9911796707
TMI Blog1986 (12) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... 7-2-1984. The property in question is situate on leasehold land measuring 1250 sq. yards. The lessor is the Government of India. A lease deed dated 16-8-1962 was executed on behalf of the President of India in favour of the aforesaid vendors. The lease was effective from 3-3-1952. Under the terms of the lease before any assignment or transfer of the lease property, the lessee had to obtain from the lessor approval in writing of the assignment or transfer and the lessor is entitled to claim and recover a portion of the unearned increase (i.e., the difference between the premium already paid and the current market value) in the value of land, the decision of the lessor in this behalf shall be final ; the amount to be recovered being 50 per cent of the unearned increase. Under the agreement to sell entered into between the vendors and the appellants, the latter had agreed to pay up to the sum of Rs. 10 lakhs towards the payment in respect of unearned increase payable to the Government of India and they had in addition agreed to pay a price of Rs. 37,50,000 to the vendors as consideration for the property in question. A sum of Rs. 10,26,362.50 was actually paid to the Government of In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lock No. 10, Golf Links and on that basis justified the correctness of the consideration paid by them. It was also contended that there was no material before the competent authority to have a reason to believe that the understatement in the consideration was with the object of avoiding taxes and no proceedings for acquisition could, therefore, be initiated. The vendors did not contest the proceedings. 6. The learned competent authority held that the fair market value of the property in question as on the date of transfer was Rs. 61,25,750, the apparent consideration was only Rs. 37,50,000 as mentioned in the sale deed and that since the fair market value exceeded the apparent consideration by more than 25 per cent, understatement was presumed to be with the object of tax avoidance. The learned competent authority, therefore, with the prior approval of the Commissioner, ordered the acquisition of the property in question. 7. At the hearing before us, the learned counsel for the assessee moved an application dated 6-10-1986 praying that the assessee be allowed to take up the following additional ground : "That the competent authority did not publish the notice in the Official ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een given. The learned competent authority, therefore, directed the inspector to inspect the property and report about its valuation. The inspector reported the value at Rs. 61,22,990 vide report dated 7-5-1985. In arriving at this valuation he relied upon a sale instance of a property at Jor Bagh, a colony which, in his opinion, was comparable to the Golf Links area where the property in question was situated. On the basis of the inspector's report the learned competent authority felt satisfied that the fair market value of the property in question was more than the consideration shown to have passed between the purchasers and the seller. The learned counsel for the assessee contended that the inspector's report could not have been acted upon in the face of the report of the Government valuer. He drew our attention to section 269L(1)(a) wherein the competent authority is required to appoint a Valuation Officer to 'determine' the fair market value of a property. The learned counsel laid stress on the use of the word 'determine' as against the word 'estimate' used in clause (b) of section 269L(1). It was contended that the word 'determine' according to dictionary meaning means to se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t value of the property himself what he stated was that the consideration of Rs. 37,50,000 shown by the purchasers was acceptable. It was sometimes later during the course of the proceedings that the Valuation Officer submitted the relevant details. Therefore, when the competent authority had to decide whether or not to initiate the proceedings for acquisition, those details were not there and the report of the Valuation Officer was, therefore, substantially defective. So much so that it mentioned the consideration at Rs. 37,50,000 while in fact the purchasers parted with Rs. 47,50,000 out of which Rs. 10 lakhs were paid to the Government of India towards its share in the unearned increase and the balance of Rs. 37,50,000 was paid to the vendors. The fact that the Valuation Officer had the agreement to sell with him when he compiled his report and the omission to make any reference to the sum of Rs. 10 lakhs, provided sufficient grounds to doubt the credibility of the valuer's report. In our view, therefore, there was nothing wrong in the conduct of the learned competent authority in deputing an inspector to make an enquiry. 10. As regards the propriety of initiation of acquisiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the initiation of proceedings for acquisition on the basis of the inspector's report, particularly in the presence of the Valuation Officer's report, was defective. 11. It was then contended that the learned competent authority did not record any reasons for the initiation of the proceedings for acquisition of the property and did not apply its mind to the facts before initiating proceedings. This contention is absolutely without force. At pages 51, 52 and 53 forming part of the assessee's own paper book, we have a copy of the reasons recorded by the learned competent authority. These reasons were recorded on 14-5-1985, as is evident from pages 49 and 50 of the paper book. The contention that no reasons were recorded has, therefore, no force. 12. As regards the application of mind, it was pointed out by the learned counsel for the appellants that on the inspector's report, the learned competent authority had merely written one word 'seen' and made his signatures. A photocopy of the inspector's report is placed at pages 59 to 61 of the paper book. Reliance was placed on a judgment of the Hon'ble Punjab and Haryana High Court in CIT v. Amrit Sports Industries [1984] 145 ITR 231. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purchase of this property. There is no dispute that such an amount was actually paid by the appellants in addition to the sum of Rs. 37,50,000 paid to the vendors aforesaid. The learned competent authority has taken the sum of Rs. 37,50,000 only as the apparent consideration for the property in question. This is because the term 'apparent consideration' has been defined in section 269A of the Act, meaning the consideration as specified in the instrument of transfer. In this case the instrument of transfer is the sale deed executed by the vendors in favour of the present appellants. In that document, a copy of which is to be found at pages 43 to 48 of the paper book, there is no reference to the sum of Rs. 10 lakhs paid to the Government of India and the document says that the property is being transferred to the appellants in consideration of Rs. 37,50,000. The learned counsel for the appellants contended that in this case it was agreed between the vendors and the appellants that the latter would pay up to Rs. 10 lakhs towards the Government's share of unearned increase and such a term was specifically recorded in the agreement to sell dated 17-2-1984 (pages 7 to 11). The l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assignees and transferees and the heirs of the lessee shall be bound by all the covenants and conditions herein contained and be answerable in all respects thereof. Provided also that the lessor shall be entitled to claim and recover a portion of the unearned increase (i.e., the difference between the premium already paid and current market value) in the value of land the decision of the lessor in this behalf shall be final at the time of transfer (whether such transfer is an entire site or only a part thereof) the amount to be recovered being 50 per cent of the unearned increase." This means that the vendors had only leasehold right in the land and they had no absolute power to transfer their leasehold rights. If they intended to transfer the leasehold rights they had to obtain the prior approval of the Government and the Government had the right to claim its share of unearned increase. It is in compliance with this obligation that the vendors paid an amount of Rs. 10,26,362.50 to the Government as its share of the unearned increase and the purchasers paid a sum of Rs. 10 lakhs to the vendors on that account. The payment of Rs. 10 lakhs, therefore, cannot be totally ignored. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs to support his contentions. Before proceedings further it would be better if we refer to the various rulings cited on either side. 17. CIT v. Smt. Vimlaben Bhagwandas Patel [1979] 118 ITR 134, is a judgment of the Hon'ble Gujarat High Court on which reliance was placed from either side. Laying down the principles for determining the fair market value of a property in proceedings for acquisition under the Act, the Hon'ble High Court observed that in fixing the fair market value of an immovable property it would not be safe to import wholly the principles enunciated by the Courts in ascertaining the market value while determining the amount of compensation for acquisition of a property or land since the perspective of acquisition under the Land Acquisition Act, 1894 and that under Chapter XXA of the Income-tax Act are different. In the perspective of acquisition proceedings under Chapter XXA which are penal provisions having far reaching repercussions the competent authority must be satisfied and assured by cogent, reliable and relevant evidence that the fair market value of the property in question exceeds the apparent consideration by a prescribed margin. The Hon'ble High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent or making some sort of comparative evaluation of sales of other properties is an acceptable mode of valuation. This was a case relating to valuation of a building for wealth-tax purposes. 19. The learned counsel for the appellants placed reliance also on a judgment of the Hon'ble Punjab and Haryana High Court in Mani Singh Avtar Singh v. IAC [1985] 115 ITR 233 in which the Hon'ble High Court held that where for determining the value of a bigger piece of property the instances of sale of smaller plots in different areas were considered, the acquisition was not proper. As already stated in the case before us the competent authority has used as an exemplar the sale of a property in Jor Bagh colony and has ignored an exemplar relied upon by the appellants in respect of the sale of another property situate in Golf Links itself. To support his argument that such a course was possible the learned departmental representative relied upon a judgment of the Hon'ble Karnataka High Court in Subbas Malharirao Kachure v. IAC [1986] 26 Taxman 407. In that case of acquisition under the Act, the property proceeded against was in Bhuspet sector of Hubli City. The Hon'ble High Court held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the agreement). The enhancement has to be limited to 50 per cent of the increase in the letting value of the site without buildings at the rate of which the enhancement is made. Although the transfer in question has taken place after the revision in ground rent had become due, the ground rent payable from 1-1-1982 does not appear to have yet been determined. The Government before permitting the transfer to the present purchasers has obtained from them an undertaking to pay the revised ground rent [see pages 40 and 41]. The lease deed provides that the lessee cannot use the land for any trade or business and can use it only for building a double storey residential building for a private dwelling house for one or two families in all with a barsati on the second storey [see clause III(7)]. It is also provided in the same clause that the lessee shall not do or suffer to be done thereon any act or thing whatsoever which in the opinion of the lessor . . . may be an annoyance or disturbance to the President of India or his tenants in the new capital of Delhi. Clause III(5) prohibits the lessee from erecting, without the previous consent of the lessor, any building other than and except th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overnment valuer's report was, therefore, in our view, rightly rejected by the learned competent authority. 