Op/6808/1999 Of M/S.new India Chemical Enterprises v. Appropriate Authority Income Tax Dept

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE S.SIRI JAGAN TUESDAY, THE 12TH JANUARY 2010 / 22TH POUSHA 1931 OP.No. 6808 of 1999(I) ------------------------------- PETITIONER(S): ------------------------ 1. M/S. NEW INDIA CHEMICAL ENTERPRISES, REPRESENTED BY SRI.G. GOPINATHAN PILLAI, PARTNER, 50/221A, MANIMALA ROAD, EDAPPALLY, COCHIN-682 026. REPRESENTED BY SRI.G. GOPINATHAN PILLAI, PARTNER, 50/221A, MANIMALA ROAD, EDAPPALLY, COCHIN-682 026. 2. M/S. NICE CHEMICALS PVT. LTD., REPRESENTED BY SRI. G. GOPINATHAN PILLAI, DIRECTOR, 50/221A, MANIMALA ROAD, EDAPPALLY, COHIN-682 024. REPRESENTED BY SRI. G. GOPINATHAN PILLAI, DIRECTOR, 50/221A, MANIMALA ROAD, EDAPPALLY, COHIN-682 024. BY ADV. DR.K.B.MUHAMED KUTTY, SENIOR ADVOCATE, MR.RAJESH NAIR RESPONDENT(S): ------------------------- 1. APPROPRIATE AUTHORITY, INCOME TAX DEPARTMENT, IV TH FLOOR, 'A' WING, KENDRIYA SADAN, KORAMANGALA, BANGALORE-560 034. INCOME TAX DEPARTMENT, IV TH FLOOR, 'A' WING, KENDRIYA SADAN, KORAMANGALA, BANGALORE-560 034. 2. UNION OF INDIA, REPRESENTED BY SECRETARY TO REVENUE DEPARTMENT, MINISTRY OF FINANCE, NORTH BLOCK, NEW DELHI-40001. TO REVENUE DEPARTMENT, MINISTRY OF FINANCE, NORTH BLOCK, NEW DELHI-40001. R1 BY MR.P.K.RAVINDRANATHA MENON, SENIOR ADVOCATE, ADV. MR.GEORGE K. GEORGE . THIS ORIGINAL PETITION HAVING BEEN FINALLY HEARD ON 30/11/2009, THE COURT ON 12/01/2010 DELIVERED THE FOLLOWING: PETITIONER'S EXHIBITS: EXT.P1: COPY OF THE S.S. REGISTRATION CERTIFICATE OF THE TRANSFEROR. EXT.P2: COPY OF THE STATEMENT SHOWING VALUE OF LAND BUILDINGS ANDDEPRECIATION. EXT.P3: COPY OF THE AGREEMENT FOR SALE. EXT.P4: COPY OF THE LETTER BY UNION BANK TO THE PETITIONER. EXT.P5: COPY OF THE VALUATION REPORT BY APPROVED VALUER. EXT.P6: COPY OF THE FIRE POLICY. EXT.P7: COPY OF THE FORM 37-I. EXT.P8: COPY OF THE MEMO ISSUED BY THE FIRST RESPONDENT. EXT.P9: COPY OF THE REPLY BY THE PETITIONER TO FIRST RESPONDENT. EXT.P10: COPY OF THE SHOW CAUSE NOTICE ISSUED BY RESPONDENTS TOPETITIONER. EXT.P11: COPY OF THE REPLY BY PETITIONERS TO R1. EXT.P12: COPY OF THE ORDER PASSED U/S.269 UD (a) BY R1. EXT.P13: COPY OF THE LEASE AGREEMENT BETWEEN THE PETITIONERS. EXT.P14: COPY OF THE VALUATION REPORT BY APPROVED VALUER. EXT.P15 & 16: NIL EXT.P17: COPY OF THE SALE DEED NO.4545 OF 1998 DATED 10/12/1998. EXT.P17A: COPY OF THE ENGLISH TRANSLATION OF EXT.P17. EXT.P18: COPY OF THE SLAE DEED NO.219/1998 DATED 19/01/1998. EXT.P18A: COPY OF THE ENGLISH TRANSLATION OF EXT.P18. EXT.P19: COPY OF THE DEED NO.3509 OF 1998 DATED 24/09/1998. EXT.P19A: COPY OF THE ENGLISH TRANSLATION OF EXT.P19. EXT.P20: COPY OF THE SALE DEED NO.3788/99 DATED 19/02/1999. EXT.P21: COPY OF THE SALE DEED NO.708/99 DATED 19/02/1999. EXT.P22: COPY OF THE NOTIFICATION UNDER SECTION 28 OF KERALA STAMP ACT. RESPONDENT'S EXHIBITS: NIL //TRUE COPY// ================== O.P.No. 6808 of 1999 ================== Dated this the 12[th] day of January, 2010 J U D G M E N T EXT.P15 & 16: NIL EXT.P17: COPY OF THE SALE DEED NO.4545 OF 1998 DATED 10/12/1998. EXT.P17A: COPY OF THE ENGLISH TRANSLATION OF EXT.P17. EXT.P18: COPY OF THE SLAE DEED NO.219/1998 DATED 19/01/1998. EXT.P18A: COPY OF THE ENGLISH TRANSLATION OF EXT.P18. EXT.P19: COPY OF THE DEED NO.3509 OF 1998 DATED 24/09/1998. EXT.P19A: COPY OF THE ENGLISH TRANSLATION OF EXT.P19. EXT.P20: COPY OF THE SALE DEED NO.3788/99 DATED 19/02/1999. EXT.P21: COPY OF THE SALE DEED NO.708/99 DATED 19/02/1999. EXT.P22: COPY OF THE NOTIFICATION UNDER SECTION 28 OF KERALA STAMP ACT. RESPONDENT'S EXHIBITS: NIL //TRUE COPY// ================== O.P.No. 6808 of 1999 ================== Dated this the 12[th] day of January, 2010 J U D G M E N T This original petition is filed by two petitioners jointly. The firstpetitioner is a partnership firm and the 2[nd] petitioner is a privatelimited company. M/s.P.Sahadeva Menon, V.Govindankutty,G.Gopinathan Pillai, K.M.Ramakrishna Pillai and M.A.George are thepartners of the firm. They are also the only shareholders of the 2[nd]petitioner company. The 1[st] petitioner firm purchased 69.222 cents ofland comprised of 43.926 cents in Sy.No.59/6A1 and 25.296 cents inSy.No.60/1A1 of Edappally North Village by sale deed nos.3987 dated4.5.1979 and 5188 dated 11.11.1993 respectively, for a total saleconsideration of Rs.2,55,407/-. The firm started a small scaleindustrial unit, engaged in the business of manufacturing laboratorychemicals, reagents etc. In the land bought by them they constructedfactory buildings in 1980, 1988 and 1995 for the purpose of theirbusiness. 2.The firm entered into an agreement with the company forsale of the said land and buildings for a total sale consideration ofRs.60 lakhs, of which Rs.50 lakhs were to be paid by D.D. or payorder drawn on any bank and the balance Rs.10 lakhs were to becredited to the account of each of the five partners in equal shares. o.p.6808/99 Ext.P3 is that agreement dated 3.10.1998. The firm had credit facilitiesfrom M/s.Union Bank of India, Edappally Branch, for repayment ofamounts due on which the said land and buildings were mortgaged assecurity. By Ext.P5 valuation dated 16.6.1994, the Bank had valuedthe 69.322 cents of land at Rs.15,59,745/- at the rate of Rs.22,500/-per cent and the buildings at Rs.11,05,635/- aggregating toRs.26,65,380/-. At the instance of the Bank, the buildings wereinsured with the National Insurance Company Ltd. for a sum ofRs.25,00,000, as evidenced by Ext.P6 policy of insurance dated16.10.1998. 