TMI Blog1983 (1) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... erty was let some time in November, 1966, to the Union Bank of India, Sayajigunj Branch, Baroda, on a monthly rent of Rs. 1,600, exclusive of municipal taxes. A portion of the ground floor by the side of the staircase was given on rent to Shri Manubhai S. Rajput some time in April, 1968, on a monthly rent of Rs. 125 for a pan shop. The upper floors were let to the partners of Satkar Hotel and Restaurant under two separate rent-notes of March, 1968, in respect of the first floor and June, 1970, in respect of the second and the third floors. The rent in respect of the first floor was fixed at Rs. 1,500 per month exclusive of municipal taxes. The rent in respect of the second and the third floors was fixed at Rs. 2,500 per month, exclusive of municipal taxes. The restaurant has an air-conditioned hall with capacity to accommodate 32 persons and an additional 112 persons in the remaining portion. The hotel on the second and the third floors has the capacity to accommodate 36 beds. The partners of the said concern claim to have invested a sum of Rs. 1,40,000 in furnishing and equipping the premises for the purpose of running a hotel-cum-restaurant. According to them their monthly wage b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the property exceeded the apparent consideration by more than 15 per cent. of such apparent consideration. He opined that the consideration mentioned in the deed of conveyance had not been truly stated in the said instrument with the object of (a) facilitating the reduction or evasion of the liability of the transferor to pay tax under the Act in respect of the income arising from the transfer; and/or (b) facilitating the concealment of any income or any moneys or other assets which have not been or which ought to be disclosed by the transferee for the purposes of the Act or the Indian I.T. Act, 1922, or the W.T. Act, 1957. On his having reason to so believe the third respondent initiated proceedings for the acquisition of the property in question under Chap. XX-A of the Act. A notice under sub-s. (1) of s. 269D of the Act was published in the Government of India Gazette and was also served on the transferors, the transferees as well as the petitioners of these three petitions in their capacity as the occupants of the different parts of the said property. Annexure " C " to the petitions is a copy of the said notice dated August 31, 1974, printed on page 6637 of the Gazette of India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e bill incorporating the changes suggested by the Committee was presented to Parliament and was enacted as the Taxation Laws (Amendment) Act, 1972. By virtue of the enactment of the said Act, Chap. XX-A consisting of s. 269A to a. 269S came to be inserted in the Act with effect from November 15, 1972. The Objects and Reasons for the enactment of the Taxation Laws (Amendment) Act. 1972, Were: (i) to counter evasion of tax through understatement of the value of immovable property in sale deeds and also to check the circulation of black money by empowering the Central Government to acquire immovable properties, including agricultural lands, at prices which correspond to those recorded in the sale deeds, and (ii) to improve the present arrangement for valuation for the purposes of income-tax, wealth-tax and gift-tax laws of buildings and lands and other assets, by augmenting the set-up of the official valuation machinery and enhancing its powers on the one, hand, and by bringing about better regulation and discipline over non-official valuers on the other. Bearing in mind these objects, particularly the first one, we may now proceed to refer to the relevant provisions in the newly i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) the property has been transferred for an apparent consideration which is less than the fair market value of the property ; (iii) the fair market value of the property exceeds the apparent consideration therefor by more than fifteen per cent. of such apparent consideration ; and (iv) the consideration for the transfer of the property as agreed to between the parties has not been truly stated in the instrument of transfer with the object of either (a) facilitating the reduction or evasion of the liability of the transferor to pay tax in respect of any income (whether by way of capital gains or otherwise) arising from the transfer ; or (b) facilitating the concealment of any income or any moneys or other assets which have not been or which ought to be disclosed by the transferee for the purposes of the Act, or the Indian Income-tax Act, 1922, or the Wealth-tax Act, 1957. Before initiating such proceedings, the competent authority must record his reasons for doing so. Sub-s. (2) of s. 269C provides that where the fair market value of such property exceeds the apparent consideration therefor by more than twenty-five per cent. of such apparent consideration, it shall b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice of hearing are entitled to be heard in person or through an authorised representative. The section contemplates that the competent authority will, after hearing the objections, make a written order stating the reasons for his decision with respect to each objection. If after hearing the objections the competent authority is satisfied that the immovable property is of fair market value exceeding twenty-five thousand rupees, that such property has been transferred for an apparent consideration which is less than the fair market value and that the consideration for such transfer has not been truly stated in the instrument of transfer with such object as is referred to in s. 269C, he may make an order for the acquisition of the property after obtaining the approval of the Commissioner of Income-tax specified in this behalf by the Board. If the competent authority is not satisfied on any of the points stated above, he