2022 (3) TMI 41 - HC - Income Tax

Order u/s 269 UD - pre-emptive purchase of the flat - breach of principles of natural justice - whether authorities took note of extraneous material into consideration while passing the order? - Order by appropriate authority for purchase by Central Government of immovable property - flat was occupied by Stewart Hall (India) Limited as a tenant and possession would be granted to the original writ petitioner (licensee) only after no objection certificate is issued by the Appropriate Authority - writ petitioner s case is that no documents relating to the sale instance were provided along with the show cause notice and in none of the sale instances, the property was shown to be a tenanted property or a property developed by a Cooperative Housing Society, as in the case of the subject flat - writ petitioner contended that the order of pre-emptive purchase of the flat under Section 269 UD (1) of the Act is arbitrary and unreasonable and in violation of the principles of natural justice - HELD THAT - The opportunity should be adequate, reasonable and not illusory. Assuming the writ petitioner had sought for an adjournment, obviously the Appropriate Authority could not grant one as within a day thereafter, he would loose jurisdiction to pass any orders. Thus, even if such a representation had been made, the Appropriate Authority would have not acceded to the request as he was statutorily barred from doing so. In DLF Universal Ltd. Versus Appropriate Authority 2000 (5) TMI 2 - SUPREME COURT it was held that the provisions of Section 269 UD are to be strictly construed, there is no power to extend time lines stipulated in the said provision. Thus we are of the clear view that the transferors and the transferee did not have adequate opportunity to put forth their objections apart from failure to furnish the copy of the valuation report of the subject property as done by the department. The documents pertaining to the three sale instances which were referred in the show cause notice were also not provided. Therefore, it is amply clear that there has been gross violation of principles of natural justice which would be sufficient to set aside the order passed by the Appropriate Authority by allowing the writ petition. Valuation of the property - Transferors and the transferee contended that the appropriate method of valuation shall be the rent capitalisation method. The Appropriate Authority rejected such contention by observing that since the tenancy is not recognised, such rent capitalisation method cannot be adopted - We fail to understand as to the meaning of the expression tenancy is not recognised. The Appropriate Authority had two options firstly to examine and ascertain as to whether there was a valid tenancy or to hold that there is no tenancy subsisting. There cannot be a finding or in other words, there cannot be a conclusion, that the tenancy is not recognised and there is no such power vested with the Appropriate Authority by piercing into the transactions which were much ahead of the agreement for sale. The Appropriate Authority has no right to question the validity of the agreement for sale, nor it can go into the legality of the transaction or the title of the vendors. Therefore, the finding of the Appropriate Authority to the effect that the tenancy is not recognised is perverse and unsustainable. It is equally well known that a property in respect of which there is a subsisting lease for a substantial period of time would fetch a comparatively low price because the purchase thereof would not carry with it the right to possession or occupation during the subsistence of the leasehold interests, in such cases, the amount of apparent consideration could be even less than the value of the encumbrances or the leasehold interests. The specific plea of the transferors as regards the compelling circumstances to sell the property was not noted by the Appropriate Authority. The other factors which diminish the value of the property were not taken into consideration. As laid down by the Hon ble Supreme Court in Kailash Suneja 2001 (8) TMI 10 - SUPREME COURT in case of pre-emptive of purchase of property, the method of valuation of the fair market value has to be just and reasonable. The writ petitioner was not provided with the copies of the relevant documents pertaining to the three properties which were referred to as the sale instances to arrive at the value of the subject property. The writ petitioner has specifically stated that none of those three properties are tenanted properties. In Kailash Suneja, it has been held that while considering comparable instances, the instances of tenanted properties has to be taken into consideration. This aspect has been brushed aside by the Appropriate Authority. The valuation of the property must be made by taking into consideration all relevant facts which has not been done by the Appropriate Authority. The valuation adopted by the authority has not been done in an objective manner, without reference to the materials placed by the transferors and transferee. More importantly proper and adequate opportunity was not granted to the transferors/transferee/tenant. Fair hearing is a postulate of decision making by a statutory authority exercising quasi-judicial powers. The rules of natural justice operates as implied mandatory requirement, non-observance whereof invalidates the exercise of power In Kamala (Ch.) Versus Appropriate Authority 1998 (11) TMI 70 - MADRAS HIGH COURT it was held that sufficient opportunity should be given to the concerned parties and copies of relevant documents should be furnished, failure to do so was held to be gross breach of natural justice, as held in Sona Builders 2001 (7) TMI 3 - SUPREME COURT In Amudha (T) Versus Members, Appropriate Authority 1992 (2) TMI 14 - MADRAS HIGH COURT it was held that the Appropriate Authority should exercise power under Section 269 UD with great care and utmost fairness. Market value should be determined in a fair and just manner. Thus, for all the above reasons, we are of the clear view that the order passed by the Appropriate Authority dated 29.07.1993 is unsustainable, in gross violation of principles of natural justice, perverse and liable to be set aside. In the result, the appeal is allowed, the order passed in the writ petition is set aside. Consequently the writ petition is allowed and the order passed by the Appropriate Authority dated 29.07.1993 is set aside and the Appropriate Authority is directed to issue necessary certificate under Section 269 UL.

Summary

Issues Involved:
1. Breach of principles of natural justice.
2. Consideration of extraneous material in the valuation of the property.

Issue-wise Analysis:

1. Breach of Principles of Natural Justice:
The appellant contended that the order of pre-emptive purchase of the flat under Section 269 UD (1) of the Income Tax Act, 1961 was arbitrary, unreasonable, and violated the principles of natural justice. The valuation report was provided along with the show cause notice, but no documents relating to the sale instances were provided. The show cause notice was received late in the afternoon on 26.07.1993, with the hearing fixed on 27.07.1993 at 11:00 AM, giving the writ petitioner less than a day to prepare, which was deemed inadequate. The court noted that the opportunity granted was illusory and not reasonable. The principles of natural justice require adequate and reasonable opportunity, which was not provided in this case. The court concluded that there was a gross violation of principles of natural justice, rendering the order passed by the Appropriate Authority unsustainable.

2. Consideration of Extraneous Material in the Valuation of the Property:
The valuation of the property was challenged as excessive and irrational. The appellant argued that the rent capitalisation method should have been adopted due to the subsisting tenancy. The Appropriate Authority concluded that the tenancy was not subsisting, which was factually incorrect as the tenancy was subsisting on the date of the agreement of sale (21.04.1993). The court found this finding to be perverse. The Appropriate Authority also failed to consider the compelling circumstances under which the transferors decided to sell the property and the factors diminishing its value, such as pending litigation and the mortgage with UCO Bank. The court noted that the Appropriate Authority exceeded its jurisdiction by making assumptions about future events and not adopting the rent capitalisation method, which should have been used given the subsisting tenancy. The court held that the valuation was not done in an objective manner, and the Appropriate Authority ignored relevant materials and settled legal principles regarding the valuation of the property.

Conclusion:
The court allowed the appeal, set aside the order passed in the writ petition, and directed the Appropriate Authority to issue the necessary certificate under Section 269 UL of the Act within two weeks. The vendors were directed to complete the sale transaction in favour of the appellant within four weeks from the date of receipt of the certificate. The court found that the order passed by the Appropriate Authority was in gross violation of principles of natural justice, perverse, and not sustainable.