Negotiable Instruments: Exhaustive Coverage by Adv Roma Bhagat. Register Now!
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The case for study is the judgment of the SC  in DCIT vs. Zuari Estate Development & Investment Co Ltd ... (Zuari Estate –for short) . That is an instance  quite  likely to stand out in the history of case law, for more than one reason. Some of the aspects have been thrown open for an eminent analysis in the previously displayed write-up @ Income tax Law vs. Property Law- A Case (Law) Study.


The need for a further analysis is being attempted , mainly to focus on with greater stress and to dilate some of those aspects covered in the previous write-up.


Some of such aspects so covered in the previous discussion may be summed up as follows:

If closely examined, as independently perceived, the line of reasoning cogently addressed to, and, accepted and adopted by, the HC cannot be faulted to be illogical; OR are not but reconcilable with the common understanding of the law, based, as warranted, on a harmonious reading and incisive understanding of the relevant provisions.

The opinion the apex court has handed out, in a manner of viewing, -to say the least, without any intent whatsoever to offending or questioning the judicial wisdom, – is seen to have had  the unintended effect of setting at naught the very objective of simplification . To make it clear, that is the result of unwittingly reading down the measures of reform / simplification obviously sought to have been achieved through the significantly modified provisions of the IT Act contained in Chapter XIV – “PROCEDURE FOR ASSESSMENT”.

ASIDE : Further, what , as viewed, has been blatantly ignored is the fact that there are separate limits prescribed in the relevant sections, particularly for implementing and enforcing  the scheme of things covered in section 143. The view taken in the Rajesh Jhaveri’s case, which has been persistently  chosen and followed  in several other cases, has , to put it mildly, led to those rigid time limits  being impudently bypassed. In a manner of bluntly saying, that could have been avoided had the sections been read and understood harmoniously, and by ideally taking aid from the rules and principles f interpretation as enunciated by case law.

Among the referred modifications , those made particularly with a view to accommodating the newly brought in computerized assessment procedure, in the wake of the CPC coming into being, require to be / having been made a conscious note of and kept in full view.

The subject matter of the ‘sale and purchase’ transaction, in dispute in the instant case, is ‘property’ in the nature and having the peculiar characteristics of so called ‘FLAT’. As such, for all purposes, including those of the IT ACT, the applicable special law of the State ought to have been duly considered and the admittedly tax cum property related issue ought to have been decided accordingly. That has not been done; albeit, in disputing the action of the AO, and in the subsequent proceedings as well, in contesting the impugned assessment ,  one of the primary grounds raised was on pending compliance with the mandate of the special law requiring transfer of ‘share certificate.

2.  (A)  Zuari Estate is ‘the assessee’.  In the course of the writ proceedings before the HC, validity of the impugned ‘assessment’ made by the AO has been assailed on the assessee’s behalf,  principally on two grounds, resting on the terms of section 147. 

Those, in reference to the precise terms of sec 147, are these: 

(a) The AO, on the facts and circumstances of the case, cannot be rightly regarded to have had “reason to believe” that, - (i) there has been any income which has “escaped assessment”; and (ii) for ‘the impugned assessment year’. 

(b) The premise on which the AO has proceeded is, in any case, based on material / information already on his record; thus, “not based on anything which has come to his notice subsequently in the course of the proceedings under this section” as envisaged by the law.

(B) On Revenue’s behalf, in support of the action of the AO in invoking Section 147 and making the impugned assessment, and to counter and discredit the assessee’s stance / grounds of grievance, several pleas have been addressed.

The HC is noted to have, after considering, in great details, all the arguments advanced respectively by the representing counsel of both sides, concluded and settled the dispute holding that the impugned assessment is without jurisdiction ; in the sense of it being in excess of his powers and invalid in law, being outside the framework of  the governing scheme. In forming its opinion, the court has ruled, with more than required clarity, as to why the assessee  can only be held to be entitled to succeed on both the grounds ; that is, i.e. as in (a) and (b) above .

