T. Amudha and others vs Members, Appropriate Authority and others

Bakthavatsalam, J.—The petitioners challenge the order of the appropriate authority rejecting an application of the vendors of the petitioners

filed u/s 269UC of the Income Tax Act, 1961, on the ground that the statement filed by the vendors of the petitioners was premature, invalid and

not actionable for certain reasons.

Notice of motion has been ordered by me on October 23, 1991. The petitioners entered into an agreement of sale on August 9, 1989, with one

Nagarathina Mudaliar and respondents Nos. 4, 5 and 6 for purchase of the property situate at No. 21, Haddows Road, Nungambakkam, Madras

34, for a total consideration of Rs. 1,55,43,000. This property was acquired by the said Nagarathina Mudaliar and others, it is said, in a partition

of a joint family property in 1954. Since the value of the property exceeded a sum of rupees ten lakhs, the vendors and the petitioners filed before

the first respondent Form No. 37-I under Chapter XX-C of the Income Tax Act, u/s 269UC. The statement was filed on August 23, 1989. By a

letter dated October 17, 1989, which is impugned before me, the appropriate authority rejected the statement and directed the vendors and the

petitioners to file a fresh agreement and statement under Form No. 27-I after setting right certain irregularities and infirmities discussed in the order.

It is also stated by the appropriate authority that the statement filed on August 23, 1989, is non est in law.

The petitioners alleged in the affidavit that the order of the appropriate authority is totally erroneous, illegal, opposed to the provisions of the Act

and without jurisdiction. It is stated that the appropriate authority u/s 269UD can exercise the power of the pre-emptive purchase and if the

appropriate authority chooses not to purchase the property, and if no order of purchase is passed within the time prescribed u/s 269UC(1), no

other order can be passed by the appropriate authority. It is also stated that the appropriate authority does not have the jurisdiction to vary the

terms of the agreement between the parties or to improve upon the same. It is also stated that it is not open to the appropriate authority to question

the title of the transferors or improve upon the same. It is for the transferors and transferees to satisfy themselves about the title of the property and

the Department has no right to question the same. It is also stated that nowhere under Chapter XX-C is any jurisdiction vested on the appropriate

authority to question the validity of an agreement, so to say, whether it is valid under a general law such as personal law or partnership law, etc., It

is also alleged that when the vendors did not complete the transaction of sale, the petitioners filed a suit before the original side of this court in C. S.

No. 198 of 1991, for specific performance and it was decreed on April 23, 1991, whereby Maruthamuthu J. has held that it is a valid agreement

of sale and that the vendors are bound to perform and comply with the same. In view of the judgment and decree of this court, when a document

of sale was executed by the vendors and the same was presented for registration before the authority, the registering authority refused to register

the same. It is further alleged in the affidavit that the question in the case was decided by this court in a similar case, reported in Mount Plaza

Builders Pvt. Ltd. Vs. Appropriate Authority and others, ; which is in favour of the petitioners. A Division Bench of this court also has taken the

same view in the case reported in Appropriate Authority, Government of India Vs. Naresh M. Mehta, .

Mr. N. V. Balasubramanian, learned counsel appearing for the Department has filed a counter affidavit. It is stated in the counter that the

petitioners are only agreement holders and they cannot be regarded as persons having an interest in the property and as such they have no locus

standi to file the writ petition. It is also pointed out in the counter that the Supreme Court has passed an order on May 4, 1987, that such cases

should not be given a final disposal by the High Court. It is stated in the counter that the statement filed in Form No. 37-I on August 23, 1989, was

found to be deficient and was not actionable. As such a communication was sent on October 17, 1989, wherein the flaws were pointed out and an

option was given to the parties to file a fresh statement. It is stated in the counter that since the title over the property was found defective and the

statement was deficient, the same was not actionable. It is stated in the counter that the appropriate authority is bound to examine the question of

title of the property in adequate detail as any prudent purchaser would do and that the appropriate authority was competent and justified in going

into the question of title over the property. It is stated that in the letter dated October 17, 1989, the respondents have discussed in elaborate detail,

the deficiencies and infirmities in the statement. It is also stated that the appropriate authority has to examine the issue of title over the property so

