2007 (5) TMI 639 - HC - Income Tax

Judicial review - Validity of Pre-emptive purchase passed by the appropriate authority - challenged by the prospective buyers - determination of fair market value of the Property - applicability of section 269UD(1) where the market value is more than purchase value of the property - scope of interference under Art. 226 - HELD THAT - We must at the outset begin with noticing the scope of interference under Art. 226 of the Constitution of India which by now stand well defined following catena of judgments by Hon'ble Supreme Court. While examining the validity of pre-emptive purchase order of the property under Chapter XX-C of the Act, this Court in exercise of its powers of judicial review can interfere only if it finds that (i) relevant material has been ignored or (ii) irrelevant or erroneous material has been considered or (iii) it has been passed in utter violation of principles of natural justice or (iv) there has been infraction of any statutory provision in the process of decision making or (v) decision is such which no reasonable person could on available material arrive at. Functions of the Appropriate Authority being akin to that of a quasi judicial body, therefore, its order are subject to judicial review within the scope available for writ of certiorari. At the same time, however, this power of judicial review would not extend to the status of the appellate powers and for that matter, revisional powers where the scope of interference is much wider. It is within this available scope of interference that the learned single Judge examined the validity of the impugned pre-emptive purchase order and upheld the same and we have to now in this appeal examine the correctness of the judgment passed by learned single Judge which exercise in effect would also extend to examining validity of the impugned pre-emptive purchase order on the grounds that have been raised before us. Market rates of totally different type of land - On examination of the impugned order of pre-emptive purchase, we find that the Appropriate Authority in its order has categorically noted this argument with reference to r. 11 of the Rajasthan Urban Areas (Sub-Division, Reconstruction and Improvement of Plots) Rules, 1975 and noted that the said Rule provides that the saleable area would be about 66 per cent and this may be more if the plot size is smaller but assuming that only 66 per cent would have available area for sale, yet out of 7,943 sq. mtrs. an area equal to 5,242.38 sq. mtrs. would have been available for sale. Appropriate Authority therefore by this alternative mode worked out the rate of the land on the basis of comparable sale instance i.e. 5,242.38 sq. mtrs. by adjustment of time gap of 12 per cent which then would come to ₹ 1,994.72 per sq. mtr. It was noted that this was so because the deduction of 34 per cent land contemplates absence of larger size as well as less development. On this basis the land value will be ₹ 1,995 x 5,242.38 1,04,58,548. Value of the constructed godowns of ₹ 42 lacs being added thereto, total value of the said property would come to ₹ 1,46,58,548 as against declared apparent consideration of ₹ 99,84,500. We do not find any error in the approach taken by the Appropriate Authority because deduction of 34 per cent of the land for making the provision of civic amenities like roads, parks, open spaces, electricity, water, sewerage, drainage, would essentially exclude the element of the land area being a large size agricultural chunk of land, which is the alternative argument made by the respondents and this would then also exclude the element of the land being less developed/underdeveloped. In other words, making use of 1/3rd land would in fact make the remaining 2/3rd land developed and with the sub-division of lands into plots of smaller sizes, it would no longer remain a large size undeveloped agricultural land. In fact, making provision of all these civic amenities and facilities by using 1/3rd of the land would considerably enhance its saleability and appreciate the value of the remaining 2/3rd of the land. On this count, we do not find that the impugned order passed by the learned Appropriate Authority suffers from any legality so as to warrant interference by this Court in exercise of its power of judicial review. Various encumbrances that were attached to the property - The Valuation Officer in an application submitted to the Appropriate Authority on 18th May, 1994 has categorically stated that in spite of the fact that he invited attention of the transferor to para 4 of the agreement whereby the transferor had to get the open land partitioned by metes and bounds with a specific demarcation, she failed to get the demarcation done till date and thereafter when he went to the site on 22nd June, 1994 the transferee produced copy of the status quo order passed by this Court. In fact, the vendor in her appeal before us is claiming mesne profit from the prospective buyers asserting that they have been during all these years earning huge profits by renting out offices as also open land area for social functions like marriage and party etc. Apart from the fact that the argument about the encumbrances being attached to the property was not raised before the Appropriate Authority, facts narrated above clearly show that despite possession of the godowns and office premises etc. having been handed over to the transferee, both the transferee and the transferor adopted a non-co-operative attitude in getting the common land partitioned by metes and bounds, notwithstanding the specific stipulation to that effect in the agreement to sale that though symbolic possession of the 1/4th share has been handed over by the vendor to the prospective buyer on the date of agreement and the vendor shall get the open land partitioned by metes and bounds by specific demarcation within the period of two months from the date of agreement. The vendor thus deliberately avoided to perform her part of the obligation in the agreement. Neither of the parties can therefore be allowed to take advantage of such a situation. We therefore do not find any merit in this argument either. Principles of natural justice failed to furnish the material documents - Both the factors of encumbrances and built up structures having thus been noticed and deliberated upon coupled with the fact that the material relating to comparable sale instance having been supplied to the prospective buyer and also in view of the fact the appellants did not take any such plea in replies to the show cause notices, mere non-supply of the report of the Valuation Officer did not in any way violate the provisions of s. 269UD (1A) and for that matter the principles of natural justice. It is well settled that principles of natural justice cannot be put in a straitjacket formula and whether or not the requirements of such principles have been satisfied, would have to be decided on the facts of a given case. And in this case, in our opinion, facts show that they were complied with. In the present case however the fact situation is entirely different. When the prospective buyers filed the writ petition, this Court vide order dt. 19th April, 1994 while directing the parties to maintain status quo further directed that the period during which the stay order remains in operation shall be excluded for making the payment by the respondent to the seller . This order was later modified on 27th May, 1994 upon the counsel or the vendor making an argument that if the period of interim stay order is extended, she is likely to suffer loss in terms of interest on the amount which was payable to her and she should not be made to suffer because of this interim order. The learned single Judge therefore while extending the stay order clarified that in case action of the Appropriate Authority is found untenable in law, the vendor shall be entitled to reimbursement of the loss occasioned to her. In order to meet this contingency, the official respondents immediately invested the amount of apparent sale consideration in the sum of ₹ 99,88,500 in the fixed deposit which we are informed was extended from time to time and is valid till date and the maturity value of such FDR as on 16th May, 2006 was stated to be of ₹ 2,67,81,932. We are however not inclined to entertain the other prayers of appellant Mithilesh Kumari because she having not challenged the pre-emptive purchase order and twice submitted no objection to the IT Department for the compulsory acquisition of the said property acquiesced in those proceedings and is now estopped from challenging the said order. Thus, in our view the present matter does not fall in any of those five categories which we had set out at the beginning of our discussion, and therefore, in our considered opinion, the learned single Judge did not commit any error of law in not interfering with the pre-emptive purchase order passed by the Appropriate Authority. We therefore do not find any merit in the appeal filed by the prospective buyers and the same is therefore dismissed but the appeal filed by the vendor is partly allowed with the direction that upon Department taking over possession of the subject property, prospective buyers would be entitled to refund of the amount paid to the vendor together with interest @ 6 per cent per annum, out of the maturity amount of the aforementioned FDR and remaining amount shall be paid to the vendor. In the facts of the case, however, we leave the parties to bear their own costs.