must declare that the Property will not be acquired under the provisions of the said Chapter. If the competent authority decides to acquire the property, the transferor or the transferee or any other person who has objected to the acquisition may file an appeal under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment between the competent authority and the persons entitled to compensation within fifteen days from the date of vesting and in default of such agreement as the court may, on a reference, determine. Sub-s (4) of that section next provides that the amount by which the compensation payable under sub-s. (1) in respect of any immovable property acquired falls short of the amount which would have been payable as compensation if that property had been acquired under the Land Acquisition Act, after the issue of a preliminary notice under s. 4 of that Act on the date of publication in the Official Gazette of the notice under sub-s. (1) of s. 269D, shall be deemed to have been realised by the Central Govt. as a penalty from the transferee for being a party to transfer with such object as is referred to in cl. (a) or cl. (b) of sub-s. (1) of s. 269C, and no penalty shall thereafter be levied for any assessment year on the transferee under cl. (iii) of sub-s. (1) of s. 271 of the Act or under cl. (iii) of sub-s. (1) of s. 18 of the W.T. Act, 1957. Section 269K provides that the amount of compensation payable under s. 269J shall be tendered to the person or persons entitled thereto, as soon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) the fair market value exceeds the apparent consideration by more than 15 per cent. of the apparent consideration ; and (c) the consideration for such transfer has not been truly stated in the instrument of transfer with the object of facilitating the reduction or evasion of liability of the transferor to pay tax in respect of the income arising from the transfer or facilitating the concealment of any income or moneys or other assets which has not been or which ought to be disclosed by the transferee for the purposes of the Act, the Indian I.T. Act, 1922, or the W.T. Act, 1957, he may after obtaining the approval of the Commissioner make an order for the acquisition of the said property. This decision is subject to appeal to the Appellate Tribunal and the decision of the Tribunal is subject to appeal to the High Court on a point of law. After the decision to acquire the property becomes final, the competent authority is empowered to issue a notice calling upon the occupant of the said property to surrender or deliver possession of the premises in his occupation to him or his delegate within thirty days of the receipt of the notice. If the occupant fails to comply with the notice, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... occupation of the acquired property, a different procedure for eviction of tenants of such property, from the normal procedure under the Bombay Rent Act, would be resorted to in contravention of art. 14 of the Constitution. (7) If it is held that Chap. XX-A permits acquisition of tenancy rights and eviction of tenants, the said provisions would encroach upon Entry 18 of List If of the Seventh Schedule to the Constitution and would, therefore, be beyond the competence of Parliament to enact the said law. (8) If it is held that Ch. XX-A permits acquisition of tenancy rights, the said provisions would be liable to be struck down on the ground that they suffer from the vice of excessive delegation without proper guidelines. (9) Chapter XX-A can either be a law relating to acquisition under art. 31(2) or a law relating to tax or penalty under art. 31(5) of the Constitution. If it is a law relating to acquisition, compensation cannot be illusory and if it is a law relating to taxation or penalty, it must not infringe art. 19(1)(f) of the Constitution since the protection of art. 31(2B) will not be available to such law. Viewed in any manner, therefore, if Chap. XX-A permits acq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... competent authority knows to be interested in the property." A plain reading of this sub-section makes it clear that the law requires the person in actual occupation of the property, if the transferee is not in occupation thereof, to be served with an individual notice to enable him to file objections under s. 269E of the Act against the proposed acquisition. Thus, once the competent authority has reason to believe that the jurisdictional facts set out in s. 269C exist, he may initiate proceedings for the acquisition of the property by notice to that effect published in the Official Gazette. In addition to this general notice published in the Official Gazette, the competent authority is enjoined with the duty to serve individual notices on the transferor, the transferee and the person in occupation of the property, if the transferee is not in occupation thereof, as well as on every person known to be interested in the property. If it was not the intention of Parliament to acquire tenancy rights or rights of persons in occupation of the property, there was no need to provide for the service of individual notices on such occupant or occupants. Section 269E further provides for pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the receipt of the notice. If such occupant refuses or fails to comply with the notice, the competent authority or his delegate is empowered to dispossess him, if necessary by the use of force including seeking of assistance of a police officer. After the possession of the immovable property is thus obtained from the occupant or occupants, the law declares that " the property shall vest absolutely in the Central Government free from all encumbrances ". The language of this provision is similar to s. 16 of the Land Acquisition Act which says that after the Collector has made his award under s. 11, he may take possession of the acquired land, which shall thereupon vest