Mass Traders (P.) Ltd. vs Appropriate Authority

R. Gururajan, J.—These petitions are directed against the orders at Annexure-G in No. AA[BNG] 5(35)7/ 89-90/1993, Annexure G-1 in No. AA[BNG] 5(35)7/ 89-90/1993 and Annexure-F in No. AA[BNG] 5(35)7/ 89-90/1993 issued by the first respondent. Petitioner wants a direction directing the Appropriate Authority the first respondent to issue No Objection Certificate and to return the Bank Guarantee of Rs. 2.85 crores to the Petitioner for cancellation. Facts in brief are as follows: Petitioner is a Private Limited Company. It has entered into two agreements on 22-5-1989 with the second and third respondents viz., Mrs. Aimai N Irani and Mr. Darius N Irani through their power of attorney Mr. Godrez K Irani for the purchase of their respective shares in the ratio of 3:1 of the property bearing Nos. 4 and 5, situated at Infantry Road, Bangalore, for a consideration of Rs. 1,38,04,850 and Rs. 46,01,475, i.e., for a total consideration of Rs. 1,84,06,825. Two forms in Form No. 37-1 prescribed under Rule 48L of the income tax Rules, 1962 duly filled in by the transferors and the transferee were filed before the first respondent on 23-5-1989. Statements were accompanied by the respective agreements. Third respondent is a non-resident, non-citizen, though of Indian origin. Second respondent is the mother of the third respondent, and both of them were the legal heirs of Mr. Nariman K Irani. First respondent after inspecting the property and after recording the reasons by two separate orders passed by it ordered purchase of the said property by the Central Government for a total consideration of Rs. 1,84,06,325. Orders were passed u/s 269UD(1) of the income tax Act, 1961 ("Act" for short) on 25-7-1989. Transferors did not question the purchase order dated 25-7-1989, but instead immediately after the passing of the purchase orders, surrendered the vacant possession of the property to the appropriate authority along with original documents. Aggrieved by these orders petitioner filed writ petitions in WP Nos. 14319 and 14320 of 1989. This Court admitted the petition and granted interim orders.

Third respondent being a citizen of United States of America required approval of the Reserve Bank of India to sell his interest in the property. An application was made for this purpose to the Reserve Bank of India. The Bank approved the same in favour of the petitioner. Annexure-B is the approval order. Fifth respondent undertook to tender the purchase consideration subject to respondents 2 and 3 furnishing the bank guarantee for sums of Rs. 1,38,04,850 and Rs. 46,01,475. Fifth respondent passed an order of payment in their favour of respondents 2 and 3 u/s 269UF(i) of the Act. Actual payments were withheld for non-furnishing of bank guarantee. Thereafter time was extended by this Court for actual payment. Petitioner''s earlier petitions were heard on merits by the learned Single Judge of this Court. This Court allowed the writ petitions without going into the constitutional validity of the provisions of Chapter XX-C of the Act. Order of this High Court is filed at Annexure-C to these petitions. First respondent filed writ appeals in WA Nos. 2164 and 2165 of 1992. The Division Bench disposed of the matter on 1st, 4th and 8th March, 1993. Writ Appeals were allowed. Order dated 25-7-1989 passed by the first respondent was quashed not for reasons stated in the judgment of the learned Single Judge but for the reasons set out in judgment of the Division Bench. The order of the Division Bench is at Annexure-E to these petitions. Special Leave Petitions were filed and the Supreme Court ordered notice to both in respect of admission and in respect of interim orders in the case on hand.

In the meanwhile, first respondent issued notice calling upon the petitioner as to why the property bearing Municipal Nos. 4 and 5 (New Nos. 9 and 11), Infantry Road, should not be acquired. Petitioner filed Writ Petition No. 17478 of 1993. Interim order was declined. Extension of time was sought for before the Division Bench. Same was declined. A detailed reply to the show-cause notice was sent to the first respondent. Thereafter, first respondent ordered compulsory purchase in terms of his order dated 14-6-1993 and also in terms of the letter dated 14-6-1993 issued u/s 269UE(2) of the Act. They are at Annexures G and G1. Supreme Court disposed of the Civil Appeals before it vide judgment dated 24-9-1993, wherein the Court has observed as under:

In view of this order made by the Appropriate Authority after a further enquiry as directed by the High Court in the impugned order, we do not consider it appropriate to go into the questions raised by the appellant while challenging the impugned order of the High Court. It will be open to the appellant to raise all the points, including those raised herein, for consideration while challenging the order dated 14-6-1993 made by the Appropriate Authority in the appropriate proceedings. In these circumstances, we also make it clear that these points which have been raised in the present appeals shall be treated as open for consideration in the proceedings taken by the appellant for challenging the order dated 14-6-1993 made by the appropriate authority even before the High Court. We make it further clear that the observations touching these points made in the impugned judgment by the High Court shall not stand in the way of the consideration of these points in the proceedings taken hereafter even in the High Court by the appellant while challenging the appropriate authority''s order dated 14-6-1993.

