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TMI Blog2004 (2) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... emorandum of understanding records that the property will be developed by petitioner No. 3 fully at his expenditure and cost. Petitioner No. 1 would be entitled to 22 per cent, of the said developed commercial property and petitioner No. 3 shall get 78 per cent, of the developed property. It was also agreed that petitioner No. 3 shall give interest free deposit of Rs. 10,00,000 to petitioner No. 1. Learned counsel, Shri Manohar, further states that a detailed collaboration agreement was entered into between petitioners Nos. 1 to 3 on March 17,1994. It is stated in the agreement that in so far as total area admeasuring 27,886 square feet is concerned, it would be the responsibility of petitioner No. 3 to get the user of this land changed from industrial to commercial. Clause 4.4 provides that petitioner No. 3 shall make all construction at his own cost. Clause 4.6 states that constructed area shall be shared in the ratio of 22:78 between petitioners Nos. 1 and 3. Other relevant clauses of the agreement are 4.7, 4.14, 4.18 and 4.21. Petitioner No. 1 filed a statement under section 269UC of the Income-tax Act on April 19, 1994. In the said declaration, the apparent consideration has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerned, it was 2.5 whereas F.S.I. of the comparable transaction was shown to be 1. Thus, even though the F.S.I. was different in case of both these plots, the value was sought to be calculated in terms of the F.S.I. and, therefore, the procedure adopted by the authorities is incorrect. At any rate, as the comparable plot is far away from the plot in question and is in a totally different locality, area and ward, the property was not comparable. Learned counsel, Shri Manohar, submits that the appropriate authority, i.e., respondent No. 2, on July 27,1993, had sanctioned under section 269UD of the Income-tax Act a plot in Untkhana for a consideration of Rs. 90 per square foot. This fact is admitted by respondent No. 2, but the same is not considered on flimsy ground. It is contended by learned counsel that the impugned order dated July 29, 1994, is bad in law, since it fails to record that the plot was undervalued by more than 15 per cent, with a view to evade tax. It is further contended that it is well settled that the power under section 269UC of the Income-tax Act can be exercised only where the appropriate authority records a finding that there was undervaluation of the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Manohar, vehemently states that plot in question is in the industrial and backward area of Untkhana and Dahipura, Rambagh Road, Nagpur, whereas comparable land is in Ward No. 10, Hanuman Nagar, Nagpur, which is a posh residential locality and, therefore, rates in Hanuman Nagar were bound to be much higher. Similarly, land at Hanuman Nagar is smaller in size, i.e., 736 square metres, whereas the property in question is 2,024.22 square metres. It is submitted that it is well settled that smaller plots fetch much more price than larger plots. Thus, the two plots with totally different measurements are clearly incomparable and, therefore, notice as well as impugned orders are bad in law. It is submitted by learned counsel for the petitioners that respondent No. 2 never made any attempt nor has calculated the real price of the plot in question. No method is employed to calculate the real cost or price of the plot in question except to say that some other plot in a totally different locality and which is far away from the plot in question, was sold at the rate of Rs. 283 per square foot of F.S.I. When the price of the plot in question was itself not computed by respondent No. 2, it can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portunity to produce their evidence and after hearing them, the appropriate authority passes an order after deciding as to whether property is to be acquired or not on behalf of the Central Government. It is submitted that in the instant case, after following the above referred procedure contemplated by the apex court in the case of C. B. Gautam [1993] 199 ITR 530, the appropriate authority passed the impugned order and, therefore, there is absolutely nothing to suggest that the same is passed without application of mind nor notice issued can be said to be invalid in law. It is contended by learned counsel for respondent No. 2 that the appropriate authority has in fact compared the sale transaction in question with the comparable sale instance and formed a prima facie opinion that the proposed sale is understated by more than 15 per cent. Learned counsel, Shri Jaiswal, further states that the claim of the petitioners that their property is not valued independently is without any basis. The entire scheme of Chapter XX-C is of summary nature and there is no requirement under law to get the property valued as in the case of acquisition of land. The summary method of deciding as to wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties. However, this aspect is totally absent in the agreement. It is contended that besides this, it is the case of the petitioners that the transferor is not getting any cash amount from the transferee immediately