Summary

Issues Involved:
1. Determination of fair market value of the property.
2. Validity of the pre-emptive purchase order under Section 269UD of the IT Act.
3. Compliance with principles of natural justice.
4. Non-supply of valuation report to appellants.
5. Consideration of encumbrances on the property.
6. Time frame for issuing show cause notice.
7. Impact of non-issuance of notice to co-sharers.
8. Use of government-notified rates for valuation.
9. Interest on the balance amount of consideration.

Detailed Analysis:

1. Determination of Fair Market Value of the Property:
The appellants argued that the pre-emptive purchase order was liable to be set aside because the Appropriate Authority failed to ascertain the market rate prevalent in respect of similar land. The Authority adopted the rates of a developed residential plot, whereas the land in question was an undeveloped large agricultural plot. The Authority did not provide adequate deductions towards the cost of development and the area to be lost for providing roads, parks, and other civic amenities. The Court found that the Authority had considered these factors and made adjustments accordingly. The Authority's valuation was based on comparable sale instances, and the Court upheld this approach.

2. Validity of the Pre-emptive Purchase Order under Section 269UD of the IT Act:
The appellants contended that the pre-emptive purchase order should be set aside as it was based on erroneous, irrational, or irrelevant reasons. The Court held that the Appropriate Authority had provided valid reasons for determining the value of the land with comparable lands and that the valuation of the godowns was based on an acceptable mode of valuation adopted by the Central Public Works Department. The Court upheld the pre-emptive purchase order.

3. Compliance with Principles of Natural Justice:
The appellants argued that the Appropriate Authority failed to provide a reasonable opportunity of hearing. The Court noted that the Authority had issued a comprehensive show cause notice and considered the replies submitted by the appellants. The Court held that the proceedings under Chapter XX-C of the IT Act are summary in nature and must be completed within a given time frame. The Court found no violation of principles of natural justice.

4. Non-Supply of Valuation Report to Appellants:
The appellants contended that the non-supply of the valuation report violated the principles of natural justice. The Court found that the basis of the valuation had been disclosed in the show cause notice in sufficient detail. The Court held that the non-supply of the valuation report was not fatal to the validity of the pre-emptive purchase order, as the necessary contents forming the valuation were mentioned in the show cause notice.

5. Consideration of Encumbrances on the Property:
The appellants argued that the Appropriate Authority failed to consider various encumbrances attached to the property. The Court found that the Authority had considered the relevant encumbrances and made adjustments accordingly. The Court noted that the vendor and the prospective buyers had not raised the issue of encumbrances before the Authority. The Court rejected this argument.

6. Time Frame for Issuing Show Cause Notice:
The appellants argued that the show cause notice was issued after an undue delay, leaving them with insufficient time to respond. The Court found that the appellants had sufficient time to respond and had submitted two separate replies. The Court held that the proceedings under Chapter XX-C of the IT Act must be completed within 90 days, and the appellants were aware of this requirement.

7. Impact of Non-Issuance of Notice to Co-sharers:
The appellants contended that the Appropriate Authority failed to issue a notice to the co-sharer, Smt. Krishna Kumari Roongta. The Court found that Smt. Roongta had not taken any steps to object to the transfer or join the proceedings. The Court held that the appellants could not raise this argument on her behalf.

8. Use of Government-Notified Rates for Valuation:
The appellants argued that the rates notified by the government for registration of conveyance deeds should be used for determining the market value. The Court held that the reserve price fixed by the JDA and the rates notified by the government for registration purposes do not necessarily represent the true market value of the land. The Court upheld the valuation method adopted by the Appropriate Authority.

9. Interest on the Balance Amount of Consideration:
The vendor argued that she should be entitled to interest on the balance amount of consideration. The Court noted that the Department had invested the amount of apparent sale consideration in a fixed deposit, which earned interest. The Court directed that upon the Department taking over possession of the property, the prospective buyers would be entitled to a refund of the amount paid to the vendor with interest at 6% per annum, and the remaining amount should be paid to the vendor.

Conclusion:
The Court dismissed the appeal filed by the prospective buyers and partly allowed the appeal filed by the vendor, directing the payment of interest on the balance amount of consideration. The Court upheld the pre-emptive purchase order passed by the Appropriate Authority.