Gujarat High Court
Gangadhar Alias Tatya Shed Bhawanrao vs Appropriate Authority & Ors. on 30 March, 1996
Equivalent citations: [1996]220ITR579(GUJ)
Author: R.M. Doshit
Bench: R.M. Doshit
JUDGMENT B.C. Patel, J.
1. Petitioner, one of the co-owners of the property situated at Pune City, being interested person in the property, has challenged in this petition the decision rendered on 24th Feb., 1995 by the Appropriate Authority, Ahmedabad, exercising the powers under Chapter XX-C of the IT Act, 1961 (hereinafter referred to as the Act) for pre-emptive purchase of the property under s. 269UD(1) of the Act.
2. It appears from the contentions raised in the petition that the petitioner and respondent No. 2 are co-owners while respondent No. 3 is a developer who entered into a development agreement only with the respondent No. 2 on 16th Nov., 1994, vide Annexure 'A'. The said agreement was submitted before the Appropriate Authority along with Form No. 37-I of the Act. The Appropriate Authority opted to purchase the property and sought possession thereof. The respondent No. 2 was claiming that he is the absolute owner of the property in question which was owned by the late Bhavanarao Panth and one of the common descendants of the said Bhavanarao Panth raised dispute and a suit for declaration and partition was filed, being Civil Suit No. 281 of 1973 and First Appeal No. 116/87 arising from the decree passed in the said suit is pending before the High Court at Bombay. It also transpires that before the Bombay High Court, vide order dt. 26th Feb., 1987, Annexure 'C', the respondent No. 2 has given an undertaking not to dispose of the property or to create any third party interest. However, respondent No. 2 being interested in seeing that the petitioner suffers, entered into a development agreement with respondent No. 3 and entrusted upon the respondent No. 3 the development rights in respect of the property in question together (with) all other incidental rights thereof.
3. Respondent No. 2 by executing an agreement on 16th Nov., 1994 represented that he is the sole owner of the property, without admitting or acknowledging the share of the petitioner. It is pointed out that inspite of the proceedings pending before the Court and a declaration filed before the High Court of Judicature at Bombay, respondent No. 2 has entered into an agreement. The petitioner has contended that there is a tenancy right in respect of the portion of the said property. A long lease of the plot is executed on 23rd Feb., 1948, Annexure 'D' to the petition, which is registered in the office of the Sub-Registrar and the petitioner is in actual and physical possession of the said plot. The petitioner is also claiming that he is a bona fide tenant of the property and without referring to the petitioner's interest in the said property, the property could not have been agreed to be sold.
4. It is contended by the petitioner that in view of the agreement executed by and in between respondents No. 2 and 3, respondent No. 1, under Chapter XX-C of the Act scrutinised the form and the respondent No. 1 held that the consideration shown therein is less than the value of the property, and passed an order on 24th Feb., 1996 for compulsory purchase under s. 269UD of the Act, which is followed by another order dt. 24th Feb., 1995 under s. 269UE(2) of the Act, Annexure 'E', requiring the second respondent to hand over the possession of the whole property including the property in possession of the petitioner.
5. Learned advocate for the petitioner has raised the following four contentions :
1. The Appropriate Authority has not arrived at a finding as to what is the market value of the property under consideration as on the date of the agreement.
2. The Appropriate Authority has not arrived at a finding that the impugned transaction was with a view to evade tax.
3. The order is passed without hearing the petitioner, and, therefore, is in violation of the principles of natural justice.
4. No finding is recorded by the Appropriate Authority with regard to the effect that the undertaking given by the transferor to the Bombay High Court that he would not transfer the property and thus by an indirect method, the authorities have permitted the transferor to transfer the property and that the aspect of the pendency of the litigation is not considered in proper perspective by the said authority.
