Gujarat High Court
Shriniketan Members Association And ... vs Appropriate Authority And Ors. on 20 October, 1995
Equivalent citations: [1996]219ITR359(GUJ)
Author: M.S. Shah
Bench: M.S. Shah
JUDGMENT M.S. Shah, J.
1. This petition under Art. 226 of the Constitution of India challenges the order dt. 31st July, 1995 passed by the Appropriate Authority under s. 269UD(1) in Chapter XX-C of the IT Act, 1961 (hereinafter referred to as "the Act"). The petitioner has also prayed for an order directing respondent no. 1 to issue no-objection-certificate in terms of s. 269UL of the Act.
2. On 27th March, 1995 the petitioner on the one hand and respondents Nos. 3 to 5 on the other hand entered into an agreement for purchase of the property in question, being land with building admeasuring about 1961 square metres for a consideration of Rs. 1,75,90,125. The petitioner and respondents Nos. 3 to 5 submitted Form 37-I before Appropriate Authority on 6th April, 1995. On 11th July, 1995 the Appropriate Authority issued notice under s. 269UD(1A) of the Act to petitioners and respondents Nos. 3 to 5 to show cause as to why the Appropriate Authority should not exercise power of pre-emptive purchase as the Appropriate Authority was satisfied that the stated and discounted consideration of the property under consideration (PUC) is lower by more than 15 per cent and it has been kept so with a view to avoid taxes. Respondents Nos. 3 to 5 submitted their reply to the Appropriate Authority on 25th July, 1995 along with objections dt. 24th July, 1995 from Shri J. B. Patel, a Government registered valuer. Thereafter, by order dt. 31st July, 1995 (Annexure "F" to the petition), the Appropriate Authority has exercised power of pre-emptive purchase under s. 269UD(1) of the Act. By another order dt. 31st July, 1995 (Annexure 'G' to the petition), in exercise of powers under s. 269UE(2) of the Act, the Appropriate Authority directed respondents Nos. 3 to 5 to deliver the vacant possession of the property under consideration. It is the aforesaid orders dt. 31st July, 1995 passed in exercise of s. 269UD(1) and s. 269UE(2) of the Act which are assailed in the present petition.
3. At the hearing of this petition, the learned counsel for the petitioners contended that :
(1) the Appropriate Authority had failed to determine the fair market value of the PUC and that the finding given by the Appropriate Authority that the PUC is comparable to the Sale Instance Property (SIP) is so unreasonable that no reasonable person would arrive at such a conclusion. Further the sale instance quoted by the transferors ought to have been accepted by the Appropriate Authority;
(2) the impugned order under s. 269UD(1) is even otherwise bad in view of the fact that the Appropriate Authority has not given any finding to the effect that the apparent consideration was understated with a view to avoiding income-tax.
4. In support of the first contention, the learned counsel for the petitioners submitted that the PUC was in a residential zone and was not on the Ashram Road. The PUC was at a distance of about 300 metres away from the main Ashram Road-Usmanpura crossing, whereas the SIP one was at a distance of only 15 metres from the Ashram Road and that too opposite the Gujarat Vidyapith and nearer to Ajanta Commercial Centre which are in the commercial zone of the city of Ahmedabad. The learned counsel further pointed out that use of the SIP-2 is also commercial and its location was in a potential commercial area. It was further submitted that 2 SIPs were smaller plots and were, therefore, bound to fetch higher prices. It was also submitted that the PUC is within 300 metres from Usmanpura mosque and, therefore, under the Ancient Monuments Act, permission for construction is to be obtained from the concerned authority at Delhi. It was also submitted that under the agreement, the vendors have agreed to purchase 3 residential flats for residential use in the superstructure to be constructed on the said land, which shows that the petitioners are going to construct residential premises and not commercial shops or offices on the land in question with a further rider that the petitioners were to provide such flats at 20 per cent discount. Till the constructed flats are handed over to the vendors, the purchasers had to provide three-bed room flats to the vendors. Considering that since the construction of the residential blocks is going to take about 3 years and that the petitioners shall have to pay a monthly rent of about Rs. 15,000, for each such flat, the petitioner will have to spend about Rs. 5,40,000 for 3 years, which would be an additional bundren of Rs. 375 per square metre by way of additional price of the PUC. The petitioners further pointed out that the Government registered valuer had, in his objections dt. 24th July, 1995, pointed out the facts regarding non-comparability of the PUC with SIPs and that the Government registered valuer had given comparable cases where no-objection-certificate was given by the Appropriate Authority. The learned counsel further pointed out that the petitioners were to bear full stamp duty and registration charges which would be substantial looking to the consideration being Rs. 1.75 crores.
5. It was then submitted by the learned counsel for the petitioners in support of his second contention that the impugned order is conspicuously silent about the motive to evade tax which is sine qua non for the pre-emptive purchase by the Appropriate Authority, as laid down by their Lordships of the Hon'ble Supreme Court in the case of C. B. Gautam vs. Union of India & Ors. (1993) 199 ITR 530 (SC) and subsequent decisions of this Court.
6. There is no affidavit in reply on behalf of the respondents.
However, Shri M. J. Thakore, learned Standing Counsel for the Revenue has opposed the petition on behalf of respondents Nos. 1 and 2 and has contended that the Appropriate Authority has considered all the relevant facts and circumstances and has arrived at the conclusion that the apparent consideration is less than the market value of the PUC by more than 15 per cent and that, therefore, the order is not required to be interfered with.
