Delhi High Court
Duncans Agro Industries Ltd. vs Inspecting Assistant Commissioner. on 30 April, 1990
Equivalent citations: [1990]33ITD61(DELHI), (1990)37TTJ(DEL)480
ORDER
Per F. C. Rustagi, J. M. - This is an appeal, directed against the order u/s. 269-F (6) of the Income-tax Act, 1961. The property, acquisition of which is under dispute, is a plot of lease-hold land measuring 3206.35 sq. mts. (wrongly marked as 3208 sq. mts.), equivalent to 3824 sq. yds. having on it three blocks of buildings - (i) residential house block; (ii) blocks of servant quarters; and (iii) a garrage block. The appeal in question is preferred by the vendee M/s Duncans Agro Industries Ltd.
2. Before we go to deal with the contentions raised from the side of the vendee, disputing the acquisition, and those of the Revenue, it will be of immense assistance in case we briefly state the facts in background of the dispute. The property in question was agreed to be sold for Rs. one crore inclusive of a sum of Rs. 35,27,222 as unearned increase paid to the L. & D. O. by the vendee on behalf of the vendor. The vendor of this property was Mrs. Bittoni N. C. Thorvaldsen. It was on 31st March, 1985, the property was agreed to be sold, as above said, for a sum of Rs. one crore. When the vendor was paid a sum of Rs. fifty lakhs on 31-8-1985 itself, besides that the amount of Rs. 35,27,222 was paid to the L. & D. O. on behalf of the vendor by the vendee in April 1986 and balance of Rs. 14,72,778 out of total consideration of Rs. one crore was paid to the vendor by the vendee on 6-5-1986, when the sale of the said property was registered. The sale-deed of the said property was registered with the Sub Registrar, New Delhi on the same day, i. e., on 6-5-1986.
3. Both the vendor and the vendee filed a statement in form No. 37-EE on 27-9-1985, which was registered u/s. 269-AB on 7-11-1985.
4. The Competent Authority had recorded the reasons on 9-7-1986 as required by the first proviso to section 269-C (1) and the publication in the Gazette of India came to be printed on 9-8-1986.
5. After the registration of the sale-deed on 6-5-1986, both the vendor and the vendee filed statements in form No. 37-G. A notice u/s. 269-C (1) came to be issued by the IAC (Acquisition) after recording reasons on 12-1-1987, which also came to be published in Gazette of India on 14-2-1987. The Competent Authority proceeded to continue the proceedings, initiated by him on 9-8-1986 and thus it were these proceedings in respect of which arguments were advanced from both sides in pursuance of the same.
6. The Competent Authority determined the fair market value of the subject property at Rs. 2.02 crores, by taking value of structure at Rs. 11,75,700 and value of land covering 3824 sq. yds. @ Rs. 5,000 per sq. yd. at Rs. 1,91,20,000. He determined the same on the basis of sale of land having area of 800 sq. yds. in Green Park @ Rs. 4,500 per sq. mt. or Rs. 3,750 per sq. yd. and that of Haus Khas @ Rs. 6,000 per sq. mt. or Rs. 5,000 per sq. yd. The Competent Authority while determining this valuation kept in view important factors such as situation, location, time gap, lease-hold nature, potent ional for multi-storeyed flats, etc. He observed that property in question, which is situated at 1, Prithvi Raj Road, is much superior as it is 4 kms. from Connaught place, whereas land at Green Park and Hauz Khas are about ten kms. Prithvi Raj Road is inhabited by high upper class. The place is sparsely populated having peace, clam and natural environment. He observed that the price at Prithvi Raj Road was higher by 30%. The property in question being corner plot, having frontage on two sides, was better by 10%, according to the Competent Authority. He also observed that it had the advantage of good situation as it was on junction of five main roads, i. e. Prithvi Raj Road, Shahjahan Road, Aurangzeb Road, Man Singh Road & Moti Lal Nehru Road. He also observed that it is situated in front of hotel Taj Mahal and was within a radius of less than a furlong from commercial complex of Khan Market. Its closeness to cemetery if taken into consideration, it is still superior by 15% to other plots in the locality. He made an observation that it enjoys the FAR of 1.25 due to approval for group housing, which is permissible on Prithvi Raj Road and FAR of 0.75 as claimed by the transferee is meant for buildings other than group housing. He gave a beautiful arithmetical calculation by working out of plus and minus factors while adopting the value of land @ Rs. 5,000 per sq. yd. in the following chart, available in para 2(4) of this order :
"Properties K-114, Hauz Khas J-7, Green Park Land Rate Rs. 5,000 per sq. yd.
Rs. 3,750 per sq. yd.
Adjustments
-
-
For inflation @ 12% p.a. (-) 8% (+) 4% For FAR of 1.25 (+) 11% (+) 43% For lease hold nature (-) 20% (-) 20% For better locality as explained in (i) above (+) 30% (+) 30% For Corner plot (+) 10% (+) 10% For better location (+) 15% (+) 15% Net adjustment (+) 38% (+) 82% Rs. 1,900 Rs. 3,075 Resultant rate for the subject property as on 31-8-1985 Rs. 6,900 per sq. yd.
Rs. 6,825 per sq. yd."
7. In the alternative observing without prejudice, he worked out the value of the said property even on the basis of 0.75 FAR worked out the value of land @ Rs. 4,116 per sq. yd. taking the value of the structure and land at Rs. 1,69,14,584. He observed that fair market value of the property in question, thus determined, exceeded the apparent consideration not only by 15% but more than 25%. Then he observed that in view of provisions of section 269-C (1), second proviso and presumption u/s. 269-C (2), there was reason to believe that the transfer or and the transferee had not truly stated the consideration in the instrument of transfer with the object. (a) facilitating the reduction of the liability of the transferor to pay tax under the I. T. Act, 1961 in respect of capital gains tax etc. arising from the transfer, and (b) facilitating the concealment of income which ought to be disclosed by the transferee for the purpose of the Income-tax Act, 1961.
