COMMISSIONER OF INCOME TAX, CHANDIGARHversusM/S. PEARL MECH. ENGG AND FOUNDRY WORKS (P) LTD.

         COMMISSIONER OF INCOME TAX, CHANDIGARH                                 A
                            v
  • MIS. PEARL MECH. ENGG AND FOUNDRY WORKS (P) LTD.

                             APRIL 16, 2004

            [S. RAJENDRA BABU AND G.P. MATHUR, JJ.]                             B


     Income Tax Act, 1961:

       Chapter XXA-Section 269D-lmmovable property-Acquisition of by ·
competent authority-Initiation of proceedings-Notices to transferor and C
transferee issued under S. 269D(2) prior to their publication in official gazette
under S. 269D(J)-Validity of-'-Held: Publication of notice in the official
gazette under S. 269(1) is the very foundation of initiation ofproceedings for
acquisition of immovable property-Competent authority got jurisdiction only
after publication ofnotice in official gazette-However, service ofnotice prior O
to its publication in official gazette was merely an irregularity and could not
render the proceedings either illegal or without jurisdiction.

      Proceedings for acquisition of the suit property were initiated against
the respondent in accordance with Chapter XXA of the Income Tax Act,
1961. However, notice under Section 269D(2) of the Act were served upon         E
the respondent-transferor and the transferee prior to the publication of
the notice under Section 269D(l) of the Act in the official gazette. The
competent authority passed an order for acquisition of the said property.
The Income Tax Appellate Tribunal allowed the appeal preferred by Abe
respondent-transferor and the transferee on the ground that the notices         F
under Section 269D(2) were served prior to the publica~ion of the notices
in the official gazette. The High Court upheld the order. Hence the appeal.

      The following question arose before the Court :-

      "Whether the service of notice upon the transferor and the transferee
under Section 269D(2) of the Income Tax Act, 1961 prior to the publicat~on      G
of the notice in the official gazette in accQrdance with Section 269D(l) of
the Act would render the entire proceedings illegal and without
jurisdiction?"

                                    339                                         H
    340                    SUPREME COURT REPORTS [2004) SUPP. I S.C.R.

A         Allowing the appeal, the Court

          HELD: I. Publication of the notice in the official gazette under
    Section 2690(1) of the Income Tax Act, 1961 is the very foundation for
    initiation of proceedings for acquisition of immovable propert}'. under
    Chapter XXA and the period of limitation for initiation of proceedings
B   has to be reckoned with reference to the said date. The competent
    authority gets jurisdiction to make an order for acquisition of property
    only after publication of the notice in the official gazette. The service of
    notice under Section 2690(2) of the Act upon the transferor and the
    transferee meets the requirement of natural justice so that they may file
C   objections in writing against the action which is proposed to be taken,
    namely for acquisition of property. Any error or mistake committed in
    the service of the notice does not in any manner affect the jurisdiction
    conferred upon the competent authority to take proceedings for acquisition
    of property. The service of notice prior to the publication in the official
    gazette is merely an irregularity committed during the course of the
D   proceedings and cannot have the effect of nullifying the entire proceedings
    which are validly commenced by publication in the official gazette. In fact,
    no prejudice is occasioned to the transferor or transferee by service upon
    them of the notice prior to the publication of the gazette. Therefore, prior
    service of notice under Section 269D(2) of the Act is at bes( an irregularity
E   but it cannot have the effect of rendering the proce~dings either illegal. or.
    without jurisdiction. [345-F-G; 346-A-D]

         C/Tv. Amrit Sports Industries, 144 ITC 113 (P & H) (FB), Smt. Pritpal
    Kaur v. Inspecting Asstt. CIT, 145 ITR 19 (All.), Prem Chandy. /AC 153
    ITR 774 (Kar.) and All India Reporter v. Competent Authority, 162 ITR 697
F   (Born.) and Lalita Todi v. CIT, 123 ITR 40 (Pat.), appr()ved.

         C/Tv. Des Raj, 220 ITR 7 (P & H), C/Tv. VinodGupta, 221ITR213
    (P & H) and Satya Narain Prakash Punj v. Union of India, 160 ITR 693
    (Del.), overruled.

G         Nazir Ahmed v. King Emperor, AIR (1936) PC 253, referred to.

          CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1196 of2001.