absolutely in the Government free from all encumbrances. These provisions indicate beyond any manner of doubt that once the immovable property in question is acquired under the provisions of Chap. XX-A of the Act, the interest of the occupant in the said property, if there be a person other than the transferee in occupation thereof, would also be acquired and would stand extinguished on the property vesting absolutely in the Central Government free from all encumbrances. Unlike the provisions in the Land Acquis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " ... the decision of the competent authority to acquire would expose not only the transferee to the consequences of being deprived of the property but also the transferor to the liability of capital gains ... and, in given case, may affect also the persons interested in the said Property having tenancy rights or any encumbrance thereon. " (Emphasis supplied.) It is, therefore, difficult to accede to the contention that the Act does not provide for payment of compensation to the occupants of the acquired property. There is, therefore, no substance in the contention that tenancy rights are not contemplated to be the subject-matter of acquisition under Chapter XX-A of the Act. In order to escape from this inevitable conclusion, counsel for the petitioners made bold to contend that tenancy rights not being an encumbrance would not vest in the Central Government under sub-s. (4) of s. 269.1 of the Act. In support of this contention counsel invited our attention to the following observations in District Bank Limited v. Webb [1958] 1 All ER 126 (p. 149 of [1958] 1 WLR). " In the first place, I am not satisfied that a lease was an incumbrance to these parties. It is true that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jus in re aliena were devised by the commentators on the civil law, and are not to be found in the original source. Their significance is clear. The owner of a chattel has jus in re propria right over his own property; the pledgee or other encumbrancer of it has jus in re aliena-a right over the property of someone else. There is nothing to prevent one encumbrance from being itself subject to another. Thus a tenant may sublet; that is to say, he may grant lease of his lease, and so confer upon the sub-lessee a jus in re aliena of which the immediate subject-matter is itself merely another right of the same quality. The right of the tenant in such a case is dominant with regard to that of the landowner, but servient with regard to that of the sub-lessee " Proceeding further, on page 243, the learned author further observes : " The chief classes of encumbrances are four in number, namely, Leases, Servitudes, Securities, and Trusts. A lease is the encumbrance of property vested in one man by a right to the possession and use of it vested in another." These observations leave no doubt in our minds that the expression " encumbrance " in its wider connotation takes within its fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection I 1, he may take possession of the land which shall thereupon vest absolutely in the Government free from all encumbrances." In Collector of Bombay v. Nusservanji Rattanji Mistri, AIR 1955 SC 298, the Supreme Court, after examining the scheme of the statute, which is similar to Chap. XX-A of the Act, explained the meaning of the expression " encumbrance " in the following words (p. 305) : "Under section 16, when the Collector makes an award, he may take possession of the land which shall thereupon vest absolutely in the Government free from all encumbrances The word 'encumbrance' in this section can only mean interests in respect of which a compensation was made under section 11, or could have been claimed. " While explaining the term " interest ", their Lordships observed as under (p. 305): " In its normal acceptation, 'interest' means one or more of those rights which go to make up 'ownership'. It will include, for example, mortgage, lease, charge, easement and the like..." These observations, therefore, make it crystal clear that the vesting in the government of the acquired land is absolute and free from all encumbrances, such as, mortgage, lease, charge, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under (para. 2. 10): " Black money and tax evasion, which go hand in hand, have also the effect of seriously undermining the equity concept of taxation and warping its progressiveness. Together, they throw a greater burden on the honest taxpayer and lead to economic inequality and concentration of wealth in the hands of the unscrupulous few in the country. In addition, since black money is in a way 'cheap' money too, because it has not suffered reduction by way of taxation, there is a natural tendency among those who possess it to use it for lavish expenditure and conspicuous consumption. The existence of black money has, to a large extent, been responsible for the inflationary pressures, shortages, rise in prices and economically unhealthy speculation in commodities. Part of black money, which is not utilised in lavish consumption, goes into the purchase of bullion, precious stones and other valuable articles. This, in turn, encourages large-scale smuggling of gold, etc., into the country, causing considerable strain on its already tight balance of payments position. Further, by keeping their ill-gotten gains outside the country as deposits in foreign banks or with their own a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viewed in this background. Before we proceed to deal with the constitutional challenge to the provisions of Chap. XX-A of the Act, it would be advantageous to refer to the relevant entries in the Seventh Schedule to which our attention was drawn by the learned counsel for the petitioners. Entry 82 in List (Union List) reads " Taxes on income other than agricultural income Entry 18 in List II (State List) reads as under : " Land, that is to say, rights in or