8. The competent Authority while initiating the proceedings relied on the valuation report where in the fair market value of the property in question was determined at Rs. 2,73,98,500. The acquisition proceedings, after recording the reasons u/s. 269-C (1) to that effect were initiated vide notice u/s 269-D (1) dated 11-7-1986, which was published within the prescribed period, according to the Competent Authority, of nine months, i. e. 9-8-1986. The Competent Authority observed that as earlier agreement was not communicated by the affected parties, proceedings u/s. 269C (1) were again initiated by issuance of notice u/s 269-D (1) dated 13-1-1987. The transferee had also indicated in form No. 37-EE, filed on 27-9-1985, that the property in question was under tenancy of one M/s Kalki Investments Ltd. He ultimately came to the conclusion that the apparent consideration for transfer was not truly stated in the instrument of transfer with the object of facilitating the reduction or evasion of the liability of the transferor to pay tax and concealment of income both on the parts of the vendor and the vendee. He, therefore, ordered the acquisition. While ordering the acquisition he also mentioned about the valuation assigned by the approved valuer on behalf of the appellant and also by official valuer and taking into consideration different figures of FAR. He also considered all the objections given by the appellant in letters dated 23-6-1987, 3-8-1987, 21-8-1987, 4-9-1987, 22-9-1987, 9-10-1987, 27-10-1987 and 12-11-1987 etc.
9. While disputing the said acquisition the learned counsel for the assessed, to start with, submitted that the reasons recorded are not based on any evidence, but are based on certain assumptions and the determination of the fair market value was erroneous, by comparing or by relying upon uncomparable sale instances of a couple of properties the characteristics of which are entirely different than those applicable to the said property. He elaborated that the Competent Authority has without authority of law ignored the tenancy which has great impact on the valuation of the property. He also submitted that in the agreement to sell it has been clearly stated, both in the preamble and in the relevant clauses that subject property has already been let out and the transfer has been effected subject to the said tenancy and the vendor has attorney the tenant in favor of the purchaser of the property. The Competent Authority by ignoring this burden of the property erred in determining the fair market value for the purpose of section 269-C on the land and building method instead or rent capitalisation method. He further stated that the two sale instances pertaining to different localities, i. e. Green Park and Hauz Khas are incomparable. According to him both these properties are only plots of land and of lesser area which is 500 sq. yds. and 800 sq. yds. respectively, as against the area of the subject property, which is 3824 sq. yds. Moreover, according to the learned counsel for the assessed, the Competent Authority was not justified to have made arithmetical adjustments for plus and minus factors to arrive at the value of lease-hold interest by discounting the sale price of those two properties by 20%. He submitted that the assumption that there is potent ional of subject property for construction of multi-storeyed flats is not based on any material. According to him the Competent Authority also ignored the impact of the provisions of Urban Land Ceiling & Regulation Act, 1976, hereinafter, called the "Ceiling Act". He invited our attention to the agreement to sell, where it was pointed out that the vendor has obtained an order from the Competent Authority under that statute holding then under section 9 of that Act, there was no excess vacant land.
9.1 The learned counsel for the appellant then invited our attention to section 22 of the Ceiling Act which according to him clearly provides that when any building is demolished or destroyed then the land becoming vacant would be hit by the provisions of the Ceiling Act. The then owner had to file a statement again before the Competent Authority and it is that authority which is to be satisfied that the land that has become vacant is not required for redevelopment in accordance with the Master Plan. If the Competent Authority is not satisfied then such portion of the vacant land will be subject to the provisions of section 6 to 14 of the Ceiling Act. He went through the said sections at length and referring to section 4 of the Ceiling Act pointed out that area of vacant land which could be held by the appellant was only 500 sq. mts. and balance of 2800 sq. mts. will vest in the Government. He invited our attention to the order passed u/s. 9 of the Ceiling Act in the case of the vendor. He stated, both in course of hearing before the Bench and at the time of physical inspection of the property, that there were three separate and independent blocks. The Competent Authority has held that there is no excess vacant land.
9.2 In respect of the main block the minimum area permitted to be held under the Ceiling Act was fixed at 1651.82 sq. mts. inclusive of the land entirely covered by the constructed area, minimum land appurtenant to the main block and addition contiguous land at 1651.82 sq. mts. He went on to state that if any one of the three blocks is demolished then the excess vacant land would immediately arise. If development of the property, as stated in the reasons recorded, is assumed possible, then out of the total area, except the area of 500 sq. mts., the balance would become excess land and u/s. 11 of the Ceiling Act the appellant will be entitled to Rs. 10 per sq. mt. Thus he will realise Rs. 27,060 for such portion of excess vacant land. He submitted that the decision for the development of the property, rests entirely with the Competent Authority and thus the appellant will not be free to do so on his own. He submitted that the assumption by the Revenue in the possibility of the development of the subject property is not only imaginary but entirely erroneous. According to him the market value of any property is to be determined by assuming fair market, willing vendor and willing vendee. He referred to the judgment of Honorable Supreme Court in the case of CIT v. P. N. Sikand [1977] 107 ITR 922, that without considering such aspects would result in not valuing the property in question but some other property. He vehemently argued that there is no authority of law to do so.
