Bombay High Court
Carmichael Shikarkunj Co-Operative ... vs Union Of India And Others on 9 August, 1989
Equivalent citations: [1991]189ITR441(BOM)
Author: S.P. Bharucha
Bench: S.P. Bharucha
JUDGMENT S.P. Bharucha, J.
1. This writ petition is filed to impugn the notice dated November 14, 1977, issued under section 269D(1) of the Income-tax Act, 1961, and the letter dated February 15, 1983, requiring the petitioners to appear before the Competent Authority in connection therewith. It concerns land and a building thereon at Carmichael Road, Bombay.
2. Prior to January, 1966, the land and the building then standing was owned by Messrs. Sahu Brothers (Saurashtra) Pvt. Ltd. The building was occupied by tenants. By an agreement dated January 7, 1966, Sahu Brothers agreed to provide each original tenant with a flat and garage in a new building to be constructed on the land, with an option to him to purchase the same on ownership basis. On March 10, 1966, Sahu Brothers entered into an agreement to sell the land and building to Carmichael Properties Pvt. Ltd. The provision of flats and garages to the original tenants was a term of the agreement for sale. On April 4, 1966, Carmichael Properties accepted the agreement dated January 7, 1966, with the original tenants. On March 30, 1967, Sahu Brothers conveyed the land and building to Carmichael Properties. On June 14, 1967, an agreement was entered into between Carmichael Properties and the promoters of the petitioner co-operative society to transfer the land and building to the latter. The petitioner society was registered on June 20, 1966. On November 12, 1968, the petitioner accepted the terms of the agreement dated June 14, 1967, between its promoters and Carmichael properties.
3. It appears that the original intention had been to construct one new building on the land. By an agreement dated November 12, 1968, it was agreed between Carmichael Properties and the original tenants that, instead, two buildings would be constructed and that one, called Wing A, would provide for the accommodation of the original tenants and the other, called Wing B, would contain flats to be sold to outsiders on ownership basis. On November 30, 1971, Carmichael Properties conveyed the land appertaining to, and the building called Wing A to the petitioner. We are concerned in this petition only with the said property.
4. According to the petitioners, the said conveyance was lodged for registration on November 30, 1971, and according to the Sub-Registrar of Assurance, it was lodged on January 5, 1972. The true date is not relevant to the controversy as it has not been pressed before the court. As pressed, the Sub-Registrar is not involved. The said conveyance was registered on March 17, 1977. On November 17, 1972, Chapter XXA (including sections 269B to D) was introduced into the Income-tax Act, providing for the acquisition of immovable properties in given cases.
5. On April 1, 1977, the Competent Authority appointed under section 269B issued to the petitioners an intimation that the acquisition of the said property under the provisions of Chapter XXA was contemplated. On August 22, 1977, the Valuation officer appointed by the income-tax authorities informed the petitioners that the valuation of the said property had been referred to him and the petitioners were called upon to furnish particulars in that behalf. The petitioners did so on November 17, 1977. On November 30, 1977, the Valuation Officer asked for further particulars, which were furnished on February 3, 1978.
6. While the Valuation Officer was so involved in the valuation of the said property, the impugned notice dated November 14, 1977, was issued by the Competent Authority. It stated that ".....the Competent Authority.... have reason to believe that the immovable property, having a fair market value exceeding Rs. 25,000 and bearing No. C.S. 3/723 of M. & C Hill Division situated at Carmichael Rd. (and more fully described in the schedule annexed hereto), has been transferred under the Registration Act. 1908 (16 of 1908), in the office of the Registering Officer at Bombay on March 17, 1977, for an apparent consideration which is less than the fair market value of the aforesaid property and I have reason to believe that the fair market value of the property as aforesaid exceeds the apparent consideration therefor by more than fifteen per cent. of such apparent consideration and that the consideration for such transfer as agreed to between the parties has not been truly stated in the said instrument of transfer with the object of :
(a) facilitating the reduction or evasion of the liability of the transferor to pay tax under the said Act in respect of any income arising from the transfer; and/or
(b) facilitating the concealment of any income or any money or other assets which have not been or which ought to be disclosed by the transferee for the purposes of the Indian Income-tax Act, 1922 (11 of 1922) or the said Act, or the Wealth-tax Act, 1957 (27 of 1957) :
Now, therefore, in pursuance of section 269C of the said Act, I hereby initiate proceedings for the acquisition of the aforesaid property by the issue of this notice under sub-section (1) of section 269D of the said Act to the following persons, namely :
(1) M/s. Carmichael Properties Pvt. Ltd.
