TMI Blog1990 (4) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... vendee on behalf of the vendor. The vendor of this property was Mrs. Bittoni N.C. Thorvaldsen. It was on31st March 1985, the property was agreed to be sold, as above said, for a sum of Rs. one crore. When the vendor was paid a sum of Rs. fifty lakhs on 31-8-1985 itself, besides that the amount of Rs. 35,27,222 was paid to the L D.O. on behalf of the vendor by the vendee in April 1986 and balance of Rs. 14,72,778 out of total consideration of Rs. one crore was paid to the vendor by the vendee on 6-5-1986, when the sale of the said property was registered. The sale-deed of the said property was registered with the Sub Registrar,New Delhion the same day, i.e., on6-5-1986. 3. Both the vendor and the vendee filed a statement in form No. 37-EE on27-9-1985, which was registered u/s. 269-AB on7-11-1985. 4. The Competent Authority had recorded the reasons on9-7-1986as required by the first proviso to section 269-C(1) and the publication in the Gazette of India came to be printed on9-8-1986. 5. After the registration of the sale-deed on6-5-1986, both the vendor and the vendee filed statements in form No. 37-G. A notice u/s. 269-C(1) came to be issued by the IAC (Acquisition) after r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Rate Rs. 5,000 Rs. 3,750 per sq. yd. per sq. yd. Adjustments For inflation (-)8% (+)4% @ 12% p.a.For FAR of 1.25 (+)11% (+)43% For lease hold (-)20% (-)20% nature For better locality (+)30% (+)30% as explained in (i) above For Corner plot (+)10% (+)10% For better location (+)15% (+)15% Net adjustment (+)38% (+)82% Rs. 1,900 Rs. 3,075 Resultant rate for Rs. 6,900 Rs. 6,825 the subject property per sq. yd. per sq. yd." as on31-8-1985 7. In the alternative observing without prejudice, he worked out the value of the said property even on the basis of .75 FAR and worked out the value of land @ Rs. 4,116 per sq. yd. taking the value of the structure and land at Rs. 1,69,14,584. He observed that fair market value of the property in question, thus determined, exceeded the apparent consideration not only by 15% but more than 25%. Then he observed that in view of provisions of section 269-C(1), second proviso and presumption u/s. 269-C(2), there was reason to believe that the transferor and the transferee had not truly stated the consideration in the instrument of transfer with the object (a) facilitating the reduction of the liability of the transferor to pay tax under the I.T. Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been clearly stated, both in the preamble and in the relevant clauses that subject property has already been let out and the transfer has been effected subject to the said tenancy and the vendor has attorned the tenant in favour of the purchaser of the property. The Competent Authority by ignoring this burden of the property erred in determining the fair market value for the purposes of section 269-C on the land and building method instead of rent capitalisation method. He further stated that the two sale instances pertaining to different localities, i.e.,GreenParkand Hauz Khas are incomparable,. According to him both these properties are only plots of land and of lesser area which is 500 sq. yds. and 800 sq. yds. respectively, as against the area of the subject property, which is 3824 sq. yds. Moreover, according to the learned counsel for the assessee, the Competent Authority was not justified to have made arithmetical adjustments for plus and minus factors to arrive at the value of lease-hold interest by discounting the sale price of those two properties by 20%. He submitted that the assumption that there is potentional of subject property for construction of multi-storeyed fla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of excess vacant land. He submitted that the decision for the development of the property, rests entirely with the Competent Authority and thus the appellant will not be free to do so on his own. He submitted that the assumption by the Revenue in the possibility of the development of the subject property is not only imaginary but entirely erroneous. According to him the fair market value of any property is to be determined by assuming fair market, willing vendor and willing vendee. He referred to the judgment of Hon'ble Supreme Court in the case of CWT v. P.N. Sikand [1977] 107 ITR 922, that without considering such aspects would result in not valuing the property in question but some other property. He vehemently argued that there is no authority of law to do so. 10. The learned counsel for the appellant submitted that area, of 1, Prithvi Raj Road is known as Luyeten's Bungalow Zone. The permitted density in that area is low and any possible construction can only be of two and half floors, thus even @ Rs. 800 per sq. ft. for covered area, assumed by the Revenue in the reasons recorded, the total consideration would be far below than the apparent consideration. The net realisat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the land covered by the constructed area deduction in respect of other appurtenant and contiguous land have been worked out at 1000 sq. mts. for main block; 678.58 sq. mts. for servant qts. Ist; 584.90 sq. mts. for servant quarters IInd. Thus the aggregate land area appurtenant and contiguous, which was exempt from Ceiling Act worked out to 2263.48 sq. mts. He submitted that if such exemption of land granted to the garrage block which is 131.68 sq. mts. is considered then the total exempted land retained by the Competent Authority works to 2395.16 mts. The rest of the land was internally covered by three blocks and garrage block. 