3.At that time, Chapter XXC of the Income Tax Act, 1961was in force (which was later repealed), S.269UC of which stipulatedthat no transfer of immovable property of such value exceeding fivelakhs rupees as may be prescribed should be effected, except afterentering into an agreement for transfer between the transferor or andtransferee at least four months before the intended date of transfer,reduced into writing in the form of statement in Form 37I prescribedunder Rule 48L of the Income Tax Rules, which had to be furnished tothe appropriate authority under the Act. Under Section 269UD, afterreceipt of the said statement, the appropriate authority may make anorder for purchase by the Central Government of such immovableproperty at an amount equal to the apparent consideration fixed in the o.p.6808/99 statement. But no such order shall be made after the expiration ofthree months from the end of the month, in which the statement underSection 269UC is received by the appropriate authority. o.p.6808/99 statement. But no such order shall be made after the expiration ofthree months from the end of the month, in which the statement underSection 269UC is received by the appropriate authority. 4.For the sale of the abovesaid property, the petitioners filedExt.P7 statement in Form 37I dated 3.10.1998 before the appropriateauthority, which was received by the appropriate authority, on8.10.1998. On receipt of the same, by Ext.P8 communication dated28.10.1998, the appropriate authority directed the petitioners toproduce copies of the encumbrance certificate, khata certificate, parentdeed and tax receipt in respect of the property. The petitionerscomplied with the same by Ext.P9 letter dated 4.11.1998. Theappropriate authority gave a notice for inspection of the property to beconducted on 21.11.1998, which was first postponed to 8.2.1999 andlater to 12.2.1999. After the inspection, on 12.2.1998 itself, Ext.P10show cause notice was issued to the petitioners directing thepetitioners to show cause why an order for pre-emptive purchase ofthe property under Section 269UD(1) of the Income Tax Act, 1961,should not be passed, since the appropriate authority is satisfied thatthe apparent consideration shown in the agreement for sale is belowthe market price by over 15% and therefore a presumption is to bedrawn that such undervaluation has been made to evade tax. Thepetitioners filed Ext.P11 reply to the show cause notice denying o.p.6808/99 undervaluation or attempt to evade tax. However, by Ext.P12 order,the appropriate authority ordered pre-emptive purchase of the saidproperty. Ext.P12 order is under challenge in this writ petition. 5.The petitioners challenge Ext.P12 on several grounds.Firstly, they contend that since the statement in Form 37I wasreceived on 8.10.1998 and Ext.P12 order was passed only on26.2.1999, the order was passed beyond the period of limitationprescribed in Section 269UD. According to the petitioners, although theproviso to the Section stipulates that the limitation period has to bereckoned with reference to the date of receipt of the rectifiedstatement by the appropriate authority, the direction to producedocuments which are not relevant for consideration of the statementcannot be regarded as notification of a defect, especially since thestatement was never returned as defective. Secondly, it is contendedthat the order is violative of the principles of natural justice in so far asfor deciding the market value of the property, the appropriateauthority has relied on a document without disclosing the detailsthereof to the petitioners, but simply referring to a file number. Thirdlythey would contend that there was neither undervaluation of theproperty nor attempt to evade tax since the value shown in thestatement was the actual consideration for the sale agreed betweenthem and as revealed by Exts.P5 and P6, the same is not below the o.p.6808/99 market value. It is contended that the evidence produced by thepetitioners to prove valuation was ignored by the appropriateauthority, and a document details of which were not disclosed to thepetitioners was relied upon. Lastly, it is contended that since the saleis by five individuals, the valuation should be taken separately inrespect of each partner and not collectively, in which case, there wouldnot, in any event, be any cause of action to invoke the provisions ofChapter XXC of the Income Tax Act, which have been invoked. Thepetitioners rely on the following decisions: 1. C.B.Gautam v. Union of India (1993) 199 ITR 530 (SC) 2. Shriniketan Members Association v. Appropriate Authority (1996) 219ITR 359 (Guj).ITR 359 (Guj). 3. Commr. of Income Tax v. Shivkami Co. (P) Ltd. (1986) 159 ITR 71 (SC). 4. Ketki Land Holdings Pvt. Ltd. v. Appropriate Authority (1997) 227 ITR825 (Guj).825 (Guj). 5. Musthafa Ummer v. Appropriate Authority (2001) 248 ITR 436 (Ker.). 1. C.B.Gautam v. Union of India (1993) 199 ITR 530 (SC) 2. Shriniketan Members Association v. Appropriate Authority (1996) 219ITR 359 (Guj).ITR 359 (Guj). 3. Commr. of Income Tax v. Shivkami Co. (P) Ltd. (1986) 159 ITR 71 (SC). 