Annexure-H is the order. Petitioner in these circumstances is before me challenging these orders as referred to above.

Notice was issued and respondents entered appearance.

Statement of objections is filed by the parties. The Department refers to the history of the case in its reply. Thereafter, they dispute various grounds raised in the petition and ultimately they say that the Department had proceeded to pass purchase orders after giving reasonable opportunity in the matter. After considering the objections raised by the petitioner and taking into various directions issued by various courts of law and the relevant rules and Acts, first respondent has arrived at a conclusion that the value shown in the transaction submitted to the authorities was less than 15 percent than the actual market value prevailing as on that day and that such a transaction was entered into in order to avoid tax by the parties and that therefore the authorities had proceeded to acquire the property. Impugned order is in accordance with law. They want the petition to be dismissed.

This matter was heard on various dates. Sri Sarangan, learned counsel appears for the petitioner and Sri Seshachala, learned counsel appears for the Department.

Sri Sarangan, learned Senior Counsel for the petitioner took me through the material on record to contend that the impugned orders require interference by this Court. Learned counsel refers to earlier proceedings in the case on hand. He says that during the pendency of SLP, orders were passed by the respondents and the Supreme Court disposed of the SLP by directing the petitioner to take all contentions available to the petitioners in terms of the SLP. Learned counsel therefore says that this Court has to take into consideration all aspects of the matter in the light of the judgment of the Supreme Court. Learned counsel also complains of inadequate opportunity in the matter. He refers to material on record to say that a reasonable opportunity was not provided to the petitioner in the matter.

Coming to the merits of the matter, learned counsel would argue that the facts as narrated by the authorities are not to be taken into consideration for the purpose of compulsory purchase in terms of the impugned order. He refers to me several case laws in support of his submissions. In addition, he would say that the Reserve Bank has approved the transaction and that therefore prima facie it cannot be said that there is any material providing for tax evasion warranting any orders in terms of section 269U of the Act. It is further contended before me that the courts of law have deprecated ad hocism in these matters. He would say that comparisons are wholly untenable and inadequate. There has been deliberate attempt to underplay No. 6, Infantry Road and the disadvantages of the property and overstate the advantages of the subject property. The potentiality of the property at No. 6, Infantry Road is belittled. There is a discreet omission about when the property was sold and how many times the property had been put in auction and with what result. He also refers to me various materials to contend that they are not comparable to the property in question. Even otherwise, he says, the possible litigation with Neats is a substantial discounting factor and that has been ignored by the authorities. As I mentioned earlier, several case laws have been pressed into service.

Per contra, Sri Seshachala, learned counsel for the Department would argue that the impugned action is justified in the matter. Department says that in these matters there cannot be any circular instructions in the matter. It is contended that if the sale value is to be considered lesser by 15 percent of the market value, presumption is available in terms of case laws. Even otherwise, it is submitted that the petitioner cannot get any relief in these petitions. Several judgments have been relied upon by the Department. Counsel also says that this Court cannot enter into the matter and re-appreciate the evidence and take a different view. Such procedure is not available to the courts according to the counsel. He wants the petitions to be dismissed.

Insofar as Reserve Bank clearance is concerned, the Department would say that that would not come in the way of re-examining the matter in terms of section 269UD of the Act. Similarly, litigation argument has no basis and it is only an imaginary and without any substance whatsoever. They want the petitions to be dismissed.

According to me, following points arise for my consideration:

History of the case;

Right of the petitioner;

Question of law on the subject;

Merits of the matter.

History of the case:

Admitted facts are that the petitioner has entered into two agreements on 22-5-1989 with Mrs. Aimai N Irani, the second respondent herein and Mr. Darius N Irani, the third respondent herein, for purchase of their respective shares in the ratio of 1:3 in the property bearing Nos. 4 and 5, Infantry Road, Bangalore for a consideration of Rs. 1,38,04,850 and Rs. 46,01,475. Form No. 37-I prescribed u/s 269UD of the Act duly filled in by the transferors and the transferee was filed before the appropriate authority. First respondent, after inspecting the property and after recording the reasons by two separate orders passed by it ordered purchase of the property by the Central Government. First respondent passed orders u/s 269UD(1) of the Act on 25-7-1989. Aggrieved by the said orders, petitioner filed Writ Petition Nos. 14319-20 of 1989. Petitioner also has challenged the provision of Chapter XX-C of the Act. Petitioner further says that the third respondent being a citizen of USA requires approval of the Reserve Bank of India to sell his interest in the property. An application was filed before the Reserve Bank of India which approved the same in favour of the petitioner. There were interim directions by this Court in the earlier petitions. Thereafter, learned Single Judge of this Court accepted the petitions filed by the petitioner. Writ Appeals were filed in W.A. Nos. 2164-65 of 1998. Division Bench allowed the appeals with various directions in paragraph 16 of its judgment. The Division Bench Order is at Annexure-E to these writ petitions. Aggrieved by the Division Bench order, SLPs were filed by the petitions and the petitions were pending before the Supreme Court. In the meanwhile, first respondent issued notice in the matter. Petitioner filed WP No. 17478 of 1993 seeking an order to restrain the first respondent from proceeding further in the matter. His prayer was declined. Extension was sought for. Same was rejected by the Division Bench. A detailed reply was submitted by the petitioner. In the light limitation placed by the Division Bench, an order dated 14-6-1993 was passed ordering compulsory purchase in the matter in terms of Annexures F and F1. In the meanwhile, SLPs filed by the petitioner were considered by the Supreme Court and the Supreme Court passed following order at Annexure-H.

In accordance with the impugned judgment of the High Court, the Appropriate Authority, after notice to the appellant, has made an order dated 14-6-1993 u/s 269UD(1) contained in Chapter XX-C of the income tax Act, 1961. In view of this order made by the Appropriate Authority after a further enquiry as directed by the High Court in the impugned order, we do not consider it appropriate to go into the questions raised by the appellant while challenging the impugned order of the High Court. It will be open to the appellant to raise all the points, including those raised herein, for consideration while challenging the order dated 14-6-1993 made by the Appropriate Authority in the appropriate proceedings. In these circumstances, we also make it clear that these points which have been raised in the present appeals shall be treated as open for consideration in the proceedings taken by the appellant for challenging the order dated 14-6-1993 made by the Appropriate Authority even before the High Court. We make it further clear that the observations touching these points made in the impugned judgment by the High Court shall not stand in the way of the consideration of these points in the proceedings taken hereafter even in the High Court by the appellant while challenging the Appropriate Authority''s order dated 14-6-1993.

Learned counsel also submitted that the appellant would be filing a writ petition challenging the order dated 14-6-1993 made by the Appropriate Authority, in the Karnataka High Court within a period of eight weeks. If that is done, the Bank Guarantee furnished by the appellant pursuant to the interim orders of this Court shall continue till then and thereafter be subject to further directions by the High Court. For the aforesaid period of eight weeks, the respondents shall not take any action for auctioning the property in question.

In the light of the order of the Supreme Court, present writ petitions are filed raising several contentions. I have already referred to the arguments and the points were framed for consideration.

Right of the petitioner:

Sri Seshachala, learned counsel for the Department would say that the petitioner has no legal right and it cannot maintain these petitions. He says that the facts in the case on hand would show that the petitioner is only an agreement holder and such an agreement holder will have no right in terms of the case laws. He refers to the judgment of the Supreme Court in DLF Universal Ltd. v. Appropriate Authority [2000] 243 ITR 7301. The Supreme Court in the said case observes as follows:

Agreement for transfer and statement in Form No. 37-I are two different documents. As rightly held by the High Court agreement for transfer can be oral as well as in writing but then this agreement for transfer has to be reduced in writing in Form No. 37-I. The High Court has held that in certain sections in Chapter XX-C ''agreement for transfer'' in fact means statement in Form No. 37-I as mentioned in sub-para (iii) of its findings... Can it be said under rule 48L that the term ''agreement for transfer'' mentioned in clause (c) of sub-rule (2) thereof in fact means statement in Form No. 37-I? If we take the literal meaning, this provision will become rather otiose. An ''agreement for transfer'' is inter-parties and that can always be changed. That the term ''agreement for transfer'' in fact means statement in Form No. 37-I, we can get clue from section 269UK which says that no person shall revoke or alter an agreement for transfer of an immovable property or transfer such property in respect of which a statement has been furnished u/s 269UC. Reference to this statement is certainly to Form No. 37-I. It would mean that the agreement for transfer can be changed by the parties but they have been forbidden from doing so after statement in Form No. 37-I has been furnished. We have, therefore, to give appropriate meaning to the term ''agreement for transfer'' appearing in clause (c) of sub-rule (2) of rule 48L and cannot just adopt literal meaning. Foundation for exercise of jurisdiction by the appropriate authority u/s 269UD is the statement in Form No. 37-I and not agreement for transfer." (p. 744)

Learned counsel also relies on a judgment of this Court in Writ Petition No. 3011 of 1995 (IT) disposed of on 19-1-2004. After considering the case of C.B. Gautam v. Union of India and a judgment of a Division Bench of this Court in WA No. 2158 of 2002 disposed of on 16-1-2003, this Court has observed in para-7 of its judgment as under:

From a reading of these judgments what is clear to this Court is that there must be a subsiding right available to the petitioner. Since an agreement holder in this case does not have any substantial right in terms of the judgment of the Apex Court, it is not possible for this Court to grant any relief to the petitioner in the given set of circumstances.

