TMI Blog1992 (11) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... t facts lie within a narrow compass. The petitioner is the intending purchaser of a plot of land bearing No. B-7/108A, situated At Safdarjung Enclave, New Delhi, admeasuring 253 square metres. The owner of the property is one Jai Lal, S/o. Ghazi Ram. The said owner held the said plot under a lease executed by the Delhi Development Authority on February 25, 1981. On February 4, 1985, the owner entered into an agreement to transfer the leasehold rights in the said property to the petitioner and a sum of Rs. 4.5 lakhs was paid as the advance price. On the same day, an agreement for the construction of a structure on the plot was entered into between the said parties. On July 9, 1986, a fresh agreement to sell the residential house put up on the aforesaid plot of land along with the leasehold rights in the said land was executed between the parties wherein the owner agreed to transfer to the petitioner his leasehold rights in the said land along with the ownership of the construction, namely, the building put up thereon, for Rs. 16 lakhs. In addition, the petitioner was liable under the agreement to pay Rs. 3.4 lakhs to the Delhi Development Authority on account of the unearned increas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omply with the provisions of the Transfer of Property Act. It was submitted by him that on the plain language of Chapter XX-C, there was no guideline prescribed as to where this drastic power of pre-emptive purchase was to be exercised. It was submitted by him that in the absence of such guidelines, the provisions of Chapter XX-C confer an unfettered discretion on the appropriate authority under Chapter XX-C to compulsorily purchase immovable properties and such a provision conferred unfettered power which was liable to be exercised arbitrarily and, therefore, violated the provisions of article 14 of the Constitution. It was urged by him that, if a view were taken that the legislative history of Chapter XX-C shows that the power to purchase immovable property conferred thereunder was to be exercised only to counter tax evasion, the provisions were still bad in law as they did not comply with the principles of natural justice which are now accepted as a requirement for compliance with article 14 of the Constitution. There is no provision in Chapter XX-C for any opportunity being, given to the intending purchaser or intending vendor of the immovable property concerned to show cause a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chase the rights of leaseholders, monthly tenants and mortgagees and other encumbrance holders are destroyed without any adequate provision for compensation to them. The mere provision that such encumbrance holders and the holders of the leasehold rights on the premises could claim a share in the compensation awarded to the owner is no substitute for their secured rights in the immovable property concerned. It was, on the other hand, submitted by the learned Attorney-General that the history leading to the enactment of Chapter XX-C and the circumstances under which Chapter XX-C was introduced have been elaborately dealt with in paragraphs 7 and 8 of the main counter affidavit. A perusal of paragraphs 7 and 8 of the main counter affidavit shows that the main reason behind the introduction of this Chapter in the Income-tax Act was the desire to curb large scale evasion of income-tax and to counter other modes of tax evasion adopted by various assessees to deprive the Government of its legitimate tax dues. It was felt that a lot of tax evasion was involved in transfers of immovable properties in urban areas. Reference is made in the affidavit to the recommendations of the Direct Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avour is an agreement to purchase and such an agreement by itself creates no interest in property under the provisions of the Transfer of Property Act. After the deletion of article 19(1)(f) of the Constitution an intending purchaser could not be said to have any fundamental right to acquire any immovable property. It was submitted that, although a transferee might be person aggrieved for the purposes of article 226 of the Constitution, he could not have any serious grievance on the ground of violation of the principles of natural justice as he could always challenge the order of purchase as arbitrary by filing a petition in a court of law and on such a petition the authorities would have to disclose the reasons to satisfy the court that they had acted on relevant considerations germane to the object of Chapter XX-C in taking the decision to purchase the property. The learned Attorney-General agreed and, in fact, supported the view that the order for purchase passed by the authorities must have some nexus to tax evasion and it was, in fact, submitted by him that every order passed for purchase under section 269UD could be tested on the touchstone of its having a rational nexus with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government on the amount of consideration when an order for purchase was made in favour of the Government because the property vested in the Government only on possession being taken and the right to possession was more valuable than a right to claim interest. Before discussing the merits of the respective arguments of counsel, we may point out that, after arguments were advanced for some time, the learned Attorney-General made it clear that he did not press his contention that no reasons were required to be supplied to the affected parties when an order for compulsory purchase was made. He did not seriously contest the position that the parties aggrieved by a proposed order of purchase were entitled to have an adequate opportunity to show cause against the order of purchase by the Central Government being made by the appropriate authority in exercise of the powers conferred under section 269UD of the Income-tax Act. It was, however, clarified by him that the inquiry which would have to be made to determine the objections raised by the aggrieved parties would necessarily have to be somewhat summary because of the limited time-frame within which the decision whether to purchase t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e service or things forming part