Madhya Pradesh High Court
Himmatlal Vadalia And Ors. vs Union Of India (Uoi) And Ors. on 5 March, 1998
Equivalent citations: AIR1998MP330, [1998]232ITR854(MP)
Author: Shambhoo Singh
Bench: Shambhoo Singh
JUDGMENT B.A. Khan, J.
1. Land admeasuring 33,333 sq. ft situate at Yeshwant Nivwas Road, Indore, is the bone of contention. It was purchased by the appellant for consideration amount of Rs. 90 lakhs, but was compulsorily purchased by the appropriate authority in exercise of power under Section 269UD of the Income-tax Act,
2. The appellants were first put on notice and informed that the apparent sale rate shown by them worked out at Rs. 270 per sq. ft. as against Rs. 375 in an allied sale transaction by the National Textile Corporation concluded way back in October, 1991. They were also told that their sale rate was far less than the minimum rate of Rs. 350 per sq. ft. prescribed under the Collector's guidelines for 1994-95.
3. The appellants replied to the notice explaining that the disputed land was under encroachment and the land sold by the National Textile Corporation was superior and that the Collector's guidelines indicated the average sale rate and not the minimum rate. Their plea, however, did not find favour culminating in the impugned order dated November 50, 1994, directing compulsory purchase of the disputed land and the return of consideration amount to them.
4. The appellants assailed this in W. P. No. 44 of 1995 in Himatlal Vadaliya v. Union of India [1997] 227 ITR 406 (MP), but failed to obtain any stay order. Their petition was reserved for judgment on February 23, 1996, and meanwhile the authority took steps for auction sale of the land. They moved the writ court for stay but failed. The court, however, directed that any settlement made during the pendency of the petition would be subject to its decision. The auction was eventually held on February 22, 1996, when private respondent No. 6 offered the highest price of Rs. 205 lakhs for the land and deposited the earnest money of Rs. 36 lakhs also. While all this was going on the appellant's petition was dismissed on May 9, 1996, on the touchstone of the auction sale price which showed 150 per cent, increase than the apparent value. While doing so, the writ court touched some ancillary pleas but declined to examine the merits of the issues involved.
5. The appellants naturally felt aggrieved and took this appeal to question the writ court judgment on the short plea that the court had fallen into error by wholly relying upon the subsequent event of auction sale and by sidetracking the issues raised in their petition. Acceptance of their plea should have ordinarily warranted remand of the matter but for the insistence of the Revenue counsel, Shri P.K. Saxena, who pressed for the disposal of the whole matter on merits in this appeal. That is how we are seized of the matter.
6. Before adverting to the rival contentions, it must be pointed out at the very outset that the writ court had unjustifiably given a short shrift to the appellant's case by making the subsequent event of auction sale the basis for its rejection. Needless to emphasise, the writ petition deserved treatment on its own merit. It could not be rejected by reference to the subsequent event of auction sale and in disregard of the merits of the issues involved. All auction sales are not the true index and cannot be safely relied upon to determine the fair market value. Such a sale may be one of the factors but not the sole basis to support a charge of undervaluation. Be that as it may, the appellant's case is that the impugned order of compulsory purchase was vitiated as the appropriate authority had failed to determine the fair market value of the disputed land and had disregarded the sale instances cited by them on an untenable and irrelevant ground besides misreading the Collector's guidelines which hinted at the average price of Rs. 350 per sq. ft and not the minimum price. Their counsel, Shri Bagadia, supported this by relying on Vimal Agarwal v. Appropriate Authority [1994] 210 ITR 16 (Bom), Ashok Kumar Sood v. Dy CIT [1995] 216 ITR 193 (All), Anagram Finance Ltd. v. Appropriate Authority [1996] 217 ITR 22 (Guj) and Usha Kulkarni v. Union of India [1996] 219 ITR 190 (Guj).
7. The Revenue counsel, Shri Saxena, on the other hand justified the impugned action in the light of auction sale price showing an upswing of 150 per cent, which by itself furnished proof enough of the correctness of the authority's decision. He claimed that the auction represented the best judgment by the authority and was taken on due deliberation and application of mind. It could not be faulted as it had not resulted in any prejudice to the appellants who had received their money back. He referred to the Supreme Court decision in C.B. Gautam's case [1993] 199 ITR 530 for proper appreciation of the ambit and scope of Section 269UD.
8. Shri Chaphekar representing private respondent No. 6 repelled the suggestion that the impugned action was in any way arbitrary or suffered from any non-application of mind. He argued that the writ court was not sitting as appellate authority to scrutinise the order and could not substitute its view for that of the authority. All it could examine was whether the authority had applied its mind and observed the principles of natural justice. The impugned order satisfied this test as it was a reasoned order though some of the reasons were not happily put forth.
9. It is in this scenario that we are called upon to test the validity of the controversial order and all that falls for consideration is whether the authority had acted in reasonable fairness and within its jurisdictional boundaries. Needless to point out that Chapter XX-C was incorporated in the Income-tax Act to deal with the menace of tax evasion in the backdrop of complaints that parties were undervaluing transactions by recording lower consideration amount than actually paid or promised to be paid to evade tax. Of the provisions enacted, Section 269UD empowered the appropriate authority to order compulsory purchase of immovable property in the urban area which involved significant undervaluation of 15 per cent, or more between the apparent value and the fair market value and which was aimed at evading tax. The section provided thus :
"Section 269UD. (1) Subject to the provisions of Sub-sections (1A) and (1B), the appropriate authority, after the receipt of the statement under sub-section (3) of Section 269UC in respect of any immovable property, may, notwithstanding anything contained in any other law or any instrument or any agreement for the time being in force, make an order for the purchase by the Central Government of such immovable property at an amount equal to the amount of apparent consideration : . . . .
