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TMI Blog1997 (12) TMI 638X X X X Extracts X X X X X X X X Extracts X X X X ..... at the way in which he could put the factual matrix and the law in very sweet and esoteric language. My learned brother had been unique in this respect. I have always been admiring his gift of the gab. I derived immense solace and comfort while working with him. He provoked my thinking and prompted me to proceed on the right track which enabled me to have a hang of the matters. I am spellbound, as it were, and I am in entire agreement with all that he has said. I now proceed to express my views in the Pan Indian fashion. All law is an experiment, as all life is an experiment as stated by Justice Holmes of the United States of America. The Government of India made an experiment by introducing Chapter XX-C in the Income-tax Act, 1961, with effect from 1986, but the Supreme Court in Gautam (C. B.) v. Union of India [1993] 199 ITR 530 held that no doubt the Government could make an experiment but within the parameters of the Constitution. Apparently, keeping in mind the principles that there should not be unending conflict or strife or competition between the Government and the citizens in the field of taxation, the Supreme Court laid down the law clearly, the attempt of the Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch proceedings shall be initiated in respect of properties transferred after the 30th September, 1986. This amendment will take effect from 1st October, 1986." Clause 34 reads as under (see [1986] 158 ITR (St.) 96 ) : "Clause 34 seeks to insert a new Chapter XX-C in the Income-tax Act, 1961, enabling the Central Government to purchase immovable properties in certain cases of transfer. This Chapter contains 16 sections from section 269U to section 269UO. The provisions of the new Chapter will come into force on such date as the Central Government may, by notification in the Official Gazette, appoint and different dates may be appointed for different areas. There are no other objection petitions and the Bill was adopted and became an Act." Parliament thought by enacting a law and leaving the entire implementation to the Income-tax Department it could achieve the purpose of getting more revenue for the Government and preventing concentration of wealth. The authorities commenced proceedings purporting to act under Chapter XX-C and those actions were challenged in various courts and, ultimately, the Supreme Court had to consider the attack on the constitutional va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns and rested content with the provisions made in the Chapter leaving it to the Department to take decisions in accordance with the well settled principles in this arena. Parliament is presumed to know the well established principles adumbrated by the Supreme Court of United States of America in Yick Wo v. Hopkins [1886] 118 US 356, wherein the court laid down : "Though the law itself be fair on its face and impartial in appearance, yet, if it is applied and administered by public authority with an evil eye and an unequal hand, so as practically to make unjust and illegal discriminations between persons in similar circumstances, material to their rights, the denial of equal justice is still within the prohibition of the Constitution. This principle of interpretation has been sanctioned by this court in Henderson v. Mayor, etc. of New York (92 U. S. 259 ; Bk 23 LEd. 543 ; Chy Luny v. Freeman 92 US 275 ; (Bk 23 LEd 676) ; Neal v. Dlaware 103 US 370 (Bk. 26 LEd. 267) and Soon Hing v. Crowley (supra). The present case, as shown by the facts disclosed in the record, are within this class. It appears that both petitioners have complied with every requisite, deemed by the law or b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge 255) : ". . . laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion, etc. It has been said by no less a person than Holmes, J., that the legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or straitjacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the Legislature. The court should feel more inclined to give judicial deference to legislative judgment in the field of economic regulation than in other areas where fundamental human rights are involved . . . The court must always remember that 'legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent, that laws are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry' that exact wisdom and nice adaptation of remed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1361, 1410 ; [1978] 1 SCR 1 : "It must be remembered that merely because power may some time be abused, it is no ground for denying the existence of power. The wisdom of man has not yet been able to conceive of a Government with power sufficient to answer all its legitimate needs and at the same time incapable of mischief." In the light of these principles, the Supreme Court in C. B. Gautam's case [1993] 199 ITR 530, held rejecting the challenge on the constitutional validity of the Chapter (page 551). "In these circumstances, in our opinion, it cannot be said that the provisions of the said Chapter conferred an unfettered discretion on the appropriate authorities to order the purchase by the Central Government of immovable properties agreed to be sold and hence they cannot be regarded as conferring arbitrary or unfettered discretion on the appropriate authorities. The challenge to the provisions of the said Chapter as being violative of article 14 of the Constitution of India must, therefore, fail". Dealing with the scope of Chapter XX-C and the obligation of the Department, the Supreme Court observed (at page 548) : "The legislative history of Chapter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with a view to avoid or reduce the liability of the assessee under section 45 to the tax on capital gains and with that object the transfer of the capital asset was being made at an undervalue of not less than 15 per cent., for the purposes of taxing the assessee, the full value of the consideration was taken to be its fair market value on the date of the transfer. It was pointed out by the Bench that sub-section (1) of section 52 did not deal with income to accrue or to be received, which in fact never accrued and was never received. It sought to bring within the net of taxation only that income which has accrued or is received by the assessee as a result of the transfer of the capital asset and since it would not be possible for the Income-tax Officer to determine precisely how much more consideration is received by the assessee than that declared by him, sub-section (1) provides that the fair market value of the property as on the date of the transfer shall be taken to be the full value of the consideration which has accrued or has been received by the assessee. The onus of establishing that the conditions of taxability are fulfilled is always on the Revenue. In that case, it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onnection with the material coming to the notice of the competent authority, though the question of sufficiency or adequacy of the material is not open to judicial review. The Supreme Court read this into Chapter XX-C. The authorities have to act in accordance with the principles of natural justice, the Supreme Court posited thus (page 553 of 199 ITR) : "As we have already pointed out, the provisions of Chapter XX-C can be resorted to only where there is a significant undervaluation of property to the extent of 15 per cent. or more in the agreement of sale, as evidenced by the apparent consideration being lower than the fair market value by 15 per cent or more. We have further pointed out that, although a presumption of an attempt to evade tax may be raised by the appropriate authority concerned in the case of the aforesaid circumstances being established such a presumption is rebuttable and this would necessarily imply that the concerned parties must have an opportunity to show cause as to why such a presumption should not be drawn. Moreover, in a given transaction of an agreement to sell, there might be several bona fide considerations which might induce a seller to sell h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce holders in possession." Therefore, following this dictum of the Supreme Court the authorities under the Act have to be very careful in ordering compulsory purchase when there are lessees or persons having subsisting mortgage rights over the properties. The Supreme Court held (page 558 of 199 ITR) : "In the result the expression 'free from all encumbrances' in sub- section (1) of section 269UE is struck down and sub-section (1) of section 269UE must be read without the expression 'free from all encumbrances' with the result that the property in question would vest in the Central Government subject to such encumbrances and leasehold interests as are subsisting thereon except for such of them as are agreed to be discharged by the vendor before the sale is completed." Regarding the monthly tenancies, the Supreme Court held (page 559 of 199 ITR) : "The next controversy posed was regarding the monthly tenancies. As far as monthly tenancies are concerned, they do not pose any difficulty because monthly tenants are also lessees in law although their right is a very limited one. If the agreement to sell does not provide for vacant possession or the determinatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in case a view is taken that the expression 'free from all encumbrances' should be struck down, it would be left open to an intending seller of immovable property to undervalue the property by creating a bogus lease or a bogus encumbrance thereon and this would defeat the purpose for which Chapter XX-C was introduced. We are unable to agree. If a lease or an encumbrance is found to be bogus, it can be treated as of no legal effect and in that event, it would not affect any of the rights of the Central Government on the vesting of the property in the event of an order for purchase being made under section 269UD(1). If it is so considered necessary, the provisions of the Chapter might be so amended so as to clarify that if any lease or encumbrance is created with a view to defeat the provisions of Chapter XX-C, such lease or encumbrance will be regarded as void or ignored for the purposes of the said Chapter. That, however, is for Parliament to consider." The Supreme Court recognised that the object of the provisions of Chapter XX-C is a laudable object, namely, to counter evasion of the tax in transactions of sale of immovable properties. The judgment of the Supreme Court is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es from immovable properties. When a question was put to learned counsel for the Revenue whether any rules have been framed or guidelines issued to the authorities with reference to the deductions to be made or the additions to be made while making comparative study with other sale instances properties, learned counsel submitted that no such rules have been framed. The crux of the matter is that Parliament had brought into the statute book Chapter XX-C with a particular purpose ; to prevent evasion of tax. It is a basic principle of the interpretation of statutes right from Heydon's case [1584] 76 ER 637, the courts should consider a few facts to appreciate the object of the law and intendment of theirs by the law maker. Stating it broadly without intending to be exhaustive the factors are (1) What was the law before the making of the Act ? (2) What was the mischief and defect which the earlier law could not remedy ? (3) What remedy Parliament had decided to provide in the new law ? (4) The true reason of the remedy ; (5) The language of the law should be analysed. At this moment when we are considering the orders passed in the above cases by the appropriate authority our task i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or principles had been adopted or set for itself by the appropriate authority. We want to note that learned counsel for the petitioners submitted in some cases, a particular method of deductions and additions is adopted in one case but under exactly similar circumstances in another case a different method is adopted without any rational basis. However, we do not want to dilate on this aspect because we are sitting under articles 226 and 227 of the Constitution of India and the parameters laid down by the Supreme Court are well settled and clear. The appropriate authority had acted in an arbitrary fashion in arriving at the fair market value in all the cases. The sale instances of properties comparable with the subject properties have not been taken into account and properties situate far away from the subject properties have been taken into consideration and the additions and deductions are made at the whims and fancies at the subjective satisfaction of the appropriate authority. In none of the cases, we are able to see any reasonable basis known to the field to fix the fair market value. It is a matter of common knowledge nowadays in all the cities all over India that Revenue auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, the language of Chapter XX-C would have been couched in different words and would not be as it is found in the statute book. We may also notice just to appreciate the question that has arisen for consideration ; previously Parliament inserted by the Taxation Laws (Amendment) Act, 1972, Chapter XX-A with effect from November 15, 1992 ; it ceases to be operative in respect of transaction of immovable property made after September 13, 1986. Under section 269A the definition of apparent consideration is given as under : "'apparent consideration' (1) in relation to any immovable property transferred, being immovable property of the nature referred to in sub-clause (i) of clause (e), means,- (i) if the transfer is by way of sale, the consideration for such transfer as specified in the instrument of transfer ; (ii) if the transfer is by way of exchange,- (A) in a case where the consideration for the transfer consists of a thing or things only, the price that such