over land, land tenures including the relation of landlord and tenant, the collection of rents; transfer and alienation of agricultural land ; land improvement and agricultural loans; colonisation. Entry 42 in List III (Concurrent List) provides for the acquisition and requisitioning of property. It was contended that if the court takes the view that the newly added Chap. XX-A also envisages acquisition of tenancy rights, its constitutionality would be open to challenge on the grounds: (i) it violates arts. 19(1)(f) and 31(2) as they then stood ; (ii) it transgresses the field occupied by Entry 18 of List II ; (iii) it is ultra vires art. 14 inasmuch as the protection accorded to tenants against eviction by the Bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 14, article 19 or article 31 ; and no law containing a declaration that it is for giving effect to such policy shall be called in question in any court on the ground that it does not give effect to such policy...." The latter part of this article was declared invalid by the Supreme Court in Keshavananda Bharati v. State of Kerala, AIR 1973 SC 1461. Article 39, which forms part of the Directive Principles of State Policy, gives mandate to the State to direct its policy towards securing, inter alia : " (b) that the ownership and control of the material resources of the community are so distributed as best to subserve the common good; and (c) that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment." Mr. Raval, the learned counsel for the petitioners, submitted that the provisions in Chap. XX-A, in so far as they seek to deprive sitting tenants of their right to occupy the demised property, fall within the scope of Entry 18 of List II inasmuch as the said provisions seek to encroach upon the relationship of landlord and tenant in respect of the acquired property. We find it difficult to accept ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, introduced for securing the twin objectives of curbing generation of black money and evasion of tax by understating the value of the property in the instrument of transfer. The scheme of Chap. XX-A is essentially to penalise the tax-dodgers who seek to evade payment of tax by resorting to the dubious method of undervaluing the property transferred under the instrument of transfer. The said Chapter was introduced in the Act to cure the economy of the State "by operating upon the cancerous growth which is destroying every live tissue and fibre of the nation by curbing black money and tax evasion which have the pernicious effect of 'seriously undermining the equity concept of taxation and warping its progressiveness'. " That is why Division Bench of this court in CIT v. Vimlaben Bhagwandas Patel, [1979] 118 ITR 134, concluded that the nature of the power conferred by the said provisions was penal and the proceedings were quasi-criminal. That is because sub-s. (4) of s. 269J seeks to forfeit the difference between the market value of, the property at the date of publication of notice under s. 269D(1) and the compensation payable under s. 269J(1) to the Government by way of penalt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Before the repeal of art. 19(1)(f) and art. 31 by the Forty-fourth Amendment Act, 1978, the right to acquire, hold and dispose of property was a fundamental right conferred on every citizen of this country. The acquisition of private property could be effected by law which provided for payment of compensation. The obligation to pay just compensation was considered to be an incident of the power of compulsory acquisition both under common law as well as under eminent domain. Our Constitution, as it was first enacted raised this obligation to the status of a fundamental right by forbidding acquisition of property even for a public purpose except on payment of compensation: (vide article 31(2) of the Constitution). By the Twenty-fifth Amendment which amended art. 31(2) with effect from 20th April, 1972, this concept regarding payment of compensation under went a radical change. Firstly, the word " compensation " was substituted by the word " amount " and the question of adequacy of the amount payable for acquisition Of property was made not justiciable. Secondly, by the introduction of cl. (2B) in art. 31 it was provided that the law enacted in accordance with the requirements of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch law. As pointed out by the Supreme Court in State of Karnataka v. Ranganatha Reddy, AIR 1978 SC 215, the overwhelming view of the majority of judges in Keshavananda Bharati's case, AIR 1973 SC 1461, was that the amount payable for the acquired property, either fixed by the Legislature or determined on the basis of principles engrafted in the law of acquisition, cannot be wholly arbitrary or illusory, notwithstanding the amendment of art. 31(2) by the Twenty-fifth Amendment. (The effect of the valid part of art. 3 IC inserted by the Twenty-fifth Amendment was, however, not taken into consideration while making the aforesaid observation). Two questions, therefore, arise for consideration, namely (i) does the newly added Chapter in the Act seek to compulsorily acquire immovable property for a public purpose; and (ii) whether the amount payable for the acquired property fixed by the impugned legislation is illusory as contended by the learned counsel for the petitioners. We need not reiterate the reasons which impelled the Wanchoo Committee to make the recommendations it made in its interim report submitted to the Government some time in December, 1970. It was on the basis of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ued under s. 4 of the Land Acquisition Act, one part thereof as determined by sub-s. (1) of s. 269J is directed to be paid as compensation and the residue is directed by sub-s. (4) to be forfeited as penalty. It is true that so far as the latter part, that is, the residue is concerned, it is like paying by one