Madras High Court
Appropriate Authority, Government Of ... vs Naresh M. Mehta on 19 December, 1991
Equivalent citations: [1993]200ITR773(MAD), (1992)IMLJ572
JUDGMENT Abdul Hadi, J.
1. This writ appeal is against the order dated January 10, 1991, of Kanakraj J., in W.P. No. 16225 of 1990 (see [1991] 188 ITR 585). The said writ petition by the respondent herein is for a writ of certiorarified mandamus, to quash the impugned order dated September 19, 1990, of the appellant herein, declining to pass an order under section 269UD of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), in pursuance of the statement filed by the respondent herein and his transferors, under section 269UC of the Act, and to direct the appellant to pass an order granting a certificate of no objection under section 269UL of the Act for the sale of No. 94, Poes Garden Street, Cathedral Road, Madras-86, to him. The said writ petition was allowed as prayed for and hence this writ appeal by the respondent in the writ petition.
2. The respondent initially purchased, by a sale deed dated January 19, 1990, an extent of 2831 sq. ft. with superstructure thereon (out of a total extent of 8563 sq. ft. with superstructure thereon, bearing the abovesaid door No. 94, Poes Garden Street, Cathedral Road, Madras-86, comprised in R.S. No. 1567/32 part. Block No. 31, Mylapore Division, Madras, and owned by his vendor, Pushparani), for a consideration of Rs. 9.5 lakhs. Subsequently, on February 15, 1990, he entered into a sale agreement for purchasing the balance extent of 5732 sq. ft. with the superstructure thereon, from the same owner for a sum of Rs. 32.50 lakhs. (No doubt, in the sale agreement, apart from the abovesaid owner Pushparani, her children were also parties, though they were said to be having no right in the said property, but added as parties in the said sale agreement, only at the request of the purchaser by way of abundant caution.) Since, in the above sale agreement, the sale consideration was above Rs. 10 lakhs, the respondent as required under section 269UC of the Act (coming under Chapter XX-C) read with rule 48L of the Income-tax Rules, reduced the said agreement to the form of a statement prescribed under Form No. 37-I and submitted it to the appellant on March 9, 1990. Under section 269UD of the Act, the Central Government is given a pre-emptive power to purchase immovable property covered by the said Chapter XX-C at an amount equal to the amount of apparent consideration stated in the relevant sale agreement. That is why section 269UC of the Act read with rule 48L of the Income-tax Rules provides for submission of the abovesaid statement in the above-referred to Form No. 37-I. In case the Central Government is not choosing to exercise the said power and purchase the said property accordingly, section 269UL(3) of the Act provides that the appellant shall issue a certificate of no objection stating that the Central Government has no objection to the transfer of such property for an amount equal to the apparent consideration therefor, as stated in the agreement for transfer of the immovable property in question. The proviso to section 269UD also states that no order for the purchase by the Central Government, of the property in question, shall be made after the expiration of a period of two months from the end of the month in which the abovesaid statement (Form No. 37-I) is received by the appellant.
3. Now, in the above situation, after the abovesaid Form No. 37-I statement was submitted by the respondent, the appellant, however, by its letter dated May 17, 1990, stated that the said Form No. 37-I statement was "not a valid statement" under section 269UC(3) of the Act in view of the alleged defects and "rejected" the statement holding that the appellant "can neither issue a no objection certificate under section 269UL(1) of the Income-tax Act, 1961, nor issue an order for purchase under section 269UD(1) of the Income-tax Act, 1961". In the said letter dated May 17, 1990, the alleged defect pointed out is mainly that the alleged partition of the abovesaid property of a total extent of 8563 sq. ft. into two parts as stated above appear to be nothing but "an attempt to transfer the property by resorting to unauthorised sub-division".
4. It is further stated there as follows :
"The proposed partition, if effected, would result in the building in part (a) being bound on the northern and western sides by part (b) in a manner which is harmful to both parts. The proposed artificial division makes access to both parts extremely difficult and cumbersome."
