TaxTMI 
TaxTMI 
2008 (8) TMI 27
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....Income-tax, Chennai, The Income Tax Officer, Tirupur, The Income Tax Officer, Business Ward VII (i), Chennai, The Income Tax Officer, Ward V (3), Chennai, The Commissioner of Income, Tax X, Chennai, The Assistant Commissioner of Income Tax, Chennai, The Chief Commissioner of Income Tax (Appeals) - I, Coimbatore, The Income Tax Officer, Ward III (3), Coimbatore, The Income Tax Officer, Ward II (2), Chennai, Union of India, Ministry of Finance, Rep by Its Secretary Dept., of Revenue, New Delhi, Central Board of Directors, rep by its Secretary, Central Secretariat, New Delhi, Deputy commissioner of Income Tax, company Circle IV (3), Chennai, The Income Tax Officer, Ward III(2), Coimbatore, The Income Tax Officer, Business ward XIV (1), Chennai, The Income Tax officer, (OSD) Company circle 1(4) HONOURABLE K. RAVIRAJA PANDIAN AND HONOURABLE P.P.S. JANARTHANA RAJA JJ. For the Petitioner: W.P. No. 4387 of 2003: Mr. Chandran Karuppiah, For the Petitioner: W.P. Nos. 25873 and 15662 of 2007: Mr. N. Devanathan, For the Petitioner: W.P. Nos. 1719, 1720, 1800 and 1801 of 2008: Mr. V. Ramachandran, Sr. Counsel for M/s. Dr. Anita Sumant For the Petitioner: W.P. No. 3880 of 2008: Mr....
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....ion 50C on the aforesaid facts. As the constitutional validity has been challenged, we are of the view that the facts of the other cases are not very material. 3. Mr. V. Ramachandran, Mr. Arvind Datar, learned Senior Counsels appearing for the petitioners/assessees spearheaded the argument, which was adopted and supplemented by Mr. Jayakumar, Mr. Balachandran, Mr. Vaideeswaran and other learned counsels appearing in respect of their respective cases with reference to the transaction made therein on the following grounds: 4. It is contended that the power of Central Legislature to levy tax on capital gains arises under Entry 82 List I of Schedule VII of the Constitution of India. Although the word "income" has to be interpreted in a liberal sense, the amount sought to be taxed must bear a reasonable relation to the concept of income. It cannot be a fanciful or imaginary amount. The entry authorises the respondents to legislate enactment or provision for levy of tax on the income other than agricultural income. But under the impugned provision, an artificial or deemed income which never accrued or received or contracted by the assessee is sought to be ta....
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.... 50C is arbitrary in nature and a remedy-less provision. No opportunity is provided to the aggrieved assessees to establish that the sale consideration was genuinely less than the market value. All the sales of properties are deemed to have understated the consideration if the fair market value is higher than the contracted value. Reliance has been made to support this contention in the case of Union of India Vs. A. Sanyasi Yasi Rao, (1996) 3 SCC 465. 9. It is further contended that Sections 50C(2) and 50C(3) are unworkable provisions and sub-section (2) will apply only when the assessee can establish that the value adopted by the stamp authorities is higher than the market value, but stamp duty is paid by the buyers. It is of no concern to the seller as to what is the actual value adopted. His only concern is that he has received the sale consideration. These two sub-sections do not provide for any remedy in cases where there is under-valuation or undisclosed consideration. 10. It is further contended that the property developers were excluded from the provision. The object of Section 50C is to check tax evasion by persons disclosing a lower value of the property transf....