4. Ketki Land Holdings Pvt. Ltd. v. Appropriate Authority (1997) 227 ITR825 (Guj).825 (Guj). 5. Musthafa Ummer v. Appropriate Authority (2001) 248 ITR 436 (Ker.). 6. DLF Universal Ltd. v. Appropriate Authority (2000) 243 ITR 730 (SC). 7. C.V.Mulk v. Commissioner of Agrl. Income Tax, Kerala (1979) 120 ITR670 (Ker.).670 (Ker.). 8. Lovelock and Lewes v. Commr. of Income Tax (1994) 208 ITR (Cal.) 9. Diwan Brothers v. Central Bank of India & others- AIR 1976 SC 1503. 6.The respondents oppose the contentions of the petitioners. o.p.6808/99 According to them, production of the documents called for, beingmandatory for a statement to be a valid statement under Rule 48L,until that defect has been cured, the statement continues to bedefective and by virtue of S.269UC(4), the statement shall be deemednever to have been furnished. The defect having been cured only on8.11.1998 by producing the encumbrance certificate, the order passedon 26.2.1999 is within the three months stipulated in Section 269UD.Regarding non-supply of documents, they would contend that thedocument relied upon was referred to in the show cause notice itselfand since the petitioners never requested for details of the same, thereis no violation of the principles of natural justice. Regardingundervaluation and attempt to evade tax, they would contend that thedocuments produced by the petitioners do not disprove the documentsrelied upon and therefore there is clear undervaluation andundervaluation is a strong circumstance which leads to the conclusionof attempt to evade tax. According to them, the fact that the partnersof the first petitioner firm are the only shareholders of the 2[nd]petitioner company does not lead to any inference in favour of thepetitioners, since the two are separate legal entities and there is a salefrom one entity to the other, in which there is undervaluation resultingin attempt to evade tax. Regarding the last contention of thepetitioners, the answer of the respondents is that the sale is by the o.p.6808/99 firm to the company and the petitioners themselves admitted the sameas a sale coming within the purview of Chapter XXC, by filing astatement in Form 37I submitting the sale to the jurisdiction of theappropriate authority under Chapter XXC. They also rely on the verysame Supreme Court decision inC.B.Gautam's case (supra) relied onby the petitioners in support of their contentions. 7.I have considered the rival contentions in the light of thedecisions cited before me, in detail. 8.At the outset I must note that the provisions of ChapterXXC of the Income Tax Act, are so harsh that they are often describedas authoritarian and even draconian. The Parliament themselvesrepealed the same subsequently. It is settled law that fiscal statutesshould be strictly interpreted giving every benefit of doubt to theassessee. [seeDiwan Brother's case(supra)]. It is all the more so inthis case, since the legislation in question is unusually harsh on theassessee to the extent of being totally one sided. So I am inclined totake a very strict view while considering the case of the revenue andam inclined to give every benefit of doubt to the petitioners. 9.But, I am not inclined to accept the case of the petitionersthat Ext.P12 order has been issued after the period of limitationprescribed in Section 269UD. For deciding this question what isrelevant is the first three provisos to Section 269UD(1), which read as o.p.6808/99 follows: 9.But, I am not inclined to accept the case of the petitionersthat Ext.P12 order has been issued after the period of limitationprescribed in Section 269UD. For deciding this question what isrelevant is the first three provisos to Section 269UD(1), which read as o.p.6808/99 follows: “Provided that no such order shall be made in respect of anyimmovable property after the expiration of a period of two months fromthe end of the month in which the statement referred to in Section 269UCin respect of such property is received by the appropriate authority: Provided further that where the statement referred to in Section269UC in respect of any immovable property is received by theappropriate authority on or after the first day of June 1993, theprovisions of the first proviso shall have effect as if the words “twomonths” the words “three months” have been substantiated. Provided also that the period of limitation referred to in the secondproviso shall be reckoned where any defect as referred to in sub-section(4) of Section 269UC has been intimated, with reference to the date ofreceipt of the rectified statement by the appropriate authority.” Section 269UC reads thus: “269UC (1) Notwithstanding anything contained in the Transfer ofProperty Act, 1882 (4 of 1882), or in any other law for the time being inforce, no transfer of any immovable property in such area and of suchvalue exceeding five lakh rupees, as may be prescribed shall be effectedexcept after an agreement for transfer is entered into between the personwho intends transferring the immovable property (hereinafter referred toas the transferor) and the person to whom it is proposed to betransferred (hereinafter referred to as the transferee) in accordance withthe provisions of sub-section (2) at least four months before the intendeddate of transfer. (2)The agreement referred to in