Gujarat High Court
Laxmanrao Narayanrao Gharmalkar And ... vs Appropriate Authority on 22 March, 1996
Equivalent citations: [1996]220ITR537(GUJ)
Author: R.M. Doshit
Bench: R.M. Doshit
JUDGMENT B.C. Patel, J.
1. In this petition, the petitioners have challenged the order passed on 31st Oct., 1995 by the Appropriate Authority exercising the powers vested in it under s. 269UD(1) of the IT Act, 1961.
2. Petitioner No. 1 (hereinafter referred to as the vendor) and petitioners No. 2A to 2D (hereinafter referred to as the confirming parties) entered into an agreement on 4th July, 1995 with petitioner No. 3 (hereinafter referred to as the developer) for development of the plot in question, for a consideration of Rs. 74 lakhs. Form No. 37-I with details in respect of the property in question was filed. On 22nd Sept., 1995, members of the Appropriate Authority inspected the property under consideration (hereinafter referred to as the PUC). The property is located at about 250 mtrs. away from Dnyaneshwar Paduka Chowk (Pune).
22nd March, 1996
3. The PUC is an open plot of land abutting 25 ft. wide Dattatrai Dhondiba Path connecting DP Road and Chole Road. These two roads merge into Fergusson College Road. According to the Competent Authority, the PUC is located in a prime residential area, having frontage of 16.65 mtrs. and is a retainable vacant land under the Urban Land (Celling & Regulation) Act, 1976; vendor's title in respect of the PUC is clear and free from encumbrances; as per IT Rules and law, the discounted value of PUC comes to Rs. 71,79,430, which gives net land rate of Rs. 10,335 per sq. mtr. Competent Authority issued a detailed show cause notice as required under s. 269UD(1A) of the Act, placing reliance on certain comparable sale instances (hereinafter referred to as the SIP). Extracts of important points in the comparable sale instances are as under :
(1) Members of the Appropriate Authority considered a plot of land located at CTS No. 12190, Shivajinagar. The land area of the SIP-1 is 887 sq. mtrs. on which there is a small built up bungalow admeasuring 199.66 sq. mtrs. and a garage admeasuring 33.4 sq. mtrs. The scrap value of the structures which were constructed in the year 1971 was estimated at Rs. 3,87,525. The stated consideration of the plot was Rs. 66,50,000. In addition to this the transferee was required to offer to the transferor free of cost a flat having 1800 sq. ft., the value of which was estimated at Rs. 10,15,000. As such, the total consideration of the SIP-1 was calculated at Rs. 76,65,000. The discounted value of this consideration was worked out at Rs. 74,42,710. This SIP was full of a number of constraints and conditions adverse to the purchaser. Possession of the existing bungalow was to be retained by the vendor and no construction was allowed over the bungalow during the life time of the vendor or till such time they intended to occupy the bungalow provided and then shift to the flat to be provided free of cost by the purchaser. The vendors were supposed to pay Rs. 2,500 per month as the rent of the bungalow to the developer or the proposed society during the period they intended to occupy it. The developer was supposed to develop the balance area of the plot in which FSI of 522.12 sq. mtrs. was only available. On inspection of the site, the Members of the Appropriate Authority found that the bungalow was constructed in such a manner that the plot could not be developed properly. In spite of all these constraints, the land rate per sq. mtr was calculated at Rs. 13,565 per sq. mtr. While issuing the show cause notice, the Competent Authority was of the opinion that the PUC is superior as the vendor will not occupy any part of the plot or keep any interest in future constructions and the vendor will not come in the way of the development of the plot. In the opinion of the Competent Authority, the location of the SIP-1 was also comparable with the PUC as it is hardly 200 mtrs. off Fergusson College Road and 100 mtrs. off after Apte Road. It is indicated in the show cause notice that though there were several constraints and limitations, the per sq. mtr. rate of consideration of the PUC is lower by Rs. 3,213 as compared to the SIP-1, that is to say, that the PUC is lower by about 20%.