that in cases where it decides to purchase the property it has to satisfy itself about the title as any prudent purchaser would do. It is also stated that

the appropriate authority has a right to pre-emptive purchase, and to exercise the same the appropriate authority has to examine the title over the

property, and as such the action of the respondents is quite legal and valid. It is also stated that the appropriate authority has the power to reject

the defective application which is deficient in details and inactionable and has to be viewed as invalid ab initio. It is pointed out that the decree of

this court in C. S. No. 198 of 1991, was passed on April 23, 1991, which is obviously subsequent to the letter dated October 17, 1989, and the

decree passed was on the basis of consent arrived at between the parties. Under Chapter XX-C of the Income Tax Act, it is for the appropriate

authority to exercise the powers on the basis of facts as they existed on the date of agreement and the decree passed subsequently was not

considered by the appropriate authority as the decree was not passed at that time. It is also pointed out that the statement filed by the vendors and

the petitioners was disposed of within the time limits prescribed. As the statement was found to be deficient and invalid the parties were advised to

file a fresh statement. As such the time limit for orders u/s 269UD has to be reckoned from the date of filing a valid statement. It is also stated that

the appropriate authority has inherent right and power to call for and correct the defects inasmuch as the appropriate authority has the

responsibility of the Government and ultimately the public of purchasing only such properties which have a clear title. It is also stated that the public

money cannot be frittered away in fruitless litigation or in meeting liabilities for which adequate provisions have not been made.

Mr. V. Ramachandran, learned counsel appearing for the petitioners, contents that the impugned proceedings of the first respondent are invalid

under the provisions of the Income Tax Act and the actions of the respondent not to issue no objection certificate is arbitrary exercise of power not

vested with the appropriate authority under Chapter XX-C of the Income Tax Act. It is stated by learned counsel that section 269UC provides

only that the transferor and transferee should file the form before the appropriate authority and u/s 269UD the authority has got a power to

purchase the property. If the authority does not decide to purchase the property before the expiry of two months and no order is passed on the

statement in Form No. 37-I, the authority has no jurisdiction to pass any order thereafter. It is also pointed out by learned counsel that the

authority cannot make a roving enquiry and pass an order vesting the property in the Government, and in the instant case the time limit for such an

order had expired, and as such the first respondent is bound to pass an order for registration of sale. It is pointed out that this court has passed a

decree in C. S. No. 198 of 1991.

Reiterating the contentions in the counter, Mr. N. V. Balasubramanian, learned counsel for the respondent, submits that it is a case where the

title itself is not valid and is defective and as such the department has rejected the application filed u/s 269UC as early as October, 1989. Learned

counsel further points out that the writ petition itself filed by the petitioners is not maintainable in view of the Division Bench decision of the

Karnataka High Court in Rajata Trust v. Chief CIT [1992] 193 ITR 220. It is also pointed out by learned counsel that the decree of the original

side of this High Court is subsequent to the order of the appropriate authority rejecting the application or returning the application in October,

1989. Learned counsel relies upon a judgment in Sunil Siddharthbhai Vs. Commissioner of Income Tax, Ahmedabad, Gujarat, for the proposition

that during the subsistence of a partnership no partner can deal with the property as his own and in this case, it has been done, and so the

application has been returned. In this case, what has been prevented under the partnership law has been done and as such the form has been

returned quite rightly by the appropriate authority. Learned counsel further points out that the writ petition is liable to be dismissed on the ground of

laches since when the order was passed as early as in 1989, the petitioners have chosen to come to this court only in 1991, and there is a delay of

two years in approaching this court and this court should take note of that and dismiss the writ petition on the ground of laches on the part of the

petitioners. Learned counsel further points out that it is the duty of the Department to look into the agreement as to whether it is valid or not and

prevent the purchase and when it feels that the agreement itself is defective or void it is open to the Department to reject the application. According

to learned counsel, it is not necessary in all cases for the Department to grant a no objection certificate straightaway or pass an order of pre-

emptive purchase. There is inherent power in the appropriate authority to decide the issue with regard to the question of title and validity of the

agreement and if he feels that the agreement is not valid it is open to the appropriate authority to return the applications as defective as has been

done in this case.