3. The well accepted / settled proposition as enunciated by courts is to the effect that resort by AO  to sec 147 for making an assessment or re-assessment , is an ‘exceptional’ power, hence ought not to be exercised without the utmost circumspection; that is, not  in the normal course or as a matter of routine. The apex court itself has made it amply clear, further repeatedly; for instance, in the case of GKN Driveshaft 259 ITR 19, holding to the effect that, - before the AO proceeds to pass an order, it is mandatory on his part , besides to record and furnish his reasons to the assessee, ‘to meet’ the objections thereto filed by assessee.  The HC ‘s judgment , as closely read and understood, bears out the fact that the AO has not so ‘met’, in any expected manner,  the assessee’s objections to the judicial satisfaction.

4.  The arguments advanced on behalf of Revenue have, in order to make out a case in its favour, have placed strong reliance on a solitary plank; that is, Clause 5 of the ‘agreement to sell’.

Extracts ( of relevance, from HC judgment ) -

“Clause 5 provided that THE SALE OF THE PREMISES WOULD BE COMPLETED only after the expiry of five years from the date of the agreement but before the expiry of the sixth year from the date of the agreement, TIME BEING THE ESSENCE OF THE CONTRACT. The agreement FURTHER PROVIDED THAT THE BANK WOULD HAVE AN OPTION EITHER TO COMPLETE THE TRANSACTION OR RESCIND THE SAME AND, IN THE EVENT THE BANK RESCINDED THE AGREEMENT, THE PETITIONER WOULD REFUND....” the entire amount that may have been paid by the bank to the petitioner within one year of the rescission on return of possession of the premises by the bank. It was further agreed that the parties would sign such papers and documents as were necessary for completion of the sale on payment of the full purchase price payable by the bank to the petitioner. By clause 9 of the agreement, the bank had agreed that once the bank was put in possession of the premises, they would not sell, transfer, assign, let out or give on leave and licence basis or in any other manner part-with possession of the premises or any portion or portions thereof to anyone else pending completion of the sale. AFTER THE BANK HAD PAID TO THE PETITIONER, ON JUNE 20, 1984, THE SUM OF RS. 84,47,111, BEING 95 PER CENT, OF THE CONSIDERATION AGREED UPON, THE PETITIONER PUT AND HANDED OVER POSSESSION IN PART PERFORMANCE OF THE AGREEMENT OF SALE TO THE BANK ON JUNE 20,1984, ITSELF.”


4.1. On the admitted facts, with no quarrel, the agreement to sell of 1984 was the only one agreement actually and factually entered into; and that is the solitary one which has been in force and acted upon by /between the parties. Even so, Revenue in its reading and construing the said Clause 5, is seen to have followed its peculiar line of reasoning, in misconstruing and tweaking the actual terms, thereby contradicting what all have been  actually agreed to by and between  the contracting parties. To be precise, the ‘agreement to sell’ has been dubiously looked upon to be a ‘lease agreement’. Is is more than obvious  the lowly AO has done so , in order to try and persuade  acceptance of its plea to the effect the relevant assessment year for taxing is the impugned assessment year;  and not any other year.

4.2. It is odd that the instant case transcends, rather, excels, not merely resonates, all previous like stories that in recent times happen to have been forged ahead and taken up to the highest court of the land. The reference is to instances in which AOs are known to have,  unwittingly or otherwise, stooped down to resort to such a strange gimmick, giving rise to the abominable controversy pivoted on, namely, – it is not just the ‘Form’ of any contract agreement, but  is the ‘Substance’  that needs / is permitted  to be gone by. Herein,  AO  has likewise, acted, by deliberately over -sighting / -stepping the fact that it was , as initially agreed,  the Bank , in exercise of its lawful and enforceable right already vested, has insisted to go ahead with the transaction of purchase and called upon the assessee to fulfil its obligation to ‘specific performance’.  For that matter, the surrounding facts /conduct of the Bank as narrated above, themselves go to infallibly bear out that it never even thought of ‘rescinding’ the agreement at any point in time, from 1984 onwards.