         From the Judgment and Order dated 21. 7.1999 of the Punjab and
    Haryana High Court in LT.A. No. 14 of 1982.
H
     C.l.T. v. PEARL MECH. ENGGANDFOUNDRYWORKS(P)LTD. [G.P. MATHUR, J.]   341

     T.L.V. Iyer, K.C. Kausik, Rajiv Tyagi, Ms. Sushma Suri and B.V.             A
Balramdas for the Appellant..

     G.C. Sharma, Anup Sharma, R.K. Raghvan and Vishwajit Singh for the
Respondent.

     The Judgment of the Court was delivered by                                  B
     G.P. MATHUR, J. l. This appeal; by special leave has been preferrep
against the judgment and order dated 21. 7.1999 of the High Court of Punjab
& Haryana by which the appeal preferred by the appellant under Section
269H of Income Tax Act, 1961 against the order dated 16.8.1992 of th~
Income Tax Appellate Tribunal, Chandigarh, was dismissed.                        C
      2. The respondent M/s Pearl Mechanical Engineering & Foundry Works
(P) Ltd., Ludhiana executed a sale deed of plot no. 427, Industrial Area-A,
Ludhiana in favour of Mis. Oswal Woolen Mills Limited for Rs. 10,05,0QO,
on 5.2.1980. The Government valuer on receipt of a reference from the D
Inspecting Assistant Commissioner, estimated the fair market value of the
property at Rs.18,31,000. Proceedings for acquisition of the property were.
then initiated in accordance with Chapter XXA of Income Tax Act, 1961
(hereinafter referred to as 'the Act') and notice under section 269D (1) of the
Act was published in the official gazette on l5.1J:1980. The notices issued.
under Section 269D (2) of the Act were served upon the transferor and the E
transferee on 1O.l0.1980. The competent authority, after hearing the objections,
passed orders for acquisition of the property. The appeals preferred against
the said order by the transferor and transferee were allowed by the Income
Tax Appellate Tribunal, Chandigarh, and the order of the competent a11thority
was set aside mainly on the ground that the notices under section 269D(2)
had been served prior to the publication of the notice in the official gazette. F
Feeling aggrieved by the order of Tribunal the Commissioner of Income Tax,
preferred an appeal under section 269H of the Act but the same was dismissed
by the High Court on 21.7.1999. The High Court has held that by the
publication of the notice in the official gazette proceedings for acquisition of
property were initiated and the service of the notice on the transferor and the G
transferee under Section 269D(2) prior· to the publication in the guette is
meaningless and an exercise in futility n(ndering the entire proceedings illegal
and without jurisdiction.

      3. The main question which requires consideration is whether the service
of notice upon the transferor and the transferee under Section 269D(2) of the    H
    342                       SUPREME COURT REPORTS [2004) SUPP. I S.C.R.

A Act prior to the publication of the notice in the official gazette in accordance
    with Section 269D(l) of the Act would render the entire proceedings illegal
    and without jurisdiction. Chapter XXA comprising Sections 269A to 269S
    was inserted by the Taxation Laws (Amendment) Act, 1972 with effect from
    15.11.1972. The Statement of Objects and Reasons shows that the amendment
    was incorporated to counter evasion of tax through understatement of the
B   value of immovable property in sale deeds and also to check the circulation
    of black money by empowering the Central Government to acquire immovable
    properties and to curb the widespread practice of benami holding of property
    with a view to tax evasion by debarring the real owner from enforcing his
    claim to such property in a court of law unless he has declared the income
C   from that property or the property itself for purposes of income tax and
    wealth tax or has given notice of his claim to the property to the income-tax
    authorities.

          4. Sub-section (a) of Section 269A defines "apparent consideration"
    and sub-section (b) defines "competent authority" which means an Assistant
D   Commissioner of Income-tax authorised by the Central Government under
    Section 269B to perform the functions of competent authority under Chapter
    XXA. Section 269B provides that the Central Government may, by general
    or special order published in the Official Gazette, authorise as many Assistant
    Commissioners of Income-tax, as it thinks fit, to perform the functions of a
E   competent authority under the Chapter and also define the local limits within
    which the competent autho~ities shall perform their functions. The relevant
    parts of Sections 269C, 269D and 269E, which have a bearing on controversy
    in hand, are being reproduced below :

            269C. ( l) Where the competent authority has reason to believe that
F           any immovable property of a fair market value exceeding twenty-five
            thousand rupees has been transferred by a person (hereafter in this
            Chapter referred to as the transferor) to another person (hereafter in
            this Chapter referred to as the transferee) for an apparent consideration
            which is less than the fair market value of the property and that the
            consideration for such· transfer as agreed to between the parties has
G           not been truly stated in the instrument of transfer with the object of-