10. The learned counsel for the appellant submitted that area of 1, Prithvi Raj Road is known as Luyetens Bungalow Zone. The permitted density in that area is low and any possible construction can only be of two and half floors, thus even @ Rs. 800 per sq. ft. for covered area, assumed by the Revenue in the reasons recorded, the total consideration would be far below than the apparent consideration. The net realisation minus the cost of construction, supervision, cost of borrowings of moneys would be also a factor in arriving at the net realisation in respect of the land. Any such permission of such development of the property would entail in extra charges to be paid to L. & D. O. etc. Thus he submitted that the initiation suffers from infirmities like complete absence of any material, wrong assumptions, comparison with dissimilar properties and the burden by way of tenancy being ignored. He submitted that the Competent Authority should have reasons to believe. Such belief must be objective. It is stated that the sufficiency of material is not relevant here, but there is no material at all. He relied on the judgment of Honorable Supreme Court in the case of S. Narayanappa v. CIT [1966] 63 ITR 219. He further invited our attention to the judgment of Bombay High Court in Unique Associates Co-operative Housing Society Ltd. v. Union of India [1985] 152 ITR 114, according to which the scheme of Chapter XX-A is highly penal. The proceedings would in appropriate case result in deprivation of the property owned by a person. He also relied on the decision of the Supreme Court in K. P. Varghese v. ITO [1981] 131 ITR 597 in order to highlight that there must be some material to even consider prima facie that the apparent consideration is not true, which is not the case as is evident from the reasons recorded. he relied on the judgment of Delhi High Court in the case of CIT v. Arun Mehra [1986] 157 ITR 308, at page 313, that in order to justify the initiation, the necessary preliminary facts have to be established. Even the presumption u/s. 269-C (2) can operate only if there is some material on the basis of which the Competent Authority comes to a prima facie estimate of market value.
11. The learned counsel for the appellant further submitted that the determination of fair market value by the Revenue at Rs. 2.02 crores and discounting it further and consequently working out the under statement of apparent consideration by over Rs. one crore is wrong. The applicability of Ceiling Act has been ignored completely. U/s. 4 of the said Act the permissible free land for the relevant area is 500 sq. mts. The vendor had obtained clearance from Competent Authority only in view of the fact that there were three blocks of buildings on the said land, in respect of each such block in addition to the land covered by the constructed area deduction in respect of other appurtenant and contiguous land have been worked out at 1000 sq. mts. for main block 678.58 sq. mts. for servant qts. Ist; 584.90 sq. mts. for servants quarters IInd. Thus the aggregate land area appurtenant and contiguous, which was exempt from Ceiling Act worked out to 2263.48 sq. mts. he submitted that if such exemption of land granted to the garrage block which is 131.68 sq. mts. is considered then the total exempted land retained by the Competent Authority works to 2395.16 mts. The rest of the land was internally covered by three blocks and garrage block.
12. The learned counsel further submitted that as per section 22 of the Ceiling Act, when any area of all these blocks is demolished then this would result into excess vacant land. The appellant has then to apply to the Competent Authority within three months of such demolition. A fresh determination by the Competent Authority would then follow. The Competent Authority has the exclusive power to permit redevelopment of the plan in accordance with the Master Plan and if he is not so satisfied, such portion of the excess vacant land will then vest in Government under the provisions of sections 7 to 10. The resultant compensation consequent upon such vesting would only be Rs. 10 per sq. mt.
13. The learned counsel for the appellant further invited our attention to section 26 of the Ceiling Act that any person even possessing land within the Ceiling Act shall not transfer the land by way of sale, mortgage, gifts, lease or otherwise except with the permission of the Competent Authority. The absolute pre-emptive right vests with the Competent Authority or purchase such land from the holder on behalf of the Government at a price determined by him. In the case of a person holding excess vacant land the retention of the same can only be done if the redevelopment of the property is approved by the Authority u/s. 22(2). Similarly complete prohibition of the transfer of the said land is provided under the ceiling Act even after the permitted redevelopment is done by the holder. The Registering Authority is barred in law in registering a sale or mortgage except on the production of a certificate either of his permission to do so or decision of the Government not to purchase such property. Thus he submitted the ambiguous provision of the Land Law Act as a bar for free sale of the property. He invited our attention to the judgment of Delhi High Court in the case of CWT v. Promila Bali [1983] 141 ITR 942 and submitted that an owner whose rights to transfer are restricted, then there would be a market value only if a transfer is permitted under either the terms of the contract or the provisions of the statute. Such right to transfer would only be a personal right. It would then be not possible to value the property on the basis that it was not an absolute right equivalent to ownership. To disregard such terms would be erroneous in law and any valuation can be made after taking into account the legal right, liabilities and obligations of the person involved. He had further submitted that such interest in the subject property held by the appellant could however be valued, but the restriction attached to the property either by law or by the terms of the contract should be taken into account. He relied on the decisions in the cases of P. N. Sikand (supra) and also in the case of Dr. Balbir Singh v. MCD [1985] 152 ITR 388 (SC).
14. The learned counsel for the appellant further submitted that the market value of the property should have been worked out only on the basis of rent capitalization method. He referred to the tenancy of the property, which according to him, were given by the vendor to M/s. Kalki Investments Ltd. from May 1985 @ Rs. 10,000 p. m. The rent had been collected by the vendor until 31-8-1985 when the possession was given to the assessed appellant. He referred to the evidence by way of return of income and assessment order of the vendor, where she had admitted the receipt of rent and had been assessed to that income. The possession of the property was constructive with the attornment of tenant to the appellant. He thus submitted that the same should have been taken into account.
