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TMI Blog2005 (5) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 and Rs. 46,01,475, i.e., for a total consideration of Rs. 1,84,06,825. Two forms in Form No. 37-I prescribed under rule 48L of the Income-tax Rules, 1962, duly filled in by the transferors and the transferee were filed before the first respondent on May 23, 1989. The statements were accompanied by the respective agreements. The third respondent is a non-resident, non-citizen, though of Indian origin. The second respondent is the mother of the third respondent, and both of them were the legal heirs of Mr. Nariman K. Irani. The first respondent after inspecting the property and after recording the reasons by two separate orders passed by it, ordered purchase of the said property by the Central Government for a total consideration of Rs. 1,84,06,325. Orders were passed under section 269UD(1) of the Income-tax Act, 1961 (the "Act" for short), on July 25, 1989. The transferors did not question the purchase order dated July 25, 1989, but instead immediately after the passing of the purchase orders, surrendered vacant possession of the property to the Appropriate Authority along with the original documents. Aggrieved by these orders, the petitioner filed writ petitions in Writ Petitions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the letter dated June 14, 1993, issued under section 269UE(2) of the Act. They are at annexures G and G1. The Supreme Court disposed of the civil appeals before it vide judgment dated September 24, 1993, wherein the court has observed as under: "In view of this order made by the Appropriate Authority after a further enquiry as directed by the High Court in the impugned order, we do not consider it appropriate to go into the questions raised by the appellant while challenging the impugned order of the High Court. It will be open to the appellant to raise all the points, including those raised herein, for consideration while challenging the order dated June 14,1993, made by the Appropriate Authority in the appropriate proceedings. In these circumstances, we also make it clear that these points which have been raised in the present appeals shall be treated as open for consideration in the proceedings taken by the appellant for challenging the order dated June 14, 1993, made by the Appropriate Authority even before the High Court. We make it further clear that the observations touching these points made in the impugned judgment by the High Court shall not stand in the way of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion for the purpose of compulsory purchase in terms of the impugned order. He refers to me several case laws in support of his submissions. In addition, he would say that the Reserve Bank has approved the transaction and that, therefore, prima facie, it cannot be said that there is any material providing for tax evasion warranting any orders in terms of section 269UD of the Act. It is further contended before me that the courts of law have deprecated adhocism in these matters. He would say that comparisons are wholly untenable and inadequate. There has been deliberate attempt to under play No. 6, Infantry Road, and the disadvantages of the property and overstate the advantages of the subject property. The potentiality of the property at No. 6, Infantry Road, is belittled. There is a discreet omission about when the property was sold and how many times the property had been put in auction and with what result. He also refers to me various materials to contend that they are not comparable to the property in question. Even otherwise, he says, the possible litigation is a substantial discounting factor and that has been ignored by the authorities. As I mentioned earlier, several cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approval of the Reserve Bank of India to sell his interest in the property. An application was filed before the Reserve Bank of India which approved the same in favour of the petitioner. There were interim directions by this court in the earlier petitions. Thereafter, the learned single judge of this court accepted the petitions filed by the petitioner. Writ appeals were filed in Writ Appeals Nos. 2164 and 2165 of 1992. The Division Bench allowed the appeals with various directions in para. 16 of its judgment. The Division Bench order is at annexure E to these writ petitions. Aggrieved by the Division Bench order, SLPs were filed by the petitioner and the petitions were pending before the Supreme Court. In the meanwhile, the first respondent issued notice in the matter. The petitioner filed Writ Petition No. 17478 of 1993 seeking an order to restrain the first respondent from proceeding further in the matter. His prayer was declined. Extension was sought for. The same was rejected by the Division Bench. A detailed reply was submitted by the petitioner. In the light of limitation placed by the Division Bench, an order dated June 14, 1993, was passed ordering compulsory purchase in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioner has no legal right and it cannot maintain these petitions. He says that the facts in the case on hand would show that the petitioner is only an agreement-holder and such an agreement-holder will have no right in terms of the case law. He refers to the judgment of the Supreme Court in DLF Universal Ltd. v. Appropriate Authority [2000] 243 ITR 730. The Supreme Court in the said case observes as follows: "Agreement for transfer and statement in Form No. 37-I are two different documents. As rightly held by the High Court, agreement for transfer can be oral as well as in writing but then this agreement for transfer has to be reduced in writing in Form No. 37-I. The High Court has held that in certain sections in Chapter XX-C 'agreement for transfer' in fact means statement in Form No. 37-I as mentioned in sub-para. (iii) of its findings. ... Can it be said under rule 48L that the term 'agreement for transfer' mentioned in clause (c) of sub-rule (2) thereof, in fact, means statement in Form No. 37-I? If we take the literal meaning, this provision will become rather otiose. An 'agreement for transfer' is inter partes and that can always be changed. That the term 'agreement fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ging the order dated June 14, 1993. In the light of the order of the Supreme Court, I cannot dispose of these writ petitions only on the ground of a "no-right" to an agreement-holder as argued by the Department's advocate. If the arguments of the respondents are accepted, I would be going against a binding order on me in the case on hand. In the circumstances, despite the argument of Sri Seshachala, learned counsel for the Department, I deem it proper to consider the case on the merits in the light of the judgment of the Supreme Court. The argument of the respondents in this regard is rejected on the peculiar facts of this case. Question of law on the subject: The question that arises for my consideration is the impact of section 269UD of the Act in the given circumstances. Courts have considered the scope of section 269UD in various cases. The parties have placed before me a large number of cases in this regard. I would be referring to a few cases in order to avoid repetition in the matter. In DLF Universal Ltd. v. Appropriate Authority [2000] 243 ITR 730, the Supreme Court has ruled that (i) the High Court was not right in its findings as given in sub-paras. (ix) and (x) of pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct are different. 