TMI Blog2004 (4) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... or, "D" Road, Churchgate, Bombay, owned by respondent No. 3, Shri Nandlal G. Kejriwal, the petitioners entered into an agreement on July 29, 1987, with the owner for purchase of 160 shares bearing Distinctive Nos. 12506 to 12665 under Share Certificate No. 114 of Shree Hanuman Co-operative Housing Society Limited together with loan stock and the rights of use and occupancy for a consideration of Rs. 35,00,000. Form No. 37-I was filed with the Department on July 31, 1987. The appropriate authority on September 23, 1987, passed an order under section 269UD of the Income-tax Act for pre-emptive purchase of the said property at an amount equal to the amount of apparent consideration, i.e., Rs. 35,00,000. The petitioners being intending purchasers by means of this writ petition filed on October 6, 1987, seek to challenge the said order of pre-emptive purchase passed on September 23, 1987, by the appropriate authority. Inter alia, the petitioners have challenged the constitutional validity of Chapter XX-C of the Income-tax Act and alternatively it is prayed that Chapter XX-C may not be made applicable to the subject sale agreement. The petitioners have also prayed that the first respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in Ruparel Brothers (Bombay) Pvt. Ltd. v. Union of India [1997] 226 ITR 172 has no application and the said judgment has been distinguished by the Division Bench judgment of this court in the case of S. Krishnan [1999] 240 ITR 274. Learned counsel submits that the facts of the present case are exactly identical to the facts in the case of S. Krishnan [1999] 240 ITR 274 (Bom) and applying the ratio of S. Krishnan [1999] 240 ITR 274 (Bom), the impugned order of pre-emptive purchase deserves to be set aside and the appropriate authority be directed to hear the petitioners and then pass fresh order. In answer to the query raised by our order dated April 2, 2004, about the locus of the present petitioners in challenging the order under section 269UD of the Income-tax Act, 1961, in a case where the vendor does not desire to challenge the compulsory acquisition, learned counsel submitted that in a large number of cases where the vendor had not challenged the compulsory acquisition of the property under Chapter XX-C of the Income-tax Act, 1961, or where the vendor has accepted the order of compulsory acquisition of the property, the view has been taken that the intending purchaser has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate the judgment was delivered by the Supreme Court in C. B. Gautam [1993] 199 ITR 530, the transaction of compulsory purchase was completed in all respects inasmuch as after the order of compulsory purchase under section 269UD was made, possession was taken over and compensation was paid to the owner of the property and accepted. In C. B. Gautam's case [1993] 199 ITR 530, the Supreme Court examined historical setting in which the provisions of Chapter XX-C were enacted and it was observed that Chapter XX-C was intended to resort to the cases where there was an attempt of tax evasion by significant under-valuation of the immovable property agreed to be sold. The powers of compulsory purchase conferred under the provisions of Chapter XX-C are intended to be (and are being) used only in cases where, in an agreement to sell an immovable property to which the provisions of that Chapter apply, there is a significant under-valuation of the property by 15 per cent, or more. If the appropriate authority is satisfied that the apparent consideration shown in the agreement for sale is less than the market value by 15 per cent, or more, it may draw a presumption that this under-valuation has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is rebuttable and this would necessarily imply that the concerned parties must have an opportunity to show cause as to why such a presumption should not be drawn. Moreover, in a given transaction of an agreement to sell, there might be several bona fide considerations which might induce a seller to sell his immovable property at less than what might be considered to be the fair market value. For example: he might be in immediate need of money and unable to wait till a buyer is found who is willing to pay the fair market value for the property. There might be some dispute as to the title of the immovable property as a result of which it might have to be sold at a price lower than the fair market value or a subsisting lease in favour of the intending purchaser. There might similarly be other genuine reasons which might have led the seller to agree to sell the property to a particular purchaser at less than the market value even in cases where the purchaser might not be his relative. Unless an intending purchaser or intending seller is given an opportunity to show cause against the proposed order for compulsory purchase, he would not be in a position to rebut the presumption of tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to follow, the Supreme Court held thus: "The next question is as to the consequence to follow. In view of the fact that the object of the provisions of Chapter XX-C is a laudable object, namely, to counter evasion of tax in transactions of sale of immovable property, we consider it necessary to limit the retrospective operation of our judgment 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-I 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 questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said in the judgment will invalidate such purchases. The same will be the position where public auctions have been held of the properties concerned and they are purchased by third parties. In those cases also, nothing which we have stated in this judgment will