6. Mr. Soparkar has taken us through the agreement, annexure 'A' to the petition. Reading the same, it is clear that the developer shall be entitled to develop the properties to the extent of available FSI relating to construction of the building. For the purpose of 37-I application, cost of the construction taken at Rs. 600 per sq. ft. for 86,000 sq. ft. is valued at Rs. 5,16,000 (it ought to be Rs. 5,16,00,000 being 86,000 x 600). In the order, the Appropriate Authority observed that in the agreement it has been stated that there would be construction on the retainable FSI to the extent of 86,000 sq. ft. and it is further stipulated that another half of the FSI i.e. 86,000 sq. ft. would be available to the developer for construction and disposable at the discretion of the developer. It further appears that the developer will construct 86,000 sq. ft. and will give to the owner of the land as part of the consideration. Thus, the authority has taken the entire FSI at 1,72,000 sq. ft. Observing these, the Appropriate Authority in its order has held that :
"Assuming that construction would be '1' class with fairly good specifications, the cost, considering the average cost of construction in Pune, would not go beyond Rs. 400 per sq. ft. We would, therefore, take the rate of Rs. 400 per sq. ft. as the fair cost of construction for the entire FSI of 1,72,000 sq. ft. and since he has the right to dispose of the constructed portion of sq. ft. in his discretion, he would make a profit to the extent of Rs. 5.44 crores (assuming average selling rate of commercial and residential construction at Rs. 1,200 per sq. ft.).
The Appropriate Authority further observed that there is no cash payment involved and constructed part is to be given after completion of the building, i.e., the amount would be spent over a course of three years. Considering all these aspects, the Appropriate Authority held that the rate of Rs. 4,383 per sq. mtr. FSI is much on the lower side and is understated by more than 15%.
7. In the entire order, we do not find market value of the property under consideration. The Appropriate Authority has proceeded under certain assumptions. There is nothing to show on what basis the Appropriate Authority has considered the construction at Rs. 400 per sq. ft. which would be for class '1' with fairly good specification. Again, in the absence of specification, this is considered. Mr. Soparkar rightly submitted that the authorities have assumed many things to come to the conclusion. It concluded that the value is understated. As there is no finding about the market value of the PUC on the date of the agreement, the order passed by the Appropriate Authority is not at all tenable.
8. In the order, there is no finding to the effect that the impugned transaction is with a view to evade tax. Mr. Soparkar, learned advocate submitted that in the case of Sarwarben Temas Khambata & Ors. vs. Appropriate Authority (1995) 216 ITR 850 (Guj), this Court has held that in order to draw an inference that of undervaluation, it is necessary to determine first the fair market value of the property in question in the light of the attending circumstances. Without doing so, it is not only difficult, but impossible to say that the apparent consideration is lower than the fair market value by 15% or more. The figure of fair market value cannot be left to conjectures and surmises and to justify the order under s. 269UD(1) of the Act, the Appropriate Authority must come to a definite conclusion that the undervaluation is by more than 15 percent of the fair market value. In the aforesaid case, this Court held that the order under s. 269UD(1) of the Act passed by the Appropriate Authority was illegal and without application of mind to the relevant facts, and therefore, quashed the order. Mr. Soparkar submitted that in view of the aforesaid decision, it is not permissible to draw inferences and the Appropriate Authority must determine first the fair market value of the property in question in the light of all attending circumstances. In the instant case, the Appropriate Authority has not arrived at the fair market value, and therefore, the order is required to be quashed.
9. Mr. Soparkar drew our attention to another decision rendered by this Court in case of Krishnakumar Agarwal vs. Appropriate Authority reported in (1996) 217 ITR 274 (Guj) wherein the Court reiterated the following findings of this Court in the case of Anagram Finance Ltd. vs. Appropriate Authority (1996) 217 ITR 22 (Guj) :
"A combined reading of s. 269UD(1A) and (1B) of the Act leaves no room for doubt that it is a question of objective decision making process by taking into consideration all the relevant materials which have come before the hearing authority and considering the rival aspects of the matter. Moreover, the requirement of law is to specify the grounds on which the order of pre-emptive purchase is made. That obligation does not stop by merely rejecting the submissions made before it. The rejection of submissions made by the vendors or the transferer or the persons interested in the property, does not lead to consequence that grounds for making pre-emptive purchase exists. The sine qua non is that the reasons must exist on the material placed before it, for supporting the action taken for pre-emptive purchase under s. 269UD of the Act. The order clearly falls short of this requirement."
10. Reading these two decisions together, Mr. Shelat, learned counsel for the Revenue was not in a position to say that the order passed by the Authority is in accordance with law, apart from the fact that the order is passed without hearing the petitioner.
11. Mr. Soparkar submitted that other questions need not be considered in view of our above findings.
12. In the result, this petition is allowed. The impugned order passed under s. 269UD(1), at Annexure 'B' to the petition, is hereby quashed and set aside. The respondents are directed to issue No Objection Certificate within eight weeks from the date of receipt of the writ.
13. Rule made absolute accordingly, with no order as to costs.