           (a)   facilitating the reduction or evasion of the liability of the transferor
                 to pay tax under this Act in respect of any income arising from
                 the transfer; or
           (b) facilitating the ·concealment of any income or any moneys or
H
C.l.T. v. PEARL MECH. ENGGANDFOUNDRYWORKS(P)LTD. [G.P. MATHUR, J.]         343

       other ~sets which have not been or which ought to be disclosed            A
       by the transferee for the purposes of the Indian Income-tax Act,
       1922 (11 of 1922), or this Act or the Wealth-tax Act, 1957 (27
       of 1957),

 the competent authority may, subject to the provisions of this Chapter,
 initiate proceedings for the acquisition of such property under this            B
 Chapter;

  Provided that before initiating such proceedings, the competent
  authority shall record his reasons for doing so.

  Provided further ........................... (Omitted as not relevant)

  (2) ......................(Omitted as not relevant)

  2690. (1) The competent authority shall initiate proceedings for the
  acquisition, under this Chapter, of any immovable property referred
  to in Section 269C by notice to that effect published in the Official
  Gazette:                                                                       D
  Provided that no such proceedings shall be initiated in respect of any
  immovable property after the expiration of a period of nine months
  from the end of the month in which the instrument of transfer in
  respect of such property is registered under the Registration Act,             E
  1908 (16 of 1908).

  Provided further ....... (Omitted as not relevant)

  (2) The competent authority shall

 (a) cause a notice under sub-section (1) in respect of any immovable            F
     property to be served on the transferor, the transferee, the person
     in occupation of the property, ifthe transferee is not in occupation
     thereof, and on every person whom the competent authority knows
     to be interested in the property ;
 (b) cause such a notice to be published

       (i) in his office by affixing a copy thereof to a conspicuous
           place;

       (ii) in the locality in which the immovable property to which it
            relates is situate, by affixing a copy thereof to a conspicuous
            part of the property and also by making known in such                H
    344                      SUPREME COURT REPORTS [2004] SUPP. I S.C.R.

A                     manner as may be prescribed the substance of such notice at
                      convenient places in the said locality.

            269E. (1) Objections against the acquisition of the immovable property
            in respect of which a notice has been published in the Official Gazette
            under sub-section (1) or section 269D may be made -
B          (a)   by the transferor or the transferee or any other person referred to
                 in clause (a) of sub-section (2) of that section, within a period of
                 forty-five days from the date of such publication or a period of
                 thirty. days from the date of service of notice on such person
                 under the said clause, whichever period expires later ;
c          (b) by any other person interested in such immovable property, within
               forty-five days from the date of such publication. ·

            (2) Every objection under sub-section ( l) shall be made to the
            competent authority in writing. ·

D           (3).......... (Omitted as not relevant)

           5. A perusal of the aforesaid provisions shows that the proceedings for
    acquisition of any immovable property under Chapter XXA have to be initiated
    by publication of the notice to that effect in the official gazette. This is the
    mandatory requirement of sub-section (l) of Section 269D. Under sub-section
E   (2) of the same section, the notice has also to be, served upon the transferor,
    transferee, the person in occupation of the property, if the transferee is not
    in occupation thereof, and also on every person whom the competent authority
    knows to be interested in the property. In view of clause (b) of sub-section
    (2), the notice has to be published in,the office by affixing a copy thueof to
F   a conspicuous place and in the locality in which the immovable property to
    which it relates is situate. Section 269E enables the transferor or the transferee
    or any person referred to in clause (a) of sub-section (2) of Section 269D to
    file an objection in writing against the acquisition of the immovable property
    in respect of which a notice has been published in the official gazette before
    the competent authority. In view of the express language used, the proceedings
G   for acquisition of property can be initiated only by publication of the notice
    in the official gazette and until the publication is so made, the proceedings
    cannot be deemed to have been initiated. The first proviso to sub-section ( l)
    of Section 269D lays down a period of limitation for initiation of such
    proceedings which is nine months from the end of the month in which the
H    instrument of transfer in respect of such property is registered under the
       C.I.T. v. PEARL MECH. ENGGANDFOUNDRYWORKS(P)LTD. [G.P. MATHUR, J.]   345