thing or things would ordinarily fetch on sale in the open market on the date of execution of the instrument of transfer ; (B) in a case where the consideration for the transfer consists of a thing or things an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per annum." The Chapter also defines fair market value in the following terms :- "'fair market value',- (i) in relation to any immovable property transferred by way of sale or exchange, being immovable property of the nature referred to in sub-clause (i) of clause (e), means the price that the immovable property would ordinarily fetch on sale in the open market on the date of execution of the instrument of transfer of such property ; (ii) in relation to any immovable property transferred by way of lease, being immovable property of the nature referred to in sub-clause (i) of clause (e), means the premium that such transfer would ordinarily fetch in the open market on the date of the execution of the instrument of transfer of such property, if the consideration for such transfer had been by way of premium only ; (iii) in relation to any immovable property transferred, being immovable property of the nature referred to in sub-clause (ii) of clause (e), means the consideration in the form of money that such transfer would ordinarily fetch in the open market on the date of the transfer, if such transfer had been made only for consideration in money ;" Under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion under the Land Acquisition Act, 1894, cannot be applied to the property coming within the purview of Chapter XX-C. Before issuing the show-cause notice, the law enjoins on the appropriate authority, as the initial burden is on it, to take into account sale instances which could be compared and the appropriate authority cannot issue show-cause notice by resorting to Procrustean methods by making additions and deductions without any rational basis and acting on that premise come to a conclusion relating to a figure to assume that the apparent consideration is 15 per cent. less than the fair market value and, therefore, the parties intended evasion of tax. In the context of the law laid down by the Supreme Court in our view, in none of the cases the appropriate authority could discharge the initial burden. The Department along with the instructions issued, could have notified appropriate value bounds giving the value of the land in different areas depending upon the location and facilities available as was done in England under the Domestic Property Regulations, 1991. The Department also could have issued specific instructions giving the rates of construction and method of depre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to know that the term, market, is, what normally we think of as the place where the sellers and buyers meet, but in economics in a larger sense market would mean the availability of commodities at a particular price specifying the needs and requirements of the sellers and buyers and the appropriate authority is also expected to know that in real estate parlance market would mean the availability of the title to a property and interest therein, the bundle of rights at a particular point of time as required, by specifying the needs of the parties. It is an operation between the parties in trading with each other, depending upon the utility of the property from the purchaser's point of view and the price from the vendor's point of view. It is in this backdrop the Department should consider issuing show-cause notice for making pre-emptive purchase. The market value of a property would depend on important factors like (1) its demand in the investment market ; (2) annual net income the property may yield in future. The appropriate authority should analyse the investment carefully and all the important and relevant factors should be dynamically considered weighing all things in ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hotocopy of the perpetual sub-lease for plot No. C-82 (New No. G-4) duly executed between the Maharani Bagh Co-operative House Building Society Ltd., and Mrs. Quamarain is also being submitted duly signed by the transferor and transferee." On July 26, 1993, the owner submitted the documents to the appropriate authority. On September 29, 1993, the first respondent appropriate authority, issued show-cause notice under section 269UD(1) of the Income-tax Act, 1961, to the owner, the petitioner, the two tenants. It is stated in the show-cause notice that the subject property was compared with the three properties termed as sale instance properties :- 1. G-8, Maharani Bagh Apparent consideration 1.26 crores. Apparent consideration of subject property is higher by 58 % 2. D-18, Maharani Bagh (known as I-15) Apparent consideration 1.11 crores. Apparent consideration of subject property is higher by 22 % 3. N-62, Panchsheel Park Apparent consideration 1.91 crores. Apparent consideration of subject property is higher by 60 % How the value of the subject property is determined will be clear from the following table:- Subject property property Ist sale instance Sale agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 1% per month 4 months + 4% time gap ₹ 35,02,220 ₹ 1,91,02,220 No open area falling open area 5% No basement potential basement available 10% +4% 15% = 11% The land rate works out at ₹ 25,333 (28,455 x .89) land rate of subject property (ground floor 1st floor) 520 sq. mts. = 25,333 x 520 = ₹ 1,31,73,160 = 1,31,73,160.00 Depreciated value of the structure =9,33,758.00 ₹ 1,41,06,918.00 Depreciated value at the rate of 8 % ₹ 88,87,358 Barsati potential 148.90 sq. mts value 148.90 x 25,333 ₹ 37,72,083.00 value of the subject property ₹ 88,87,358.00 ₹ 37,72,083.00 ₹ 1,42,092.00 ₹ 1,28,01,533.00 This is higher by 60 % What has been done by the appropriate authority is 1% is added for every month as if every month there is increase of 1% in the property. The basement potential of the properties considered and barsati potential is taken into account. Taking into account the subject properties tenanted, 6 years deferred value at 8% is calculated and 6 years rent is added to the value arrived at by the above process. On October 14, 1993, the owner, the petitioner sent replies to the appropriate autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , stated in his objection petition dated October 16, 1993, that his tenancy rights should not be affected by the purchase. Again on October 19, 1993, the tenant, Amarjeet Singh, stated that he appeared before the appropriate authority and mentioned about Suit No. E-389 of 1991 filed against him by the owner and he had expressed displeasure over the way in which Mr. Upadhaya, member of the appropriate authority, acted. The first respondent appropriate authority passed the order of compulsory purchase on October 25, 1993. The basis of the order is that comparing the apparent consideration of the subject property with three sale instance properties the apparent consideration is grossly undervalued and, therefore, the appropriate authority was obliged to pass the order. The facts as mentioned in the show-cause notice are adopted in the order impugned. The appropriate authority has also referred to the offer made by Mr. P. K. Ganeriwal, a tenant, and ultimately the appropriate authority came to the conclusion that the apparent sale consideration of the subject property is lower by more than 15 per cent. than the fair market value of the property. The appropriate authority has not given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e course of the proceedings, it was brought to the notice of the petitioner by the appropriate authority that a tea company of Calcutta and one Mr. Jeff from abroad had made offers for purchasing the property. The petitioner was not furnished with any documentary evidence. The aforesaid persons appear to be the nominees of the tenant, P. K. Ganeriwal. Amarjeet Singh, the tenant of the first floor, made it clear in his letter dated October 16, 1993, that he is a tenant of the first floor and terrace above. He stated : "The sale instance of S-39A, Panchsheel Park, relied upon by petitioner, was arbitrarily dealt with. Without any basis/working the land rate of this property was worked out to ₹ 30,347 per sq. mtr. and therefore, was stated to be of no help to petitioner. Relying upon the other instance of property at 56, Jor Bagh, New Delhi, which was tenanted and the tenant was paid a sum of ₹ 65.61 lakhs for vacating, petitioner submitted that it will have to make such payments to tenants for getting the subject property vacated. However, this submission was negated by observing that no judicial notice of such a position can be taken as no such payment is stipula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 535.12 sq. mts, and not 520 sq. mts. Consequential additional for barsati floor potential should have been made with reference to land area 133.78 sq. mts. as against 148.90 as calculated by the appropriate authority." The value of construction at ₹ 9,35,758 after giving depreciation of 1.5 per cent. for 26 years (age of the building) is low. Minimum should have been 5 per cent. Determination of cost of construction on the basis of plinth area is not done. Subject property is situate at the dead end of the road and 5 per cent. discount ought to have been given. Discount for basement of 10 per cent is low in the present situation when getting space in Delhi is very difficult. A specific request was made to the appropriate authority to furnish data with reference to properties cleared within the last one year in the same locality or other surrounding areas, with reference to tenanted properties and that was not given. The method adopted by the appropriate authority is arbitrary and hit by article 14 of the Constitution of India. Respondent Nos. 1 and 2 filed a counter affidavit traversing the allegations in the writ petition. In paragraph 1, the nature of the property a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rent Control Act, the adoption of a deferment factor is an accepted practice of valuation." This reasoning itself is not enough to find out the approach of the appropriate authority to the question. It is stated in the counter, that during the course of hearing the petitioner was confronted with two letters, one received from Bhubhandhar Tea Company, Calcutta, who were willing to purchase the property for a sum of ₹ 61,45,009 plus unearned increase and other charges. There was also an offer from Satish Jha, NRI, who was willing to purchase the subject property for a sum of ₹ 61 lakhs plus unearned increase and stamp charges. According to respondents Nos. 1 and 2, the basis of purchase order was on a comparison of three sale instances mentioned in the show-cause notice. Reference is made to the representation made by the tenants which is not very much relevant at this stage. The appropriate authority has disputed the method of valuation suggested by the petitioner. Respondents Nos. 1 and 2 have also chosen to disallow the discount claimed by the petitioner. The appropriate authority maintained the same stand that is taken by it in the show-cause notice. The petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urisdiction is founded on law or fact ; a court with jurisdiction confined to the city of London cannot extend such jurisdiction by finding as a fact that Piccadily Circus is in the ward of Chepe.' The same principle was enunciated by the Court of Appeal in White and Collins v. Minister of Health [1939] 2 KB 838. The question debated in that case was whether the High Court had jurisdiction to review the finding of the administrative authority on a question of fact. It appears that Part V of the Housing Act, 1936, enabled the local authority to acquire land compulsorily for the provision of houses for the working classes but section 75 of the Act provided that nothing in the Act was to authorise the compulsory acquisition of land 'which at the date of compulsory purchase forms part of any park, garden or pleasure ground or is otherwise required for the amenity or convenience of any house'. In accordance with the provisions of this part of the Act, the Ripon Borough Council made an order for the compulsory purchase of 23 acres of land, it being part of an estate in Yorkshire called Highfield consisting of a large house and 35 acres of land surrounding it. The owners served notice of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jurisdiction of the civil court is barred and that section reads as under : "293. No suit shall be brought in any civil court to set aside or modify any proceeding taken or order made under this Act, and no prosecution, suit or other proceeding shall lie against the Government or any officer of the Government for anything in good faith done or intended to be done under this Act." Therefore, the question whether the filing of a suit is an effective alternate remedy would not arise at all for consideration. Learned counsel Mr. Syali submitted when the fair market value has not been arrived at adhering to the principles acceptable in law, no question of presumption of tax evasion would arise. C. M. No. 1988 of 1994 : This application is filed by Bhupender Tea Co. Ltd., who is one of the persons who offered to purchase the property for ₹ 61,45,009 plus unearned increase and stamp charges. We do not want to go into the merits of the claim of the applicant. The applicant has no locus standi to file the petition. Accordingly, C.M. No. 1988 of 1994 under order 1, rule 10, CPC, is dismissed. C. W. No. 4153 of 1993 : There are eight petitioners. The fourth responde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated that one Vinod Kumar Jain requested for hearing as he was a tenant in the premises. In paragraph 6, the basis for the show-cause notice is given as under : "In the case of subject property, the apparent consideration is ₹ 1,75,00,000. The plot area is 3595.32 sq. mts. including 830.95 sq. mtrs. declared as excess land under ULCR Act. The net plot area comes to 3595.32-830.95=2764.37 sq. mtrs. If salvage value of ₹ 1,64,445 is considered, the