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Digvijay Cement Co. Ltd. v. Appropriate Authority And Others.

Calcutta High Court
Mar 10, 1998
Judgment
Subsequent
References
CaseIQ
Case Information
CITATION CODES
citation codes
CASE NO.

W.P No. 2886 of 1994 and G.A No. 2066 of 1995

JUDGES

Pinaki Chandra Ghose, J.

ACTS

sub-section (2) of section 269UE or contravenes the provisions of sub-section (2) of section 269UL

section 269UA(f) read with the provisions of section 53A of the Transfer of Property Act

section 5(3) of the Urban Land (Ceiling and Regulation) Act, 1976.

provisions of section 594(2) of the Companies Act, 1956,

TRANSFER OF PROPERTY ACT 1882

section 269UC(3) of the Income-tax Act, 1961,

section 269UL(3) of the Income-tax Act

INCOME TAX ACT

Regulation) Act, 1976.

INCOME TAX ACT 1961

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Factual and Procedural Background

This opinion arises from a writ petition by the petitioner challenging an order dated June 24, 1994, passed by the Appropriate Authority of Income-tax in proceedings bearing Case No. AA/CAL/1022 of March, 1994.

The petitioner had acquired the properties, rights and interests of Hastings Jute Mill Limited under an order of this Court and became owner of the mill premises including land, buildings, plant and machinery. After the mill ceased operations and was assessed as non-viable, the board decided to dispose of the mill. On March 7, 1994, the petitioner entered into an agreement to sell the factory (as a going concern) to respondent No. 4 for a stated price and, contemporaneously, respondent No. 4 was given possession as a monthly lessee and was granted a three-year lease and a power of attorney.

On March 22, 1994, the petitioner filed Form No. 37-1 under Chapter XXC of the Income-tax Act, 1961, seeking the income-tax authorities' permission (a "no objection certificate" under section 269UL(3)) for the proposed transfer. The Appropriate Authority issued an order (received by the petitioner on July 4, 1994, and dated June 14/24, 1994) which held that transfer within the meaning of Chapter XXC had already taken place by handing over physical possession in part performance of the agreement, and therefore the Form 37-1 filed after such handing over of possession was not valid in law. The petitioner challenged that order by filing the present writ petition.

Legal Issues Presented

  1. Whether, under Chapter XXC of the Income-tax Act, 1961 (including sections cited such as 269UC and 269UL), the Appropriate Authority's powers are limited to either purchasing the immovable property or issuing a "no objection certificate", and whether it has jurisdiction to adjudicate on the legality of the underlying transaction.
  2. Whether handing over physical possession in part performance of a contract (as contemplated by section 53A of the Transfer of Property Act, 1882) amounts to a "transfer" under section 269UA(f) of the Income-tax Act, thereby rendering an application in Form No. 37-1 filed after such handing over ineffective or invalid.
  3. Whether the transfer in this case had already taken place before filing of Form No. 37-1, and, if so, whether Chapter XXC would be inapplicable (and potential penal consequences under the Income-tax Act would follow).
  4. Whether the Appropriate Authority acted beyond jurisdiction, arbitrarily or mala fide in holding the transfer to be null and void or in refusing to issue the "no objection certificate".

Arguments of the Parties

Writ Petitioner (Applicant) — Mr. Bhattacharjee

  • The petitioner submitted Form No. 37-1 under section 269UC(3) along with the sale agreement (annexure-A) and sought a "no objection certificate" under section 269UL(3) for transfer of the industrial undertaking.
  • The petitioner contended the Appropriate Authority's order was illegal, ultra vires and passed in excess of jurisdiction; it declared the transfer null and void under section 5(3) of the Urban Land (Ceiling and Regulation) Act, 1976, which the petitioner challenged.
  • Submitted that under Chapter XXC the Appropriate Authority's only options were (a) to purchase the property for an amount equal to the apparent consideration, or (b) to issue the "no objection certificate" — it had no jurisdiction to adjudicate on legality of the transaction.
  • Argued that if an order of purchase is not passed, issuance of the certificate under section 269UL(3) is imperative and that the Authority could not deny it.
  • Relied on section 53A of the Transfer of Property Act, 1882 to argue the protection afforded to a transferee in part performance is limited against the transferor and persons claiming under him (i.e., the petitioner submitted the impugned order was illegal on this ground).
  • Relied upon a series of judicial authorities listed in support of these contentions (enumerated in the opinion).

