Bombay High Court
Iol Limited vs S.C. Prasad And Others on 4 October, 1994
Equivalent citations: 1995(2)BOMCR452, [1996]217ITR52(BOM), 1995(1)MHLJ346
JUDGMENT M.L. Pendse, J.
1. Rule returnable forthwith. Shri Sethna and Shri Kalyaniwala waive service on behalf of respondents Nos. 1 to 4 and 5, respectively. By consent, petition taken on board and called out for hearing. Heard counsel.
2. By this petition under article 226 of the Constitution, the petitioners are challenging the legality of order dated June 17, 1994, passed by the appropriate authority in exercise of the powers conferred under section 269UD of the Income-tax Act, 1961. The facts which gave rise to the passing of the order are required to be briefly stated to appreciate the grievance of the petitioners.
3. The petitioners are the owners of property bearing city survey Nos. 168 and 168/1 to 168/76 situated at L. B. S. Marg, Ghatkopar (West), Bombay. The petitioners agreed by an agreement dated March, 10, 1994, to transfer development rights in respect of part of the property to respondent No. 5. The earnest money agreed to be paid under the agreement was Rs. 1,15,00,000 and the balance consideration of Rs. 10,36,00,000 was to be paid within five months from the date of signing of the agreement, with a grace period of one month, subject to the following formalities being complied with :
(a) obtaining of clearance from the appropriate authority under section 269UL(3) of the Income-tax Act, 1961;
(b) making out a marketable title to the property free from encumbrances, charges and/or claims and free from all reasonable doubts. The making out of title marketable shall not include the obtaining of permissions/clearances from the urban land ceiling authorities and the sanction of plans from the Bombay Municipal Corporation.
4. In pursuance of the agreement, the petitioners and the transferees filed Form No. 37-I before the appropriate authority constituted under Chapter XX-C of the Income-tax Act, on March 15, 1994. By an impugned order, the appropriate authority held that the proposed transfer, being in violation of the law of the land, is void ab initio and, therefore, cannot be acted upon. The authority felt that the agreement of transfer is in violation of the provisions of the Urban Land (Ceiling and Regulation) Act, 1976, and, therefore, it will not be lawful to act on the agreement. Based on this finding, the authority came to the conclusion that the application filed in accordance with Form No. 37-I is non est. The order passed by the authority is under challenge.
5. Shri Dastoor, learned counsel appearing on behalf of the petitioners, submitted that the assumption of the authority that the agreement was in breach of the provisions of the Urban Land (Ceiling and Regulation) Act is entirely incorrect. Learned counsel submitted that it was not open to the authority to examine the validity and legality of the agreement and declare that the application filed should be treated as non est. Shri Dastoor submitted that the jurisdiction of the authority constituted under Chapter XX-C is either to grant no objection certificate or pass an order of purchase under section 269UD of the Act. Learned counsel submitted that in accordance with the provisions of Chapter XX-C, if the purchase order is not passed by the appropriate authority within the stipulated time, then the authority is bound to issue a no objection certificate. Learned counsel, in support of the submission, relied upon the decision of this court in Irwin Almeida v. Union of India [1992] 197 ITR 609 and a decision of this Division Bench delivered on September 1, 1994, in Writ Petition No. 438 of 1994 J. Gala Enterprises Estate and Investments Pvt. Ltd. v. W. Hassan, CIT [1995] 216 ITR 110. We find considerable merit in the submission urged by learned counsel. The two decision, on which reliance was placed by learned counsel, held that it is not open to the appropriate authority to decline to issue a no objection certificate or to pass a purchase order and record the finding that the agreement is not valid. In Almeida's case [1992] 197 ITR 609 (Bom), it was held by the Division Bench that the provisions of Chapter XX-C of the Income-tax Act confer powers upon the authority only to determine whether the property agreed to be transferred should be purchased by the Central Government or not. It is neither the function nor the jurisdiction of the authority to examine whether the transferor has any transferable interest in the property proposed to be transferred. It was further observed that the appropriate authority is not conferred with jurisdiction to determine the right or title to the property. The Division Bench observed that the appropriate authority can exercise jurisdiction as conferred by the Act and shall not enter into enquiry which is de hors or extraneous to the provisions of the Act. The unreported decision of the Division Bench (since reported in [1995] 216 ITR 110) reiterates the view taken in Almeida's case [1992] 197 ITR 609 (Bom.) It is unfortunate that it spite of the decisions of the Division Benches of this court, the appropriate authority is still passing orders declaring that the agreements are non est.