5. The said letter also observed as follows :
"From a perusal of the physical features of part (a) stated to have been transferred, as indicated in the statement above, there is reason to believe that keeping in view the declared consideration of Rs. 32.50 lakhs for part (b) proposed to be transferred, the value of part (a) already transferred was significantly more than Rs. 10 lakhs due to which reference should have been made to the appropriate authority. The transfer stated to have been made without obtaining a certificate from the appropriate authority is to that extent in violation of section 269UL(1) of the Income-tax Act, 1961. No clearance from the municipal corporation has been produced in support of the extremely odd physical partition stated to have been made."
6. On receipt of the said letter dated May 17, 1990, the abovesaid Pushparani replied by her letter dated June 20, 1990, inter alia, stating "there is no question of any unauthorised sub-division which arises at the stage of purchase or sale of any property or part thereof. This is also clarified in the enclosed legal opinion.... I have a marketable property with marketable title and have negotiated it for the stated consideration, and as required by section 269UC, we have submitted all necessary details of the agreement to you for necessary NOC.... I have been trying to sell the property left behind by my husband but was unable to do so for a long time. I have to sell it in parts and pieces, which I did since 1982. Now, Mr. Naresh Mehta (petitioner) has come forward to purchase the balance of the property left over". So saying, the reply concluded stating "we have placed all the materials and information available with us before your goodself and once again request you to issue the certificate of no objection as per section 269UL(3) without further delay".
7. Then, the appellant wrote to the parties on July 12, 1990, asking them to file another statement in Form No. 37-I. Then, the respondent and his vendors once again filed another Form No. 37-I statement on July 25, 1990, giving the necessary particulars again in the said form. Then finally, the above-referred to impugned order dated September 19, 1990, was passed by the appellant once again rejecting the statement, holding that, "in view of the defects in the property proposed to be conveyed, we are unable to either purchase the property proposed to be conveyed, we are unable to either purchase the property under section 269UD(1) or issue a certificate of no objection under section 269UL". The impugned order also gave almost the very same reasons as already mentioned in their letter dated May 17, 1990. It further stated, inter alia, as follows :
"The above factors show that when the property was artificially bifurcated and part of it sold in February, 1990, the parties to the transaction had already decided to sell the entirely of the property to the same person. Even though this was the ultimate object, an artificial partition was created and a part of that sold in February, 1990, for a consideration below Rs. 10 lakhs. If the rates obtaining for the proposed transaction are applied to the transaction which is already completed, the value of the property already sold would amount to not less than Rs. 15 lakhs. The parties to the transaction resorted to splitting the property in order to avoid interference by the authorities constituted under Chapter XX-C of the Income-tax Act."
8. On the abovesaid rival contentions, the learned judge who decided the writ petition came to the following conclusions (at pages 588, 589) :
"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... Either the appropriate authority should be prepared to exercise the right to purchase with all the defects, shortcomings and limitation or he should issue a certificate of no objection. I do no 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 . 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... 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."
9. The learned judge, therefore, allowed the writ petition.
10. Now before us, learned counsel for the appellant very much relied on the decision in McDowell and Co. Ltd. v. CTO , where five learned judges of the Supreme Court observed that tax planning might be legitimate, provided it was within the framework of the law and colourable devices could not be part of tax planning and it was wrong to encourage or entertain the belief that it was honourable to avoid the payment of tax by dubious methods. But, in the present case, first of all, there is no tax evasion as such, nor is there at least any proof or even an allegation in this proceeding that any probable tax has been evaded and if so by what means the respondent has done it. No doubt Chapter XX-C was introduced in the Act to circumvent tax evasion by undervaluation in transfer deals. But, when there is no material showing that any probable tax has been evaded, we do not think that the said decision would apply to the present proceeding. That apart, in the subsequent decision of the Supreme Court in Union of India v. Playworld Electronics Pvt. Ltd. , two learned judges of the Supreme Court have, on the facts of the before them, observed as follows (at page 317) :
"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 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. Unfortunately, in the instant case, the facts have not been found with such an approach by the lower authorities and the High Court had no alternative on the facts as found but to quash the show-cause and the demand notices."