Appropriate Authority / Respondent — Mr. Pal

  • The Appropriate Authority's order was passed after considering the facts; it concluded that a "transfer" within the meaning of Chapter XXC had already taken place by handing over physical possession in part performance of the agreement for sale, and thus the subsequent filing of Form No. 37-1 was an attempt to regularise an already effected transaction.
  • The Authority held that the statement in Form No. 37-1 was not a valid statement in law where transfer had already taken place.
  • Reference was made to provisions such as section 269UL(2) and the definition of "transfer" in section 269UA(f), which includes allowing possession to be taken or retained in part performance of a contract (section 53A context), and to penal provisions (e.g., sections 276A, 276B, and 276AB) for contravention.
  • Relied on Rajasthan Patrika Ltd. v. Union of India ([1995] 213 ITR 443 (Raj)) to support the proposition that if possession has been given and taken in part performance, a transfer has been effected and Chapter XXC would not be attracted.
  • Submitted that since possession was admitted to have been handed over prior to filing, Chapter XXC was inapplicable and the Authority had acted properly in arriving at its conclusion.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
1. Shantivan Corporation v. Sub-Registrar, [1991] 189 ITR 583 (Guj) The opinion lists this case as relied upon by the petitioner in support of his submissions. The court observed that the cases relied upon by the petitioner (including this one) had no application in the facts of this case.
2. Tanvi Trading and Credits P. Ltd. v. Appropriate Authority, [1991] 188 ITR 623 (Delhi) The opinion lists this case as relied upon by the petitioner in support of his submissions. The court held this precedent had no application to the facts of the present case.
3. Mrs. Satwant Narang…Petitioner v. Appropriate Authority, I.T Deptt., New Delhi…, [1991] 188 ITR 656 (Delhi) The opinion lists this case as relied upon by the petitioner in support of his submissions. The court treated this authority as one of the cases relied upon by the petitioner but found it inapplicable to the facts before it.
4. Moi Engineering Limited & Anr. v. Appropriate Authority & Ors., [1992] 198 ITR 270 (Cal) The opinion lists this case as relied upon by the petitioner in support of his submissions. The court concluded this case did not apply to the facts and circumstances of the present matter.
5. Hari Krishna Kanoi v. Appropriate Authority, [1994] 207 ITR 743 (Cal) The opinion lists this case as relied upon by the petitioner in support of his submissions. The court found no application of this precedent to the facts of the present case.
6. Gautam (C.B) v. Union of India, [1993] 199 ITR 530 (SC) The opinion states the Supreme Court held two alternatives under the scheme of the legislation: (i) the Union through the Appropriate Authority could buy the property; or (ii) if it decided not to buy, it had to issue a "no objection certificate", leaving the parties free to deal with the property. The court referenced this Supreme Court authority for the proposition that the scheme offers those two alternatives and noted that the Supreme Court has so held.
7. Hindustan Lever Ltd. v. Appropriate Authority, [1994] 207 ITR 772 (Cal) The opinion lists this case as relied upon by the petitioner in support of his submissions. The court indicated that this authority, as relied upon by the petitioner, had no application in the present facts.
8. Rajasthan Patrika Ltd. v. Union of India, [1995] 213 ITR 443 (Raj) The opinion reproduces and relies on the Division Bench's holding that the definition of "transfer" in the Income-tax Act (section 269UA(f)) must be read with section 53A of the Transfer of Property Act; if possession has been allowed to be taken or retained in part performance, it may constitute a "transfer" for the purposes of the Income-tax Act. The court relied on and quoted this decision at length, applying its reasoning to conclude that in the present case possession had been taken in part performance and thus a transfer had occurred before filing Form No. 37-1.
9. Dwarhanath Chatterjee v. Union of India, [1995] 213 ITR 470 (Cal) The opinion lists this case as relied upon by the petitioner in support of his submissions. The court indicated that this precedent, as relied upon by the petitioner, did not apply to the facts of the present case.
10. Appropriate Authority v. Tanvi Trading and Credits P. Ltd., [1991] 191 ITR 307 (SC) The opinion lists this case as relied upon by the petitioner in support of his submissions. The court determined that this authority did not have application to the factual situation before it.

