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TMI Blog2003 (4) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... e has then contended that the court cannot sit in appeal with regard to the valuation given in the valuation report while deciding such a question. The learned single judge had, however, virtually acted as the court of appeal. Therefore, the order should be set aside. Mr. Bajoria, learned senior counsel for the assessee-respondent, on the other hand, has contended that the object and purpose of introduction of Chapter XX-C was to prevent evasion of tax. Therefore, the provisions are to be decided in the context of the purpose and object. He has relied on the decision in C.B. Gautam v. Union of India [1993] 199 ITR 530 (SC) and has pointed out that in the said decision the apex court had observed that in the process, a bona fide transfer may not be suspected bringing slur upon the parties who did not ever intend to evade tax. While exercising writ jurisdiction, this court does not exercise the power of the appellate authority. Even though no appeal is provided for in Chapter XX-C, the court can look into the perversity of the valuation made. If the valuation is not made in terms of the valuation method applicable, in such a case, the court can interfere. According to him, it is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o prevent evasion of taxes by undervaluing the properties. Therefore, this would be applied only in a case where there are materials to show that the property has been undervalued to evade tax which is a primary proposition. If this proposition is not satisfied, in that event, even if the market value is higher than 15 per cent. of the apparent value, still then this provision cannot be attracted. In C.B. Gautam's case [1993] 199 ITR 530, the apex court had noted the facts relevant for the purpose of the difference of 15 per cent. in respect of market value and the apparent value. It had observed in the said decision at page 538 that in the interim report (1970) the Wanchoo Committee pointed out that understatement of prices in sale deeds of the immovable properties was a widespread method of tax evasion and recommended a drastic remedy to empower the Government to acquire the property, the consideration whereof was found to be understated in the sale deeds. Thus Chapter XX-A was introduced in the Income-tax Act. These were found inadequate. Chapter XX-C was then introduced. The very historical setting in the introduction of this Chapter suggested "that it was intended to be resor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... niversities, etc.; (c) properties with bona fide tenancies of long standing; and (d) properties with too many restrictions on user. It was clarified in the said affidavit (paragraph 14) that, although the appropriate authorities would not normally purchase buildings, which were leased, in a few cases they might do so when it was felt that even taking into account that the property was encumbered with lease, the apparent consideration was grossly understated. The said affidavit stated that the above practice was uniformly followed. In the light of the above observation, in C.B. Gautam's case [1993] 199 ITR 530, the apex court had held that Chapter XX-C can be resorted to in a case of significant undervaluation of property to the extent of 15 per cent. or more. Although a presumption of attempted tax evasion may be raised in the established circumstances such a presumption is rebuttable, implying an opportunity to the purchaser to show cause. In a given transaction, there might be several bona fide considerations inducing a seller to sell his immovable property at a price less than the fair market value, viz., he might be in immediate need of money and unable to wait; there might b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncumbrances 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. This makes it clear that the purpose and object of Chapter XX-C would be satisfied if the undervalued transactions are arrested. At the same time, it exempts bona fide transactions even if sold at a lesser price than the market value and what are the circumstances in which transactions can be held as attempted tax evasion has since been discussed in the said judgment. In the present case, it appears that the property was encumbered. Thus encumbrances noted in the valuation report are that: "(i) The property is fully tenanted for more than 35 years or so. The present tenants have taken two properties Nos. 14 and 14/1 on rent and developed Plot No. 14 by renovation and additions by paying extra rent to the owner where the tenants are running a hotel. (ii) The tenants under an agreement dated February 12, 1978, increased the rent of property at 14/1 from Rs. 1,100 p.m. to Rs. 3,100 p.m. and got pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applies. In Appropriate Authority v. Kailash Suneja [2001] 251 ITR 1 (SC), it was held that where there are loopholes and lacunae in the reason given by the appropriate authority and where two different methods of valuation are adopted for similar properties and no reason is stated, the High Court is entitled to examine the valuation adopted by the authority. In Om Shri Jigar Association v. Union of India [1994] 209 ITR 608, the Gujarat High Court had held that where the property was sold after inviting offers from the public at large by advertisement in the newspaper and that too after proper verification by the statutory authority under the Bombay Public Trusts Act, even after executing the agreement for sale, objections were invited as provided in rule 24, there, even if a lower amount is received, it would not mean that the power to purchase the said property under section 269UD of the Income-tax Act, 1961, could be exercised by the authorities under Chapter XX-C as it would be difficult to draw a presumption that there was an attempt to evade tax. In this case the appropriate authority did not come to the conclusion that there was any fraud at the time of public auction or t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ples which are applicable for assessing the tax on the basis of the valuation of the property. The valuation has no doubt to be made objectively and not on the subjective satisfaction of the Appropriate Authority. The figure which is arrived at has to be based on the material on record. There may be a certain element of arbitrariness while estimating the market value and it is for that reason alone, that without there being any mandate of the Act, the respondents have issued a circular that the acquisition of the property under Chapter XX-C would be if the difference of the market value and agreed value shown in the instrument is more than 15 per cent. Thus, the 15 per cent. margin covers the estimation part of the valuation, so that no injustice is done while acquiring any property. The right of pre-emptive purchase by the Central Government of immovable property is at an amount equal to the amount of apparent consideration so as to relieve the transferor of any grievance." Mr. Agarwal has further relied on Appropriate Authority v. Smt. Sudha Patil [1999] 235 ITR 118 (SC), where it was held that: "Merely because no appeal is provided for, against the order of the appropriate auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or determining that the apparent value is less by 15 per cent. from the market value. The method of arriving at the valuation is similar to that of valuing a property in the process of acquisition of such property by the Government, but without the solatium. In C.B. Gautam's case [1993] 199 ITR 530 (SC), the apex court had struck off the expression "free from all encumbrances" from section 269UD. This protected the interest of tenants. Therefore, the valuation for acquisition of land or property has to be considered with the encumbrances by which the property is encumbered. For a seller and a buyer, a tenancy is definitely an encumbrance to depress the value of the property. It is not the value, which a particular person having special interest in the property would offer which the market value. It is the value of the property, which could be fetched in the open market from a willing buyer, who might not have any special interest in the property. Therefore, the value offered by the tenant in possession would not be the determinative factor for determining the market value. The market value would be the value which an ordinary buyer will be agreeable to pay having regard to the encu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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