12. The learned counsel further submitted that as per section 22 of the Ceiling Act, when any area of all these blocks is demolished then this would result into excess vacant land. The appellant has then to apply to the Competent Authority within three months of such demolition. A fresh determination by the Competent Authority would then follow. The Competent Authority has the exclusive power to permit redevelopment of the plan in accordance with the Master Plan and if he is not so satisfied, such portion of the excess vacant land will then vest in Gover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould have been worked out only on the basis of rent capitalization method. He referred to the tenancy of the property, which according to him, were given by the vendor to M/s. Kalki Investments Ltd. from May 1985 @ Rs. 10,000 p.m. The rent had been collected by the vendor until31-8-1985when the possession was given to the assessee appellant. He refer-red to the evidence by way of return of income and assessment order of the vendor, where she had admitted the receipt of rent and had been assessed to that income. The possession of the property was constructive with the attornment of tenant to the appellant. He thus submitted that the same should have been taken into account. 15. The learned counsel further submitted that the assumption that the market value of the land is Rs. 5,000 per sq. yd. is erroneous. He invited our attention to sale instances with regard to 14, Prithvi Raj Road and 7, Prithvi Raj Road (later on No. 46-A, Amrita Sher Gill Marg). The first instances are by way of four sale deeds executed on13-9-1984. The total area of the entire plot is 7138 sq. yds., Which is almost 11/2 acre. The average sale consideration was only about Rs. 1,300 per sq. yd. The other prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dwelling and almost have the height of then existing dwelling. If the plot is vacant then the lowest of the height of the houses on the adjoining plots would be the limit. He referred to a communication from the appropriate authority, Commissioner of Income-tax, Delhi II, in August 1987. The said Commissioner is the approving authority and has given the approval in the present case for passing the impugned order in sub-section (6) of section 268-F. In this communication the permissible floor area, rate and FAR is 0.674. He thus submitted that apparent consideration has been properly stated in the deed. The Department had assessed the vendor on such consideration for levying capital gains tax. In the appellant's case the Department was accepted that investment by it in the subject property is Rs. one crore. In the last he submitted that both according to law and facts and acquisition order deserves to be quashed. 19. The learned D.R. on the other hand submitted that property is located in a posh locality; which is inhabited by embassies of several countries and rich class of the society like big businessmen and industrialists; the property is rectangular in shape; two side open o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edevelopment of the land, it is apparent that the Competent Authority had already granted such permission as early as on11-12-1980. He, therefore, stated that such prohibition does not appear to be well placed. He, therefore, submitted that fair market value of the subject property had to be worked out ignoring the restrictive provision under the Ceiling Act. 21. The learned Senior D.R. brought to our attention paragraph 15 of the impugned order, where the time when the tenancy was created is given the telephone numbers given therein are meant for Chairman of the Appellant. The unusual nature of the tenancy, local enquiries made by him shows that claim of the grant of tenancy to Kalki Investments Ltd. does not have any relation but is only a make belief arrangement. The learned D.R. submitted that the subject property is a sought after property and is situates in a posh locality. He read the first two pages of the order of the IAC (Acquisition), which only details and boasts of superior situation of the property in question. The road in front of the same is 100 ft. wide, he submitted. He further submitted that the properties in Green Park and Hauz Khas had been sold at price deta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion was also ordered for6th September 1989. On 6th September the Departmental Representative could 'not come to the office and therefore the inspection was postponed to October, when the property in question was inspected by the Hon'ble President, myself and brother M.A. Bakshi, constituting the Bench and Mr. Ganesan and other representative of the assessee-appellant and the learned Departmental Representative Mr. Subhash Kumar. After we had inspected the property, we had noted on the order-sheet of12-10-1989as under :--- "12-10-1989:--- Today as fixed earlier during the course of hearing we, the President, brother F.C. Rustagi, J.M. and brother M.A. Bakshi, J.M. alongwith Sr. Departmental Representative Shri Subhash Kumar and Sh. R. Ganesan, representative of the assessee visited the site at No. 1, Prithvi Raj Road and the building standing thereon. The building is unoccupied and is not in a good. shape. With reference to the proximity of the site to a Five Star Hotel and cemetery, we have tried to assess their impact on the valuation of the property. 2. Shri Ganesan's contention that the property is hit by the restrictive regulations contained in the Urban Land Ceiling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reat relevance in order to decide as to the method of valuation that should have been adopted, whether rent capitalisation or land and building method. The subject property is quite old and provisions of Rent Control law are applicable to it. Similarly it is covered by the Ceiling Act. We have perused the various applicable, sections of that Act. The grant of permission by such Authority to vendor is necessary. At the same time the position with regard to such provisions of Ceiling Act have to be considered in the hands of the appellant. If development of the subject property had to be undertaken with any expansion, express prior permission of such Competent Authority is essential. This aspect is directly linked with the type of Development possible and consequently the determination of fair market value. The two sale instances, relied on by the learned counsel for the appellant, which are the free-hold properties are apparently not hit by the provisions of Ceiling Act. In one case the area is within permissible limit of 500 sq. mts. and to the other with the portion of land covered by the constructed area, the land appurtenant thereto, and contiguous land and as such the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant without force that the present property is governed by the provisions of Ceiling Act. The Competent Authority has to grant permission not only to transfer the property as it is, but also that authority has to be approached if the superstructure which are existing on. it are to be demolished. We are unable to agree with the learned Sr. D.R. that such provisions of Ceiling Act are to be ignored as the Competent Authority had already granted permission to the vendor and only after such permission the vendor had effected the transfer. We are also unable to appreciate the submission of the learned D.R. that the appellant had not made any submission before the Revenue in the course of acquisition proceedings and the same should not be entertained, now. As we have said above, on23-8-1989there was a query raised by the Bench regarding applicability ofUrbanLand- Ceiling Act. Then specifically in course of inspection the major dispute was only about applicability of Urban Land Ceiling Act. The learned D.R. was requested to study the provisions of Urban Land Ceiling Act and address the Bench on the same by supplying copy thereof to us. In the course of hearing we had asked the learned cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions for appurtenant and contiguous land are to be provided. Admittedly the superstructure in the subject property had been constructed well before the year 1975. 29. In the case of the appellant section 15 provides that he shall file a statement before the Competent Authority with regard to any acquisition of the property which is governed by the Ceiling Act. The failure entails in penalty. For sake of ready reference we here under extract and place section 15:--- "15. Ceiling limit on future acquisition by inheritance, bequest or by sale in execution of decress, etc. - (1) If, on or after the commencement of this Act any person acquires by inheritance settlement or bequest from any other person or by sale in execution of a decree or order of civil court or of any award or order of any other authority or by purchase or otherwise, any vacant land the extent of which together with the extent of the vacant land, if any, already held by him exceeds the aggregate the ceiling limit, then he shall, within three months of the date of such acquisition, file a statement before the competent authority having jurisdiction specifying the location, value and such other particulars as may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mit the holding of