf of the Revenue that this is not the stage at which this court should interpose itself in exercise of its writ jurisdiction and that it should be left open to the Revenue to establish in the course of reassessment proceedings that there was, in fact, an understatement of the consideration in respect of the transfer and that the actual consideration received by B. T. Kharawala was not disclosed and that it was shown at a lesser figure than that actually received. In support of this submission, reliance was placed on the decision of the Supreme Court Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) . We must say that this is an argument of despair and that is fails to comprehend the true scope of the writ jurisdiction when an aggrieved party seeks the intervention of the court and prays for the issue of a writ of prohibition restraining an authority from proceeding with a matter in which it has no jurisdiction. The decision in Kantamani's case itself holds that in proceedings under art. 226 of the constitution of India challenging the jurisdiction of the ITO to issue a notice under s. 34(1)(a), the High Court is only concerned to decided whether the conditions which invested the ITO with power to reopen the assessment did exist. Therefore, if on the material on record of the writ petition, the High Court is satisfied that the conditions precedent which were required to be satisfied before the ITO could have jurisdiction to issue a notice for reassessment of income were, in fact, not satisfied, the High Court would be entitled to intervene and to quash the proceedings for reassessment initiated upon the issue of notice. It is settled law that where a judicial or quasi-judicial body takes jurisdiction to hear a matter over which it has no jurisdiction, the person aggreived can move the High Court for a writ of prohibition and on that an order could issue forbidding such body from continuing the proceedings. Once it is found that the pre-conditions for the invocation of jurisdiction to issue notice for reassessment are not satisfied, this court would have jurisdiction to intervene at this stage and restrain the respondent from dealing with and/or proceeding with the reassessment proceedings. This court will also have jurisdiction to quash the said notice.

31. In the light of the foregoing discussion, it is apparent that the respondent acted in excess of and/or without jurisdiction in issuing the impugned notice for reassesment of income in the instant case.

32. In the result, the writ petition succeeds and it is allowed. The impugned notice, Ex. C, is quashed and set aside and the respondent is restrained from taking any proceedings in pursuance or furtherance of the said notice. Rule made absolute accordingly. The respondent will


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