Champalal Prajapati and Meghraj Prajapati V. Union of India and State of Chhattisgarh and The Collector of Stamps, Raipur and The Income Tax Officer, Circle 2-3, Raipur

WPC/828/2012

AI Insights

The case involves a challenge to the constitutional validity of Section 50C of the Income Tax Act, 1961, which was inserted by the Finance Act, 2002. The petitioners, Champalal Prajapati and Meghraj Prajapati, contested the provision on grounds that it was unreasonable, arbitrary, and beyond the legislative competence of Parliament. Section 50C deems the value adopted by the stamp valuation authority as the full value of consideration for the transfer of capital assets if the actual consideration is less than this value. The High Court of Chhattisgarh dismissed the petition, affirming the validity of Section 50C and its application in assessing capital gains tax.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 701708 (HC-CHHATTISGARH)
• Appeal Type: Others
• Pronouncement Date: 15-06-2012
• Assessment Year: misc
• Other Referred Cases: R. Sai Bharathi Vs. J. Jayalalitha and others, Lal Chand Vs. Union of India and another, M/s. J.K. Cotton Spinning & Weaving Mills Ltd. and another v. Union of India and others
• Laws Referred To: Income Tax Act, 1961, Finance Act, 2002, Finance (No. 2) Act, 2009, Wealth Tax Act, 1957
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: A S KACCHAWAHA
• Assessee Lawyers: B P SHARMA
• Keywords: Arbitrary; Capital Gains; Constitutional Validity; Income Tax; Legislative Competence; Section 50C; Unreasonable; Valuation
• Section: 48; 37; 50C; 24; 35; 16A; 23A; 34AA

Judgement Text

"(* \"k. ^ !...> CF0000218372 ;^j^ IN THE HIGH COURT OF JUbICATURE AT BILASPUR. WRIT PETITION (0 N0. PETITIONERS : ^i^^' ^^^ ..-^•y ^ ../• ,••\"' ,.^' .«-^ Vs RESPONDENTS : (2^^ / 2012 1. Champalat Projapati, son of Shri Jethmal Prajapati, aged about 53 years, resident of 18-1424 Meghraj House, New Shanti Nagar, Shankar Nagar, Raipur (C&) 2. Meghraj PrajapQti, son of Shn\" Jethmal Prajapati, aged about 64 years, resident of 18-1424 Meghraj House, New ShantT Nagar, Shankar Nagar, Raipur (CG) ^\" 1. Union of India , through the Secretary, Ministry of Finance, New Delhi and atso through the Secretary, Ministry of Legislative Affairs, New belhi. r\" • 2. State of Chhattisgarh, through thc Secretary, AAinistry of Revenue, D.K.S. Bhawan, Mantralay, Raipur. ^\" 3. The Collector of Stamps, Raipur. \"^4. The Income Tax Officer, Circle 2-3, Raipur. ,^1 ^ WRIT PETITION UNDER ARTICLE 226/Z27 OF THE CONSTITUTION OF INblA 1 , HIGHCOURT OF CHHATTISGARH : BILASPUR Division Bench: Hon'ble Shri AbhayLManohar Sapre & Hon^ble Shri Manindra Mohan Shrivastava, JJ. PBTITIONERS RESPONDENTS W.P.fQ No.828/2012 ,. Champalal Prajapati antfanother Versus Union of India and others WRIT PETITION UNDER ARTICLE 226/227 OF THE CONSTITUTION OF INDIA Present: - Shri B.P.8harma, counsel for the petitioners. Shri A.S. Kacchawaha, Dy. Advocate General for the State. ORDER (Passed on 15th ofJune, 2012) Following order of the Court was passed by Manindra Mohan Shrivastava, J. Heard. (2) By this writ petition under Article 226 of the Constitution of India, the petitioners have assailed constitutional validity of Section 50 C of the Income Tax Act, 1961 (for short 'the Act of 1961?) inserted by way of Section 24 of thc Finance Act, 2002 and prayer has been made to declare Section 50 C of the Act as ultra vires to the relevant provisions of the Constitution of India being unreasonable and arbitrary and violative of Article 14 of the Constitution of India. ..^' (3) Learned counsel for the petitioners contended before us that provisions contained in Section 50 C of the Act of 196rl are beyond the legislative competence of the parliament to enact such a provision of assessment of valuation of consideration by deeming fiction for the purposes of assessment of income from capital gains. Learned counsel for the petitioners urged that the provision is highly arbitrary, unreasonable and irrational in as much as the basis for assessment of value of consideration is adopted (or assessed or assessable) value of the capital asset (land / building or both) by stamp valuation authority whereas such valuations are merely guidelines as held by the Supreme Court in the case of R. Sai Bharathi Vs. J.Javalalitha and others. (2004) 2 Suoreme Court Cases 9 and Lal Chand Vs. Union of India and another^ (2009) 15 Supreme Court Cases 769. According to him/in the matter of assessment of valuation by the stamp authority, the petitioner had no role to play as he is the vender whereas the liability to pay stamp duty is on the purchaser. Further submission of learned counsel for the petitioners is that the provision contained in Section 50 C ofthe Act of 1961 permits the value ofconsideration determinedunder it, to be made a basis for assessment for the purposes of computation of income chargeable under the head 'capital gains' as provided under Section 48 of the Act of 1961 with the resuk that even where a person receive less consideration for various reasons, which may include distress sale of property, a person is liable for payment of income tax by assuming his income from capital assessment at a much higher value than the actual receipt of sale proceed of property. Further submission of learned counsel for the petitioners is that it is the actual receipt alone which could form valid basis for the purposes of computation under Section 48 of the Income Tax Act and any provision allowing