achieved land rate works out to ₹ 1,75,00,000 1,64,445 = 1,73,35,555 divided by 2764.37 = ₹ 6271 per sq. mtr. We may compare the sale instance of property at 60, Friends Colony (East) which was agreed to be sold on December 5, 1990, for apparent consideration of ₹ 2.65 crores. If the depreciated value of structure of sale instance is taken at ₹ 11,60,000 the land rate per sq. mtr. works out to ₹ 2,65,00,000 (-)11,60,000 = 2,53,40,000 divided by 1173.91 = ₹ 21,586. If adjustment on account of time gap of +2%, side open +10%, potential for basement +10% in the sale instance and nearness to railway track 5% and size of plot 5% is taken into account, the rate per sq. mtr works out to &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the agreement for sale was not with a view to evade tax. (8) Another precedent condition is that the apparent sale consideration has been intentionally understated, i.e., a deliberate understatement of the value of the property to evade tax. (9) The apparent sale consideration of the property in question is higher than the fair market value assessed/determined by any norm, method or standard. In the alternative, even if it be assumed for the sake of argument that the apparent consideration was lower than the "fair market value" even then a variety of compelling circumstances as given in the affidavit of his client by way of evidence (which stands uncontroverted) existed under which the property was sold at ₹ 1,75,00,000 considering the best/maximum price he could get for a tenanted property. (10) There was not an iota of evidence or any circumstance suggesting evasion of tax or a deliberate understatement of the value of property. (11) The unrebutted and uncontroverted facts and evidence is on the record produced by the transferor, his client, that there is no understatement of the value of the property. (12) Even otherwise the facts and circumstances ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It is further stated by the petitioners that the appropriate authority should have resorted to the fixation of fair market value on the basis of capitalisation of rent for some years. The appropriate authority erred in assuming that the sale instance, 60, Friends Colony, was a good guide in determining the fair market value. It is further stated that the adjustments adopted by the appropriate authority were wholly arbitrary and they were made just for the purpose of passing the impugned order. The petitioners also stated that the appropriate authority arbitrarily refused to consider the sale instance, No. 2, Barakhamba Road. The petitioners assert that there was no finding by the appropriate authority that there was intentional gross understatement of the value of the property and there was tax evasion by the party and unless there was such a finding, order of compulsory purchase cannot be made. The petitioners further stated that the appropriate authority illegally and in utter contravention of the norms and standards for determining the fair market value erroneously held that since the tenancy of the tenant was on a month to month basis, therefore, the deferment factor of 5 yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r I.T.C. Ltd., at ₹ 21,592 p.m. since March 1980. 4. R-2873/ 11-6-92 203, Golf Links, New Delhi 375 sq.yds. 31-5-1992 50,00,000 4. Ground floor at ₹ 1,150 p.m. since 1975. First Floor at ₹ 950 p.m. since 1978. 5. 2583 182, Golf Links, New Delhi 575 sq.yds 15-10-1991 1,42,00,000 Ground floor tenanted to Sh. Yashovardhan K. Zaveri since October 1991 at ₹ 6,000 p.m. first and 2nd Barsati floor vacant. 6. 2142 46, Ring Road, Lajpat Nagar III, New Delhi. 760 sq.yds. 17-7-1990 95,00,000 Rented for more than ₹ 3,500 p.m 7. 2082 3, Raj Narain Road, Civil Lines 792 sq.yds. 21-5-1990 48,78,000 Tenanted to Sh. J. C. Chandok and Family for more than ₹ 3,500 p.m 8. R-1880 A-46, Gulmohar Park, New Delhi 300 sq.yds. 21-12-1980 23,00,000 Fully single storeyed Building tenanted to Mr. Pradeep Dutta since 1978 on a monthly rent at ₹ 1,500 p.m. fair market value was worked out in this case at ₹ 35 lakhs by A.A. and yet NOC was granted because the basis of rent capitalisation was later on adopted. 9. 3042 45, Ring Road, Lajpat Nagar III 760 sq.yds. 15-10-1992 95,50,000 Only ground floor tenanted at ₹ 2,500 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and correctly prepared at ₹ 1,11,63,234. In the present show-cause notice, the said illegal and malicious valuation report valuing the suit property at ₹ 4,77,67,461 has been repeated and made the basis for passing the impugned purchase order." The petitioners challenged the impugned order referring to the reasoning given by the appropriate authority with reference to 48, Friends Colony which was relied on by the petitioners. In paragraph 73 of the grounds, the petitioners made an attempt to highlight how the appropri-ate authority had acted in an arbitrary fashion : "That the mala fides, the arbitrary discrimination and the deliberate adoption of a wrong method of determining fair market value of the suit property on the part of the respondents Nos. 1 and 2 shall be evident from one of the remanded cases (remanded by the High Court after C. B. Gautam's case [1993] 199 ITR 530 (SC)), viz., the case of property bearing No. 37/73, Punjabi Bagh, New Delhi, having Case No. R-656 of the appropriate authority that when instance case was confronted to the parties and full details of construction, covered area and the rate applied with recommended cost index were p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e earlier agreement of December, 1990, was for ₹ 2.65 crores and the purchaser cancelled the agreement and preferred the earnest money forfeited and the subsequent agreement with another purchaser in September 1991, was for ₹ 2.40 crores and granted the NOC yet in the show-cause notice it was falsely alleged that the instance property was agreed to be sold in December 1990 for ₹ 2.60 crores and deliberately suppressed the fact of the subsequent events that took place and so the instance case should not be made basis. The members of the appropriate authority and in particular respondent No. 2 to the above submissions had no answer and wrongly and rudely remarked that he was concerned with the earlier agreement and not with the subsequent one and asked petitioners' counsel to state his points further and not to talk about it and refused to consider the most material facts, and rudely and contemptuously scuttled the submissions. The petitioners submit that respondents Nos. 1 and 2 besides the above, totally ignored the relevant facts including the drawback of the instance taken. The very fact that NOC was issued after 9 months for ₹ 2.40 crores makes the value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ogus offers made by Vishwanath Traders and Shri Vinod Jain respectively as stated above." On these averments, the petitioners sought to get the impugned order quashed. In the counter-affidavit filed by the appropriate authority, the allegations made in the petition are denied. In paragraph 12 of the counter, it is stated that all the three members acted in unison and all the relevant aspects were considered by them. In paragraph 17, it is stated : "A show-cause notice dated May 21, 1993 (after the inspection of the subject property on May 19, 1993), was given to the affected parties, namely, transferor, transferee and the tenant fixing the hearing for May 26, 1993. In the said show-cause notice, details of a sale instance, namely, 60, Friends Colony (East) were given and comparison was made between apparent consideration of subject property 25, Friends Colony (West). In the sale instance of 60, Friends Colony, the sale consideration was ₹ 2.65 crores for plot area of 21173.91 sq. metres as per agreement of sale dated December 5, 1990. After deduction of value of structure, land rate per sq. metre worked out to ₹ 21,586 in the sale instance. However, land r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng a transferee who has no interest in the property and in whose favour no interest is created by reason of the contract for sale, into the picture." The petitioners filed a rejoinder traversing the allegations in the counter-affidavit. On March 30, 1995, Mr. Sanjay Gupta filed an affidavit on behalf of the petitioners stating that in respect of property bearing No. 9, Kasturba Gandhi Marg, where the apparent consideration was ₹ 7.20 crores and the application in Form No. 37-I was filed on November 28, 1994, no objection certificate was granted and the fair market value of the property was assessed by the appropriate authority at ₹ 4,77,67,138 as against the apparent consideration of ₹ 7.20 crores. A photo copy of the no objection certificate dated February 21, 1995, was also produced by the petitioners. This is only to show how the appropriate authority acted in an indiscreet manner. Learned senior counsel, Mr. L. R. Gupta, cited a number of cases to give an outline of the scope of the power of the appropriate authority under Chapter XX-C. Learned senior counsel submitted that before issuing a show-cause notice the appropriate authority should have reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty should be on well established legal principles and misapplying the legal principles would amount to no fixation of the fair market value in the eyes of law. He referred to Subbas Malharirao Kachure v. IAC of IT [1986] 159 ITR 726 (Kar). He submitted that the appropriate authority failed to keep in mind the principle that undervaluation and the presumption of tax evasion are two different concepts and the authorities cannot proceed on surmises. He referred to Sarabhai M. Chemicals Pvt. Ltd. v. P. N. Mittal, Competent Authority, IAC of I.T. [1980] 126 ITR 1 (Guj), Joseph Vallooran v. CIT [1977] 108 ITR 544 (Orissa), Tube Mill (India) Pvt. Ltd. v. IAC of IT [1980] 122 ITR 72 (Cal). Elaborating on the point as to how the appropriate authority should appreciate the principles of valuation and how the law expects them to act, learned senior counsel referred to CWT v. V. C. Ramachandran [1966] 60 ITR 103 (Mys). In that case the court took the view that the appropriate method of valuation is to capitalise the annual rent by certain years of purchase in case the property is tenanted. Learned senior counsel also referred to CED v. Radha Devi Jalan [1968] 67 ITR 761 (Cal). Referring t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncluding the material collected so far by the competent authority, and be furnished copies of the statements recorded and those of the documents collected by the competent authority on which he intends to rely so as to give the person interested or affected, an opportunity to state his case and to correct or controvert the material sought to be relied upon. In the perspective of acquisition proceedings under Chapter XX-A of the Income-tax Act, 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. It would be too hazardous to prefer one of the recognised methods of valuation which may be advantageous to the cause of the Revenue and arrive at an estimation of fair market value of a property on the basis thereof. Such a lopsided approach on the part of the competent authority would not be in consonance with the burden of proof required to be discharged in such quasi-criminal proceedings. It would be virtually acting on too slender a material since the decision of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal holding that the proper course was to have resorted to the method of capitalisation of rental value of multiplying a number of years yield and that the value adopted by the transferor's valuer could not be treated as undervaluation. Learned senior counsel referred to CIT v. Inderjit Singh [1985] 153 ITR 372 (P & H). A Division Bench of the High Court of Punjab and Haryana took the same view that the capitalisation method should be adopted where there are tenants in the property. He also referred to CIT v. Sumatilal Chhotalal Shah [1980] 124 ITR 862 (Guj) where it was held that the burden of proof about the fixation of fair market value in proceedings for acquisition of property under Chapter XX-A of the Income-tax Act is on the Revenue. The court also took the view : "The proceedings are penal in nature and the burden of proof about the fair market value of the property is on the Revenue. It has to be established by the Revenue that the sale consideration is less by the prescribed margin than the fair market value and it is only then the presumption arises about tax evasion. It is equally true that the onus would shift to the transferor or transferee or any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 ITR 597, wherein the Supreme Court posited (page 614) : "Merely by showing that the first condition is satisfied, the Revenue cannot ask the court to presume that the second condition too is fulfilled, because even in a case where the first condition of 15 per cent. difference is satisfied, the transaction may be a perfectly honest and bona fide transaction and there may be no understatement of the consideration . . . It is a well-settled rule of law that the onus of establishing that the conditions of taxability are fulfilled is always on the Revenue and the second condition being as much a condition of taxability, the burden lies on the Revenue to show that there is an understatement of the consideration and the second condition is fulfilled . . . This burden may be discharged by the Revenue by establishing facts and circumstances from which a reasonable inference can be drawn that the assessee has not correctly declared or disclosed the consideration received by him and there is an understatement or concealment of the consideration in respect of the transfer." Learned senior counsel also referred to Smt. Sabita Mohan Nagpal v. CWT [1986] 160 ITR 751 (Raj), Malabar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de tax may be raised by the appropriate authority concerned in a case where the aforesaid circumstances are established, such a presumption is rebuttable. . . The very fact that an imputation of tax evasion arises where an order for