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TMI Blog1992 (11) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... elhi Development Authority on February 25, 1981. On February 4, 1985, the owner entered into an agreement to transfer the leasehold rights in the said property to the petitioner and a sum of Rs. 4.5 lakhs was paid as the advance price. On the same day, an agreement for the construction of a structure on the plot was entered into between the said parties. On July 9, 1986, a fresh agreement to sell the residential house put up on the aforesaid plot of land along with the leasehold rights in the said land was executed between the parties wherein the owner agreed to transfer to the petitioner his leasehold rights in the said land along with the ownership of the construction, namely, the building put up thereon, for Rs. 16 lakhs. In addition, the petitioner was liable under the agreement to pay Rs. 3.4 lakhs to the Delhi Development Authority on account of the unearned increase. On the coming into force of Chapter XX-C of the Income-tax Act which was brought into effect from October 1, 1986, by a Notification dated August 7, 1986, in the area with which we are concerned, the said agreement to sell the said property along with Form No. 37-I in duplicate were furnished to the appropriate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hapter XX-C confer an unfettered discretion on the appropriate authority under Chapter XX-C to compulsorily purchase immovable properties and such a provision conferred unfettered power which was liable to be exercised arbitrarily and, therefore, violated the provisions of article 14 of the Constitution. It was urged by him that, if a view were taken that the legislative history of Chapter XX-C shows that the power to purchase immovable property conferred thereunder was to be exercised only to counter tax evasion, the provisions were still bad in law as they did not comply with the principles of natural justice which are now accepted as a requirement for compliance with article 14 of the Constitution. There is no provision in Chapter XX-C for any opportunity being, given to the intending purchaser or intending vendor of the immovable property concerned to show cause against the compulsory purchase of the property. There is no provision even for giving them notice of the intention of the appropriate authority to order purchase of the property. The mere requirement of recording reasons is not sufficient in the absence of any requirement that they must be set out in the order of purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the owner is no substitute for their secured rights in the immovable property concerned. It was, on the other hand, submitted by the learned Attorney-General that the history leading to the enactment of Chapter XX-C and the circumstances under which Chapter XX-C was introduced have been elaborately dealt with in paragraphs 7 and 8 of the main counter affidavit. A perusal of paragraphs 7 and 8 of the main counter affidavit shows that the main reason behind the introduction of this Chapter in the Income-tax Act was the desire to curb large scale evasion of income-tax and to counter other modes of tax evasion adopted by various assessees to deprive the Government of its legitimate tax dues. It was felt that a lot of tax evasion was involved in transfers of immovable properties in urban areas. Reference is made in the affidavit to the recommendations of the Direct Taxes Inquiry Committee chaired by the Hon'ble Mr. Justice Wanchoo, retired Chief justice of India and known as the Wanchoo Committee. In its interim report in 1970, the Wanchoo Committee took the view that understatement of prices in the sale deeds of the immovable properties was widespread method of tax evasion and rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that, although a transferee might be person aggrieved for the purposes of article 226 of the Constitution, he could not have any serious grievance on the ground of violation of the principles of natural justice as he could always challenge the order of purchase as arbitrary by filing a petition in a court of law and on such a petition the authorities would have to disclose the reasons to satisfy the court that they had acted on relevant considerations germane to the object of Chapter XX-C in taking the decision to purchase the property. The learned Attorney-General agreed and, in fact, supported the view that the order for purchase passed by the authorities must have some nexus to tax evasion and it was, in fact, submitted by him that every order passed for purchase under section 269UD could be tested on the touchstone of its having a rational nexus with an attempt at tax evasion. He urged that the decision to purchase the property is required to be taken by three high officers who have adequate knowledge in the matter and hence the lack of provision in the Chapter for any appellate or revisional powers made no difference. It was submitted that a requirement for the commu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel, we may point out that, after arguments were advanced for some time, the learned Attorney-General made it clear that he did not press his contention that no reasons were required to be supplied to the affected parties when an order for compulsory purchase was made. He did not seriously contest the position that the parties aggrieved by a proposed order of purchase were entitled to have an adequate opportunity to show cause against the order of purchase by the Central Government being made by the appropriate authority in exercise of the powers conferred under section 269UD of the Income-tax Act. It was, however, clarified by him that the inquiry which would have to be made to determine the objections raised by the aggrieved parties would necessarily have to be somewhat summary because of the limited time-frame within which the decision whether to purchase the immovable property in question or not had to be taken by the appropriate authority. In view of this fair stand taken by the Attorney-General, the controversy has become somewhat narrow as we have pointed out earlier. Before considering