1994 (2) TMI 36 - HC - Income Tax

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

Summary

Issues Involved:
1. Validity of the order passed by the appropriate authority under Section 269UD of the Income-tax Act, 1961.
2. Application of principles laid down in C. B. Gautam's case regarding reasonable opportunity of being heard.
3. Interpretation of the value of co-owners' shares under Chapter XX-C of the Income-tax Act.
4. Retrospective application of the Supreme Court's guidelines in C. B. Gautam's case.

Detailed Analysis:

1. Validity of the Order under Section 269UD:
The primary issue in the appeals was the validity of the order dated December 17, 1987, passed by the appropriate authority for the compulsory purchase of immovable properties under Section 269UD of the Income-tax Act, 1961. The appropriate authority had determined that the property value quoted in the agreement was significantly below the market value, justifying the purchase order. The respondents challenged this order on the grounds of non-application of mind and procedural lapses.

2. Application of C. B. Gautam's Case:
The Supreme Court in C. B. Gautam v. Union of India [1993] 199 ITR 530 had upheld the provisions of Chapter XX-C but mandated that a reasonable opportunity of being heard must be given to the concerned parties before an order for compulsory purchase is made. The Constitution Bench emphasized that significant undervaluation of property (15% or more) could raise a presumption of tax evasion, which is rebuttable. The respondents must be given an opportunity to show cause against such a presumption.

In the present case, it was undisputed that the appropriate authority did not provide the respondents with a reasonable opportunity to be heard before passing the purchase order. This procedural lapse rendered the order invalid as per the principles laid down in C. B. Gautam's case.

3. Interpretation of Co-owners' Shares:
The learned single judge had set aside the purchase order on the ground of non-application of mind, particularly noting that the shares of the three co-owners were not equal. The value of each co-owner's share was below Rs. 10 lakhs, except for one, which raised questions about the applicability of Chapter XX-C. The Division Bench of the High Court in Appropriate Authority v. J. S. A. Raghava Reddy [1993] 199 ITR 508 had held that the value of each co-owner's share should be considered separately. The learned single judge followed this reasoning, concluding that the appropriate authority did not properly apply its mind to whether Chapter XX-C should apply to the entire property as a single unit.

4. Retrospective Application of Supreme Court's Guidelines:
The Supreme Court in C. B. Gautam's case provided guidelines for the retrospective application of its judgment, stating that the period for the appropriate authority to act should be reckoned from the date of the High Court's disposal of the pending matters. The respondents argued that the Revenue had missed the deadline to proceed under Chapter XX-C, as the two-month period had expired following the single judge's decision on December 15, 1992.

However, the court clarified that the relevant period starts from the date of the appellate court's judgment if the appellate court sets aside the purchase order based on the principles of C. B. Gautam's case. Therefore, the appropriate authority would have three months from the date of signing the present judgment to act, considering the legislative amendment extending the period to three months.

Conclusion:
The final order of the learned single judge quashing the purchase order was confirmed, not on the original grounds of non-application of mind, but because the order violated the mandatory procedure of providing a reasonable opportunity to be heard, as laid down by the Supreme Court in C. B. Gautam's case. The appeals were dismissed to the extent they challenged the quashing of the purchase order, but partly allowed to provide the Revenue with a three-month period from the date of signing the present judgment to proceed under Chapter XX-C, following the Supreme Court's guidelines. The question of whether Chapter XX-C applies to the transaction in question was left open for the appropriate authority to decide after hearing the concerned parties.