Citation Codes

Equivalent Citations

citation codes

Judges

M Shah

Acts

Income-tax Act, 1961 (for short hereinafter referred to as "the Act"),
section 269UD(1) of the Income-tax Act, 1961,

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Smart Summary

Judgment Summary: M.B. Shah, J.

Factual and Procedural Background

Petitioners Nos. 1 to 3 (co-owners) entered into an agreement on April 21, 1994 to sell a plot (Final Plot No. 213 of T. P. Scheme No. 14, Ahmedabad, admeasuring 2,095 sq. mtrs., Shahibaug Area) to petitioner No. 4 (a co-operative housing society) for Rs. 69 lakhs. Petitioners filed Form No. 37-I on June 27, 1994 as required under Chapter XX-C of the Income-tax Act, 1961.

On July 1, 1994 the Valuation Officer requested information; the petitioners furnished documents on July 7, 1994. On September 14, 1994 the appropriate authority issued a notice under section 269UD(1A) of the Act calling upon the petitioners to show cause why an order of pre-emptive purchase should not be made, fixing September 26, 1994 for hearing.

The petitioners replied (dated September 26, 1994), providing explanations and comparative sale instances. On September 28, 1994 two members of the appropriate authority inspected property(ies). On September 29, 1994 petitioner No. 1 sent a letter pointing out (i) that a review of the ceiling law case was pending before the State Government and (ii) that availing higher F.S.I. increases cost.

Despite these events, the appropriate authority passed an order dated September 30, 1994 (annexure-K) directing purchase of the property and determining Rs. 66,93,113 as the amount payable to the vendors, and directed handover of possession by October 12, 1994. The petitioners challenged that order by this petition.

Legal Issues Presented

Whether the appropriate authority, in passing an order under section 269UD(1) of the Income-tax Act, 1961, applied its mind to determine the fair market value of the property before concluding that the apparent consideration was understated by more than 15%.
Whether the impugned order (dated September 30, 1994) is legally sustainable where the appropriate authority did not make a definite finding of fair market value and relied on conjecture or surmise to draw an inference of undervaluation.

Arguments of the Parties

Petitioners' Arguments

The plot was agreed to be sold to a cooperative housing society for Rs. 69 lakhs for residential use of its members.
The notice dated September 14, 1994 relied upon a single sale instance; the petitioners submitted that this comparable was inappropriate for several reasons:

The comparable plot was much smaller than the property under consideration.
The comparable was better located (in the heart of Shahibaug) whereas the subject property is over one kilometre away and on the border of the Cantonment area.
The subject property is low-lying and subject to water ingress during monsoon.
There is a slum area near the subject property which would adversely affect sale price.

There was no question of transacting in unaccounted money.
Stamp duty was to be borne by the buyer, constituting an additional cost to the buyer and affecting effective price.
Other comparable sale instances were pointed out to the authority in their reply.
Specific procedural and substantive defects were alleged in the impugned order:

The appropriate authority initiated the show-cause proceedings and fixed hearing before expiry of the three-month statutory period prescribable from Form 37-I (i.e., the authority acted prior to the last date for passing an order).
An inspection on September 28, 1994 was said to have been conducted in haste; the inspecting members allegedly looked at a different property from that relied upon by petitioners, yet the order declares that the compared property is not comparable without specifying which property was inspected or why it was found non-comparable.
The petitioners' subsequent submissions (letter dated September 29, 1994) were not considered by the authority.
Reliance on the sale instance was alleged to be made without application of mind, ignoring multiple relevant distinguishing factors (size, location, waterlogging, slum proximity, buyer borne expenses) and without considering the petitioners' own sale instances.
The impugned order contains no finding of the fair market price of the subject property, nor any finding of an attempt to deal in unaccounted money or to evade tax.
The authority failed to consider that the property is owned by three co-owners under a will and that valuers give a 10% discount for undivided share.

