1995 (6) TMI 3 - HC - Income Tax

Summary

Issues Involved:
1. Jurisdiction and exercise of power under Section 269UD(1) of the Income-tax Act, 1961.
2. Validity of the comparison between the property under consideration and the sale instance property.
3. Consideration of transfer expenses and other relevant factors in determining the property value.
4. Requirement of objective satisfaction and positive finding for pre-emptive purchase.

Issue-wise Detailed Analysis:

1. Jurisdiction and Exercise of Power Under Section 269UD(1) of the Income-tax Act, 1961:
The petitioner challenged the order dated April 28, 1995, by the appropriate authority under Section 269UD(1) of the Income-tax Act, 1961, which involved the pre-emptive purchase of property and its vesting in the Government. The petitioner argued that the exercise of power was beyond jurisdiction as there was no allegation of tax avoidance or evasion. The court held that the appropriate authority must base its satisfaction on objective facts and evidence. The absence of a positive finding that the property was undervalued by more than 15% rendered the order invalid.

2. Validity of the Comparison Between the Property Under Consideration and the Sale Instance Property:
The appropriate authority compared the property under consideration with another property (sale instance property) and concluded that the former was fit for pre-emptive purchase. The petitioner contended that the sale instance property was not comparable due to differences in location, shape, area, frontage, and commercial development. The court agreed, noting that the appropriate authority failed to consider these differences adequately. The court emphasized that narrow frontage, odd shape, and lack of commercial development around the property under consideration should have been factored into the valuation, which the authority neglected.

3. Consideration of Transfer Expenses and Other Relevant Factors in Determining the Property Value:
The petitioner argued that the transfer expenses borne by the purchaser and other factors such as the property's odd shape and narrow frontage were relevant in determining its value. The appropriate authority dismissed these considerations, stating they did not significantly affect the property's value. The court disagreed, stating that these factors are indeed relevant and should have been given due importance. The failure to consider these aspects rendered the authority's valuation flawed.

4. Requirement of Objective Satisfaction and Positive Finding for Pre-emptive Purchase:
The court highlighted that the satisfaction required under Section 269UD(1) must be based on objective facts and evidence. The appropriate authority must arrive at a positive finding that the property was undervalued by more than 15%. The court found that the authority's order lacked such a positive finding and was based on rejecting the petitioner's submissions rather than on concrete evidence. This failure to meet the legal requirement of objective satisfaction invalidated the order.

Conclusion:
The court concluded that the appropriate authority committed a grave error in relying on the sale instance property for comparison and in dismissing relevant factors affecting the property's value. The lack of objective satisfaction and positive finding regarding the undervaluation of the property by more than 15% rendered the order illegal. Consequently, the court quashed the impugned orders dated April 28, 1995, and directed the respondent to complete the necessary formalities, including issuing a clearance certificate, within six weeks. The petition was allowed, and the rule was made absolute with no order as to costs.