|CORAM:||B. R. R. Kumar (AM), Sanjay Garg (JM)|
|SECTION(S):||2(1A), 45, 48, 56|
|CATCH WORDS:||agricultural land, capital gains, income from other sources|
|COUNSEL:||N. K. Shahi|
|DATE:||January 18, 2018 (Date of pronouncement)|
|DATE:||January 23, 2018 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|S. 2(1A)/ 68: An assessee who understates the consideration received for sale of agricultural land to avoid payment of stamp duty is defrauding the exchequer. He cannot take advantage of his own wrong and is estopped from contending that the amount received from the purchaser is a higher amount than was stated in the agreement. The incremental amount is assessable as ‘income from other sources’ and not as ‘agricultural income’. However, penalty u/s 271(1)(c) cannot be levied for the said wrong claim|
The assessee claimed that the actual sale consideration received was Rs. 2,46,30,000/- whereas at the instance of the purchaser to avoid stamp duty payable to the government, the sale deeds were executed at very low amount of Rs. 42,37,500/-.That it was a common practice to execute and register the sale deeds at lower/circle rates to avoid stamp duty. That the land sold by the assessee was rural agricultural land and that the amount recovered from him was on account of consideration for the sale of land and, hence, no addition was warranted in the hands of the assessee. Reliance was placed upon the decision of the Hon’ble Allahabad High Court in ‘CIT vs Intezar Ali’ vide order dt 26.7.2013 in ITA No. 162 of 2013. The CIT(A) accepted the contention of the assessee. On appeal by the department to the Tribunal HELD reversing the CIT(A):
(i) The sale of land and the execution of the sale deeds has been admit ted by both the seller Shri Mohinder Singh and purchaser Shr i Malkiat Singh. The sale deed was entered into between the part ies at their f ree wil l and at their choice. There is no averment of any party that the sale deed was executed and registered by way of or with the result of any f raud or coercion or against the consent of the par ties. As per the relevant provisions of the transfer of property Act , and Indian Registration Act, the sale transact ion of an immovable property above the value of Rs. 100/- and above is required to be reduced into wri ting and registered. As per Section 17 of the Registrat ion Act, 1908, all transactions that involve the sale of an immovable property for a value exceeding Rs.100, should be registered. Any document that is mandatorily required to be registered but is not registered, cannot be admit ted as evidence in any court of law. As per section 54 of the transfer of Property Act (IV of 1982), transfer, in the case of tangible immovable proper ty of the value of one hundred rupees and upwards can be made only by a registered instrument. General ly speaking, in a sale, the three requirements of law are that transfer of property by sale must take place with the help of a validly executed sale deed, by the transferor in writing, is properly attested, and registered. Unless, the al l three conditions are complied with, no right passes from the seller to the buyer or in other words, there can be no sale.
(ii) Further, as per section 91 of the Indian Evidence Act 1872, when terms of contract, grants for other dispositions of property have been reduced to the form of documents then no evidence is permissible to be given in proof of any such terms of such grant of disposition of the property except the document itself or the secondary evidence thereof. What the aforesaid section 91 provides is that if the document itself creates a contract or a grant or any other disposition of proper ty, then the terms of that contract or grant or disposition of property, cannot be proved by oral evidence. This section applies when the entire contract is in writing. According to section 92 of the evidence Act, once the documents is tendered in evidence and proved as per the requirements of section 91, then no evidence of any oral agreement or statement would be admissible as between the par ties to any such instrument for the purposes of contracting, varying, adding to or subtracting from its terms. Whereas in section 92 of the evidence Act , the oral evidence is prevented for the purpose of varying the terms of the contract as between the par ties to the contract, however , no such limitations are imposed under sect ion 91 of the Act . Hence, even if a third par ty wants to establish a particular contract between certain others which has been reduced into wri ting or is required by law to be reduced into writ ing, can prove such contract only by product ion of such writing. (Meenakshisundram Pillai v. S.T. Chenchu Mudaliar and another AIR, 1928 M 459:109 IC 18).