sub-section (1) shall be reduced towriting in the form of a statement by each of the parties to such transferor by any of the parties to such transfer acting on behalf of himself andon behalf of the other parties. (3)Every statement referred to in sub-section (2) shall,- (i)be in the prescribed form; (ii)set forth such particulars as may be prescribed; and (iii)be verified in the prescribed manner, and shall be furnished to the appropriate authority in such manner andwithin such time as may be prescribed, by each of the parties to suchtransaction or by any of the parties to such transaction acting on behalfof himself and on behalf of the other parties. o.p.6808/99 (4)Where it is found that the statement referred to in sub-section (2) is defective, the appropriate authority may intimate the defectto the parties concerned and give them an opportunity to rectify thedefect within a period of fifteen days from the date of such intimation orwithin such further period which, on an application made in this behalf,the appropriate authority may, in its discretion, allow and if the defect isnot rectified within the said period of fifteen days, or as the case may be,the further period so allowed, then, notwithstanding anything containedin any other provision of this Chapter, the statement shall be deemednever to have been furnished.” The statement under Section 269UC is to be filed in Form 37I as prescribed in Rule 48L(1) of the Income Tax Rules, which reads thus: “48L. Statement to be furnished under section 269UC(3) (1)The statement required to be furnished to the appropriateauthority under sub-section (3) of section 269UC shall be in Form No.37-Iand shall be signed and verified in the manner indicated therein by eachof the parties to the transfer referred to in sub-section (1) of that sectionor by any of the parties to such transfer acting on behalf of himself andon behalf of the other parties.” Column 6 of Form 37I reads thus: “6.Is the property proposed to be transferred encumbered inany manner ? If so, please give details if it is by way of: (a)lease The statement under Section 269UC is to be filed in Form 37I as prescribed in Rule 48L(1) of the Income Tax Rules, which reads thus: “48L. Statement to be furnished under section 269UC(3) (1)The statement required to be furnished to the appropriateauthority under sub-section (3) of section 269UC shall be in Form No.37-Iand shall be signed and verified in the manner indicated therein by eachof the parties to the transfer referred to in sub-section (1) of that sectionor by any of the parties to such transfer acting on behalf of himself andon behalf of the other parties.” Column 6 of Form 37I reads thus: “6.Is the property proposed to be transferred encumbered inany manner ? If so, please give details if it is by way of: (a)lease (b)mortgage (including equitable mortgage of any form) (c)charge (d)tenancy (e)any other (please specify) Please furnish a copy of the deed, agreement or any other documentexecuted in respect of the encumbrance. Also furnish uptodateencumbrance certificate issued by the competent Sub-Registrar.” Going by the Section, Rule and the Form, for a statement under the Section to be a valid statement, the same should be accompanied by o.p.6808/99 upto date encumbrance certificate issued by the competent subregistrar in respect of the property to which is relates. Admittedly, thestatement in Form 37I submitted by the petitioners was notaccompanied by an encumbrance certificate, which defect wasintimated and the document was called for by Ext.P8. The petitionersproduced the encumbrance certificate only on 8.11.1998. Therefore,the statement continued to be defective in terms of the third provisotill that date. Therefore, in terms of sub section 4 of Section 269UC,that statement must be deemed never to have been filed till8.11.1998. As such, the period of limitation would start only from1.12.1998 and not 8.10.1998 as contended by the petitioners. Ext.P12order was passed on 26.2.1998, which is within the three monthsprescribed in the second proviso to Section 269UD(1). As such, theorder was passed within the period of limitation prescribed by thestatute. Therefore, I have no hesitation to reject the first contention ofthe petitioners regarding limitation. 10.The second contention of the petitioners is regardingviolation of principles of natural justice, on the ground that the detailsof the document relied upon by the appropriate authority in support ofhis valuation of the property has not been disclosed to the petitioners.I find considerable merit in this contention. In Ext.P10 show causenotice, the said document is referred to thus: o.p.6808/99 “Further, this can also be compared to the sale instance in FileNo.AA/CHN/5(2)/98-99 for the sale of property situated at Sy.No.148/1A,148/113 of Edappally South Village wherein the land rate received isRs.1,53,462/- per cent”. I am of opinion that in view of the harsh nature of the legislation while taking action under that legislation, the appropriate authority had aduty to disclose the details of all materials to be collected and reliedupon by him in support of his case, in the show cause notice itself. Inthis case except a file number, two sy. Nos. and value per cent, thedetails of the document, the nature of the land, the