Respondent's Position

No affidavit-in-reply was filed on behalf of the respondent-appropriate authority refuting the petitioners' contentions (the opinion records this absence).
The opinion does not contain a detailed account of any substantive arguments made on behalf of the respondent authority.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Vimal Agarwal v. Appropriate Authority [1994] 210 ITR 16 (Bombay High Court)	The authority must determine the fair market value of the property in the light of all attending circumstances before drawing an inference of undervaluation; the fair market value cannot be left to conjecture and surmise; to justify an order under section 269UD(1) the authority must come to a definite conclusion that the undervaluation is by more than 15% of the fair market value.	The court relied on this authority to conclude that the appropriate authority's order was invalid because it did not determine the fair market value and based its conclusion on surmise; consequently the impugned order was quashed.

Court's Reasoning and Analysis

The court confined its detailed consideration to the single, dispositive contention that the appropriate authority failed to apply its mind to the question of the fair market value of the property before concluding that the consideration was understated by more than 15%.

The court observed that:

Neither the notice (annexure-G) nor the impugned order (annexure-K) contains any determination of what the appropriate authority considered to be the fair market rate of the subject property; the notices merely state that the apparent rate "appears to be understated by more than 15%."
The impugned order's paragraph 4 merely compares certain features (permissible F.S.I., road widths, time lag, and some "minus points") and concludes there is understatement of apparent consideration by more than 15%, without arriving at a definite figure for fair market value or quantifying the increase attributable to timing or other features.
Because the authority did not determine what it considered to be the fair market value and left the matter to conjecture as to how much higher market value would be, there was a total lack of application of mind in reaching the conclusion of undervaluation.
The court accepted petitioners' submission (through their counsel Mr. J. P. Shah) and relied on the Bombay High Court decision in Vimal Agarwal which requires a definite determination of fair market value before inferring an undervaluation of 15% or more.

On this basis the court held that the impugned order under section 269UD(1) was illegal and without application of mind to relevant facts, warranting quashing of the order.

Holding and Implications

Holding: The petition is allowed. The impugned order dated September 30, 1994 (annexure-K) passed by the appropriate authority under section 269UD(1) of the Income-tax Act, 1961, is quashed and set aside.

Immediate Consequences:

The respondent-authority is directed to issue the requisite "no objection" certificate to the petitioners within a period of 30 days.
Rule is made absolute with no order as to costs.

The opinion does not purport to lay down any broader new principle beyond applying the existing principle (as stated in Vimal Agarwal) that a definite finding of fair market value is required before inferring undervaluation; the decision's practical effect is to set aside the specific administrative/pre-emptive purchase order and to direct issuance of the no-objection certificate to the petitioners.

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Sarwarben Temas Khambata And Ors. v. Appropriate Authority

JUDGMENT M.B. Shah, J.

1. On April 21, 1994, petitioners Nos. 1 to 3 entered into an agreement to sell the property under consideration to petitioner No. 4. The petitioners submitted Form No. 37-I to the appropriate authority as required under Chapter XX-C of the Income-tax Act, 1961 (for short hereinafter referred to as "the Act"), on June 27, 1994. On July 1, 1994, the petitioners were asked by the Valuation Officer of the appropriate authority to furnish certain information and documents. On July 7, 1994, the petitioners furnished the requisite documents to the Valuation Officer.

2. Thereafter, on September 14, 1994, i. e., virtually after a period of two-and-a-half months, the appropriate authority issued notice under section 269UD(1A) of the Act to the petitioners calling upon them to show cause as to why an order of pre-emptive purchase should not be made of the property under consideration and the appropriate authority fixed the date September 26, 1994, for the hearing of the matter.

3. It is the say of the petitioners that they gave a detailed reply to the above-said show-cause notice, along with the municipal corporation map showing the location of the property under consideration and other comparative sale instances. It is their further say that on September 28, 1994, two members of the appropriate authority inspected the property under consideration. Again, on September 30, 1994, petitioner No. 1 gave a letter dated September 29, 1994, addressed to the appropriate authority, pointing out:

(i) that the review of the ceiling law case of the petitioners by the State Government was pending; and

(ii) that availing of higher F. S. I. increases the cost.

