1994 (3) TMI 3 - HC - Income Tax

Summary

Issues Involved:
1. Challenge to the pre-emptive purchase by the Government.
2. Validity of the sale agreement and payment without a no objection certificate.
3. Evaluation of the fair market value and alleged undervaluation.
4. Jurisdiction of the appropriate authority under Chapter XX-C of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Challenge to the Pre-emptive Purchase by the Government:
The petitioners-purchasers challenged the Government's pre-emptive purchase of flat No. 10 in "Parmar Paradise" under section 269UD(1) of the Income-tax Act, 1961. The petitioners argued that the flat was not undervalued as determined by the appropriate authority.

2. Validity of the Sale Agreement and Payment Without a No Objection Certificate:
The sale agreement dated July 12, 1993, indicated that the petitioners agreed to purchase the flat for Rs. 14,06,000, which was paid before the agreement without obtaining a no objection certificate under Chapter XX-C of the Income-tax Act, 1961. The possession of the flat was handed over to the petitioners without specifying the date. The entire transaction was completed before filing Form No. 37-I on July 27, 1993. The court noted that the petitioners paid the consideration and obtained possession without the necessary no objection certificate, which was a procedural lapse.

3. Evaluation of the Fair Market Value and Alleged Undervaluation:
The appropriate authority issued a show-cause notice for pre-emptive purchase, citing two sale instances in the same society where the rates were significantly higher than the rate agreed upon in the petitioners' transaction. The authority concluded that the flat was undervalued by more than 15% based on these instances. The petitioners contended that the authority erred in relying on the auction sale of flat No. 4 on September 8, 1993, and another sale on September 24, 1993, arguing that prices in a rising market increase in steps. However, the court found no merit in this contention, noting that the petitioners failed to provide evidence of a 30% price increase within two months. The court upheld the authority's conclusion of undervaluation.

4. Jurisdiction of the Appropriate Authority Under Chapter XX-C of the Income-tax Act, 1961:
The petitioners argued that each owned an undivided 1/3rd share in the property, and the consideration for each share was below Rs. 10,00,000, making section 269UD inapplicable. They cited judgments from the Madras High Court in K. V. Kishore v. Appropriate Authority and N. C. Rangesh v. Inspector General of Registration to support their claim. However, the court found the agreement to be a composite transaction and not indicative of individual undivided shares. The court noted that the petitioners themselves filed Form No. 37-I and declared joint ownership with undivided shares. The court concluded that the appropriate authority had jurisdiction under Chapter XX-C, and the cited judgments did not apply to the facts of this case.

Conclusion:
The court rejected the writ petition, finding no merit in the petitioners' contentions. The pre-emptive purchase by the Government was upheld, and the procedural and substantive grounds raised by the petitioners were dismissed. The court emphasized the importance of compliance with procedural requirements under Chapter XX-C of the Income-tax Act, 1961.