of or constituting the rent, as specified in the agreement for transfer ; and where the whole or any part of the consideration for such transfer is payable on any date or dates falling after the date of such agreement for transfer, the value of the consideration payable after such date shall be deemed to be the discounted value of such consideration, as on the date of such agreement for transfer, determined by adopting such rate of interest as may be prescribed in this behalf ; Appropriate authority is defined under clause (e) of section 269UA as the authority constituted under section 269UB to perform the functions of an appropriate authority under Chapter XX-C. The relevant portion of the definition of the term immovable property reads as follows: (d) 'immovable property' means, (i) any land or any building or part of a building, and includes, where any land or any building or part of a building is to be transferred together with any machinery, plant, furniture, fittings or other things, such machinery, plant, furniture, fittings or other things also. Explanation. -For the purposes of this sub-clause, 'land, bui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under sub-section (3) of section 269UC in respect of any immovable property, may, notwithstanding anything contained in any other law or any instrument or any agreement for the time being in force, and for reasons to be recorded in writing, make an order for the purchase by the Central Government of such immovable property at an amount equal to the amount of apparent consideration : Provided that no such order shall be made in respect of any immovable property after the expiration of a period of two months from the end of the month in which the statement referred to in section 269UC in respect of such property is received by the appropriate authority: Provided further that in a case where the statement referred to in section 269UC in respect of the immovable property concerned is given to an appropriate authority, other than the appropriate authority having jurisdiction in accordance with the provisions of section 269UB to make the order referred to in this sub-section in relation to the immovable property concerned, the period of limitation referred to in the preceding proviso shall be reckoned with reference to the date of receipt of the statement by the appropriate author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n amount equal to the amount of the apparent consideration. Section 269UH deals with re-vesting of property in the transferor on failure of payment or deposit of consideration by the Central Government. It reads as follows : 269UH. (1) If the Central Government fails to tender under subsection (1) of section 269UG or deposit under sub-section (2) or sub section (3) of the said section, the whole or any part of the amount of consideration required to be tendered or deposited thereunder within the period specified therein in respect of any immovable property which has vested in the Central Government under sub-section (1) or, as the case may be, sub-section (6) of section 269UE, the order to purchase the immovable property by the Central Government made under subsection (1) of section 269UD shall stand abrogated and the immovable property shall stand re-vested in the transferor after the expiry of the aforesaid period. There is a proviso to this sub-section which is not material for the purposes of this judgment. Section 269UK imposes restrictions on revocation or alteration of certain agreements for the transfer of immovable property or on transfer of certain immov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f immovable properties that are the subject of transfer between the parties. The Central Board has pointed out in the said instructions that, in administering the provisions of the said Chapter, it has to be ensured that no harassment is caused to bona fide and honest purchasers or sellers of immovable property and there is no erosion of the confidence of the public in the sense of justice and fair play of the Income-tax Department. Paragraph 3 of the Instruction makes it clear that the right of pre-emptive purchase has to be exercised by the appropriate authority only when it has good reason for acquiring the property. When the property purchased by the Central Government by an order of an appropriate authority is put up for sale, the reserve price is required to be fixed at a minimum of 15 per cent. above the purchase price shown as the apparent consideration under the agreement between the parties. Thus, it is pointed out by the Board that the right of pre-emptive purchase has to be exercised only if the fair market value is found to be at least 15 per cent. more than the apparent consideration. The instruction further provides that, in coming to a conclusion as aforestated, a r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rictions on user. It is clarified in the affidavit (paragraph 14) that, although the appropriate authorities will not normally purchase buildings which are leased, in a few cases they may do so when it is felt that even taking into account that the property was encumbered with lease, the apparent consideration was grossly understated. The affidavit of Sarangi states that the practice uniformly followed in compulsory purchase of immovable properties under the provisions of Chapter XX-C is as set out earlier. Statements annexed to the affidavit of H. K. Sarangi show that the several properties which were purchased under the provisions of Chapter XX-C have brought much higher amounts than the purchase price when sold at public auctions which would clearly suggest that in the relevant agreements for sale the apparent consideration was significantly understated. The legislative history of Chapter XX-C, in the stand taken by the Union of India and the Central Board of Direct Taxes as shown in the main counter affidavit and the affidavit of H. K. Sarangi, which has been filed after obtaining instructions from the Income-tax Department and the Central Board of Direct Taxes, make it c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of taxation only that income which has accrued or is received by the assessee as a result of the transfer of the capital asset and since it would not be possible for the Income-tax Officer to determine