Court's Reasoning and Analysis

The court's analysis proceeds from admitted factual premises and statutory definitions reproduced in the opinion:

  1. Admitted facts: The court observed that it was an admitted fact in this case that the transferee (respondent No. 4) had already taken possession of the mill in part performance of the agreement on March 7, 1994 (possession taken as a monthly lessee; lease and power of attorney were executed).
  2. Statutory definition: The court considered the definition of "transfer" in section 269UA(f) of the Income-tax Act, which explicitly includes "allowing the possession of such property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882." The court quoted the statutory definition and its Explanation.
  3. Part performance and transfer: The court relied on the Division Bench judgment in Rajasthan Patrika Ltd., which reasoned that where possession has been taken in part performance under section 53A, the factum of transfer must be ascertained with reasonable certainty and such possession may constitute a transfer for the purposes of the Income-tax Act. The court reproduced the relevant portions of Rajasthan Patrika and section 53A to demonstrate how part performance bears on the concept of "transfer."
  4. Application to facts: Since possession had been taken by respondent No. 4 in part performance of the contract prior to filing Form No. 37-1, the court concluded that the application in Form No. 37-1 was filed after the transfer had already occurred. The Appropriate Authority's view—that the Form 37-1 filing in such circumstances was a matter of "eye wash" and not a valid statement in law—was accepted by the court.
  5. Jurisdictional scope of Chapter XXC: The petitioner argued the Appropriate Authority had no jurisdiction to adjudicate the legality of the underlying transaction and could only either purchase or issue the "no objection certificate." The court referred to the Supreme Court's holding (Gautam) that two alternatives exist: purchase or issuance of a no-objection certificate if the Government decides not to buy. However, the court found that where transfer has already been effected (by possession in part performance) the scheme of Chapter XXC does not operate in the petitioner's favour.
  6. Penal consequences and statutory provisions: The court noted the provisions for penal consequences for contraventions (sections 276A, 276B and 276AB) and emphasized the statutory text which criminalizes failure to comply with section 269UC, surrender/delivery of possession under section 269UE(2), or contravention of section 269UL(2).
  7. Rejection of petitioner's authorities: After considering the petitioner's authorities, the court concluded those precedents did not apply to the facts at hand and therefore were not persuasive to displace the conclusion that transfer had occurred before filing. The court accepted the contentions advanced by the Appropriate Authority.

Holding and Implications

Holding:

The writ petition is dismissed.

Implications:

  • Direct effect on the parties: The petition was found to have no merit and was dismissed. All interim orders, if any, were automatically vacated by the judgment.
  • On the specific legal question in this dispute, the court accepted the Appropriate Authority's conclusion that a transfer had been effected by handing over possession in part performance prior to the filing of Form No. 37-1, and therefore the Authority acted within its jurisdiction in holding the Form to be ineffective in law.
  • No broader new precedent or novel legal principle was expressly announced by the court beyond applying existing statutory language and judicial authorities (notably Rajasthan Patrika and the Supreme Court's articulation of alternatives in Gautam). The opinion confined itself to applying established provisions and authorities to the admitted facts and concluded against the petitioner on those grounds.

This summary is limited strictly to the matters, facts, citations and reasoning contained in the provided opinion and does not add or infer facts or legal holdings beyond those expressly set out in the text.

Show all summary ...