  Registration Act. Therefore, in view of this provision the notice in the official A
  gazette must be published within a period of 9 months from the end of the
  month in which the acquisition and transfers were registered. Sub-section (2)
  of Section 2690 provides for service of notice [which has been referred to
  in sub-section (l) of Section 2690] upon the transferor, the transferee and
  certain other persons. It further provides for affixing a copy of the notice in B
  the office of the competent authority and also in the locality. The language
  used in sub-section (2) of Section 2690 does not expressly state that the ·
· service of notice upon the transferor or the transf::.rec can be effected only
  after publication of the notice in the official gazette as contemplated by sub-
  section (l). A period of limitation for filing objections has been provided
  under Section 269E, and it gives 45 days from the date of publication of .C
  notice in the gazette and 30 days from the date of service of notice on such
  person (transferor or transferee), whichever period expires later. In view of
  this provision, the service of notice under sub-section (2) of Section 2690
  upon the transferor or transferee prior to the publication of the notice in the
  official gazette cannot cause any prejudice to them as even in such a case
  they will ·get 45 days to file objections from the date of publication in the D
  gazette. In fact, the prior service of notice will be to ~eir advantage as they
  will get additional time to file objection. It is true that in sub-section (1) of
  Section 2690, the expression used is "shall initiate proceedings" which can
  also be interpreted to mean that other steps including personal service of
  notice can be taken only after publication in the gazette but the analysis of E
  the relevant provisions and also the scheme of Chapter XXA does not lead
  to an inference that the personal service of notice upon the transferor or the
  transferee under sub-section (2) prior to the publication of notice in the
  official gazette in sub-section (l) of Section 2690 would render the whole
  proceedings illegal and without jurisdiction.
                                                                                   F
       6. Undoubtedly, the publication of the notice in the official gazette
 under sub-section (1) of Section 2690 is the very foundation for initiation of
 proceedings for acquisition of immovable property under Chapter XXA and
 the period of limitation for initiation of proceedings has to be reckoned with
 reference to the said date. The competent authority gets the jurisdiction to G
 make an order for acquisition of property only after publication of the notice
 in the official gazette. The word "jurisdiction" implies the Court or Tribunal
 with judicial power to hear and determine a cause, and such Tribunal cannot
 exist except by authority of law. Jurisdiction always emanates directly and
 immediately from the law; it is a power which nobody on whom the law has
 not conferred it can exercise. In other words, ''jurisdiction" has reference to H
    346                      SUPREME COURT REPORTS [2004] SUPP. 1 S.C.R.

A the power of the Court or Tribunal over the subject matter, over the res or
    property in contest, and to the authority of the court to render the judgment
    or decree it assumes to make. It is in this sense that the publication of the
    notice in the official gazette confers jurisdiction on the competent authority
    to take proceedings for acquisition of immovable properties under Chapter
B   XXA of the Act. The service of notice under sub-section (2) of Section 269D
    upon the transferor and transferee meets the requirement of natural justice so
    that they may file objections in writing against the action which is proposed
    to be taken, namely for acquisition of property. Any error or mistake committed
    in the service of the notice does not in any manner affect the jurisdiction
    conferred upon the competent authority to take proceedings for acquisition of
C   property. The service of notice prior to the publication in the official gazette
    is merely an irregularity committed during the course of the proceedings and
    cannot have the effect of nullifying the entire proceedings which are validly
    commenced by publication in the official gazette. In fact, no prejudice is
    occasioned to the transferor or transferee by service upon them of the notice
D   prior to the publication of the gazette. We are, therefore, of the opinion that
    prior service of notice under sub-section (2) of Section 269D is at best an
    irregularity but it cannot have the effect of rendering the proceedings either
    illegal or without jurisdiction.