the land in excess of the ceiling. If he is not satisfied then the provisions of sections 6 to 14 are attracted in which case the Authority shall determine the excess vacant land and the same shall be acquired by the Government under appropriate notification. We are intentionally avoiding reproduction of sections 6 to 14, but we briefly mention that section 6 deals with persons holding vacant land in excess of Ceiling limit, who is required to file statement; section 7 deals with filing of statement in cases where vacant land held by a person is situated within the jurisdiction of two or more authorities; section 8 talks of preparation of draft statement as regards vacant land held in excess of ceiling limit Section 9 deals with the final statement and section 10 deals with acquisition of vacant land in excess of ceiling limit. Section 11 deals with payment of amount for vacant land acquired and other sections 12 to 14 talk of appeal to Tribunal, High Court and mode of payment etc. with which we are not concerned. The inherent restriction and incapacity of the holder to develop the land and the competent authority to exercise discretion of such development are re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we had found the property lying vacant and from the very look of it, it had not been maintained properly and even a portion of it could be termed as dilapidated. There was no sign of any office or person occupying the same for his residence. We are, therefore, not impressed that tenancy is an uncontroverted fact as we have already stated above. We have taken into consideration such circumstances that were placed before the Revenue at the time of recording of reasons for initiating these proceedings. At that time the Revenue had not made the enquiries that followed later. We, therefore, hold that the valuation of the subject property cannot be made on the basis that the property was tenanted. We have already rejected this contention raised by the learned counsel for the appellant. 32. We have considered the contentions with regard to the fair market value raised by both the sides. We have to find as a fact, as to what are the plus factors and minus factors in the said property. The valuation has to be proceeded on that basis. This had been laid down by Their Lordships of Supreme Court in the case of Chaman Lal v. Special LAO (IT) [1988] ('I) SC 106, where the methodology for valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lay out, carving out roads, leaving purchasers (meanwhile the invested money will be blocked up) and the hazards of an entrepreneur. The factor can be discounted by making a deduction by way of an allowance at an appropriate rate ranging approx. between 20% to 50% to account for land required to be set apart for caring out lands and plotting out small plots. The discounting will to some extent also depend on whether it is a rural area or urban area, whether waiting period during which the capital of the entrepreneur would be locked up, will be longer or shorter and the attendant hazards. (16) Every case must be dealt with on its own fact pattern bearing in mind all these factors as a prudent purchaser of land in which position the judge must place himself. (17) These are general guidelines to be applied with understanding informed with common sense." 33. Taking into account the aforesaid factors, we shall now proceed to consider the matter of valuation of the subject property. The first aspect is, as to how much the property is capable of development. On inspection we had seen for ourselves that the existing structure did not have any high potential for yield. The property i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s we have adjudicated that acquisition of this property cannot stand, we have intentionally avoided going into the war of words in respects of this aspect of the matter. Admittedly the property though not burdened by the tenancy, in favour of M/s Kalki Investments Ltd. Yet the out houses were unauthorisedly occupied by several persons, who vacated the same after receiving compensation. This factor should have had affected the valuation. 35. We have thus taken into consideration all these factors while assigning the valuation. The serious infirmity of the provisions of law and policy of authorities applicable to the subject property have placed the appellant and the vendor in disadvantageous position. 36. To summarise we, therefore, hold: (1) That the initiation of proceedings were not proper; (2) That at the time of initiation, there was no material available with the Revenue; (3) That the Revenue has erroneously ignored certain factors affecting the valuation, but assumed to the contrary; (4) That the method of valuation adopted is not in consonance with the facts and evidence available at the time of initiation; (5) That the presumption u/s. 269-C(2) were not then a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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