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....re has competence to enact the provision to arrest or check the leakage of revenue under Entry 82 List I of the Constitution of India. The Central Legislature has power to chose person and transaction to levy tax which cannot be questioned. The classification made is reasonable. There is intelligible differentia in the classification made. The impugned provision is not discriminatory. The Legislature is competent to remove the infirmities pointed out by the Court even retrospectively. The provision cannot be regarded as arbitrary. The assessee has been given ample opportunity to prove the bonafide of the transaction either before the authorities under the Stamp Act or before the assessing officer. All the objections raised and argument made are only imaginary. The provision conforms the constitutional requirements. 15. Before adverting to the rival contentions of the parties, we are of the view that it is apropos to refer the statutory provisions. Section 45 of the Income-tax Act reads as follows: "Capital gains.-- Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 53, 54 and....
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....ply in relation to a reference made by the Assessing Officer under sub-section (1) of section 16A of that Act. Explanation. For the purposes of this section, "Valuation Officer" shall have the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957). (3) Subject to the provisions contained in sub-section (2), where the value ascertained under sub-section (2) exceeds the value adopted or assessed by the stamp valuation authority referred to in sub-section (1), the value so adopted or assessed by such authority shall be taken as the full value of the consideration received or accruing as a result of the transfer." Section 47-A of the Indian Stamp Act, 1899 reads thus: "Instruments of conveyance etc., undervalued how to be dealt with. - (1) If the registering officer appointed under the Indian Registration Act, 1908 (Central Act XVI of 1908) while registering any instrument of conveyance, exchange, gift, release of benemi right or settlement has reason to believe that the market value of the property of which is the subject matter of conveyance, exchange, gift, release of benami right or settlement, has not been truly set ....
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....b-section (2) or sub-section (3) may appeal to such authority as may be prescribed in this behalf. All such appeals shall be preferred within such time, and shall be heard and disposed of in such manner, as maybe prescribed by rules under this Act. (6) The Chief Controlling Revenue Authority may, suo motu, call for and examine an order passed under sub-section (2) or sub-section (3) and if such order is prejudicial to the interest of revenue, he may make such inquiry or cause such inquiry to be made and, subject to the provisions of this Act, may initiate proceedings to revise, modify or set aside such order and may pass such order thereon as he thinks fit. (7) The Chief Controlling Revenue Authority shall not initiate proceedings against any order passed under sub-section (2) or sub-section (3) if, - (a) the time of appeal against that order has not expired; or (b) more than five years have expired after the passing such order. (8) No order under sub-section (6) adversely affecting a person shall be passed unless that person has had a reasonable opportunity of being heard. (9) In computing the period referred to in clause (b) o....
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.... which the provisional market value was arrived at shall be clearly indicated in the order. 5. Principles for determination of market value. - The Collector shall, as far as possible, have also regard to the following points in arriving, at the provisional market value, - (a) In the case of lands - (i) classification of the land as dry, manavai, wet and the like; (ii) classification under various tarams in the settlement register and accounts; (iii) the rate of revenue assessment for each classification; (iv) other factors which influence the valuation of the land in question; (v) points, if any, mentioned by the parties to the instrument or any other person which requires special consideration; (vi) value of adjacent lands or lands in the vicinity; (vii) average yield from the land, nearness to road and market, distance from village site, level of land, transport facilities, facilities available for irrigation such as tank, wells and pump sets; (viii) the nature of crops raised on the land; and (ix) the use of land, domestic, commercial, industrial or agricultural purposes and also t....
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.... be the full value of the consideration received and capital gains shall be computed accordingly under Section 48 of the Income-tax Act. The Section further provided that where the assessee claims that the value adopted or assessed for stamp duty exceeds the fair market value of the property as on the date of transfer or he has not disputed the value so adopted or assessed in any appeal or revision or reference before any authority or Court, the assessing officer may refer the valuation of the asset to the Valuation Officer in accordance with Section 16A of the Wealth Tax Act. If the fair market value determined by the Valuation Officer is less than the value adopted for stamp duty purpose, the assessing officer may take such fair market value to be the full value of consideration. If the fair market value determined by the Valuation Officer is more than the value adopted or assessed for stamp duty, the assessing officer shall adopt the fair market value assessed for stamp duty purpose. Point No. 1: Whether the Central Legislature is competent to enact Section 50C of the Income-tax Act? 17. Let us consider the legislative competence of the Parliament in inserting the provisio....
