TMI Blog1994 (9) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... ated at 89, Napean Sea Road, Malabar Hill, Bombay. By an agreement dated October 24, 1993, the executors-transferors agreed to sell the property which admeasures 1,823.55 sq. yards on "As is where is and as it is what it is " basis for a consideration of Rs. 19.25 crores to Rahejas. The agreement, inter alia, provides that on execution of the agreement, a sum of Rs. 2 crores will be paid by the purchasers as part consideration. An amount of Rs. 7,62,50,000 was to be paid on issuance of the no objection certificate from the appropriate authority or on February 8, 1994, whichever is later. The balance amount of Rs. 9,62,50,000 was to be paid within three months of the grant of the no objection certificate and against execution of conveyance. The agreement provides that the stamp duty and registration charges were to be borne by the transferees. The property consists of the land together with a bungalow consisting of ground, first and part second floor with outhouses at the rear side of the property in occupation by seven employees. The agreement further provides by clause 10 that in case the transferors are not able to obtain vacant possession of the remaining servants' quarters in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the transferors and the transferees. The show-cause notice sets out that prima facie the appropriate authority was of the view that there is significant undervaluation of the property. As the consideration to be paid under the agreement was deferred, the show-cause notice claims that the discounted value of the consideration works out to Rs. 18,68,54,154. The parties were called upon to show cause as to why the order should not be passed in accordance with the provisions of sub-section (1) of section 269UD of the Income-tax Act and why the adjustments in respect of the consideration should not be made. A list of comparable sale instances was annexed to the show-cause notice. The parties appeared before the appropriate authority on January 18, 1994, in response to the show-cause notice and, inter alia, submitted that the working out of the rate by the Department was based on an incorrect area of the plot as the Department had overlooked that an area of 269.45 sq. yards was already acquired by the municipal corporation. The parties also claimed that the proposed sale transaction is at the rate of Rs. 1,05,563 per sq. yard of land and is the highest rate agreed to be paid in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 269UF provides that when an order of purchase is made, the Central Government shall pay by way of consideration for such purchase an amount equal to the amount of apparent consideration. Section 269UG provides that the amount of consideration shall be tendered to the person entitled thereto within a period of one month from the end of the month in which the immovable property vests in the Central Government. Section 269UH, inter alia, sets out that if the Central Government fails to tender the whole or part of the amount of consideration, then the order of purchase stands abrogated and the immovable property shall stand re-vested in the transferor. In such circumstances, the appropriate authority is required to make a declaration to that effect. In accordance with the provisions aforestated, the property in dispute vested in the Central Government with effect from January 27, 1994. On January 31, 1994, the appropriate authority informed the parties to hand over possession within 15 days from the receipt of the letter, in accordance with the provisions of sub-sections (2) and (4) of section 269UE of the Act. The transferors in pursuance of the letter forwarded the documents of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e authority on February 14, 1994. The transferees preferred Writ Petition No. 862 of 1994 on March 21, 1994. Both the petitions preferred by the transferors and transferees were placed for admission before the Division Bench on April 4, 1994. Both the petitions were admitted on that day and the consideration of the grant of interim relief was postponed to the next day. Before the petitions reached hearing for consideration of the grant of interim relief, the advocates for the transferees addressed a letter to the transferors' advocates on April 5, 1994, forwarding a cheque for the sum of Rs. 2 crores being the earnest sum under the agreement for sale. The cheque was not accepted. On April 6, 1994, in the petition filed by the transferors, the Division Bench passed an interim order in accordance with the minutes tendered by the parties. The order, inter alia, provides that the transferors agree to give up their challenge to the purchase order on the ground of abrogation and claim no relief in terms of prayer (a) on receipt of the sum of Rs. 50,00,000 from the Central Government. The order further provides that the issue relating to the quantum of discounting will be decided at t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt at the relevant time. The third submission of learned counsel is that even assuming the purchase order is valid, still the order stands abrogated for failure of the Central Government to tender the purchase amount to the transferors within the stipulated period. Learned counsel urged that as the amount was not tendered within the prescribed period, the property re-vests in the transferors and the appropriate authority is bound to issue a declaration to that effect. Shri Sethna, learned counsel appearing on behalf of the Department, on the other hand, submitted that the defects relied upon by the transferees in the show-cause notice are not relevant and in any event have not caused any prejudice to the transferees in presenting the claim before the appropriate authority. Learned counsel