extent of the landsold etc. which are very relevant for deciding market value of the landhave not been disclosed to the petitioners, without which thepetitioners could not have effectively controverted the same. InExt.P12 order of the appropriate authority the question of valuationhas been considered thus: I am of opinion that in view of the harsh nature of the legislation while taking action under that legislation, the appropriate authority had aduty to disclose the details of all materials to be collected and reliedupon by him in support of his case, in the show cause notice itself. Inthis case except a file number, two sy. Nos. and value per cent, thedetails of the document, the nature of the land, the extent of the landsold etc. which are very relevant for deciding market value of the landhave not been disclosed to the petitioners, without which thepetitioners could not have effectively controverted the same. InExt.P12 order of the appropriate authority the question of valuationhas been considered thus: “b)The next argument is in respect of sale of land and thebuilding. The land and its natural fixtures like trees were to be valued atRs.40 lakhs and the building and other fixtures at Rs.20 lakhs. There aretwo items of property. It was argued that in respect of each item such asland and building separately, a conclusion will have to be arrived atwhether the required percentage of 15% is fulfilled. Since the value of thebuilding only has been evaluated and the value of the land and the treeshave not been evaluated, it was argued that the land and natural fixturescannot be a subject matter of a pre-emptive purchase. The contention of the Transferor cannot be acceded to. As per theagreement executed on 3.10.1998, the apparent consideration isRs.60,00,000/- and the depreciated value of the building, according tothe Valuation report of the Executive Engineer (Valuation) I.T.Department, Trivandrum, has been worked out at Rs.60,11,730/- and assuch, the land value has been determined at Rs.Nil. It is illogical to saythat the buildings and its ancillary structures can be transferred withoutthe land on which it stand and also the land cannot be transferredwithout the buildings put on it. Therefore, building as well as land only can be transferred together and not the land and building separately.Therefore, the argument of the Transferor cannot be accepted. Since theagreement itself is a composite agreement, according to which, thetransfer of land and buildings for a consideration of Rs.60,00,000/- thesame cannot be viewed separately. c)In respect of difference of 15% between the fair marketvalue and the apparent consideration, it was the transferor's contentionthat there was no attempt to evade tax. The transferor being M/s.NewIndia Chemical Enterprises - partnership firm - consisting of 5 partnersand the transferees being M/s.Nice Chemicals Pvt. Ltd. - a limitedcompany comprising of the 5 Directors (who are also partners of thefirm). There are no other share-holders. It was argued that only for thepurpose of financial transaction and other banking practices it wasdecided to convert the Partnership Firm into a Limited Company. It was,further submitted that the bona-fide intention of the transfer of theproperty to a Limited Company was to fulfill the financial obligations andnot to evade tax. A reference was invited to clause III A 2 of the Memorandum ofAssociation of the transfer to justify that the intended transfer is “to takeover as going concern the partnership firm...... carrying on the businessof manufacturing, producing, .... with all the assets and liabilities”. Inthis connection Section 47(xiii) of the Act was relied upon. It may bestated here that the Memorandum of Understanding was not producedbefore us. A reference was invited to clause III A 2 of the Memorandum ofAssociation of the transfer to justify that the intended transfer is “to takeover as going concern the partnership firm...... carrying on the businessof manufacturing, producing, .... with all the assets and liabilities”. Inthis connection Section 47(xiii) of the Act was relied upon. It may bestated here that the Memorandum of Understanding was not producedbefore us. Section 47(xiii) of the Act will also not be of any help to thetransferor to bail it out from this situation. Section 47(xiii) comes intoforce only from 1-4-99 and it cannot be applied retrospectively. TheLimited Company came into existence in the year 1989 and thistransaction is taking place after a decade and as such, it cannot take theshelter claiming succession from the Partnership firm to a LimitedCompany. Further, the business assets of the firm have already beentransferred to the Limited company, according to the party somewhere in1996 and the present transaction is only for the transfer of fixed assets.Therefore, it can clearly be seen that there is no case to claim that thefirm is succeeded by a Limited Company. As per the Agreement dated 3-10-98 the apparent consideration isRs.60,00,00/- and the depreciated value of the building works out toRs.60,11,730/-. Accordingly the land value works out to NIL. According tothe lease agreement dated 1-10-96 the transferee who is the lessee hasto pay a sum of Rs.60,000/- per month as lease rent. The rentcapitilisation value works out to