CMS Computers (P) Ltd. and Another vs Appropriate Authority and Others

S. Radhakrishnan, J.—The petitioners are aggrieved by the order passed by the Appropriate Authority u/s 269UD of Income Tax Act, 1961. The petitioners have prayed for issuance of the appropriate writ against the 1st respondent requiring them to issue no objection certificate u/s 269UL(2) of Income Tax Act (hereinafter referred to as "the Act") and release and restore the flat No. 203A on 2nd floor of a building called "Arcadia" on 195, Nariman Point, Mumbai, for value of Rs. 21,44,000.

The facts which are relevant for consideration are as under:

It is the case of the petitioner that pursuant to the agreement between Gupta Investments & Constructions (P) Ltd. and Mr. P.A. Daruwalla the said Gupta Investments agreed to sell the said office premises to Daruwalla. On 20-7-1978 agreement between Daruwalla and Mr. Kartarsingh Bagga and Gupta Investments took place by which Daruwalla sold the said premises to Mr. Kartarsingh Bagga. Thereafter pursuant to agreement between Mr. Kartarsingh Bagga and the respondent No. 5, Capt. Jagdish Khokhar, Mr. Kartarsingh Bagga agreed to sell the premises for Rs. 3,84,000. However, before the said agreement could be acted upon and the share certificate could be transferred in favour of respondent No. 5, Kartarsingh Bagga died on 8-8-1986. The premises therefore continued to be registered in the records of respondent No. 6, Arcadia Premises Co-op. Housing Society Ltd. in the name of Kartarsingh Bagga. Thereafter some dispute arose between 5th respondent and legal heirs and representatives of Mr. Kartarsingh Bagga.

During the pendency of the said disputes, the 1st petitioner and respondent No. 5 agreed that respondent No. 5 would sell the said premises to 1st petitioner. On 12-12-1988, the 1st petitioner paid a sum of Rs. 12,00,000 to respondent No. 5 in order that the respondent No. 5 shall sell the said premises to the 1st petitioner. Respondent No. 5 also handed over possession of the said premises to the 1st petitioner permitting them to occupy the same as a licensee. Respondent No. 5 however could not execute an agreement with the 1st petitioner in view of the pending dispute'' with the legal heirs of Kartarsingh Bagga. On 20-7-1989 at the request of the respondent No. 5, the 1st petitioner deposited Rs. 10,000 with the respondent No. 6 society for the purpose of publishing notices about transactions In local newspapers. On 23-8-1989 public notice issued by the advocate of respondent No. 6 society.

In order to perfect the title of respondent No. 5 and thereby removing a major obstacle to the proposed sale to 1st petitioner, 1st petitioner at the request of respondent No. 5, paid a further sum of Rs. 3,55,000 to Mr. Virendra Singh Bagga, the heir and legal representative of Kartarsingh Bagga. On 4-12-1989 at the request of the respondent No. 5 the 1st petitioner made a further payment of Rs. 50.000 to Virendra Singh Bagga. The 1st petitioner also paid to the respondent No. 6 society an amount of Rs. 3,54,588.27 being the arrears of the said society in respect of the said premises. Out of the said amount of Rs. 3,54,588.27 an amount of Rs. 2,94,415.33 related to the period upto December 1988.

Agreement between 1st petitioner and respondent No. 5 for sale of the said premises was entered into on 22-3-1990 for a consideration of Rs. 21,44,000. It was recited in the said agreement that the sum of Rs. 18,99,415.33 paid by 1st petitioner to or at the request of respondent No. 5 was to be treated as an advance and the agreement would be completed on the payment of the balance consideration of Rs. 2,44,584 within a period of 60 days from the date of execution of the agreement.

On 30-3-1990 Form No. 37-I was filed by respondent No. 5 and the 1st petitioner.

On 30-3-1990 the Appropriate Authority called for certain information in respect of the said transaction and the said information was sent on 14-5-1990 by the petitioner No. 1. On 21-5-1990 the 1st petitioner furnished further information to the Appropriate Authority.

The Appropriate Authority (1st respondent) thereafter passed order u/s 269UD(1) of Income Tax Act, 1961 directing purchase of subject property.

Being aggrieved by the said order the petitioners filed Writ Petn. No. 1808 of 1990 against the said order and the said order of purchase was finally set aside by this court, on the ground that no hearing was given to the petitioner before passing the said order especially in the light of the Hon''ble Supreme Court''s judgment in C.B. Gautam Vs. Union of India and Others, .

In view thereof, 1st respondent issued show-cause notice dated 1-1-1993 thereby calling upon the petitioner and respondent No. 5 to show cause why an order should not be made in accordance with the provisions of Section 269UD(1) of the Income Tax Act. The annexure to the show-cause notice mentioned the reasons recorded by the Appropriate Authority for making the said earlier order dated 28-5-1990. In fact the very order which was set aside by this court, was annexed as "reasons" in the show-cause notice.

On 22-1-1993 the petitioners filed written submissions. Again on 29-1-1993 the petitioners filed further submissions.

Further according to the petitioner they received an order u/s 269UD(1) of the Income Tax Act passed on 26-2-1993 with "reasons recorded" holding that the property was fit for purchase by the Central Government and was accordingly being purchased.

Thus aggrieved by the above order dated 26-2-1993, the petitioners have filed this writ petition.

Mr. Korde, the learned senior Counsel for the petitioner submitted that the respondent "Appropriate Authority" did not take into account the following factors at all:

(i) The title of respondent No. 5 to the said premises was doubtful or disputed.

