Madras High Court
Naresh M. Mehta vs Appropriate Authority on 10 January, 1991
Equivalent citations: [1991]188ITR585(MAD)
JUDGMENT Kanakaraj, J.
1. There was a total extent of about 8,563 square feet of land with building at 94, Poes Garderi Street, Cathedral Road, Madras-86, comprised in R. S. No. 1567/32, Block 31, Mylapore Division. Part of the said property comprising of 2,831 square feet of land together with superstructure with a plinth area of 2,400 square feet, had been sold to the petitioner on January 19, 1990, for a consideration of Rs. 9.5 lakhs. It is stated that a wall was constructed to separate the rest of the land, being an extent of 5,732 square feet, with a building over an extent of 3,127 square feet. The division of this property is such that the rest of the land being 5,732 square feet with a building cannot be used by anybody except by the petitioner who is the purchaser of the portion already sold or with his permission. On February 15, 1990, the petitioner entered into an agreement with Mrs. Pushpa Rani, the owner of the property to buy the rest of the land, namely, 5,732 square feet, for a sum of Rs. 32,50,000.
2. In accordance with Section 269UC of the Income-tax Act, a statement in Form No. 37-I was filed on March 9, 1990, before the respondent, seeking a certificate of no-objection for the sale of the said extent of land. On May 17, 1990, the respondent issued a letter rejecting the statement as being defective in material particulars. The petitioner pointed out that he is entitled to purchase the property even if there are defects and filed a fresh statement under Form No. 37-I on July 23, 1990. By the impugned order dated September 19, 1990, the respondent rejected the application stating that the Department is unable to either purchase the property under Section 269UD(1) or issue a certificate of no-objection under Section 269UL. It is stated that the statement is deemed to be returned to the petitioner. Reasons are given in the order mainly pointing out that the division to contrary to municipal laws and the property which is the subject-matter of the statement cannot be independently used or developed having regard to the manner of division. The writ petition is to quash the said order dated September 19, 1990, and to direct the respondent to pass an order granting a certificate of no-objection under Section 269UL of the Income-tax Act.
3. The argument of Mr. K.C. Rajappa, learned counsel for the petitioner, is simple. Under the provisions of law, the respondent has the power either to exercise the right of pre-emptive purchase for the consideration shown in the agreement within the prescribed time under Section 269UD(1) or to grant the no-objection certificate under Section 269UL(3). There is no other power conferred on the respondent. The impugned order stating that the respondent will exercise neither of those powers but simply return the statement as being defective, is without jurisdiction. The further argument is that the reasons given in the impugned order are neither germane nor warranted under Chapter XX-C of the Income-tax Act. The question whether the sub-division of the property is in accordance with law or not is not within the province of the respondent. Referring to the definitions of the words "immovable property" and "transfer" in Section 269UA, it is contended that it is open to the parties to enter into an agreement for sale of a part of or a portion of an immovable property.
4. As against this, the contention of Mrs. Nalini Chidambaram, learned counsel for the respondent, is that if an application is made by a person who does not have a good title to the property under Section 269UC, the appropriate authority can reject the application. It is next contended that the interpretation sought to be placed by the petitioner on Chapter XX-C of the Income-tax Act, that if option is not exercised to purchase the property within the prescribed time, the appropriate authority has no other option except to issue the no-objection certificate under Section 269UL(3) cannot be accepted. Having regard to the purpose of the introduction of Chapter XX-C, namely, to curb large scale circulation of black money by undervaluing the properties, it is argued that the appropriate authority must be deemed to have a discretion to reject a defective application under Section 269UC.
5. I have given my anxious consideration to the rival submissions made at the Bar. What emerges from the facts and arguments in this case is that the rigorous provisions of Chapter XX-C are sought to be legally evaded by the parties by adopting the device of splitting up the property according to the whims and fancies of the transferor and transferee. Mr. K. C. Rajappa, learned counsel for the petitioner, does not make a secret of the attempt of the parties to legally evade the provisions of law.
6. The court must be careful and guarded in accepting such a proposition of law. However much the object and purpose of introducing Chapter XX-C is laudable and in the interest of the nation, the court has to act only within the four corners of law and cannot seek to add to or infer any words or sentences beyond what is enacted by Parliament. But the court can examine the provisions of law and interpret it in such a manner as to subserve the objects and reasons without doing violence to the language employed by the statute.
7. With the above background let us examine the provisions of law. I will refer only to those provisions which are relevant for this case. Section 269UC(1) insists on an agreement in respect of transfer of immovable property of such value exceeding Rs. 10 Sakhs. Section 269UC(2) requires the agreement to be reduced in the form of a statement and Section 269UC(3) read with Rule 48L and Form No. 37-I prescribe the contents of the statement. Section 269UD(1) enables the appropriate authority to make an order for purchase of the property by the Central Government. The proviso is important and it says that no such order can be passed after the expiration of a period of two months from the end of the month in which the statement is received by the appropriate authority. We are next concerned only with Section 269UL. Section 269UL(1) prevents registration of a document relating to such property without a no-objection certificate under Section 269UL(3). Section 269UL(3) says that if the appropriate authority does not make an order under Section 269UD(1), the appropriate authority shall issue a certificate of no-objection referred to in Section 269UL(1).