(iii) Further, it is settled law that unstamped or insufficiently stamped document cannot be used for any purpose. Section 35 of the Indian Stamp Act prohibi ts the use of any instrument chargeable with duty unless it is duly stamped. Even the Ld. counsel for the assessee Shri Malkiat Singh has placed reliance on the decision of Hon’ble Punjab & Haryana High Court in the case of ‘Paramj it Singh Vs ITO’ (supra). The Hon’ble High Cour t has held that the consideration ment ioned in the sale deed has to be considered as sale consideration passed between the two part ies. The Hon’ble High Court rejected the content ion that no sale consideration was passed between the parties as both the parties to the transactions were brothers and that two brothers had relinquished their right in favour of son of the one of their third brother without accepting any consideration. The Hon’ble Punjab & Haryana High Cour t while placing reliance on sections 91 & 92 of the Indian Evidence Act, held that no oral evidence or agreement contradicting / varying the terms of a documents could be offered. That the sale consideration disclosed in the sale deed has to be accepted and i t cannot be contradicted by adducing any oral evidence. The reliance of the Ld. counsel on the above referred to other decisions is also in support of the above content ion.
(iv) Now, in view of the above refer red to various provisions of different statutes relating to the transfer of immovable property as well as in the light of the decision of Jurisdictional High Court in the case of Paramjit Singh (supra) and other decisions as refer red to above, the quest ion before us is as to whether any evidence can be admitted to prove that any amount was paid or received relating to the transfer of immovable property outside the written and registered sale deed of that property?; The answer will be ‘No’ as the same will constitute an evidence varying the terms of the written and registered contract. Suppose, the alleged sale deeds are cancelled for any reason or by the intervention of the Cour t, whether the purchaser will be entitled to refund of any other amount except that has been depicted in the sale deed itself?; then again, the answer will be in ‘negative’ as any oral evidence in this respect will be inadmissible. Now, under the circumstances, any amount received or paid by a person in excess or out of the terms of written and registered contract whether can be said to be the consideration for the property which is the subject of the contract, the answer will be again ‘No’ . Even such a plea, if admitted, would render the instrument as insufficiently stamped making it as inadmissible in evidence and cannot be acted upon. Even allowing the par ties to take such pleas will be against the public policy.
(v) Now, coming to the quest ion as to why the parties to the transactions chose to get it registered at a lower rate than actually agreed to? The answer, obviously, is to avoid payment of higher stamp duty, in other words, to defraud the state exchequer. The seller as well as the purchaser connived with each other to falsely represent to the concerned public authority / land revenue officer entrusted with the work of registration and collection of stamp duty about the sale consideration at a far less amount than that was actually agreed to. In our view, It is not fraud or misrepresentation to that that public officer in person, rather the same is with the ‘State’ as the said officers being its employee act on behalf of the ‘State’. The aforesaid act of misrepresentation regarding the sale consideration has not caused any personal loss to the aforesaid official, but financial loss to the State Exchequer.
(vi) The income tax authori ties being revenue of f icials are also the public author it ies appointed for the collect ion of income tax revenue for the state exchequer . The quest ion before us is when a person commi ts f raud with the State or the Govt. at one stage misrepresenting to an employee/ publ ic author ity of one depar tment of the ‘State’ and gets wrongful benef it, can he be allowed to take a dif ferent stand before another employee/publ ic author ity of the other department of the ‘State’ or the ‘Govt.’ to say that he had falsely represented about the actual consideration of the transact ion before the f irst publ ic author ity and that now the second public authori ty should not bel ieve that false representation and whether can be allowed to take the benef it of his own wrong. Interestingly, both the authori t ies herein refer red to are revenue authori ties, the f irst being land revenue authority and the second income tax revenue author ity.
(vii) In our view, in such circumstances, both sel ler and purchaser are estopped f rom their act and conduct to take such a self -contradictory plea. Not only the earl ier but the later authorit ies also are the publ ic of f icers appointed for the col lection of taxes contr ibut ing to the public exchequer (may be of the State or of the Union) and a person having represented the factum of the transaction in a par ticular manner at one stage to a public of f icer and gett ing a wrongful benef it , in our view, is estopped to deny the same to the subsequent public authori ty, both authori ties being employee and representative of the government . The principle of estoppel in the l ight of the provisions of section 115 of the Evidence Act gets attracted in such a case. Even otherwise, recognizing such a transaction wil l amount to over riding the provisions of Transfer of Proper ty Act and Indian Registrat ion Act. In view of the above discussion, i t can be safely held that not only legal ly but also ethically and morally, the par ties to a registered document are not al lowed to deny the terms of the document unt il and unless the very val idity or execution of such a document is disputed. Admit tedly, the tax authori ties are not bound by the technicali ties of the Evidence Act, but, the general principles of evidence are appl icable to income-tax proceedings. Reference can be made to the decision of the Hon’ble Supreme Court in the case of Chuharmal vs Commissioner Of Income-Tax, 1988 AIR 1384, 1988 SCR (3) 788 : (1988) 172 ITR 250 (SC) . The Hon’ble Supreme Cour t whi le holding so referred to and approved the observations made by the Hon’ble Bombay High Cour t in the case of J.S.Parker v. V.B. Palekar, 94 ITR 616 holding that what was meant by saying that the Evidence Act did not apply to proceedings under the Income Tax Act was that the rigour of the rules of evidence contained in the Evidence Act, was not applicable but that does not mean that when the taxing author it ies were desirous in invoking the principles of the Evidence Act in proceedings before them, they were prevented f rom doing so. The Hon’ble Supreme Court fur ther observed that salutary principle of common law jur isprudence embedded in the Evidence Act could be appl ied to the taxat ion proceedings.
