2000 (2) TMI 6 - SC - Income Tax

Purchase Of Immovable Property By Central Government - validity of the preemptive purchase of a building in the city of Bangalore under section 269UE of the Income-tax Act 1961 and its sale by the Central Government - held that order of the preemptive purchase of a building is valid

Issues Involved:
1. Validity of the preemptive purchase of a building under section 269UE of the Income-tax Act, 1961.
2. Legality of the auction sale of the property by the Central Government.
3. Compliance with the procedural requirements as per the Supreme Court's decision in C.B. Gautam's case.
4. Determination of the apparent consideration and its discounted value.
5. Impact of non-payment of the balance bid amount by the auction purchaser.
6. Revesting of the property in the transferor after the Supreme Court's order.
7. Legality of deductions made towards arrears of income-tax and wealth-tax.

Detailed Analysis:

1. Validity of the Preemptive Purchase:
The controversy revolves around the preemptive purchase of a building in Bangalore under section 269UE of the Income-tax Act, 1961. The appropriate authority initiated action for preemptive purchase on the grounds of undervaluation to evade tax, setting the purchase value at Rs. 1,50,17,084. The Karnataka High Court initially upheld this action, but the Supreme Court reversed it, relying on the Constitution Bench decision in C.B. Gautam's case, which mandated a show-cause notice and an opportunity for the affected parties to rebut the presumption of undervaluation.

2. Legality of the Auction Sale:
After the High Court's dismissal of the writ petitions, the Central Government auctioned the property, which was occupied by tenants. The highest bid was Rs. 2,77,00,000, but the auction purchaser failed to pay the balance amount. The auction purchaser's writ petitions seeking eviction of tenants and delivery of vacant possession were dismissed by the High Court, which held that the purchaser was aware of the tenant occupation and defaulted in payment.

3. Compliance with Procedural Requirements:
Following the Supreme Court's order setting aside the High Court judgment, the appropriate authority issued a fresh notice and provided a hearing to the parties as per the principles laid down in C.B. Gautam's case. The authority reaffirmed the undervaluation and ordered preemptive purchase, stating that the property had already been handed over to the Central Government.

4. Determination of Apparent Consideration:
The appropriate authority fixed the apparent consideration at Rs. 1,50,17,084, discounted from the agreed Rs. 1,55,00,000. The authority deducted Rs. 2,49,851 towards arrears of income-tax and wealth-tax. The transferor did not object to the discounted value or the deductions and accepted the balance amount, thereby delivering possession of the property to the Central Government.

5. Impact of Non-Payment by Auction Purchaser:
The auction purchaser's failure to pay the balance amount led to the dismissal of his writ petitions. The High Court held that the purchaser, being aware of the tenant occupation, could not seek relief under Article 226 of the Constitution after defaulting on payment.

6. Revesting of Property Post-Supreme Court Order:
The contention that the property revested in the transferor after the Supreme Court's order was rejected. The Supreme Court did not direct de novo proceedings but allowed the appropriate authority to issue a fresh notice and hearing. The property had vested in the Central Government, and this position remained unchanged.

7. Legality of Deductions for Tax Arrears:
The deductions towards tax arrears were found to be legally permissible. The transferor, having accepted the balance amount and delivered possession, could not claim that the Central Government failed to tender the required consideration. The vesting order in favor of the Central Government was upheld.

Conclusion:
The appeals and transfer cases were dismissed, with the Supreme Court finding no serious illegality or infirmity in the order dated November 28, 1996, passed by the appropriate authority. The procedural requirements as per C.B. Gautam's case were complied with, and the property remained vested in the Central Government. The deductions made were lawful, and the auction purchaser's default negated any claims for relief. The judgment emphasized the importance of following procedural safeguards to prevent tax evasion through undervaluation of property.

← Previous Next →