4. The second instance indicated in the show notice is an immovable property at Shivaji Nagar, Pune, for which also an agreement for development was entered into on 3rd June, 1995. This SIP-2 was a land admeasuring 761.81 sq. mtrs. On this plot of land, there was an existing building having built up area of 659.89 sq. mtrs. Since the developers were going to demolish the existing building, the scrap value of the structure was estimated at Rs. 2,87,600. After deduction of the same from the discounted consideration of Rs. 1,79,46,795 (the stated consideration is Rs. 1,85,00,000), the land rate of this SIP-2 was calculated at Rs. 23,181 per sq. mtr. As per another computation mentioned in the notice, after deducting the depreciated value of the building, the net land rate was calculated at Rs. 20,726 per sq. mtr. This SIP-2 is located 1.5 km. away from Deccan Gymkhana Chowk and about 30 ft. wide Kelkar Road which connects Fergusson College Road and Apte Road. It is about 250 mtrs. off Fergusson College Road and 150 mtrs. off Apte Road. The Competent Authority has mentioned in the notice that this SIP-2 is similar and comparable with the PUC as well as SIP-1. The land rate of the PUC as compared to SIP-II is understated by Rs. 12,846 per sq. mtr., i. e, by 125%, as mentioned in the notice. However, it is also stated in the notice that the difference between the PUC and SIP-2 is that the purchaser is a commercial organisation and as the name suggests, they may construct a hotel on the plot, which is permissible as per the rules of the municipal corporation. Considering this, the Appropriate Authority reduced the land rate by further 30% for the purpose of comparison with the PUC. Even thereafter, according to the Competent Authority, the stated price of the PUC is much lower.
5. The Appropriate Authority has given a third instance of the sale of a property located at 8th road of Prabhat Road, Erandwane, Pune, which is about 1 km. away from Deccan Gymkhana, 100 mtrs. off Karve Road, 250 mtrs. off Prabhat Road and adjacent to Khinoor Mangal Karyalaya. This plot of land admeasures 377.50 sq. mtrs. on which there is a small outhouse having built up area of 44.49 sq. mtrs., which, therefore, is virtually an open plot of land, according to the Appropriate Authority. The stated consideration of the plot was Rs. 53,25,000 which, after discounting as per the Rules, was calculated at Rs. 51,52,627. After deducting the scrap value of the outhouse, the land rate was worked out at Rs. 13,260 per sq. mtr. Comparing this instance with the PUC, it has been observed that the PUC is understated by Rs. 2,925 per sq. mtr. Compared to this SIP-3, the PUC is understated by 22%. It is further observed that this SIP is comparable with the PUC in terms of development and location. It is further observed that in this SIP there was limitation of a condition that the developer would not construct a hotel/restaurant, commercial complex, or a marriage hall on this plot, but in spite of this, the PUC is understated as compared to this SIP-3.
6. In view of these three instances, the Appropriate Authority believed that the PUC is understated by more than 15% of its fair market value and, therefore, called upon the petitioners to state and explain their case so as to prove that the stated consideration of PUC is not understated as compared to its fair market value.
7. The petitioners filed a detailed reply, a copy of which along with its annexures is placed on record at Annexure 'E'. It is pointed out that the PUC has a frontage of hardly 16 mtrs. but an average depth of 41 mtrs. It is further pointed out that leaving side margin of 10 ft. as per the rules of the municipal corporation, property can be constructed on the PUC, but due to less frontage (which is of 32 ft.), there are lots of restrictions on the design and layout of flats to be constructed, and there is hardly any scope for construction of luxurious flats with modern layout. It is also pointed out that the approach road is from the west side, which is the wind direction and, therefore, the flats on the rear side (east) will have light and ventilation problem. From the north and south sides, the PUC is surrounded by multi storeyed buildings, and, therefore, open terraces attached to the flats shall have less commercial value as the terraces will have no privacy. It is also pointed out that on the eastern boundary, there is a large police colony (Shivajinagar Police Lines) and due to the large number of persons staying there, there is environmental, cultural and social constrains as a result of which the properties in this area are not commanding good price and the area is not preferred by aristocrat people. It has, therefore, been pointed out that the properties coming on this land, does not command a good price whereas the rates of the properties even on the adjoining lane command good price. Hence, it is pointed out that the instances cannot be blindly followed. The transferee, therefore, objected to the observation in the notice that the PUC is located in a prime residential area near Fergusson College Road.
