9911796707
TMI Blog1984 (9) TMI 93X X X X Extracts X X X X X X X X Extracts X X X X ..... 80 sq. metres situated at Fergusson Road, Parel, Bombay, for a period of 98 years from 21-5-1966 subject to payment of a monthly rental of Rs. 35,258. In pursuance of this lease agreement, the lessee entered into possession of the land and commenced construction of buildings thereon, to be used as an industrial estate. The lessee entered into agreements with several parties (' the unit-holders '), for the sale to them of the different industrial units on the terms and conditions contained in the respective agreements, with the said unit-holders. The agreements, for the sale of these industrial units to the unit-holders, are stereotyped and are in a printed form, a specimen copy of which has been supplied to us. According to these agreements for sale, the lessee constructed units and sold to the respective unit-holders the units selected by each of them. There are some 368 units in this industrial estate, covering 2,27,422 sq. ft. floor area. As per the terms of the sale agreements,' the price was agreed to be paid in certain instalments. The possession of the units would be delivered to the unit-holders after the structure was made ready for use and occupation, provided the agreed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... execution of the original lease deed by Amrut Banaspati Co. Ltd. in favour of the lessee. 4. The competent authority took note of the deed dated 17-4-1972, whereby the lessee assigned the property to the co-operative society for an apparent consideration of Rs. 80,50,960. He was of the opinion that the apparent consideration was far below the fair market value of the property. He, therefore, got the entire property valued by the District Valuation Officer (DVO), attached to the Income-tax Department. The DVO, by his report dated 29-6-1977, valued the property at Rs. 1,45,50,000. The competent authority was, therefore, satisfied that the valuation made by the DVO represented the fair market value of the property. In this view of the matter, he had reason to believe that (i) the immovable property was of a fair market value exceeding Rs. 25,000 ; (ii) fair market value of such property exceeded the apparent consideration, therefore, by more than 15 per cent of such apparent consideration ; and (iii) the consideration for such transfer, as agreed to between the parties, had not been fully stated in the instrument of transfer with the object of facilitating the reduction or evasion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is was conclusive proof that the consideration for the transfer, as agreed to between the parties, has not been truly stated in the instrument of transfer. According to him, the presumption, as mentioned in section 269C(2)(b), also arose in this case. In view of this matter, he was of the opinion that (a) the property transferred was of a fair market value exceeding Rs. 25,000 ; (b) that the fair market value of the property exceeded the apparent consideration by more than 15 per cent thereof ; and (c) the consideration for such transfer, as agreed to between the parties, had not been truly stated in the instrument of transfer with the objects mentioned in section 269C(1). 5. In exercise of the powers conferred on him as the competent authority, in respect of the area in which the property was situated and after obtaining the approval of the Commissioner, he ordered that the property, being the leasehold land measuring 17,199 sq. yards together with the structures now standing thereon, to be acquired under the provisions of Chapter XX-A of the Act. 6. The society has filed this appeal before the Tribunal on various grounds ; firstly, objecting to the initiation of the proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or cancelled. During the course of the hearing of the appeal, the society has also objected to the transaction being treated as a sale of the entire industrial estate. It was merely an assignment of the lease. 7. The transferor, i.e., the lessee, in this case, has also appealed against the order of the competent authority on the ground that there was no justification for initiating the proceedings under section 269F(6). Further objection is taken also to the notice not being given to the unit-holders, but only to the lessee and the society. Objection is also taken to the non-acceptance by the competent authority of the valuation of Rs. 77 lakhs, made by the registered valuer for the society. The lessee has, therefore, prayed for the cancellation of the acquisition order passed by the competent authority. 8. Arguing on behalf of the society, Shri D.M. Harish, the learned counsel, has proceeded to invite our attention to the transfer deed dated 14-7-1972 between Shri Virwani, the lessee, and the society. It is submitted that the units of various sizes were sold to the 368 purchasers as listed at pages 21 to 29 of the paper book. The dates on which the respective units were sol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rwise of the consideration, the competent authority should have relied on some specific material, which has not been done. 10. Further, Shri Harish has proceeded to invite our attention to the valuation report submitted by Shri S.G. Vaidya, the DVO, at pages 13 to 17 of the paper book, The valuation report is as on 14-7-1972, i.e., the date of the conveyance. Actually, the units have been sold over a large span of time from April 1966 to 27-8-1970, i.e., a period well over four years. Even the last sale was completed two years before the date on which the valuation was made by the DVO. Referring to the contents of the valuation report, it is brought to our notice that in