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TMI Blog2003 (4) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the proceeding. It is against this order, the Revenue has preferred this appeal. Learned counsel for the appellant-Revenue, Mr. Agarwal, has pointed out that while exercising writ jurisdiction in respect of the proceedings under section 269UD, against which no appeal is provided for, this court does not sit in appeal, as was decided by the apex court in various decisions, a few of which have since been cited by him. He has then contended that the court cannot sit in appeal with regard to the valuation given in the valuation report while deciding such a question. The learned single judge had, however, virtually acted as the court of appeal. Therefore, the order should be set aside. Mr. Bajoria, learned senior counsel for the assessee-respondent, on the other hand, has contended that the object and purpose of introduction of Chapter XX-C was to prevent evasion of tax. Therefore, the provisions are to be decided in the context of the purpose and object. He has relied on the decision in C.B. Gautam v. Union of India [1993] 199 ITR 530 (SC) and has pointed out that in the said decision the apex court had observed that in the process, a bona fide transfer may not be suspected brin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 269UD of the 1961 Act is very restrictive and limited. It is confined to the scope of scrutinising the perversity and illegality of the process of valuation for the purpose of arriving at a conclusion that the property was undervalued by more than 15 per cent. of the market value. It does not sit on appeal of the market value determined in the valuation report. Admittedly, the provisions of Chapter XX-C were introduced to prevent evasion of taxes by undervaluing the properties. Therefore, this would be applied only in a case where there are materials to show that the property has been undervalued to evade tax which is a primary proposition. If this proposition is not satisfied, in that event, even if the market value is higher than 15 per cent. of the apparent value, still then this provision cannot be attracted. In C.B. Gautam's case [1993] 199 ITR 530, the apex court had noted the facts relevant for the purpose of the difference of 15 per cent. in respect of market value and the apparent value. It had observed in the said decision at page 538 that in the interim report (1970) the Wanchoo Committee pointed out that understatement of prices in sale deeds of the immovable prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purchase of a property already offered for sale. Transfers to a relative, on account of natural love and affection, were excluded from the provisions of the scheme. The affidavit of the Revenue further stated that the following types of properties should not ordinarily be purchased: (a) cases of doubtful or disputed titles; (b) transactions by and with Government, semi-Government organisations, public sector undertakings, universities, etc.; (c) properties with bona fide tenancies of long standing; and (d) properties with too many restrictions on user. It was clarified in the said affidavit (paragraph 14) that, although the appropriate authorities would not normally purchase buildings, which were leased, in a few cases they might do so when it was felt that even taking into account that the property was encumbered with lease, the apparent consideration was grossly understated. The said affidavit stated that the above practice was uniformly followed. In the light of the above observation, in C.B. Gautam's case [1993] 199 ITR 530, the apex court had held that Chapter XX-C can be resorted to in a case of significant undervaluation of property to the extent of 15 per cent. or more. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were sold subject to encumbrances. It is equally well known that a property in respect of which there is a subsisting lease for a substantial period of time would fetch a comparatively low price because the purchase thereof would not carry with it the right to possession or occupation during the subsistence of the leasehold interests. In such cases, the amount of apparent consideration could be even less than the value of the encumbrances or the leasehold interests. An order for compulsory purchase 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. This makes it clear that the purpose and object of Chapter XX-C would be satisfied if the undervalued transactions are arrested. At the same time, it exempts bona fide transactions even if sold at a lesser price than the market value and what are the circumstances in which transactions can be held as attempted tax evasion has since been discussed in the said judgment. In the present case, it appears that the property was encumbered. Thus encumbrances noted in the valuati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the other hand, we have every reason to find that this valuation is made contrary to the proposition laid down by this court in CIT v. Smt. Ashima Sinha [1979] 116 ITR 26, followed in CIT v. Panchanan Das [1979] 116 ITR 272 (Cal); CIT v. Anup Kumar Kapoor [1980] 125 ITR 684 (Cal); Subhkaran Chowdhury v. IAC of I.T. [1979] 118 ITR 777 (Cal). In all these cases, it was held that in respect of a property, which is tenanted, the rental method applies. In Appropriate Authority v. Kailash Suneja [2001] 251 ITR 1 (SC), it was held that where there are loopholes and lacunae in the reason given by the appropriate authority and where two different methods of valuation are adopted for similar properties and no reason is stated, the High Court is entitled to examine the valuation adopted by the authority. In Om Shri Jigar Association v. Union of India [1994] 209 ITR 608, the Gujarat High Court had held that where the property was sold after inviting offers from the public at large by advertisement in the newspaper and that too after proper verification by the statutory authority under the Bombay Public Trusts Act, even after executing the agreement for sale, objections were invited as provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are unable to agree with the contention of Mr. Agarwal. In Krishna Kumar Rawat v. Union of India [1995] 214 ITR 610 (Raj), it was held that: "The principles for valuation in respect of an immovable property under the Wealth-tax Act or other taxation laws are different from the principles which are applicable to acquisition proceedings. The proceedings under Chapter XX-C are akin to the acquisition proceedings and not to the valuation principles which are applicable for assessing the tax on the basis of the valuation of the property. The valuation has no doubt to be made objectively and not on the subjective satisfaction of the Appropriate Authority. The figure which is arrived at has to be based on the material on record. There may be a certain element of arbitrariness while estimating the market value and it is for that reason alone, that without there being any mandate of the Act, the respondents have issued a circular that the acquisition of the property under Chapter XX-C would be if the difference of the market value and agreed value shown in the instrument is more than 15 per cent. Thus, the 15 per cent. margin covers the estimation part of the valuation, so that no injustice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appears that the apparent value is 15 per cent. less than the fair market value. This determination of market value is the primary consideration on which the presumption is founded. Unless the fair market value exceeds by 15 per cent. the apparent value, attempt to evade tax cannot be presumed under Chapter XX-C Therefore, determination of the primary consideration leading to such presumption of tax evasion in the valuation of the property for determining that the apparent value is less by 15 per cent. from the market value. The method of arriving at the valuation is similar to that of valuing a property in the process of acquisition of such property by the Government, but without the solatium. In C.B. Gautam's case [1993] 199 ITR 530 (SC), the apex court had struck off the expression "free from all encumbrances" from section 269UD. This protected the interest of tenants. Therefore, the valuation for acquisition of land or property has to be considered with the encumbrances by which the property is encumbered. For a seller and a buyer, a tenancy is definitely an encumbrance to depress the value of the property. It is not the value, which a particular person having special interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transaction. The valuation having been made through land and building method when the income from the property was Rs. 36,000 per annum would not be a correct method to be applied when the property is sold with the encumbrance. Even if the property might be free from encumbrances by reason of acquisition through pre-emptive purchase under Chapter XX-c, but this would not be so to an ordinary purchaser, who has to put up with the tenancies yielding only Rs. 36,000 per annum. Whereas Rs. 75 lakhs would fetch an annual income of Rs. 7.5 lakhs at a modest yield at 10 per cent. per annum, which calculates a little over than Rs. 36,000 per month, namely, almost 12 times the yield. Therefore, in our view, it seems that the valuation has not been made correctly and that apart there being no attempt to evade tax and the transaction being bona fide, the provision of Chapter XX-C cannot be attracted in the present case. For all these reasons, we agree with the judgment of the learned single judge and the reasoning given therein and as such we affirm the said judgment. The appeal is hereby dismissed. No costs. It is recorded that pursuant to an interim order the petitioner has deposited ..... X X X X Extracts X X X X X X X X Extracts X X X X
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