Madras High Court
Ch. Kamala, Narasimha Looms And ... vs Appropriate Authority And Ors. on 6 November, 1998
Equivalent citations: [1999]240ITR63(MAD)
Author: R. Jayasimha Babu
Bench: R. Jayasimha Babu
JUDGMENT R. Jayasimha Babu, J.
1. These writ petitions are by the owners and the prospective purchasers as also by one of the tenants of the first floor of the property bearing Door No. 25, Wallace Garden III Street, Madras 34, comprised in S. No. 62/28, Block No. 13, measuring as extent of three grounds with a building thereon consisting of ground and first floors, each of the floors having about 2,200 sq. ft. of built up area. Their grievance is against the order made by the appropriate authority on October 29, 1994, directing compulsory purchase of the property at a discounted sale consideration which is less than the agreed price of Rs. 25 lakhs for each floor with undivided half-share in the land, to the two purchasers. The tenant of the first floor is a private limited company of which the purchasers of the first floor are directors. The tenant has been in occupation of that portion for over 30 years. The rent being paid by the tenant at the time the order was made by the authority was at Rs. 4,000 p.m.
2. The order of the authority was preceded by a show-cause notice, in which it was stated that the two transactions referred to in the notice, were relevant and comparable to the sale by a third party of two grounds and 2,207 sq. ft. to Alacrity Housing Limited. The rate per sq. ft. of land in that transaction was mentioned as Rs. 23.86 lakhs per ground if this building there was valued at its scrap value Rs. 21.62 lakhs per ground after providing for the depreciated cost of building. That rate when adjusted up to the date of agreement was mentioned as Rs. 37.91 lakhs per ground. That transaction was on July 9, 1994. The date of the second transaction mentioned was on May 4, 1992. That property was 19, Khadernawaz Khan Road. The land rate by taking scrap value of the building is mentioned as Rs. 21.34 lakhs. The modified rate as on the date of agreement is mentioned as Rs. 25.05 lakhs per ground. As to who modified the value in and the basis for the modification made is not set out in the show-cause notice. The document under which the two transactions referred to in the notice took place were also not enclosed to the notice. To the notice, the working sheet prepared by the Valuation Officer is enclosed. It was stated therein that the land value based on the scrap value in the transactions among the petitioners was Rs. 15,93,129. A statement of the calculation of the fair market value was also enclosed in which the property compared was one at 20, Khadernawaz Khan Road, with two grounds and 2,207 sq. ft. This property apparently is the one mentioned at Sl. No. 1 in the show-cause notice. The land rate of that property was taken at Rs. 21,62,000. The fair market value of this property was calculated at the rate of Rs. 21,62,000 per ground and the property at Rs. 36,67,000. The discounted value of the sale consideration was, therefore, held to be less by 40 per cent.
3. In the objections sent by the vendors and prospective purchasers after the show-cause notice was issued, they raised three grounds. Their case is that the properties were not comparable as Khadernawaz Khan Road is a long established and very well known commercial area where the land commands high premium and in that part of the road, where the plot of Alacrity Housing Limited is situate land value is very high and that value cannot be compared with the value of the land in Wallace Garden which is in the interior and is away from the main commercial road. They also objected on the ground that the property in this case is used only for residential purposes whereas the property sought to be compared with by the authority was potentially capable of commercial user. It was their further case that the valuation of this property on account of the fact that there was a tenant of 30 years standing had necessarily to be valued at a much lower price, the purchasers being none other than the directors of the tenant. All these objections were overruled by the authority. The authority brushed aside their objections that there was a tenant and, therefore, valuation is not comparable with the valuation for an untenanted land capable of commercial user on a prominent road, namely, Khadernawaz Khan Road, by observing that no eviction proceeding is pending against the tenant ; that the tenant was there for 30 years and that the rent had been increased to Rs. 4,000 per month. The authority merely made an observation that even if the tenancy is taken into account difference would be more than 50 per cent. The extent to which the tenancy contributed to reduction in the market value for the property was not discussed and reasons for and the extent to which the valuation should be discounted, was not stated.
4. The objection on the ground that the property situated on Khadernawaz Khan Road is not comparable, was rejected on the ground that the FSI permissible in respect of the subject property is 2.00 whereas the FSI permissible in respect of 20, Khadernawaz Khan Road, is 1.5 according to the sanctioned plan. The authority thought that FSI was determinative for the purpose of comparison. The locational advantages and also the premium attached to the land on that road were not considered and discussed.
5. As regards the objection on the ground that this property was situate away from the main road, that factor was not even specifically adverted to. The distance as between the main road and this road and the kind of approach to that road, the impact on the value by reason of its location as also the fact that the building is situated at a 30 road, were not discussed.