the respective arguments of learned counsel, it would not be out of place to take note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he discounted value of such consideration, as on the date of such agreement for transfer, determined by adopting such rate of interest as may be prescribed in this behalf ; " " Appropriate authority " is defined under clause (e) of section 269UA as the authority constituted under section 269UB to perform the functions of an appropriate authority under Chapter XX-C. The relevant portion of the definition of the term " immovable property " reads as follows: (d) 'immovable property' means, (i) any land or any building or part of a building, and includes, where any land or any building or part of a building is to be transferred together with any machinery, plant, furniture, fittings or other things, such machinery, plant, furniture, fittings or other things also. Explanation. -For the purposes of this sub-clause, 'land, building, part of a building, machinery, plant, furniture, fittings and other things' include any rights therein." " Persons interested " is defined as follows " (e) 'persons interested', in relation to any immovable property, includes all persons claiming, or entitled to claim, an interest in the consideration payable on account of the vest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parent consideration : Provided that no such order shall be made in respect of any immovable property after the expiration of a period of two months from the end of the month in which the statement referred to in section 269UC in respect of such property is received by the appropriate authority: Provided further that in a case where the statement referred to in section 269UC in respect of the immovable property concerned is given to an appropriate authority, other than the appropriate authority having jurisdiction in accordance with the provisions of section 269UB to make the order referred to in this sub-section in relation to the immovable property concerned, the period of limitation referred to in the preceding proviso shall be reckoned with reference to the date of receipt of the statement by the appropriate authority having jurisdiction to make the order under this sub-section. (2) The appropriate authority shall cause a copy of its order under sub-section (1) in respect of any immovable property to be served on the transferor, the person in occupation of the immovable property if the transferor is not in occupation thereof, the transferee, and on every other person whom th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d section, the whole or any part of the amount of consideration required to be tendered or deposited thereunder within the period specified therein in respect of any immovable property which has vested in the Central Government under sub-section (1) or, as the case may be, sub-section (6) of section 269UE, the order to purchase the immovable property by the Central Government made under subsection (1) of section 269UD shall stand abrogated and the immovable property shall stand re-vested in the transferor after the expiry of the aforesaid period. " There is a proviso to this sub-section which is not material for the purposes of this judgment. Section 269UK imposes restrictions on revocation or alteration of certain agreements for the transfer of immovable property or on transfer of certain immovable property. Sections 269UM, 269UN and 269UO provide as under " 269UM. Notwithstanding anything contained in any other law or in any instrument or any agreement for the time being in force, when an order for the purchase of any immovable property by the Central Government is made under this Chapter, no claim by the transferee shall lie against the transferor by reason of such transfer be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r play of the Income-tax Department. Paragraph 3 of the Instruction makes it clear that the right of pre-emptive purchase has to be exercised by the appropriate authority only when it has good reason for acquiring the property. When the property purchased by the Central Government by an order of an appropriate authority is put up for sale, the reserve price is required to be fixed at a minimum of 15 per cent. above the purchase price shown as the apparent consideration under the agreement between the parties. Thus, it is pointed out by the Board that the right of pre-emptive purchase has to be exercised only if the fair market value is found to be at least 15 per cent. more than the apparent consideration. The instruction further provides that, in coming to a conclusion as aforestated, a reasonable margin of probable errors in estimation needs to be kept in view particularly as the law does not provide for any opportunity of being heard. The contents of the affidavit filed by one H. K. Sarangi, Under Secretary, Central Board of Direct Taxes, Department of Revenue, is also to the effect that the provisions of the said Chapter ought to be resorted to only in cases of undervaluation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n compulsory purchase of immovable properties under the provisions of Chapter XX-C is as set out earlier. Statements annexed to the affidavit of H. K. Sarangi show that the several properties which were purchased under the provisions of Chapter XX-C have brought much higher amounts than the purchase price when sold at public auctions which would clearly suggest that in the relevant agreements for sale the apparent consideration was significantly understated. The legislative history of Chapter XX-C, in the stand taken by the Union of India and the Central Board of Direct Taxes as shown in the main counter affidavit and the affidavit of H. K. Sarangi, which has been filed after obtaining instructions from the Income-tax Department and the Central Board of Direct Taxes, make it clear that the powers of compulsory purchase conferred under the provisions of Chapter XX C of the Income-tax Act are being used and intended to be used only in cases where in an agreement to sell an immovable property in an urban area to which the provisions of the said Chapter apply, there is a significant undervaluation