(viii) As discussed above, the provisions of sections 91, 92 and 115 of the Evidence Act are based on the principles of public policy, moral ity and ethics. Sections 91 and 92 are based on the “Best Evidence Rule” preventing the admission of inferior evidence when the super ior evidence is available so as to prevent the f raud, future controversy, bad faith or treacherous memory. Simi larly section 115 of the evidence Act enshr ines in i t the principle of ‘estoppel’ which is again based on publ ic pol icy, equi ty, justice, morali ty and faith. Hence the principles laid down in sections 91,92 and 115 of the Evidence Act, in our view, can be wel l appl ied to the case in hand.
(ix) Even the content ion of the seller that it is general pract ice to register the sale deeds at a lesser considerat ion can not be accepted in the light of recognized principles of law as discussed above and even such a contention being opposed to publ ic pol icy. The Hon’ble Madras High Cour t in the case of Coimbatore Spinning & Weaving Co. Ltd. (1974) 95 ITR 375 has observed that the Tr ibunal is not expected to take judicial not ice of such substandard morali ty on the par t of the assessee so as to enable them to go back on their own sworn statements. In the case in hand, once both the part ies to the transact ion i .e. the sel ler and the purchaser had made to believe not only the publ ic authori ty but the publ ic at large that the transaction relat ing to purchase / sale of land between them was set tled at a part icular considerat ion, subsequently they are estopped f rom their act and conduct to plead that the actual consideration was at var iance of the ear lier representation. The plea on behalf of the sel ler that he had agreed to get the sale deed registered at a lower rate at the instance of the purchaser is of no help to him. He has been a par ty to the conspiracy result ing into revenue loss to the state exchequer . Even, it cannot be said that he had not got any benef i t by falsely representing about the sale consideration. If , the purchaser had to pay higher stamp duty, then i t accordingly wi ll go on to reduce the sale consideration / amount payable to the sel ler as the purchaser takes into considerat ion the total amount which he would have to shell out of his pocket i.e. the sale considerat ion as well as stamp duty and the other charges.
(x) Now, once i t is held that the sale consideration is to be taken as per the registered document , what wil l be the nature of the extra amount received? As discussed above, the same cannot be said to be the amount received towards sale consideration of the land, rather , the same wil l consti tute the extra money paid as consideration for the execution of the registered deed of sale of land and not for the sale of land itself . The same under the circumstances, has to be taxed as income f rom other sources. Such an amount received over and above the sale consideration mentioned in the registered document , par takes the character of taxable gif t. Our above view also f ind supports f rom the following para of the judgement of the Hon’ble Supreme Court in the case of K.P. Varghese repor ted in (1981) 7 taxman 13 (SC):
“16. This construction which we are placing on subsection (2) also marches in step with the Gi ft Tax Act, 1958. I f a capital asset is transferred for a consideration below i ts market value, the difference between the market value and the ful l value of the consideration received in respect of the transfer would amount to a gi ft liable to tax under the Gif t Tax Act , 1958, but i f the construct ion of sub-section (2) contended for on behalf of the Revenue were accepted, such dif ference would also be l iable to be added as part of capi tal gains taxable under the provisions of the Income Tax Act , 1961. This would be an anomalous resul t which could never have been contemplated by the legislature, since the Income Tax Act , 1961 and the Gi ft Tax Act , 1958 are parts of an integrated scheme of taxat ion and the same amount which is chargeable as gif t could not be intended to be charged also as capital gains.”
