1997 (1) TMI 72 - HC - Income Tax

Immovable Property By Central Government, Individual Property, Market Value, Movable Property

Summary

Issues Involved:
1. Validity of the pre-emptive purchase order under Section 269UD(1) of the Income-tax Act, 1961.
2. Determination of fair market value exceeding the declared consideration by more than 15%.
3. Applicability of Chapter XX-C of the Income-tax Act to the transaction involving multiple co-owners.
4. Legal status of the co-owners as individual sellers versus an association of persons.

Detailed Analysis:

1. Validity of the Pre-emptive Purchase Order:
The petitioners challenged the order dated May 31, 1994, passed by the appropriate authority under Section 269UD(1) of the Income-tax Act, 1961. The order directed the pre-emptive purchase of the property by the Central Government, asserting that the fair market value exceeded the declared consideration by more than 15%. The court found that the exercise of pre-emptive purchase power was neither appropriate nor proper as the provisions of Chapter XX-C were not attracted in this case.

2. Determination of Fair Market Value:
The appropriate authority fixed the fair market value of the property at Rs. 60.72 lakhs against the declared consideration of Rs. 20 lakhs. The petitioners contended that the agreement for sale involved 13 co-owners, each with a specific share, and hence, the value of each share was less than Rs. 10 lakhs. The court agreed with the petitioners, emphasizing that each co-owner had a specific share in the undivided joint ownership property, and the value of each share should be considered individually.

3. Applicability of Chapter XX-C:
The respondents argued that the property was one and the provisions of Chapter XX-C were applicable. The court, however, concluded that the property inherited by the respondents under Muslim law made them co-owners, each with a specific share. The court referred to similar judgments, including Surinder Gupta v. Chief CIT and K. V. Kishore v. Appropriate Authority, which supported the view that each co-owner's share should be treated individually. Thus, the provisions of Chapter XX-C were not applicable as the value of each share was less than Rs. 10 lakhs.

4. Legal Status of Co-owners:
The respondents claimed that the co-owners formed an association of persons to sell the property. The court rejected this claim, stating that the property devolved upon the respondents as legal heirs under Muslim law, making them co-owners. The court emphasized that each co-owner had the right to sell their share individually. The composite agreement for sale did not negate their individual rights. The court concluded that the transaction should be deemed as 13 separate sales, not a single composite transaction.

Conclusion:
The court allowed the writ petition, quashing the pre-emptive purchase order dated May 31, 1994, and the subsequent communication dated June 22, 1996. A writ of mandamus was issued, directing the appropriate authority to issue a "no objection certificate" to the petitioners. The oral prayer for stay of the order was rejected, and the writ application was allowed.