Carmichael Shikarkunj Co-operative Housing Society Ltd., (Transferor).
(2) 1. Sri Shriyans P. Jain, 2. Smt. Kamlavati Jain, 3. Sri Gian C. Jain, 4. Smt. Satyavati Jain, 5. Sri Prem C. Jain, 6. Smt. Durgavati Jain, 7. Sri Shashi C. Jain, 8. Smt. Neera Jain, 9. Sri Sharad Kumab Jain, 10. Smt. Vandana Jain. 11. Sri Pramod Kumar Jain. 12. Smt. Usha J. Jain. (Transferee)"
7. The 12 persons to whom the said notice was addressed as "transferees" were the original tenants.
8. The said notice weas gazetted in the Gazette of India dated December 3, 1977. It was served on February 3, 1978. To the copy of the notice that was served was annexed "A note in respect of initiation of acquisition proceedings in the case", which must be quoted in extenso. It reads :
"By a deed of conveyance dated November 30, 1971, M/s. Carmichael Properties Pvt. Ltd., transferred to Carmichael Shikarkunj Co-operative Housing Society Ltd., a property for an apparent consideration of Rs. 22.08,399. The property consists of land admeasuring 2,340 sq. yds. with a building consisting of a ground floor and 13 upper floors.
2. The property is situated on Carmichael Road, one of the posh residential localities of Bombay. I have with me instances of sale where the sale price realised in Malabar & Cumballa Hill Division works out to more than Rs. 750 per sq. yds. In this connection, I have also to point out that in 1974 the Life Insurance Corporation sold a plot of land situated opposite Sukh Sagar, near Opera House and the price realised was about Rs. 2,300 per sq. yd. Having regard to all the facts in the instant case, I am of the opinion that the cost of land in 1971 will not be less than Rs. 800 per sq. yds. As regards the value of the structure, it is seen that this is a first-class construction having several luxury facilities which are not usually available in buildings in this locality. The building has concealed electric wiring throughout, air-conditioned master bedrooms, deluxe fans in other rooms, chromium plated brass fittings, modern flush doors of very quality wood, aluminium sliding doors in each living room, wall to wall mirrors, intercom system throughout the building and other facilities. The building has also a beautifully laid out garden and playground, a luxurious swimming pool with changing room and filtration plants, etc. Taking into account the plan of the building, the nature of the construction, the quality of materials used and the amenities provided, I am of the opinion that the cost of construction of the building will be nothing less than Rs. 90 per sq. ft.
3. On the above basis, the fair market value would be worked out to Rs. 53,50,000 as under.
Value of land: 2,340 x 800 18,72,000
Cost of construction:
Total built up area 38,643 sq. ft. at
Rs. 90 per sq. ft. 34,77,870
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Fair Market Value 53,49,870
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Say ... Rs. 53,50,000
From the facts stated above, it is clear that the apparent consideration is very much below the fair market value.
4. In this view of the matter, I have reason to believe that :
(i) the immovable property is of a fair market value exceeding Rs. 25.000 :
(ii) the fair market value of such property exceeds the apparent consideration therefor by more than 15% of such apparent consideration; and
(iii) the consideration for such transfer as agreed to between the parties has not been truly stated in the instrument of transfer with the object of either facilitating the reduction or evasion of the liability of the transferor to tax in respect of any income including capital gains arising on the transfer or facilitating concealment of any income or any money or other assets which have not been or which ought to be disclosed by the transferee for the purposes of the Indian Income-tax Act, 1922, the Income-tax Act, 1961, or the Wealth-tax Act, 1957.
5. I, therefore, direct that proceedings for acquisition of this property be initiated under section 269D of the Income-tax Act, 1961".
9. On March 22, 1978, the petitioners filed a writ petition in this court (being O.O.C.J. Misc. Petition No. 385 of 1978) impugning the said notice. On September 25, 1981, the petition was allowed to be withdrawn with liberty to file a fresh petition. It was averred in the petition that this was done because the income-tax authorities had not taken any proceedings pursuant to the said notice.