25. But the question still remains as to what a competent authority should do if it finds the report of the valuer submitted under section 269L as unacceptable. As observed by the Hon'ble Gujarat High Court in Vimlaben Bhagwandas Patel's case, the competent authority must be satisfied and assured by cogent, reliable and relevant evidence. The Legislature was alive to the fact that officers employed in the Income-tax Department are not architects and engineers and are, therefore, not experts in valuation and they would generally need the assistance of experts. It is for this reason that section 269L has been enacted for the assistance of the competent authority. The Legislature was also probably alive to the fact that some of the Valuation Officers may not be efficient enough and may not determine the fair market value in an acceptable manner. That is why, probably, that the Legislature has not made the report of the Valuation Officer binding on the competent authority and has not debarred the competent authority from making reference to another Valuation Officer. In the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 20 per cent Base rate Rs. 4,713 per sq. mt. Add :For time gap (15 per cent) and situation (15 per cent), i.e., 30 per cent of 4,713 Rs. 1,414 ---------------- Rs. 6,127 Less : For size of plot 20 per cent of 4,713 Rs. 942 ---------------- Rs. 5,185 The land rate is thus arrived at Rs. 5,185 per sq. mt. I apply the rate of Rs. 5,000 per sq. mt. At this rate the value of land comes to Rs. 52,25,750. Cost of construction The total covered area as shown by the approved valuer in his report a copy of which was submitted by the transferor is as under : Main Block Garage Block G.F. 2,760 sq. ft. G.F. 457 sq. ft. F.F. 2,028 sq. ft. G.F. 602 sq. ft. (servant qrs.) S.F. 571 sq. ft. F.F. 1,059 sq. ft. ---------------------------- --------------------------- 5,359 sq. ft. 2,118 sq. ft. Total covered area of main block and garage block comes to 7,477 sq. ft. The year of construction is stated to be 1955-56. I apply the rate of Rs. 190 per sq. ft. and accordingly the value of building is determined as under : In the absence of any evidence regarding renovation and alteration and in view of DVO's report quoted above it is difficult to accept the content ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the same competent authority concluded the present proceedings with such a great hurry while the proceedings in respect of another property which could have provided better evidence for the determination of the fair market value of the property involved in the present appeal have not been concluded. The learned competent authority rejected the transaction in respect of property No. 10/3, Golf Links solely for the reason that the proceedings for acquisition were pending in respect of that property. In our view, it would have been proper to conclude those proceedings first so that there could be better evidence. 29. As stated by the competent authority in its order the competent authority adopted the fair market value of property No. 10/3 Golf Links at Rs. 84,22,000 while the value as reported by the Valuation Officer was only about Rs. 57 lakhs. According to the learned counsel for the assessee even if the fair market value of property No. 10/3, Golf Links was taken at Rs. 84,22,000 then also the fair market value of the property in question (56, Golf Links) would be only about Rs. 47 lakhs as the area of the land and buildings is almost half. This contention is mathematically ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it would not be safe to import wholly the principles enunciated by the Courts in ascertaining the market value while determining the amount of compensation for acquisition of a property or land since the perspective of acquisition under the Land Acquisition Act and that under Chapter XX-A of the Income-tax Act are different. The learned departmental representative also adopted the same line of reasoning as adopted by the learned competent authority and for the reasons just mentioned, we are of the view that this approach is wholly incorrect. Property No. 10/3, Golf Links was situate in the same locality and its sale, therefore, provided a very good exemplar unless the competent authority could point out cogent reasons for rejecting the same. As already stated even if the fair market value as determined by the competent authority for initiating proceedings in respect of 10/3, Golf Links, i.e., Rs. 84,22,000 is accepted as the correct fair market value of the property, the fair market value of the property in question on that basis would be only about Rs. 47,50,000 which is the consideration paid by the assessee. 30. It is unfortunate that while relying on the sale transaction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Valuation Officer had done merely a mathematical exercise, but he has approved a similar exercise undertaken by his own inspector. A perusal of the inspector's report would show that his report is nothing but a mathematical exercise based on certain assumptions. Although proceedings for acquisition under the Act are of a quasi-criminal nature and expose the parties to very serious consequences, the learned competent authority has not bothered to improve upon the inspector's report and furnish the missing links. It is also important to note that for determining the fair market value of the property in question, the competent authority not only deputed an inspector but also personally inspected the property accompanied by an inspector. However, neither the inspector nor the competent authority appears to have visited and inspected the Jor Bagh property, the sale of which is relied upon by the competent authority as a good exemplar. We are unable to understand how and when the property was neither inspected by the competent authority nor by an inspector or a Valuation Officer, the land rate in respect of that property could be determined. It may be mentioned here that it is the v ..... X X X X Extracts X X X X X X X X Extracts X X X X
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