1994 (4) TMI 29 - HC - Income Tax

Income Tax Act, Movable Property, Purchase Of Immovable Property By Central Government, Stamp Duty, Supreme Court

Summary

Issues:
Challenge to the order for pre-emptive purchase under section 269UD(1) of the Income-tax Act due to alleged undervaluation of property and improper deductions.

Analysis:
The petitioners, co-owners of a property, entered into an agreement of sale with a public limited company for a specific consideration. The appropriate authority issued a notice for pre-emptive purchase under the Income-tax Act, citing understated consideration. The petitioners challenged this order on various grounds, including the vagueness of the show-cause notice and the alleged undervaluation of the property. The petitioners argued that the market value determination was flawed and did not consider relevant factors.

The appropriate authority calculated the property value based on the building's depreciated value and land value, arriving at a total value of Rs. 73,39,800. However, the apparent consideration in the agreement was Rs. 64 lakhs. The authority also deducted an amount for stamp duty and registration charges from the apparent consideration, which the petitioners contested as improper. The petitioners claimed that the deduction was not justified under the relevant provisions of the Income-tax Act.

The court analyzed the provisions related to apparent consideration and discounts for deferred payments as per the agreement. It noted that the Act did not allow for deductions of expenses like stamp duty and registration fees from the apparent consideration. Citing previous judgments, the court emphasized that the appropriate authority lacked the power to reduce the apparent consideration based on such expenses. The court also referred to a Supreme Court ruling regarding significant undervaluation necessary for pre-emptive purchase under Chapter XXC of the Act.

Ultimately, the court found that the appropriate authority's order for pre-emptive purchase was unjustified as the apparent consideration was not significantly lower than the market value. The court quashed the order and directed the authority to issue a certificate in favor of the petitioners. The judgment highlighted the importance of proper valuation and adherence to legal provisions in such matters, ensuring fair treatment of parties involved in property transactions.