precisely how much more consideration is received by the assessee than that declared by him, subsection (1) provides that the fair market value of the property as on the date of the transfer shall be taken to be the full value of the consideration which has accrued or has been received by the assessee. The onus of establishing that the conditions of taxability are fulfilled is always on the Revenue. In that case, it was urged on behalf of the Revenue that, tinder the provisions of section 52(2), once the Income tax Officer is satisfied of the condition that the consideration declared by the assessee in respect of the transfer is less by 15 per cent. or more of the fair market value, the capital gains can be computed on the footing that the fair market value was the consideration received by the assessee. This submission was rejected by this court. It was pointed out that the submission would be justified only on a strict literal reading of sub-section (2) of section 52 but that such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transfer. Parliament has provided artificial rules of evidence so as to raise the presumption about the guilt of the parties to the transfer in respect of the offence of tax evasion or concealment. It has been pointed out that, before resorting to the provisions of the said Chapter, the competent authority must have reason to believe that the fair market value of the property of more than Rs. 25,000 exceeds the apparent consideration stated in the instrument of transfer and the parties have agreed to make the untrue statement with the ulterior motive of tax evasion or concealment of income. The satisfaction of the competent authority for initiation of acquisition proceedings is a subjective satisfaction of the objective facts set out above. The reason for the formation of the belief must have a rational and direct connection with the material coming to the notice of the competent authority, though the question of sufficiency or adequacy of the material is not open to judicial review. In these circumstances, 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 Centra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of natural justice, the courts should do so because it must be presumed that the Legislatures and the statutory authorities intend to act in accordance with the principles of natural justice. But, if, on the other hand, a statutory provision either specifically or by necessary implication excludes the application of any or all the rules of principles of natural justice then the court cannot ignore the mandate of the Legislature or the statutory authority and read into the concerned provision the principles of natural justice. Whether the exercise of a power conferred should be made in accordance with any of the principles of natural justice or not depends upon the express words of tile provision conferring the power, the nature of the power conferred, the purpose for which it is conferred and the effect of the exercise of that power. In the case of Olga Tellis v. Bombay Municipal Corporation [1985] Suppl. 2 SCR 51 at 89 ; AIR 1986 SC 180, a Constitution Bench comprising five learned judges of this court had occasion to deal with the provisions of section 314 of the Bombay Municipal Corporation Act, 1888. Chandrachud C. J., (as he then was), delivering the judgment of the court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing given to the parties likely to be adversely affected by an order of purchase under section 269UD(1). The enquiry pursuant to the explanation given by the intending purchaser or the intending seller might be a somewhat limited one or a summary one but we decline to accept the submission that the time limit provided is so short as to preclude an enquiry or show cause altogether. In the light of what we have observed above, we are clearly of the view that the requirement of a reasonable opportunity being given to the concerned parties, particularly, the intending purchaser and the intending seller must be read into the provisions of Chapter XX-C. In our opinion, before an order for compulsory purchase is made under section 269UD, the intending purchaser and the intending seller must be given a reasonable opportunity of showing cause against an order for compulsory purchase being made by the appropriate authority concerned. As we have already pointed out, the provisions of Chapter XX-C can be resorted to only where there is a 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 low ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake a fortress out of the dictionary. Again, there is no express provision in Chapter XX-C barring the giving of a show cause notice or reasonable opportunity to show cause nor is there anything in the language of Chapter XX-C which could lead to such an implication. The observance of the principles of natural justice is the pragmatic requirement of fair play in action. In our view, therefore, the requirement of an opportunity to show cause being given before an order for purchase by the Central Government is made by an appropriate authority under section 269UD must be read into the provisions of Chapter XX-C. There is nothing in the language of section 269UD or any other provision in the said Chapter which would negate such an opportunity being given. Moreover, if such a requirement were not read into the provisions of the said Chapter, they would be seriously open to challenge on the ground of violation of the provisions of article 14 on the ground of non-compliance with the principles of natural justice. The provision that, when an order for purchase is made under section 269UD, reasons must be recorded in writing is no substitute for a provision requiring a reasonable opportu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioner that the provisions of the said Chapter are arbitrary and violate the provisions of the Fundamental Rights Chapter in so far as an order for compulsory purchase under section 269UD of the said Chapter has the effect of vesting the property in the Central Government free from all encumbrances or leasehold rights the value of which might not be reflected in the apparent consideration mentioned in the agreement for sale. It was submitted by him that these encumbrance holders and holders of leasehold rights might