It is no doubt true that an agreement holder does not have substantial right as held by courts of law. What cannot be forgotten in the case on hand is that the petitioner has suffered an adverse order at the hands of the appellate court in Writ Appeal Nos. 2164 and 2165 of 1992. When that order was challenged in Supreme Court, the Supreme Court has made it very clear that it would be open to the appellant to raise all points, including those raised before it, for consideration while challenging the order dated 14-6-1993. The Supreme Court further ruled that the points which had been raised in those appeals shall be treated as open for consideration in the proceedings taken by the appellant for challenging the order dated 14-6-1993. In the light of the order of the Supreme Court, I cannot dispose of these writ petitions only on the ground of a ''no-right'' to an agreement holder as argued by the Department''s Advocate. If the arguments of the respondents is accepted, I would be going against a binding order on me in the case on hand. In the circumstances, despite the argument of Sri Seshachala, learned counsel for the Department, I deem it proper to consider the case on merits in the light of the judgment of the Supreme Court. Argument of the respondents in this regard is rejected on the peculiar facts of this case.

Question of law on the subject:

The question that arises for my consideration is the impact of section 269UD of the Act in the given circumstances. Courts have considered the scope of section 269UD in various cases. Parties have placed before me large number of cases in this regard. I would be referring a few cases in order to avoid repetition in the matter.

In DLF Universal Ltd. v. Appropriate Authority [2000] 243 ITR 7301, the Supreme Court has ruled that (i) the High Court was not right in its findings as given in sub-paras (ix) and (x) of para 28 of its judgment which were as follows:

(ix) The stage of entering into the statutory agreement or pro forma agreement in Form No. 37-I arises when the parties are ready to make available all the particulars contemplated by several clauses of Form No. 37-I consistently with the nature of the property. The date of entering into the pro forma agreement must have proximity or relationship by time with the proposed transfer of property as defined in clause (f) of section 269UA. The test for determining proximity of relationship is the availability of the property agreed to be transferred in such status in which it is proposed to be transferred. (x) A no objection issued by the appropriate authority based on an agreement for transfer of property to be constructed cannot be utilised for securing registration of property which has been constructed." (p. 743)

In Appropriate Authority v. Smt. Sudha Patil [1999] 235 ITR 1181, Apex Court has ruled that the supervisory power of the High Court does not get enlarged merely because no appeal is provided for against the order of the appropriate authority and that the High Court cannot substitute its own findings even if different conclusions were possible.

In Union of India v. Shatabadi Trading & Investment (P.) Ltd. [2001] 251 ITR 932, the Supreme Court rules as follows:

Proceedings arising under article 226 of the Constitution of India are in the nature of judicial review and such review can be only in respect of the process of decision and not the decision itself. Merely because no appeal is provided against an order of the Appropriate Authority u/s 269UD of the income tax Act, 1961, directing pre-emptive purchase by the Central Government, the supervisory power of the High Court would not get enlarged; nor can the High Court exercise an appellate power while examining the correctness of the conclusions arrived at by the authority." (p. 93)

In CIT v. Smt. Vimlaben Bhagwandas Patel [1979] 118 ITR 1343, the Gujarat High Court observed as follows:

In fixing the fair market value of immovable property it would not be safe to import wholly the principles enunciated by the Courts in ascertaining the market value while determining the amount of compensation for acquisition of a property or land since the perspective of acquisition under the Land Acquisition Act and that under Chapter XX-A of the I.T. Act are different. In the perspective of acquisition proceedings under Chapter XX-A of the I.T. Act, which are penal provisions having far-reaching repercussions, the competent authority must be satisfied and assured by cogent, reliable and relevant evidence that the fair market value of the property in question exceeds the apparent consideration by a prescribed margin. It would be too hazardous to prefer one of the recognised methods of valuation which may be advantageous to the cause of the revenue and arrive at an estimation of fair market value of a property on that basis. Such a lopsided approach on the part of the competent authority would not be in consonance with the burden of proof required to be discharged in such quasi-criminal proceedings. It would be virtually acting on too slender a material since the decision of the competent authority to acquire would expose not only the transferee to the consequences of being deprived of the property but also the transferor to the liability of capital gains u/s 52 of the I.T. Act and, in a given case, may affect also the persons interested in the said property having tenancy rights or any encumbrances thereon. It is incumbent on the competent authority to apply two or all of the recognised methods so that he may resort to checks and counter checks in arriving at the fair market value. The competent authority should apply the well known and recognised methods, viz., land and building method, contractor''s method, rental or yields basis method and comparable sales method, and work out each estimation of the market value on application of all the four methods and for purposes of counter check compare it with the municipal valuation for purposes of property tax assessment and adopt generally the minimum valuation unless there are special facts and circumstances where he may be constrained to apply one or two methods only and/or adopt the higher valuation rather than the minimum one for reasons to be recorded by him." (p. 138)