6. In addition to these defects in the order, it was submitted by counsel that the documents relied upon by the authority were not made available to the petitioners and despite a request for copies of those documents, the same were not furnished. This, according to the petitioners, resulted in prejudice and prevented them from pointing out from the documents those factors which would explain the higher value of the property covered by those documents, when compared to the value of the property in question.
7. Learned counsel for the petitioners submitted that the order of the authority cannot be sustained and is required to be set aside.
8. Learned senior counsel for the Revenue sought to support that order by reading the same. A perusal of that order does not in anyway detract from the validity of the criticism levelled against it by counsel for the petitioners. The non-consideration of the relevant aspects of the matter is evident. The property with which comparison has been made, is, on the face of it, not a property which can be regarded as comparable. The importance of the tenancy in estimating the value of the property has been practically ignored. The fact that the purchasers were none other than the directors of the tenant company has not been noticed though that is a factor which would explain the vendors' willingness to sell the property to them at a price which may even be less by 15 per cent, of the market value. The difference in the potential user of the land has also been ignored.
9. The material document on the basis of which the impugned order was made has not been made available to the petitioners. Though the authority is required to make an enquiry expeditiously that fact does not empower the authority to refuse to make available to the parties before it, the copies of the documents on which the authority seeks to rely to the prejudice of the parties. The rules of natural justice would require that opportunity provided to the parties is an effective opportunity. The materials which are to be used against them must be disclosed and if any documents are relied upon the same must be made available to those against whom it is sought to be used. The parties have a right to inform themselves of the contents of the documents relied upon by the authority, as those contents may disclose the distinguishing features if any between the properties which are the subject-matter of those documents and the property in respect of which Form No. 37-1 had been filed. Denial of such opportunity to the parties has vitiated the order and the order cannot be sustained for more reasons than one.
10. The time frame in the Act for making an order is to be computed from the date of filing of Form No. 37-1 even though notice was issued after considerable time had elapsed resulting in the authority having a very brief period within which to complete the enquiry and make an order. The order evidently was made in a hurry. It is for the authority to ensure that the show-cause notices are issued within a short period of time after Form No. 37-1 is filed.
11. Learned counsel for the petitioners submitted that the court should refrain from remitting the matter back to the authority as any such remand would result in prejudice to the parties having regard to the fact that the value of the property in a major urban centre like Madras has gone up considerably and to permit the authority to acquire the property after an interval of four years would only be to allow the Government to enrich itself at the cost of innocent parties. The denial of proper opportunity, it was submitted by counsel, was not the fault of the parties and for which the parties should not be penalised.
12. It was also the further submission that the scheme of Chapter XXC is such as to require the authority to make a final order within the time specified therein. That time frame has been prescribed with a view to protect the parties concerned as the parties should be free to transact their properties if compulsory purchase is not made and in case, compulsory purchase is made, vendors should receive the value immediately and the vendee would be free to look at other property and make his investment elsewhere. That object would be defeated if the authority were to be allowed several years after the initial order to proceed to make a further order and direct compulsory purchase by adopting the valuation which prevailed at the time of filing of Form No. 37-1.
13. Counsel in this context referred to a number of decisions of this and other High Courts.
14. Attention was invited to the decision of a Bench of this court in the case of Appropriate Authority, Government of India v. Naresh M. Mehta [1993] 200 ITR 773, wherein this court observed that the proviso to Section 269UD(1) specifically states that no order for the purchase by the Central Government shall be made after the expiry 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 and the writ petition which was filed subsequent to the expiry of these two months, within which period that it was to make either an order of purchase under Section 269UD(1) or to issue certificate of no objection, the matter could not be remanded back to the authority to consider the question of compulsory purchase. That decision is of no assistance to the petitioner. In that case, the authority had chosen not to make an order of compulsory purchase within the time stipulated and this court declined to grant time to the authority to make such an order in the writ petition filed by the parties to Form No. 37-1. Counsel referred to the decision of the Gujarat High Court in the case of Krishnakumar Agarwal v. Appropriate Authority [1996] 217 ITR 274, wherein that court on the facts and circumstances of that case declined to refer the matter back to the appropriate authority. In that case, the authority had passed an order without affording any opportunity to the petitioner therein. The court was also of the view in that case that the order of the authority was not otherwise sustainable. The court also observed that as to whether or not, the matter should be remitted back to the authority is in the domain of the discretion of the court.