11. In this context, learned counsel for the respondent herein points out that nowhere the appellant has stated that the property agreed to be sold has been undervalued. Learned counsel points out that the impugned order or the appellant's letter dated May 17, 1990, only states that the abovesaid property already sold for Rs. 9.5 lakhs has been undervalued, but nowhere it is stated that the property that is agreed to be sold now is undervalued. We have also gone through the impugned order as well as the earlier letter dated May 17, 1990, and find that what is stated by learned counsel for the respondent is correct. Learned counsel also points out that since the appellant speaks about the valuation of the property already sold, as stated above, it shows that the appellant has applied its mind to the question of valuation and that if really, the appellant felt that even the property agreed to be sold now has been undervalued, it would have stated so in the impugned order in its abovesaid earlier letter. We think there is force in this argument. Further, on a question put forward by us, learned counsel for the appellant also represents that there is no law to reopen the sale already held for Rs. 9.50 lakhs.
12. Learned counsel for the appellant also relied on the decision in ITO v. M. K. Mohammed Kunhi [1969] 71 ITR 815 (SC) to contend that, when there is a power either to purchase the property agreed to be sold or to issue a no objection certificate, impliedly, there is an incidental power to say that the appellant could not exercise either of the said powers. This contention has no merit, because what is contended by learned counsel cannot be considered as an incidental power at all.
13. On the other hand, learned counsel for the respondent relies on the decision in Appropriate Authority v. Tanvi Trading and Credits P. Ltd. arising from the decision of the Delhi High Court reported in Tanvi Trading and Credits P. Ltd. v. Appropriate Authority . He also relied on the decisions in Mrs. Satwant Narang v. Appropriate Authority [1991] 188 ITR 656 of the Delhi High Court and Kelvin Jute Co. Ltd. v. Appropriate Authority . In the above referred cased in Tanvi Trading and Credits P. Ltd. [1991] 188 ITR 623, the Delhi High Court observed as follows (at page 628) :
"As we read section 269UD, it is clear that the only right which it confers on the appropriate authority is to enable it to make an order for purchase of the immovable property at an amount equal to the amount of the apparent consideration.... The said provision does not give jurisdiction to the appropriate authority to adjudicate upon the legality of the transaction which is proposed to be entered into by the applicant. It is to be remembered that Chapter XX-C was incorporated in an effort to curb sales of immovable properties for an apparent consideration which would be less than the actual consideration. In other words, the effort was to see that immovable property is not transferred by taking sale consideration in black. Section 269UD was not concerned with the validity of the sale. If there was any impediment or defect in the title of the transferor or if there was any other law which was violated by such a sale, the same was to be of no consideration to the appropriate authority except that it could take all such factors into consideration while making up its mind whether to exercise the pre-emptive right of purchase or not. The appropriate authority cannot, on grounds of alleged infringement of law, exercise its right of purchase and, at the same time, refuse to grant the certificate sought by the seller."
14. When the same matter was taken up to the Supreme Court, in the above-referred to decision in Tanvi Trading and Credits P. Ltd. , the Supreme Court dismissed the special leave petition with the following observations (at page 308) :
"We agree that two alternatives are open under the scheme of the legislation : (1) the Union of India through the appropriate authority could buy the property, or (ii) in the event of its decision not to buy, it has to issue a "no objection certificate" leaving it open to the parties to deal with the property. In that view of the matter, the High Court was right in its conclusion."
15. In this connection, no doubt, learned counsel for the appellant brought to our notice the decision in Nawab Sir Mir Osman Ali Khan v. CWT to contend that the dismissal of the special leave petition does not mean affirmation of the High Court's decision. The relevant observation in the above-referred to decision in Nawab Sir Mir Osman Ali Khan is as follows (a page 898) :
"It is, however, well-settled that dismissal of a special leave petition in limine does not clothe the decision under appeal in the special leave petition with the authority of the decision of this court. See, in this connection, the observations in Daryao v. State of U.P., . It may be mentioned, as was rightly observed by a Full Bench of the Allahabad High Court in Sahu Govind Prasad v. CIT , that special leave is a discretionary jurisdiction and the dismissal of a special leave petition cannot be construed as affirmation by this court of the decision from which special leave was sought for."