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 recognized 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 that basis. 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 competent authority to acquire would expose not only the transferee to the consequences of being deprived of the properly but also the transferor to the liability of capital gains under section 52 of the Income-tax Act and, in a given case, may affect also the persons interested in the said property having tenancy rights or any encumbrances thereon. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the jointly owned property; (iii) the Tribunal had held that in their experience and knowledge, conditions in Ernakulam had not developed to such an extent that an open space in the second floor could be considered as a potential housing site. This was a finding on a pure question of fact. On this basis, the sum of Rs. 1,18,980 was excluded from the valuation report based on the land and building method. This exclusion was justified. In Ajay Construction v. Union of India [1995] 212 ITR 44, the Patna High Court has ruled that an opportunity is necessary in the case on hand. In Smt. Lily Shavak Doctor v. Union of India [1995] 212 ITR 142, the Gujarat High Court has held that the show-cause notice issued in the present case was a mere empty formality observed by the Appropriate Authority and the statement made in the show-cause notice was absolutely vague and did not give any opportunity to the petitioners to defend themselves and to point out to the authority that the apparent consideration mentioned in the agreement to sell was the market value of the property and that, therefore, notice was not valid and was liable to be quashed. The court, however, clarified that it was open ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for claiming a particular value as the market value. The exercise has to go much deeper and has to cover a wider area." The Rajasthan High Court-Jaipur Bench-in CWT v. S.K. Golecha [2004] 270 ITR 379 has held that when the direction was given that the value in the year in hand should be taken by enhancing it by 10 per cent. of the value taken in the preceding year, that was neither unreasonable nor excessive. C.B. Gautam v. Union of India [1993] 199 ITR 530 (SC) is a leading case and in the said case, the Supreme Court has ruled as under: "Chapter XX-C of the Income-tax Act, 1961, providing for pre-emptive purchase at apparent consideration by the Government of immovable property proposed to be transferred does not confer arbitrary or unfettered discretion on the Appropriate Authority to compulsorily purchase immovable properties and does not violate article 14 of the Constitution of India. The very historical setting in which the provisions of this Chapter were enacted indicates that it was intended to be resorted to only in cases where there is an attempt at tax evasion by significant undervaluation of immovable property agreed to be sold. This is strengthened by Instruction N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t a price lower than the fair market value or there might be a subsisting lease in favour of the intending purchaser. There might similarly be other genuine reasons which might have led the seller to agree to sell the property to a particular purchaser at less than the market value even in cases where the purchaser might not be his relative. Unless an intending purchaser or intending seller is given an opportunity to show cause against the proposed order for compulsory purchase, he would not be in a position to rebut the presumption of tax evasion and to give an interpretation to the provisions which would lead to such a result would be utterly unwarranted. 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 further observes as under: "The provision that when an order for purchase is made under section 269UD, reasons must be recorded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he property. From all these judgments, what is clear to this court is that Chapter XX-C was enacted to arrest an attempt of evasion by the significant undervaluation of immovable property. Though it is, administrative in character, even then, a reasonable opportunity has to be provided to an aggrieved person. The courts have also noticed that the provision of Chapter XX-C can be resorted to only where there is 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. Courts also notice a presumption being rebuttable, and that 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. Courts further observe that the High Court can interfere if only relevant factors are ignored by the authority and the High Court cannot sit in appeal in this matter. Merits of the matter: Two important arguments are addressed before me with regard to the merits of the matter. The first argument was that of natural justice of hearing and the second argument was with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgue that the Reserve Bank of India's approval was totally ignored by the authority. He would further say that the authority has taken into consideration irrelevant material in arriving at its conclusion. While elaborating the same, learned counsel would say that out of the comparable cases cited by the Revenue, only two properties are in Infantry Road. Learned counsel would say that the whole working out of the value of the property is incorrect. His further complaint is that though the belting is to be considered, the largeness of the disputed property are also taken into consideration ultimately resulting in the impugned order. He further complains that in the Queen's Road site, there are private properties and only in the corner a small and a narrow way is available. The price paid for property No. 6, Infantry Road, was a fancy price without considering the disadvantage which is evident from the fact that the project could not come through and even as of today, the property is lying vacant. In so far as property No. 10, Infantry Road, is concerned, learned counsel would say that it is not comparable at all since this property is a very small property. Learned counsel would say ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 670 per square feet. The authority, at para. 10 of its order, has noticed that the property at No. 10, Infantry Road, i.e., old No. 8, is very close to the property under consideration, and it was sold in several parts, and that considering the salvage value of the old building, the land rate for the property was Rs. 747 per square feet. The authority has also noticed in the impugned order the other aspects in the matter. The belting method was also taken note of by the authority. Taking into consideration all these materials available on record, the authority has passed an adverse order holding that the market value of the property under transfer was definitely in excess of Rs. 747 per square foot at the time when the agreement was entered into. In so far as the argument of the Reserve Bank of India's approval is concerned, all that I would say is that mere approval by the Reserve Bank of India does not come in the way of re-examination in terms of section 269UD of the Act. The object of the provision is to see that evasion of tax is avoided. Courts have accepted this provision in terms of the judgments referred to by the parties. Therefore, just because the Reserve Bank of Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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