1992 (11) TMI 3 - SC - Income Tax

Acquisition of Immovable Property - whether immovable property would vest in the Central Government free from all encumbrances under section 269-1, upon a final order being made under section 269F(6) and consequently, whether a tenant governed by the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947, can be evicted from such property

Issues Involved:
1. Constitutional validity of Chapter XX-A of the Income-tax Act, 1961.
2. Whether immovable property vests in the Central Government free from all encumbrances under section 269-1 upon a final order under section 269F(6).
3. Rights of a tenant governed by the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947, in the acquired property.
4. Whether tenancy rights are considered property under Articles 19(1)(f) and 31 of the Constitution.
5. Entitlement to compensation for tenancy rights upon acquisition.

Issue-wise Detailed Analysis:

1. Constitutional Validity of Chapter XX-A of the Income-tax Act, 1961:
The appellants challenged the constitutional validity of Chapter XX-A, which was dismissed by the Gujarat High Court. The Supreme Court upheld the High Court's decision, emphasizing that the legislative history and the scheme of Chapter XX-A were to counter tax evasion and unearth black money. The provisions were enacted for a public purpose, and the subsequent insertion of Chapter XX-C did not impact the validity of Chapter XX-A.

2. Vesting of Immovable Property in the Central Government Free from All Encumbrances:
The Supreme Court affirmed that under section 269-1, once the order for acquisition becomes final, the property vests absolutely in the Central Government free from all encumbrances. The competent authority is empowered to take possession of the property, and any person in possession must surrender it. The proviso to sub-section (4) of section 269-1 clarifies that the Central Government is discharged from liability concerning any encumbrances, which may only be enforced against the transferee or other persons by a suit for damages.

3. Rights of a Tenant Under the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947:
The appellants argued that statutory tenancy is not an encumbrance and should continue post-acquisition. However, the Supreme Court held that the scheme of Chapter XX-A includes acquisition of possessory rights, which encompass tenancy rights. The requirement of notice to the person in occupation under section 269D and the opportunity to object under section 269E indicate that even tenants are considered interested parties in the acquisition process. The final order under section 269F(6) mandates the delivery of possession to the Central Government, nullifying any tenancy rights.

4. Tenancy Rights as Property Under Articles 19(1)(f) and 31 of the Constitution:
The appellants contended that tenancy rights are property under Articles 19(1)(f) and 31, necessitating compensation upon acquisition. The Supreme Court rejected this, stating that Chapter XX-A provides for compensation, which includes all rights in the property. The additional 15% compensation is akin to solatium for compulsory acquisition. Therefore, tenancy rights, if any, are subsumed within the compensation framework provided by the Act.

5. Entitlement to Compensation for Tenancy Rights:
The Supreme Court concluded that a tenant in possession is entitled to a share in the compensation amount but has no right to continue in possession post-acquisition. The compensation amount is to be shared among persons claiming entitlement, with disputes adjudicated by the court. The scheme of Chapter XX-A ensures that no one, including tenants, can retain possession after the acquisition order becomes final.

Conclusion:
The Supreme Court dismissed the appeal, affirming that Chapter XX-A of the Income-tax Act, 1961, is constitutionally valid. The immovable property vests in the Central Government free from all encumbrances upon a final acquisition order. Tenancy rights do not survive post-acquisition, and tenants are only entitled to a share in the compensation. The appeal was dismissed with no costs.

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