          7.   The question posed here has been considered by various High
E Courts and the decisions rendered therein may be briefly noticed. In CIT v.
    Amrit Sports Industries, 144 ITC 113 a Full Bench of the Punjab and Haryana
    High Court, after analysis of the provisions of the Act, held that sub-section
    (I) of Section 2690 of the Act is the primary and the main provision for the
    initiation of acquisition proceedings and sub-section (2) which obviou'lly
    follows is in a way a subsidiary and a supplementary provision to the aforesaid
F   sub-section (I). It was further held that the initiation of the proceedings for
    acquisition and the consequent assumption of jurisdiction by the competent
    authority is complete by the publication of the notice in the official gazette
    under Section 2690( I) of the Act and consequently a procedural defect of
    compliance with sub-section (2) would not affect the jurisdiction of the
G   competent authority and does not vitiate the whole proceedings under the
    said sub-section. In Smt. Pritpal Kaur v. Inspecting Asstt., CIT 145 ITR 19,
    a Division Bench of Allahabad High Court held that Section 2690( I) of the
    Act, requiring the publication of a notice for initiation of acquisition
    proceedings in the official gazette, is mandatory but the notice to be served
    on the transferor and the transferee of the property need not be after the
H   publication of the notice in the official gazette. In Prem Chand v. !AC, 153
     C.I.T. v. PEARL MECH. ENGG AND FOUNDRY WORKS(P) LTD. [G.P. MATHUR, J.]   34 7
ITR 774 a Division Bench of Kamataka High Court has held that the A
jurisdiction to initiate proceedings for acquisition of immovable property is
conferred on the IAC by Chapter XXA of the Act and the orders made by
the Government appointing him as the authority to decide the cause. Every
error committed by the IAC in the exercise of his own jurisdiction cannot be
treated as outside his own jurisdiction and they are all errors in but not of B
jurisdiction. Accordingly, the errors, if any, committee by the IAC in issuing
notices under Section 269D(2)(a) before the publication of the notice in the
gazette was an error within his own undoubted jurisdiction and was not a
case of assumption of jurisdiction and the Tribunal in holding otherwise and
invalidating the proceedings on that ground was clearly in error. In All India
Reporter v. Competent Authority, 162 ITR 697, the Bombay High Court held C
that the giving of individual notices and locality notice are not jurisdictional
requirements, non-compliance of which must result in invalidating of initiation
of acquisition proceedings. It was further held that the manner of service of
this notice is only directory and not mandatory nor is it a jurisdictional fact
so as to deprive the competent authority of jurisdiction to hold or initiate the D
proceedings. Similar view has been taken by Patna High Court in Smt. Lalita.
 Todi v. CIT, 123 ITR 40 and it has been held that the provisions of Section
2690 (2) must be deemed to be merely directory. We are in agreement with
the view expressed in these decisions.

       8. A contrary view has been taken by a Division Bench of the Punjab           E
and Haryana High Court in CIT v. Des Raj, 220 ITR 7 and in its opinion the
Full Bench decision of the same Court in CIT v. Amrit Sports Industries, 144
ITR 113 did not hold that even where the notice is served under sub-section
(2) prior to its publication under sub-section (1), the error committed by the
competent authority is only procedural and not jurisdictional. On this               F
assumption it was held that such a defect is one of jurisdiction and the
competent authority cannot proceed to make an order acquiring the property.
CIT v. Vinod Gupta, 22 l ITR 213 is a short judgment by the same learned
Judges wherein they followed their earlier decision in CITv. Des Raj (supra).
In our opinion, the view taken in these two decisions does not lay down the
correct law as the ratio of the Full Bench decision in CIT v. Amrit Sports           G
Industries (supra) was not correctly applied. Satya Narain Prakash Punj v.
Union of India, 160 ITR 693 is a decision by a learned Single Judge of Delhi
High Court wherein notice under sub-section (2) of Section 2690 served
prior to the publication of the notice in the official gazette was quashed. For
doing so, the Court relied upon the dictum of the Privy Council in Nazir             H
Ahmed v. King Emperor, AIR (1936) PC 253 that when a statute requires a
                                                        I,
    348                     SUPREME COURT REPORTS [2004) SUPP. I S.C.R.

A   thing to be done in a particular manner, it must be done in that manner or
    not at all. As already discussed, the language of Section 269D does now
    show that the service of notice upon the transferor or transferee, as
    contemplated by sub-section (2), must necessarily be effected only after
    publication of the notice in the official. gazette.

B         9. For the reasons mentioned above, we are of the opiilion that the
    view taken by the High Court and also by the Income Tax Appellate Tribunal,
    Chandigarh, to the effect that service of notice upon the transferor and the
    transferee under Section 269D(2)(a) prior to the publication of the notice in
    the official gazette rendered the whole proceedings illegal and without
C   jurisdiction, is clearly unsustainable in law. The appeal is accordingly allowed
    and the judgment and order dated 21.7.1999 of the Punjab and Haryana High
    Court and also the order dated 16.8.1992 of the Income Tax Appellate Tribunal
    are set aside.

    v.s.s.                                                        Appeal allowed.