15. The learned counsel further submitted that the assumption that the market value of the land is Rs. 5,000 per sq. yd. is erroneous. He invited our attention to sale instances with regard to 14, Prithvi Raj Road and 7 Prithvi Raj Road (later on No. 46-A, Amirita Sher Gill Marg). The first instances are by way of four sale deeds executed on 13-9-1984. The total area of the entire plot is 7138 sq. yds. which is almost 1.5 acre. The average sale consideration was only about Rs. 1,300 per sq. yd. The other property was sold on 10-7-1984. It is a smaller plot of 639 sq. yds. only, the rate per sq. was about Rs. 1500 per sq. yd.
16. The learned counsel further submitted that L&D. O. has determined the value of Rs. 2,200 per sq. mt. The unearned increase of about Rs. thirty-five lacs was determined and paid only on that basis. He submitted that such determination must be taken to represent the correct market value. In fact based on that quantum the Lesser who has reversionary interest in the land had collected his portion of the appreciation in price of land as the unearned increase. Such determination cannot be ignored and must be acted upon. In evaluating the property, provision of deprivation of the owner of his right of the entire property, the determination of another Government authority for Realizing the share of appreciation should not be ignored, instead it should be relied upon.
17. The learned counsel for the appellant further submitted that the evaluation made by the Revenue is on the basis of possible development of property. According him it was nothing but a surmise. He further submitted that it has to be clearly seen as to what are the terms and conditions permitting or restricting the scope of development. He invited our attention to the Master Plan of Delhi. It has been provided therein that permissible plot coverage of the said property which is about 1200 sq. yds. would only be 33-1/3 coverage of each floor. The permissible number of floor for the said property is only two. Such permission is linked with the density of population in that area. He invited our attention to the land use plan prepared by the Town Plan Organisation, Government of India. The plot in question at 1, Prithvi Raj Road has been put low density area with 25-60 person per acre. On such basis the number of floors permitted would only be two. A barsati above the same may be allowed at the discretion of the authority.
18. The learned counsel further submitted that the said property is situated in an area known as Luyetons Bungalow Zone. In such zones there was restriction placed by the Government, at the relevant time. He invited our attention to letter dated 28-2-1988 written by the Joint Secretary, Government of India, wherein amongst other restrictions were provided that the new construction of dwelling on any plot must have in the same plinth area on the existing dwelling and almost have the height of then existing dwelling. If the plot is vacant then the lowest of the height of the houses on the adjoining plots would be the limit. He referred to a communication from the appropriate authority, Commissioner of Income-tax, Delhi II, in August 1987. The said Commissioner is the approving authority and has given the approval in the present case for passing the impugned order in sub-section (6) of section 268-F. In this communication the permissible floor area, rate and FAR is 0.674. He thus submitted that apparent consideration has been properly stated in the deed. The Department has assessed the vendor on such consideration for levying capital gains tax. In the appellants case the Department was accepted that investment by it in the subject property is Rs. one crore. In the last he submitted that both according to law and facts and acquisition order deserves to be quashed.
19. The learned D. R. on the other hand submitted that property is located in a posh locality; which is inhabited by embassies of several countries and rich class of the society like big businessmen and industrialists; the property is rectangular in shape; two side open on the Prithvi Raj Road, which is a hundred feed wide road. He submitted that on some plots of Prithvi Raj Road, multi-storeyed buildings have already come up, wherein two areas of Green Park and Hauz Khas compared with one such which are not such posh localities as Prithvi Raj Road. According to the rate of per sq. yds. of these two properties is a clear indication that fair market value of subject property cannot be in any case low as it is. He submitted that no evidence were available and none was furnished by the appellant to establish the genuineness of tenancy. The plea that Ceiling Act is applicable is to be rejected as agreement to sell clearly states that such Competent Authority has already found that there is no excess vacant land and had granted permission to the vendor. U/s. 269-C (2) presumption is available to the Revenue as the apparent consideration has not been truly stated and the object was to avoid taxes in case of both the vendor and the vendee. He relied on decision of Punjab & Haryana High Court in the case of Sutlej Chit Fund & Financiers (P.) Ltd. v. CIT [1986] 161 ITR 174 and submitted that presumption is available at the initiation of these proceedings. He further relied on Delhi High Court decision in the case of Mahavir Metal Works (P.) Ltd. v. Union of India [1974] 95 ITR 197, which is to the same effect. He submitted that latter judgment of Delhi High Court is based on its own peculiar facts on two different opinions of the Government valuers. He, therefore, submitted that initiation of proceedings is quite valid in law.
20. The learned D. R. further contended that the plea regarding applicability of the provisions of Ceiling Act had never been advanced earlier. Therefore, such a new plea should not be permitted to be urged in these proceedings. He, however, stated that the Competent Authority had granted permission for sale to the vendor. This has been stated in the agreement to sell, sale-deed and a copy of such document of such Authority u/s. 9 of the Ceiling Act was on the compilation and our attention was drawn to the same. Section 9 provides for the authorities to determine the excess vacant land and, their finding is that there is no excess vacant land. He further stated that the prohibition detailed by the appellant that if super structures are demolished partly or wholly then Competent Authority may not grant permission for redevelopment of the land, it is apparent that the Competent Authority had already granted such permission as early as on 11-12-1980. He, therefore, stated that such prohibition does not appear to be well placed. He, therefore, submitted that fair market value of the subject property had to be worked out ignoring the restrictive provision under the Ceiling Act.
