BLUE STAR LIMITED Vs. SANTOSH DATTA IAC

JUDGEMENT

(1.) THE petitioners, Blue Star Limited, a company registered under the Companies Act, is challenging the legality of notice dt. 30th April, 1979 issued by the IAC, Acquisition Range II, Bombay, in exercise of the power under S. 269A of the IT Act, 1961. The facts giving rise to the issuance of notice are required to be stated briefly to appreciate the grievance of the petitioners.

(2.) BY an agreement of sale dt. 21st March, 1972 the petitioners agreed to purchase from M/s Modern Sixteen Cine Laboratories Pvt. Ltd., the second floor of the building admeasuring 5,200 sq. ft. and a portion of land for a parking place for a total consideration of Rs. 3,60,000. The property agreed to be purchased is in building known as Suhas, at Prabhadevi, Bombay. The petitioners paid the entire consideration on 22nd March, 1972 and recovered the possession of the property agreed to be purchased. The agreement also provided that all the liabilities, including municipal taxes in respect of the property, were to be borne by the petitioners. The petitioners got the conveyance executed from the vendors on 29th June, 1977, and lodged it for registration alongwith the certificate under S. 230A of the IT Act. The conveyance was registered on 5th Oct., 1978. The transaction entered into by the petitioner company was disclosed to the IT authorities at the time of completion of the assessment for the period commencing from asst. year 1973 74 onwards. The transferor had also disclosed the agreement to sell and the receipt of the consideration to the IT authorities, but the ITO purported to treat the vendor as the owner of the property as the conveyance was not completed. The ITO added notional income in respect of the property of the vendor for the asst. yrs. 1973 74 to 1975 76. The vendor challenged the order before the Settlement Commissioner, and the Settlement Commissioner by his order dt. 31st May, 1978 directed that the notional income should be taken as "nil" in view of the agreement of sale and the receipt of the consideration.

(3.) SHRI Kolha, learned counsel appearing in support of the petition, submitted that the action commenced by the Department under Chapter XX A of the Act is entirely misconceived as the IAC has commenced proceedings by taking into consideration the value of the property on 29th June, 1977, that is the date on which the conveyance was lodged for registration. The learned counsel submitted that the agreement of sale was executed in March, 1972 and the entire consideration was paid by the petitioner to the vendor and that fact was made known to the IT authorities immediately. The assessments of both the purchaser and the vendor were completed on the basis of the transfer of the property and what was left was only to get the conveyance registered. Shri Kolha submits that the IT authorities never informed that the value paid by the petitioners for the purchase of the property was inadequate or unreasonable. Shri Joshi, learned counsel appearing for the Department, accepted that the IAC had commenced proceedings on the basis of the fair market value of the property available on 29th June, 1977. The satisfaction of the IAC that the fair market value of the property exceeds Rs. 3,60,000 which was the consideration for purchase by more than 15% of such consideration is arrived at on a total misconception that the property was transferred on 29th June 1977. It is clear from the facts recited hereinabove that the property was sold on 21st March, 1972 and what was only left to be done was execution of the conveyance and the registration thereof. The mere fact that the conveyance was lodged for registration in June, 1977, is no ground for the Department to conclude that the value available on that date was the fair market value at the time of agreement of sale. In my judgment, the action commenced by the Department cannot be sustained on the facts of the present case and the notice dt. 30th April, 1979 is required to be quashed.