assessment of income on the basis of value of consideration by fiction ignoring actual receipt, is beyond the legislative c^mpetence of the legislature and is unconstitutional. It has also been submitted that the scheme l^as^fe^, /' ' under Section 50 C of the Act of 1961 does not oblige the assessing officer to refer the valuation of the capital receipt to a valuation officer but it has been left to his whims and fancies by conferring absolute discretion to refer or not to refer, even if, there is a dispute with regard to the valuation by the assessees. (4) Though the petitioners have assailed constitutional validity of Section 50 C of the Act of 1961 on the ground of legislative competence, learned counsel for the petitioners utterly failed to demonstrate the same by referring to the provisions relating to legislative conipetence and field of legislation contained in various entries of seventh schedule of the Constitution. Section 50 C of the Act makes special provision for fullvalue of consideration in certain cases by providing that where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, is less than the value adopted (or assessed or assessable) by the stamp valuation authority for the purposes o& payment of stainp duty in respect of such transfer, the value so adopted (or assessed or assessable) shall be deemed to be full value consideration for the purposes of Section 48 of the Act of 1961. Therefore, what Section 50 C of the Act provides is the mode and manner of assessing value of consideration, received or accrued as a result of transfer of a capital asset. The Income Tax Act provides for tax on income, chargeable under the head 'capital gains'. The mode of computation of such income has been provided in Section 48 of the Act. The full value of the consideration received or accrued as a result of transfer of capital asset is a relevant factor for the purposes of mode oT computation as provided in Section 48 of the Act. Therefore, what Section 50 C provides is valuation of consideration for the purposes of computation of income chargeable to tax under the head 'capital gains'. The aforesaid provision, on the face of it, is one relating to the subject of income tax. Undoubtedly, the parliament has the legislative competence to legislate on income tax as provided in Entry-82 of the Union list 4 (list 1 of Schedule VII of the Constitution of India)' referable to Article 246 of the Constitution of India. •^ N»^ (5) The arguments with regard to arbitrariness or unreasonableness of the provision rests on the submission that for the purposes of determining full value of consideration, valuation of stamp authority could not be made a basis. We are unable to accept this submission. The provision allows determination of full value consideration on the basis of valuation adopted (or assessed or assessable) by a statutory authority enjoined with duty of valuation of asset under the stamp laws. Therefore,,it cannot be said that such valuation has no relevance for the purposes of determination of value of consideration. The submission that judicial pronouncements declare such valuation only as guideline, does not help the petitioners but on the contrary establishes that valuation by stamp authorities are relevant. The scheme of Section 50 C (2) of the Act clearly provides that where assessee claims before the assessing officer that value adopted (or assessed or assessable) by the stamp valuation authority exceeds the fair market value of the property as on the date of transfer, the assessing officer may refer the value of the capital asset to a valuation'bfficer. Therefore, the value adopted (or assessed or assessable) by a Stamp Valuation Authority is taken as a basis to determine full value of the consideration only where it is admitted by the assessee. Once the assessee disputes, there is a provision for reference to valuation officer, who is required to assess the value by detailed procedure after giving opportunity of hearing and by adducing evidence by the assessee as provided under the provisions of Section 16 A, Section 23 A, Section 24, Section 34AA, Section 35 and Section 37 of the Wealth Tax Act, 1957. Not only this, provisions contained in Section 50 C (2) (b) confers power on the Assessing Officer to refer the valuation of the capital assets to a Valuation Officer even where no dispute with regard to value has been raised by the assessee. In such a case of ^^^?^^^ ^^;.^ ''%v ^ reference made to a Valuation Officer, the assessment so made will become the basis to assess full value of consideration received or accruing as a result of transfer of capital assets. Therefore, we have no hesitation to hold that the provisions contained in Section 50 C of the Act of 1961 is comprehensive and ensures just and fair modhe of valuation of consideration received as a result of transfer of capital assets which also provides an opportunity to the assessee to dispute the valuation made by the Stamp Valuation Authority and detailed scheme of making reference to a Valuation Officer and assessnient. We see no arbitrariness or unreasonableness in the provision. (6) The submission that legal fiction for the purposes of determination of value of consideration by accepting valuation of stamp valuation authority as the value of consideration is beyond the scope of legislative power, deserved to be rejected in view of the authoritative pronouncement of the Supreme Court in the case of M/s. J.K. Cotton Soinning 85 Weavine Mills Ltd. and