of the property concerned, namely, of 15 per cent. or more. If the appropriate authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 was urged on behalf of the Revenue that, tinder the provisions of section 52(2), once the Income tax Officer is satisfied of the condition that the consideration declared by the assessee in respect of the transfer is less by 15 per cent. or more of the fair market value, the capital gains can be computed on the footing that the fair market value was the consideration received by the assessee. This submission was rejected by this court. It was pointed out that the submission would be justified only on a strict literal reading of sub-section (2) of section 52 but that such a construction could not be adopted. The court observed that the task of interpretation of a statutory enactment is not a mechanical task. The famous words of judge Learned Hand of the United States of America that " . . . it is true that the words used even in their literal sense are the primary and ordinarily the most reliable source of interpreting the meaning of any writing : be it a statute, contract or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e apparent consideration stated in the instrument of transfer and the parties have agreed to make the untrue statement with the ulterior motive of tax evasion or concealment of income. The satisfaction of the competent authority for initiation of acquisition proceedings is a subjective satisfaction of the objective facts set out above. The reason for the formation of the belief must have a rational and direct connection 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. In these circumstances, in our opinion, it cannot be said that the provisions of the said Chapter confer 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 must, therefore, fail. The next question to which we propose to address ourselves is whether the provisions of Chapter XX-C are bad in law as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Legislature or the statutory authority and read into the concerned provision the principles of natural justice. Whether the exercise of a power conferred should be made in accordance with any of the principles of natural justice or not depends upon the express words of tile provision conferring the power, the nature of the power conferred, the purpose for which it is conferred and the effect of the exercise of that power. " In the case of Olga Tellis v. Bombay Municipal Corporation [1985] Suppl. 2 SCR 51 at 89 ; AIR 1986 SC 180, a Constitution Bench comprising five learned judges of this court had occasion to deal with the provisions of section 314 of the Bombay Municipal Corporation Act, 1888. Chandrachud C. J., (as he then was), delivering the judgment of the court, held that " the said section confers on the Commissioner the discretion to cause an encroachment to be removed with or without notice. That discretion has to be exercised in a reasonable manner so as to comply with the constitutional mandate that the procedure accompanying the performance of a public act must be fair and reasonable. The court must lean in favour of this interpretation because this helps to sustain th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve, we are clearly of the view that the requirement of a reasonable opportunity being given to the concerned parties, particularly, the intending purchaser and the intending seller must be read into the provisions of Chapter XX-C. In our opinion, before an order for compulsory purchase is made under section 269UD, the intending purchaser and the intending seller must be given a reasonable opportunity of showing cause against an order for compulsory purchase being made by the appropriate authority concerned. 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 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 draw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nity to show cause being given before an order for purchase by the Central Government is made by an appropriate authority under section 269UD must be read into the provisions of Chapter XX-C. There is nothing in the language of section 269UD or any other provision in the said Chapter which would negate such an opportunity being given. Moreover, if such a requirement were not read into the provisions of the said Chapter, they would be seriously open to challenge on the ground of violation of the provisions of article 14 on the ground of non-compliance with the principles of natural justice. The provision that, when an order for purchase is made under section 269UD, reasons must be recorded in writing is no substitute for a provision requiring a reasonable opportunity of being heard before such an order is made. The recording of reasons which led to the passing of the order is basically intended to serve a two-fold purpose : (1) that the " party aggrieved " in the proceeding before the authority acquires knowledge of the reasons and, in a proceeding before the High Court or the Supreme Court (since there is no right of appeal or revision ), it has an opportunity to demonstrate that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted by him that these encumbrance holders and holders of leasehold rights might not have anything to do with the attempt at tax evasion in the intended sale, assuming that such an attempt is made by the intending seller or the intending purchaser by undervaluing the property concerned in the agreement for sale and yet they would be deprived of their valuable rights practically without any compensation in the event of an order for compulsory purchase being made. In our view, the submissions of learned counsel are not without merit. Under the provisions of sub-section (1) of section 269UD on an order for purchase by the Central Government of an immovable property, the Government would be liable to pay as compensation to the owner of the property an amount equal to the amount of apparent consideration. Under the express provisions of sub-section (1) of section 269UE which we have set out above, in case an order for compulsory purchase is made under subsection (1) of section 269UD, the property in respect of which the order