16. We find that in the above-referred to decision in Daryao, , the Supreme Court, dealing with the question of bar of res judicata to a petition before the Supreme Court under article 32, on the ground of earlier dismissal of a writ petition by the High Court under articles 226 of the Constitution of India, observed thus (at page 1466) :
"If the petition is dismissed in limine without passing a speaking order than such dismissal cannot be treated as creating a bar of res judicata. It is true that, prima facie, dismissal in limine even without passing a speaking order in that behalf may strongly suggest that the court took a view that there was no substance in the petition at all; but in the absence of a speaking order it would not be easy to decide what factors weighed in the mind of the court and that makes it difficult and unsafe to hold that such a summary dismissal is a dismissal on merits and as such constitutes a bar of res judicata against a similar petition filed under article 32."
17. Further in the above-referred to decision in Sahu Govind Prasad , the Allahabad High Court observed as follows :
"The Supreme Court dismissed the special leave petition. No reasons are mentioned. May be, the case was dismissed for lack of a copy of the judgment. Special leave is a discretionary jurisdiction of the Supreme Court. It cannot be predicated that by dismissing the special leave petition the Supreme Court affirmed the decision of the Andhra Pradesh High Court on its merits."
18. From the abovesaid observations, it is clear that when the Supreme Court dismisses the special leave petition without assigning any reason, there may be scope for saying that the Supreme Court has not, by such non-speaking order, affirmed the decision by accepting all the reasons given by the High Court. But, where the Supreme Court gives its opinion that the conclusion reached by the High Court is correct and dismisses the special leave petition, then it cannot be said at all that the Supreme Court has not affirmed the decision of the High Court. In the present case, as already noted, the Supreme Court in the above-referred to decision in Tanvi Trading and Credits P. Ltd. specifically held that "the High Court was right in its conclusion". Therefore, there can be no doubt that the above-referred to decision in Tanvi Trading and Credits P. Ltd. has been affirmed by the Supreme Court in the abovesaid decision reported in Tanvi Trading and Credits P. Ltd. .
19. We also find that in Mrs. Satwant Narang v. Appropriate Authority referred to above also, it was held that the jurisdiction of the appropriate authority was only limited to either pass an order, within the specified period, for purchase of the property by the Central Government for the consideration recorded in the agreement or to issue a no objection certificate for transfer at that consideration, and that while considering the statement in Form No. 37-I, the appropriate authority had only to examine the adequacy of the consideration to decide whether to order purchase or to grant a no objection certificate and that the appropriate authority had no jurisdiction to go into the object or the purpose of the transaction or its legality or validity.
20. Further in Kelvin Jute Co. Ltd. v. Appropriate Authority , referred to above, the Calcutta High Court has also expressed the same view as follows (at page 463) :
"When there is a proposal for sale, the appropriate authority has either to purchase the property by exercising the right under section 269UD of the Income-tax Act and if it is not inclined to purchase, to issue a 'no objection' certificate. The third alternative is not left open as the stage is premature and that the transferor has to better his title."
21. In the present case, it cannot also be said that there was any defect in the form in which the statement was given under the above-referred to Form No. 37-I. So, the rejection of the said statement by the appellant was also not justified.
22. The last argument that was addressed by learned counsel for the appellant is that even if the impugned order had to be quashed, the learned judge should have given an opportunity to the appellant to consider once again and pass a fresh order regarding the pre-emptive power given to the Central Government under Chapter XX-C. But, we do not think that this contention can be accepted on the facts of the present case. First of all, even in the impugned order, it is specifically concluded as follows :
"It is regretted that we are unable to either make an order of purchase under section 269UD(1) or issue a certificate of no objection as contemplated under section 269UL...."
23. So, when the appellant has already concluded that it is unable to make the purchase, it cannot be given a fresh opportunity to consider and pass a fresh order regarding purchase. That apart, as already pointed out, the first proviso to section 269UD(1) of the Act specifically states that no order for the purchase by the Central Government shall be made after the expiration of a period of two months from the end of the month in which the abovesaid statement was received by the appropriate authority. Even taking into account the statement in Form No. 37-I that was submitted for the second time on July 23, 1990, the said period of two months expired by September 22, 1990, itself. The writ petition was filed only subsequently in October, 1990. If at least the writ petition was filed prior to the expiry of the said period and this court had granted stay of further proceedings within the said two months' period, it can be argued that further time should be granted by the court when it disposes of the writ petition. But, that is not the case here. Therefore, this last argument also cannot be entertained.
24. In the result, the writ appeal is dismissed. However, in the circumstances of the case, there will be no order as to costs.