Rs.76,50,000/-. Further this can also becompared to the sale instance in File No.AA/CHN/5(2)8/98-99 for the saleof property situated at Sy.No.148/1A, 148/1B of the Eddappally southvillage, wherein the land rate received is Rs.1,53,462/- per Cent. Considering the land rate received in the comparable sale instance cited above, we are of the view that the fair market value of the subjectproperty at Sy.No.59/6a/1&60/1A/1 cannot be less than Rs.1,50,000/-per Cent.” As is clear from the same, none of the documents, relied on bythe petitioners have been discussed. Instead a valuation has beenmade by adopting a rent capitalisation method based on a rent deedbetween the petitioners themselves and comparing the same with adocument details of which have not been stated even in the finalorder. It is significant to note that the respondents have not cared todisclose those details even to this Court in these proceedings. I am ofopinion that non-disclosure of the details of the sole document reliedupon by the appropriate authority for the purpose of arriving at themarket value of the property amounts to violation of principles ofnatural justice. The burden to show that the apparent consideration isless than the market value is clearly on the appropriate authority.When for discharging that burden a document is relied upon, non-disclosure of details of that document to the petitioners clearlyamounts to violation of principles of natural justice. The fact that thepetitioners did not seek the details of that document which wasmentioned in the show cause notice does not absolve the appropriateauthority from disclosing full details of the same to the petitioners.Therefore, this issue is found in favour of the petitioners. 11.Next I shall deal with the issue as to whether there is o.p.6808/99 11.Next I shall deal with the issue as to whether there is o.p.6808/99 undervaluation and attempt to evade tax as found in the impugnedorder. In C.B.Gautam's case(supra) the Supreme Court held that“Chapter XXC was intended to be resorted to only in cases where thereis an attempt at tax evasion by significant undervaluation ofimmovable property agreed to be sold”. The Supreme Court noticedthat even going by the instructions of the Central Board of DirectTaxes, “the main objective of the provisions of Chapter XXC is to checkproliferation of black money in real estate transactions and to enforcedeclaration of the true value of immovable properties that are subjectof transfer between the parties”. The Supreme Court found that theBoard themselves had cautioned that “in administering the provisionsof the said Chapter it has to be ensured that no harassment is causedto bona fide and honest purchasers or sellers of immovable propertyand there is no erosion of the confidence of the public in the sense ofjustice and fair play of the Income Tax Department”. In the saiddecision, the Supreme Court held thus: “In the light of what we have observed above, we are clearly of theview that the requirement of a reasonable opportunity being given to theconcerned parties, particularly, the intending purchaser and the intendingseller must be read into the provisions of Chapter XX-C. In our opinion,before an order for compulsory purchase is made under section 269UD,the intending purchaser and the intending seller must be given areasonable opportunity of showing cause against an order for compulsorypurchase being made by the appropriate authority concerned. As wehave already pointed out, the provisions of Chapter XX-C can be resortedto only where there is a significant undervaluation of property to theextent of 15 per cent or more in the agreement of sale, as evidenced bythe apparent consideration being lower than the fair market value by 15per cent or more. We have further pointed out that, although a o.p.6808/99 o.p.6808/99 presumption of an attempt to evade tax may be raised by the appropriateauthority concerned in case of the aforesaid circumstances beingestablished, such a presumption is rebuttable and this would necessarilyimply that the concerned parties must have an opportunity to showcause as to why such a presumption should not be drawn. Moreover, in agiven transaction of an agreement to sell, there might be several bonafide considerations which might induce a seller to sell his immovableproperty at less than what might be considered to be the fair marketvalue. For example: he might be in immediate need of money and unableto wait till a buyer is found who is willing to pay the fair market value forthe property. There might be some dispute as to the title of theimmovable property as a result of which it might have to be sold at aprice lower than the fair market value or a subsisting lease in favour ofthe intending purchaser. There might similarly be other genuine reasonswhich might have led the seller to agree to sell the property to aparticular purchaser at less than the market value even in cases wherethe purchaser might not be his relative. Unless an intending purchaser orintending seller is given an opportunity to show cause against theproposed order for compulsory purchase, he would not be in a position torebut the presumption of tax evasion and to give an interpretation to theprovisions which would lead to such a result would be utterlyunwarranted. The very fact that an