6. The assumption of the authority that the agreement is in violation of the provisions of the Urban Land (Ceiling and Regulation) Act is equally erroneous. Section 20 of the Urban Land (Ceiling and Regulation) Act, inter alia, provides that the Government may, by order, exempt any vacant land in excess of the ceiling limit subject to such conditions, if any, as may be mentioned in the order and upon issuance of such order, such vacant land would be exempted from the provisions of Chapter X of the Act. The petitioner had applied for exemption in accordance with the provisions of section 20(1) of the Urban Land (Ceiling and Regulation) Act and the State Government, by order dated February 20, 1986, granted exemption by stipulating certain conditions. The conditions were -
(a) The land exempted shall be used by the transferor for his own benefit for the purpose of industry and for no other purpose.
(b) The transferor shall not transfer the exempted land to any person by way of sale, mortgage, gift, lease or otherwise...... and
(c) Notwithstanding anything contained in clause (b) above, if the transferor desires to transfer the exempted land to any other person by way of sale, mortgage, gift, lease, sale or otherwise, he shall apply to the State Government for prior permission for such transfer. The State Government may, after holding such enquiry as it may deem fit, grant the necessary permission, subject to such conditions as the State Government may impose.
7. The State Government, while granting permission to transfer, normally puts a condition that the transferor shall deposit with the State Government the difference between the market price of the land so exempted on the date of exemption and the price at which it could have normally been acquired under the Act. The permission is granted by the Government after the realisation of difference in the price. The appropriate authority felt that unless the State Government grants permission to transfer, it is not open to the petitioners to transfer development rights. The assumption of the authority is entirely erroneous and unsustainable. The authority overlooked that the State Government had ample powers to grant permission and such permission need not have been sought by the transferor unless and until the authority had issued a no objection certificate. In case the appropriate authority had decided to purchase the property by passing the necessary order, then it was futile for the transferor to apply for transfer of development rights in favour of the transferee. In our judgment, it was wholly irrelevant for the appropriate authority to examine whether the transferor could have transferred the development rights without the prior permission of the Collector.
8. In this connection, it will be appropriate to refer to the decision Jambu Rao Satappa Kocheri v. Neminath Appayya Hanamannayar, . In that case, a contract of purchase was entered into with the knowledge of the parties that the purchaser will be in possession of lands in excess of the ceiling under section 5 of the Bombay Tenancy and Agricultural Lands Act. The purchaser instituted proceedings in the court for a decree for specific performance of the agreement and for the possession of the land. The trial court dismissed the suit holding that the agreement if enforced would result in the transgression of the provisions of the Bombay Tenancy and Agricultural Lands Act. The High Court reversed the decree of the trial court and the Supreme Court upheld the decree holding that the provisions of section 23 of the Contract Act were not attracted as the consideration of the agreement was not unlawful and there was no provision in the Act which expressly or by implication forbids a contract for sale of agricultural lands. The Legislature had merely declared that the lands in excess of the ceiling shall be under the disposal of the Government. The Supreme Court further observed (at page 1360) :
"An agreement to sell land does not under the Transfer of Property Act, create any interest in the land in the purchaser. By agreeing to purchase land, a person cannot be said in law to hold that land. It is only when land is a conveyed to the purchaser that he holds that land. Undoubtedly, the respondent was holding some area of land at the date of the agreement and at the date of the suit, but on that account it cannot be inferred that by agreeing to purchase land under the agreement in question his object was to hold in excess of the ceiling.... The Act contains no general restrictions upon such transfers, and unless at the date of the acquisition the transferee holds land in excess of the ceiling, the acquisition to the extent of the excess over the ceiling will not be invalid..... The court, it is true, will not enforce a contract which is expressly or impliedly prohibited by statute, whatever may be the intention of the parties, but there is nothing to indicate that the Legislature has prohibited a contract to transfer land between one agriculturist and another."