The Judgment of the Court was delivered by

Pinaki Chandra Ghose, C.J:— This is an application filed by the writ petitioner, inter alia, challenging an order dated June 24, 1994, passed by the Appropriate Authority of Income-tax in proceedings bearing Case No. AA/CAL/1022 of March, 1994.

2. The case of the writ petitioner is that the writ petitioner submitted Form No. 37-1 in duplicate under section 269UC(3) of the Income-tax Act, 1961, for permission of the concerned authorities to transfer the said property being the premises No. 15B, Hemanta Basu Sarani, Calcutta. Along with the said Form No. 37-1 the petitioner also filed the copy of the sale agreement which is also annexed to the writ petition being annexure-A. In this writ application, the writ petitioner prayed for a direction upon the respondents to issue the “no objection certificate” under section 269UL(3) of the Income-tax Act in respect of the transfer of the industrial undertaking in terms of the agreement entered into between the writ petitioner and the private respondent being respondent No. 4. Mr. Bhattacharjee, learned senior advocate, appearing on behalf of the writ petitioner, submitted that the order which has been passed by the concerned appropriate authorities is illegal and they have passed the said order in excess of their jurisdiction. Furthermore, the said order specifically said that the transfer is null and void under section 5(3) of the Urban Land (Ceiling and Regulation) Act, 1976. In passing the said order, the said authorities have acted in excess of their jurisdiction. He further submitted that the act of the appropriate authorities is illegal, mala fide and arbitrary.

3. The facts of the case are as follows:

By an order of this court in a company application the writ petitioner acquired all the properties, rights and interest of Hastings Jute Mill Limited which were transferred to and in favour of the petitioner under the provisions of section 594(2) of the Companies Act, 1956, and thereby the petitioner became the owner of all properties, assets, machinery, stores, etc., of Hastings Jute Mills Ltd. He further submitted that no part of the said premises is vacant land within the meaning of the Urban Land (Ceiling and Regulation) Act, 1976. Since October 8, 1993, the said factory was lying closed. After careful consideration and in view of the continuous non-viability of Hastings Jute Mills, the board of directors of the writ petitioner decided to dispose of the said mill. After various proposals and negotiations amongst the parties the workers of the writ petitioner finalised the negotiations with respondent No. 4 to sell the said jute mill as a going concern on as is where is basis. The total sale price of the jute mill was fixed at Rs. 777.50 lakhs.

4. In view of the said negotiations on or about March 7, 1994, the petitioner entered into an agreement with respondent No. 4 whereunder it agreed to sell to respondent No. 4 the said factory excepting a division of the said company, including its lands and buildings, plant and machinery, etc., as a going concern at the said price. Respondent No. 4 by virtue of the said March 7, 1994 agreement, was in possession of the said mill on the same date as a monthly lessee and a power of attorney was executed in favour of respondent No. 4 by the writ petitioner and a lease was granted for three years to respondent No. 4. Thereafter, on March 22, the writ petitioner filed a statement in statutory Form No. 37-1 in terms of Chapter XXC of the Income-tax Act, 1961, before the income-tax authorities for necessary permission and thereafter on July 4, 1994, the writ petitioner received the impugned order dated June 14, 1994, passed by respondent No. 1.

5. Mr. Bhattacharjee, appearing on behalf of the writ petitioner, also submitted that the only right of respondent No. 1 under the said Chapter XXC of the said Act was either to make an order of purchase of the immovable property for an amount equal to the amount of apparent consideration or to grant the “no objection certificate”. He further submitted that the said Act did not give any jurisdiction to respondent No. 1 to adjudicate upon the legality of the transaction which is proposed to be entered into by the writ petitioner. He further submitted that if the said order of purchase is not passed by respondent No. 1, then it is obligatory and imperative upon respondent No. 1 to issue the certificate under section 269UL(3) of the said Act which would only indicate that the Government is not interested in purchasing the said property. He further submitted that under section 53A of the Transfer of Property Act, 1882, the protection given to the transferee which has taken possession of the property in part performance of the contract was only against the transferor or any person claiming under him and he submitted that the impugned order thereby is illegal. In support of his submissions, he relied upon the following judgments:

