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PETITIONER: MATHEW M.TOMAS & ORS.

       Vs.

RESPONDENT: COMMISSIONER OF INCOME TAX.

DATE OF JUDGMENT:       16/02/1999

BENCH: D.P.Wadhwa, M.Srinivasan

JUDGMENT:

SRINIVASAN J.

       The  appellants   purchased   certain   lands   with buildings thereon in 1977 for a sum of Rs.  2,45,000/-.  The Inspector of  Income  Tax valued them at Rs.  3,24,000/- and later in 1979 the Departmental Valuation Officer valued them at Rs.  7,24,000/-.  The Inspecting Assistant  Commissioner, Acquisition  Range,  Ernakulam  ordered  acquisition  of the property on 31.3.1981.  The appellants filed  an  appeal  to the Tribunal  by  order  dated  31.101981.    The appeal was allowed and the proceedings were cancelled.  As against  the said  order, the Revenue filed an appeal under Section 269 H in the High Court of Kerala.

2.      During the pendency of the appeal, Chapter XX-C  was introduced in the Income Tax Act (hereinafter referred to as ’Act’) by  Finance  Act  of  1986  w.e.f.   October I, 1986. Under Section 269 RR, Chapter XX-A Was made inapplicable  in relation   to   transfer  of  an  immovable  property  after September 30, 1986.   The  Central  Board  of  Direct  Taxes (hereinafter  referred to as ’C.B.D.T.’) issued Circular No. 455 dated 16.9.1986.  The  relevant  part  of  the  Circular reads as follows:-

          "With  a  view  to  achieve early finalisation of            proceedings under the existing  Chapter  XX-A  of            the Income - Tax Act, 1961, the Board has decided            that with effect  from April 1, 1986, acquisition            proceedings   under  section  269C  will  not  be            initiated in respect of an immovable property for            which the apparent consideration is Rs.  5  lakhs            or  less  and  that where acquisition proceedings            have been initiated  by  issue  of  notice  under            section  269D, the proceedings will be dropped if            the  apparent  consideration  of  the   immovable            property is below Rs. 5 lakhs".

3.      When  the  appeal was taken up by the High Court the appellants herein contended that the acquisition proceedings had  to  be  dropped  as  the  consideration  was  only  Rs. 2,45,000/-.   The matter was referred to a Full Bench of the High  Court   for   decision   on   the   question   whether Administrative Circular  issued  by  the C.B.D.T.  under the Act to supplement the  statute  can  supplant  the  same  by deviating  or  detracting or going beyond or contrary to the statutory provisions.

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4.      The Full Bench opined  that  the  Circular  was  not applicable   to   the   case  on  hand  as  the  acquisition proceedings  were  over  by  the  order  of  the   Competent Authority passed on 31.3.1981.  The Full Bench observed that the   pendency   of  the  proceeding  before  the  Competent Authority  was  necessary  for  the  applicability  of   the Circular  and  as  no  such proceedings were pending in this case, the Circular had no application.    Consequently,  the Full  Bench  declined  to  answer  the question referred and directed the matter to be posted before the  Division  Bench for hearing.

5.      Against  the  said  order  of  the  Full  Bench  the appellants have preferred  this  appeal  on  Special  Leave. When  leave  was  granted, the hearing of the pending appeal before the High Court was stayed.  The only question  to  be considered  is  whether  the Circular issued by the Board is applicable to proceedings pending in the Appellant stage  or not.   In other words, the question is, whether the Circular will  not  apply  to  proceedings  in  which  the  Competent Authority  had  passed an order earlier even though the same is subject matter of appellate proceedings.