(1A) Before making an order under Sub-section (1), the appropriate authority shall give a reasonable opportunity of being heard to the transferor, the person in occupation of the immovable property if the transferor is not in occupation of the property, the transferee and to every other person whom the appropriate authority knows to be interested in the property.
(1B) Every order made by the appropriate authority under Sub-section (1) shall specify the grounds on which it is made."
10. There can be no two opinions about the nature of power conferred on the authority by this provision or the manner of exercising it. Though seemingly drastic, it was exercisable judiciously and in tune with the well recognised principles and on satisfying the laid down requirements. Having regard to this the authority was first to feel objectively satisfied that the transaction under consideration involved undervaluation by 15 per cent, or more vis-a-vis the fair market value. It was not to do so on speculation or guess work but by objective decision-making on some basis and material and also make sure that such undervaluation was directed at evading tax. If it was otherwise it could not proceed in the matter, because all cases of lesser sale price do not necessarily involve undervaluation for tax evasion and are not per se illegal. There are cases where parties mutually agree upon the lesser price in peculiar circumstances or in due regard to some special relationship, etc. Similarly cases are conceivable where a person is constrained to sell the property at a throwaway price to meet some emergent situation. Therefore, all cases of undervaluation need not fall within the prohibited zone and invite the axe of compulsory purchase by the authority.
11. It is also no more res integra that the authority was required to determine the fair market value of the property in question in order to determine the percentage of undervaluation involved. It could not deal with one and leave out the other. Otherwise it was not possible to hold that the apparent value was less than the fair market value by 15 per cent, or more. The authority was therefore obliged to return a clear-cut finding on the fair market value of the property. It could not do so without taking in regard the well established norms and considerations governing assessment of fair valuation of property. For this it had to take into account most of the factors including the advantages and disadvantages of the property, the comparable sale instances in the area and so on. It could not go by a single factor or instance or event to sustain the charge of undervaluation. Nor could it embark on a rejection spree without furnishing a valid reason. Where it failed to clearly determine the fair market value and to specify that undervaluation was intended to evade tax and refused to consider the comparable sale instance submitted by the affected party its action would be vitiated on the face of it.
12. In the present case all this was apparent. The appropriate authority had failed to determine the fair market value of the property and had also unjustifiably disregarded the comparable sale instances of the appellant on an irrelevant ground that these related to property of less than Rs. 10 lakhs value in respect of which power of pre-emptive purchase was not exercisable. It had also wrongly clung to the average rate indicated in the Collector's guidelines mistaking it for the minimum rate which otherwise could not constitute the sole basis to determine undervaluation.
13. It may as well be that this court was not exercising appellate power to scrutinise the authority's action, but it could not remain a mute spectator to a glaring non-compliance of statutory requirements by the authority. Mr. Saxena's submission that the sale rate indicated in Collector's guidelines read with the National Textile Corporation sale rate reflected the fair market value for determination of undervaluation does not merit acceptance, because the order passed by the authority must sustain on its own and without any crutches. Any omission and deficiencies in it could not be allowed to be made up or supplied, loaded as it was with a drastic power of divesting a person of the ownership and enjoyment of property.
14. An order passed by the authority may not be wholly perverse and yet it would not escape scrutiny because it contained some reasons. It must still fall within the well demarcated legal limits. The reasons given must be relevant and rational, having nexus with the object, viz., tax evasion.
15. It is also immaterial whether or not and how much prejudice would be caused to the affected party. The, question was not whether such prejudice was or was not to be caused but whether the authority had exercised the power vested in it in conformity with law. Therefore, even if it was to be presumed that no irreparable injury or loss would result to the party in the process, the order for compulsory purchase still required to stand on its own legs. For the reasons given, we hold that the appropriate authority had failed to satisfy the statutory requirements by not determining the fair market value of the property under consideration and by disregarding the comparable sale instances submitted by the appellants on an untenable and irrelevant ground and thus its action would not sustain.
16. This should have led to quashment of the impugned order dated December 1, 1994, passed by the authority but having regard to overall circumstances, we propose to dispose of the writ petition, W. P. No. 44 of 1995 (Himatlal Vadaliya v. Union of India [1997] 227 ITR 406 (MP)), of the appellants in the following terms :
"The appellants (writ petitioners) are required to deposit Rs. 90 lakhs along with 12 per cent, interest for the relevant period (from receipt till return) within one month before the appropriate authority. Upon this, the impugned order dated December 1, 1994, shall remain in abeyance and the matter remanded to the authority for passing fresh appropriate orders in accordance with law and taking in regard all relevant materials and on hearing the parties within one month thereafter. The impugned order shall be subject to the order to be passed. But if the deposit was not made within time, it shall operate with all its force and consequences. Status-quo as it is exists today to be maintained till the revival of the impugned order or till passing of requisite orders within the prescribed period, as the case may be."
17. C. C. to both the parties within three days.