compulsory purchase is made and such an imputation casts a slur on the parties to the agreement to sell leads to the conclusion that, before such an imputation can be made against them, they must be given an opportunity to show cause that the undervaluation in the agreement for sale was not with a view to evading tax." The court also observed (page 808) : "That the party aggrieved in the proceeding before the appropriate authority acquires knowledge of the reason and, in a proceeding before the High Court or the Supreme Court (since there is no right of appeal or revision), as an opportunity to demonstrate that the reasons which persuaded the authority to pass an order adverse to his interest were erroneous, irrational or irrelevant, and (ii) that the obligation to record reasons and convey the same to the party concerned operates as a deterrent against possible arbitrary action by the quasi-judicial or the executive authority invested with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon the judgment of the Karnataka High Court in Appropriate Authority v. Mass Traders Pvt. Ltd. [1993] 202 ITR 741 (Kar) wherein the court took the view that the proceedings under Chapter XX-C are quasi- judicial in nature and both the vendors and the intending purchaser are entitled to show cause and are entitled to be heard. The Karnataka High Court disapproved the view taken by the same court in Rajata Trust v. Chief CIT [1992] 193 ITR 220 which held that the purchaser cannot file a writ petition. The Calcutta High Court referred to this aspect of the matter and observed that the purchasers have locus standi to challenge the order of the appropriate authority. In C. W. No. 3489 of 1989 a Division Bench of this court expressed disagreement with the judgment of the Karnataka High Court in Rajata Trust v. Chief CIT [1992] 193 ITR 220. According to learned senior counsel it is not open to the appropriate authority to urge in the light of the settled legal position that the peti-tioners have no locus standi to challenge the order. One more aspect which requires to be considered in this case is that the appropriate authority held the auction, the purchaser had deposited the money wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Construc-tions Pvt. Ltd., entered into an agreement with respondents Nos. 3, 4 and 5. The subject property is A-6, Chirag Enclave, New Delhi. The area of the plot is 1,468 sq. mts. The construction is a 1½ storeyed building on an extent of 4,300 sq. ft. The apparent consideration is ₹ 2.70 crores plus other expenses including unearned increase. On April 29, 1994, the parties filed the application in Form No. 37-I. On July 6, 1994, show-cause notice under section 269UD was issued. 2-3 sale instances are mentioned in the show-cause notice. Regarding the first sale instance, it is stated in the show-cause notice : "Your attention is invited to agreement of sale dated October 20, 1993, in respect of immovable property located at 4, Palam Marg, Vasant Vihar, New Delhi, which was agreed to be sold for ₹ 6,76,78,884 inclusive of unearned increase. If the salvage value is taken at ₹ 2,61,760 of this sale instance property, the land rate declared comes to ₹ 41,284 per sq. metre. If adjustment on account of time gap of (+) 6 per cent. less side open of the subject property (-) 5 per cent. and assumed difference on account of location 20 per cent. (to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the salvage value of the structure of the sale instance property is taken at ₹ 71,740. For finding out present land rate of the sale instance property, adjustment on account of time gap (+) 6 per cent. FAR (-) 14 per cent. location difference on account of the subject property being on wider road (+) 10 per cent. (total + 30 per cent.) has to be made and the land rate works out to ₹ 34,172 x 1.30 = ₹ 44,424 per sq. metre. On this basis the land value of the subject property comes to ₹ 44,424 x 1468 = ₹ 6,52,13,844. If the salvage value of the subject of ₹ 86,060 is added the total value comes to ₹ 6,52,99,904 as against the apparent consideration of ₹ 3,25,36,567 which is almost 100 per cent. higher than the apparent consideration." On July 15, 1994, an explanation was given by the petitioner and the vendor is disputing the method of valuation arrived at by the appropriate authority. It is stated in the show-cause notice that the building was constructed in the year 1970-71. The possession of the property is with one of the co-owners and the other two co-owners did not have any access to the property. The sale transaction could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 38,905 per sq. mts. Adjusted for FAR (1.16 : 1.90) : (-) 39 per cent. Adjusted for co-ownership (as per clause-3) : (-) 10 per cent. Adjusted for time gap : For 3 months, 3 per cent. Land rate achieved : ₹ 21,099 per sq. mtr. Fair market value on this basis of the subject property : ₹ 3,08,41,200 Plus value of building : ₹ 6,45,000 Total value : ₹ 3,14,86,200 The sale consideration of the subject property would come to ₹ 3,25,37,000 which is lower than the apparent consideration of that property. This calculation is adopted only as per the method adopted by the appropriate authority. The other instance given in the explanation is with reference to B-6, Panchsheel Enclave, i.e., on May 31, 1993. This property is located on the same road. The valuation as per the method adopted by the appropriate authority would be ₹ 3,18,82,600. The calculation is as follows : "Working of fair market value on the basis of instance at B-6. Panchsheel Enclave, New Delhi." Date of agreement : 27-5-1993 Land area : 800 sq. yds. (668.9 sq. mtrs) Consideration : ₹ 1,60,00,000 plus UEI UEI : ₹ 34,94,000 approx. To ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g with the sale instances given by the petitioner, the appropriate authority had rejected them by a process of reasoning which cannot at all be accepted. A perusal of paragraphs 9, 10, 11, 12 and 13 which are given below would show that the reasoning given by the appropriate authority is not in accordance with the established principles : "Learned representative has also relied on certain other sale instances. One such instance is of property B-6, Panchsheel Enclave, New Delhi. This sale instance property had plot area of 668.9 sq. metres. Even though the sale instance was undervalued, the appropriate authority considered it not a fit case for several other reasons, e.g., this property was located at the face of the fly over, the title was not very clear inasmuch as mutation was not done in the names of the transferor and there was a nullah just a little away from the subject property. No such depreciating factors are present in this case. Therefore, the comparison with property at B-6, Panchsheel Enclave, New Delhi, is not justified. Learned counsel has also tried to rely on the sale instance of the property located at B-13, Greater Kailash Enclave-I and B-4, Greater Kaila ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of the premises or to pay him such compensation as the controller thinks fit.' It is interesting to note that section 19 relates to recovery of possession for occupation and re-entry. The purpose behind the provision contained in section 19 appears to be that a person who gets possession of his property for his bona fide use should not let out to a person other than the earlier tenant. No evidence in this case has been placed whether sale is also covered under section 19(2) of the Act because letting out is different than sale of the property. A copy of letter described as undertaking dated April 18, 1994, has been filed from the transferee which specifically mentions that: 'We have examined the title and authority of the owners of property bearing No. A-6, Chirag Enclave, New Delhi and are satisfied ourselves with regard to the authority and power of the owners to sell and transfer the said property'. It means that if any permission was required, that has already been obtained. It also means that such permission may not be required in the case of sale. Therefore, the plea raised by learned authorised representative is not relevant at all and has to be rejected." Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Janpath Bhawan, 8th Floor, "B" Wing, New Delhi-110 001. No. AA/R 3677 of 1994-95/132 Dated May 6, 1994. To To (1) Mrs. Samarjeet Sandhu, W/o Late Sh. G. S. Sandhu, R/o HS-36, 1st Floor, Kailash Colony, New Delhi. Transferors Page No : 0390 (2) Lt. Gol. M. S. Dhillon, R/o F-12A, Kailash Colony, New Delhi. Transferors (3) Mrs. Amarjeet Lehal W/o Sh. Harmeet Singh Lehal R/o 65, Fielding Road Acton London (U. K.) (1) Sh. Om Parkash Khandelwal Transferees (2) Smt. Geeta Khandelwal R/o 2/101, Roop Nagar Delhi-7 Dear Madam/Sirs, Subject : Show-cause notice under section 269UD(1) of the Income- tax Act, 1961, in respect of property No. F-12A, Kailash Colony, New Delhi-48. Under the instructions of the appropriate authority, Delhi I am to state as under : That the statement in Form No. 37-I, under Rule 48L of the Income- tax Rules, 1962, in respect of the subject property was filed in the appropriate authority along with an agreement to sell on February 23, 1994. The statement was signed by (1) Mrs. Samarjeet Sandhu, Lt. Col. M. S. Dhillon and Mrs. Amarjeet Lehale, as transferors and by Sh. Om Parkash Khandelwal and Smt. Geeta Khandelwal as transferees. The app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er reference to you." Mr. Rajiv Sahai, Dy. Commissioner of Income-tax, filed counteraffidavit traversing the allegations in the writ petition. In the counteraffidavit it is stated that the unearned increase was ₹ 55,36,567. It is stated that the apparent consideration comes to ₹ 3,25,36,567. The stand taken in the show-cause notice and the impugned order is maintained in the counter. The petitioner filed rejoinder to the counter-affidavit. Mr. Syalli, learned counsel for the petitioner, submitted that the fixation of fair market value by the appropriate authority was illegal and once the very basis of the fixation cannot be supported in law the issuance of show-cause notice itself is not sustainable. Mr. Rajendra, learned senior standing counsel for the income-tax, submitted that the order passed by the appropriate authority is perfectly in order and the appropriate authority had taken into account the relevant aspects in this behalf. At the time of the arguments on March 26, 1996, Mr. Rajendra, learned counsel produced the letter dated July 25, 1995, from the DDA to the office of the appropriate authority which is in the following terms : "Kindly refer t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtments, Barakhamba Road. On June 25, 1991, an agreement was executed between the petitioners and the first respondent for the purchase of the flat bearing No. 2 on the 4th floor in Nilgiri Apartments, Barakhamba Road for a consideration of ₹ 29 lakhs plus 15 per cent. extras and the final consideration would come to ₹ 34 lakhs. In addition to the above, the petitioners were obliged to pay under the contract the ground rent, house tax, municipal tax and mutation charges. What is stated by the petitioners in the writ petition is to be noticed : "It is pertinent to mention here that with regard to earlier agreement the petitioners have furnished requisite information under section 269UD(1) and the authorities have issued no objection certificate. Thus the rate approved by the Income-tax Department comes to ₹ 1,200 sq. feet in the year 1988. Since the petitioners were not getting the flat after negotiations respondent No. 1 agreed to change the booking from 34, Feroz Shah Road, New Delhi, to Nilgiri Apartments. The petitioners agreed to pay ₹ 34 lakhs for 1,800 sq. feet along with other usual charges. Correspondence including a copy of the letter dated A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther sale transactions in the same complex. Flat No. 4 on the third floor of the same complex (R-2439) was agreed to be sold for ₹ 30 lakhs as per agreement to sell dated May 30, 1991. The actual built up area of that flat was 1,341 sq. ft. which gives unit rate of ₹ 2,834 per sq. ft. Even after making adjustment for time gap + 1 per cent. and floor level difference 1 per cent. the rate remains the same. The actual area of the subject property is 1,411 sq. ft. On that basis, the value of the subject property works out to ₹ 2,834 x 1411 = ₹ 39,98,774.00 or say ₹ 39.99 lakhs. The value so worked out on the basis of comparative sale instance is in excess by about 20 per cent. of the apparent consideration. Besides, the subject property is located in the front block whereas the property of the sale instance is in the rear block." On May 18, 1993, the petitioners filed the explanation recounting the facts culminating in the execution of the agreement. In paragraph 4 of the explanation, the petitioner stated : "It is further pertinent to note that in 1989 no objection letters were issued by your honour in respect of a couple of flats like Flat N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale instance works out to ₹ 2,860." The view taken by the appropriate authority is that the subject flat is located in the front block of the complex whereas the sale instance flat is in the rear block of the complex and, therefore, the value of the subject flat can reasonably be expected to be higher by five per cent. that is the rate could be fixed at ₹ 3,000 per sq. ft. Regarding the representation by the petitioners about the rate of interest, the appropriate authority dealt with the same in the following manner : "The assumed interest of ₹ 2,65,000 on ₹ 5,20,000 at the rate of 18 per cent. is also not correct in view of the prevailing fixed deposit bank rate of 10 per cent. at that time. If that rate of interest is taken, it works out to ₹ 1,47,000. The assumption of ₹ 2,00,000, on account of fluctuation in the exchange rate is also not acceptable. It is so because the payment is stated to be in terms of Indian rupees in the agreement. Therefore, the effective consideration works out to ₹ 29,00,000 + 1,47,000 + 4,35,000 = ₹ 34,82,000. This gives a per