hand and recovering by the other. If the residue was not realised as penalty in this manner, the transferee would have to face penalty proceedings under s. 271 of the Act and s. 18 of the W.T. Act. Since there is an automatic realisation of penalty under the scheme of Chap. XX-A, the law grants immunity to the transferee so that he may not be taxed twice. The transferor will still have to face the music under s. 52 of the Act. Viewed in this perspective it is difficult to say that the compensation payable under Chap. XX-A is illusory. Even if this approach is not correct and sub-s. (1) of s. 269J is read in isolation-as was done by the learned counsel for the petitioners, it is difficult to say that the compensation determined by the statute is illusory. We are, therefore, of the opinion that even if the provisions relating to acquisition of property in Chap. XX-A pertain to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the immovable property in question is obtained, under sub-s. (4) of that section, the property vests absolutely in the Central Govt. free from all encumbrances. We have already pointed out earlier that the words " free from all encumbrances " suggest that all interests in the property must stand extinguished so that the vesting in the Central Govt. is complete and absolute. Sub-s. (1) of s. 269J states the amount to be paid by way of compensation for the acquired property. The scheme is very akin to the scheme of the Land Acquisition Act. It is, therefore, difficult to agree with the submission that the Act does not provide for payment of compensation to occupants of the acquired property. There is nothing in the provisions of Chap. XX-A to conclude that the law does not envisage payment of compensation from the total amount stipulated in sub-s. (1) of s. 269J to persons interested in the property other than the transferee. Since all interests in the property are sought to be extinguished, every person having some right or interest in the property is entitled to compensation for the extinction or acquisition of that right. Therefore, the submission that the newly added. Chapter do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns is sought to be expropriated, the provisions of Chap. XX-A are beyond the legislative competence of Parliament. Once the interest of a tenant is compulsorily acquired, his interest in the subject matter of acquisition comes to an end and he is liable to be evicted from the property. He is then entitled to compensation from the total amount stipulated in sub-s. (1) of s. 269J of the Act. Once his interest is extinguished, he has no interest as a tenant whose interest has not been compulsorily acquired. The Land Acquisition Act also provides for acquisition of all interests and vesting of the property in Government free from encumbrances. Under that Act also once the interest of the tenants in the acquired property is extinguished, he is liable to be evicted from the said property and his only right is to claim compensation. Even under the provisions of the Bombay Rent Act tenants of property belonging to the State Government stand on a different footing and their eviction is not regulated by the provisions of the Rent Act. Therefore, merely because they are sought to be evicted under the scheme of Chap. XX-A on their interest in the property having been acquired, it cannot be s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndividual interests have to be sacrificed. In such circumstances, if innocent persons have to suffer that cannot be helped. The provisions of Chap. XX-A outline the requirements for the exercise of power of acquisition by the competent authority. As pointed out earlier, if those jurisdictional facts do not exist, the power cannot be exercised. Therefore, for the exercise of power of acquisition, guidelines have been indicated with sufficient clarity, but it was said that under s. 269-1, after the order for acquisition becomes final, the competent authority " may " order the person in possession to surrender or deliver possession of the acquired property, which shows that unfettered discretion is conferred on the competent authority to order eviction. We do not think that the use of the word " may " leaves any discretion in the competent authority to order eviction. It is not a matter left to the sweet will of the competent authority but the legislature has advisedly used the word " may " to cover situations where it may not be necessary to issue notice, for example, in the case of an occupant who voluntarily hands over possession before notice is issued. If, however, the property i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re presently situated in Nazarbaug Palace building and, therefore, the question of vacating the property does not arise. Except making certain allegations in para. II (P) of the petition, which have been emphatically denied, the petitioners have not placed any material on record in support thereof. We must, therefore, reject this contention as baseless. These were the only submissions urged before us by the learned counsel for the petitioners and as we do not see an merit in any of the grounds of challenge these three petitions must be dismissed and the rule in each of them must be discharged with costs. The interim relief granted in these three petitions will stand vacated subject to the direction given hereunder. Before we part, we must state that at the time of admission of these three petitions, Mr. Shah who represented the petitioners stated before the court that the did not press the challenge based on arts. 14 and 19 of the Constitution. In view of this statement, the petitioners were stopped from contending that the impugned action was ultra vires arts. 14 and 19 of the Constitution. However, we have not brushed aside the contentions based on the said two articles on th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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