SHRICHAND RAHEJA Vs. S C PRASAD

JUDGEMENT

(1.) THESE two petitions filed under Article 226 of the Constitution by the transferrers and the transferees respectively, challenges legality of order dated January, 27, 1994 passed by Appropriate Authority, Bombay in exercise of powers under sub-section (1) of section 269 UD of Income Tax Act, 1961. As both the petitions are directed against the common order, it is convenient to dispose of both the petitions by common judgment. The facts which gave rise to the passing of the impugned order are as follows : laila Hitchens and Burjor Hormusji reporter are the executrix and executor of the last will and testament of Dinshah Jehangir Gazdar. The property in the hands of the executors is a bungalow called Modi Bungalow including outhouses situated at 89, Nepean Sea Road, Malbar Hill, Bombay. By an agreement dated October 24, 1993 the executors transferrers agreed to sell the property which admeasures 1,823. 55 sq. yards on As is where is and As it is what it is basis for consideration of Rs. 19. 25 crores to Rahejas. The agreement inter alia provides that on execution of the agreement, a sum of Rs. 2/- crores will be paid by the purchasers as part consideration. An amount of Rs. 7,62,50,000/- was to be paid on issuance of No objection certificate from Appropriate Authority or on February 8, 1994 whichever is later. The balance amount of Rs. 9,62,50,000/- was to be paid within three months of No objection certificate and against execution of conveyance. The agreement provides that the stamp duty and registration charges were to be borne by the transferees. The property consists of the land together with a bungalow consisting of ground, first and part second floor with outhouses at the rear side of the property and in occupation by seven employees. The agreement further provides by Clause 10 that in case the transferrers are not able to obtain vacant possession of the remaining servants quarters in the outhouse occupied, then the sale will be completed but the purchasers will retain a sum as may be mutually agreed upon but not exceeding Rs. 5,00,000/- out of the apparent consideration. The amount to be retained by the purchasers was to be paid over to the transferrers after vacant possession was secured. On the date of the agreement, out of the seven outhouses which were occupied by the employees, five were still in the occupation of the employees.

(2.) CHAPTER XX-C the Income Tax Act deals with the immovable properties to be purchased by the Central Government in certain cases of transfer. Section 269-UC inter alia provides that immovable property of such value exceeding Rs. 10,00,000/- shall not be transferred unless after the agreement of transfer is entered into and an application by the transferrer and the transferee is filed under form 37-I, before Appropriate Authority and No objection certificate issued. Rule 48-A of Income Tax Rules inter alia provides that the statement to be furnished to the Appropriate Authority under sub-section (3) of section 269-UC shall be in form No. 37-I and shall be furnished to the Appropriate Authority before the expiry of 15 days from the date on which the agreement for transfer is entered into. Section 269-UD prescribes that the Appropriate Authority on receipt of the statement in accordance with form 37-I, may make an order for purchase by the Central Government of such immovable property for an amount equal to the amount of apparent consideration. The proviso sets out that no such order shall be made after the expiration of a period of three months from the end of month in which the statement is received by the Appropriate Authority. The ambit of the enquiry before the Appropriate Authority came up for consideration before the Supreme Court and the principles to be followed are led down in the decision reported in 1993 I. T. R. 530 (C. B. Gautam v. Union of India and others)

(3.) ON October 25, 1993 the transferrers and the transferees filed statement before the Appropriate Authority in accordance with form 37-I. The Appropriate Authority sought certain clarification from the parties. On November 16, 1993 the District Valuation Officer inspected the property to be transferred. After receipt of the requisite information, the Appropriate Authority served show-cause notice dated December 30, 1993 on both the tranferors and the transferees. The show-cause notice sets out that prima facie the Appropriate Authority was of the view that there is significant undervaluation of the property. As the consideration to be paid under agreement was deferred, the show-cause notice claims that the discounted value of the consideration works out at Rs. 10,68,54,154. The parties were called upon to show-cause as to why the order should not be passed in accordance with the provisions of sub-section (1) of section 269-UD of the Income Tax Act and why the adjustments in respect of the consideration should not be made. A list of comparable sale instances was annexed to the show-cause notice. The parties appeared before the Appropriate Authority on January 18, 1994 in response to show-cause notice and inter alia submitted that the working out of the rate by the department was based on incorrect area of the plot as the department had overlooked that an area of 269. 45 sq. yards was already acquired by Municipal Corporation. The parties also claimed that the proposed sale transaction is at the rate of Rs. 1,05,563/- per sq. yard of land and is the highest rate agreed to be paid in respect of any land in the entire city of Bombay. The parties also relied upon three specific instances of sale of comparable lands and claimed that in respect of case No. 1, the Authority had issued No objection certificate on October 1, 1993 i. e. few days prior to the date of the agreement of sale and where the property was agreed to be sold at the rate of Rs. 98,369/- per sq. yard. The parties also claimed that the Appropriate Authority had sold a flat in the property facing the sea and close to the property in question for a price of Rs. 1,95,50,000/- and which also establishes that the price under the agreement is not undervalued. The parties were permitted to advance oral submissions in addition to written objection by the Appropriate Authority.