10. On February 19, 1983, the letter dated February 15, 1983, was served reviving the said notice and it fixed a hearing in that behalf Thereupon, this writ petition was filed.
11. The principal contention that is raised on behalf of the petitioners is that the Competent Authority had no reason to believe that the preconditions set out by section 269C of the Act were satisfied and that the said notice was, therefore, bad in law. The contention that the provision is unconstitutional is taken in the petition but is not pressed before me, having regard to the judgments of various High Courts on the point. But it is kept open in view of the fact that the Supreme Court has granted special leave to appeal thereagainst.
12. My attention was drawn by Mr. Dwarkadas, learned counsel for the petitioners, to the fact that the Competent Authority had left the words "and/or" as they stood in the said notice. He drew my attention to the judgment of the Division Bench of this court sitting at Nagpur in All India Reporter Ltd. v. Competent Authority, IAC [1986] 162 ITR 697 (Bom). Here also the notice under section 269D read as follows (at p. 713) :
"I have reason to believe that the fair market value of the property as aforesaid exceeds the apparent consideration therefor by more than fifteen per cent. of such apparent consideration and that the consideration for such transfer as agreed to between the transferor(s) and the transferees has not been truly stated in the said instrument of transfer with the object of -
(a) facilitating reduction or evasion of the liability of the transferor to pay tax under the Income-tax Act, 1961 (43 of 1961,) in respect of any income arising from the transfer, and/or
(b) facilitating the concealment of any income or any money or other assets which have not been or which ought to be disclosed by the transferee of the purposes of the Indian Income-tax Act, 1922 (11 of 1922) or the Income-tax Act, 1961 (43 of 1961) or the Wealth-tax Act, 1957 (27 of 1957)".
13. The Division Bench said that it had been contended that the Competent Authority must have reason to believe that the transfer was effected with one of the aforesaid objects or both the aforesaid objects as a condition precedent to the initiation of the proceedings. The Division Bench held p. 713 :
"The Competent Authority, therefore, must have come, prima facie, to believe that the transfer was for reduction or evasion of tax liability of the transferor or for concealment of assets or income of the transferee. It was also possible for a prima facie conclusion or belief to be entertained by the Competent Authority that the object of the transfer was not one but both, but it is impermissible for the Competent Authority not to come to any conclusion albeit prima facie or hold a reasonable belief and be ambivalent or not be sure. The use of the conjunction 'and/or' in the notice indicates that the Competent Authority had not made up its mind as to whether the transfer was with the object of reduction or evasion of tax liability or whether it was for the purpose of concealment of income or assets of the transferee or whether it was both or it was the one or the other. It was pointed out that clauses (a) and (b) of section 269C(1) are jointed with a conjunction 'or'. It was perfectly permissible for the Competent Authority to entertain a belief that both the objects existed in a given case, or it was also similarly permissible for the authority to hold that any one of the objects existed. In any event, it had to make up its mind as to whether both the objects existed or which one of them, namely, (a) or (b), existed. It could not, however, say that it may be that both the objects existed or it may be that the object of reduction or evasion of tax liability of the transferor or the concealment of income or assets by the transferee was the object or may be both were the objects".
14. The judgment in All India Reporter's case was followed by a Division Bench of this court sitting at Bombay in Manu Bharati Co-operative Housing Society Ltd. v. CIT [1986] 162 (Bom.) The judgment in the All India Reporter's case is binding upon me. It squarely covers the case before me. Following it, the said notice must be set aside.
15. Even otherwise the said notice is unsustainable.
Section 269C reads thus :
"269C. Immovable property in respect of which proceedings for acquisition may be taken. - (1) Where the competent authority has reason to believw that any immovable property of a fair market value exceeding-twenty-five thousand rupees has been transferred by a person) hereafter in this Chapter referred to as the transferor) to another person (hereafter in this Chapter referred to as the transferee) for an apparent consideration which is less than the fair market value of the property and that the consideration for such transfer as agreed to between the parties had not been truly stated in the instrument of transfer with the object of -
(a) facilitating the reduction or evasion of the liability of the transferor to pay tax under this Act in respect of any income 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 Indian Income-tax Act, 1922 (11 of 1922, or this Act or the Wealth-tax Act, 1957 (27 of 1957), the competent authority may, subject to the provisions of this Chapter, initiate proceedings for the acquisition of such property under this Chapter :
Provided that before initiating such proceedings, the competent authority shall record his reasons for doing so :
Provided further that no such proceedings shall be initiated unless the competent authority has reason to believe that the fair market value of the property exceeds the apparent consideration therefor by more than fifteen per cent. of such apparent consideration.