sq. ft. rate of ₹ 2,468 as against the fair market rate of & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the house No. N-84, Greater Kailash-I, New Delhi, the consideration is ₹ 24 lakhs. On April 23, 1994, the agreement to sell was between the petitioner and respondents Nos. 3 and 4, Mr. K. S. R. Chari and Smt. Maithili Chari, respectively, who are permanently residing in Bangalore. The purpose of the sale by the third respondent was that he was 75 years old. He retired from the Government service as Secretary, Government of India. He wanted to settle down in Bangalore after selling the subject property. After the agreement for sale with the petitioner, the third respondent had entered into an agreement to sell a property in Bangalore. On April 26, 1994, the application in Form No. 37-I was filed with the appropriate authority for the issuance of no objection certificate. On July 5, 1994, the appropriate authority issued show-cause notice to respondents Nos. 3 and 4 and the petitioner. The appropriate authority came to the conclusion that by virtue of a comparison of the subject property with S-237, Greater Kailash-I the apparent consideration is 40.43 per cent. less than the fair market value and on a comparison with the second sale instance property E-547, Greater KailashI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. The transferor, Mr. K. S. Chari, Retd. Secretary from the Government of India became a consultant to the World Bank in United Nations after retirement in the year 1977 and he wanted to settle down in Bangalore. They were in need of money and they wanted the payment to be made on or before March 31, 1994. They further stated : "The main condition of the transferors was, therefore, that they needed about 75 per cent. payment up to 31st March and would sign the agreement only when 75 per cent. payment is received. The transferee made the payment of ₹ 5,10,00,000, i.e., more than 20 per cent. of the consideration on March 22, 1994, still the transferors refused to sign the agreement. The transferee made further payment of ₹ 11,00,000 making the total to ₹ 16 lakhs up to April 11, 1994, i.e., 2/3rds of the total consideration still they did not sign the agreement unless they received further ₹ 90,000 on April 23, 1994 and got the assurance in writing with interest clause for the balance ₹ 1,00,000 within 30 days. This being a peculiar transaction cannot be compared with newly constructed normal flats available for sale with sufficient margin of ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with servant quarter and car parking. Moreover, the usable area of the flat is also better and higher. Because of load bearing walls of subject property lot of space has been wasted in 9" brick walls. We could manage the working drawings of the property at S-237, Greater Kailash-I, New Delhi, and it is very interesting to note that the bedroom usable area of S-237 G. K.-I is 180 sq. ft., 155.75 sq. ft. and 154 sq. ft. 140.25 sq. ft. and 135.85 sq. ft. in the subject property. The smallest bed room of S-237 is the biggest bed room of the subject property. The toilet sizes are 41.93 sq.ft., 39.37 sq. ft. and 39.87 sq. ft. as against 27.95 sq. ft., 23.50 sq. ft. and 42.5 sq. ft. in the subject property case. All the toilets are well ventilated in S-237 whereas one toilet is without even a window and size of 23.5 sq. ft. could not be used as toilet, so has been converted into store. The overall usable area of S-237 G.K-I excluding walls and passages is 1014.92 sq. ft. whereas it is only 968.58 sq. ft. in the subject case." It is also stated that the specification in that property is kota stone with marble strips in drive-ways, complete white marble flooring everywhere in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly the contention that in spite of advertisements no willing buyer was prepared to pay more than the apparent consideration finally agreed has to be rejected." The reasoning is not at all correct. The view by the appropriate authority that no evidence has been filed showing the response of the advertisements cannot at all be sustained because no one normally keeps the record of the response and there is no reason to reject the case of the petitioners. Regarding the payment made to the vendor in Bangalore it is stated : "As a matter of fact about 70 per cent. of the payment was received by the transferors only by 23rd April, 1994, and if the advance payments for the subject property were to be utilised by them for making payment at Bangalore, they could have done so only within the extended period by 10th April, 1994. Since the advance payment aggregating to a sum of ₹ 17,00,000 (5,10,000 + 11,00,000 + 90,000) was received by the transferors for the subject property only by April 23, 1994, no direct nexus can be established between the receipt of 70 per cent. of the apparent consideration for the subject property and the payment that was required to be made for pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Regarding the nature of the construction and the life of the building, the appropriate authority gives a very curious reasoning : "While the ground floor of the subject property might have been constructed on load bearing walls in the year 1962 on which the first floor is stated to have been built in 1986, the contention that the property constructed on load bearing walls has a life of about 60 years, out of which in the present case 30 years had already expired leaving an unexpired life of only 30 years is neither relevant nor material because the cost of construction of a property is a very insignificant part of the total value of the property, as the plot of land accounts for more than 90 per cent. of the total value of the property. Besides in actual fact properties built on load bearing walls far outlive their life of 60 years if properly maintained." About the point of non-availability of parking space and the servant quarters, the appropriate authority has expressed : "The next contention that the subject property had no parking space whatsoever and further that it did not have a servants' quarter is factually correct, but this fact had duly been taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operty, the land value accounting for more than 90 per cent. of the total value of the property." The appropriate authority rejected comparison with E-280 Greater Kailash-II. On this process of reasoning the order for compulsory purchase was made. In the writ petition what is stated in the explanation is reiterated. We are of the view that the appropriate authority has not adopted any standard for ascertaining the fair market value of the subject property. Therefore, the show-cause notice itself is bad in law. C. W. No. 3884 of 1994 : In this writ petition, Mr. R. C. Chawla and his daughter, Ms. Suchitra Chawla, are the petitioners. The subject property, is C-590, Defence Colony, New Delhi. On May 6, 1994, the agreement for sale was entered into between Mr. J. S. Sawhney and Mr. R. C. Chawla. The area of the property is 325 sq. yds. with built up single storey consisting of three beds D/D along with garage block. The consideration mentioned is ₹ 80 lakhs plus conversion charges of ₹ 1,03,798. On May 6, 1994, the petitioners paid conversion charges for converting the property into freehold amounting to ₹ 1,04,111. On May 10, 1994, the third respondent pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s facing the servant quarters and the garages of the house which are situated in E Block. The subject property is 32 years old and is in a dilapidated condition. In the ground floor there are two bed rooms with drawing, dining, kitchen and on the first floor there is only one bed room with drawing and dining. On August 18, 1994, a further reply was sent by Mr. R. C. Chawla stating that title of the transferor J. S. Sawhney is in dispute. A public notice dated May 22, 1994, was enclosed by him and he brought to the notice of the appropriate authority the pendency of Suit No. 224 of 1994 in the court of Shri P. K. Dham, Additional District and Sessions Judge, Delhi, and that the alleged co-owners had obtained order of stay. He also brought to the notice of the appropriate authority clause 2 of the agreement wherein the litigation was anticipated by the parties. On August 24, 1994, Mr. R. C. Chawla sent another reply wherein he stated that he had come across a few cases where with reference to properties situated in Defence Colony, the appropriate authority had issued no-objection certificates : "D-313 : This property is situated on a land admeasuring 325 sq. yds. and is facing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , having six bed rooms and a separate garage block, three kitchen with imported fittings. He also relied upon NOC granted by the appropriate authority on May 6, 1994, with reference to 182, Golf Links, New Delhi, to show how the appropriate authority had acted in an arbitrary way. The appropriate authority passed the order of compulsory purchase on August 31, 1994, maintaining the same position in the show-cause notice and without considering in a proper way the representation made by the writ petitioners. In the writ petition what is stated in the explanation and further explanation is reiterated and it is submitted that the appropriate authority had not acted in accordance with law in fixing the fair market value and that vitiates the entire proceedings. The petitioners filed C.M.P. No. 8279 of 1994 seeking to place on record certain facts. It is stated in the petition that the subject property belonged to the late Col. Y. S. Sawhney. He died in May 1992, as a bachelor. The third respondent, J. S. Sawhney, inherited the property, he being the only surviving brother. The step brother of the late Y. S. Sawhney and the children of his pre-deceased elder brother had filed a Suit No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authority dated November 26, 1993. On August 28, 1993, there was an agreement for sale between the third respondent, Ved Prakash Marwah, and the writ petitioner for purchasing Plot No. 3, Block A, East of Kailash admeasuring 306 sq. mts. the consideration fixed is ₹ 70 lakhs. On August 30, 1993, there was an application to the appropriate authority in Form No. 37-I. On September 6, 1993, there was a supplementary agreement. On September 6, 1993, the appropriate authority wrote to the petitioner asking it to furnish certain particulars. On November 4, 1993, the appropriate authority issued a show-cause notice. The appropriate authority based its show-cause notice on the following facts to come to the conclusion that the apparent consideration is less by 56.60 per cent. of the fair market value : "If compared to sale transactions of similar properties in this locality, the apparent consideration disclosed appears to be low. Your attention is particularly invited to sale of immovable property E-326, East of Kailash, New Delhi, with a plot area of 200 sq. yards or 167 sq. metres which was agreed to be sold for apparent consideration of ₹ 51,00,000 + conversion charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent. (iii) The property at E-326 is facing a park. The subject property does not face any park. So deduction is at 5 per cent. (-) 5 per cent. (iv) The subject property is facing the Nullah. Deduction for the detriment, therefore, at 5 per cent (-) 5 per cent. (v) The subject property is surrounded by jhuggies and jhompries and Amar Colony which is not a high profile colony. As compared to E-326 which is facing Greater Kailash I on the one side and Nehru Place on the other side a deduction of 10 per cent. is fair and due. (-) 10 per cent. (vi) Subject property is bigger in size as com- pared to the sale instance. Thus its potential to attract buyers is comparably less. (-) 10 per cent. (vii) The sale instances is of the property where greater coverage is permissible on the ground. The coverage area is 50 per cent. according to the DDA Rules. Therefore, scope of expansion is 17.1 per cent. less for which due deduction ought to be permitted. (-) 17. 1 per cent. 26 approx In paragraph 7 of the reply it is stated that property C-111, East of Kailash, was transferred by way of collaboration agreement in January, 1993, at ₹ 24.50 lakhs where the area of the site is 250. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e making a comparison like should be compared with like and this order of pre-emptive purchase is being passed keeping in view the general proposition that like should be compared with like. Further it is difficult to accept as a general proposition the contention that the properties in C, D and E Blocks in East of Kailash are superior than those in A-Block. We are also conscious of the status and standing of the transferor who was a meritorious officer of the Indian Police Service, although this factor is extraneous to the issue being dealt with by us." Regarding the adjustments, the following reasons are given by the appropriate authority : "As regards the adjustments it may be stated that an adjustment of +3 per cent. on account of time-gap, adjustment of +18.75 per cent. on account of the FAR and an adjustment of (-) 5 per cent. on account of park was already proposed in the show-cause notice dated November 4, 1993. Further, an adjustment of (-) 5 per cent. on account of the subject property facing a nullah across the main road is also being given now. Further, an adjustment of (-) 10 per cent. is also being given now as claimed by the transferee as the subject pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . As regards property A-32, East of Kailash, it is stated : "This property was in occupation of one Sh. D. N. Katyal. The agreement to sell in respect of this property also provided that the purchaser shall be liable to take physical possession of the plot from Sh. D. N. Katyal at his own cost. Even if Sh. D. N. Katyal was in occupation of the property No. A-32, East of Kailash, New Delhi, as a licensee, the purchaser purchased this property along with the occupation of Sh. D. N. Katyal whom he had agreed to evict at his own cost. This factor clearly distinguishes property No. A-32, East of Kailash, New Delhi, from the subject property in which there is neither a bona fide tenancy nor an occupancy of a third party. The apparent sale consideration of property No. A-32, East of Kailash, would have been much higher but for the possession of the property by Sh. D. N. Katyal. Therefore, the sale instance of A-32, East of Kailash cited by the transferee is not comparable to the subject property." The appropriate authority dealt with the sale instance cited by the writ petitioner with reference to property D-137, East of Kailash, which had been agreed to be sold for an appar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay 21, 1987, respondents Nos. 5 and 6 Smt. Jeet Kaur and Mr. Mohan Singh, respectively, agreed to sell to the first petitioner, Express Towers (P.) Ltd. ; the second petitioner, Mr. R. C. Goel, is the director of the first petitioner, property No. B-7/118, Safdarjung Enclave Extension for a consideration of ₹ 23,50,000. The area of the land is 375 sq. mts. The construction consists of a single storeyed house including a double-storeyed outhouse covering area of 2,300 sq. ft. On May 27, 1987, the parties filed the application in Form No. 37-I for issuance of a no objection certificate. On July 10, 1987, the appropriate authority passed the order for compulsory purchase. Challenging that order the petitioners filed C. W. No. 2275 of 1987 in this court. On March 1, 1993, a Division Bench of this court allowed the writ petition in view of the judgment of the Supreme Court in C. B. Gautam's case [1993] 199 ITR 530. On May 3, 1993, the petitioners applied to the appropriate authority requesting it to furnish the reasons for not issuing the no objection certificate. On May 11, 1993, the appropriate authority issued a show-cause notice. The basis of the show-cause notice is : &quo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manner with unauthorised constructions around by all sorts of people and mostly by labour and wage earners. In the days of emergency, the said area was demolished for planned development but it could not be taken up as the successor Janata Government reversed the decision and handed over the area to the respective parties holding posses-sion before demolition. However, some developments were undertaken by the DDA to improve roads, etc. So the locality consists of all sizes of plots varying from 36 sq. metres. to 500 sq. mtrs. with small approach roads surrounded by old Arjun village and labour jhuggies. That the property under reference was owned by Sardar Mohan Singh. Due to adverse political atmosphere the transferors were anxious for expeditious disposal of his property and to leave the country to join his daughter living abroad. In pursuance of his planning he was making desperate efforts to sell the property. But because of defective situation, small approach roads, sub-standard habitation, labour jhuggies around and over and above unhealthy surroundings of the village, there was no preference by the buyers for purchase of the said property. At the relevant time, adjoining p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same locality are available. It is submitted that the sale consideration as recorded in the agreement to sell represents the fair market value and is not a fit case where the provisions for pre-emptive purchase of property by the Central Government are attracted." On May 28, 1993, the order of compulsory purchase was passed. Dealing with the sale instance quoted by the petitioners, the appropriate authority stated : "Before dealing with the submissions on behalf of the transferee it will be relevant to note that the subject property is 375 sq. mtrs or 450 sq. yds. Therefore, it is not appropriate to compare it with sale instances of 70 sq. mtrs., 100.7 sq. mtrs, 174.8 sq. mtrs. 70 sq. mtrs. mentioned at Sl. Nos. 1, 2, 3, & 4 of the preceding paragraph. So far as sale of adjoining plot No. B-7/119 of 238 sq. mtrs. is concerned, the transferee, it is regretted, has not properly stated the facts. The sale deed in respect of "½ undivided share was sold on 31-7-1992. The property was tenanted and the monthly rent as per sale deed was only at ₹ 600.00. The remaining ½ undivided share out of the said property was sold on 13-10-1992. Even at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rate of ₹ 7,014 per sq. mt. It is submitted that the formula evolved by the Government of India for conversion rate leasehold into freehold is 10.4 per cent. and, therefore, there was an error on the part of the appropriate authority. The appropriate authority had not given the basis on which it had arrived at the cost of the super structure at ₹ 3,41,000 while as per the calculation of the petitioners the value of the super structure comes to ₹ 1,25,000. The appropriate authority had also not conveyed in what manner it had calculated + 10 and +31 per cent. for location, FAR, etc. The appropriate authority had acted contrary to the established principles by comparing the subject property with properties situate in colonies like Hauz Khas, Green Park or Safdarjung Enclave which were fully developed more than 10 years prior to the agreement in 1987. The appropriate authority had not also not considered the existence of jhuggies and the irregular size of the plot in this area and the vendors were anxious to sell the properties as they wanted to go abroad to live with their daughter in their old age. On October 13, 1993, the petitioners filed C. M. No. 7857 of 1993 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d learned. He submitted the right to acquire property is part of personal liberty under the Constitution and that cannot be taken away by resorting to Chapter XX-C, Income- tax Act, 1961. He relied on the following authorities : 1. State of West Bengal v. Subodh Gopal Bose [1954] AIR 1954 SC 92 ; [1954] 5 SCR 587. 2. Kharak Singh v. State of U. P. [1963] AIR 1963 SC 1295. 3. Rustom Cavasjee Cooper v. Union of India [1970] 40 Comp Cas 325 ; [1970] AIR 1970 SC 564. 4. Maneka Gandhi (Smt.) v. Union of India [1978] AIR 1978 SC 597. 5. State of Himachal Pradesh v. Umed Ram Sharma [1986] AIR 1986 SC 847 ; [1986] 2 SCC 68. 6. Supreme Court Legal Aid Committee representing Undertrial Prisoners v. Union of India [1994] 6 JT 544 (SC). 7. Shantistar Builders v. Narayan Khimalal Totame [1990] AIR 1990 SC 630 ; [1990] 1 JT 106 (SC). 8. Prabhakaran Nair v. State of Tamil Nadu [1987] AIR 1987 SC 2117. 9. Mohini Jain (Miss) v. State of Karnataka [1992] AIR 1992 SC 1858 ; [1992] 4 JT 292 (SC). 10. Vincent Panikurlangara v. Union of India [1987] AIR 1987 SC 990 ; [1987] 1 JT 610 (SC). 11. Ramsharan Autyanuprasi v. Union of India [1988] 4 JT 577 ; [1989] AIR 1989 SC 549. 12. All India Ima ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of India, AIR 1970 SC 1070. He next submitted that the mode of determination of market value is part of procedure which should be in accordance with law and he referred to sections 277 and 295 of the Income-tax Act, 1961, and the Income-tax (Seventh Amendment) Rules, 1986, and submitted that if the procedure is not in accordance with law, the ultimate order is vitiated and it is null and void. He relied upon the following authorities apart from relying upon Black's Law Dictionary : 1. A. K. Gopalan v. State of Madras, AIR 1950 SC 27. 2. P. Vajravelu Mudaliar v. Special Deputy Collector for Land Acquisition AIR 1965 SC 1017. 3. CWT v. Laxmipat Singhania [1978] 111 ITR 272 (All). 4. CWT v. Smt. Taraben R. Patel [1992] 198 ITR 657 (Kar). 5. Jaswant Rai v. CWT [1977] 107 ITR 477 (P & H). 6. CIT v. Smt. Vimlaben Bhagwandas Patel [1979] 118 ITR 134 (Guj). He further submitted that determination of fair market value in law cannot depend on speculative, subjective and fanciful adjustments and that too without any support of law on the point. He relied upon the following authorities : 1. CIT v. Arun Mehra [1986] 157 ITR 308 (Delhi). 2. CIT v. New India Construction Co. [1980] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed today for the purpose of limitation and other consequences. Later on, the petitioner had filed the present writ petition. The third respondent-appropriate authority had filed an application CM No. 6632 of 1993 stating in paragraph 7 : "It is submitted that after the decision of the Supreme Court in C. B. Gautam's case [1993] 199 ITR 530, the issue is only of academic interest because the order passed in this case under section 269UD will have to be set aside for passing fresh order after giving proper hearing and communication of a reasoned order." In the show-cause notice the appropriate authority in arriving at the fair market value had not followed the well settled principles. Following the reasoning given by the Gujarat High Court in Krishna Kumar Agarwal v. Appropriate Authority [1996] 217 ITR 274 and Hindumal Balmukund Investment Co. Pvt. Ltd. v. Appropriate Authority [1996] 219 ITR 146 (Guj), we don't think it fit to remit the matter back to the appropriate authority. The order is set aside and this writ petition is also allowed. We could look into the decisions rendered by the judges of other High Courts in 1995, 1996 and 1997. We derived benefit from thei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cent. and is, therefore, a fit case for making pre-emptive purchase under the provisions of Chapter XX-C of the Act and has been arrived at without application of mind inasmuch as, from the order, it is apparent that the facts which are necessary for arriving at such satisfaction are non-existent." The learned judges observed (page 26) : "We have given our anxious consideration to the contentions raised before us and perused the material placed before us. As will be discussed presently, in our opinion, the last contention of learned counsel for the petitioner is well-founded and the petition should succeed on that count alone. Hence, we do not propose to go into other contentions." The learned judges observed (page 27) : "It is further to be noticed that even where the taking of action depends upon the subjective satisfaction of the authority, the basic requirement is that such subjective satisfaction must be founded on existing material and when a challenge to such subjective satisfaction is raised, the existence of material, which has resulted in such subjective satisfaction is to be shown. A reference in this connection may be made to the decision of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial on which it can be said that the appropriate authority could reach a conclusion that the estimated market rate or the real consideration of the first floor of a commercial building, similarly situated as the property in question, is more than the apparent consideration disclosed in the agreement in question by 15 per cent. Therefore, the order must fail on its own reading." Forbes Forbes Campbell and Co. Ltd. v. Nishar Ahmed, IAC, [1996] 217 ITR 103 was by the Division Bench of the Bombay High Court (M. L. Pendse and S. M. Jhunjhunuwala JJ.) and the judgment was delivered on October 12, 1994. In this case before the Bombay High Court the notice issued by the appropriate authority was challenged and the learned judges quashed the notice on the same process of reasoning as adopted by the Gujarat High Court. In all the cases before us in the batch there was no difference in the consideration of the materials by the appropriate authority at the time of the issue of notice and passing final orders. As noticed by the other High Courts, the appropriate authority in these cases had only restated the reasons given in the notice in the purchase order and confirmed it as stated in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de tax. It must be noticed that the presumption is a rebuttable one and what evidence is required to rebut it depends upon the facts and circumstances of each case. The presumption may even be rebutted, without leading evidence, on the basis of material already available on record. The position regarding discharging the burden to displace the rebuttable presumption has been succinctly explained in CIT v. Vinaychand Harilal [1979] 120 ITR 752 (Guj). That was a case where there was a statutory provision for raising a presumption against the assessee under the Explanation to section 271(1)(c) about concealment of particulars of income by the assessee. The court said (page 758) : 'In order to rebut the presumption raised by the Explanation to section 271(1)(c), it is open to the assessee to point to the record of the case and point to materials on the record which would enable him to show that he had not concealed the particulars of his income or furnished inaccurate particulars of his income.' The court further observed (at page 762) : 'It is also not necessary that any positive material should be produced by the assessee in order to discharge this burden which rests upon him. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The rejection of submissions made by the vendors or the transferee or the persons interested in the property, does not lead to consequence that grounds for making pre-emptive purchase exist. The sine qua non is that the reasons must exist on the material placed before it, for supporting the action taken for pre-emptive purchase under section 269UD of the Act. The order clearly falls short of this requirement.' In the above facts and circumstances of the present case, we are not inclined to refer the matter back to the appropriate authority. The petition accordingly succeeds. The impugned order dated April 20, 1995 (annexure "M"), is quashed. Respondent No. 1 will issue the necessary certificates including the no objection certificate within six weeks, from the date of furnishing the certified copy of the order or writ reaching the appropriate authority, whichever is earlier. Rule made absolute with no order as to costs." In Surya Kiran Association v. Appropriate Authority [1996] 218 ITR 29, the Division Bench of the Gujarat High Court (C. K. Thakker and Rajesh Balia JJ.) dealt with the matter and the judgment was rendered on June 26, 1995. In this case the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e instance property. However, it is the case of the petitioner that the sale instance property could not be said to be a comparable sale instance. Regarding the situation of the sale instance property and the property under consideration, the appropriate authority observed that both the sale instance property and the property under consideration were situated in a commercial zone. The property under consideration was situated behind Mount Carmel High School in a commercial zone. It was not accepted that there was no commercial development around property under consideration. In our view, Mr. Shah is right in contending that even if property under consideration is situated in commercial zone, it is indeed a relevant factor whether there is commercial development around property under consideration. Likewise, it is also important to bear in mind whether the frontage available to sale instance property was much more than the one available to the property under consideration. The appropriate authority observed : 'Though the frontage is narrow, it does not affect the value of the property under consideration substantially compared to the sale instance property . . .' Mr. Shah rightly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts proper perspective. Mr. Shah is right in submitting that the fact that the transfer expenses were to be borne by the purchaser is a relevant fact and it ought to have been given due importance. The authority was not right in observing that it would not affect the value of the property. Apart from the above grounds, in our opinion, Mr. Shah is right in submitting that the satisfaction as contemplated by section 269UD(1) must be based on objective facts. There must be evidence and material to arrive at the conclusion and satisfaction. Rejection of sale instances and/or grounds and/or reasons put forth by the party is one thing. At the most, it can be said to be a negative finding for not accepting the case of the transferor/transferee. But, the law requires something more. In our opinion, it is incumbent upon the appropriate authority to come to a positive finding and definite conclusion that the property was undervalued. In the absence of such a finding or conclusion, no order under section 269UD(1) can be made. A similar question arose before us in Special Civil Application No. 869 of 1995-Anagram Finance Ltd. v. Appropriate Authority [1996] 217 ITR 22 (Guj) decided by us on Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o come to a positive and definite conclusion that the property was undervalued. A similar question arose before us in Special Civil Application No. 869 of 1995, (Anagram Finance Ltd. v. Appropriate Authority [1996] 217 ITR 22 (Guj)) decided by us on March 30, 1995. Considering the relevant provisions of the Act as also the decision of the Supreme Court in Barium Chemicals Ltd. v. Company Law Board [1966] 36 Comp Cas 639 ; AIR 1967 SC 295, we observed as under (page 28 of 217 ITR) : 'A combined reading of section 269UD(1A) and (1B) of the Act leaves no room for doubt that it is a question of objective decision-making process by taking into consideration all the relevant materials which have come before the hearing authority and considering the rival aspects of the matter. Moreover, the requirement of law is to specify the grounds on which the order of pre-emptive purchase is made. That obligation does not stop by merely rejecting the submissions made before it. The rejection of submissions made by the vendors or the transferee or the persons interested in the property, does not lead to a consequence that grounds for making pre-emptive purchase exist. The sine qua non is that the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the property stated in the agreement to sell is less by 15 per cent. or more of its fair market value, the presumption of understatement having been made with the intention to evade the tax may be raised by it. However, such a presumption is not a statutory presumption which is mandatorily required to be drawn in all cases . . . . mere finding of understatement, without recording the conclusion of the appropriate authority himself, about a nexus between understatement of consideration and attempt to tax evasion, it is not permissible to raise presumption that the appropriate authority has also found that such understatement was an attempt to evade the tax when such an order is challenged before courts. It is also to be seen that for element of a nexus being present with the understatement of consideration and attempt to evade tax, it is essential that the apparent consideration is not the real consideration. Therefore, merely on the finding that the apparent consideration is less than fair market value without there being any satisfaction that the apparent consideration is not the real consideration, the nexus cannot be established with an attempt to evade tax. Therefore, it is als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tent authority. By and large, it can be said that in the enquiry under Chapter XX-A of the Income-tax Act, 1961, the transferor and/or transferee as well as the occupant and any other known interested person should be told the nature of allegations against him including the material collected so far by the competent authority, and be furnished copies of the statements recorded and those of the documents collected by the competent authority on which he intends to rely so as to give the person interested or affected an opportunity to state his case and to correct or controvert the material sought to be relied upon, and the competent authority should act in a just manner at all stages of such inquiry which would necessarily imply that the authority shall furnish any other additional material which it might have collected after the initiation of the proceedings in the course of the inquiry to the person interested or affected by the proposed acquisition. . . ." And then the Bench observed that "we are in respectful agreement with the above observation." The Allahabad High Court set aside the order and quashed the order on the ground that the two months period had expire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greements which were relied upon by the appropriate authority to record an adverse finding against the agreement holders amounts to denial of opportunity of being heard resulting in violation of the principles of natural justice which would vitiate the proceedings." In Smt. Varshaben Bharatbhai Shah v. Appropriate Authority [1996] 221 ITR 819, the Division Bench of the Gujarat High Court consisted of B. C. Patel and R. M. Doshit JJ. and the judgment was delivered on February 5 and 6, 1996. The court considered the question about non-observance of principles of natural justice. The court noted (page 830) "The appropriate authority took into consideration the material provided by the Valuation Officer in detail but the same is not supplied to the petitioner." The court also noted (page 830) : "It is not disputed that the reports in detail are not supplied to the petitioner." At page 831, the court posed the question and answered it in the following terms : "Can it be said that sufficient opportunity is afforded even when parties are called upon to contradict the conclusion arrived at for valuation without providing the reports of the Valuation Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pty formality." In Ashis Mukerji v. Union of India [1996] 222 ITR 168, a Division Bench of the Patna High Court D. P. Wadhwa C. J. (as His Lordship then was) and S. J. Mukhopadhaya J. considered the validity of the order passed by the appropriate authority on July 11, 1996. The Division Bench besides quashing the order of the appropriate authority set aside the order of taking possession of the property and declared that the property shall revest in the writ petitioner. In Mrs. Nirmal Laxminarayan Grover v. Appropriate Authority (Income-tax Department) [1997] 223 ITR 572, the Division Bench of the Nagpur Bench of the Bombay High Court had an occasion to deal with the challenge on the order passed by the appropriate authority. The Division Bench came to the conclusion that in the absence of specific rules and guidelines the appropriate authorities would act only arbitrarily. The passage at page 586 brings home the point : "Moreover, there is no material to show that in a period of one year and two months, the market value of the land in the Civil Lines area would appreciate and that too to the extent of 12 per cent. per annum. Even the appropriate authority has not foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... settled by the judgments of the Supreme Court regarding the determination of market value of the acquired land under the Land Acquisition Act which principles can usefully be resorted to in the determination of the question of gross undervaluation of the market value of the property in question which are the subject-matter of compulsory purchase under Chapter XX-C of the Act. As pointed out hereinbefore, the sale instance relied upon by the appropriate authority cannot be said to be a comparable sale instance and, therefore, cannot furnish a good guide for determining the market value of the suit land." The court further observed (page 593) : "There is also force in the contention raised on behalf of the petitioner that in the absence of the particulars of the material or the reason(s) being disclosed in the show-cause notice for entertaining a tentative or a prima facie view that the value of the suit land is grossly understated in the agreement of sale between the parties, the transferor and the transferee have no real opportunity to meet the case of the appropriate authority or the Income-tax Department concerned in that regard and hence there is non-compliance with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its conclusions at the stage of show-cause notice are only prima facie or tentative conclusions, it would not mean that they are not required to be disclosed in the showcause notice. The above stand taken by the respondents in their return is thus wholly misconceived and is untenable. In fact, it betrays the ignorance of the respondents about the basic tenets of the principles of natural justice which we have referred to above as requirements of a proper show-cause notice." Dealing with the contentions on behalf of the Revenue that the inquiry was summary in nature and, therefore, the appropriate authority was justified in adopting its own procedure and methods, the court observed (page 595) : "As regards the other reason given by the respondents for dispensing with the requirement of giving reason(s) or material in the showcause notice on the basis of which a prima facie or tentative conclusion is reached by the appropriate authority that the property in question is grossly undervalued, viz., that the enquiry contemplated by the Supreme Court before taking action under section 269UD(1) of the Act is a summary or a limited enquiry, it may be seen that when the princip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant material upon which the prima facie view of the appropriate authority that the property in question is undervalued is based is not disclosed in the show-cause notice given to her. The impugned order of the appropriate authority passed pursuant to such a defective show-cause notice is thus illegal and is vitiated for not being in consonance with the basic principles of natural justice. In the light of the view taken by us above, it cannot be held that the appropriate authority has proved by clear and cogent material on record that the suit land is significantly undervalued, which is a criteria laid down by the Supreme Court for compulsory purchase of immovable property under section 269UD(1) of the Act in C. B. Gautam's case [1993] 199 ITR 530 (SC). The impugned order of the appropriate authority cannot thus be sustained and is liable to be set aside." In Gurbux Gianchand Motwani v. S. C. Prasad [1997] 225 ITR 134, a Division Bench of the Bombay High Court set aside the order of compulsory purchase on the ground of non-application of mind. The Gujarat High Court in Ketki Land Holdings Pvt. Ltd. v. Appropriate Authority [1997] 227 ITR 825, and the Allahabad High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (4) The burden lies on the authority to establish that the apparent consideration falls short of the market value by more than 15 per cent. and it never shifts ; only the onus continues shifting from one to another. (5) The parties are entitled to be supplied entire material relied upon by the authority including the valuation reports on record. (6) The imputation of tax evasion or concealment of income cannot be mechanically or lightly made without due regard to the explanation of the affected parties and meticulous examination of instances of comparable properties cited by the affected parties and the peculair circumstances resulting in the reduction of the value of the property. (7) It is impermissible to pass a pre-emptive purchase order where material is placed before the authority showing that there was no occasion for making undervaluation of a property with a view to evade tax or conceal income. (8) Since no appeal has been provided for in the Act, the authority is required to be more cautious in its approach while passing a preemptive purchase order. (9) The discretion of passing a pre-emptive purchase order is to be exercised by the subjective satisfaction of object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h as long delays taking place in courts in getting possession from bona fide tenants in cases where tenants have protection of rent laws and also in cases where suits for possession are filed under the Transfer of Property Act. (21) The fair market value of a property cannot be determined by theoretical considerations in an abstract manner by applying multipliers and arbitrary adjustments since, as far as possible, the actual value of a property in the market is required to be determined for action under Chapter XX-C of the Act. (22) The element of guess work inherent in most cases involving