not have anything to do with the attempt at tax evasion in the intended sale, assuming that such an attempt is made by the intending seller or the intending purchaser by undervaluing the property concerned in the agreement for sale and yet they would be deprived of their valuable rights practically without any compensation in the event of an order for compulsory purchase being made. In our view, the submissions of learned counsel are not without merit. Under the provisions of sub-section (1) of section 269UD on an order for purchase by the Central Government of an immovable property, the Government would be liable to pay as compensation to the owner of the property an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. It, therefore, appears to us difficult to uphold the last part of sub-section (1) of section 269UE in so far as it provides that the property in respect of which an order under subsection (1) of section 269UE is made shall vest in the Central Government free of all encumbrances. In our opinion, the expression free of all encumbrances is liable to be struck down as arbitrary, without any rational nexus with the object of the legislation in question and violative of article 14 of the Constitution. Similarly, the provisions of sub-section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isting thereon other than monthly tenancies. It was urged by him that, in a pre-emptive purchase, normally, what would be purchased is only that which was put up for sale or sold and, if the same principle was applied to the compulsory purchase by the Central Government under section 269UD, the rights of the encumbrance holders or the holders of leasehold interests subject to which the property was agreed to be sold could be protected. We agree that in order to save a statute or a part thereof from being struck down it can be suitably read down. But such reading down is not permissible where it is negatived by the express language of the statute. Reading down is not permissible in such a manner as would fly in the face of the express terms of the statutory provisions. In view of the express provision in section 269UE that the property purchased would vest in the Central Government free from all encumbrances (emphasis supplied ), it is not possible to read down the section as submitted by the learned Attorney-General. In the result the expression free from all encumbrances in sub-section (1) of section 269UE is struck down and subsection (1) of section 269UE must be read witho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order for purchase of such property under section 269UD(1) in the said Chapter would result in the said property vesting in the Central Government free of such encumbrances or leasehold interests. In such a case, the holders of the encumbrances or leasehold interests would have to obtain their compensation from the amount awarded as the purchase price to the owner of the property. This appears to be a fair construction because, in such a case, the apparent consideration can be expected to include the value of such leasehold interests or encumbrances. The holders of the encumbrances or leasehold interests which would be destroyed in this manner can be said to be persons interested as contemplated in clause (e) of section 269UA. In this connection, we may refer to sub- section (5) of section 269UE which declares that nothing in the said section which deals with the vesting of property in the Central Government shall operate to discharge the transferor or any other person.( not being the Central Government ) from liability in respect of any encumbrances on the property and, notwithstanding anything contained in any other law for the time being in force, such liability may be enforced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in such a manner as not to defeat the acquisitions altogether. We find that, if the original time-frame prescribed in Chapter XX-C is rigidly applied, it would not be possible for the appropriate authority concerned to pass an order under section 269UD(1) at all in respect of the property in question. In order to avoid that situation and, yet to ensure that no injustice is caused to the petitioner, we order, in the facts and circumstances of the case, that the statement in Form No. 37-1 submitted by the petitioner as set out earlier shall be treated as if it were submitted on the date of the signing of this judgment. Thereafter, if the appropriate authority considers it fit, it may issue a show-cause notice calling upon the petitioner and other concerned parties to show cause why an order for compulsory purchase of the property in question should not be made under the provisions of sub-section (1) of section 269UD and give a reasonable opportunity to the petitioner and such other concerned parties to show cause against such an order being made. In view of the limited time-frame, this will have to be done with a sense of urgency. If, after such an opportunity is given, the appropr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the extent aforestated. Considering the facts and circumstances of the case, there will be no order as to costs. [On an application filed by the Union of India for certain clarifications and directions which came up for hearing before their Lordships M. N. VENKATACHALIAH, J. S. VERMA, S. C. AGRAWAL, YOGESHWAR DAYAL and DR. A. S. ANAND, the court passed the following order on November 27, 1992.] Dipankar Gupta, Solicitor-General of India and Dr. Gauri Shankar, Senior Advocate (S. Rajappa and P. Parameswaran, Advocates, with them) for the Union of India. ORDER The Union of India has moved this application for certain clarifications and directions with a view to obviating certain difficulties that it envisages in applying the principles laid down in the main judgment dated November 17, 1992, by the Constitution Bench to cases other than the case of the particular petitioner in that case. We have heard the learned Solicitor-General in support of this application. Our attention was drawn to two aspects : one in relation to the large number of similar petitions yet pending before this court and various High Courts where, in view of the subsisting orders of stay ope ..... X X X X Extracts X X X X X X X X Extracts X X X X
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