4. Thereafter the petitioners received from the appropriate authority, the order dated September 30, 1994 (annexure-K to the petition), ordering purchase of the property under consideration and determining Rs. 66,93,113 as the amount payable to the vendors, and along with the said order the petitioners were directed to hand over possession of the property on October 12, 1994. The petitioners have challenged the said order at annexure-K in this petition by raising various contentions.

5. It is the contention of the petitioners that petitioners Nos. 1 to 3 who are the co-owners of the property under consideration, agreed to sell Final Plot No. 213 of T. P. Scheme No. 14, Ahmedabad, admeasuring 2,095 sq. mtrs. situated in Shahibaug Area to petitioner No. 4. They have agreed to sell the said plot to petitioner No. 4, which is a co-operative housing society for a consideration of Rs. 69 lakhs. Petitioner No. 4 purchased the said plot for the residential requirements of the members of the said housing society.

6. It is the further say of the petitioners that they received the notice dated September 14, 1994, under section 269UD(1A) of the Act (annexure-G) issued by the appropriate authority, wherein in paragraph 2, the said authority has relied upon one sale instance. The relevant part of the said paragraph 2 is as under:

"Your attention is invited to the following sale instance:

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7. In the said notice, in paragraph 3, it is further stated that the apparent rate of Rs. 3,216 per sq. metre and discounted rate of Rs. 3,117 per sq. metre appear to be understated by more than 15 per cent., particularly when the F. S. I. permissible for the two properties and the time lag between two transactions are considered.

8. To the said notice, the petitioners gave detailed reply dated September 26, 1994, which is at annexure-H to the petition, wherein, it has been pointed out as under:

(a) That the sale instance relied upon is not the correct comparison because -

(i) the plot of the comparable sale instance is very small to the property under consideration.

(ii) The sale instance property is better located as it is situated in the heart of Shahibaug area, while the property under consideration is situated at a distance of more than one kilometre from that plot and is situated et the border of Cantonment area.

(iii) The property under consideration is a low-lying plot and during monsoon, rain water would enter into it.

(iv) There is a slum area near-about the property under consideration which rules out getting of good sale price.

(b) That there is no question of transacting any unaccounted money in the deal.

(d) Other comparable sale instances were also pointed out by the petitioners in the said reply.

9. On behalf of the petitioners, it is contended that without considering the aforesaid contentions raised in the reply to the notice and the arguments advanced on their behalf, the appropriate authority has passed the impugned order on September 30, 1994, ordering to purchase the property under consideration and determining Rs. 66,93,113 as payable to the petitioners.

10. It is contended that the impugned order is illegal for the following reasons:

(i) The petitioners have filled in Form No. 37-I on June 27, 1994. The period prescribed for deciding the matter is three months. The appropriate authority waited for a period of two and a half months and on September 14, 1994, gave the notice fixing the hearing on September 26, 1994, i. e., prior to the last date for passing the order.

(ii) On September 28, 1994, two members of the respondent inspected in hot haste the lands referred to and relied upon by the petitioners in their reply.

It is alleged that the members of the respondent authority saw entirely a different property than the one relied upon by the petitioners, but stated in the impugned order that the said property is not comparable without stating as to which is the property they saw, and why it is not comparable.

(iii) Submissions made by the petitioners by their letter dated September 29, 1994, are not considered by the authority.

(iv) Reliance placed by the appropriate authority on the sale instance is totally without application of mind because -

(a) the property under consideration is four times bigger plot than the alleged comparative case and, therefore, its market price is always lower;

(b) the property involved in the sale instance is situated in the heart of Shahibaug area.

(d) the property under consideration is situated at the end of the civil area;

(e) there is a slum area near the property under consideration;

(f) stamp duty, registration charges and other expenses were payable by the purchaser, which would make the effective price of the property under consideration even more; and

(g) the sale instances cited by the petitioners were taken into consideration without application of mind.

11. Further it has been pointed out that the impugned order is also bad because -

(a) in the impugned order, there is no finding of fair market price of the property under consideration, for arriving at the conclusion that the property under consideration is undervalued by more than 15 per cent.;

(b) there is no finding that there was any attempt on the part of the petitioners to deal in unaccounted money, to evade tax or to undervalue the property under consideration;

(c) the appropriate authority has not considered the fact that the property under consideration is owned by three co-owners because of the will executed in their favour and that the valuers give a discount of ten per cent. for the undivided share in the property.