(2) In any proceedings under this Chapter in respect of any immovable property, -
(a) 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 be conclusive proof that the consideration for such transfer as agreed to between the parties has not been truly stated in the instrument of transfer;
(b) where the property has been transferred for an apparent consideration which is less than its fair market value, it shall be presumed, unless the contrary is proved, that the consideration for such transfer as agreed to between the parties has not been truly stated in the instrument of transfer with such object as is referred to in clause (a) or clause (b) of sub-section (1)."
16. The Gujarat High Court considered the ambit of the power invested in the Competent Authority by section 269C in CIT v. Smt. Vimlaben Bhagwandas Patel [1979] 118 ITR 134 (Guj) and it said (headnote) :
"The legislature has adopted a know and recognised phraseology for describing the condition precedent for initiating acquisition proceedings under section 269C. The Competent Authority must have reason to believe that the fair market value of the property of more than Rs. 25,000 exceeds the apparent consideration stated in the instrument of transfer and the parties have agreed to make the untrue statement with the ulterior motive of tax evasion or concealment of income. The satisfaction of the Competent Authority for initiation of acquisition proceedings is a subjective satisfaction of the objective facts stated above. The reasons for the formation of the belief must have a rational and direct connection with the material coming to the notice of the Competent Authority though the question of sufficiency or adequacy of the material is not open to judicial review.
The conditions precedent for the exercise of jurisdiction to initiate acquisition proceedings are-(1) transfer of immovable property worth more that Rs. 25,000 in value; (ii) fair market value of the property exceeding the apparent consideration by more that 15%; (iii) ulterior motive of tax evasion or concealment of income for such untrue statement of apparent consideration in the instrument of transfer of such property; (iv) recording of reasons by the Competent Authority; and (v) publication of notice to that effect in the Official Gazette".
17. The judgment of the Gujarat High Court was accepted and followed by Pendse J. in Unique Associates Co-operative Housing Society Ltd. v. Union of India [1985] 152 ITR 114 (Bom).
18. A reference had been made to the Valuation Officer to ascertain the valuation of the said property. While the reference was pending, the Competent Officer, who had made the reference, as I understand from Dr. balasubramanian, learned counsel for the respondents, July 1976, issued the said notice on November 14, 1977, making the valuation himself without reference to the particulars that had been collected by the Valuation Officer. Why he did so is not explained either in the correspondence or the affidavit-in-reply.
19. It is the petitioners' case that the particulars collected by the Valuation Officer included copies of the agreements heretofore mentioned. In the context of valuation of the said property, the fact that the original tenants had given up the land on which wings A and B were subsequently constructed was a material consideration. In a given case, this factor might have affected the price at which the sale had taken place ano in another given case it might not have, but it was a factor which had to be considered. The note of the Competent Authority annexed to the said notice shows that no account was taken of this factor. Had the Competent Authority awaited the valuation by the Valuation Officer or even sent for it and taken into account the particulars collected by the Valuation Officer, this germance factor would not have been ignored and the valuation and, consequently, the said order would not have suffered on that account.
20. It must be stated that the affidavit-in-reply does not accept the genuineness of the original tenancies. It is made by one Hari Krishan, Deputy Commissioner of Income-tax, Acquisition Range I, on July 27, 1989, based on the information available in the records and documents in his office. Dr. Balasubramanian told me that the affidavit-in-reply was based upon what was contained in the valuation report the had been made on April 11, 1978. An affidavit based on a later document dated April 11, 1978, cannot assist in determining whether the Competent Authority had the reason to believe that which was required by the provision when he issued the said notice dated November 14, 1977. If, upon objective considerations, the Competent Authority could not have had reason to so believe when he issued the said notice, the said notice must be quashed regardless of what might have subsequently been discovered.
