TMI Blog1994 (12) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... e above trust and also as a constituted attorney of the beneficiaries of the said trust that she entered into an agreement of sale with the petitioner on February 24, 1992, in respect of sale of land belonging to the said trust admeasuring 6,000 sq. ft equivalent to above 557.17 sq. mts. from and out of a total area of 2,508.39 sq. metres of Survey No. 210/7 (part) in Civil Lines, Nagpur, for a consideration of Rs. 13,50,000. At the time of entering into the above agreement with the petitioner on February 24, 1992, the petitioner paid an amount of Rs. 1,00,000 by way of earnest money to respondent No. 3 and the balance consideration of Rs. 12,50,000 was to be paid by the petitioner at the time of the execution and registration of the sale deed which as per the agreement of sale dated February 24, 1992, was to be executed within three months thereof, i.e., up to May 24, 1992. Parties were under obligation to obtain, inter alia, the no objection certificate under section 269UL(3) of the Act without which the sale deed could not be registered in view of the provisions of section 269UL(1) of the Act. It is material to see that the Finance Act, 1986, has introduced Chapter XX-C in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ule 48L(2) of the Income-tax Rules, 1962. Sub-section (1) of section 269UD of the Act, which is material for our purpose, then provides that after the receipt of the statement from the parties to the agreement of sale in the prescribed Form No. 37-I as required by section 269UC(3) of the Act read with rule 48L of the Income-tax Rules, 1962, the appropriate authority may make an order for the purchase by the Central Government of such immovable property at an amount equal to the amount of its apparent consideration notwithstanding anything contained in any other law or any instrument or any agreement for the time being in force for the reasons to be recorded in writing. However, as per the proviso to the said sub-section (1) of section 269UD of the Act, no such order is to be made in respect of any immovable property after the expiry 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. The above provisions of sub-section (1) of section 269UD of the Act were as they stood prior to its amendment by the Finance Act, 1993, which introduced certain amendments in se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court passed on November 27, 1992, regarding the said judgment. Section 269UE(1) of the Act provides for vesting of the immovable property in the Central Government in terms of its agreement of transfer referred to in section 269UC(1) of the Act. Such property vests in the Central Government on the date on which an order for its compulsory purchase is made by the appropriate authority under section 269UD(1) of the Act. Such vesting is subject to the encumbrance of a bona fide holder of such encumbrance upon the property in question or its bona fide lessee as provided in the proviso to sub-section (2) of section 269UE of the Act. However, if the encumbrance upon such property in question or the lease hold interest upon the same is specified in the agreement of transfer with a view to defeat the provisions of the Chapter XX-C of the Act, the appropriate authority can declare such encumbrance or leasehold interest thereon as void in which case the property in question vests in the Central Government free from such encumbrance or leasehold interest. Sub-section (1) of section 269UF of the Act provides for payment of consideration for such compulsory purchase by the Central Gover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... objection certificate from the appropriate authority for transfer of such immovable property. As provided in sub-section (3) of section 269UL of the Act, the appropriate authority has to grant such no objection certificate for transfer of an immovable property in question if it does not pass an order for its compulsory purchase under section 269UD(1) of the Act or if the immovable property in question revests in the transferor and the order of compulsory purchase stands abrogated as envisaged by sec tion 269UH of the Act. After having thus considered the scheme of Chapter XX-C of the Act, turning to the facts in the instant case, it may be seen that the petitioner and respondent No. 3 filed the statement in Form No. 37-I as required by the provisions of section 269UC of the Act read with rule 48-L of the Income-tax Rules, 1962, for obtaining a no objection certificate from the appropriate authority to the transfer of the suit property described hereinabove as per the agreement of sale dated February 24, 1992, in favour of the petitioner, i.e., the transferee, regarding which there was an agreement of transfer on February 24, 1992, referred to hereinbefore. However, after receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring, if they so desired. Accordingly, the petitioner submitted her reply on February 13, 1993, contending that there was no undervaluation in the sale transaction in question and that the suit property was being purchased at its market value. It was also pointed out that the consideration for the suit property agreed to between the parties was fair and reasonable and that in fact the rate of valuation fixed as per the land rates maintained by the Nagpur Corporation and by the stamp authorities for levy of stamp duty and the registration charges upon documents relating to transfer of title was much lower than the market rate calculated for the suit property on the basis of the consideration agreed to between the parties. It was pointed out that for the area in question the said land rate fixed was Rs. 1,500 per sq. mt., i.e., Rs. 145 per sq. ft., whereas the land rate for the suit transaction worked out to Rs. 225 per sq. ft. Further, it was pointed out by the petitioner