6.      Chapter  XX-A  of the Act was introduced by Taxation Laws (Amendment) Bill, 1971 to implement the recommendations of the Wanchoo Committee with a view to  prevent  or  arrest evasion of tax through under statement of value of immovable property in  sale  transactions.    The  provisions  of  the Chapter  enabled  the  Central  Government  to  acquire  any immovable property  having a fair market value above Rs.  25 lacks in cases  where  the  consideration  declared  in  the instrument  of  transfer was less than the fair market value of  the  property  on  the  date  of  acquisition   of   the instrument.   That  power was available in cases where there were reasons to believe that  the  consideration  agreed  to between  the  parties  had  not  been  truly  stated  in the document with a  view  to  facilitate  tax  evasion  by  the transferor or  the  transferee.    It was also provided that proceedings could be initiated only if the fair market value exceeded  the  declared  consideration  by  more  than   15% thereof.  The  Govt.   found that the provisions of the said chapter were not as effective as  intended  in  the  Finance Bill of  1986.  Chapter XX-C was introduced and Chapter XX-A was deleted.  It was  proposed  that  no  proceedings  under Section  269 C shall be initiated in respect of the property transferred after Sept.  30, 1986.  In the new Chapter  XX-C transfer  of any immovable property of a value exceeding Rs. 5 lacks or as amy be prescribed was prohibited except  after an  agreement  for  transfer  between the transferor and the transferee at least three months before the intended date of transfer.  The agreement shall be in writing in the form  of a statement  by  each  of  the parties to the transfer.  The statement should  contain  in  the  prescribed  manner  such particulars  as  may be prescribed and shall be furnished to the Appropriate Authority constituted by the  Central  Govt. under  that  Chapter  within such time as may be prescribed. Section 269 UD of the  Act  provides  that  the  Appropriate Authority  after receipt of such statement may, for reasons, to be recorded, order for  the  purchase  of  such  moveable property by  the  Central  Govt.  for an amount equal to the amount of apparent consideration.  If such an order  is  not made within a period of two months from the end of the month in  which  such  statement  is  received  by the Appropriate Authority the power of the  Appropriate  Authority  to  make

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such an  order  shall lapse.  The provisions of Chapter XX-C are thus in the nature of preemptive purchase by the Central Govt.  to the proposed sale and they were applicable to  the properties, the value of which exceeded Rs.  5 lacks.

7.      In  view  of  the  change  in  the  legislation, the C.B.D.T.  thought fit to issue Circular No.  455,  obviously with  an object of achieving the earlier finalization of the proceedings under Chapter XX-A.  The Circular is undoubtedly a beneficial measure  in  order  to  bring  an  end  to  the uncertainty  of  litigious  proceedings  with  reference  to properties, the value of which does not exceed Rs.  5 lakhs. the language of the circular does not in any manner indicate that it will apply only to proceedings  pending  before  the Competent Authority.    The mere fact that reference is made to the initiation of the proceedings by notice under  269  D does  not limit the operation of the Circular to proceedings immediately following such notice and culminating  with  the order of  the  Competent  authority.    If  proceedings  are pending before the Tribunal in appeal and  before  the  High Court   on   further   appeal,  they  are  also  acquisition proceedings of the proceedings initiated  by  the  Competent Authority.

       "(i) That the legal pursuit of a  remedy,  suit         appeal  and  second appeal are really but steps         in a series of proceedings all conceted  by  an         intrinsic  unity  and are to be regarded as one         legal proceedings".

Hence  we are unable to persuade ourselves to agree with the view expressed by the full bench of the High  Court  in  the judgment  under appeal that the Circular would apply only to proceedings pending before the Competent Authority.

9.      Even  before  the  matter was considered by the Full Bench of the Kerala High Court  in  the  present  case,  the Delhi  High  Court  had  occasion  to decide the question in Commissioner of Income Tax Vs.  Rattan Chand Sood & Ors. 8.      It is well settled that the word "Proceedings" shall include the proceedings at  the  appellate  stage.    It  is sufficient  to  refer  to  the  judgment  of  this  Court in Garikapati Veeraya Vs N.  Subiah Choudhry & Ors.   AIR  1957 S.C.540 wherein the Court said at page 553 :-

       "(i) That the legal pursuit of a remedy, suit appeal         and second appeal are really but steps in  a  series         of  proceedings  all connected by an intrinsic unity         and are to be regarded as one legal proceedings."

