1994 (5) TMI 24 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the pre-emptive purchase order u/s 269UD(1) of the Income-tax Act.
2. Adequacy and legality of the show-cause notice issued by the appropriate authority.

Summary:

1. Validity of the pre-emptive purchase order u/s 269UD(1) of the Income-tax Act:

The petitioner, a registered non-trading corporation, entered into an agreement on June 10, 1992, to purchase land from a public charitable trust for Rs. 20 lakhs. The trust sought permission from the Charity Commissioner to sell the land, who then issued a public advertisement inviting offers. The petitioner's offer of Rs. 22 lakhs was accepted after another conditional offer was rejected. The agreement to sell was executed on October 19, 1993, subject to sanctions from the Charity Commissioner u/s 36 of the Bombay Public Trusts Act and the appropriate authority under the Income-tax Act. Despite this, the appropriate authority passed an order on February 23, 1994, for pre-emptive purchase u/s 269UD(1) of the Income-tax Act, citing understated consideration by more than 15%.

The court found that the land was sold through a public auction, and the highest bid was accepted by the Charity Commissioner, making it difficult to conclude significant undervaluation. The Supreme Court's precedent in C. B. Gautam v. Union of India [1993] 199 ITR 530 was cited, emphasizing that Chapter XX-C provisions apply only when there is significant undervaluation of 15% or more, and such a presumption is rebuttable. The court concluded that there was no attempt to evade tax and quashed the pre-emptive purchase order.

2. Adequacy and legality of the show-cause notice issued by the appropriate authority:

The petitioner argued that the show-cause notice was vague and did not disclose any reasons or grounds for the compulsory purchase. The court agreed, stating that a show-cause notice must provide a reasonable opportunity to the affected parties to contest the apparent consideration as the market price. It should inform the parties about the material on which the authority proposes to act and give them a fair chance to represent their case. The court referenced the Supreme Court's decision in B.D. Gupta v. State of Haryana, emphasizing that a vague notice fails to provide a reasonable opportunity to the affected parties.

Conclusion:

The petition was allowed, and the impugned order dated February 23, 1993, was quashed. The appropriate authority was directed to issue a "no objection" certificate u/s 269UL(1) of the Income-tax Act to the petitioner. The operation of this order was stayed until August 1, 1994, at the request of the respondents' advocate.