in her reply to the show-cause notice that there was encroachment upon some portion of the suit land regarding which a dispute was going on and for which reason its market value would be lower than its real mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration of Rs. 13,50,000 shown in the agreement of sale dated May 24, 1992, in accordance with the provisions of section 269UA(b) read with rule 48-I of the Income-tax Rules, 1962, which provides for a rate of interest of 8 per cent. per annum for determining the discounted value of the apparent consideration given in the agreement of sale. It has calculated the discounted value of the consideration for the sale transaction at Rs. 13,25,343 as shown in para 4 of the reasons. The rate, therefore, worked out was Rs. 221 per sq. ft. The appropriate authority then worked out the land rate of land in the same locality of Civil Lines which was treated as a comparable sale instance by it. Its particulars are given by it in para 5 of the reasons. It appears from the particulars that the agreement of sale in the sale instance was dated December 26, 1990, and the area of the land agreed to be sold was 4,839.5 sq. ft. out of plot No. 2 in Shri Vallabh Co-operative Housing Society, Civil Lines, Nagpur. Its apparent consideration was Rs. 15,00,000 and the discounted rate per sq. ft. worked out was Rs. 304.20 with permissible FSI of 1. Since the property in the sale instance was sold one year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt writ petition. In her written submissions respondent No. 3 has stated that she is not concerned with the challenge of the petitioner to the order of compulsory purchase passed by the appropriate authority regarding her suit property and that she accepts the said order of compulsory purchase passed under Chapter XXC of the Act. In fact as pointed out by the appropriate authority in the reasons given by it on February 23, 1993, respondent No. 3 had tentatively accepted the original purchase order dated April 24, 1992, passed under section 269UD(1) of the Act as per her letter dated May 14, 1992. Respondent No. 3 has then stated in her written submissions that the petitioner's challenge to the order passed by the appropriate authority should not be allowed to cause prejudice to her interest particularly by reason of the delay involved in the court proceedings. She has, therefore, claimed in her written submissions that if the impugned order of compulsory purchase passed by the appropriate authority is affirmed, respondents Nos. 1 and 2 should be directed to pay interest to her at 20 per cent. per annum and in case the said impugned order of the appropriate authority is set asid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plot No. 2 in Shri Vallabh Co-operative Housing Society, Civil Lines, Nagpur, was purchased by Shri Satish Kale, who was already holding the adjoining plot No. 3 admeasuring 936.97 sq. mt. By reason of the purchase of the above area from plot No. 2, the total area of plot Nos. 2 and 3 owned by Shri Satish Kale became 1,385.57 sq. mt. because of which the FSI of his land increased to 1.25. In support of the above fact, the petitioner has placed on record the letter of the Assistant Engineer, Building Department, Nagpur Municipal Corporation, Nagpur, dated March 17, 1993, addressed to Shri Satish Kale, Civil Lines, Nagpur, which shows that according to bye-law No. N. 1.1.3 of the building bye-laws and D. C. Rules for Nagpur City, the FSI is 1.25 if the plot area exceeds 1,000 sq. mt. The above facts in para 9A of the petition are not disputed by respondents Nos. 1 and 2 in their return. The submission on behalf of the petitioner on the basis of the above facts is that since Shri Satish Kale was the owner of the adjoining plot and since he was benefited by the increase in FSI he paid higher value for purchase of the area admeasuring 4,839.5 sq. ft. of plot No. 2. The said purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rule 48-I of the Income-tax Rules, 1962, has prescribed the rate of interest of eight per cent. per annum for calculating the discounted value of the consideration agreed to between the parties under their agreement of sale. In other words, it would mean that the appreciation in the market rate of the land from the date of the agreement of sale considered under the said Rules is eight per cent. per annum. If without any material on record to show to what extent the appreciation in the value of the land is during the time gap between the transaction in the sale instance and the transaction of the suit land, if a mere hypothetical appreciation is to be taken, there appears to be no justification for not taking the same rate of appreciation which is taken under rule 48-I for calculating the discounted value of the consideration as on the date of the agreement of sale. It is not thus safe to rely upon the above sale instance for determining the question whether the valuation of the suit land is grossly understated. At any rate when such a hypothetical rate of appreciation is taken, some allowance has to be made while applying the test of difference of 15 per cent. or more for probable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad with rule 48-I of the Income-tax Rules, 1962, as it is statutory. But then it has to be seen that as per the agreement between the transferor and the transferee, even though the balance of consideration is to be paid at a future date, the consideration agreed to between them is on the date of the agreement of sale, which in other words represents the market value as determined as on that date, i.e., the date of agreement of sale. It is further difficult to see how such a market rate can appreciate within a period of three months after which the balance of consideration has to be paid. Turning next to the sale instances cited by the petitioner, i.e., by her valuer