paragraph No. 6.4 (p, 16 of the paper book), the valuation report has mentioned that keeping in view the specifications and condition of the buildings, reproduction rate of Rs. 45 per sq. ft. of plinth area, including area of balconies, was considered reasonable by the Valuation Officer. He had further added that an amount of Rs. 4 lakhs was added over this towards the cost of lifts, tube-well, suction and overhead tank, paving, etc. Here again, there was no basis for the valuation arrived at on this hypothetical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at pages 46 to 49 of the paper book. Here, the registered valuer has taken note of the facts relevant for the valuation of the entire estate. In the report at page 47 of the paper book, the valuer has mentioned that the units were being sold as the construction of the building progressed. Hence, for valuation of the estate, the prevailing rates during 1966-67 and 1967-68, had to be taken since the work has already been completed during 1968-69. In the report, the valuer has proceeded to observe that the lifts, w.c. blocks, water arrangements, drainage arrangements, electrical arrangements and roads were common and the cost of these were distributed on all the units. It is stated, that Excell lifts were used in the estate. He has taken due note of the fact that the lifts in that period were costing Rs. 10,000 per floor for industrial purposes. Height of each floor was twelve and a half ft., which indicated that the units were of light industrial type, and this fact was ascertained after inspection of the various units of the estate. The valuer has proceeded to observe that there were no decorative features in the estate. The terrace was finished with Indian patent stone for waterpr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of India [1984] 16 Taxman 127 dated 8-11-1983. He has furnished a copy for ready reference placed at page 133 of the paper book. Following the Supreme Court decision in the case of K. P. Varghese v. ITO [1981] 131 ITR 597, the Bombay High Court has observed in paragraph No. 9 of its decision that the observations of the Supreme Court in the case of K.P. Varghese, though in different context, could be well applied while construing the provisions of section 269C. Indeed, the powers to be exercised under section 269C are circumscribed by various conditions which are set out in the section itself. According to the learned Judge of the Bombay High Court, the submissions on behalf of the petitioner that the competent authority had no jurisdiction to initiate the proceedings in that case because there was no material whatsoever to come to the conclusion that the consideration stated in the instrument of transfer was not the true consideration, and such understatement was made with the object of facilitating the reduction or evasion of the tax, deserved acceptance. The powers under section 269C could be exercised, provided the requisite conditions for exercise of the powers were satisfie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 determined by the DVO. The competent authority himself had knocked the bottom of his own case. It was obligatory on the part of the competent authority to establish that something more had passed by way of consideration, over and above what was stated in the conveyance deed. This onus was not discharged by the competent authority. 17. The learned counsel has proceeded to refer to another Bombay High Court decision in the case of Blue Star Ltd. v. Santosh Datta [1983] 15 Taxman 548. It is pointed out that in this case, the Bombay High Court had held that the competent authority could not have proceeded to value the property as on the date of the conveyance. What was relevant, was the value of the property as on the date on which it was agreed to be sold. 18. Referring to paragraph No. 7 of the order of the competent authority the learned counsel has proceeded to argue that no reasons have been assigned by the competent authority to show that the valuation report submitted by the society was found wanting. Further, he has not even mentioned that he has rejected the report. The competent authority has proceeded to observe that as a result of the informal inquiries made by him f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the average cost works out to Rs. 31.28 per sq. ft. In the instances at page 84, the competent authority had not objected to the transfer at the rate of Rs. 25 per sq. ft. Further, in the case at page 121 of the paper book, a rate of Rs. 20 per sq. ft. has not been objected to. The department has not been able to substantiate any case of under statement or attempted evasion. The learned counsel proceeded to sum up that the very initiation of the acquisition proceedings was invalid and without jurisdiction. There was no material for any such initiation. The very foundation for the initiation of the proceedings was the report of the DVO, which suffered from three defects mentioned earlier. The competent authority's action was equally untenable inasmuch as he had relied on totally inadmissible evidence, hearsay evidence and evidence, if any, not made available to the society for being refuted. 