1. Shantivan Corporation v. Sub-Registrar, [1991] 189 ITR 583 (Guj).

2. Tanvi Trading and Credits P. Ltd. v. Appropriate Authority, [1991] 188 ITR 623 (Delhi).

3. Mrs. Satwant Narang…Petitioner v. Appropriate Authority, I.T Deptt., New Delhi…, [1991] 188 ITR 656 (Delhi).

4. Moi Engineering Limited & Anr.… v. Appropriate Authority & Ors.…, [1992] 198 ITR 270 (Cal).

5. Hari Krishna Kanoi v. Appropriate Authority, [1994] 207 ITR 743 (Cal).

6. Gautam (C.B) v. Union of India, [1993] 199 ITR 530 (SC).

7. Hindustan Lever Ltd. v. Appropriate Authority, [1994] 207 ITR 772 (Cal).

8. Rajasthan Patrika Ltd. v. Union of India, [1995] 213 ITR 443 (Raj).

9. Dwarhanath Chatterjee v. Union of India, [1995] 213 ITR 470 (Cal).

10. Appropriate Authority v. Tanvi Trading and Credits P. Ltd., [1991] 191 ITR 307 (SC).

6. It appears that the Supreme Court has held that two alternatives are open under the scheme of the legislation:

(i) the Union of India through the appropriate authority could buy the property; or

(ii) in the event of its decision not to buy, it has to issue a “no objection certificate” leaving it open to the parties to deal with the property.

7. Mr. Pal, appearing on behalf of the appropriate authority, submitted that the said order has been passed by the appropriate authority after considering the facts of this case. It would be evident from the order which has been passed by the appropriate authority that the appropriate authority has held:

“Clause 7. It is, therefore, clear that ‘transfer’ within the meaning of Chapter XXC has already taken place by handing over physical possession of the property in part performance of the agreement for sale. The submission of Form No. 37-1 before the appropriate authority for obtaining a clearance under the said Act therefore now becomes a matter of eye wash to regularise the transaction for which prior permission was necessary. We therefore hold that the statement in Form No. 37-1 as furnished to the appropriate authority is not a valid statement in the eye of law in cases where the transfer has already taken place as in the instant case.”

8. He also drew my attention to section 269UL(2) and further to section 269UA(f) and submitted that if the transfer has already taken place in that case, they will be liable to be prosecuted under sections 276A and 276B. He also drew my attention to the averments made in the said writ petition where it appears that possession has already been handed over before filing of the application under section 269UDC. Mr. Pal relied upon a judgment reported in Rajasthan Patrika Ltd. v. Union of India, [1995] 213 ITR 443 (Raj), and submitted that the transfer has already taken place. Thus Chapter XXC would not be applicable to that.

9. Contravention of the provisions of sections 269UC, 269UE and 269UL is punishable under section 276AB read with section 278AA. The said section 276AB runs as follows:

“276AB. Whoever fails to comply with the provisions of section 269UC or fails to surrender or deliver possession of the property under sub-section (2) of section 269UE or contravenes the provisions of sub-section (2) of section 269UL shall be punishable with rigorous imprisonment for a term which may extend to two years and shall also be liable to fine:

Provided that in the absence of special and adequate reasons to the contrary to be recorded in the judgment of the court, such imprisonment shall not be for less than six months.”

10. The meaning of “transfer” as provided under section 269UA(f) which is as follows:

“269UA. (f) ‘transfer’,-(i) in relation to any immovable property referred to in sub-clause (i) of clause (d), means transfer of such property by way of sale or exchange or lease for a term of not less than twelve years, and includes allowing the possession of such property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882):

Explanation—For the purposes of this sub-clause, a lease which provides for the extension of the term thereof by a further term or terms shall be deemed to be a lease for a term of not less than twelve years, if the aggregate of the term for which such lease is to be granted and the further term or terms for which it can be so Extended is not less than twelve years;

(ii) in relation to any immovable property of the nature referred to in sub-clause (ii) of clause (d), means the doing of anything (whether by way of admitting as a member of or by way of transfer of shares in a co-operative society or company or other association of persons or by way of any agreement or arrangement or in, any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, such property.”