8. Petitioners have pointed out in their reply that the PUC cannot be compared with SIP-1, because SIP-1 is situated nearer to Fergusson Road and Apte Road, which is the really prime locality of Shivajinagar, Fergusson College Road, and Vaishali Hotel are closely located to SIP-1 and prestigious Deccan Gymkhana is only five minutes walking distance. SIP-1 has commercial potential whereas PUC does not have any commercial potential. PUC and SIP-1 are situated on cross directions from Fergusson College Road and the price cannot be compared. Narrating the family circumstances of SIP-1 that vendor No. 1 is a widow aged about 57 years and vendors No. 2 and 3 are non-resident Indians residing at U. K. and even vendor No. 1 resides abroad for most of the times, it has been pointed out that the condition of retaining possession of the old bungalow is only systematic drafting but in fact the possession of the bungalow is to be handed over immediately on receipt of the possession of the flat. It is further pointed out that the plot adjoining to SIP-1 is also owned by a close relative of the vendors from whom the same developer has acquired development rights of the adjoining plot and, therefore, they are in a position to consume more FSI even without disturbing the existing structure of SIP-1. It has been categorically stated that the developers have got sanctioned the plans by utilising the FSI of the SIP-1 on the adjoining property and they have accordingly advertised the scheme and a brochure of the scheme was also enclosed with the reply. Objections were also raised with regard to the land rate arrived at by the Appropriate Authority with regard to SIP-1 and detailed calculations based on two different modes were also enumerated. Thus, the comparison of PUC with SIP-1 was strongly objected.
9. With regard to SIP-2, it has been pointed out that this property is situated on N. C. Kelkar Road, connecting Apte Road and Fergusson College Road and in the next lane towards Deccan Gymkhana. Therefore, it is contended that it has better location and commercial potentials even as compared to SIP-1 but PUC is very much inferior. Apart from this, SIP-2 is a transaction for outright sale of the land with a well maintained building constructed in the year 1985, which is used as a hospital and can be converted into a hotel with certain renovations. In the absence of any evidence that the building is to be demolished, even the land rate arrived on such assumption is erroneous, as pointed out in the reply. It has further been pointed out that the SIP-2 is purchased by a group running chains of hotels in different aristocrat localities in Pune and they have paid a premium price to purchase this property and the land rate of that property cannot be compared with that of PUC.
10. As regards SIP-3 it has been pointed out that the same is situated on Karve Road, about 2 kms. away from PUC. The locality is totally different from that of not only the PUC but also SIP-1 and SIP-2 and the price equations are entirely different. Referring to the restrictions in the agreements, it is pointed out that professional offices and consulting rooms, which are in great demand in the city, can be constructed. It has further been stated in the reply that the purchaser is a Bombay based builder who wants an entry in Pune and in such circumstances, this instance is not a normal business transaction.
11. As against the instances cited by the Appropriate Authority, the petitioner has also cited certain instances, which are hereinafter referred to as TSI. The petitioner has referred to TSI-1, a bungalow situated at Off Apte Road, near Shree Clinic for which transaction was entered into six months prior to that of the PUC. TSI-1 is very closely located to the PUC and is in a better location as compared to the PUC, but is comparable locationwise. The effective land rate of TSI-1 as per apparent consideration works out to be less than Rs. 1,000 per sq. ft. as pointed out in the reply.
12. Petitioner has also referred to another instance, TSI-2, which is for sale of an immovable property situated at Bhandarkar Road, Shivajinagar. The agreement is executed in January, 1995. The area of the property is 829.6 sq. mtrs. and there was an old bungalow on the property, which has since been demolished by the developer. The apparent consideration of the transaction was Rs. 81 lakhs, payable partly in instalments and partly in allotment of flats in the scheme of the purchaser-developer. The entire price of the flats was to be adjusted at once and the possession of the flats is to be handed over after two years. It is pointed out that in spite of all these advantages, the land rate per sq. mt. works out to less than Rs. 900 per sq. ft.