21. Appearing on behalf of the transferor, i.e., the lessee, Shri K.K. Ramani, has proceeded to argue that the property was a leasehold. Hence, the value had to be discounted, depending on the number of unexpired period of the lease. Further, he has highlighted that the DVO's report was in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the society, the learned counsel for the competent authority has stated that the approved valuer for the society had valued the property as for January 1968, as mentioned at page 47 of the paper book. Actually, the property was being sold piecemeal from 1966 to 1970. Therefore, according to him, the valuation report, as for any valuation report in 1968, was wholly irrelevant. Referring to the type of construction under consideration, he referred to paragraph No. 6.2.2 of the report of the DVO. It was submitted that the building was an RCC framed structure, designed to take heavy loads required for industrial estate building. The individual units and corridors were provided with cement concrete flooring. In the entrance near the staircase, terrazo tile flooring was provided. The common toilets were provided with terrazo tile flooring with glazed tile flooring in w.c.s. The windows were of steel glazed type. The entrance doors to units were of steel frame with some having partly steel panels or partly glazed panels. On the ground floor, rolling shutters were provided to some units. Each unit was provided with one small bathroom with nahni trap. According to the counsel, for this typ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shing facts or features are there in every case, such as the location of the property, the type of the property, etc. For example, as regards the property referred to at page 118 of the paper book it was the case of a grain godown and not a multistoreyed building as in the instant case. As regards the property at page 121 of the paper book in the case of Lunidaram Tulsidas Punjabi, the description of the property was not available. As regards the reliance on the Bombay High Court decision in the case of Blue Star Ltd., on behalf of the society, the learned standing counsel has proceeded to argue that in that case, it was not clear whether the agreement to sell was registered. If it was registered, naturally, the date of the agreement to sell was the relevant valuation date. If it was not registered, apparently the learned Judge of the Bombay High Court had omitted to take note of the last clause of section 269F(9). It was a clear case of per incuriam. Later on, the learned standing counsel has submitted a note in writing, stating that from the facts on record, in the case of Blue Star Ltd., it appears that the agreement for sale dated 21-3-1972 was not registered under the Registra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 25. As regards the basis for the rate of Rs. 45 per sq. ft. adopted by the DVO for valuing the property on the plinth area basis, Shri Jetly has placed before us a memorandum issued on 15-6-1983 by the Chief Engineer (Valuation), Government of India, regarding the uniformity on the basis of valuation of properties in India. In the said memorandum, the Chief Engineer has proceeded to observe that during his visit to Bangalore and Bombay in the month of May 1983, it was found that only in Karnataka, the CPWD was following the plinth area rates of the Karnataka CPWD for valuation purposes. Practically, in the whole of India the CPWD was following the plinth area rates approved by CPWD along with cost indices approved by the department. This was because the CPWD had the basic data and details of specifications, of which such rates and cost indices were derived. The Valuation Officers at Bangalore had expressed their difficulties about getting such basic data from the local CPWD. Therefore, the Chief Engineer had directed that in Karnataka also, the CPWD may gradually switch over the valuation on the basis of CPWD plinth area rates. Further, detailed instructions were issued in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver, press into service such evidence in the nature of an unregistered agreement, to satisfy the competent authority, that the difference between the apparent consideration and the market value of a property sought to be transferred, was not motivated with the ulterior object of tax evasion or concealment of income. 27. As regards the reliance on behalf of the competent authority on the mere report of a Valuation Officer, our attention is again invited to the Bombay High Court decision in the case of Unique Associates Co-op. Hsg. Society Ltd. In paragraph No. 9, the learned Judge has specifically taken note of the fact that the only material with the competent authority was the report of the Valuation Officer. Referring to the four criteria laid down in paragraph No. 5 of the High Court decision, the High Court observed that the competent authority had not satisfied the criteria laid down for initiating proceedings under section 269C for acquisition of the property. He referred to the fact that the DVO's report was dated 20-6-1977. The competent authority recorded the reason on 11-7-1977 and initiated the proceedings by issuing the notice on 13-7-1977. In between, he has not mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... understatement of premium or otherwise on the assignment of a lease. The law on the subject was amended with effect from 1-7-1982 by the Income-tax (Amendment) Act, 1981, so as to include in the definition for the term, ' fair market value ' in relation to transfer of property by way of lease. Since on the express terms of law, a transfer by way of lease was not the subject-matter of acquisition proceedings prior to 1-7-1982, the competent authority lacked the jurisdiction to initiate proceedings in the case of the present assignment of the lease, which had taken place on 14-7-1977 much earlier than 1-7-1982. 