in his valuation report enclosed with her reply to the show-cause notice show that the land rate of the suit land represents its true and fair market value, it is necessary to see that although the appropriate authority has rejected the sale instance dated November 23, 1989, of the Civil Lines area itself relied upon by the petitioner on the ground that there is considerable time gap, the sale instance dated December 26, 1990, relied upon by it is also much prior to the sale transaction in question in the instant case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said sale instance dated November 23, 1989, the market rate for the suit land should be still less than the rate for the land in the said sale instance dated November 23, 1989. However, the discounted rate which is worked out by the appropriate authority for the suit land is Rs. 221 per sq. ft. which is more than the above rate of the land in the sale instance dated November 23, 1989. It is, therefore, difficult to see how the land rate of the suit land is grossly understated. As regards the second sale instance upon which reliance is placed in the valuation report of the valuer submitted by the petitioner along with her reply to the show-cause notice, the said sale instance is rejected by the appropriate authority on the ground that it is a sale to the tenant in occupation. It is true that a tenant in occupation of the land is most likely to pay the price of the land in his occupation, which is lower than its market price. But then in rendering such a finding the appropriate authority has acted in an arbitrary manner because in the sale instance relied upon by it, the purchaser of the land was the owner of an adjoining land who was to benefit by the purchase of the said land ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stances referred to by him and the location, size, shape and the permissible FSI (FSI allowed is only one). The valuation report of her valuer submitted by the petitioner to the appropriate authority thus deserved consideration. The rate offered by the petitioner for the suit land, viz., Rs. 225 per sq. ft. whose discounted rate is worked by the appropriate authority is Rs. 221 per sq. ft. cannot thus be said to be grossly understated. We have pointed out above that the sale instance selected by the appropriate authority of the land purchased by Shri Satish Kale cannot reflect its proper market value because he was an adjoining owner who wanted to purchase the adjacent land for his own benefit, i.e., for getting higher FSI of 1.25. He would, therefore, offer a higher price for the said adjoining land in the sale instance relied upon by the appropriate authority. This is clear from the first sale instance cited by the petitioner in which the sale of the land is by Mr. A. S. Bobde, Advocate to Tata Iron and Steel Co. which land is situated in Civil Lines itself. The said land has a prime location as it is on the main road. If the said land is sold at the rate of Rs. 175 per sq. ft. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the encroached land to respondent No. 3 till the said dispute was resolved and the Central Government through its appropriate department was put in possession of the said land since respondent No. 3 in her agreement of sale dated February 24, 1992, with the petitioner had agreed to give vacant possession of the suit land free from encumbrances on the date of execution and registration of the sale deed. This is yet another infirmity in the order of compulsory purchase passed by the appropriate authority in the instant case. It is thus necessary to see that the Income-tax Department must make genuine efforts to find proper material or proper sale instances which are comparable time-wise and location-wise with the sale transaction of the property in question under the agreement of sale before proposing its pre-emptive purchase, so that the bona fide purchasers are not harassed and the bona fide transactions are not hampered as in the instant case where because of the reliance placed by the appropriate authority upon the sale instance which does not compare with the suit transaction, the parties to the transaction are required to suffer because of the delay in completion of that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, if available in the vicinity of the land in question whose market rate is to be determined possessing the same or more or less similar advantageous features. This is the view taken by the Supreme Court in the case of Jawajee Nagnatham v. The Revenue Divisional Officer [1994] 2 JT (SC) 604 ; AIR 1994 SCW 2852. The submission on behalf of the petitioners based upon the rates of properties maintained by the State Government for the purpose of checking evasion of stamp duty on transfer deeds cannot, therefore, be accepted. However, that would not mean that the Department has correctly determined the market value of the suit plot. There is also force in the contention raised on behalf of the petitioner that in the absence of the particulars of the material or the reason(s) being disclosed in the show-cause notice for entertaining a tentative or a prima facie view that the value of the suit land is grossly understated in the agreement of sale between the parties, the transferor and the transferee have no real opportunity to meet the case of the appropriate authority or the Income-tax Department concerned in that regard and hence there is non-compliance with the basic principles of n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the stage of show-cause notice are only prima facie or tentative conclusions, it would not mean that they are not required to be disclosed in the show-cause notice. The above stand taken by the respondents in their return is thus wholly misconceived and is untenable. In fact, it betrays the ignorance of the respondents about the basic tenets of the principles of natural justice which we have referred to above as requirements of a proper show-cause notice. As regards the contention on behalf of the respondents that the obligation to disclose the reasons or the relevant material to the transferor and the transferee upon which the appropriate authority has based its prima facie view that the property in question is grossly undervalued needs to be dispensed with on the ground that there is restraint of the time frame within which the order of compulsory purchase has to be passed, it may be seen that for the purpose of passing an order of compulsory purchase and even before issuing a show-cause notice, the appropriate authority has to make and makes an enquiry and collects material within the time frame to determine whether the property in question is grossly undervalued or not. