1998 (7) TMI 54 - HC - Income Tax

Summary

Issues Involved:
1. Violation of principles of natural justice.
2. Allegation of undervaluation and tax evasion.
3. Consideration of irrelevant and extraneous factors.
4. Compliance with statutory requirements and permissions.
5. Necessity of a 15% difference between apparent and real consideration.
6. Relevance of sale instances in the same locality.
7. Appropriate remedy and directions to the respondent authority.

Issue-wise Detailed Analysis:

1. Violation of principles of natural justice:
The petitioners argued that no notice was issued to them, and no opportunity of hearing was provided before the impugned orders were passed. This was deemed a violation of the principles of natural justice. The court agreed, citing the Supreme Court's decision in C. B. Gautam's case, which mandates compliance with the principles of natural justice and the issuance of a reasoned order before taking action under Chapter XX-C of the Income-tax Act.

2. Allegation of undervaluation and tax evasion:
The petitioners contended that neither any allegation was made nor any finding recorded by the appropriate authority regarding undervaluation in the transaction to evade tax. The court noted the absence of any statement in the impugned orders or the affidavit-in-reply that there was a 15% or more difference between the apparent and real consideration, which is necessary to invoke Section 269UD of the Act.

3. Consideration of irrelevant and extraneous factors:
The petitioners asserted that the appropriate authority considered irrelevant factors and ignored relevant sale instances in the same locality. The court found that the sale instances provided by the petitioners, which were relevant and germane, were not considered by the appropriate authority in the rectification order, nor mentioned in the affidavit-in-reply, thus making the orders contrary to law.

4. Compliance with statutory requirements and permissions:
The property in question belonged to a public trust, and the sale was subject to the permission of the Charity Commissioner under Section 36 of the Bombay Public Trusts Act. The Charity Commissioner had no objection to the sale for the consideration of Rs. 83,13,490. The court noted that the permission granted by the Charity Commissioner is a relevant factor that should be considered by the appropriate authority, especially in the absence of any circumstances indicating undervaluation or tax evasion.

5. Necessity of a 15% difference between apparent and real consideration:
The court examined whether it was necessary for the appropriate authority to establish a 15% difference between the apparent and real consideration before taking action under Section 269UD. The court referred to the Supreme Court's decision in C. B. Gautam's case, which emphasized that the right of pre-emptive purchase should be exercised only if the fair market value is at least 15% more than the apparent consideration. The court found that neither the impugned orders nor the affidavit-in-reply stated that the appropriate authority was satisfied with such a difference, leading to the conclusion that the orders must be quashed.

6. Relevance of sale instances in the same locality:
The petitioners provided sale instances from Ward No. 11, where the property is situated, showing a range of consideration from Rs. 2,016.14 to Rs. 4,430 per sq. yard, while the transaction in question was at Rs. 8,600 per sq. yard. The court noted that these sale instances were not considered by the appropriate authority in the rectification order, nor mentioned in the affidavit-in-reply, indicating that relevant material was ignored.

7. Appropriate remedy and directions to the respondent authority:
The court deliberated whether to remand the matter back to the appropriate authority for reconsideration or to issue a writ directing the authority to comply with necessary formalities. The court concluded that, given the absence of any positive finding of undervaluation or tax evasion, it was appropriate to quash the impugned orders and direct the respondent to complete the necessary formalities, including issuing the clearance certificate, within six weeks.

Conclusion:
The petition was allowed, and the impugned orders dated September 30, 1991, and October 23, 1991, were quashed and set aside. The respondent was directed to complete the necessary formalities within six weeks, including the issuance of the clearance certificate. Rule made absolute with no order as to costs.