(ii) The transaction between the petitioners and respondent No. 5 ought to be considered as a transaction of December, 1988. It is unrealistic to consider the said transaction as a transaction of 22-3-1990.

(iii) Respondent No. 5 was in grave financial difficulties and therefore could not perfect his title to the said premises on his own.

(iv) Considerable time and effort was spent by the petitioners for the purpose of dealing with and sorting out the various hurdles in the way of the proposed transfer.

The petitioners by their reply letter dated 22-1-1993 objected to the purchase of the property u/s 269UD(1) of the Act on various grounds set out therein. In the said reply, the petitioners inter alia stated that even on the basis of sale instances set out in the impugned show-cause, it cannot be said that there is undervaluation by 15 per cent of the fair market value. By the said reply, the petitioners called upon the respondents to furnish particulars of the sale instances referred to in the show-cause notice, whereas those details and particulars were never furnished by the respondents to the petitioners. Secondly, the three sale instances referred to by the Appropriate Authority while passing the order are strictly not comparable with the said premises, as Atlanta, Bajaj and Mittal court are in prime locations in Nariman Point. Even there would be no sea view from the said premises after a building comes up on a plot next to Arcadia plot. It is vital to note that Arcadia plot is in a narrow back-lane, compared to the aforesaid three properties. Also, all the instances mentioned had a clear title without doubts, disputes or litigations. Even the time gap between the inception of the idea and the execution was of 14 months, therefore, can be distinguishable from the referred instances. Thirdly, Chapter XX-C of the Act clearly states that the transfer of the premises would occur only if the fair market value is over 15 per cent than the apparent consideration. It states that cases of doubtful or disputed titles should not be ordinarily purchased and only when there is significant undervaluation of property. C.B Gautam v. Union of India (supra), K.P. Varghese Vs. Income Tax Officer, Ernakulam and Another, .

Mr. Ashokan, learned Counsel appearing on behalf of the respondents, the revenue, on the other hand supported the order of the Appropriate Authority. He fairly stated that prior to the decision of this court in the case of Vimal Agarwal Vs. Appropriate Authority and others, , there was no practice of determining the fair market value in respect of property purchased u/s 269UD(1) of the Act in the present case. In these circumstances on the basis of sale instances on record, the Appropriate Authority was justified in passing the impugned order.

Mr. Korde, the learned senior Counsel pointed out that firstly no "fair market value" was determined, hence it is impossible to determine that the sale price in the present case was below 15 per cent, hence the impugned order is patently contrary to Vimal Agarwal v. Appropriate Authority (supra). Secondly, Mr. Korde pointed out that the Appropriate Authority did not take into account that substantial amounts were paid by the petitioners in 1988, when title was in doubt. Thirdly, Mr. Korde, the learned senior Counsel pointed out that all the instances cited by the Appropriate Authority were not at all comparable to petitioner''s premises, which is situated in a back-lane in Nariman Point and the premises cited by the Appropriate Authority are on prime main roads and also in prominent corners of Nariman Point, hence not comparable at all to the petitioner''s property.

We have carefully considered the rival submissions. The Apex Court in" the case of C.B. Gautam (supra) has held that the provisions of Chapter XX-C can be resorted to only when there is a significant undervaluation to the extent of 15 per cent of the fair market value with a view to evade tax. As held by this court in the case of Vimal Agarwal v. Appropriate Authority (supra), it is necessary to first determine the fair market value of the property in question in the light of the attending circumstances. This court has further held that without determining the fair market value, it is not only difficult but it is impossible to say that the apparent consideration is lower than the fair market value by 15 per cent. In the present case, admittedly, the fair market value of the property in question is not determined and, therefore, purchase of the property in question on the footing that there is undervaluation to the extent of 15 per cent of the fair market value has to be held to be without any basis.

The Appropriate Authority has failed to consider the special facts of the present case:

(1) title was disputed or doubtful, when petitioners paid substantial amounts in 1988.

(2) transaction to be considered as a transaction of 1988 and not December of 1990.

(3) respondent 5 was in financial difficulties, and petitioners paid substantial amounts to perfect the title.

(4) provisions of Chapter XX-C are drastic and are meant to be applied only when the transaction in question has a rational nexus with tax evasion, which is not established in the instant case.

Moreover, before passing the impugned order, the Appropriate Authority has neither given the documents relating to the sale instances referred to in the show-cause notice nor in the impugned order, the Appropriate Authority has referred to the sale instance pointed by the petitioners in their reply to the show-cause notice. In these circumstances, the grievance of the petitioners that the impugned order suffers from serious infirmities deserves acceptance.

Moreover, the show-cause notice issued by the Appropriate Authority, is fully based on an earlier order, which was set aside by this court which shows the predetermined mind of the Appropriate Authority, and total non-application of mind.

Thus, it cannot be said that the sale consideration in respect of the property in question is undervalued by more than 15 per cent, especially when no "fair market value" is determined.

Apart from the above, in respect of the sale instances referred to in the show-cause notice, the petitioners had specifically sought inspection of the documents but the same was not given. Failure to furnish relevant particulars of the sale instances by the revenue constitutes a clear breach of the principles of natural justice.

For all the aforesaid reasons, we are clearly of the opinion, that the impugned order cannot be sustained and we have no option but to quash and set aside the same which is passed u/s 269UD(1) of the Act.

Accordingly, the petition is allowed. Rule is made absolute in terms of prayer Clauses (a) and (b) with costs.