21. The learned Senior D. R. brought to our attention paragraph 15 of the impugned order, where the time when the tenancy was created is given the telephone numbers given therein are meant for Chairman of the Appellant. The unusual nature of the tenancy, local enquiries made by him shows that claim of the grant of tenancy to Kalki investments Ltd. does not have any relation but is only a make belief arrangement. The learned D. R. submitted that the subject property is a sought after property and is situated in a posh locality. He read the first two pages of the order of the IAC (Acquisition), which only details and boasts of superior situation of the property in question. The road in front of the same is 100 ft. wide, he submitted. He further submitted that the properties in Green Park and Hauz Khas had been sold at price detailed by the Revenue and it on that basis that price of the land of subject property has been worked out. According to him the land in other areas like defense Colony, Friends Colony, Diplomatic Colony etc. have been sold for much larger sums than what is paid for in the present transaction. He further referred to four instances in Prithvi Raj Road. All these properties have been sold for prices higher than the apparent consideration. In one instance the property is on an area of 5008.90 sq. yds. as against 3824 sq. yds. in the present case. He further submitted that the Government valuer in his report had taken the floor space index 1.25 and existing utilisation of FAR is 25% approximately. He invited our attention that in the order plot of the same road, multi-storeyed structures have been erected. According to him appellant itself had approached the Competent Authority for permission to build units of group houses. He, therefore, supported the order of the Acquisition Authority and submitted that the same was fair and just.
22. The learned counsel for the appellant in rejoinder submitted that servant quarters of the property was kept by certain unauthorised persons. The Government Valuation Officer had also recorded the same in his valuation report. He submitted that inasmuch as sum of Rs. three lakhs have been paid to them as compensation to get the premises vacated. He finally invited our attention to the letter dated 6-11-1989 from the Ministry of Urban Development, rejecting the application for permission to construct group houses. It was stated that there group housing was not permissible as the same falls in Lyuetens Bungalow Zone.
23. After taking into consideration the rival submissions and going through the voluminous record and also in light of our personal inspection of the said property on 12-10-1989, for the reasons given below we have come to the conclusion that the property in question could not be acquired according to law or on the basis of facts. This case came to be heard on 23-8-1989, when the counsel of the appellant was directed to place before us the following - (1) correspondence in regard Urban Land Ceiling Act; (b) wealth-tax assessment of the transferor, if possible; (c) clearance of Urban land Ceiling of the transferor; and (d) names of parties to whom property at 4, Prithvi Raj Road was sold. Inspection of the property in question was also ordered for 6th September 1989. On 6th September the Departmental Representative could not come to the office and therefore the inspection was postponed to October, when the property in question was inspected by the Honorable President, myself and brother M. A. Bakshi, constituting the Bench and Mr. Ganesan and other representative of the assessed-appellant and the learned Departmental Representative Mr. Subhash Kumar. After we had inspected the property, we had noted on the order-sheet of 12-10-1989 as under :-
"12-10-1989 :-
Today as fixed earlier during the course of hearing we, the President, brother F. C. Rustagi, J. M. and brother M. A. Bakshi, J. M. along with Sr. Departmental Representative Shri Subhash Kumar and Sh. R. Ganesan, representative of the assessed visited the site at No. 1, Prithvi Raj Road and the building standing thereon. The building is unoccupied and is not in a good shape. With reference to the proximity of the site to a Five Star hotel and cemetery, we have tried to assess their impact on the valuation of the property.
2. Shri Ganesans contention that the property is hit by the restrictive regulations contained in the urban Land Ceiling Act in the hands of the transferee have been noted and also the objections of the Departmental Representative thereto.
3. The Departmental Representative is requested to study the provisions of the urban land Ceiling Act and address us their on by supplying copies thereof to us or the relevant provisions of that Act on the date of hearing. Fixed for hearing on 25th October, 1989. The party is to be informed.
Sd./-
Sd./-
Sd./-
(M. A. Bakshi) (F. C. Rustagi) (Ch. G. Krishnamurthy) Judicial Member Judicial Member President"
Adjourning the hearing for 25-10-1989 for one reason or the other the final hearing went on getting adjourned, sometimes due to applications from either sides or non-availability of one or the other member or the Honorable President. Finally it was heard on 13-3-1990 at length wherein both the sides had represented their views in a very elaborate and competent style. We hereunder give our reasons for quashing the acquisition order.
24. At the time of initiation of proceedings the IAC (Acquisition) had before him the following facts - the description and area of the property in question; the apparent consideration; the tenancy of such properly the transfer of property subject to the tenancy and it was by attornment to the purchaser, the applicability of Ceiling Act were before the Revenue before initiating the proceedings. There was no valuation report then available to the Revenue. From these preliminary facts the Revenue has to from a reasonable belief to arrive prima facie at a conclusion that apparent consideration is not adequate and reasonable. Admittedly the superstructure existing on such land is an old construction. The Revenue had valued both the main buildings and two servant quarters and garrage block at Rs. 11.75 lakhs. There were three block on the said land, which we ourselves was at the time of inspection of spot. The tenancy was stated in the agreement to sell and it had to be taken into consideration and it could not be ignored according to Ld. A. R. Shri Ganesan. The Revenue had a very solicited information from parties to the transaction. Thus it is common ground that existence of tenancy was effected, stated in the instrument and not controverter by any evidence. Therefore, we are of the opinion that the respondent-Revenue has erred in ignoring the tenancy at the stage of giving reasons. This important fact of a great relevance in order to decide as to the method of valuation that should have been adopted, whether rent capitalisation or land and building method. The subject property is quite old and provisions of Rent Control law are applicable to it. Similarly it is covered by the Ceiling Act. We have perused the various applicable sections of that Act. The grant of permission by such Authority to vendor is necessary. At the same time the position with regard to such provisions of Ceiling Act have to be considered in the hands of the appellant. If development of the subject property had to be undertaken with any expansion, express prior permission of such Competent Authority is essential. This aspect is directly linked with the type of Development possible and consequently the determination of fair market value. The two sale instances, relied on by the learned counsel for the appellant, which are the free-hold properties are apparently not hit by the provisions of Ceiling Act. In one case that area is within permissible limit of 500 sq. mts. and to the other with the portion of land covered by the constructed area, the land appurtenant thereto, and contiguous land and as such the provisions of Ceiling Act are not applicable. The learned counsel for the appellant has submitted that in the present case the rent capitalisation method should have been adopted, because it is the validly constituted concern who were the tenant. Tenancy was only of very recent origin i. e. little before the property was agreed to be purchased and the factum of telephone installed in the name of the Chairman of the appellant at the said premises just before purchase go against the assessed. All that we have observed above is that the Revenue should not have ignored the factum of tenancy in that it should not have been ignored at the initiation of proceedings. However, we are in agreement with the Revenue that the property in question could not be valued on the basis of rent capitalisation method, which is proved by the conduct of the appellant itself, who elected to purchase it for Rs. one crore.