11. The Division Bench of the Rajasthan High Court in the case reported as Rajasthan Patrika Ltd. v. Union of India, [1995] 213 ITR 443 held as follows (at page 457):

“It would thus appear that in the schemie of the Act while defining the term ‘transfer’, if possession of the property has been allowed to be taken or retained in part performance of ‘a contract of the nature referred to in section 53A of the Transfer of Property Act, it has to be understood accordingly. Therefore, the nature referred to in section 53A of the Transfer of Property Act has been incorporated while defining the term ‘transfer, in order to ascertain as to whether a transfer has been effected or not if possession of any property has been given and taken for the purposes of the Income-tax Act. The nature referred to in section 53A cannot be given a complete go-by. section 53A of the Transfer of Property Act is reproduced as under:

‘53A. Part performance—Where any person contracts to transfer for consideration any immovable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty,

and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract,

and the transferee has performed or is willing to perform his part of the contract,

then, notwithstanding that the contract, though required to be registered, has not been registered, or, where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefor by law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract:

Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof.’

The very definition of the term ‘transfer’ as contained in section 269UA(f) read with the provisions of section 53A of the Transfer of Property Act shows that the factum of transfer has to be ascertained with reasonable certainty and in case the transferee has in part performance of the contract taken possession of the property or any part thereof, it would constitute a transfer. The petitioner himself has come with the case that possession of part of the property in question has been taken over by him in part performance of the contract. In view of this admitted factual position, there is no escape from the logical conclusion in the light of the definition of the term ‘transfer’ as given in the Income-tax Act that in the case at hand part of the property in question had already been transferred to the petitioner by respondent No. 4 before the filing of the statement in Form No. 37-1 and it cannot be said that the statement which was made by the petitioner and respondent No. 4 in Form No. 37-1 was a statement of intended transfer. There is a lot of difference between actual transfer and intended transfer and the statute has taken due care to prohibit the actual transfer before the filing of the statement in Form No. 37-1 and the only stage which has been permitted to be reached is to enter into an agreement for transfer and to act upon such an agreement even for a limited purpose beyond the intention to transfer is forbidden. In view of this position of law, we do not find any substance in the argument of Shri N.M Ranka that the present one is only a case of permissive possession for restrictive use and occupation not amounting to transfer. Mr. Ranka may be right in his submission that we have to look at the whole instrument and the meaning of the instrument has to be taken as a whole, but we fail to understand as to how this proposition helps the case of the petitioner for the simple reason, that the agreement on which the whole case of the petitioner is based itself mentions that the petitioner shall be entitled to use, occupy, hold and enjoy the portion described in schedule ‘A’ and it is the petitioner's own case that he took over possession of the portion detailed in Schedule ‘A’ on March 7, 1991, and, in our opinion, it constitutes a definite case of transfer of part of the property in question within the meaning of section 269UA(f) for the purposes of the Income-tax Act. Submissions Nos. 1 and 2 made by Shri N.M Ranka are, therefore, devoid of any force in view of the admitted factual position and the same are, therefore, rejected.”

12. Similarly in the instant case it is an admitted fact that the transferee has already taken possession of the said mill which is an act to be performed under the agreement in question, for which the application has been made under Form No. 37-1. Therefore., the application has been made after the transfer took place.

13. After considering all these facts and circumstances of this case, I am of the opinion that the cases relied upon by Mr. Bhattacharjee have no application in the facts and circumstances of this case; on the contrary the contention of Mr. Pal, learned senior counsel for the respondent, has been accepted by me. It is a fact that the transfer has been effected before submission of the statement in Form No. 37-1 and the appropriate authority has, in my opinion, acted fairly and exercised its jurisdiction properly. By reason of the premises I am of the opinion, that the writ petition has no merit and is liable to be dismissed.

14. Accordingly, the writ petition is dismissed. All interim orders, if any, stand automatically vacated.

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