submitted that it was totally unnecessary for the appropriate authority to set out in the show-cause notice what is the fair value of the property on the date of agreement. Shri Sethna submitted that the conclusion of the appropriate authority that the fair value is about Rs. 24 crores does not suffer from any infirmity and it is impossible to expect mathematical accuracy in ascertaining the fair ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be acquired was 2,093 sq. yards. It is undoubtedly true that the error had crept in the show-cause notice but when that was pointed out to the appropriate authority in response to the show-cause notice, the claim was accepted and the impugned order clearly reflects that fact. Shri Doctor also submitted that the calculation of discount made in the show-cause notice is not accurate. Even assuming it to be true, we are unable to appreciate how the impugned order can be quashed on that count. It is necessary to bear in mind that the parties are required to file the statement in accordance with Form No. 37-I within a fortnight of the date of agreement and the appropriate authority is required to determine whether the purchase order should be passed within a period of three months from the date of receipt of Form No. 37-I. The failure to pass the order would automatically result in the parties' securing the no objection certificate. The provisions of Chapter XX-C of the Act were made to prevent tax evasion by significant undervaluation of immovable properties agreed to be sold. The object of the provisions is to check proliferation of black money in real estate transactions and to e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be challenged at the behest of the transferees as they had no interest in the property. In support of the submission, reliance was placed on the decision of the Division Bench of the Karnataka High Court in Rajata Trust v. Chief CIT [1992] 193 ITR 220. Shri Sethna further submitted that even assuming that the transferees can challenge the impugned order, still it must be held that the transferees have given up the right to challenge the order by their conduct in accepting the amount of Rs. 2 crores from the transferors which was paid as part consideration. It was urged that on receipt of the amount of Rs. 2 crores, the agreement automatically came to an end and, consequently, the transferees have no interest left in the property and the impugned order cannot be questioned. The third limb of the argument of Shri Sethna is that the transferors have given up the right to challenge the purchase order on the ground that the Central Government failed to tender the amount within the stipulated period. It was urged that as the transferors have given up the contention that the purchase order stands abrogated, it is not open to the transferees to agitate that contention. It is not possible t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for purchase by the Central Government. After the purchase order was passed by the appropriate authority, the transferors by letter dated February 11, 1994, returned the amount of Rs. 2 crores to the transferees and the transferees received the said amount without demur. The transferees challenged the order passed by the authority only on March 21, 1994, that is after the transferors filed the petition on March 11, 1994. The transferees tried to forward the amount of Rs. 2 crores to the transferors by letter dated April 6, 1994, but the transferors refused to accept the same. Relying on these undisputed facts, Shri Sethna submitted that the transferees had acquiesced in the purchase order passed by the authority and had taken steps to receive back part consideration. Learned counsel submitted that the conduct of the transferees should lead to the conclusion that the transferees had no locus to challenge the purchase order because the agreement between the parties stands revoked on return of part consideration. Shri Doctor controverted the submission by urging that the mere fact that the amount of Rs. 2 crores sent by the transferors was received is not sufficient to conclude that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel because the failure to tender the amount within the stipulated period leads to consequences prescribed under the statute and the consequences do not depend upon the action or concession of either the transferor or the transferee. A plain reading of the provisions of Chapter XX-C of the Act makes it clear that the purchase order stands revoked in case the amount is not tendered within the stipulated period and the issue of such abrogation cannot be settled by the transferor, conceding that the claim in regard to abrogation will not be pressed. In these circumstances, the preliminary objection of Shri Sethna that the transferees have no locus standi to maintain the petition, in view of what transpired during the pendency of this petition, cannot be accepted. The second contention urged by Shri Doctor to challenge the impugned purchase order is that the finding recorded by the appropriate authority that the property was highly undervalued and the fair market value of the property is Rs. 24 crores which is much more than the margin of 15 per cent. as prescribed in Gautam's case [1993] 199 ITR 530 (SC), is not correct. Learned counsel submitted that the show-cause notice served ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l purchaser willing to purchase land from the open market and prepared to pay a reasonable price would offer. It has to be assumed that the vendor is willing to sell the land at a reasonable price. While determining the price, normally the authority has to take into account the genuine instances. The most comparable instances out of the genuine instances have to be identified on the considerations of proximity