25. That for, prima facie, valuation has to be made taking the facts and circumstances into consideration which were before the Competent Authority. This has to be such as to enable the Revenue to have reason to believe that apparent consideration was understated. There are two factors for consideration and they are apparent consideration and fair market value. We find the formation of belief regarding the latter is not based on material as held by the jurisdictional High Court. The Honorable High Court of Delhi in Arun Mehras case (supra), held that the reasons recorded and the consequent belief entertained by the Revenue should be maintainable in law and that the market value should not be calculated in an abstract manner (p. 314-157 HR). We, therefore, hold that the proceedings have not been validly initiated for lack of proper material before the Competent Authority even at the preliminary stage.
26. It will be shirking our duty in case we close the order here, observing that since proceedings are not legally initiated, other things would be academic, because we are obliged to give a finding of facts as well, as both the parties have argued their respective parts at length and the appellant in course of arguments very much pressed of it. We, therefore, proceed to discuss the facts.
27. After hearing the learned counsel for the vendee-appellant and going thoroughly through the provisions of Ceiling Act we do not find the submissions of the learned counsel for the appellant without force that the present property is governed by the provisions of Ceiling Act. The Competent Authority has to grant permission not only to transfer the property as it is, but also that authority has to be approached if the superstructure which are existing on it are to be demolished. We are unable to agree with the learned Sr. D. R. that such provisions of Ceiling Act are to be ignored as the Competent Authority had already granted permission to the vendor and only after such permission the vendor had effected the transfer. We are also unable to appreciate the submission of the learned D. R. that the appellant had not made any submission before the Revenue in the course of acquisition proceedings and the same should not be entertained, now. As we have said above, on 23-8-1989 there was a query raised by the Bench regarding applicability of Urban Land Ceiling Act. Then specifically in course of inspection the major dispute was only about applicability of Urban Land Ceiling Act. The learned D. R. was requested to study the provisions of Urban land Ceiling Act and address the Bench on the same by supplying copy thereof to us. In the course of hearing we had asked the learned counsel for the assessed to give in brief whether the appellant-vendee also fell within the mischief of the said Act. After a very thoughtful consideration and going carefully through the Ceiling Act would be ignored in assessing the fair market value of the property. The provisions of Chapter XX-A are penal in nature and power under this Chapter to acquire immovable property is bound to guard against tax evasion. In order to justify the action, the necessary preliminary facts have to be established. A property cannot be valued without taking into account the preemptive stipulation attached to it or the provisions of the statue which are applicable to it. It cannot be said that said property has no market value but the valuation has to be assessed at by taking into account those restrictions. This is what has been held by the Honorable Supreme Court in to case of P. N. Sikand (supra) and Dr. Balbir Singh (supra). The submissions made in this regard by the learned counsel for the appellant are only to invite our attention to relevant facts and provisions of law, what would enable any body to determine the fair market value. It could not be equated to an additional ground or a matter not considered by the authority below. The very object for adjudication before the IAC (Acquisition) is determination of fair market value. We, therefore, reject the objections raised on behalf of the Revenue in this regard. Moreover, it was no our asking that clarifications regarding Ceiling Act and proof whether the appellant falls within the mischief of the said Act, were required by us which we are legally authorised to do so.
28. We now proceed to consider the impact of the Ceiling Act on the subject property. The free area of land that could be held for the subject property, which is category (A), specified in Schedule 1 is 500 sq. mts. Admittedly the total area is 3206.35 sq. mts. Therefore the provisions of law are attracted. Now the question remains as to in respect of any portion could there be excess vacant land. In the determination of Competent Authority in the case of the vendor, the existence of four independent superstructures had only enabled the Government Authority to come to the conclusion that in a case where building is constructed before Ceiling Bill was introduced in the Parliament, then such deductions for areas appurtenant and contiguous land are to be provided. Admittedly the superstructure in the subject property had been constructed well before the year 1975.
29. In the case of the appellant section 15 provides that he shall file a statement before the Competent Authority with regard to any acquisition of the property which is government by the Ceiling Act. The failure entails in penalty. For sake of ready reference we here under extract and palace section 15 :-
"15. Ceiling limit on future acquisition by inheritance, bequest or by sake in execution of decress, etc. - (1) If, on or after the commencement of this Act any person acquires by inheritance settlement or bequest from any other person or by sale in execution of a decree or order of civil court or of any award or order of any other authority or by purchase or otherwise, any vacant land the extent of which together with the extent of the vacant land, if any, already held by him exceeds the aggregate the ceiling limit, then he shall, within three months of the date of such acquisition, file a statement before the competent authority having jurisdiction specifying the location, value and such other particulars as may be prescribed of all the vacant lands held by him and also specifying the vacant lands within the ceiling limit which he desires to retain.
(2) The provisions of sections 6 to 14 (both inclusive) shall, so far as may be apply to the statement filed under this section and to the vacant land held by such person in excess of the ceiling limit."
