INDIAN DYESTUFF INDUSTRIES LIMITED Vs. INSPECTING ASSISTANT COMMISSIONER

JUDGEMENT

(1.) BY an agreement dt. 25th June, 1984 between the petitioner (M/s Indian Dyestuff Industries Ltd.) and respondent No. 2 (M/s Ambalal Sarabhai Enterprises Ltd.) the petitioner agreed to purchase industrial undertaking of respondent No. 2 which was known as S.G. Chemicals & Dyes unit at Ranoli as a going concern. The agreed slump price was Rs. 18.81 crores with a specific condition that all employees of the undertaking were to be taken over by the petitioner on the basis of continuity of service on the existing terms. As per the memorandum of understanding dt. 1st Oct., 1984 the petitioner took over the delivery and charge of the undertaking and started running it. Thereafter the petitioner filed with the respondent No. 1.[the IAC (Acq.) Range I & II, Ahmedabad], Form No. 37EE under r. 48BB r/w S. 269AB(2) of the IT Act. It is the further say of the petitioner that the Competent Authority referred the matter for determination of the fair market value of the property and, therefore, the District Valuation Officer (DVO) of the IT Department sought details and documents from the petitioner.

(2.) BY the letter (Ex. L) dt. 24th June, 1985 the petitioner sent details to DVO along with a note on various specific aspects relating to plant and machinery as well as land and buildings. As per the note it was pointed out that the unit was making substantial losses from 1981 onwards; was having inadequate power supply; there was labour unrest and plant was shut down during February to March, 1984 which led to corrosion of various pipelines and other connections relating to utilities ancillaries to the plant; the plant was more than 20 years old; the management has found additional funds and working capital as well as funds needed for repairing, overhauling the above plants and other aspects were pointed out in detail so that usual method of valuation, viz., replacement cost as new, minus depreciation for use made, wherever applicable, cannot be taken as true market value of the assets; valuation of an undertaking should be made on a going concern basis. Thereafter the petitioner received notice (Ex."M") dt. 21st March, 1986 under S. 269D(1) of the IT Act which was published in the Official Gazette on 24th Aug., 1985 and a copy of reasons recorded as well as a valuation report. The Income tax Inspector has estimated the fair market value of the property purchased by the petitioner at Rs. 21,59,22,650 as against the consideration of Rs. 16,51,00,000 stated in the agreement executed in favour of the petitioner. As per the reasons recorded by the IAC (Acq.) the difference between the fair market value and the apparent consideration is more than 25%. He further arrived at the conclusion as under :

(3.) ACCORDINGLY , I hereby direct that notice under S. 269D(1) of IT Act, 1961 be issued for publication in the Official Gazette for initiating proceedings for acquisition of the property in question. Notice should also be served on the parties concerned and a proclamation made in accordance with r. 48E". The petitioner has challenged the aforesaid notice (Ex. "M") dt. 21st March, 1986 and the reasons (Ex. "N") recorded for issuance of a notice under S. 269D(1) of the IT Act, 1961 by filing this petition. 3. In the petition it has been, inter alia, stated that the Valuation Officer or the Inspector of respondent No. 1 had not valued the property fairly. He has not taken into consideration that the property was purchased as a going concern and the concern was running in huge losses in the three years immediately preceding the agreement to sell dt. 25th June, 1984. The Valuation Officer has not taken into consideration the fact that the petitioner purchased the losing unit so that hundreds of workers do not lose their employment and their moneys already invested in the ailing unit do not go waste as in response to the Government's policy. The respondent No. 1 has not taken into consideration the fact that the petitioner is a public limited company and the seller is also a public limited company and the managements of the two companies are not related to each other and there is no reason, basis or evidence with the respondent No. 1 at the time of recording of reasons to think that this was a transaction not at the market price or that any unaccounted moneys were paid by the petitioner to the vendor or that there was any attempt at tax evasion by the petitioner or the vendor as required by the provisions of S. 269C(1). 4. At the time of hearing of this petition, learned counsel for the petitioner submitted that the notice issued by respondent No. 1 under S. 269D(1) of the IT Act is on the face of it illegal as there was no material with the respondent No. 1 for arriving at the conclusion that the consideration for the transfer as agreed between the parties has not been truly stated for the apparent object of (a) facilitating the reduction/evasion of liability of the transferor to tax in respect of income profit or gain arising from the transfer and/or (b) facilitating concealment of income or any moneys or other assets which have not been or ought to be disclosed by the transferee for purpose of income tax assessment proceedings. He further submitted that notice is also vague because respondent No. 1 had not definitely stated whether it is for object (a) or object (b) as stated above as the words used in the notice are "and/or".