7. Having considered the rival contentions and the material on record, in our opinion, the petition deserves to be allowed, as the impugned order is vitiated by non-application of mind inasmuch as the Appropriate Authority has passed the impugned order dt. 31st July, 1995 without arriving at a specific finding that it was with a view to evade tax that the apparent consideration has been understated in the agreement. In the case of C. B. Gautam vs. Union of India (supra), their Lordships of the Hon'ble Supreme Court examined the scope and ambit of the powers conferred on the Appropriate Authority under Chapter XX-C of the Act and have held that the very historical setting in which the provisions of this Chapter XX-C were enacted, suggests that it was intended to be resorted to only in cases where there is an attempt at tax evasion by significant undervaluation of immovable property agreed to be sold. It was further held that if the Appropriate Authority concerned is satisfied that, in an agreement to sell immovable property in such areas as set out earlier, the apparent consideration shown in the agreement for sale is less than the fair market value by 15 per cent or more, it may draw a presumption that this undervaluation has been done with a view to evade tax. Of course, such a presumption is rebuttable and the intending seller or purchaser can lead evidence to rebut such a presumption. Moreover, an order for compulsory purchase of immovable property under the provisions of s. 269UD requires to be supported by reasons in writing and such reasons must be germane to the object for which Chapter XX-C was introduced in the IT Act, namely, to counter attempts to evade tax.
8. The aforesaid decision of the Hon'ble Supreme Court came to be followed by this Court in the case of Anagram Finance Ltd. vs. Appropriate Authority and in Special Civil Applications Nos. 3853 of 1995 and 5328 of 1995, both decided on 19th Sept., 1995. In Special Civil Application no. 3853 of 1995 [since reported as Krishnakumar Agrawal & Anr. vs. Appropriate Authority & Anr.] this Court has held as under : "Thus necessary concomitants of exercise of powers under s. 269UD(1) are that firstly the Appropriate Authority must arrive at a decision that there is significant undervaluation of the property by 15 per cent or more and secondly, such undervaluation is an attempt at tax evasion. It is only on the existence of second indicia and not merely in the case of undervaluation that the Authority has been empowered to have resort to the power of pre-emptive purchase. It is true that in a case of significant undervaluation of the property to the extent of 15 per cent, the Appropriate Authority may draw a presumption about undervaluation having been done with a view to evading tax, a presumption which is rebuttable. However, such presumption is not an obligation under statutory provision. It is for the Appropriate Authority to raise presumption or not on the basis of the estimated valuation. Whether such presumption has in fact been resorted to and has not been rebutted must in our opinion be reflected in the order which is finally passed by the Appropriate Authority disclosing application of mind to all available material on record..... Its satisfaction about the facts must be reflected in the order and cannot be left to the guess work or for raising the presumption by the Court in favour of the Appropriate Authority, if the order is challenged. The order must speak for itself. The impugned order in our opinion, does not even whisper about the satisfaction of Appropriate Authority about the undervaluation being with an intention to evade tax. It must be noticed that the presumption is rebuttable one and what evidence is required to rebut depends upon facts and circumstances of each case. The presumption may even be rebutted, without leading evidence, on the basis of material already available on record."
9. Thereafter, in the decision dt. 19th Sept., 1995 rendered in Special Civil Appln. No. 5328 of 1995, this Court held as under :
"It may further, be noticed that if in the estimate of Appropriate Authority apparent consideration of the property situated in the agreement to sell is less by 15% or more of its fair market value, the presumption of understatement having been made with the intention to evade the tax may be raised by it. However, such presumption is not a statutory presumption which is mandatorily required to be drawn in all cases....."
" Mere finding of understatement, without recording the conclusion of the Appropriate Authority himself, about nexus between understatement of consideration and attempt to tax evasion, it is not permissible to raise presumption that Appropriate Authority has also found that such understatement was an attempt to evade the tax when such an order is challenged before Courts. It is to be seen that for element of a nexus being present with the understatement of consideration and attempt to evade tax, it is essential that apparent consideration is not the real consideration. Therefore, merely on the finding that the apparent consideration is less than fair market value without there being any satisfaction that the apparent consideration is not real consideration, the nexus cannot be established with an attempt to evade tax. Therefore, it is also necessary in the chain of decision making not only to arrive at conclusion of the differentiation but it is required that the fair market value of the property concerned is arrived at and a conclusion is reached that apparent consideration is not the real consideration."
10. The relevant part of the impugned order in the instant case reads as under :
"The discounted consideration shown in Form No. 37-I is Rs. 8491 per sq. mt. As such the understatement in the discounted (net) consideration of the PUC as compared to its fair market value is by about 34% which is far higher than the limit of 15% set out by the Hon'ble Supreme Court in C. B. Gautam's case (supra). It is also in conformity with the various decisions of the Hon'ble Gujarat High Court on the same point. Whatever may be the margin of error in our estimate of the fair market value the understatement in the consideration of PUC is very high and could not be reconciled by the parties.
In view of the above findings we are satisfied that it is a fit case for pre-emptive purchase under s. 269UD(1) of the IT Act, 1961."
11. There is not a whisper about satisfaction of the Authority as to whether the difference between the apparent consideration and fair market value is on account of any attempt or intention to evade tax. The order, therefore, clearly falls short of the requirement that the power under s. 269UD of the Act is to be exercised only in the case where the Appropriate Authority has arrived at the finding that the difference between the apparent consideration and fair market value is with a view to evading tax.
12. In view of the above discussion, the impugned orders dt. 31st July, 1995 at annexures 'F' and 'G' are quashed and set aside. Respondent No. 1 is directed to issue no-objection-certificate as contemplated under s. 269UL of the Act within a period of six weeks from the date of furnishing of certified copy of this order or six weeks from the date of receipt of writ of this Court, whichever is earlier. Respondent No. 1 is directed to take all consequential steps pursuant to setting aside of the impugned orders dt. 31st July, 1995 at Annexures "F" and "G" to the petition.
13. Rule is made absolute accordingly with no order as to costs.