another v. Union of India and others, 1987 (Suooi SCC 350. (7) The submission that discretion conferred on the assessing officer renders the provision unreasonable and arbitrary, cannot be countenanced. The circumstances in which, the discretion may be exercised to refer the case to a Valuation Officer have been clearly enumerated in clauses (a) and (b) of Sub Section 2 of Section 50 C of the Act of 1961. We are there^e, unable to accept that there are no guidelines in the provisions as to in what cases the discretion would be exercised. Mere possibility of abuse or arbitrary exercise of power cannot be made a basis to challenge validity of legislative enactment as that is essentially a matter relating to exercise of power under theAct and not a matter either pertaining to competence of legislature or arbitrariness of the provisions. If the petitioners have any grievance that the Assessing Officer has not properly exercised discretion or has illegally refused f&1'., 1 • ^%^ j 'i^^^y:' to refer the case to the Valuation Officer, the petitioners will always have the liberty to challenge the assessment proceedings, challenging the action of the Assessing Officer. The submission made by learned counsel for the petitioners therefore, does not make out a case of admission of the writ petition. The petition is therefore dismissed. Sd/- Abhay Manohar Sapre Judge !(B . _-sd/- Manindra Mohan Shrivastava 1 Judge Per Abhay Manohar Sapre, J. Sf I have perused the well reasoned order authored by my learned brother (Shrivastava J). On its perusal, I entirely agree with the reasoning and the conclusion arrived at by him. I am also of the view that the writ petition deserves to be dismissed. However, looking to the challenge made in the writ petition, I wish to add my few lines in support of the conclusion. (2) The challenge in this writ petition is essentially to the constitutional validity of Section 50 C of the Income Tax Act (for short hereinafter called \"the Act\") as inserted in the Act by Section 24 of the Finance Act 2002 (20 of 2002) with effect from. 1.4.2003 and further amended by the Finance (No. 2) Act 2009 (33 of 2009 ) with effect from 1.10.2009 . Section 50C reads as under : 50C. Special provision for full value of consideration in certain cases - (1) Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted (or assessed or assessable) by any authorily of a State Govemment (hereafter in this section referred to as the \"stamp valuation authorily\") for the purpose ofpayment ^;,XS .^^ /^^ ': '^y ^ of stamp duty in respect of such transfer, the value so adopted (or assessed or assessable) shall, for the purpose of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer . (2) Without prejudice to the provisions ^f sub- section (1), where- (a) the assessee claims before any Assessing Officer that the value adopted (or assessed or assessable) by the stamp valuation authority under sub-section (1) exceeds the fair market value of the property as on the date of transfer; (b) the value so adopted (or assessed or assessable) by fhe stamp valuation authority under sub-section (1) has not been disputed in any appeal or revision or no reference has been made before any other authority, court or the High Court, the Assessing Officer inay refer the valuation of the' capital asset to a Valuation Officer and where any such reference is made, the provisions of sub-sections (2), (3), (4), (5) and (6) of Section 16A, clause (i) of sub-section (1) and sub- sections (6) and (7) of section 23A, sub-section (5) of section 24, section 34AAS, section 35 and section 37 of the Wealth Tax Act, 1957 (27 of 1957), shall, with necessaiy modifications, apply in relation to such reference as they apply in relation to a reference made by the Assessing Officer under sub-section (1) of section 16A ofthat Act.?? N<^ (3) The two writ petitioners are brothers. They are also income tax assessee and are being assessed as such in their individual capacity. They claimed to own one piece of land which they sold to one Builder - Kavish Buil4con Ltd, Raipur by regisfered deed of sale dated 22.10.2008 (Annexure-P- 1) for Rs.66,50,000/- (4) The Collector of Stamps, Raipur however objected to the valuation of the land, which was subject matter of sale deed dated 22.10.2008, when the said document was presented for registration before him. In his opinion, the document (sale deed) was insufficiently stamped and undervalued looking to the market rate prevalent in the area where the land in question was situated. It was also found to be in contravention of the guidelines fl .-s; '- ^>: .-^:'-s ' ^m^ 'i!s~.i prescribed by the State (competent authorities) prescribing the rates of the land for payment of stamp duty on its transfer on the sale deed and alike documents. (5) In the proceedings initiated against the writ petitioners, and the purchasers (builder), the Collector of Stamps re-valued the property at Rs.1,72,71,000/- as against the valuation shown in the sale deed (Rs.66,50,000/-) keeping in view the real market value of the land situated in the area in question and the guidelines prescribed by the State for making such determination. (Annexure P-2). (6) The purchaser (builder) did not challenge such determination and while accepting the re- valuation, paid the additional stamp duty on the sale deed and obtained the registered deed of sale deed from the office of the Collector of Stamps. (7) This resulted in issuing of notice of demand to the writ petitioners under