2008 (8) TMI 501 - HC - Income Tax

Purchase of Immovable property by Central government- The petitioner has challenged the order passed under sec 269U0(1) and under section 269UE of the Act by respondent No. 1, thereby ordered for pre-emplive purchase under Chapter XX-C of the Act and further to deliver possession of property. Held allowing the petition, that the fair market value was not determined by the appropriate authority as required under the law. There was no mention about the fair market value of the property. Nor was it recorded that the apparent consideration was less then the fair market value by 15 percent. There was no finding that there had been undervaluation of property with a view to evade tax. Mere observation that prices were rising was not sufficient. The order of pre-emptive purchase was not valid.

Summary

Issues:
Challenge to order under sec 269U0(1) and sec 269UE of the Income-tax Act, 1961 for pre-emptive purchase of property.

Analysis:
1. The petitioner contested the orders dated February 24, 1995, issued under sec 269U0(1) and sec 269UE of the Income-tax Act, 1961, for pre-emptive purchase of a property in Nagpur. The petitioner entered into an agreement for the sale of the property, following which a notice was issued under sec 269UD(1A) for a hearing. Despite submissions highlighting lack of fair market value determination, the Appropriate Authority proceeded with the pre-emptive purchase order. The High Court granted a stay on the impugned orders pending the writ petition.

2. The court observed that the determination of fair market value is crucial before declaring under-valuation. Citing precedents, the court emphasized the necessity of establishing fair market value to ascertain any under-valuation. The Department was required to provide reasons for rejecting the petitioner's submissions, especially regarding the rise in property rates in Nagpur. The court stressed the importance of a detailed analysis before concluding under-valuation.

3. Referring to legal precedents, the court reiterated the need for the Appropriate Authority to definitively establish undervaluation by more than 15% of the fair market value. The judgments highlighted the importance of determining fair market value based on concrete evidence rather than speculation. The court emphasized the objective decision-making process and the obligation to specify grounds for pre-emptive purchase.

4. The court noted the absence of any mention regarding the intention to evade tax in the case, emphasizing the Department's duty to demonstrate such intentions for a pre-emptive purchase. Lack of material or proof to justify the action without recording the intention to evade tax was highlighted. The court stressed the necessity of reasons and satisfaction of the Department to support the decision for pre-emptive purchase.

5. Additionally, the court found fault with the Authority for not considering the detailed chart and comparative rates provided by the petitioner to substantiate their case. The lack of proper consideration of the petitioner's submissions, even on the merits, was pointed out. The court concluded that the impugned orders were passed illegally and invalidly due to the absence of fair market value determination and inadequate consideration of material on record.

6. Consequently, the High Court allowed the writ petition, quashing and setting aside the impugned orders of the Appropriate Authority. The court held that the orders were passed without determining fair market value and without following essential legal principles, as elucidated in various judgments. The ruling was made absolute with no order as to costs.