In Commissioner of Income Tax Vs. Madho Properties Ltd., the Calcutta High Court has ruled as under:

Acquisition proceedings can be validly initiated only when the conditions prescribed in sections 269C and 269D of the IT Act, 1961, are satisfied. Such conditions are that the competent authority must have reason to believe that : (a) The transfer involves immovable property of fair market value exceeding Rs. 25,000. (b) Such property has been transferred for an apparent consideration which is less than the fair market value by at least 15 per cent. (c) The Consideration for such transfer as agreed to between the parties has not been truly stated in the instrument of transfer with the object of facilitating the reduction or evasion of the tax liability of the transferor or the concealment of any income, money or assets by the transferee. When the said conditions exist the competent authority is required to take further ministerial steps for initiating the proceedings as follows: (a) he has to record his reasons for initiating the proceedings; (b) he has to issue a notice u/s 269D to be published in the Official Gazette." (p. 380)

In CIT v. P.I. George [1988] 171 ITR 6201, the Kerala High Court has ruled that : (i) on the facts and circumstances of the case, the Tribunal was justified in interfering with the valuation adopted by the Wealth-tax Officer, (ii) the Tribunal was justified in directing that an average between the values assessed by the land and building method and the rent capitalisation method should be taken for arriving at the market value of the jointly owned property; (iii) the Tribunal had held that in their experience and knowledge, conditions in Ernakulam had not developed to such an extent that an open space in the second floor could be considered as a potential housing site. This was a finding on a pure question of fact. On this basis, the sum of Rs. 1,18,980 was excluded from the valuation report based on the land and building method. This exclusion was justified.

In Ajay Construction v. Union of India [1995] 212 ITR 441, the Patna High Court has ruled that an opportunity is necessary in the case on hand.

In Lily Shavak Doctor and Another Vs. Union of India and Others, the Gujarat High Court has held that the show-cause notice issued in the present case was a mere empty formality observed by the appropriate authority and the statement made in the show-cause notice was absolutely vague and did not give any opportunity to the petitioners to defend themselves and to point out to the authority that the apparent consideration mentioned in the agreement to sell was the market value of the property, and that therefore notice was not valid and was liable to be quashed. The Court however clarified that it was open to the appropriate authority to initiate fresh proceedings u/s 369UD of the Act.

The Nagpur Bench of Bombay High Court in Mrs. Nirmal Laxminarayan Grover v. Appropriate Authority [1997] 223 ITR 5722, has considered the determination of fair market value of the property. It ruled that the price paid in a solitary instance of purchase of plot by owner of adjoining land, would not furnish proper basis.

The Bombay High Court - Nagpur Bench - in Prabhakar Manoharrao Deshpande v. Appropriate Authority [2004] 266 ITR 2923, has ruled that the area where the property in question was situated, was residential locality, and that the sale instance which was taken into consideration was from civil lines area; and that the authority committed an error in equating those two properties in fixing the value of the property in question.

The Madras High Court in T. Amudha v. Appropriate Authority [2004] 269 ITR 5014, has ruled as under:

The power vested in the appropriate authority under Chapter XX-C of the income tax Act, 1961, is a special power and a special jurisdiction which is required to be exercised with great care and with utmost fairness. It is not an arbitrary power merely meant to enable the Government to takeover any property which it considers to be a profitable investment with a view to release a larger sum by the sale thereof at a subsequent point of time. The object for which the provision was introduced must never be lost sight of. It is meant to prevent the evasion of tax by parties to real estate transactions by failing to disclose the true price for which the property is bought or sold.

The measure with reference to which the value is to be treated is the market value. Merely because the Act does not define ''market value'' and does not lay down the guidelines as to how to arrive at the market value, the appropriate authority cannot utilise this situation and decide any figure of its choice as the market value. The determination must be by adopting a fair and objective standard, and that fairness and objectivity should be evident from the order that the authority makes. It is convenient for the appropriate authority to take one instance which had occurred within a reasonable time from the date of the agreement and hold that the amount so arrived at is the market value. Mere convenience cannot be a justification for claiming a particular value as the market value. The exercise has to be much deeper and has to cover a wider area."