8. Therefore, it is clear that if an application is made under Section 269UC and if no order is passed within the prescribed time under Section 269UD(1), it automatically follows that a certificate under Section 269UL(3), must be issued. That is precisely what the petitioner is asking for. As a corollary, the impugned order which takes a via media course that the appropriate authority does not either exercise power under Section 269UD(1) but at the same time, says that it will not issue a no-objection certificate as per Section 269UL(3) and the reasons given therein are attacked as without jurisdiction. The question is whether it is appropriate for the authority to go into the validity of the agreement and find out whether it is capable of enforcement, whether the property can be used or developed by any other person other than the transferee under the agreement and such other related questions. So long as there is one purchaser who is willing to purchase the property with defects, if any, in the property or its division into two parts, can the Income-tax Department probe into the question for the purpose of Chapter XX-C of the Income-tax Act ? It appears to me that there is no scope for such examination. Either the appropriate authority should be prepared to exercise the right to purchase with all the defects, shortcomings and limitations or he should issue a certificate of no-objection. I do not think that the respondent was justified in going into the manner of division of the property and whether any purchaser from the Income-tax Department can utilise the property at all. I am fortified in this respect by a decision of the Calcutta High Court reported in Kelvin Jute Co. Ltd. v. Appropriate Authority [1990] 185 ITR 453. No doubt this will give the real estate dealer a handle to circumvent the provisions of law. It is for the Legislature to plug the loophole.
9. However, there is still an area where the court can exercise its power to prevent the citizens from openly and definitely evading the provisions of the Act. It is one thing to avoid the clutches of law by a prudent and intelligent interpretation of law. But it is totally another to defy the provisions of law with impunity as if to say that they will continue to indulge in undervaluing the properties by adopting this method of sub-division of property. Reference may be usefully made to McDowell and Co. Ltd. v. CTO , Union of India v. Playworld Electronics Pvt. Ltd. and Craven (Inspector of Taxes) v. White (Stephen) [1990] 183 ITR 216 (HL). In particular, the following passage in the second of the above cases is relied on by counsel for the respondent (at p. 317 of 184 ITR) :
"While it is true, as observed by Chinnappa Reddy. J. in McDowell and Co. Ltd. v. CTO that it would be too much to expect the Legislature to intervene and take care of every device and scheme to avoid taxation and it is up to the court sometimes to take stock to determine the nature of the new and sophisticated legal devices to avoid tax and to expose the devices for what they really are and to refuse to give judicial benediction, it is necessary to remember, as observed by Lord Reid in Greenberg v. IRC [1971] 47 TC 240 (HL) that one must find out the true nature of the transaction. It is unsafe to make bad laws out of hard facts and one should avoid subverting the rule of law."
10. Therefore, I have given my anxious thoughts to the issues involved in the case and examined the correctness of the last sentence of the impugned order which is as follows :
"The statement is, therefore, rejected and is deemed to be returned to you."
11. Following this trend, I proceed to ask the question, as to whether a defective application cannot be returned on the ground that the prescribed particulars have not been furnished. A statement under Section 269UC can be said to be received by the appropriate authority for the purpose of the proviso under Section 269UD(1), only when it satisfies the requirements of Section 269UC(2). The basis of the statement referred to in Section 269UC(3) is the agreement for transfer of immovable property. If there is no valid agreement, then there cannot be a statement on which the appropriate authority is called upon to act. Sections 2(g) and 2(h) of the Indian Contract Act are as follows :
"Section 2(g). An agreement not enforceable by law is said to be void ;
Section 2(h). An agreement enforceable by law is a contract."
12. Necessarily we go on to Sections 23 and 24 of the Contract Act which are as follows :
"Section 23. The consideration or object of an agreement, is lawful, unless-
it is forbidden by law ; or is of such a nature that, if permitted, it would defeat the provisions of any law ; or is fraudulent ; or involves or implies injury to the person or property of another ; or the court regards it as immoral, or opposed to public policy.
In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void.
Section 24. If any part of a single consideration for one or more objects, or any one or any part of any one of several considerations for a single object, is unlawful, the agreement is void."
13. I gave opportunity to both counsel to address arguments on this aspect of the case. Mr. K.C. Rajappa, learned counsel for the petitioner, says that neither under the Madras City Municipal Corporation Act nor under the Development Control Rules of the Town and Country Planning Act, is there a prohibition, against the sale of a property privately sub-divided without sanction from the appropriate authorities. Reference is made to Section 234 of the former Act and Rule 19 of the latter Rules. The only inhibition is against the grant of a building permit. The authority may refuse permission on the ground that the layout is not authorised or the sub-division is not authorised. But we are now at a much earlier stage of the agreement. There is no rule or law which prohibits such a transfer of property. The reference to Rule 17 by Mrs. Nalini Chidambaram for the respondents does not help the Department because that also relates to the stage of building construction. Mr. K.C. Rajappa also contends that it is well open to the parties to sell a property in two or three parts so long as there is no law which prohibits such division and sale. He REFERS TO GIFTS made in two financial years to avoid the incidence of tax. I am inclined to accept the argument advanced on behalf of the petitioner. There appears to be a gaping loophole in Chapter XX-C, which it is for the lawmakers to rectify, if they so choose.
14. The last contention of the respondent is that in any event this court exercising discretionary rights under Article 226 of the Constitution should not come to the help of the petitioner, who is trying to openly circumvent Chapter XX-C of the Income-tax Act. This again flows from the earlier arguments whether it is prudent planning or whether it is conscious defiance of law. I am inclined to hold that the law of pre-emption is bordering on a law of acquisition of property and must be strictly construed. I cannot say that the petitioner is acting against public policy when he is clearly acting within the four corners of law. I, therefore, reject this objection.
15. In fine, the writ petition is allowed as prayed for. Rule nisi is made absolute. There will, however, be no order as to costs.