30. As regards the adequacy of the price for the units, it was stated that the construction had started in September 1965 and it was completed on 9-10-1969 vide municipal engineer's letter at page 120 of the paper book. The mid-point was somewhere in January 1968. That is why the registered valuer had valued the property for January 1968. In the acquisition order passed by the competent authority and also in the course of his argument, the learned standing counsel had made the only ground for rejecting the registered valuer's report and it was that the property was valued f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er issued by the Chief Engineer, the rate of Rs. 240 per sq. metre sought to be applied by the DVO applied to office buildings. It had no application to a factory building. The industrial estate under consideration was merely service industry, as could be seen from page 1 of the agreement to sell. It was not meant for heavy industry. The DVO had, however, proceeded to value the property as if it was an RCC frame structure ' designed to take heavy loads required for industrial estate building ' vide paragraph No. 6.2.2 of his report at page 16 of the paper book. As regards the Tribunal's order in WT Appeal No. 113 (Bom.) of 1979, extracts from which were provided on behalf of the competent authority at the time of hearing, it was submitted that what was furnished by the learned standing counsel was merely an extract. The full text of the Tribunal's order was not furnished. Moreover, even the extracts clearly showed that, what was sought to be valued there was merely a residential unit. 34. Regarding the arguments on behalf of the competent authority on the basis of the nature of the belief or satisfaction to be recorded for initiating proceedings, the learned counsel has proceeded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eafter he became liable for its proper maintenance and upkeep and payment of electricity, water and municipal charges as his own liability. One of the terms of the agreement was that, after the sale of all the units, the unit-holders would form a private limited company or a co-operative society and the lessee, i.e., Shri N.M. Virwani, would assign the unexpired lease which was in his favour to the private limited company/co-operative society without any further payment. On the sale of all the units, a co-operative society, by the name of A-Z (Industrial) Premises Co-operative Society Ltd. was formed. The objects of the society, as recorded in the bye-laws, are as under : " The objects of the society shall be --- B. 1.1. The purpose of the society is primarily to constitute an organisation of persons, who have taken flats in the blocks or buildings of flats known as A to Z Industrial Estate, constructed on the land bearing Plot C.S. No. 1/265-439-440-267-1/2672/267-3/267, admeasuring 17,199 sq. yards, located at Lower Parel Division as required by section 10 of the Maharashtra Ownership Flats (Regulation of the Promotion of Construction. Sale, Management and Transfer) Act, 1963, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or company. 11. A promoter shall take all necessary steps to complete his title and convey to the organisation of persons who take flats, which is registered either as a co-operative society or as a company as aforesaid, or to an association of flat-takers his right, title and interest in the land and building, and execute all relevant documents therefor, in accordance with the agreement executed under section 4, and if no period for the execution of the conveyance is agreed upon, he shall execute the conveyance within the prescribed period, and also deliver all documents of title, relating to the property which may be in his possession or power." Shortly thereafter, by an agreement dated 14-7-1972, between the lessee and the society, the lessee ' assigned, transferred and assured unto the assignee ' the land leased by him from the company for the unexpired period of the lease. The agreement was registered with the Registrar on 1-11-1976. The society submitted a statement in Form No. 37G under rule 48G to the competent authority on 8-10-1976. The competent authority got the entire land and building valued by the DVO, who submitted his report dated 29-6-1977, valuing the propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lier in this order. We shall not repeat them. On a careful perusal of the sale deeds of the units to unit-holders, our conclusion is that the units were already sold by the lessee to the unit-holders vide agreements with the respective unit-holders. The unit-holders were already put in possession of their respective units, with all the liabilities attending thereto, on receipt of the consideration from each of them. Regarding the argument on behalf of the competent authority based on the recital in Form No. 37G, filed by the society before the competent authority on 8-10-1976, we have to accept the argument on behalf of the society that that was how the office bearers of the society understood the transaction at that time, erroneously though, it is for us to determine the real nature of the transaction. Further, as regards the mention in the deed dated 14-7-1972 that the lease was being transferred for the consideration of Rs. 80,50,960, in our opinion, this recital has to be read in the context of the understanding given by the lessee to the unit-holders, that he would assign the lease to the society or the private limited company as and when incorporated by the unit-holders. On r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he main question that will have to be answered by us is, whether the instrument dated 14-7-1972, brought about a sale of the property, or whether it was merely an assignment of lease. We have already answered this question in the preceding paragraph to the effect that the deed dated 14-7-1972 merely evidenced an assignment, of lease, since on the relevant date, i.e., 14-7-1972, i.e., the date of the deed, or even on the date on which it was registered with the Registrar, i.e., on 1-11-1976, the assignment of lease was not within the purview of Chapter XX-A. The assignment of leases came within the scope of this Chapter only after 1-7-1982. Therefore, in our opinion, the competent authority could not have invested himself with jurisdiction to assail this transaction under Chapter XX-A. The entire proceedings suffer from lack of jurisdiction. 