1998 (3) TMI 93 - HC - Income Tax

Court affirms constitutionality of Income-tax Act section on consideration definition

C. Venkata Rao Versus Union Of India And Another

The court upheld the constitutional validity of section 269UA of the Income-tax Act, 1961, specifically regarding the definition of 'apparent ... Purchase, Immovable Property, Constitutional Validity, Reasonable, Validity Issues:Challenge to the constitutional validity of section 269UA of the Income-tax Act, 1961 regarding the definition of 'apparent consideration' under section 269UA(b)(1)(i).Analysis:The petitioner contested the constitutional validity of section 269UA of the Income-tax Act, 1961, specifically focusing on the definition of 'apparent consideration' as outlined in section 269UA(b)(1)(i). This clause deals with the determination of the value of consideration payable after the date of the agreement for transfer, considering the discounted value of such consideration based on the prescribed rate of interest. The petitioner entered into an agreement for a consideration of Rs. 42 lakhs, with a completion period of 10 months. Despite receiving Rs. 39,95,020 from the Central Government within the stipulated time, the petitioner argued against the reduction of the consideration amount based on the discounted value calculation, citing the agreement's purpose as obtaining permission from the Income-tax Department.The petitioner's main contention was that the consideration specified in the agreement should be the apparent consideration, and any reduction based on discounted value goes against the core provision. The Income-tax Department's standing counsel referred to previous cases, emphasizing the common practice of discounting in accounting and commercial transactions. The principles of discounting, as per legal references, involve calculating the present value of future payments and are deemed necessary under Chapter XX-C of the Act. The judgment highlighted that while the agreement allowed deferred payment, the Central Government was bound to pay the entire consideration within a specified period, thereby justifying the application of discounting principles.The court analyzed the benefit to the seller from immediate payment, noting that the reduced interest element deducted from the consideration was reasonable, considering the prevailing interest rates. It emphasized that the provisions were not arbitrary or unjust, as they were based on logic, commercial principles, and public policy. The judgment concluded that the statutory time limits for payment were reasonable, ensuring no deprivation of property without consideration. Ultimately, the court dismissed the writ petition, stating that no grounds existed for declaring section 269UA(b) unconstitutional, as the provisions were deemed valid and in line with legal principles and public policy.