2012 (1) TMI 48 - HC - Income Tax

Preemptive purchase by the Central Government u/s 269 UD (1) - apparent consideration appeared to be understated - petitioner(transferee) argued for rebate to be allowed in the value of property determined by appropriate authority on following grounds - Appropriate authority, has ignored the encumbrances, suits and disputes with regard to the property Held that - Disputes with third party could have a depressing effect on the fair market value of the property. In present case disputes and suits were between the transferors and the petitioner which were ultimately settled , and not between transferors and third parties. Therefore value for a property has been rightly determined which was free from any disputes or suits. No title deeds to the property are available - absence of the title deeds to the property depresses its value Held that - Appropriate authority were informed about the loss of the original title deed to the subject property and the issue of a public notice in the newspaper regarding the loss of the original title deed was directed by this Court. No claim was made or dispute raised by any person on the subject property in response to the notice in the newspaper. Therefore, such loss of the original title deed cannot be said to have had any adverse impact on the fair market value of the property. Subject property was wrongly compared with another property - properties, considering their widely different locations, cannot be compared Held that - properties appear to be located in substantially comparable locations, both having quick access to schools, commercial areas, markets, etc. Further, petitioner has also not been able to bring on record any sale instance in the vicinity of the subject property. There are 9 transferors involved in the property - Held that - Since no merit is found in the first argument of the petitioner, this limb of the argument also is rejected. Authority should record a finding of understatement of the sale consideration in order to justify the pre-emptive purchase of the property Held that - No requirement is laid down that the appropriate authority must record a finding of actual understatement. In present case, Petitioner has been informed of the sale instance of another property & its proposed comparison in the show cause notice. Thus a prima facie case of understatement of the true sale consideration was made out . Petitioner has been given full liberty of rebutting the allegation of under-statement of the apparent consideration which he has not attempted . Therefore the presumption has been rightly drawn about understatement. - Decided against the petitioner.

Summary

Issues Involved:
1. Encumbrances, suits, and disputes affecting property valuation.
2. Absence of original title deeds and its impact on property value.
3. Comparability of subject property with other properties.
4. Multiple transferors affecting negotiations.
5. Requirement of a finding of understatement of sale consideration under the C.B. Gautam case.

Issue-wise Detailed Analysis:

1. Encumbrances, Suits, and Disputes Affecting Property Valuation:
The petitioner argued that the appropriate authority ignored the encumbrances, suits, and disputes related to the property, which should have affected its valuation. The court found this argument without merit, noting that the disputes were between the transferors and the petitioner, not third parties. The disputes were settled, and the petitioner purchased the property for Rs.56,50,000/-. Therefore, the fair market value of Rs.73,72,495/- determined by the appropriate authority was correct, considering the property as free from disputes.

2. Absence of Original Title Deeds and Its Impact on Property Value:
The petitioner contended that the absence of original title deeds should depress the property's value. The court rejected this argument, observing that the appropriate authority was aware of the loss of the original title deed and that a public notice had been issued regarding this loss. No claims were made in response to the notice, and thus, the absence of the original title deed did not adversely impact the property's fair market value. The court found the judgment of the Madras High Court in Ashok Leyland Finance Ltd. inapplicable in this case.

3. Comparability of Subject Property with Other Properties:
The petitioner argued that the subject property, located near a railway track, should not be compared with a property at 20, Hanuman Road, New Delhi. The court found this argument without merit, stating that nearness to the railway station could be an advantage and that the petitioner failed to demonstrate any significant disadvantage due to the property's location. The court upheld the appropriate authority's valuation, which made adjustments for time gap and FAR, determining the fair market value at Rs.73,72,495/-.

4. Multiple Transferors Affecting Negotiations:
The petitioner argued that having nine transferors made negotiations and agreements more difficult, affecting the property's value. The court rejected this argument, considering it a limb of the first argument regarding encumbrances and disputes, which had already been found without merit.

5. Requirement of a Finding of Understatement of Sale Consideration Under the C.B. Gautam Case:
The petitioner contended that the appropriate authority should record a finding of understatement of the sale consideration to justify pre-emptive purchase. The court disagreed, clarifying that C.B. Gautam's case did not require a finding of actual understatement but rather a significant undervaluation of 15% or more. The appropriate authority had informed the petitioner of a comparable sale instance and determined the fair market value, giving the petitioner an opportunity to rebut the allegation of understatement. The court found that the petitioner failed to rebut the allegation, and thus, the presumption of understatement was rightly drawn.

Conclusion:
The court upheld the impugned order passed by the appropriate authority on 26.8.1994 under Section 269 UD(1) of the Income Tax Act, dismissing the writ petition with no order as to costs. All interim orders were vacated.