Section 156 of the Income Tax Act (^.nnexure P - 3) in relation to this transaction. The proceedings under the Act are in progress against the writ petitioners before the assessing officer. ^\"- (8) It is with this background, the writ petitioners have now felt aggrieved and filed this writ petition challenging theconstitutional validity of Section 50 C of the Act and also the initiation of proceedings under the Act against them. (9) Though challenge was laid rather strenuously by the learned counsel for the writ petition^r, Mr Sharma to the impugned Section on the ground of its legislative competence, but we find absolutely no merit in the same. 9 ^ (10) It is for the reason that the Act in question is enacted by the Parliament way back in the year 1961 pursuant to law making powers conferred by seventh Schedule (Union List) of the Constitution. Indeed, under the Constitutional scheme, the Parliament is the only Institution empowered to make law on the subject in question and to make amendments in the Act from time to time depending upon the need and exigencies felt by the law makers. (11) The introduction of Section 50 C in the Act is the outcome of the need and exigencies felt by the law makers to curb the instances of cases relating to undervaluing of transactions of sale of land and building, thereby preventing persons from indulging in exchange of ^unaccounted money for accomplishing such transaction and avoiding payment of income tax and stamp duty on such transactions to the state exchequer. /' (12) Coming to the challenge laid on the anvil of Article 14 of the Constitution to the impugned provision where the learned counsel contention was that the object, and effect of introducing such Section is arbitrary, irrational, illogical, unreasonable or have no justifiable basis with the nexus sought to be achieved and hence ultra virus has no substance. t (13) Plain reading of Section 50 C would go to show that it is made applicable to deal ^with certain type of cases while determining the tax liability arising out of transfer of any land/building by the assessee. It is for this reason, the Section is nomenclature as a \"special provision for full value of consideration in certain cases/' The type of cases to which this provision is made applicable are specified in sub section (1). (14) It provides that if a person (assessee) transfer any land or building for a value which is found to be less than what is A ^^ '^ y '^ ' t' & \" lt i. \"B\"s -'\"'\"| .,' \"\"<£^^ 10 assessed, adopted or assessable by the stamp valuation authority in the proceedings before him then the value so adopted, assessed or found assessable would be taken to be the full value of such transferred asset (land/building) for the purpose of determining the tax liability of such person (assessee) under section 48 (capital gains).of the Act. Sub section (2) provides that if assessee object to such valuation made by the stamping authority before the income tax authorities on the ground of it being highly ^excessive as against its fair market value and contends that it should not be relied upon for determining the payment of tax under section 48 then the assessing authority may in his judicial discretion refer the case to valuation officer appointed under the Wealth Tax Act for making the valuation of such asset before determining the tax liability of such assessee arising out of such transfer of asset under Section 48 ibid. (15) In my opinion, therefore reading Section 50 C shows that it provides for adequate guidelines, check and balances and further an opportunity to such assessee to question the correctness of the valuation made by the stamping authorities by praying to the assessing officer to refer the case for its valuation to the valuation cell of the Income Tax/Wealth Tax department and to have his opinion on such valuation for determining the taxing liability of such assesee arising out of transfer of such asset. Such provision eliminates the plea of arbitrariness or unreasonableness and in appropriate cases, the assessee is entitled to show that his valuation of the property /asset is correct and that of the one done by the stamping authority is not. The legislature has therefore made provisions to prevent.the execution of transactions involving underhand unaccounted money dealing to evade payment of tax and stamp duty on its real market value and at the same time, protected the genuine transactions by providing safeguards. ^ ^ '^Jl 11 Deepti/shyna (16) It is a settled principle of law that presumption of constitutionalily of any Act/Rule made by the Parliament /State always lies in favour of the Act/ Rule as being intra/virus unless declared ultra virus on valid constitutional grounds. In this case, this presumption fully applies in favour of Section 50 C ibid. It is apart from the fact that the grounds pressed into service by the writ petitioners to question its constitutionality do not have any substance. (17) It is with these additional reasoning of mine which may overlap at places with the reasoning of my learned brother, I fully agree with my learned brother and accordingly hold that Section 50 C of the Act is constitutionally valid and does not suffer from any vices much less the vlces pointed out by the writ petitioners. We accordingly hold that the section 50 C is intra virus to the provisions of the Constitution. (18) The writ petition thus fails and is accordingly dismissed. (19) No order as to cost(s). Sd/- Abhay Manohar Sapre Judge ^. "