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....thi, AIR 2002 SC 2188 and Union of India Vs. A. Sanyasi Rao, AIR 1996 SC 1219 = 219 ITR 330). (bold supplied) 18. The Constitution Bench of the Apex Court in R.K.Garg Vs. Union of India, (1981) 4 SCC 675 observed as follows: "Another rule of equal importance is that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion etc. It has been said by no less a person than Holmes, J. that the legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or strait-jacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the legislature. The court should feel more inclined to give judicial deference to legislative judgment in the field of economic regulation than in other areas where fundamental human rights are involved. Nowhere has this admonition been more felicitously expressed than in Morey v. Doud where Frankfurter, J. said in....
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....ies or inequities or by the possibilities of abuse of any of its provisions. If any crudities, inequities or possibilities of abuse come to light, the legislature can always step in and enact suitable amendatory legislation. That is the essence of pragmatic approach which must guide and inspire the legislature in dealing with complex economic issues". 19. Even the special provision, which provides for collection of income-tax on profits and gains from trading in goods specified under Section 44-AC and 206-C of the Income Tax Act on a presumptive basis have been upheld by the Supreme Court in the case of Union of India And Another Vs. A.Sanyasi Rao And Others, (1996) 3 SCC 465. 20. Even in the case of K.P.Varghese Vs. Income-Tax Officer, (1981) 131 ITR 597, Section 52(2) of the Income-tax Act has not been struck down on this ground. But it was only directed to be read down by giving certain direction. 21. In the case of State of Rajasthan Vs.Rajasthan Chemists Association, reported in (2006) 6 SCC 773 relied on by the learned counsel to contend that the impugned provision is hit by legislative competence, the question with reference to Section 4A of the Rajasthan Sale....
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....e provision Section 47A of the Stamp Act, if the registering authority has reason to believe that the market value of the property, which is the subject matter of transfer, has not been truly set forth in the instrument, he would after registering such instrument, refer the same to the Collector for determination of the market value of such property. On receipt of the reference, the Collector shall, after giving the parties a reasonable opportunity of being heard and after holding an enquiry in such manner as may be prescribed by rules made under the Stamp Act determine the market value of the property. 25. Rule 4 of the Tamil Nadu Stamp (Prevention of Undervaluation of Instruments) Rules, 1968 provides the procedure on receipt of reference of the instrument under Section 47A. As per Rule 4, on receipt of a reference under sub-section (1) of Section 47-A, from a registering officer, the Collector shall issue a notice in Form I, to every person by whom, and to every person in whose favour the instrument has been executed, informing him of the receipt of the reference and asking him to submit to him his representations, if any, in writing to show that the market value of the prope....
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....lue determined by the Valuation Officer is more than the value adopted or assessed by the stamp duty authority, the assessing officer shall adopt the market value as determined by the Stamp duty authority. Thus, a complete full proof safeguard has been given to the assessee to establish before the authorities concerned the real value. Thus, what is stated in Section 50C as a real value cannot be regarded as a notional or artificial value and such real value is determinable only after hearing the assessee as per the statutory provisions stated supra. There is no indication either in the provisions of Section 50C of Income-tax Act or Section 47A of the Stamp Act or rules made thereunder about the adoption of the guideline value. Hence, the contention that the Section 50C is arbitrary and violative of Article 14 cannot be accepted. Incidentally, we can refer the recent judgment of the Supreme Court in the case of Government of Andhra Pradesh Vs. P.Laxmi Devi (Smt), (2008) 4 SCC 720, in which even the onerous condition of deposit of fifty percent of the deficit duty for filing the appeal to the Collector is also upheld. 29. The reliance of the learned counsel for the petitioner in t....