Hence we are unable to persuade ourselves to agree with  the view  expressed  by  the full bench of the High Court in the judgment under appeal that the Circular would apply only  to proceedings pending before the Competent Authority.

9.      Even  before  the  matter was considered by the Full Bench of the Kerala High Court  in  the  present  case,  the Delhi  High  Court  had  occasion  to decide the question in Commissioner  of  Income  Tax  Vs.  Rattan  Chand   Sood   & Ors.(1987)166  I.T.R.  497.  After referring to the Circular and extracting the second paragraph thereof the  High  Court said :-

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       "The intention of the authorities clearly  is  that,         after  April  1, 1986, proceedings earlier initiated         but subsisting should be dropped unless the apparent         consideration exceeds Rs.  5 lakhs.  In  this  case,         the  proceedings  were  initiated  by  the Competent         Authority and finalised by him in 1976.    But  this         was  subject  to orders in appeal and as a result of         the order of the Tribunal and  the  appeal  to  this         court,  the  position is as if those proceedings are         pending as on date.   In  this  case,  the  apparent         consideration is  only  the petty sum of Rs.  19,992         and it would seem, in view of the declaration by the         Central Board of Direct Taxes and in  view  also  of         the  various  circumstances  pointed out by us, that         this is clearly not a case in which the  proceedings         should be allowed to brag on further".

10.     In Commissioner  of  Income  Tax  Vs.  Export  India Corporation  (P)  Ltd.  (1996)  219  I.T.R. 461 the Punjab & Haryana High Court dealt with the matter at great length and refused to agree with the Kerala Full Bench.  After  tracing the  relevant  legislative background to the introduction of Chapter XX-A and XX-C and referring to the Circular and  the Provisions  thereof,  the  Division  Bench of the High Court held that the proceedings once initiated  will  continue  to have  the  same  character  until  and  unless  they acquire finality under Section 269 I of the Act. The Court said that the proceedings which have been initiated by issue of Notice under Section 269 D were continuing as the Second Appeal was pending in the High Court under Section 269 H of the Act and thus the proceedings had not come to an end. As regards  the orders, instructions and directions issued by the Board, the Bench  referred  to Section 119 of the Act and observed that all authorities employed in the execution  of  the  Act  are duty  bound  to observe and follow such orders, instructions and directions of the Board. The Bench pointed out that  the Circular  being  a  benevolent  one  would be binding on all authorities and  would  be  applicable  to  the  proceedings pending  at  the  appeal  state  as  well  if  the  apparent consideration is below Rs.  5  lakhs.  We  are  entirely  in agreement  with  the  opinion expressed by the High Court in that case.

11.     The  same  High  Court  reiterated the above view in C.I.T. Vs. Gobind Ram (1996) 221 I.T.R. 892 (P&H)  &  C.I.T. Vs Gursher Singh & Anr. (1997) 225 I.T.R. 725.

12.     The Patna High Court has also in Competent Authority (Acquisition) Vs.  Smt.  Lalita  Today  And  Ors.(1997)  225 I.T.R.  665 applied the Circular in pending appeals and held that the  appeals would abate.  The Court had also gone into the merits of the decision of the  Competent  Authority  and found  it to be unsustainable on the facts and circumstances of the case.

13.     The same view has been expressed by the Madras  High Court  in  Commissioner of Income Tax Vs. Sivan Soap Factory (1997)227 I.T.R. 126 which dissented from  the  Kerala  Full Bench.  It  accepted  the  view  of the Delhi High Court and Punjab & Haryana High Court.

14.     We are, therefore, inclined to differ from the  view expressed  by the Full Bench of the Kerala High Court in the judgment under appeal.  The appeal is hereby allowed and  it is held that Circular No.  455 dated 16.5.1986 issued by the

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C.B.D.T.   is  applicable  to  all pending proceedings which have not attained finality under Section 269 I of the Act as defined in the explanation to the said Section.  There  will be no order as to costs.