1995 (10) TMI 27 - HC - Income Tax

Movable Property Powers Of Appropriate Authority Purchase Of Immovable Property By Central Government Tax Evasion

Summary

Issues Involved:
1. Determination of fair market value by the appropriate authority.
2. Alleged undervaluation with the intent to evade tax.
3. Compliance with the Urban Land (Ceiling and Regulation) Act (ULC Act).
4. Validity of the pre-emptive purchase order under section 269UD(1A) of the Income-tax Act.

Detailed Analysis:

1. Determination of Fair Market Value:
The petitioners contended that the appropriate authority failed to determine the fair market value of the property in question. They argued that the comparison between the Property Under Consideration (PUC) and Sale Instance Properties (SIPs) was flawed because the SIPs were in a commercial zone, while the PUC was in a residential zone. Additionally, a significant portion of the land was subject to conditions under the ULC Act, which would affect its market value. The court noted that the appropriate authority did not provide a specific finding on the fair market value, which is crucial for determining any undervaluation.

2. Alleged Undervaluation with the Intent to Evade Tax:
The petitioners argued that the order was invalid because the appropriate authority did not find that the alleged undervaluation was done with the intent to evade tax, which is a sine qua non for exercising the power of pre-emptive purchase under section 269UD(1A) of the Income-tax Act. The court referenced the Supreme Court's decision in C. B. Gautam v. Union of India, which held that the provisions of Chapter XX-C were intended to counter tax evasion through significant undervaluation of property. The court found that the appropriate authority's order lacked a specific finding that the apparent consideration was understated with a view to evade tax, making the order unsustainable.

3. Compliance with the Urban Land (Ceiling and Regulation) Act (ULC Act):
The Revenue's counsel contended that the agreement violated the ULC Act because a substantial portion of the land was subject to conditions that prohibited its transfer without permission. The court acknowledged this issue but referred to the Delhi High Court's judgment in Tanvi Trading and Credits P. Ltd. v. Appropriate Authority, which held that the appropriate authority under the Income-tax Act does not have the power to reject a statement in Form No. 37-I based on the legality of the sale under other laws. The Supreme Court affirmed this view, stating that the appropriate authority's role is limited to deciding whether to purchase the property or issue a no-objection certificate. Thus, the preliminary objection regarding the ULC Act was overruled.

4. Validity of the Pre-emptive Purchase Order under Section 269UD(1A):
The court found that the appropriate authority's order dated December 26, 1994, was passed without arriving at a specific finding that the apparent consideration was not the real consideration or that it was understated to evade tax. The court emphasized that the appropriate authority must provide a reasoned order reflecting its satisfaction that there was an attempt to evade tax. The absence of such a finding rendered the order invalid. Consequently, the court quashed and set aside the impugned order and directed the respondent to take necessary steps within eight weeks.

Conclusion:
The petition was allowed, and the impugned order dated December 26, 1994, was quashed and set aside due to the lack of a specific finding on tax evasion. The court ruled that the appropriate authority must provide a reasoned order with specific findings to exercise its power of pre-emptive purchase under section 269UD(1A) of the Income-tax Act. The preliminary objection regarding the ULC Act was overruled, and the court directed the respondent to take necessary steps following the quashing of the order.