imputation of tax evasion ariseswhere an order for compulsory purchase is made and such an imputationcasts a slur on the parties to the agreement to sell leads to the conclusionthat, before such an imputation can be made against the partiesconcerned, they must be given an opportunity to show cause that theundervaluation in the agreement for sale was not with a view to evadetax. Although Chapter XX-C does not contain any express provision forthe affected parties being given an opportunity to be heard before anorder for purchase is made under section 269UD, not to read therequirement of such an opportunity would be to give too literal and strictan interpretation to the provisions of Chapter XX-C and, in the words ofjudge Learned Hand of the United States of America “to make a fortressout of the dictionary”. Again, there is no express provision in ChapterXX-C barring the giving of a show-cause notice or reasonable opportunityto show cause nor is there anything in the language of Chapter XX-Cwhich could lead to such an implication. The observance of the principlesof natural justice is the pragmatic requirement of fair play in action. Inour view, therefore, the requirement of an opportunity to show causebeing given before an order for purchase by the Central Government ismade by an appropriate authority under section 269UD must be read intothe provisions of Chapter XX-C. There is nothing in the language ofsection 269UD or any other provision in the said Chapter which wouldnegate such an opportunity being given. Moreover, if such a requirementwere not read into the provisions of the said Chapter, they would beseriously open to challenge on the ground of violation of the provisions ofarticle 14 on the ground of non-compliance with the principles of naturaljustice. The provision that, when an order for purchase is made undersection 269UD, reasons must be recorded in writing is no substitute for aprovision requiring a reasonable opportunity of being heard before such an order is made.” Earlier on the question of undervaluation in respect of capital gainstax, the Supreme Court had, inK.P.Varghese's case(supra), which hasbeen relied in C.B.Gautam's case(supra), held thus on an identicalissue: an order is made.” Earlier on the question of undervaluation in respect of capital gainstax, the Supreme Court had, inK.P.Varghese's case(supra), which hasbeen relied in C.B.Gautam's case(supra), held thus on an identicalissue: “Thus, it is not enough to attract the applicability of sub-s.(2), thatthe fair market value of the capital asset transferred by the assessee ason the date of the transfer exceeds the full value of the considerationdeclared in respect of the transfer by not less than 15% of the value sodeclared, but it is furthermore necessary that the full value of theconsideration 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 fidetransaction where the consideration in respect of the transfer has beencorrectly declared or disclosed by the assessee, even if the condition of15% difference between the fair market value of the capital asset as onthe date of the transfer and the full value of the consideration declared bythe assessee is satisfied. If, therefore, the revenue seeks to bring a casewithin sub-s. (2), it must show not only that the fair market value of thecapital asset as on the date of the transfer exceeds the full value of theconsideration declared by the assessee by not less than 15% of the valueso declared, but also that the consideration has been understated and theassessee has actually received more than what is declared by him. Thereare 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 twoconditions are satisfied rests on the revenue. It is for the revenue to showthat each of these two conditions is satisfied and the revenue cannotclaim to have discharged this burden which lies upon it, by merelyestablishing that the fair market value of the capital asset as on the dateof the transfer exceeds by 15% or more the full value of theconsideration declared in respect of the transfer and the first conditionis, therefore, satisfied. The revenue must go further and prove that thesecond condition is also satisfied. Merely by showing that the firstcondition is satisfied, the revenue cannot ask the court to presume thatthe second condition too is fulfilled, because even in a case where thefirst condition of 15% difference is satisfied, the transaction may be aperfectly honest and bona fide transaction and there may be nounderstatement of the consideration. The fulfilment of the secondcondition has, therefore, to be established independently of the firstcondition and merely because the first condition is satisfied, no inferencecan necessarily follow that the second condition is also fulfilled. Eachcondition 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 thatthe conditions of taxability are fulfilled is always on the revenue and thesecond condition being as much a condition of taxability as the first, theburden lies on the revenue to show that there is an understatement ofthe consideration and the second condition is fulfilled. Moreover, to throwthe burden of showing that there is no understatement of theconsideration, on the assessee would be to cast an almost impossibleburden upon him to establish a negative, namely, that