15. Counsel also referred to the decision of the Kerala High Court in the case of CIT v. Dharmodayam Co. [1997] 225 ITR 686. That case did not arise under Chapter XXC but under Sections 269F and 269G. The order for compulsory acquisition by the original authority had been set aside by the Tribunal on appeal by the assessee and that the order of the Tribunal was the subject-matter of the challenge before the High Court. The High Court did not accede to the Revenue's prayer to set aside the order of the Tribunal and remit the matter for fresh consideration. The court confirmed the order of the Tribunal and no question of remanding the matter thus arose, for consideration. The court therein further observed that when the authority had failed to collect evidence and decides the matter or the evidence collected is found to be unworthy of credence, it would not be safe and proper exercise of power for an appellate authority under the Act to remit the matter to the Inspecting Assistant Commissioner with liberty to re-start the whole process and keep it pending against the transferor and transferee probably till the end of their lives and even thereafter. No such situation arises here. This is not an appeal. The jurisdiction of this court has been invoked to set aside the impugned order. As to what consequence should follow thereafter is a matter in the discretion of the court. The fear expressed by the learned judge in that decision that the matter was going on endlessly has no bearing herein as there is no difficulty in setting the time frame within which the authority should conclude its proceedings.
16. Counsel also relied on the decision of the Bombay High Court in the case of Mrs. Nirmal Laxminarayan Grover v. Appropriate Authority (Income-tax Department) [1997] 223 ITR 572, a decision rendered by a Division Bench. It was held therein that the relevant material for the conclusion that there has been undervaluation of the property must be disclosed and the details regarding the comparable cases also made known to the parties. The court held in that case that the order made by the authority was not in consonance with the basic principles of natural justice. The court therein found that the show-cause notice was defective. In the context of that finding, it declined to remit the matter to the authority to issue a fresh show-cause notice and thereafter hold the enquiry.
17. That decision is also not of much assistance to the petitioner. The defective show-cause notice cannot be made good subsequent to the final order. The defect alleged herein is not in the show-cause notice but in the order made by the authority.
18. Counsel finally relied on the decision of a learned single judge of the Calcutta High Court in the case of Vysya Bank Ltd, v. Appropriate Authority of Income-tax [1998] 233 ITR 560, wherein it was held that the authority had come to a finding by considering irrelevant materials which rendered the order perverse. It was found therein that the question of giving the authority liberty to make a fresh order could not arise as after the expiry of the period of three months the authority had no further jurisdiction to exercise such power of pre-emptive purchase.
19. With great respect, I am unable to agree with that view. The fixing of period of four months in the statute does not in any manner come in the way of the authority making an order afresh if the order made by it within the period allowed by law, is subsequently set aside by the High court and the matter remanded back to the authority for fresh consideration in accordance with law. The period fixed in the statute is the period within which the authority must make an order. If it fails to do so, it cannot make such an order at a subsequent point of time. The quashing of an order made within the time allowed by law, does not compel one to record that order as not having been made at all and ignore the fact that the jurisdiction had been exercised to make an order of compulsory purchase even though that order may have been subsequently set aside by the High Court or by the Supreme Court. It is for the court which exercises jurisdiction to decide in its discretion as to whether the facts and circumstances of the case warrant the remitting of the matter to the authority. The period of limitation prescribed in the statute within which period the authority is required to make the order does not come in the way of or prevent the superior courts from directing the authority to make a fresh order and when so directed, the original period of limitation prescribed in the statute will not operate in respect of the fresh order, which the authority is required to make.
20. The Supreme Court in the case of Director of Inspection of Income-tax (Investigation) v. Pooran Mall and Sons [1974] 96 ITR 390, wherein Section 132(5) of the Act was considered and it was held that the period of 90 days mentioned in that provision was not in all circumstances mandatory and it was open to the court in a writ petition to set side the order of the Income-tax Officer and direct a fresh disposal of the matter on the ground that no reasonable opportunity had been afforded to the affected party.
21. In the case of CIT v. National Taj Traders , while considering the scope of Section 33B, Sub-section (2)(b), of the Indian Income-tax Act, 1922, the court held that the limitation of two years mentioned therein, was applicable only to the suo motu orders of the Commissioner in revision and not for the orders made by him pursuant to the direction or order passed by the Tribunal under Sub-section (4) or by the higher authority. It was pointed out by that court that the principle that the taxing statute should be construed strictly is applicable only to charging provisions or provisions imposing penalty and not to those parts of the statute which contain machinery provision. Section 33B was held to be not a charging provision. In that case, the court referred to the case of Pooran Mall and Sons and observed, inter alia, as under (page 546) :
"It may be pointed out that in Section 132 there is no provision removing or relaxing the bar of limitation contained in Section 132(5) enabling the Income-tax Officer to pass an order afresh pursuant to any direction issued to him by a higher authority under Section 132(12) and even then this court took the view that the limitation prescribed under Section 132(5) will be applicable only to the initial order to be made by the Income-tax Officer and not to an order that would be made by him pursuant to a direction from the Board or notified authority."