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.... of the Tamil Nadu Rules. Hence, the question of guideline value forming basis for determination of the full value does not arise at all and the contention that the impugned provision is arbitrary in nature falls to the ground as not sustainable. Point No. 3: Whether the impugned provision is discriminatory: 30. We are not able to subscribe our view to the contention of the petitioner that the capital assets, and trading assets/stock in trade are one and the same and Section 50C applies only to capital assets and not applicable to trading assets, or stock in trade and thereby the provision is discriminatory in nature. The capital assets and trading assets/stock in trade are treated differently under the Scheme of the Act. They cannot be compared on par with each other by considering them as a class of assets. The discrimination on the ground of valid classification which answers the test of intelligible differentia does not attract wrath of Article 14 of the Constitution of India. The principles of valid classification are long settled by a catena of decisions of the Supreme Court. The principles are that those grouped together in one class must possess a common characteristi....
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....ity of a taxing provision challenged on the ground of discrimination. The Apex Court in P. M. Ashwathanarayana Settee v. State of Karnataka [1989] Suppl. 1 SCC 696, 723, held thus: " It is for the State to decide what economic and social policy it should pursue and what discriminations advance those social and economic policies. In view of the inherent complexity of these fiscal adjustments, courts give larger discretion to the Legislature in the matter of its preferences of economic and social policies and effectuate the chosen system in all possible and reasonable ways. " 32. In Federation of Hotel and Restaurant Association of India v. Union of India [1989] 178 ITR 97 (SC), it was said as under (at page 122) : ".... The test could only be one of palpable arbitrariness applied in the context of the felt needs of the times and societal exigencies informed by experience." ". . . A reasonable classification is one which includes all who are similarly situated and none who are not. In order to ascertain whether persons are similarly placed, one must look beyond the classification and to the purposes of the law. " 33. The Supreme Court has held in Kera....
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....2 SC 1733 ; [1963] 1 SCR 404 ; Vivian Joseph Ferreira v. Municipal Corporation of Greater Bombay [1972] AIR 1972 SC 845; Jaipur Hosiery Mills v. State of Rajasthan [1970] 26 STC 34[1971] AIR 1971 SC 1330. " 35. The Supreme Court in the case of M/s. Seema Silk & Sarees & Another Vs. Directorate of Enforcement & Others, 2008(4) Supremen 419, held thus: A discrimination on the ground of valid classification which answers the test of intelligible differentia does not attract the wrath of Article 14 of the Constitution of India. Hardship, by itself, may not be a ground for holding the said provision to be unconstitutional. In Ajoy Kumar Banerjee v. Union of India [(1984) 3 SCC 127], this Court held: "50. Differentiation is not always discriminatory. If there is a rational nexus on the basis of which differentiation has been made with the object sought to be achieved by particular provision, then such differentiation is not discriminatory and does not violate the principles of Article 14 of the Constitution. This principle is too well-settled now to be reiterated by reference to cases. There is intelligible basis for differentiation. Whether the same result or....
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....dance of capital gains tax. After the deletion of the said provision, Chapter XXA was introduced empowering the Government to acquire immovable property in specific cases. Thereafter Chapter XXC was introduced. Thus, all these provisions are directed only to check and prevent the evasion of tax by undervaluing the consideration of the transfer of capital assets. Thus, there exist intelligible differentia between the categories of assets, which had a rational nexus with the object of plucking the leakage of income from the capital asset by undervaluation of the document. 39. For the above reasoning, the contention that the impugned provision is discriminatory is also cannot be accepted. Point No .4: Whether it is necessary to read down section 50C: 40. It is contended that the provision cannot even be read down as the same is beyond the legislative competence and violative of Articles 14 and 265 of the Constitution of India. Much reliance has been made to the decision of the Supreme Court in the case of Delhi Transport Corporation Vs. D.T.C.Mazdoor Congress, AIR 1991 SC 101. Here again, we are not able to accept the contention of the learned counsel for the petitioner....