(xi) Though section 52 of the Income Tax Act referred to by the hon’ble Supreme cour t stood omitted and even the Gif t Tax Act also stood repealed, but the above proposit ion laid down by the hon’ble Supreme Cour t can be well applied in the facts and circumstances of this case.
(xii) So far as the rel iance of the Ld. counsel for the assessee Mohinder Singh on the decision dated 26.7.2013 of the Hon’ble Allahabad High Court in the case of ‘CIT vs Intezar Ali’ (ITA No. 162 of 2013) is concerned, in that case the seller had taken a like stand that the amount found deposited in his bank account was out of the money received over and above the sale consideration wr it ten in the registered deed. He, proved the above factum by leading cozying and convincing evidences. Apart f rom that, he not only made a complaint to the registering author ity that the sale deed has bene registered at a value much below the amount, which he actual ly received, he deposi ted the ent ire amount in the bank and voluntar ily f iled return. The Tr ibunal under the circumstances held that the sel ler had explained the source of the deposi ts which was upheld by the Hon’ble High Cour t. In the case in hand also, as observed above, the assessee has been able to prove the source of the amount found in his possession. However, the other facts like that the assessee in that case as an honest ci tizen had made a compl iant to the registering authority to register the sale deed at actual price and deposited the ent ire amount in the bank, are missing. In the case in hand, the amount was recovered f rom the possession of Shri Mohinder Singh, assessee by the Pol ice authori ties. The assessee has been a par tner in the conspiracy to falsely represent about the sale consideration to the registration authori ties and thereby result ing into payment of less stamp duty, of which the assessee, as discussed above, has also reaped the consequential benef its. Moreover , the quest ion as to the nature of receipt and i ts taxabil ity has not been gone into by the Hon’ble Allahabad High Court . Moreover , with al l the due respect, decision of the jur isdict ional Pb. & Hry. High Court in the case Paramji t Singh(supra) holding the inadmissibil ity of oral evidence in the presence of registered deed is binding on this Tribunal . Under the circumstances and in the l ight of the above referred to statutory provisions and case laws, the nature of receipt of the income over and above the registered sale consideration in the hands of seller Mohinder Singh, in our view, will not fal l under the head ‘Capital Gains’ but ‘income f rom other sources’. In view of the discussion made above, the amount received by Sh. Mohinder Singh, over and above the sale consideration ment ioned in the registered document, is ordered to be assessed as income f rom other sources. The order of the CIT(A), in the case of Shri Mohinder Singh is hereby set aside. The appeal of the revenue is accordingly treated as allowed.
As regards penalty under section 271(1)(c), though, as per our findings given above, we have held that the amount received by the assessee Mohinder Singh, over and above the sale consideration mentioned in the sale deed, is liable to be assessed as income from other sources; however, we are of the view that this is not a fit case for levy of penalty u/s 271(1) (c) of the Act . The assessee had disclosed the source of income being the amount received from Sh. Malkiat Singh on account of sale of his land. The assessee was under bona-fide belief that since the entire amount received by him was on account of consideration for the sale of land, the land being an agriculture rural land falling outside the purview of the def init ion of a capital asset, the income from the sale of land was exempt from taxation, hence, non-offering of the said income for taxation cannot be said to be a deliberate act on the part of assessee Mohinder Singh of furnishing of inaccurate particulars of income or concealment of income.
(i) Rajdeep Builders Vs. ACIT, Shimla  21 taxmann.com 254 (Chd.)
(ii) Paramji t Singh v ITO  323 ITR 588 / 195 Taxman 273 (P&H)
(iii) Subhash Chand v ACIT  49 SOT 732/18 taxmannn.com
(iv) CIT Vs. Sat inder Kumar  250 ITR 484 /  120 Taxman 470 of Punjab |& Haryana High Court .
(v) Motors & General Stores (P) Ltd  66 ITR 692 of Punjab & Haryana High Court
(vi) CIT Vs. P.V. Kalyansundaram  202 ITR 259 / 155 Taxman 454 of Madras High Court
(vii) Ram Chandra Construct ion (P) Ltd v ACIT  131 ITD 71/ 11 taxman.com 415 (Agra)( TM)
(viii) CIT Vs. Smt . K.C. Agnes  262 ITR 354 / 128 Taxman 848
(ix) K.P. Varghese Vs ITO’  131 ITR / 7 Taxman 13 (SC).