4.3. The incongruous stance taken by Revenue as aforesaid has, no doubt, not been taken any seriously by the HC but been simply recorded  to discredited and reject, with the simple observations:


May be so, but an elaboration has become necessary; with a view to try and provoke some serious thinking on the point in one’s mind. That is, as to why the professional (s), entrusted with the important task to draft, ought not to have but, as expected of, strived and ensured that the utmost care is taken in drafting of such an important document and thereby protecting client against possible scope for any such wasteful and avoidable controversy. For a better appreciation, to be precise, - the ding dong battle could have been avoided, had the clause simply said, - “...THAT THE BANK WOULD HAVE AN OPTION TO RESCIND THE SAME AND...”. To put it differently, it would have sufficed, and purpose served, even without the preceding added words , “EITHER TO COMPLETE THE TRANSACTION OR”. Thus, the so added words are prima facie ridiculously superfluous, verging on inept drafting of its kind.

Aside: The rudimentary elements or prerequisite for a contract agreement, in order to be lawfully enforceable is, apart from ‘consideration’, there needs to be an ‘offer’ by one party and acceptance by the other. Once a valid contract agreement has thus come into being, its enforceability is, by and large, a necessary concomitant or inevitable consequence. In case of an ‘agreement to sell’ of the kind herein, therefore, there is an implied right to ask for ‘specific performance’. In other words, it does not require that to be separately spelt out or specifically agreed to by and between the parties as has been unwisely done in the instant case. This is an aspect which obviously has been miserably over sighted / glossed over right from the stage of drafting of the document .

5 .1.  The SC is noted to have been persuaded by Revenue to follow its earlier Judgment in Rajesh Jhaveri’s case (the full text of which is  available @ ; and to do so, in preference to the other precedents  cited and relied upon by the assessee in its support . That apart, in the SC judgment, in which the HC judgment  in the assessee’s favour has been annulled, some of the later/more recent   judgments have not been cited , hence not been looked into. One such erudite judgment, so sadly missed out, is of the Delhi HC in the case of, CIT-VI v. Usha International Ltd. ( )

As brought out in the previous write-up, the line of reasoning followed and opinion expressed  by the court in that case , do, in essence, and in several material respects, go to counter , not without merits, those followed/  given in Rajesh Jhaveri’s case.

5.2. In short, the opinion handed out by the courts in those later cases, as summed up in one of them , and of every relevance in the present context,  is as under:

S. 147 permits an assessment to be reopened if there is “reason to believe“. It makes no distinction between an order u/s 143(3) or an Intimation u/s 143(1). Accordingly, it is not permissible to adopt different standards while interpreting the words “reason to believe” vis-à-vis s. 143(1) and s. 143(3). The department’s argument that the same rigorous standards which are applicable in the interpretation of the expression when it is applied to the reopening of a s. 143(3) assessment cannot apply to a s. 143(1) Intimation is not acceptable because it would place an assessee whose return is processed u/s 143(1) in a more vulnerable position than an assessee in whose case there is a full-fledged s. scrutiny assessment u/s 143(3). Whether the return is put to scrutiny or is accepted without demur is not a matter which is within the control of assessee. An interpretation which makes a distinction between the meaning and content of the expression “reason to believe” between a case where a s. 143(3) assessment is made and one where an Intimation u/s 143(1) is made may lead to unintended mischief, be discriminatory & lead to absurd results. In Kelvinator 320 ITR 561 (SC) it was held that the term “reason to believe” means that there is “tangible material” and not merely a “change of opinion” and this principle will apply even to s. 143(1) Intimations. On facts, the AO reached the belief that there was escapement of income “on going through the ROI” filed by the assessee. This is nothing but a review of the earlier proceedings and an abuse of power by the AO. There is no whisper in the reasons recorded of any tangible material which came to the possession of the AO subsequent to the issue of the Intimation. It reflects an arbitrary exercise of the power conferred u/s 147 (Rajesh Jhaveri Stock Brokers 291 ITR 500 (SC) distinguished)”