22. The specification of the period of two months up to June 1993, and three months subsequent (hereto in the proviso under Section 269UD(1) therefore does not preclude the superior courts from directing the authority to make a fresh order after setting aside the one made within the time specified in the Act. The period of limitation specified in the section is not applicable to the fresh order so directed to be made.
23. This court therefore need not refrain from remanding the matter solely on the ground that the period of limitation mentioned in Section 269UD(1) is over, That limitation is confined only to the original order and not to the order directed to be made by this court after the original order is set aside.
24. As to whether the remand should be made is a matter which is entirely within the discretion of the court. The normal rule however is to remand the matter to the authority whose procedural error has vitiated the order to correct those errors after a fresh hearing and after following the requisite procedures. It was observed by the Supreme Court in the case of Pooran Mall and Sons [1974] 96 ITR 390, that the court in exercising its powers under article 226 has to mould the remedy to suit the facts of a case, and that the power to quash an order under article 226 can be exercised not merely when the order sought to be quashed is one made without jurisdiction in which case there can be no room for the same authority to be directed to deal with it. But, in the circumstances of a case, the court might take the view that another authority has the jurisdiction to deal with the matter and may direct that authority to deal with it, or where the order of the authority which has exercised the jurisdiction is vitiated by circumstances like failure to observe the principles of natural justice, in which case the court may quash the order and direct the authority to dispose of the matter afresh after giving the aggrieved party a reasonable opportunity of putting forward its case (page 395) "otherwise it would mean that where a court quashes an order because the principles of natural justice have not been complied with, it should not while passing that order permit the Tribunal or the authority to deal with it again irrespective of the merits of the case." There can therefore be no doubt whatsoever that on the quashing of the order, this court is not bound to fold its hands and in all circumstances refuse to remand the matter to the original authority, for fresh consideration in accordance with law.
25. This court and the other High Courts in the country have had to deal with a large number of petitions like the present one wherein orders of the appropriate authority directing compulsory purchase have been the subject-matter of challenge. The normal rule that has been adopted in these matters, has been to remand the matter to the authority. In cases where it is found that the order of the authority is vitiated not on account of want of jurisdiction, or its failure to make an order of compulsory purchase within the time specified in the relevant section and ground on which the order is set aside, is on the ground of breache of principles of natural justice or on the ground that material factors had not been considered, the normal rule is to remand the matter. In the present case, there are no extraneous circumstances which require a different course being adopted.
26. It is no doubt true that by reason of the lapse of time between the date of the order of the Tribunal and the date of the disposal of the writ petition, the market value of the property may have changed. Such change may result in prejudice to the parties if the authorities were to direct compulsory purchase after the matter is remanded back to the authority. That consideration alone cannot suffice to decline remitting the matter having regard to the fact that the authority under the provisions of the Act is required to make a final order within a relatively short period of time and on account of that limitation of time, procedural errors may have crept in. If in all cases, the court were to decline to remit the matter to the authority, even when the order had been quashed on account of procedural errors the very object of the provision would be defeated. I am therefore unable to accede to the prayer of the petitioners not to remit the matter back to the authority.
27. Before concluding it is necessary to advert to one other argument that was advanced by counsel for the owner. It was submitted that the show-cause notice did not set out that the transaction was being entered into with a view to evade tax and that there was no such finding in the final order also. This, it was submitted, vitiated the entire proceedings. Counsel referred to the decision of the Supreme Court in the case of C. B. Gautam v. Union of India [1993] 199 ITR 530. That decision does not support the submission of counsel. The court held therein in clear terms that in cases where the authority found that the market value is more than the apparent consideration by 15 per cent., there could be a presumption that the transaction was being entered into with an intent to evade tax and that such presumption was a rebuttable one. It was therefore for the parties to the transaction to rebut that presumption. A positive allegation or finding by the authority in the show-cause notice issued, or after the investigation in the final order, that the transaction was entered into with intent to evade tax is not an essential requirement for the validity of the order of compulsory purchase.
28. The impugned order is therefore set aside and the matter is remanded back to the authority to make a fresh order in accordance with law. Such orders shall be made within four months, of the receipt by it of a copy of this order. In making such order, the authority shall confine itself to the materials which are already on record and before proceeding to make a fresh order, it shall furnish to the parties copies of all the documents on which it proposes to rely. Parties shall also be given opportunity to be heard in person or through counsel. These writ petitions are disposed of accordingly. Consequently, no orders are necessary on the W. M. Ps. and are closed. No costs.