2002 (7) TMI 5 - HC - Income Tax

Order by appropriate authority for purchase of plot - petitioners had not been given a hearing before the order - method adopted by the Authority for ascertaining the market value is far from being satisfactory and not one which can be regarded as fair and just in the circumstances, we have no alternative but to set aside the order made by the Authority and send the matter back to it for carrying out the exercise and valuation of this property on objective criteria taking into account relevant circumstances which existed as on the date of the agreement. - impugned order is, therefore, set aside

Issues Involved:
1. Validity of the Appropriate Authority's order directing the purchase of the property.
2. Method of determining the market value of the property.
3. Consideration of disputes regarding the title and partnership interests.
4. Exercise of power under Chapter XX-C of the Income-tax Act.
5. Remittance of the matter for redetermination of market value.

Issue-wise Detailed Analysis:

1. Validity of the Appropriate Authority's Order:
The petitioners challenged the order of the Appropriate Authority, which directed the purchase of a property agreed to be sold to them. The order was based on the rejection of Form No. 37-I and the subsequent directive to the Sub-Registrar not to register any sale deed without a no-objection certificate. The petitioners had filed a suit leading to a compromise and execution of a sale deed, but the registration was halted due to the Authority's letter.

2. Method of Determining Market Value:
The petitioners argued that the method adopted by the Authority for determining the market value was flawed. The Authority relied on two sales of smaller plots from January 1989 and extrapolated the value for the larger property, assuming inflation. The petitioners contended that the value of a large property with a bungalow cannot be equated to smaller vacant plots. The Authority failed to consider the unique factors affecting the property's value, such as its size, structure, location, and marketability.

3. Consideration of Disputes Regarding Title and Partnership Interests:
The petitioners highlighted that the vendors had entered into a partnership, and the property was part of the partnership's capital. The Authority initially declined to purchase the property due to title disputes. The petitioners resolved these disputes through a suit and settlement with the other partners. The Authority was required to ascertain the market value considering the title issues and partnership interests as on the date of the agreement.

4. Exercise of Power Under Chapter XX-C of the Income-tax Act:
The court emphasized that the power under Chapter XX-C is special and must be exercised with care and fairness. The provision aims to prevent tax evasion by ensuring the true price of property transactions is disclosed. The Authority's determination of market value must be based on fair and objective standards, not arbitrary figures. The court found the Authority's method unsatisfactory and lacking in fairness and objectivity.

5. Remittance of the Matter for Redetermination of Market Value:
The court set aside the impugned order and remitted the matter to the Authority for redetermination of the market value. The Authority was directed to use acceptable and relevant criteria, considering all relevant circumstances as on the date of the agreement. Given that Chapter XX-C had been deleted from the statute book, the court allowed three months for the Authority to complete the task.

Conclusion:
The writ petitions were disposed of by setting aside the impugned order and remitting the matter to the Appropriate Authority for a fresh determination of the market value within three months. The related miscellaneous petitions were dismissed.

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