9. In the present case, by the conditions imposed while granting exemption under section 20 of the Urban Land (Ceiling and Regulation) Act, the State Government has merely provided that transfer will not be valid if prior permission is not taken. In other words, there is no blanket ban on transfer but only permission is required.
10. Shri Sethna relied upon the observations in the decision in S. Vasudeva v. State of Karnataka to urge that the exemption under section 20 of the Urban Land (Ceiling and Regulation) Act cannot be granted in cases where the grantee desires to transfer the land for making construction or making profits and exemption can be granted only to avoid undue hardship. There cannot be any debate about the claim made by learned counsel, but what is overlooked is that in the present case, the exemption was granted by the State Government under section 20 of the Act in year 1986 with a condition that the transfer can be permitted only with the approval of the State Government. The observations made in the decision of the Supreme Court, in our judgment, do not support the claim of Shri Sethna that the Government has no power to permit the grantee exemption to transfer the land.
11. It is necessary to reiterate that it is not open to the appropriate authority constituted under section 269UB of the Act to travel beyond the jurisdiction conferred under section 269UD of the Act. The appropriate authority can only make an order of purchase for the Central Government or issue a no objection certificate. It is not open to the appropriate authority to declare the agreement non est. Shri Sethna submitted that as the appropriate authority had failed to exercise the jurisdiction, proceedings should be remanded back to the appropriate authority to rectify the mistake as prescribed under section 269UJ of the Act. The submission is devoid of any merit and the request cannot be accepted for more than one reason. In the first instance, the provisions of section 269UJ confer power upon the appropriate authority to rectify any mistake apparent from the record and the power does not enable the authority to pass fresh orders. The power of rectification cannot be equated with the power of passing fresh orders for failure to exercise jurisdiction. The provisions of Chapter XX-C prescribe a time bound programme. The transferor or transferee is required to submit the agreement along with Form No. 37-I within a fortnight from the date of the agreement to the appropriate authority. The appropriate authority is required to determine whether a no objection certificate should be granted or a purchase order in favour of the Central Government should be passed within a period of three months from the date of receipt of Form No. 37-I. In case the authority passes the purchase order, then the Central Government is required to deposit the amount within a period of one month from the end of the month in which the order of purchase is passed by the authority. The failure to observe the time-limit leads to abrogation of the right. In case the appropriate authority fails to pass orders at the expiry of three months from the date of receipt of Form No. 37-I, then the authority is bound to issue a no objection certificate in favour of the transferor. The request made by Shri Sethna to remit the proceeding back to the appropriate authority would completely upset the time period fixed by Chapter XX-C of the Act. The appropriate Authority cannot be conferred with fresh jurisdiction to pass orders after the expiry of the stipulated period, prescribed under section 269UD of the Act. In our judgment, the prayer seeking a remand to exercise the power of rectification under section 269UJ cannot be granted. Indeed, it has come to our notice in another matter that when a request was made by the transferor, where an identical mistake was committed by holding that the agreement was non est, the appropriate authority refused to consider the application on the ground that the power of rectification under section 269UJ does not confer jurisdiction on the authority to set aside the order declaring the agreement non est. In these circumstances, the impugned order is required to be set aside and the petitioners are entitled to the relief.
12. Accordingly, rule is made absolute in terms of prayer (b). In the circumstances of the case, there will be no order as to costs.