invalidate the purchases." Be it noted at this stage that some clarification was sought by the Union of India from the Supreme Court by making an application. Considering such application, the Supreme Court clarified the position thus: "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 operating therein, it would not be possible immediately to take steps and implement the directions contained in the judgment within the time-frame stipulated therein. The second aspect relates to matters pending before the authorities which, though not pending before courts, do not also admit of application of the principles consistent with the statutory limit. After hearing the learned Solicitor-General, we are satisfied that the problems and difficulties envisaged, in practical terms, are rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh not agitated in courts of law, are pending at various stages before the authorities in all such cases. We direct that Form No. 37-I shall be deemed to have been filed as on the date of the judgment of this court dated November 17, 1992, for purposes of completion of proceedings in terms of section 269UD(1). This further direction shall also be a part of the main judgment." In the backdrop of the law laid down by the Supreme Court in C. B. Gautam [1993] 199 ITR 530, let us now advert to the case in hand. As already indicated above, the agreement for sale was entered into by the petitioners and respondent No. 3 in respect of the subject flat on July 29, 1987. Form No. 37-I was filed with the concerned authority of the Income-tax Department on July 31, 1987. The order of pre-emptive purchase was made by the appropriate authority in exercise of its powers under section 269UD on September 23, 1987. The petitioners filed writ petition before this court on October 6, 1987. The writ petition came up for admission on October 7, 1987. The statement was made by the vendor (respondent No. 3) at that time that he was not desirous of challenging the acquisition and that he accepts the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s also, nothing which we have stated in this judgment will invalidate the purchases." The submission of learned counsel for the petitioners that the present petition was filed on October 6, 1987; it was admitted on October 7,1987, and thereafter the taking over of possession and payment of consideration would not be completed transaction within the meaning of exception carved out in C. B. Gautam [1993] 199 ITR 530 (SC) does not merit any acceptance. It is so because the Supreme Court judgment does not make the exception inapplicable merely because the transaction was completed during the pendency of the writ petition. The fact of the matter in the instant case is that though the writ petition was pending at that time the judgment was delivered by the Supreme Court in C. B. Gautam [1993] 199 ITR 530 no interim relief was granted to the petitioners. It appears from the available material and more so from the affidavit of the first petitioner herself filed in Notice of Motion No. 43 of 1993 that the petitioners were alive to the situation that, in the matters of pre-emptive purchase, this court was issuing rule and granting interim relief on terms and conditions that the person chal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... October 19, 1994, i.e., much after the law was laid down by the apex court in C. B. Gautam [1993] 199 ITR 530. The facts in S. Krishnan [1999] 240 ITR 274 (Bom) right from the agreement for sale to the order of pre-emptive purchase are post C. B. Gautam's case [1993] 199 ITR 530 (SC) and obviously the exception carved out by the Supreme Court in C. B. Gautam [1993] 199 ITR 530 was not applicable in S. Krishnan [1999] 240 ITR 274 (Bom). Whether the transaction of compulsory acquisition is completed or not before C. B. Gautam's case [1993] 199 ITR 530 (SC) is to be decided on the facts of each case and the reference to other decided cases may not be a safe guide to reach the conclusion in this regard. The case of S. Krishnan [1999] 240 ITR 274 (Bom), therefore, does not apply. Similarly, Shrichand Raheja [1995] 213 ITR 33 (Bom), Ruparel Brothers (Bombay) Pvt. Ltd. [1997] 226 ITR 172 (Bom) and Home Builders relied upon by learned counsel for the petitioners also have no application in the facts of the present case. As already indicated by us what was necessary for completion of the transaction after the order of pre-emptive purchase was passed by the appropriate authority was (i) tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roperty. On the scheme of the Rules aforesaid this view represents the correct legal position. On the same analogy such an agreement holder cannot equally apply under rule 60 in his own right to get such auction sale set aside." In Shatabadi Trading and Investment P. Ltd. [2001] 251 ITR 93, the apex court held that the principle of law stated in the case of K. Basavarajappa [1997] 223 ITR 297 (SC) needs to be taken into consideration in the writ petitions presented at the instance of the intending purchasers and not at the instance of owner of the subject property. The Supreme Court held thus: "The impact of such decision ought to have been taken note of by the High Court. Indeed in K. Basavarajappa v. Tax Recovery Commissioner [1997] 223 ITR 297, this court has held that an agreement to sell creates no interest in the property and in the absence of a decree of specific performance of an agreement even though authorised by the general power of attorney holder of the original owner of the property had no locus standi to move an application for setting aside the auction sale on offer to deposit full tax dues. If we extend the said principle to the present facts, we find it hard ..... 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