Jodhram Daulatram Arora and others vs M.B. Kodnani and others

S.H. Kapadia, J.—Being aggrieved by the order u/s 269UD(1), the petitioners-purchasers seek to challenge the pre-emptive purchase by the Government of flat No. 10 on the third floor in Building No. C. Known as "Parmar Paradise", admeasuring, approximately, 1,286 sq. ft. along with car parking No. 10, situate at Survey No. 80/A/2 and Survey No. 425, B. J. Road, Pune.

Briefly, the facts relevant for deciding the present matter are as follows :

(a) By agreement for sale dated July 12, 1993, the petitioners agreed to purchase the above flat from one Jamnadas C. Merchant (i.e., respondent No. 5 herein) for a consideration of Rs. 14,06,000. On the basis of the apparent consideration being Rs. 14,06,000, the rate per sq. ft. of the built-up area of approximately 1,286 sq. ft., works out to Rs. 1,093 per sq. ft. Under the said agreement, it is recited that the petitioners paid the entire amount of Rs. 14,06,000, prior to the agreement dated July 12, 1993. The said amount was paid during the period commencing from June 24, 1993, up to July 8, 1993. The amount was paid without obtaining a no objection certificate under Chapter XX-C of the said Act, 1961. Even possession of the flat was handed over by respondent No. 5 to the petitioners. However, the date of possession has not been given in the agreement. The said date is not mentioned in the writ petition also. Under the said agreement, it was agreed that the parties shall sign the requisite Form No. 37-I u/s 269UC of the Income Tax Act, 1961. At this stage, it may be mentioned that a bare perusal of the said agreement does not indicate that the vendor agreed to sell to each of the petitioners an undivided 1/3rd interest in the property. The said agreement does not show that the petitioners individually agreed to buy an undivided 1/3rd share in the property from the vendor. The entire agreement is one composite transaction. At this stage, it may be mentioned that, according to the petitioners, respondent No. 5 had decided to sell the property in July, 1993, and they had also obtained valuation report dated June 20, 1993 (exhibit-F). Even according to the said valuation report, the petitioners have declared that they propose to purchase the above flat as joint owners. They have further declared that their shares were undivided.

(b) On July 27, 1993, i.e., after the entire consideration amount was paid to the vendor without no objection certificate under Chapter XX-C of the Act, Form No. 37-I came to be filed by the parties.

(c) On September 21, 1993, a show-cause notice for pre-emptive purchase came to be issued.

(d) In reply to the show-cause notice, the petitioners vide letter dated October 4, 1993, inter alia, pointed out the sale instances which, according to the petitioners, were comparable sale instances. The said sale instances are quoted at page 87 of the writ petition.

(e) By another reply to the show-cause notice the petitioners informed the appropriate authority vide their letter dated October 7, 1993, that each one of the petitioners owned a 1/3 undivided common share in the property and, as such, the deal is entered into by each one of the petitioners for purchasing a 1/3rd undivided common share in the property. As stated above, this is not born out by the agreement in question. This is also not borne out by the valuation report filed on behalf of the petitioners dated June 20, 1993.

(f) By the impugned order dated October 27, 1993, the appropriate authority, inter alia, came to the conclusion that in view of the two sale instances quoted in paragraph 3 of the impugned order, the flat in question was undervalued and, accordingly, order u/s 269UD(1) of the Income Tax Act, 1961, came to be passed. Being aggrieved by the said order, the present petition is filed.

At this stage, it may be mentioned that on September 8, 1993, flat No. 4 in the same society in the adjoining wing was sold by way of auction by the Department which fetched Rs. 26,00,000, for an area admeasuring 1,640 sq. ft. and on that basis, the rate per sq. ft. of the built-up area works out to Rs. 1,585 per sq. ft. The second sale instance is dated September 24, 1993, in respect of flat No. 5 in the same society in the adjoining wing in which the rate per sq. ft. of the built-up area works out to Rs. 1,516 per sq. ft. Accordingly, the appropriate authority came to the conclusion that the rate of Rs. 1,093 per sq. ft. which is the rate under the agreement in question was less than the market rate of the property prevailing in that area as indicated by the above two sale instances. The appropriate authority accordingly came to the conclusion that the market rate of the property was Rs. 1,616 per sq. ft. and when compared to the rate under the agreement in question being Rs. 1,093 per sq. ft., there is under valuation by more than 15 per cent.