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nquiry should not be disclosed to the transferor and the transferee before taking a final view in the matter. Since the material on the basis of which the appropriate authority holds the prima facie view that the property in question is grossly undervalued has to be thus in its possession before taking action under section 269UD(1) of the Act, the question of time-frame and summary nature of enquiry has no relevance to the question of incorporating in the show-cause notice the particulars of the material in the possession of the appropriate authority on the basis of which it entertains a view that the property in question is grossly undervalued. The petitioner is, therefore, clearly prejudiced in her defence since the relevant material upon which the prima facie view of the appropriate authority that the property in question is undervalued is based is not disclosed in the show-cause notice given to her. The impugned order of the appropriate authority passed pursuant to such a defective show-cause notice is thus illegal and is vitiated for not being in consonance with the basic principles of natural justice. In the light of the view taken by us above, it cannot be held that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epted. The next question to be considered is whether respondent No. 3, i.e., the transferor, is entitled to interest as claimed by her. The case pleaded for interest by respondent No. 3 is that she was not interested in the question whether the petitioner or the appropriate authority would purchase her suit land for the consideration agreed to by her in her agreement of sale dated February 24, 1992, and, therefore, when the order for compulsory purchase was issued on April 24, 1992, by the appropriate authority originally, i.e., before it was set aside and the proceedings were remanded to it, respondent No. 3 had immediately written a letter to it on May 14, 1992, that she had no objection to the compulsory purchase of her suit land by the Central Government. What is, therefore, submitted in her written submissions is that in view of the interim orders passed by this court in the earlier writ petition and the instant writ petition, there is delay caused in the payment of the balance of the consideration to her although she had no objection whether the suit property was purchased either by the petitioner or respondents Nos. 1 and 2. According to her, in view of the interim orders, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purchase price by reason of the said order and the stay order or orders passed by a court, interest at an appropriate rate can, if equity so requires, be paid to him. Learned counsel appearing for the petitioner has, however, urged before us that delay is caused in view of the illegal order passed by the appropriate authority which she was required to challenge in this court. Even though the order of compulsory purchase passed by the appropriate authority may be illegal, respondent No. 3 is not responsible for the same. In view of the interim order obtained by the petitioner on March 21, 1993, the suit property would not vest in the Central Government. The Central Government has, much less, taken possession of the same. There is thus no question of any privity of any kind between the Central Government and respondent No. 3 which can be established only when the order of the appropriate authority is ultimately affirmed. There is, therefore, no question of the Central Government being fastened with the liability to pay any interest to respondent No. 3. If the order of the appropriate authority is set aside, the title and possession has thereafter to vest in the petitioner on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd in other cases in this group even less, i.e., 10 per cent. per annum. However, the fact remains that had the payment been made to respondent No. 3 in proper time, on its proper investment, she would have earned interest at the rate higher than the above rate. Balancing, therefore, the above equities of the case, we are of the view that respondent No. 3 should be paid interest at the rate of 15 per cent. per annum upon the balance consideration of Rs. 12,50,000 till the said payment is made to her by the petitioner. As regards the date from which respondent No. 3 should be paid the interest, it may be seen that according to clause 4 of the agreement of sale, the sale deed was to be executed and the balance consideration was to be paid up to May 24, 1992. Pursuant to the first order of the compulsory purchase issued by the appropriate authority on April 24, 1992, respondent No. 3 had immediately informed it on May 14, 1992, that she had no objection to the compulsory purchase of the suit land by the Central Government. However, since the order of compulsory purchase dated April 24, 1992, was challenged in this court by the petitioner and was set aside and the proceedings were re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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