1993 (9) TMI 85 - HC - Income Tax

Issues Involved:
1. Constitutional validity of Chapter XX-C of the Income-tax Act, 1961.
2. Legality of the pre-emptive purchase order under section 269UD(1) of the Act.
3. Entitlement to interest on the balance sale consideration.

Detailed Analysis:

1. Constitutional Validity of Chapter XX-C of the Income-tax Act, 1961:
The petitioner challenged the constitutional validity of Chapter XX-C of the Income-tax Act, 1961. The Supreme Court, in C.B. Gautam v. Union of India [1993] 199 ITR 530, upheld the constitutional validity of Chapter XX-C but read down certain provisions and clarified others. Specifically, the court held that the requirement to grant an opportunity to the affected parties to show cause against the purchase must be read into the provisions of Chapter XX-C. Orders passed without giving such an opportunity and without recording reasons are bad in law and liable to be set aside.

2. Legality of the Pre-Emptive Purchase Order:
The impugned order dated May 30, 1988, was passed by the appropriate authority under section 269UD(1) of the Income-tax Act, ordering the pre-emptive purchase of the property. The petitioner challenged this order on the grounds that it was issued without giving an opportunity to the affected parties to show cause and without recording reasons. Following the Supreme Court's decision in Gautam's case, the court found that the impugned order was indeed passed without affording an opportunity to the affected parties and without providing reasons. Consequently, the impugned order was quashed as being bad in law.

3. Entitlement to Interest on the Balance Sale Consideration:
The third respondent sought interest on the balance sale consideration due to the delay caused by the interim order. The Supreme Court in Rajalakshmi Narayanan v. Margaret Kathleen Gandhi [1993] 201 ITR 681 had awarded interest at 15% per annum under similar circumstances. The court in the present case had to determine whether interest should be awarded and at what rate.

The court noted that the principles laid down in Rajalakshmi's case were applicable, as the third respondent did not delay or obstruct the compulsory purchase, and the prices of immovable properties had significantly increased. The court rejected the contention that the third respondent's writ petition in the Madras High Court constituted an obstruction. The court held that the third respondent was entitled to interest, considering that she was prevented from obtaining the sale price due to the stay order.

The court concluded that the rate of interest should be 9% per annum, considering that the third respondent continued to hold possession of the property. This rate was deemed appropriate in light of the Supreme Court's observations in both Rajalakshmi's and Gautam's cases.

Conclusion and Directions:
As a consequence of quashing the impugned order, the court issued the following directions:
1. The statement in Form No. 37-I submitted regarding the agreement of sale dated February 19, 1988, shall be treated as if submitted on the current date.
2. If the appropriate authority intends to exercise the right to purchase the property, it must issue a show-cause notice to the affected parties and afford them a reasonable opportunity to show cause.
3. If the appropriate authority decides to pass an order of compulsory purchase under section 269UD(1) of the Act, interest at 9% per annum shall be paid on the balance amount of apparent consideration from the date of the impugned order to the date of payment.
4. If the appropriate authority does not exercise the option to purchase the property, and the third respondent conveys the property to the petitioner, the petitioner shall pay the balance sale consideration of Rs. 31 lakhs with interest at 9% per annum from August 19, 1988.

The petition and I.A. II were partly allowed, and the matter was remitted to the appropriate authority, Income-tax Department, for disposal in accordance with the law and the observations made in the judgment.

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