Before coming to the contentions advanced on behalf of the petitioners, we may mention that we are not inclined to interfere under article 226 of the Constitution in this matter. Firstly, the facts mentioned hereinabove indicate that even prior to the agreement in question, which is executed on July 12, 1993, the petitioners paid the entire consideration amount to the vendor. The petitioners were in fact put in possession by the vendor. However, they have not disclosed the date on which they were put in possession by the vendor. The petitioners, therefore, paid the consideration amount and got possession without obtaining a no objection certificate under Chapter XX-C of the Act. Moreover, Form No. 370I was executed by the parties only on July 27, 1993, and before the above date, the entire transaction had taken place. Secondly, in the present case, respondent No. 5 has not challenged the appropriate authority''s decision. The letter (exhibit-P-3) at page 112 of the writ petition is signed by the petitioners. By the said letter, the petitioners in fact have requested the appropriate authority to pay the entire consideration of Rs. 14,06,000 to them and not to the transferor. This is because prior to the agreement in question, the entire consideration appears to have been paid to the vendor. The date on which the petitioners obtained possession from the vendors is not mentioned. By the said letter (exhibit-p-3), the petitioners have also informed the appropriate authority that they will not create any dispute for the above consideration of Rs. 14,06,000. In view of the above facts, we do not see any reason to interfere under article 226 of the Constitution. However, Mr. Mistry advanced certain legal contentions which we have decided to deal with in the following paragraphs in the interest of justice.

Mr. Mistry, learned counsel appearing for the petitioners, contended that the appropriate authority erred in placing reliance on the above two sale instances. He submitted that the appropriate authority erred in placing reliance on the auction sale held on September 8, 1993, in respect of flat NO. 4 in the same society which fetched a fair market value of Rs. 26,00,000 for an area of 1,640 sq. ft. and the rate of which works out to Rs. 1,585 per sq. ft. It was contended that prior to the said auction, as could be seen from the advertisement dated August 23, 1993, in the newspaper, the Department itself had notified a reserve price of Rs. 16.5 lakhs in respect of the said flat No. 4 and on that basis even as on August 23, 1993, the rate was Rs. 1,006 per sq. ft. and, therefore, there was no under valuation in the present case on the date of the agreement in question. To reiterate, under the agreement in question the rate works out to Rs. 1,093 per sq. ft. It was, therefore, contended that there was no under valuation. Mr. Mistry elaborated his contention by submitting that in a rising market, prices will rise in steps. This is inevitable. But, he contended that the same cannot lead to the conclusion that the fair market value in July, 1993, was more than Rs. 1,100 per sq. ft. and, therefore, the appropriate authority erred in drawing the said conclusion, by placing reliance on the auction sale held on September 8, 1993. We do not see any merit in the said contention. The agreement in question was executed on July 12, 1993. The auction sale of flat No. 4 took place on September 8, 1993. The agreement covered by the auction sale was prior to the auction sale. At the auction sale, the rate which the Department could take in respect of the flat NO. 4 was Rs. 1,585 sq. ft. In the circumstances, it is clear that the auction sale which took place on September 8, 1993, clearly indicated the market rate of the property. Mr. Mistry vehemently urged that in the present case in a rising market, prices will rise in steps. In the present case, there is no evidence to show that prices in Pune have increased by more than 30 per cent. in two months as is contended by the petitioner. Although the petitioners have filed their valuation reports, no sale instances have been furnished in support of the petitioners'' contention that prices have increased by more than 30 per cent. between July, 1993, and September 8, 1993. Moreover, the second sale instance on which the appropriate authority placed reliance and which is after the date of the auction also supports the Department. The second sale instance is dated September 24, 1993. It is in respect of flat No. 5 in the same building and it has fetched rate of Rs. 1,516 per sq. ft. which is way beyond the rate of Rs. 1,093 under the agreement in question. In the circumstances, the appropriate authority was right in coming to the conclusion that the market rate of the property was Rs. 1,515 per sq. ft. and, therefore, there was under valuation by more than 15 per cent. In the present case, we do not find any merit in the contention that no fair opportunity was given to the petitioners to meet the case of the Department. The petitioners to meet the case of the Department. The petitioners have filed their valuation report. They were heard by the appropriate authority and the appropriate authority has relied upon two sale instances of flats in the same society. Moreover, we do not find any comparative sales being cited by the valuer on behalf of the petitioners which would indicate that prices have risen in steps by more than 30 per cent. in Pune in two months between July and September, 1993. In the circumstances, there is no merit in the above contentions advanced on behalf of the petitioners.

