TMI Blog2004 (2) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... section 269UD(1) of the Income-tax Act, 1961, as well as order dated April 11, 1997, passed by the appropriate authority whereby application filed by the petitioners for withdrawal of Form No. 37-I was rejected. Shri Manohar, learned counsel for the petitioners, states that petitioner No. 1 is an exclusive owner of plots Nos. 34,35 and 36 situated at Industrial Area Scheme, N.I.T., Dahipura, and Untkhana, Rambagh Road, Nagpur. Petitioner No. 1 entered into a memorandum of understanding (MOU) with petitioner No. 3 to develop plots Nos. 34,35 and 36 subject to conversion of use of plot from industrial to commercial. The memorandum 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the petitioners is in industrial area surrounded by workshops, labour union offices, etc., which adversely affects marketability of the said land. It is contended by learned counsel for the petitioners that it was also brought to the notice of the appropriate authority that the F.S.I. of plot in question was computed at 2.5 whereas the F.S.I. of the comparable plot was computed at 1. Thus, the plots were not comparable as F.S.I. itself was different. The value of the plot in question is calculated not per square foot, but per square foot of F.S.I. and the F.S.I. itself is different, i.e., so far as the plot in question is 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, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not have roads on three sides. The property had a frontage of only 12.5 metres, etc. It is submitted that even assuming that there were some disadvantages in the sale instance, the authority failed to consider that the present property was sold for a price, which is more than double the rate of the sanctioned sale instance, i.e., Rs. per square foot. Thus, the rejection of sale transaction in the same locality and acceptance of sale transaction in a totally different locality clearly demonstrates that the impugned order is without application of mind, arbitrary and deserves to be quashed and set aside. Learned counsel, Shri 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he transferor and transferee are required to provide details of transfer proposed by filling the prescribed form, i.e., Form No. 37-I. The appropriate authority on perusal of details given in the form and after comparing comparable sale transactions needs to come to a prima facie conclusion as to whether the proposed sale is understated by more than 15 per cent. It is contended that on reaching such a conclusion, the appropriate authority issues a show cause notice calling upon the parties to show cause as to why the property should not be acquired under Chapter XX-C. On receipt of the reply of the parties and after giving them an opportunity 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted by the petitioners. It is submitted that even while giving reply to the show cause notice, documents substantiating these claims have not been either annexed with the said reply or produced by the petitioners and, therefore, the appropriate authority could not take into consideration this aspect. Learned counsel, Shri Jaiswal, submits that the contention of the petitioners that the property in question was a distress sale is also incorrect. If the petitioners were required to enter into the sale transaction for the purpose of clearing dues, then in that case, such details would have been mentioned in the agreement between the parties. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the apex court and High Courts referred to and relied upon by the respective learned counsel for the parties. It will be appropriate to consider certain undisputed facts before we adjudicate upon the issue in question. Those are: (a) Petitioner No. 1 is the exclusive owner of plots Nos. 34, 35 and 36 situated at Industrial Area Scheme, N.I.T., Dahipura and Untkhana, Rambagh Road, Nagpur. Petitioner No. 1 entered into a memorandum of undertaking (MOU) with petitioner No. 3 to develop plots Nos. 34, 35 and 36 subject to conversion of use of plot from industrial to commercial. The memorandum of undertaking 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. (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e apparent consideration shown in the agreement for sale is less than the fair market value by 15 per cent, or more, it may draw a presumption that this undervaluation has been done with a view to evade tax. Of course, such a presumption is rebuttable and the intended seller or purchaser can lead evidence to rebut such a presumption. Moreover, an order for compulsory purchase of immovable property under the provisions of section 269UD requires to be supported by reasons in writing and such reasons must be germane to the object for which Chapter XX-C was introduced in the Income-tax Act, namely, to counter attempts to evade tax. 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the provisions of Chapter XX-C of the Income-tax Act do not confer an unfettered discretion on the appropriate authorities. However, the appropriate authorities can always exercise powers conferred on them under Chapter XX-C whenever there is a significant undervaluation of the concerned property by 15 per cent, or more and order pre-emptive purchase of such property under section 269UD(1) of the Income-tax Act. In our considered view, the observations made by the apex court in paras. (21) and (25) of the judgment in C.B. Gautam's case [1993] 199 ITR 530 do not further the case of the petitioners. So far as the judgment of this court in Vimal Agarwal'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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e construed to confer power on the appropriate authority to pass an order without carefully considering the facts and circumstances set out by the intending seller or purchaser and analysing the comparable cases cited by such persons. However, in the instant case, even that question would not arise as evidently the apparent consideration is not lower than 15 per cent, of the fair market value." So far as the case of Vimal Agarwal [1994] 210 ITR 16 (Bom) is concerned, the same is distinguishable on the basis of the facts involved in the said case. In the said case, the apparent consideration of the property involved was not lower by 15 per cent, than the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the objection of the petitioners and exercise power under section 269UD(1) of the Income-tax Act arbitrarily. So far as the observations of this court in Mrs. Nirmal Laxrninarayan Grover's case [1997] 223 ITR 572 are concerned, there is no quarrel with the principle that the appropriate authority cannot place reliance on the sale instance, which is not comparable because of its location, surroundings, etc., with the transaction in question. However, so far as the case in hand is concerned, the appropriate authority has placed reliance on the sale instance of the property, which is comparable, though situated in Hanuman Nagar, which is adjacent to the property 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in further holding that consideration of the sale transaction in question is understated by 15 per cent. We must express that merely because lands though similar in nature, location and other characteristics are situated adjacent to each other, because of different names given to different areas in the town, fall in different areas, that by itself is no ground for not comparing the sale transaction in respect of such lands, if dates of such sale transactions are in close proximity with each other and there is no bar in such situation, to accept the sale consideration of such sale instance as fair market value of the land in the said area. Similarly, there cannot 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpelling circumstances, such as refund of loan, redemption of mortgage, for satisfying decree of the civil court, etc. This provision is introduced in the Income-tax Act in order to safeguard the sale transaction, which exceeds the value mentioned in section 269UC, if the same is effected under compelling circumstances and is a distress sale. In a situation like this, the appropriate authority is empowered to release such property from the ambit of pre-emptive purchase contemplated under section 269UD of the Income-tax Act even though the consideration for such property is less than 15 per cent, of the fair market value. However, the above referred details must be mentioned 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. Exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be compared with the fair market value of land and for determining fair market value, there are two methods, namely, by determining market value of the land in question and, secondly, by comparing the same with the sale instance of the land, which is similarly situated. In view of the second proviso of section 269UD of the Income-tax Act, the appropriate authority after receipt of statement referred to in section 269UC, is required to pass an order of pre-emptive purchase within a period of two months and now after June 1,1993, within a period of three months. It is, therefore, evident that the time frame within which the appropriate authority has to pass an order under section 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-t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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