41. The next dispute between the parties is, what was the fair market value of the property. According to the society, the lessee did not stand to gain any further consideration on the execution of this instrument. He was merely executing this instrument in compliance of the undertaking given by him to all the unit-holders separately and which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he competent authority had not only no material for such a belief but also has not even recorded that he had any material for entertaining such a belief. The competent authority has not refuted this allegation before us. As explained by the Bombay High Court, the powers under section 269C could be exercised, provided all the four prerequisite conditions for the exercise of the powers are satisfied. According to the learned Judges, in the absence of any material whatsoever available to the competent authority, it was impossible for any reasonable or prudent man to reach the conclusion that the consideration stated in the instrument of transfer was untrue, and that was shown with the object of facilitating reduction or evasion of tax. In the instant case, the facts are exactly identical. We find that the competent authority has not been in a position to challenge even this submission on behalf of the society. Since we find that of the four prerequisite conditions necessary for initiation of proceedings under section 269C, as explained by the Bombay High Court in the case of Unique Associates Co-op. Hsg. Society Ltd., barring the first, none of the conditions are satisfied in this cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fer of property had taken place. On behalf of the society, this proposition is objected to on two grounds. In the first place, as explained by the learned Judges of the Bombay High Court in the case of Blue Star Ltd., if it was the case of transfer of property by way of sale, the date of the agreement to sell was the relevant date. This decision had to be read with the Gujarat High Court decision in the case of Ochhavlal Laljibhai Dharia. Secondly, the argument is that since this was not a case of sale of the property at all but merely an assignment of a lease, the provisions of section 269A(d)(i) had no application as this provision did not apply to a case of assignment of lease. The proper provision would be section 269A(d)(ii). But this provision was placed on the statute book much later, i.e., on 1-7-1982. It was argued on behalf of the competent authority that the decision of the Bombay High Court in the case of Blue Star Ltd. suffered from per incuriam. As explained in the commentary by Salmond on Jurisprudence, we could ignore the decision of the Bombay High Court on this issue. We think not. We decline to accept that the learned Judges of the Bombay High Court might not hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hs, even assuming it is held that this was not a case of assignment of lease but a case of transfer of property by sale, there has been no understatement of the apparent consideration stated in the transfer deed, vis-a-vis the fair market value of the property, as evidenced by this report. In the circumstances, in our opinion, even if this was a case of sale of the property, the primary condition under section 269C, viz., understatement of the consideration for the sale is not established, the competent authority could not have initiated the provisions of section 269C/269F. 45. As regards the arguments on behalf of the competent authority, regarding the reliability of the valuation report furnished by the DVO, in the first place, it is for a wrong valuation date as explained by the Bombay High Court in the case of Blue Star Ltd. Apart from that, in our opinion, the very fundamentals assumed by the DVO are totally irrelevant. He has proceeded according to a table, which is relevant for office buildings and not for an industrial estate. Secondly, at no stage of the proceedings, we have been told of the basis on which these figures have been worked out. In the circumstances, in our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plication of the provisions of section 269A(d)(ii) were held inapplicable in consequence of the observations made by the DVO in paragraph No. 5 of his report. (Paragraph No. 41) (v) Three out of four pre-conditions necessary for initiation of proceedings under section 269C were found to be not satisfied in this case. Hence, held that the competent authority wrongly initiated proceedings under section 269C, even if transaction was one of sale. (Paragraph No. 42) (vi) Notices under section 269D(2)(a) were not issued to all persons interested in the property. Hence, held that proceedings were not properly initiated, even if transaction was one of sale. (Paragraph No. 43) (vii) 14-7-1972 was not the relevant date for valuation of the property. Since, understatement of consideration not established, this is not a fit case for action under section 269C/269F. (Paragraph No. 44) (viii) Report of the DVO was based on unreliable premises. Hence, unacceptable. (Paragraph No. 45) (ix) Order of the competent authority based on inadmissible evidence. Hence, contrary to rules of natural justice. (Paragraph No. 46) (x) Reliance on behalf of the society on comparable cases for valuati ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