13. It was thus urged in the reply that the consideration of the impugned transaction is more than the market rates and in no way understated and, therefore, the petitioner requested to issue No Objection Certificate under s. 269UL(3) of the Act. The Appropriate Authority, however, passed the impugned order at Annexure 'A' to the petition, compulsorily purchasing the impugned property.
14. Mr. Soparkar, learned advocate, submitted that the order is arbitrary and, therefore, requires to be quashed and set aside. He submitted that the contentions raised by the petitioner with regard to SIP-1 have been rejected on the ground that it is nothing but in the nature of wild assumption and there is no evidence that the condition in agreement regarding SIP-1 was fraudulent or was not intended to be acted upon by the parties. The Appropriate Authority further observed that the contract is legally binding on the parties and there is nothing to show that the agreement was drafted with ulterior motive to misguide the Appropriate Authority. The Appropriate Authority rejected all the contentions raised by the petitioner and held that SIP-1 is fully comparable with PUC and is more advantageous because PUC is free from any drawback and encumbrances whereas SIP-1 had drawbacks and encumbrances.
15. Learned advocate, Mr. Soparkar, also contended that the contentions raised by the petitioner with regard to SIP-2 were also rejected holding that the only advantage of SIP-2 is that it has a potential for use as a hotel and for this factor a discount of 30% has already been considered. The Appropriate Authority further rejected the claim that the rate of SIP-2 is only for built up area and held that in the show cause notice it was made clear that even if depreciated value of Rs. 21,57,500 of the building is deducted, the land rate would come to Rs. 20,726 per sq. mtr. Mr. Soparkar, learned advocate for the petitioner, submitted that the amount of consideration of SIP-2 as mentioned in the agreement is Rs. 1,85,00,000. Even on the date of consideration, the value of the building was Rs. 21,57,000 and the net value of the land would be Rs. 1,63,43,000 and if the same is divided by the area of the land, i.e., 762 sq. mtrs. the land rate would be Rs. 20,726. If that be so, how at the time of considering the question of market value of SIP-2, the authorities have dealt with the land rate ? According to him, it appears that there is different yardsticks and in different cases, the Appropriate Authority is applying different yardsticks.
16. He further submitted that for SIP-1 and SIP-2, the agreements have been executed in the first week of June, 1995. According to the Appropriate Authority, if both the properties are situated in good locality or similar locality, and the price of each property, i.e., SIP 1 and 2 can be compared with each other (at that time there was no question of PUC), then how the authorities compared the rates of both the properties when there is sizeable difference even between the two sale instances cited by the authority ? It is pointed out that SIP-2 is far away from PUC. Mr. Soparkar has placed on record a map. From that, it is clear that the SIP-2 and SIP-1 are in the close vicinity while the PUC appears to be away from SIP-1 and far away from SIP-2, SIP-3 is situated in an altogether different area. While so, TSI-1 is between the PUC and SIP-1. SIP-2 and SIP-3 and TSI-2 cannot be taken into consideration for comparison with PUC because they are situated afar.
