1994 (1) TMI 53 - HC - Income Tax

Issues Involved:
1. Validity of the order passed by the appropriate authority under section 269UD of the Income-tax Act, 1961.
2. Question of title and competence of the petitioner-society to transfer the property.
3. Applicability of Chapter XX-C of the Income-tax Act to the petitioner-society.
4. Bar of limitation in passing the order under section 269UD.
5. Violation of fundamental rights under articles 25 and 26 of the Constitution of India.
6. Computation of compensation and applicability of Chapter XX-C where the consideration is in future specie.
7. Alleged arbitrariness and malice in the order passed by the appropriate authority.

Detailed Analysis:

1. Validity of the Order under Section 269UD:
The petitioners challenged the order passed by the appropriate authority for the purchase of lease rights in the property under section 269UD of the Income-tax Act, 1961. The court found that the appropriate authority did not adhere to the statutory limitation period and thus the order was fit to be struck down. The court emphasized that the Finance Minister's long-term policy stressed the need for rigid limitation to avoid undue uncertainty in property transactions.

2. Question of Title and Competence of the Petitioner-Society:
The appropriate authority initially questioned the title of the petitioner-society to the property, leading to the filing of the statement in Form No. 37-I as premature and invalid. However, the court noted that the appropriate authority later contradicted itself by recognizing the petitioner's clear title to the property in its subsequent order. The court found this inconsistency indicative of a lack of proper application of mind.

3. Applicability of Chapter XX-C to the Petitioner-Society:
The court held that Chapter XX-C, primarily aimed at counteracting tax evasion, was not applicable to the petitioner-society, which is a non-taxable entity engaged in religious activities. The court emphasized that the petitioner-society's dealings were governed by a special Act, the Indian Charitable and Religious Trusts Act, 1920, and had already been subjected to judicial scrutiny and approval.

4. Bar of Limitation:
The court found that the appropriate authority violated the statutory limitation period for passing an order under section 269UD. The limitation period of 60 days expired on April 29, 1988, and the appropriate authority's decision to merely file the statement on April 28, 1988, without passing an order, meant that the limitation had already expired. Consequently, the court held that the appropriate authority had no jurisdiction to pass the impugned order.

5. Violation of Fundamental Rights:
The court held that the order of the appropriate authority infringed upon the fundamental rights of the petitioner-society under articles 25 and 26 of the Constitution of India. The court emphasized that the actions of the appropriate authority were hostile to the petitioner's religious activities and constituted an invasion of the right to freedom of religion.

6. Computation of Compensation:
The court agreed with the petitioner's contention that the consideration for the lease, which involved future construction and services, was not computable in present monetary terms. The court applied the principle from CIT v. B. C. Srinivasa Setty [1981] 128 ITR 294 (SC) and held that when the consideration is not computable, the provisions of Chapter XX-C become inoperative.

7. Alleged Arbitrariness and Malice:
The court found the order passed by the appropriate authority to be arbitrary and malicious. The appropriate authority's method of calculating the cost of construction was found to be flawed and indicative of a lack of proper application of mind. The court noted the discrepancy in the appropriate authority's findings regarding the petitioner's title and the sudden shift in its stance without any change in circumstances.

Conclusion:
The court set aside the order passed by the appropriate authority under section 269UD of the Income-tax Act, 1961, on multiple grounds, including the bar of limitation, violation of fundamental rights, and the inapplicability of Chapter XX-C to the petitioner-society. The court directed the appropriate authority to issue a "No objection" certificate under section 269UL(3) and to grant a certificate under section 230A(1) upon satisfaction of legal requirements. The interim order was vacated, and the petition was allowed without any order as to costs.

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