Considering the arguments of Mr. V. Ramachandran, learned counsel for the petitioners, and Mr. Balasubramanian, learned counsel for the

Department, the question before me is whether the writ petition filed by the purchasers is maintainable and the issue raised in this case is what is the

jurisdiction of the Income Tax Department under Chapter XX-C of the Income Tax Act. It has been decided against the Department by

Kannakraj J. in Writ Petition No. 16225 of 1990 ( Naresh M. Mehta Vs. Appropriate Authority, ) by his order dated January 10, 1991, which

has been confirmed by a Division Bench of this court in Writ Appeal No. 128 of 1991, dated December 19, 1991, reported in Appropriate

Authority, Government of India Vs. Naresh M. Mehta, . This court has taken the very same view in Writ Petition No. 17958 of 1990, dated

August 2, 1991, reported in Mount Plaza Builders Pvt. Ltd. Vs. Appropriate Authority and others, .

In view of the earlier judgments of this court as well as the Division Bench judgement, the jurisdiction of the Income Tax Department is very

limited. I do not think that they can make a roving enquiry with regard to the title of the property. In my view, they have no jurisdiction at all to

apply the partnership law to test the agreement in the light of the various provisions of the Partnership Act, the Transfer of Property Act and other

personal laws of the land. If the appropriate authority is of the opinion that the agreement is invalid, in my view, the only course open to him is not

to make a pre-emptive purchase of the property. It is the look out of the transferor and transferee to sort our the various clauses in the agreement

whether it is enforceable or not enforceable, whether the agreement is valid or not, etc. I do not think the appropriate authority has got jurisdiction

to decide and say that the agreement is ab initio void and is contrary to the principles of the Partnership Act as has been done in this case. Reliance

is placed by learned counsel for the Department in a case reported in Rajata Trust v. Chief CIT [1992] 193 ITR 220. The principle decided in that

case is that a person who has entered into an agreement for sale of a property could not object to the purchase of the property by the Central

Government. That was a case where the petitioner had challenged the order of the appropriate authority making an order of pre-emptive purchase

of the immovable property under the section 269UD. That is not the case here. So I do not think the principle laid down by the Division Bench of

the Karnataka High Court will apply to the facts of this case. In my view the contention raised by Mr. Ramachandran, learned counsel for the

petitioner, has to be accepted that the appropriate authority has exceeded its jurisdiction in deciding issues which are beyond the scope of the

enquiry to be done in an application filed in Form No. 37-I for a no objection certificate under Chapter XX-C of the Income Tax Act. In my view

if the Department is not willing to purchase the property on the ground that the title is invalid or on some other invalidity, the only course open to

them is to grant a no objection certificate and leave the matter to the parties concerned. It is for the parties to face the consequences and it is not

for the appropriate authority to take the burden on itself and decide the issues. In this case, the appropriate authority has exactly done the very

same thing and as such the impugned order is liable to be set aside.

A Division Bench of this court in Appropriate Authority, Government of India Vs. Naresh M. Mehta, has held (at page 783 of 200 ITR) :

We also find that in Satwant Nakang Vs. Appropriate Authority, Income Tax Department, New Delhi, referred to above, it was held that the

jurisdiction of the appropriate authority was only limited to either pass an order, within the specified period, for purchase of the property by the

Central Government for the consideration recorded in the agreement or to issue a no objection certificate for transfer at that consideration and that

while considering the statement in Form No. 37-I, the appropriate authority had only to examine the adequacy of the consideration to the

consideration to decide whether to order purchase or to grant a no objection certification and that the appropriate authority had no jurisdiction to

go into the object or the purpose of the transaction or its legality or validity."" So in this case, on the facts, it is very clear that no order has been

passed within the time prescribed under the Act making an order of pre-emptive purchase. In view of that a direction is issued setting aside the

impugned order and the matter is remitted to the appropriate authority. The appropriate authority is directed to pass an order on or before March

31, 1992, taking note of the subsequent development which has resulted in a decree in favour of the petitioners, provided the petitioners file a copy

of the same application which has submitted earlier.