from the time angle and proximity from the situation angle. After identifying the instances which provide the index of market value, the price reflected therein may be taken as a norm and the value of the land in question may be deduced by making suitable adjustments for the plus and minus factors vis-a-vis the land under consideration by placing the two in juxtaposition. The plus factors are proximity to a road, frontage on a road, regular shape, etc., while minus factors are situation in the interior at a distance from the road, narrow strip of land with small frontage, compared to depth and some special disadvantageous factor which would deter the purchaser. It is not possible to lay down any hard and fast rule to ascertain the fair value by adopting instance method but th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n road Napean Sea Road and if the difference of the location alone is considered, then the fair market price of the property in question would be much higher than the value of the sale instance relied upon. The authority further noticed that the sale instance relied upon is separated from the agreement in issue by distance of time of three months and the prices are rising almost day-to-day. The authority further noticed that the title of the property in dispute was free from any encumbrances and the transferors had agreed to give vacant possession except some servants' quarters. The authority further noticed that the transferees could have very well developed the property even though the servants' quarters were not made immediately available because the quarters were situated at the boundary of the plot and would not have impeded the proposed development. Relying upon these facts, the authority came to the conclusion that fair market value of the property in issue will be at least Rs. 24 crores and the rate payable should be Rs. 1,31,950 per sq. yard. We have closely scrutinised the impugned order and in our judgment, the authority has reached the conclusion by taking into consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o manner of doubt that the authority has not relied upon the sale instances cited in the show-cause notice in respect of ready flats to arrive at the price of the property in question. Reference was made to those instances only to indicate the potentiality of the property. In our judgment, the conclusion reached by the appropriate authority in the facts and circumstances of the case, cannot be faulted. It must be borne in mind that while exercising writ jurisdiction, we are not sitting in appeal over the order passed by the appropriate authority. We are conscious that the exercise is only to ascertain whether the order is passed by relying upon extraneous or irrelevant material. It is not permissible to reassess the material and the order cannot be disturbed unless it is found that the order suffers from serious infirmity, bordering on perversity. In our judgment, the order does not suffer from any infirmity and the conclusion does not require to be disturbed in exercise of writ jurisdiction. The last contention urged by Shri Doctor is that even assuming that the purchase order passed by the authority was in accordance with law, still the order stands abrogated in view of the fai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en the parties but only the discounted amount and that is not a valid tender. One more contention advanced was that the authority withheld the sum of Rs. 50,00,000 in view of the transferors' failure to hand over vacant possession of the property and, therefore, the tender was not of sufficient amount. Shri Doctor submits that for all these reasons, it should be concluded that the purchase order stands abrogated and the property stands re-vested in the transferors. It is not possible to accede to the submission of learned counsel. As mentioned hereinabove, the transferors had specifically given up the contention that the purchase price was not paid within the stipulated period. The contention of Shri Doctor that the amount was not paid before the stipulated period is not accurate. What section 269UG demands is that the amount of consideration shall be tendered within a period of one month from the end of the month in which the immovable property becomes vested in the Central Government. The return filed on behalf of the authority makes it clear that the letter dated February 28, 1994, was forwarded in pursuance of the telephonic conversation and when the transferors advised to f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount tendered was after discounting and, therefore, it was not a full tender is not correct because the purchase order itself provides that the consideration paid by the Central Government, after discounting, works out to Rs. 18,18,54,154. In our judgment, the challenge to the impugned order at the behest of the transferees is without any merit and the petition filed by the transferees must fail. Turning to Writ Petition No. 797 of 1994 filed by the transferors, Shri Dada, learned counsel appearing on behalf of the petitioners, at the outset, stated that the transferors are not challenging the validity of the impugned order save and except the action of the authority in arriving at the discounted figure of consideration payable to the transferors. The agreement dated October 24, 1993, provides that the consideration of Rs. 19,25,00,000 was payable as under: Rs. (i) 2,00,00,000 Paid as earnest money (ii) 7,62,50,000 Payable within 21 days of the receipt of NOC from the appropriate authority, Bombay. (iii) 9,62,50,000 Payable against the execution of conveyance within three months of NOC. The authority made adjustments in accordance with the provisions of section 269UF( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hna is not correct. Sub-section (1) of section 269UF of the Act provides that where an order of purchase is made, the Central Government shall pay, by way of consideration for such purchase, an amount equal to the amount of apparent consideration. The expression "apparent consideration" is defined under section 269UA(b) of the Act and the relevant portion reads as follows: " (b) 'apparent consideration',-- (1) in relation to any immovable property in respect of which an agreement for transfer is made, being immovable property of the nature referred to in sub-clause (i) of clause (d), means,-- (i) if the immovable property is to be transferred by way of sale, the consideration for such transfer 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; " The entire controversy re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the discounted value of consideration shall be eight per cent. per annum. The provisions of Chapter XX-C and the rules set out the rate of discounting and the claim of Shri Sethna that the discounting should be made without reference to the date on which the payment is tendered by the Government cannot be accepted. The principle of discounting is well-known and regularly applied in accounting. In plain words, discount means present value of payment due in future. The word "discount" in the Oxford English Dictionary means an abatement or deduction from the amount or from the gross reckoning or value of anything and is used in commerce to mean a deduction made for payment before it is due. Discount is primarily a rebate and such allowance in reduction of the total sum payable. It is subtracted from the amount in consideration of pre-payment before the due date. Stroud's Judicial Dictionary, 4th edition, sets out that the discount has no technical or universal meaning, and perhaps its most common meaning is that it is equivalent to the payment of interest in advance. The principle of discounting is prescribed under Chapter XX-C of the Act. Even though the agreement between the parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, that there is no rationale or logic why the discounting should be made with effect from the date of the agreement when the payment is made only at the expiry of period of one month from the date of purchase order. Shri Dada submits that the authority is entitled to ascertain the discounting value, but calculation should be only for the period between the date when the payment was tendered and the date of the payment which was due under the agreement. In our judgment, the plain reading of the definition of "apparent consideration" under section 269UA of the Act makes it clear that the date of the agreement for transfer is relevant only for the purpose of ascertaining the fair market value by the appropriate authority and has no relation to the date of determination of the discounted value. The discounted value is to be determined with reference to the date of the payment and not with reference to the date of the agreement. Though the appropriate authority is required to determine the fair value with reference to the date of the agreement and for that purpose is certainly entitled to determine what was the actual value which the transferors would have received because of the defer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the vesting in the Central Government on the date of the purchase order and in spite of the fact that the purchase price is not received till the end of the month. On the other hand, the transferor is required to surrender possession within a fortnight from the date of the purchase. We are unable to find any rationale as to why the transferor who is deprived of title as well as possession should also be penalised by discounting the value of the purchase price with reference to the date of purchase. The principle of discounting is based on the doctrine of payment in present of what is due in future. The principle of discounting is not attracted unless the payment is tendered and, consequently, the contention that the discounting should be permitted if not from the date of the agreement, at least from the date of the order of purchase, cannot be accepted. Shri Sethna placed strong reliance upon the decision of the Division Bench of the Gujarat High Court in Pradip Ramanlal Sheth v. Union of India [1993] 204 ITR 866 in support of the submission that the authority is entitled to ascertain the discounted value from the date of the agreement. The Division Bench felt that in the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... na also submitted that the decision of the Division Bench was carried to the Supreme Court and the Supreme Court while refusing special leave observed that the Supreme Court is in agreement with the view of the Division Bench. We are unable to appreciate as to how the observations of the Supreme Court carry the case further when the issue under consideration was not even examined by the Division Bench. In our judgment, the appropriate authority is entitled to determine the discounted value of consideration payable to the transferors but the discounted value is to be determined for the period commencing from the date on which the payment was tendered to the transferors and ending with the date on which the balance consideration was payable under the agreement between the parties. It is not open to the appropriate authority to ascertain the discounted value from the date of the agreement, but the discounted value shall be determined only from the date of tender of the purchase price to the transferors. It is, therefore, necessary to give a direction to the appropriate authority to recalculate the discounted value of the consideration payable to the transferors in accordance with la ..... X X X X Extracts X X X X X X X X Extracts X X X X
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