21. As to the genuineness of the original tenancies. It has been pointed out in the affidavit in rejoinder that in some different context, the Income-tax Appellate Tribunal had held that the tenancy of one of the original tenants existed as far back as April, 1956.
22. I shall deal now with the note annexed to the said notice. The Competent Authority there states that he had with him instances of sale where the sale price realised in the Malabar and Cumballa Hill Division worked out to more than Rs. 750 per sq. yard. He then states that in 1974, the LIC had sold a plot of land situated opposite Sukh Sagar, near Opera House, and the price realised was about Rs. 2,300 per sq. yd. Having regard to "all the facts", he states that he was of opinion that "the cost of land in 1971 will not be less than Rs. 800 per sq. yd". Not a single instance of sale in the Malabar and Cumballa Hill Division, which would be comparable, is set out by the Competent Authority. The only instance that is set out is of the sale of land in a commercial locality in 1974. Valuation done for the purpose of initiating acquisition proceedings under Chapter XXA must be done more responsibly than this. It is to demonstrate that it has been done responsibly that the recording of reasons for the initiation of acquisition proceedings is statutorily required.
23. As regards the value placed upon the structure, there is a substantial lapse. The Competent Authority speaks in the note of the many conveniences of the building, which has also a beautifully laid out garden and playground, luxurious swimming pool with changing room and filtration plants, etc. Taking into account the plan of the building, the nature of the construction, the quality of materials used and the amenities provided, the Competent Authority says, he was of the opinion that the cost of construction would not be less than Rs. 90 per sq. ft. When the said notice was issued the building had long since been constructed. If t he Competent Authority had visited it or sent someone to do so he would have realised. Which is not denied, that the building had no garden and playground, no swimming pool, no changing rooms or filtration plants. In taking into account a plan that, presumably, was prepared for the single building originally intended and ignoring the building that had in fact been constructed, the Competent Authority totally misdirected himself. Valuation based upon a misdirection such as this is unacceptable in the context of acquisition proceedings under Chapter XXA.
24. The valuation of the said property being so flawed. It is impossible to hold that the Competent Authority had reason to believe that the threshold requirements of section 269C, all of which relate to valuation, were satisfied.
25. The note suggests that the valuation was made as of 1971 for it speaks of "the cost of land in 1971". The judgment delivered by Pendse J in Blue Star Ltd. v. Santosh Datta, IAC [1984] 150 ITR 356 (Bom), is relevant in the context. The learned judge upheld the submission that the valuation ought to have been made as on the date when the property was agreed to be sold and not as on the date on which the conveyance was lodged for registration. There is substance in the contention urged by Mr. Dwarkadas that the adequacy of consideration has to be judged on the basis of the value of the property on the date on which the property was agreed to be sold for an agreement for sale binds the parties and the conveyance has necessarily to be at the price agreed to therein.
26. In concluding his submission, Dr. Balasubramanian urged that the Competent Authority was the best judge of the value of the property and I should permit him to go ahead and value it and not strike down the said notice. He cited in the context of this submission the judgment of the Delhi High Court in Mahavir Metal Works Pvt. Ltd. v. Union of India . The passage to which he invited attention (at page 226) states that the Competent Authority is better fitted to decide the valuation of the property as a question of fact, it was not possible to decide the question of valuation in the writ petition before the Delhi High Court because the versions of the parties as to valuation were divergent and a disputed question which could not be decided without oral evidence arose as to valuation.
27. There is some misconception as to the controversy before me. The controversy is not in regard to what the valuation should be. It is in regard to whether the threshold requirements stipulated by section 269C were met when the Competent Authority issued the said notice on November 14, 1977.
28. Mr. Dwarkadas, learned counsel for the petitioners, referred to the delay that had occurred in the acquisition proceedings. In his submission, such delay which remained unexplained had to be taken into account in considering whether or not acquisition proceedings under Chapter XXA should be struck down. I find it unnecessary, having regard to what I have already held, to go into this aspect.
29. In the result, the notice dated November 14, 1977, exhibit F to the petition, and the letter dated February 15, 1983, exhibit H, issued consequent thereupon are quashed and set aside.
30. No order as to costs.