and even the constructed areas were to be transferred to the transferor after the period of three years. It is, therefore, contended that the entire case of the petitioners that the sale was for the purpose of urgently settling the dues is totally false. It is further contended by learned counsel for respondent No. 2 that the contention of the petitioners that the sale instance taken into consideration by the appropriate authority is not comparable is also incorrect. It is not correct to say that property situated in a different area cannot be compared. As a matter of fact, Hanuman Nagar and Untkhana are adjoining areas. The appropriate authority has inspected both the properties and come to the conclusion that the properties are clearly comparable. The subjective satisfaction of the appropriate authority cannot be challenged in a petition under article 226 of the Constitution of India. It is submitted that there is nothing on record to suggest that these properties are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... developed by petitioner No. 3 fully at his expenditure and cost. Petitioner No. 1 would be entitled to 22 per cent, of the said developed commercial property and petitioner No. 3 shall get 78 per cent, of the developed property. It was also agreed that petitioner No. 3 shall give interest free deposit of Rs. 10,00,000 to petitioner No. 1. (b) Respondent No. 2 issued a show cause notice for pre-emptive purchase under Chapter XX-C of the Income-tax Act on July 8,1994. The basis for issuing show cause notice was that according to respondent No. 2, land admeasuring 736 square metres at 10, Hanuman Nagar, Nagpur, has been sold for Rs. 283 per square foot of F.S.I. whereas the land in question is sold for Rs. 184 per square foot of F.S.I. and, therefore, consideration in respect of land in question was understated by more than 15 per cent. (c) The petitioners submitted their reply to the said show cause notice issued by respondent No. 2 for pre-emptive purchase of land on July 14, 1994. (d) The impugned order dated July 29, 1994, was passed by the authorities under section 269UD(1) of the Income-tax Act whereby the explanation given by the petitioners was rejected and it was held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances, 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." It is no doubt true that in view of the observations of the apex court in C.B. Gautam's case [1993] 199 ITR 530 referred to hereinabove, the order of compulsory purchase of immovable property under the provisions of section 269UD of the Income-tax Act must provide reasons germane to the object for which Chapter XX-C was introduced in the Income-tax Act and power under this Chapter can be invoked if transfer of immovable property is attempted with a view to evade tax. However, we cannot ignore the scheme of Chapter XX-C of the Income-tax Act, which postulates a basic premise that the under-statement of consideration in an instrument of transfer or sale is untruly made, if it falls short of the fair market val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arwal's case [1994] 210 ITR 16 is concerned, in para. (15) it is observed thus: "It is thus clear that in all cases where an order is proposed to be passed for purchase of the property by the Central Government under section 269UD(1) of the Act, the appropriate authority has to determine the figure of the fair market value of such property with reference to which it can be ascertained whether the apparent consideration was lower by 15 per cent, or more. That has not been done in the instant case. Here, even if the rates at which the properties referred to in the instances relied upon by the appropriate authority were sold are taken to be the fair market value on the relevant date, then also even from the highest of the three figures, the apparent consideration of the property under consideration is not lower by 15 per cent, than the fair market value. If the instances relied upon by the petitioner are taken into account, the margin will be much lesser than 15 per cent. In some of the cases the apparent consideration will be even higher than the sale price shown therein. In such a situation, no presumption of undervaluation with a view to evade tax can be drawn. It may also be expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fair market value and, therefore, the question of pre-emptive purchase in the said case did not arise. However, in the instant case, the situation is entirely different and, therefore, in our considered view, the procedure adopted by the authorities in the present case and finding recorded in the impugned order cannot be said to be inconsistent with the law laid down by this court in the case of Vimal Agarwal [1994] 210 ITR 16 (Bom). In the instant case, the property referred to in the sale instance is relied on by the appropriate authority to show the fair market value on the relevant date and it is after comparing the difference between the two, that the appropriate authority prima facie came to the conclusion that consideration for the property in question was undervalued by 15 per cent, than the fair market value of the property referred to in the sale instance. Therefore, the contention of learned counsel for the petitioners that the appropriate