6.1. On a random selection, the following observations in the HC judgment deserve to be made a special note of:

Section 2(47) of the Income-tax Act came to be amended by the Finance Act, 1987, with effect from April 1, 1988. Two sub-clauses were added, namely, (v) and (vi) of which sub-clause (v) reads as under:

"(v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in Section 53A of the Transfer of Property Act, 1882 (4 of 1882)." (Paragraph 13)

“The position before the amendment is as can be seen from the judgment of the apex court in the case of Alapati Venkataramiah v. CIT [1965] 57 ITR 185.” (Paragraph 14)

These and several other observations in an identical / similar vein are, however, worthwhile giving a concerted look through. Not to fail but require to keep in sharp focus, for such purpose, the viewpoints shared and canvassed in the published feedback material (refer. the previous write-up).    

6.2. In this context, attention might have to be necessarily drawn  to the SC landmark judgment in re. Suraj Lamp & Industries (P) ... vs State Of Haryana & Anr on ... ( ). To be specially borne in mind , that is yet another case, same as in the instant case, in which the subject matter of transaction (s)was ‘flat(s)’, a property with distinct characteristics, hence governed by the special State law.

The reproduced following observations of the apex court therein are noteworthy:


Transactions of the nature of ...... do not convey title and do not amount to transfer, nor can they be recognized or valid mode of transfer of immoveable property. ....

They cannot be recognized as deeds of title, EXCEPT TO THE LIMITED EXTENT OF section 53A of the TP Act. Such transactions cannot be relied upon or made the basis for mutations in Municipal or Revenue Records. What is stated above will apply not only to deeds of conveyance in regard to freehold property but also to transfer of leasehold property. A lease can be validly transferred only under a registered Assignment of Lease. It is time that an end is put to the pernicious practice of ....  transactions known as GPA sales.

17. It has been submitted that making declaration that GPA sales and SA/GPA/WILL transfers are not legally valid modes of transfer is likely to create hardship to a large number of persons who have entered into such transactions and they should be given sufficient time to regularize the transactions by obtaining deeds of conveyance. It is also submitted that this decision should be made applicable prospectively to avoid hardship.

18. We have merely drawn attention to and reiterated the well-settled legal position that .... are not `transfers' or `sales' and that such transactions cannot be treated as completed transfers or conveyances. THEY CAN CONTINUE TO BE TREATED AS EXISTING AGREEMENT OF SALE.

Nothing prevents affected parties from getting registered Deeds of Conveyance to complete their title. The said ...transactions' may also be used to obtain specific performance or to defend possession under section 53A of TP Act.....


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According to one’s independent reading and understanding of the cited apex court’s clinching opinion, the strict legal position ought to be taken to be that, - unless and until the absolute title and ownership rights happen to be transferred, in terms/pursuance of a valid deed of sale/ conveyance, and duly registered after payment of stamp duty as due, purchaser cannot rightly be regarded to have a ‘transferable’ right. On that premise, until that happens, the transaction cannot be rightly regarded to result in a ‘transfer’ as envisaged by the law, so as to attract taxation. To put it differently, in one’s conviction, the judgment in Alapati Venkataramiah’s case  (supra), quite contrary to the impression given, might have to be regarded to be good law, hence holding the field,  even today.


In the given nature of things, no formal conclusion can be ventured, individually; may be,  until such time the matter gets decisively concluded, and finality reached, besides by the judiciary, the empowered executive / administrative authorities as well.

Disclaimer: The foregoing discussion is solely intended to convey own thoughts and viewpoints, based on an independent study of the covered aspects. Welcome to share, should anyone, especially a well informed and competent law expert, infield practice, entertain any doubt or has a better view to offer after an independent study, so as to serve the altruistic object of the common good.


B.Sc., B.L., FCA

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