[Emphasis supplied] (p. 501)

The Rajasthan High Court - Jaipur Bench - in CWT v. S.K. Golecha [2004] 270 ITR 3792 has held that when the direction was given that the value in the year in hand should be taken by enhancing it by 10 percent of the value taken in the preceding year, that was neither unreasonable nor excessive.

C.B. Gautam v. Union of India [1993] 199 ITR 5302, is a leading case and in the said case the Supreme Court has ruled as under:

Chapter XX-C of the income tax Act, 1961, providing for pre-emptive purchase at an apparent consideration by the Government of immovable property proposed to be transferred does not confer arbitrary or unfettered discretion on the appropriate authority to compulsorily purchase immovable properties and does not violate article 14 of the Constitution of India. The very historical setting in which the provisions of this Chapter were enacted indicates that it was intended to be resorted to only in cases where there is an attempt at tax evasion by significant under-valuation of immovable property agreed to be sold. This is strengthened by instruction No. 1A 88 issued by the Central Board of Direct Taxes. The powers of compulsory purchase conferred under the provisions of Chapter XX-C are intended to be (and are being) used only in cases where, in an agreement to sell an immovable property in an urban area to which the provisions of that Chapter apply, there is a significant under-valuation of the property by 15 percent or more. If the appropriate authority is satisfied that the apparent consideration shown in the agreement for sale is less than the market value by 15 percent or more, it may draw a presumption that this under-valuation has been done with a view to evading tax. Such a presumption, however, is rebuttable and the intending seller or purchaser can lead evidence to rebute it. Moreover, the reasons for such acquisition which are required by section 269UD to be in writing must be germane to the object for which the chapter was introduced, namely, to counter attempts to evade tax." (p. 530)

The Court further ruled as follows:

Before an order for compulsory purchase is made u/s 269UD, the intending purchaser and the intending seller must be given a reasonable opportunity of showing cause against an order for compulsory purchase being made by the appropriate authority concerned. The provisions of Chapter XX-C can be resorted to only where there is a significant under-valuation of the property to the extent of 15 percent or more in the agreement of sale, as evidenced by the apparent consideration being lower than the fair market value by 15 percent or more. Although a presumption of an attempt to evade tax may be raised by the appropriate authority concerned in a case where the aforesaid circumstances are established, such a presumption is rebuttable and this would necessarily imply that the concerned parties must have an opportunity to show cause as to why such a presumption should not be drawn. Moreover, in a given transaction of an agreement to sell, there might be several bona fide considerations which might induce a seller to sell his immovable property at less than what might be considered to be its fair market value. For example, he might be in immediate need of money and unable to wait till a buyer is found who is willing to pay the fair market value for the property. There might be some dispute as to the title to the immovable property as a result of which it might have to be sold at a price lower than the fair market value or there might be a subsisting lease in favour of the intending purchaser. There might similarly be other genuine reasons which might have led the seller to agree to sell the property to a particular purchaser at less than the market value even in cases where the purchaser might not be his relative. Unless an intending purchaser or intending seller is given an opportunity to show cause against the proposed order for compulsory purchase, he would not be in a position to rebut the presumption of tax evasion and to given an interpretation to the provision which would lead to such a result would be utterly unwarranted. The very fact that an imputation of tax evasion arises where an order for compulsory purchase is made and such an imputation casts a slur on the parties to the agreement to sell leads to the conclusion that, before such an imputation can be made against them, they must be given an opportunity to show cause that the under-valuation in the agreement for sale was not with a view to evading tax." (p. 531)

The Court further observes as under:

The provision that when an order for purchase is made u/s 269UD reasons must be recorded in writing is no substitute for a provision requiring a reasonable opportunity of being heard before such an order is made. The recording of reasons which lead to the passing of the order is basically intended to serve a two-fold purpose: (i) that the ''party aggrieved'' in the proceeding before the appropriate authority acquires knowledge of the reasons and, in a proceeding before the High Court or the Supreme Court (since there is no right of appeal or revision), has an opportunity to demonstrate that the reasons which persuaded the authority to pass an order adverse to his interest were erroneous, irrational or irrelevant, and (ii) that the obligation to record reasons and convey the same to the party concerned operates as a deterrent against possible arbitrary action by the quasi-judicial or the executive authority invested with judicial powers." (p. 532)

The Court further observes as follows:

The Courts have generally read into the provisions of the relevant sections a requirement of giving a reasonable opportunity of being heard before an order is made which would have adverse civil consequences for the parties affected. This would be particularly so in a case where the validity of the section would be open to a serious challenge for want of such an opportunity." (p. 532)

The Supreme Court in Appropriate Authority v. R.C. Chawla [2001] 249 ITR 4501, has ruled as under:

The well known principle of administrative law is that, if a relevant factor is ignored, the order of the administrative authority becomes vitiated.