17. Mr. Soparkar, learned advocate, submitted that on what basis the Appropriate Authority has deducted 30% from the price of SIP-2 so as to arrive at the rate of Rs. 14,508 is not disclosed. No material is placed even before this Court as to on what basis for a potential use of a hotel 30% discount has been taken into consideration. There must be some method to arrive at a conclusion and to calculate 30% discount. In the absence of that, it becomes very difficult to rely on such a decision, more particularly when the Appropriate Authority itself, while considering the case of SIP-1 and SIP-2 accepted both the instances as having fair market value. One fails to understand that for the same property, i.e., SIP-2, the Appropriate Authority on one hand says that even if the depreciated value of the building is deducted, the land rate would come to Rs. 20,726 per sq. mtr. and on the other hand it says that after deducting 30% from the above land rate, the resultant rate would come to Rs. 20,726 per sq. mtr. and on the other hand it says that after deducting 30% from the above land rate, the resultant rate would be Rs. 14,508. Moreover, though the Appropriate Authority says that three instances referred by them are fully comparable, there is vast difference between the rates of these three instances. Land rate of SIP-1 is calculated at Rs. 13,565, SIP-2 at Rs. 23,181 and SIP-3 at Rs. 13,260. So far as SIP-2 is concerned, considering the fact that a commercial organisation is purchasing for construction of a hotel on the plot, land rate is reduced by 30% so as to fix the land rate at Rs. 14,508. Mr. Soparkar contended that this itself is an arbitrary action and this method is adopted to hold that the transaction of SIP-2 is fair which is in the vicinity of SIP-1. It appears that while examining the case of SIP-1 and SIP-2, different yardstick is used and while comparing PUC with SIPs, different method is adopted. SIP-2 rate is reduced by 30% without giving any details or statistics. Mr. Soparkar stated that is it to justify the fair market value of SIP-1 ? Looking to the situation of the PUC, why the same cannot be reduced, considering that it is adjacent to police lines and that the plot is not suitable for luxurious flats ? In view of the difference, no reliance can be placed on instances, more particularly when the authorities have not at all considered any of the grounds put forth by the petitioner and have not given any reason for rejecting the same for PUC. So far as the sale instances referred to by the petitioner are concerned, no doubt the transactions are six months earlier to that of PUC, but on what basis the Appropriate Authority stated that during the intervening period of six months prices have gone up substantially, and no material whatsoever has been placed to indicate the growth. In the order, the Appropriate Authority has nowhere held that the sale instances of the properties relied on by the petitioner cannot be compared with because the properties are situated at a far distance or at some distance. Appropriate Authority held that the area of these two TSIs are not only inferiorly located as compared to PUC, but also the transactions are six months old. On what basis it is stated that TSIs are situated in inferior locality ? Learned advocate pointed out from the map that on Fergusson Road, on the end of MR Shirole Road, there is a hotel, next to it, a hospital, leaving bylane and open plot, Union Bank of India, Apte Road comes. Immediately thereafter there is a hotel, and a lodge and a by-lane. TSI-1 is situated on this by-lane. TSI-1 is thus in the vicinity of a hotel, a lodge and a guest house and is thus an ideal place for a hotel. Even then, Appropriate Authority, without applying mind, has observed that it is in an inferior locality. The case of the petitioner is not rejected so far as the sale instances referred to by the petitioner are concerned on the ground of distance but it appears to have been rejected on the ground that the transactions are of 1995. If an index is indicated, then one would know as to what is the rate of growth and what is the upward trend. In the order, it is observed by the Appropriate Authority that the areas within the two instances referred to by the petitioner are not only inferiorly located as compared to the PUC but also these two transactions are six months earlier to the PUC and, therefore, the fair market value of the PUC should be estimated on the basis of the three sale instances given in the show cause notice by the Department. On what basis the Appropriate Authority has come to the conclusion that the two instances referred to by the petitioner are inferiorly located is not stated but it appears that with a view to discard the submissions made by the petitioner, a reason is given that the properties are situated in inferior locality. It appears that the contentions raised by the petitioner are nowhere reflected in the order and no justifiable reasons are given for rejecting the same. It is essential that reasons must be indicated. If reasons were given, the Court may, after considering such reasons, conclude that the reasons are just and proper and may not interfere but in the absence of reasons for rejecting the contentions raised by the petitioner, we are of the view that the authority has acted arbitrarily. Even for giving 30% deduction on the land rate of SIP-2, no reasons are assigned and the authorities have acted arbitrarily, and there is no proper application of mind. We are, therefore, of the view that the order is arbitrary and is required to be quashed and set aside.
18. In the result, this petition is allowed. The impugned order at Annexure 'A' is quashed and set aside. The respondents are directed to issue No Objection Certificate within eight weeks from the date of receipt of the writ.
19. Rule made absolute accordingly, with no order as to costs.