Section 22 provides that when any building or part thereof is demolished, then the land so becoming vacant would require fresh determination by the Government authority and the same reads as under :-
"22. Retention of vacant land under certain circumstances. - (1) Not withstanding anything contained in any of the foregoing provisions of this Chapter, where any person demolishes any building or any land held by him or any such building is destroyed or demolished solely due to natural causes and beyond the control of the human agency and as a consequence thereof, in either case, the land on which such buildings has been constructed becomes vacant land and the aggregate of the extent of such land and the extent of any other vacant land held by him exceeds the ceiling limit, then, he shall, within three months from the date of such demolition or destruction file a statement before the competent authority having jurisdiction specifying the location, value and such other particulars as may be prescribed of all the vacant lands held by him.
(2) Where, on receipt of a statement under sub-section (1) and after such inquiry as the competent authority may deem fit to make, the competent authority is satisfied that the land which has become vacant land is required by the holder for the purpose, of redevelopment in accordance with the master plan, such authority may, subject to such conditions and restrictions as it may deem fit to impose, permit the holder to retain such land in excess of the ceiling limit for such purpose and where the competent authority is not satisfied and does not so permit, the provisions of section 6 to 14 (both inclusive) shall, so far as may be, apply to the statement filed under sub-section (1) and to the vacant land held by such person in excess of the ceiling limit."
Upon the intimation by the then holder, the Competent Authority has to determine once again as to whether the land is required for the purpose of redevelopment in accordance with the master plan and if he is so satisfied he may permit the holding of the land in excess of the ceiling. If he is not satisfied then the provisions of sections 6 to 14 are attracted in which case the Authority shall determine the excess vacant land and the same shall be acquired by the Government under appropriate notification. We are intentionally avoiding reproducing of section 6 to 14, but we briefly mention that section 6 deals with persons holding vacant land in excess of Ceiling limit, who is required to file statement; section 7 deals with filing of statement in cases where vacant land held by a person is situated within the jurisdiction of two or more authorities; section 8 talks of preparation of draft statement as regards vacant land held in excess of ceiling limit. Section 9 deals with the final statement and section 10 deals with acquisition of vacant land in excess of ceiling limit. Section 11 deals with payment of amount for vacant land acquired and other sections 12 to 14 talk of appeal to Tribunal, High Court and mode of payment etc. with which we are not concerned. The inherent restriction and in capacity of the holder to develop the land and the competent authority to exercise discretion of such development are retarding factors in our mind, to evaluate the property. It is to be remembered that u/s 22, the competent Authority can permit retention of land in excess of ceiling only if it is required for redevelopment which in our view excludes a sale or transfer for gain.
30. At that stage the vacant land cannot be transferred by the holder unless and until any right of the intended transfer is given by the competent authority. The first option to purchase the land then vests with the competent authority at a price calculated in accordance with the land acquisition law. These restrictions would affect the valuation of the subject property. It could not be Rs. two crores as computed by the Revenue. The only exception in regard to the development of the property is in the constriction of dwelling unit for the accommodation of the weaker sections of the society, which section dwells in a covered area of 80 or less that 80 sq. mts. Then in such circumstances the Competent Authority can declare such land not to be excess land. Thus, within the time limits prescribed, dwelling units for weaker sections has to be constructed. We are thus in agreement with learned counsel for the appellant that the computation of quantum of excess vacant land is highly restricted and circumscribed by the stringent provisions of the Urban Land Ceiling Act, which are intended and aimed at as a welfare measure by preventing speculation in land prices and curbing spurt in the rise of prices in urban conglomeration. Its impact and its applicability which have a vital bearing on the prices of vacant land cannot be ignored by introducing hypothetical considerations. Unless all the four blocks existing are demolished, there would not be any vacant land or sale. It is at this point that the Act applies. Under the Act the excess land may be of the order of 2700 sq. mts. The then holder will be eligible for compensation of a small sum of Rs. 27,000. In view of these we hold, taking into account the provisions of Ceiling Act, the apparent consideration stated in the instrument is reasonable and does not deserve to be disturbed.
31. It was in view of the direct averments made by both sides that we have decided to inspect the property and satisfy ourselves about the veracity of the submissions. We had, therefore, inspected the property on 12-10-1989 in the presence of both the parties. As above stated we had found the property lying vacant and from the very look of it, it had not been maintained properly and even a portion of it could be termed as dilapidated. There was no sign of any office or person occupying the same for his residence. We are, therefore, not impressed that tenancy is an uncontroverter fact as we have already stated above. We have taken into consideration such circumstances that were placed before the Revenue at the time of recording of reasons for initiating these proceedings. At that time the Revenue had not made the enquiries that followed later. We, therefore, hold that the valuation of the subject property cannot be made on the basis that the property was tenanted. We have already rejected this contention raised by the learned counsel for the appellant.
32. We have considered the contentions with regard to the fair market value raised by both the sides. We have to find as a fact, as to what are the plus factors and minus factors in the said property. The valuation has to be proceeded on that basis. This had been laid down by Their lordships of Supreme Court in the case of Chaman Lal v. Special LAO (IT) [1988] (T) SC 106, where the methodology for valuation is laid down. The Honorable Judges enunciated the factors must be reached out on the mental screen. The relevant guidelines in that case are reproduced below :
"(10) The most comparable instance out of the genuine instances have to be identified on the following considerations :
(i) proximity from time angle.
(ii) proximity from situation angle.
(11) Having identified the instances which provide the index of market value the price reflected therein may be taken as the norm and the a market value of the land under acquisition may be deduced by making a suitable adjustments for the plus and minus factors vis-a-vis land under acquisition by placing the two in juxtaposition.