Where the appropriate authority passed an order u/s 269UD of the income tax Act, 1961, for pre-emptive purchase by the Central Government of certain immovable property proposed to be transferred on the ground that its value had been understated in the agreement of the parties, by more than 15 percent of the fair market value, but, in arriving at the fair market value, the appropriate authority had ignored the factor that the property was under litigation and the civil court had issued an injunction restraining the sale, transfer or parting with possession of the property." (p. 450)

The Court has ultimately ruled that the order of pre-emptive purchase was vitiated for failure on the part of the competent authority to take into account the important factor as regards pending litigation, which could not be ignored while determining the fair market value of the property.

From all these judgments, what is clear to this Court that Chapter XX-C was enacted to arrest an attempt of evasion by the significant under-valuation of immovable property. Though it is administrative in character, even then, a reasonable opportunity has to be provided to an aggrieved person. The Courts have also noticed that the provision of Chapter XX-C can be resorted to only where there is significant under-valuation of property to the extent of 15 percent or more in the agreement of sale as evidenced by the apparent consideration being lower than the fair market value by 15 percent or more. Courts also notice a presumption being rebuttable, and that this would necessarily imply that the concerned parties must have an opportunity to show cause as to why such a presumption should not be drawn. Courts further observe that the High Court can interfere if only relevant factors are ignored by the authority and the High Court cannot sit in appeal in this matter.

Merits of the matter

Two important arguments are addressed before me with regard to merits of the matter. First argument was that of natural justice of hearing and the second argument was with regard to comparison so made by the authority.

Let me see with regard to natural justice argument. It is no doubt true that the impugned order was passed during the pendency of the proceedings before the Supreme Court. In fact, the authority has initiated proceedings in the light of the time schedule fixed by the Division Bench. Petitioner''s application for stay/extension of time was rejected by this Court. Petitioner has made a detailed reply to the show-cause notice issued to it. The Authority has also, in the light of the time schedule fixed by the Division Bench, heard the petitioner and thereafter passed an order. However, what cannot be forgotten is that the Division Bench order was in appeal before the Supreme Court. Supreme Court has left open all questions open in its order. To a certain extent petitioner was handicapped on account of time schedule fixed by the Division Bench in the matter. At any rate, it cannot be said that the petitioner was totally deprived of a reasonable hearing as sought to be argued by the learned counsel for the petitioner. A detailed reply was submitted and parties were heard and an order was passed. In fact, at one stage, I noticed the handicap that occurred in the case on hand to both the parties. After noticing the same, I passed a detailed order on 28-9-2004. I have noticed in the said order that both the learned counsel wanted to end the long drawn litigation between the parties and they would make their submissions in the matter on merits also. I also gave opportunity to both the counsel to file any other additional material, if they have, so that I shall consider all the materials with a view to end the long pending dispute between the parties in their own interest. In those circumstances, long arguments were addressed by the parties and a detailed written arguments were filed by the learned counsel for the parties. Therefore, I have no hesitation to rule that substantial justice has been done to the petitioner in the matter of hearing.

Let me see now the merits of the matter. Sri Sarangan, learned counsel for the petitioner would place an argument that the authority is wrong in not accepting the case of the petitioner. According to him, comparisons are incomparable in character. His submission was that threat of litigation was not considered at all in the case on hand. Learned Counsel also would argue that the Reserve Bank of India''s approval was totally ignored by the authority. He would further say that the Authority has taken into consideration irrelevant material in arriving at its conclusion. While elaborating the same, learned counsel would say that out of comparable cases cited by the revenue, only two properties are in Infantry Road. Learned counsel would say that the whole working about the value of the property is incorrect. His further complaint is that though the belting is to be considered, the largeness of the disputed property are also taken into consideration ultimately resulting in the impugned order. He further complains that in Queen''s Road site there are private properties and only in the corner a small and a narrow way is available. The price paid for property No. 6, Infantry Road, was a fancy price without considering the disadvantage which is evident from the fact that the project could not come through and even as of today the property is lying vacant. Insofar as property No. 10, Infantry Road, is concerned, learned counsel would say that it is not comparable at all since this property is a very small property. Learned counsel would say that the property of other area need not be considered in the case on hand.

Per contra, the Department would counter every one submission of the petitioner. He would say that the main reason that persuaded the appropriate authority to pass the pre-emptive purchase order is that the property is very advantageously located to be developed into a commercial property. For the said purpose, he relied upon various properties and say that they are comparable and it do not call for any interference.