is made shall vest in the Central Government free from all encumbrances (emphasis supplied ). Sub-section (2) of section 269UE provides that the transferor or any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in such cases would necessarily result in gross injustice to the encumbrance holders or the lessees and to their being deprived of their rights without their being in any way involved in the attempt at tax evasion. It, therefore, appears to us difficult to uphold the last part of sub-section (1) of section 269UE in so far as it provides that the property in respect of which an order under subsection (1) of section 269UE is made shall vest in the Central Government free of all encumbrances. In our opinion, the expression " free of all encumbrances " is liable to be struck down as arbitrary, without any rational nexus with the object of the legislation in question and violative of article 14 of the Constitution. Similarly, the provisions of sub-section (2) of section 269UE set out by us earlier must be read down so as to make them inapplicable to bona fide lessees in possession or bona fide encumbrance holders in possession. Our attention was drawn by learned counsel for the respondent to the judgment of a Division Bench of the Gujarat High Court in Rambhai Manja Nayak v. Union of India [1983] 142 ITR 211. In that case, the provisions of Chapter XX-A of the Income-tax Act came tip f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gree that in order to save a statute or a part thereof from being struck down it can be suitably read down. But such reading down is not permissible where it is negatived by the express language of the statute. Reading down is not permissible in such a manner as would fly in the face of the express terms of the statutory provisions. In view of the express provision in section 269UE that the property purchased would vest in the Central Government "free from all encumbrances" (emphasis supplied ), it is not possible to read down the section as submitted by the learned Attorney-General. In the result the expression " free from all encumbrances " in sub-section (1) of section 269UE is struck down and subsection (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. If under the relevant agreement to sell the property is agreed to be sold free of all encumbrances or certain encumbrances, it would v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the apparent consideration can be expected to include the value of such leasehold interests or encumbrances. The holders of the encumbrances or leasehold interests which would be destroyed in this manner can be said to be persons interested as contemplated in clause (e) of section 269UA. In this connection, we may refer to sub- section (5) of section 269UE which declares that nothing in the said section which deals with the vesting of property in the Central Government shall operate to discharge the transferor or any other person.( not being the Central Government ) from liability in respect of any encumbrances on the property and, notwithstanding anything contained in any other law for the time being in force, such liability may be enforced against the transferor or such other person. This provision makes it amply clear that, in the case we have just referred to the encumbrance holder or the holder of the leasehold rights could claim the fair value of his encumbrance or the leasehold interest out of the amount paid on account of the purchase price to the owner of the immovable property acquired by the Central Government under section 269UD. It was urged by learned counsel for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, that the statement in Form No. 37-1 submitted by the petitioner as set out earlier shall be treated as if it were submitted on the date of the signing of this judgment. Thereafter, if the appropriate authority considers it fit, it may issue a show-cause notice calling upon the petitioner and other concerned parties to show cause why an order for compulsory purchase of the property in question should not be made under the provisions of sub-section (1) of section 269UD and give a reasonable opportunity to the petitioner and such other concerned parties to show cause against such an order being made. In view of the limited time-frame, this will have to be done with a sense of urgency. If, after such an opportunity is given, the appropriate authority so considers it fit, it may hold an inquiry, even though summary in nature, and may pass an order for compulsory purchase by the Central Government of the property in question under section 269UD(1). The appropriate authority will have to decide whether an inquiry is called for in the facts and circumstances of the case after the show-cause notice is issued. We are fortified in giving a somewhat limited retrospective operation of our j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ri Shankar, Senior Advocate (S. Rajappa and P. Parameswaran, Advocates, with them) for the Union of India. ORDER The Union of India has moved this application for certain clarifications and directions with a view to obviating certain difficulties that it envisages in applying the principles laid down in the main judgment dated November 17, 1992, by the Constitution Bench to cases other than the case of the particular petitioner in that case. We have heard the learned Solicitor-General in support of this application. Our attention was drawn to two aspects : one in relation to the large number of similar petitions yet pending before this court and various High Courts where, in view of the subsisting orders of stay operating therein, it would not be possible immediately to take steps and implement the directions contained in the judgment within the time-frame stipulated therein. The second aspect relates to matters pending before the authorities which, though not pending before courts, do not also admit of application of the principles consistent with the statutory limit. After hearing the learned Solicitor-General, we are satisfied that the problems and difficulties envisaged, in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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