12. Here, it may be stated that no affidavit-in-reply has been filed on behalf of the respondent-appropriate authority refuting the contentions raised in the petition.

13. However, for deciding this petition, it is not necessary to deal with the various contentions raised by the petitioners except the one contention with regard to the non-application of mind by the respondent-appropriate authority with regard to the fair market value of the property under consideration.

14. In the present case, admittedly, while passing the impugned order, the appropriate authority has not arrived at a conclusion about what, according to it, would be the fair market value of the property under consideration, except stating that there is understatement of apparent consideration by more than 15 per cent.

15. The relevant part of the order is in paragraph 4 thereof, which reads as under:

"The permissible F. S. I. of the property under consideration is of 1.5 as per the re-development plan of Ahmedabad Municipal Corporation. Since, the F. S. I. available is 1.5, it is obvious that the built-up area of property under consideration will be more than sale instance property. Moreover, property under consideration is situated on 100' Main Road, whereas the sale instance property is situated on 20' wide private road abutting 60' wide road. Hence, the contention that permissible F. S. I. is 1.0 is not tenable. Considering the above facts, the time lag of above one year between the two transactions and also considering the minus points of property under consideration, i. e., large plot and situation and location of the property, there is an understatement of apparent consideration by more than. 15 per cent."

16. Even in the notice at annexure-G also, it is not stated as to what would be the market rate of the property under consideration. As stated earlier, what is stated in the notice is that the apparent rate of Rs. 3,216 per sq. mtr. appears to be understated by more than 15 per cent. particularly when the F. S. I. permissible for the two properties and the time lag between the two transactions are considered.

17. From the aforesaid order and also the notice, it is apparent that with regard to the fair market value of the property under consideration, there is total non-application of mind by the respondent-authority. On this count, the notice as well as the order are totally vague. While comparing the sale instance, what is the increase in the price because of the timing is not mentioned. Whether, it is exactly more than 15 per cent. or more than 20 per cent. or more is not mentioned. Further, the appropriate authority has not at all arrived at the finding as to what would be the fair market price of the property under consideration, on the basis of the comparable sale instance relied upon by it. In any case, what is the increase in the price is absolutely a matter of conjecture.

18. In support of the aforesaid contention, Mr. J. P. Shah, learned counsel appearing for the petitioners, rightly relied upon the decision of the Bombay High Court in the case of Vimal Agarwal v. Appropriate Authority [1994] 210 ITR 16, wherein the court has observed that in order to draw an inference of undervaluation, it is necessary to determine first the fair market value of the property in question in the light of all the attending circumstances. Without doing so, it is not only difficult but impossible to say that the apparent consideration is lower than the fair market value by 15 per cent. or more. The figure of fair market value cannot be left to conjectures and surmises, and to justify the order under section 269UD(1), the appropriate authority must come to a definite conclusion that the undervaluation is by more than 15 per cent. of the fair market value.

19. In the present case, admittedly, the appropriate authority has not determined the fair market value of the property under consideration, and the order is based on the surmise that the property under consideration would fetch a price which would be more by 15 per cent. of the apparent consideration. In this view of the matter, the impugned order under section 269UD(1) of the Act passed by the appropriate authority is illegal and without application of mind to the relevant facts and, therefore, is required to be quashed and set aside.

20. In the result, this petition is allowed. The impugned order dated September 30, 1994 (annexure-K to the petition), passed by the appropriate authority, under section 269UD(1) of the Income-tax Act, 1961, is quashed and set aside. The respondent-authority is directed to issue the requisite "no objection" certificate to the petitioners within a period of 30 days. Rule made absolute accordingly with no order as to costs.

Sarwarben Temas Khambata And Ors. v. Appropriate Authority

Judgment Summary: M.B. Shah, J.

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Petitioners' Arguments

Respondent's Position

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Sarwarben Temas Khambata And Ors. v. Appropriate Authority

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