In the light of the arguments, I have carefully seen the impugned order. In the impugned order, the authority has noticed that the net consideration of the property comes to Rs. 1,82,76,325 and the land rate works out to Rs. 422 per square feet. As per the Corporation Development Plan, the property is located in Zone-B and considering the width of the roads abutting the property, the permissible floor area ratio is 1.75 for commercial land. The authority further notices that the property is situated on a corner plot of land with frontage on two important wide roads, and that apparent consideration at the rate of Rs. 422 per square feet is very low. The authority further notices in its order that the Property No. 6, Infantry Road, was purchased u/s 269UD(1) of the Act; that it was offered for sale by an agreement dated 14-4-1989; that the land area was 14200 square feet with an old building having plinth area of 4598 square feet; that the said property does not have the frontage on the Infantry Road except for a small passage having the width of 20 feet. The authority further notices in its order that on after taking into account the salvage value of the building, the land rate for the said property No. 6, Infantry Road worked out to Rs. 457 per square feet; that even with the disadvantages stated above, the land rate of Rs. 457 per square feet was considered too low as compared to the land rates prevailing the locality and hence the property was purchased. The authority has further noticed that the land rate in first belt would work out to Rs. 4/3 x 457, and that while this land rate of Rs. 609 per square feet is appropriate for an intermediate site located on Infantry Road, the land for the corner plot of the land for the corner plot of land was under consideration. The authority has further held that the rate of the property bearing Nos. 4 and 5, Infantry Road, ought to have been Rs. 670 per square feet. The authority at para-10 of its order has noticed that the property at No. 10, Infantry Road i.e. Old No. 8, is very close to the property under consideration, and it was sold in several parts, and that considering the salvage value of the old building, the land rate for the property was Rs. 747 per square feet. The authority has also noticed in the impugned order the other aspects in the matter. Belting method was also taken note of by the Authority. Taking into consideration all these materials available on record, the authority has passed an adverse orders holding that the market value of the property under transfer was definitely in excess of Rs. 747 per square feet at the time when the agreement was entered into.

Insofar as the argument of Reserve Bank of India''s approval is concerned, all that I would say is that mere approval by RBI does not come in the way of re-examination in terms of section 269UD of the Act. The object of the provision is to see that evasion of tax is avoided. Courts have accepted this provision in terms of the judgments referred to by the parties. Therefore, just because the RBI approval is there in favour of the petitioner, that by itself would not mean that the Department is bound by the RBI rate. This argument does not appeal to me.

Similarly, insofar as the threat of litigation argument is concerned, factually there is no litigation at all. It is only an apprehension in the mind of the petitioner. Therefore this argument is also not available to the petitioner.

The last argument/complaint of the petitioner is with regard to comparison made by the authority. I have carefully verified the facts narrated with reference to comparison in the case on hand. The authority has taken into consideration various transactions in and around the Infantry Road. He has referred to MG Road property as well as Infantry Road property. He has taken into consideration the comparison of the property situated in Infantry Road alone. The authority notices in the impugned order the disadvantageous position of the belting method in arriving at the given conclusion. It cannot be forgotten that the property is commercial in nature. It is situated in a prime locality in Bangalore. Bangalore is a fast developing city. Hence, the commercial properties fetch fairly high price when compared to other properties situated in other areas of the city. It is seen from the records that the property in question is a corner plot at the junction of Queen''s Road and Infantry Road. The authority after noticing the comparability has come to the conclusion that the rate at Rs. 422 per square feet cannot be said to be reasonable rate in the case on hand. The authority after referring to the other properties in Infantry Road has come to the conclusion that the consideration is low and it is more than 15 percent in terms of the Apex Court rulings. Comparison in terms of the facts as noticed above, makes it clear that the property purchased is below the normal rate requiring not my interference. The argument of minute dissection of comparability is not acceptable to me since law is fairly well-settled that judicial review is with regard to process and not with regard to decision. So long as the decision is based on facts and so long as relevant material facts are taken into consideration and irrelevant materials are omitted, this Court cannot sit in appeal over such fact-finding orders in terms of the law declared by this Court as well as by the Supreme Court. I cannot but refer to a decision of C.B. Gautam v. Union of India [1993] 199 ITR 5301 and also the latest case in Appropriate Authority v. Smt. Sudha Patil [1999] 235 ITR 1182 and the decision in Union of India v. Shatabadi Trading & Investment (P.) Ltd. [2001] 251 ITR 933 (SC). In all these cases, the Apex Court has cautioned this Court not to sit in appeal over the findings, but only to look into the material irregularity or illegality while exercising power under Articles 226 and 227 of the Constitution. In the light of the law declared by the Courts and in the light of the impugned order based on facts, I do not think that I should disturb the said fact-finding order without there being any material irregularity or material illegality in terms of the Apex Court rulings. These writ petitions are rejected. Parties are to bear their costs. If any adjustment has to be made between the parties in terms of the interim directions of this Court, same is to be worked out in a manner known to law and in accordance with law.