he did not receiveany consideration beyond that declared by him.” 12.Judging this case in the light of the above decisions of the revenue. It is a well-settled rule of law that the onus of establishing thatthe conditions of taxability are fulfilled is always on the revenue and thesecond condition being as much a condition of taxability as the first, theburden lies on the revenue to show that there is an understatement ofthe consideration and the second condition is fulfilled. Moreover, to throwthe burden of showing that there is no understatement of theconsideration, on the assessee would be to cast an almost impossibleburden upon him to establish a negative, namely, that he did not receiveany consideration beyond that declared by him.” 12.Judging this case in the light of the above decisions of the Supreme Court, I have no hesitation to hold both that there is noundervaluation and no attempt to evade tax on the part of thepetitioners. Although strictly legally the two petitioners are twoseparate legal entities, it must be noted that behind the corporate veilthe parties to the sale are one and the same. They cannot be regardedas two persons, one trying to sell his property at as high a price as hecan get and the other trying to purchase the property at as low a priceas he can purchase it for. Essentially in this case the consideration is topass from one pocket to another of the same person. Despite thesame, the petitioners have valued the property in the sale agreementas reasonably as the situation demands. As rightly pointed out by thepetitioners, on 16.6.1994, ie. barely 4 years prior to the 37Istatement, the Bank which accepted the land and building as securityfor overdraft facility valued the same at Rs.26,65,380/-. The insurancecompany with whom the buildings were insured valued the building atRs.25,00,000/- by Ext.P6 policy dated 16.10.1998. Going by the same, o.p.6808/99 the value shown in Ext.P7 statement in Form 37I can only be morethan the reasonable market value of the property. The method ofvaluation using a rent capitalisation method, based on a lease deedbetween the same parties cannot be accepted as a proper method tofind out the market value of the property. Apart from a document, thedetails of which remain undisclosed even as on today, and even to thisCourt, the respondents have no material to show that the petitionersare guilty of undervaluation. In this regard the fact that the partners ofthe 1[st] petitioner and the only shareholders of the 2[nd] petitioner are thesame is one of the several bone fide considerations inducing the firstpetitioner to sell their property to the 2[nd] petitioner at less than whatmight be considered to be the fair market value, referred to by theSupreme Court, inC.B.Gautam's case (supra). Therefore, I am unableto uphold the finding in the impugned order that the petitioners hadundervalued the property in Ext.P7 Form 37I statement. Further, therevenue should also prove that there was an attempt to evade tax.Since this was a case of transfer of money from one pocket to anotherof the same person, a natural presumption of attempt to evade taxdoes not follow, even if for argument's sake, it can be said that therewas an undervaluation. The attempt to evade can be in respect ofcapital gains tax, which, as held inK.P.Varghese's case(supra) wouldarise not merely on account of undervaluation, but only if the o.p.6808/99 consideration to actually pass between the two petitioners is morethan the apparent consideration. That situation cannot arise in atransaction between the two petitioners, who are for all practicalpurposes, one and the same although they are two separate legalentities. Therefore, I am unable to hold that the ingredients necessaryfor attracting the provisions of Chapter XXC of the Income Tax Act arepresent in the subject transaction between the two petitioners. 13.Since the petitioners are entitled to succeed on the firstthree contentions of the petitioners, it is not necessary to consider theother contentions of the petitioners and I leave it open. o.p.6808/99 consideration to actually pass between the two petitioners is morethan the apparent consideration. That situation cannot arise in atransaction between the two petitioners, who are for all practicalpurposes, one and the same although they are two separate legalentities. Therefore, I am unable to hold that the ingredients necessaryfor attracting the provisions of Chapter XXC of the Income Tax Act arepresent in the subject transaction between the two petitioners. 13.Since the petitioners are entitled to succeed on the firstthree contentions of the petitioners, it is not necessary to consider theother contentions of the petitioners and I leave it open. 14.In view of my above findings, Ext.P12 order isunsustainable and accordingly the same is quashed. Consequently, thefirst respondent is directed to issue a certificate to the petitionersstating that the 1[st] respondent has no objection for transfer of theproperty for an amount equal to the apparent consideration stated inExt.P7 statement as contemplated in Section 269UL of the Income TaxAct, within one month from the date of receipt of a copy of thisjudgment. The original petition is allowed as above. sdk+ ///True copy/// Sd/- S.SIRI JAGAN, JUDGE P.A. to Judge