authority has not determined the fair market value of the property in question before arriving at the conclusion that the same is understated by 15 per cent, than the fair market value is misconceived and cannot be accepted. It is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in question. Therefore, the contention of learned counsel for the petitioners that these two properties are not comparable cannot be accepted. Similarly, it is well settled that considering the limited time frame within which the Department has to complete the entire procedure, it will not be practicable nor possible for the income-tax authorities to undertake the exhaustive procedure contemplated under the provisions of the Land Acquisition Act for the purpose of computing the market value of the property. At the same time, the Department has to consider the sale instance demonstrating fair market value, comparable with the property in question and after taking into consideration the explanation as well as the sale instance relied on by the transferor/transferee, the Department must come to the conclusion that the property in question was undervalued by 15 per cent, or more and it is only after such conclusion is reached, that the order passed under section 269UD of the Income-tax Act can be sustained. In the instant case, it cannot be said that the procedure adopted by the appropriate authority is inconsistent in this regard and, therefore, the impugned order is just and proper. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be a common yardstick in this regard. The fair market value necessarily depends upon the facts and circumstances of each case. The finding recorded by this court in the case of Prabhakar Manoharrao Deshpande [2004] 266 ITR 292 is of little help to the petitioners because the same is recorded on the basis of totally different facts and circumstances. Shri Manohar, learned counsel for the petitioners, has also relied on the judgment of the apex court in the case of Deputy CIT v. Express Towers P. Ltd. [2001] 249 ITR 556 in order to show that the explanation offered by the transferor in that case that he was desperate to sell the property in order to go abroad and settle with his only daughter in the U.S.A. and that the sale instances are of incomparable properties in different areas and the adjustment can arise in cases where there is basic similarity between two properties, was rejected by the appropriate authority by passing order, which was challenged before the Delhi High Court and the Delhi High Court in Express Towers P. Ltd. v. Deputy CIT [1998] 231 ITR 318 set aside the said order. The apex court dismissed the special leave petition against such order. It is contended by lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oned by the transferor or transferee in the agreement or form provided in sub-sections (2) and (3) of section 269UC of the Act. In the instant case, the petitioners did not furnish any details referred to hereinabove in Form No. 37-I and in the absence thereof, it will be difficult for us to hold that the appropriate authority failed to consider these aspects and, therefore, the impugned order cannot be held to be invalid in such circumstances and hence, the judgment of the apex court in the case of Deputy CIT v. Express Towers P. Ltd. [2001] 249 ITR 556 does not further the case of the petitioners. The observations made by the apex court in the case of M.P. Poddar (HUF) [2002] 253 ITR 639 are relevant, which read thus: "The Supreme Court itself has observed in the above case that looking to the time frame within which the order has to be passed, what is possible is a limited or summary inquiry, the whole purpose being to enable the petitioner to put forth his case before the Department as to why a purchase order should not be made. The hearing opportunity for example, would enable the petitioner to point out why the price was appropriate. He can also point out any special circum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 269UD is very limited and, therefore, as we have already observed hereinabove, the exhaustive procedure contemplated for determination of the market value under the Land Acquisition Act is not possible to be undertaken by the authorities under the Income-tax Act. There is another reason for the same, i.e., in the land acquisition case, the burden is on the owner of land to establish the market value of the land under acquisition whereas in the case of pre-emptive purchase under section 269UD of the Income-tax Act, the appropriate authority is only required to consider whether consideration for the land in question is undervalued by 15 per cent, or more than the fair market value. The value of the land in question is already determined and reflected in the statement contemplated under sub-sections (2) and (3) of section 269UC and, therefore, what is required to be determined for pre-emptive purchase under section 269UD is whether such consideration is undervalued by 15 per cent, of the fair market value and the same can be considered on the basis of sale instance of the land, which is similarly situated and the date of sale of such land is in close proximity with the date of s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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