determining of market value has not to be taken as a factor against the citizens. (23) For determining undervaluation and tax evasion, events as on the date of the agreement of sale are to be taken into consideration. (24) Where the seller needs immediate money and agrees to sell his property at a value less than the market value, it would not be permissible to make an order of pre-emptive purchase. (25) The plea of distress sale and at the same time the plea that the property was agreed to be sold at the market value, are not mutually destructive and can be raised as alternate pleas. (26 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 91. On account of the time gap of 24 months, the adjustment of plus 24 per cent. was made. In another sale instance property being G-8, Maharani Bagh, there was basement potential and, therefore, adjustment of minus 10 per cent. was made by the authority on that count. The impugned pre-emptive purchase order is utterly perverse. There is nothing on record to suggest as to what were the special reasons for making a purchase order in respect of almost wholly tenanted property. Assuming there was some justification for the authority to initiate proceedings for the pre-emptive purchase of the property under Chapter XX-C of the Act, the method of valuation of the fair market value had to be just and reasonable. The authority has compared the values of incomparable properties. While considering comparable instances, the instance of tenanted properties had to be taken into consideration and not vacant properties by discounting as was done by the authority for which, in the facts and circumstances of the case, we find no factual or legal sanction. Further, while considering the comparable instances proximity from the time angle has also to be seen. The agreement in respect of property G-8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in C. B. Gautam's case [1993] 199 ITR 530 and the matter remanded to the authority for fresh examination. Thereafter, the show-cause notice dated May 21, 1993, was issued by the authority and the impugned pre-emptive purchase order was made on May 28, 1993. This property is also tenanted. The facts noticed in the impugned order passed by the authority show that from January 1, 1974, the lessee of the property was Jain Shudh Vanaspati Ltd., at a monthly rent of ₹ 4,000 for the residence of Vinod Kumar Jain who had been in occupation of the said property as director of the lessee-company. In terms of a lease deed dated December 1, 1983, the entire property was leased to Vinod Kumar Jain for a period of 5 years at a monthly rental of ₹ 4,000 including ₹ 1,000 as rent for garages, servants/driver quarters excluding electricity and water charges. Various litigations were pending between lessor and lessee in respect of the property in question. The impugned order itself shows how strenuously the tenant was contesting the proceedings before the authority. The impugned order records the offer of Vinod Kumar Jain to buy the property at a price of ₹ 4.5 crores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nthly rent was only ₹ 4,000. It also deserves to be noticed that though the sale instance of property No. 60 was taken into consideration for determining the fair market value of the property in question but it has now come on record that in respect of property No. 60, Friends Colony, agreement dated December 5, 1990, for ₹ 2.65 crores did not materialise. The seller forfeited ₹ 25 lakhs and the said agreement was cancelled and under a subsequent agreement of September 1991, the property was sold at ₹ 2.40 crores. On that agreement "no objection certificate" was granted by the appropriate authority. According to the approach of the authority, if on account of nominal rent of ₹ 4,000 like the one in respect of property in question and on account of various litigations between tenant and the owner, the owner sells the property, then too it is not "pressing circumstance" for sale of the property. Moreover, the petitioner had given instances of at least 12 tenanted properties in respect of which the permission was granted and the same were valued as per the averments made by the petitioner applying the rent capitalisation method. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 20, 1993, in respect of the Panchsheel Park property the agreement was dated September 29, 1993, and in respect of the Neeti Bagh property the agreement was dated October 28, 1993. After plus and minus adjustments on account of time gap, locational difference of the colony and the plot, etc., the unit land rate per sq. mtr. was worked out to ₹ 33,440 by applying the sale instance of Vasant Vihar property, ₹ 41,460 on the basis of Panchsheel Park property and ₹ 34,172 per sq. metre on the basis of Neeti Bagh property. The sale instances given by the transferor and the transferee in respect of property B-13, Greater Kailash Enclave I, B-16, Panchsheel Park, and B-4, Greater Kailash Enclave I, where the agreements had been executed on January 17, 1994, May 27, 1993 and May 12, 1993 respectively were not accepted as according to the appropriate authority there was FAR difference as high as 39 per cent. in respect of the sale instances relied upon by the transferee and the transferor and also that the size of the plots of sale instances relied upon by the transferor/transferee was smaller. In respect of the said sale instances, the plotted area was about 418 metres i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for a sum of ₹ 29 lakhs plus 15 per cent, other charges. The pre-emptive purchase order made by the authority on August 23, 1991, was set aside by this court by judgment dated March 1, 1993, in view of the decision of the Supreme Court in C. B. Gautam's case [1993] 199 ITR 530. Thereafter, show-cause notice dated May 10, 1993, was issued to the transferor and transferee relying upon the sale instance of Flat No. 4 on the third floor of the same building said to have been agreed to be sold for ₹ 38 lakhs, as per agreement dated May 30, 1991, and having the built up area of 1341 sq. ft. The built-up area of the flat in question is 1411 sq. ft. The unit rate of the sale instance flat was worked out at ₹ 2,834 per sq. ft. and on that basis value of the subject flat was worked out at ₹ 39.99 lakhs and the apparent consideration was said to be less by about 20 per cent. The apparent consideration of the subject flat was taken at ₹ 34,82,000 by adding to ₹ 29 lakhs, a sum of ₹ 4,35,000 representing 15 per cent. increase as per the agreement and ₹ 1,47,000 towards the interest on the amount paid by the petitioners to the seller earlier in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ority erroneously rejected the value of the flat on the first and third floor in respect of which permission has been granted on the ground that the said sales were much prior to the date of agreement. In other cases noticed hereinbefore the authority had by applying adjustment taken into consideration the instances of the sale effected about two years prior to the date of the agreement. Further, from the material placed on record, it appears, that ₹ 23,30,924 was tendered by the Central Government to the vendor on September 6, 1993, which was beyond the stipulated period under section 269UG(1), thereby attracting the rigours of section 269UH resulting in the abrogation of the purchase order. The purchase order deserves to be quashed. CWP No. 3726 of 1994 : Flat No. 84 in Greater Kailash Part I, New Delhi, on the first floor was agreed to be sold under the agreement dated April 23, 1994, for ₹ 24 lakhs. The transferors Mr. K. S. R. Chari and Mrs. Chari are permanent residents of Bangalore. The authority passed the impugned order on considering the sale instances of property Nos. S-237, Greater Kailash Part I and E-547 Greater Kailash Part-II. The property S-237 had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount as advance, cannot be rejected only on the ground that only transactions between the relatives on account of natural love and affection can be considered for a value lesser than market value. The whole concept of distress sale, in so far as applicable to such matters, has been completely misunderstood by the authority. Further, the subject flat was constructed in the year 1986 and was compared by the authority with a flat constructed in the year 1993 alleged to have specification of a five star hotel by merely stating, without any material on record, that the difference of specification in construction was negligible. At the same time, the sale instance of flats at E-273, Greater Kailash in ground floor under agreement dated March 31, 1993 for ₹ 17,55,000 relied upon by the parties was ignored on the ground that the construction was old. The sale instance of property No. E-280, Greater Kailash Part-I, relied upon by the transferor and the transferee was ignored by the authority on the ground that sale instance of that property was more than one year old. In many other cases, as noticed hereinbefore, the authority had taken the sale instance of properties sold more than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. and it is concluded that the total value of the subject property is about 20 per cent. higher than the apparent consideration. It is stated to be lower by 43.6 per cent. when compared to the sale instance property C-86 agreed to be sold for ₹ 1.25 crores as per agreement dated July 19, 1994. It was strenuously contended before the authority by the petitioners that the sale instance properties were not comparable on account of various factors including the nature of construction and disadvantage of the location of the subject property, the same facing the servant quarters of E-Block and also that the subject property was under litigation and the proceedings were pending in a court of law. The authority ignored the pending litigation factor by, inter alia, stating that the order dated May 27, 1994, passed by the Additional District Judge restraining the sale, transfer or parting with possession of the property was only temporary injunction and that the pending litigation was not material. The reason for the pending litigation not being material as per the authority seems to be that under the terms of the agreement the transferor had undertaken to indemnify the transferee fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authority without any just cause rejected the explanation pertaining to property at C-86 that it was a centrally air- conditioned property and thus not comparable by merely observing that the said fact only showed that the value of the property C-86 was slightly more. It failed to consider that the value of a centrally air-conditioned property could not have been taken into view to value the subject property. Looking from any angle, we find it difficult to sustain the impugned order of pre-emptive purchase and, therefore, the same is set aside. C. W. P. No. 5613 of 1993 : Under the agreement dated August 28, 1993, respondent No. 3-Ved Prakash Marwaha, agreed to sell to the petitioner the property A-3, East of Kailash, measuring 300 sq. mtr. for ₹ 70 lakhs. The sale instance considered by the appropriate authority for coming to the conclusion that there is understatement of the value of the property is that of property No. E-326, East of Kailash, which is situate in a different block and has a smaller plot of 167 sq. mtrs. that was agreed to be sold for ₹ 51 lakhs under agreement dated May 23, 1993. In the show-cause notice the salvage value of the sale instance pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ea of 375 sq. mtr. was agreed to be sold for ₹ 23.50 lakhs. The order of pre-emptive purchase made on July 10, 1987, was set aside in C. W. P. No. 2275 of 1987 decided on March 1, 1993, in view of the Supreme Court decision in C. B. Gautam's case [1993] 199 ITR 530. Thereafter, the authority issued show-cause notice dated May 11, 1993, wherein it was stated that prima facie apparent consideration of the subject property was low as compared to other sale transactions. Reference has been made by the authority in the show-cause notice to the land rate per sq. mtr. in respect of property No. B-1/16, Hauz Khas, New Delhi, which sale took place in February, 1987 ; sale instance of property No. J-10, Green Park, and yet another sale instance of B-2/ 2, Safdarjung Enclave, sold in February, 1987. The average of three sale instances was taken into account to work out the land rate of ₹ 7,850 per sq. mtr. and it was concluded that the fair market value of the subject property was in excess by 28.5 per cent. The transferor and the transferee in reply, inter alia, stated that Safdarjung Enclave Extension where the property was situate was neither developed by any Government agency ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... different cases. Though in determining the fair market value of a property, there has to be some element of guess work, that does not mean that the basic facts to be taken into consideration should differ from case to case and should depend upon as to who are the members of the authority. Such a course would be arbitrary and violative of article 14. There is reasonable likelihood of arbitrariness stepping in while determining the fair market value of properties in the absence of any norms and guidelines for addition and/or deduction. The impugned order deserves to be quashed. C. W. P. No. 3594 of 1990 : In this case the impugned pre-emptive purchase order dated November 27, 1989, has been made by the authority in respect of Property No. 756, Asian Games Village, which was agreed to be sold for ₹ 20 lakhs in terms of the agreement dated September 14, 1989. The respondents stated that they have no objection for setting aside of the impugned order and the matter being decided afresh by the authority after affording an opportunity to the parties in terms of the decision of the Supreme Court in C. B. Gautam's case, [1993] 199 ITR 530. The impugned order in this case was made ..... X X X X Extracts X X X X X X X X Extracts X X X X
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