Mr. Mistry next contended that in the present case, under the agreement in question on July 12, 1993, the vendor agreed to sell to each of the petitioners an undivided 1/3rd interest in the property. He submitted that each of the petitioners individually agreed to buy an undivided one-third share in the property from the vendor for the total consideration of Rs. 14,06,000. He further contended that consideration for the purchase of each of the petitioners'' interest in the property could be valued at Rs. 4,68,667 which is less than Rs. 10,00,000 and in the circumstances, the appropriate authority had no jurisdiction to proceed under Chapter XX-C of the Income Tax Act, 1961, and that section 269UD was not applicable. In support of his contention, Mr. Mistry placed reliance on the judgment of the Madras High Court in the case of K.V. Kishore and another Vs. Appropriate Authority and others OVERRULED, . Mr. Mistry also relied upon the judgment of the Madras High Court in the case of N.C. Rangesh and others Vs. Inspector General of Registration and others, . We do not see any merit in the said contention advanced on behalf of the petitioners. Firstly, as stated hereinabove, the agreement in question dated July 12, 1993, is a composite agreement in respect of flat No. 10. There is nothing in the agreement in question which indicated that the petitioners-purchasers agreed to buy individually, an undivided 1/3rd share in the property from the vendor. Further, pursuant to the agreement in question, all the concerned parties themselves filed Form No. 37-I on July 27, 1993. In the circumstances, it is not open to the petitioners now to contend that section 269UD of the Income Tax Act has no application and that the appropriate authority had no jurisdiction. Moreover, there is nothing on record to indicate that the consideration for the purchase of each of their interests in the property was Rs. 4,68,667 as alleged. The valuation report dated June 20, 1993, does not support the petitioners'' factual contention. On the contrary, a bare reading of the valuation report dated June 20, 1993, submitted on behalf of the petitioners (page 62 of the writ petition) which contains a pro forma of the questionnaire in Form No. O-1, clearly shows that the petitioners purchased the property in joint-ownership and that their shares are undivided. In fact, the questionnaire, which is required to be filled in by the petitioners, prescribes a specific question as to whether the property is purchased under joint-ownership/co-ownership share of each owner. The said questionnaire also prescribes a specific question as to whether the shares of the purchasers are undivided. In reply to the said question, the petitioners have categorically declared that the property is purchased in joint-ownership and that the shares are undivided. In the circumstances, in the present case, there is no merit in the contention advanced on behalf of the petitioners that the appropriate authority erred in assuming jurisdiction under Chapter XX-C of the Act. For the above reason, the ratio of the judgment of the Madras High Court in the case of K.V. Kishore and another Vs. Appropriate Authority and others OVERRULED, , will not apply to the facts of the present case. Further, in the case of K. V. Kishore [1989] 189 ITR 264 (Mad), the facts are entirely different. A piece of land was allotted to one Srinivasan, who died in 1962, leaving behind his wife, a son and three daughters. When succession opened on account of the demise of Srinivasan, each of the aforestated class I heirs secured a quantified share in the property left behind by Srinivasan. On April 8, 1987, a family arrangement was entered into under which the son took 26 per cent., the wife took 23 per cent. and each of the daughters took 17 per cent. out of the property left behind by Srinivasan. It was in these circumstances that the petitioner-vendor in that case challenged the decision of the appropriate authority to acquire the property under Chapter XX-C of the Income Tax Act on the ground that the heirs of Srinivasan, on his demise, became quantified and it was thereafter that the family arrangement was arrived at under which each of the heirs was allotted a definite share in the immovable property and accordingly each one of the heirs became absolute owner of the undivided share. Each sharer was entitled to deal with his/her share without any restraint or consent from other sharers. In the circumstances, it was held that each individual sharer was entitled to convey his own share and since it was found on the facts of that case that each of the sharers had agreed to convey his/her absolute interest in the immovable property, despite the conveyance being only one conveyance, the value of such share of each sharer was below Rs. 10,00,000 and, therefore, it was held that Chapter XX-C of the Income Tax Act would not be attracted. In the circumstances, the ratio of the judgment of the Madras High Court in the case of K.V. Kishore and another Vs. Appropriate Authority and others OVERRULED, does not apply to the facts of the present case. Similarly, the ratio of the judgment of the Madras High Court in the case of N.C. Rangesh and others Vs. Inspector General of Registration and others, also does not apply to the facts of the present case. In the case of N.C. Rangesh and others Vs. Inspector General of Registration and others, , the petitioners challenged the constitutional validity of two circulars dated February 11, 1977 and May 29, 1989, issued by the Inspector-General of Registration to the effect that in cases where undivided interest in immovable property is sold, a certificate u/s 230A of the Income Tax Act, 1961 or a no objection certificate under Chapter XX-C will have to be obtained if the value of the entire property happens to be more than Rs. 2,00,000 or Rs. 10,00,000, as the case may be. It was in this context that the Madras High Court ruled that when an undivided share is sold under a valid sale deed or under a valid agreement of sale for a consideration which is below the limit prescribed u/s 230A or Chapter XX-C, then the said provisions will not apply. In the circumstances, the ratio of the Madras high Court in the case of N.C. Rangesh and others Vs. Inspector General of Registration and others, will also not apply to the facts of the present case. As stated hereinabove, the agreement in question concerns flat No. 10 which has been purchased by the petitioners. The petitioners themselves filed Form No. 37-I. The valuation report submitted by them also does not support their contention that each of the petitioners had individually agreed to buy an undivided 1/3rd share in the property from the vendor.

For the aforestated reasons, there is no merit in this petition. Accordingly, the writ petition fails and stands rejected.