(12) A balance sheet of plus and minus factors may be drawn for this purpose and the relevant factors may be evaluated in terms of price variation as a prudent purchaser would do.
(13) The market value of the land under acquisition has thereafter to be deduced by loading the price reflected in the instance taken as norm for plus factors and unloading it for minus factors.
(14) The exercise indicated in clauses (11) to (13) has to be undertaken in a common sense manner as a prudent man to the world of business would do. We may illustrate some such illustrative (not exhaustive) factors :-
Plus factors Minus factors
1. Smallness of size
1. Largeness of area
2. Proximity
2. Situation in the interior at a distance from the road
3. Frontage on a road
3. Narrow strip of land with every small frontage compared to depth.
4. Nearness to developed
4. lower level requiring the depressed area. portion to be filled up.
5. Regula shape
5. remoteness from developed locality.
6. Level vis-a-vis land
6. Some special disadvantageous factor under acquisition. which would deter a purchaser.
7. Special value for an owner of an adjoining property to whom it may have some very special advantage.
(15) The evaluation of these fact of course depends on the facts of each case. There cannot be any hard and fast or rigid rule. Common sense is the best and most reliable guide. For instance take the factor regarding the size. A building plot of land say 500 to 1000 sq. yds. cannot be compared with a large track or block of land of say 10,000 sq. yds. or more. Firstly while a smaller plot is within the reach of many, a large block of land will have to be developed by preparing a lay out, carving out roads, leaving purchasers (meanwhile the invested money will be blocked up) and the hazards of an entrepreneur. The factor can be discounted by making a deduction by way of an allowance at an appropriate rate ranging approx. between 20% to 50% to account for land required to be set apart for caring out lands and plotting out small plots. The discounting will to some extent also depend on whether it is a rural area or urban area, whether waiting period during which the capital of the entrepreneur would be locked up, will be longer or shorter and the attended hazards.
(16) Every case must be dealt with on its own fact pattern bearing in mind all these factors as a prudent purchaser of land in which position the judge must place himself.
(17) These are general guidelines to be applied with understanding informed with common sense."
33. Taking into account the aforesaid factors, we shall now proceed to consider the matter of valuation of the subject property. The first aspect is, as to how mush the property is capable of development. On inspection we has seen for ourselves that the existing structure did not have any high potential for yield. The property is situated in Luyetens bungalow Zone. The authority concerned about the development had already rejected and denied the permission for construction of the group housing as per latter placed before us, on assesseds compilation. To that effect on our asking, therefore, it has a serious set back in the matter of development. The next is as to what is the FAR available for the appellant to develop the property. The Revenue had assumed the FAR at 1.25. The IAC (Acquisition) has made different calculations. His assumption of higher far are believed by the very communication received by the Commissioner of Income-tax, who approved the order in appeal, that the FAR is only 0.674 as claimed by the appellant. For these reasons the subject property has limited scope for redevelopment of the land. The L&D. O. had determined the valuation at Rs. 2200 per sq. mt. for the purpose of charging unearned increase. Though the Revenue had commented upon it and has attempted to ignore that fact on the assumption that such determination is only for a limited purpose. The fair market value that could be obtained on the sale of the property would partly belong to the vendor and a portion of appreciation in price is to be made over to the reversionary value. We are, therefore, of the opinion that @ Rs. 2,000 per sq. yd. is possible in determining the fair market value. In fact except the present proceedings, the sale price has not been disturbed either in case of the vendor or in the case of the vendee-appellant in relevant tax proceedings. The Revenue did not have any material to show that the consideration had not been truly stated either at the time of initiation or at the time of finalisation of proceedings. This aspect also strengthens the view that it cannot be said that the apparent consideration does not represent the fair market value.
34. There was some discussion about the publication in gazette and its available to the public. The Revenue had contended that mere publication was enough to enjoy the limitation, whereas the learned counsel for the assessed mentioned that the same should have been made available to the public. From both views on this matter as projected by the case law cited and following the golden rule that what favors the assessed is to be relied upon, the assessed would succeed on that aspect as well, though it was late only by a day. But when on facts we have adjudicated that acquisition of this property cannot stand, we have intentionally avoided going into the war of words in respects of this aspect of the matter. Admittedly the property though not burdened by the tenancy, in favor of M/s Kalki Investments Ltd. yet the out houses were unauthorisedly occupied by several persons, who vacated the same after receiving compensation. This factor should have had affected the valuation.
35. We have thus taken into consideration all these factors while assigning the valuation. The serious infirmity of the provisions of law and policy of authorities applicable to the subject property have placed the appellant and the vendor in disadvantageous position.
36. To summarise we, therefore, hold (1) That the initiation of proceedings were not proper.
(2) That at the time of initiation, there was no material available with the Revenue;
(3) That the Revenue has erroneously ignored certain factors affecting the valuation, but assumed to the contrary;
(4) That the method of valuation adopted is not in consonance with the facts and evidence available at the contrary;
(5) That the presumption u/s. 269-C (2) were not then available at the time of initiation;
(6) In view of the restrictions and limited scope of the development of property under the Urban Land Ceiling Act and the fact that the property is situated in Luyetens Bungalow Zone, rates as fixed per sq. yard by L&D. O. for the purpose of Realizing the unearned increase and the available FAR, the serious drawback in making group housing etc. We hold that both on the basis of facts and according to law the acquisition proceedings are bad and as such vacated.
The only issue on which we are with the Revenue is that the tenancy was a make believe affair and land and building was the proper method adopted in this case. But this has become academic when we have held that as per law and on the basis of facts the order of the IAC (Acquisition) is not maintainable and we have quashed the same.
37. In the result assessed-appellants appeal is allowed.