Puttaswamy, J.
1. As the questions that arise for determination in these cases are interconnected, we propose to dispose of them by a common order.
2. House property bearing CTS No. 1750/1b, Ward III, Bijapur City, measuring 5,109 sq. yards. was originally owned by one Ramrao Bindurao Bagalkotkar (Ramrao) of Bijapur City. On February 20, 1973, Ramrao transferred the said property to one Nandalal Tejmal Kothari (Nandalal) who is the petitioner in Writ Petition No. 11750 of 1985, by an instrument of transfer for an apparent consideration of Rs. 45,000.
3. On an examination of the aforesaid transfer, the Inspecting Assistant Commissioner of Income-tax, Acquisition Range, Dharwar, the Officer authorized by Chapter XX-A of the Income-tax Act, 1961 (Central Act 43 of 1961) (the 'Act'), initiated proceedings for acquisition of the same, issued notices (annexure-B) to the transferor, the transferee and all the tenants who were in occupation of different portions of the property. On a consideration of the objections filed by them, the Inspecting Assistant Commissioner made an order on March 23, 1976, under section 269F(6) of the Act (Annexure-D), for its acquisition on his conclusion that the fair market value of the property exceeded the apparent consideration by more than 25%.
4. Against the order made by the Inspecting Assistant Commissioner, one K. B. Nagarala, one of the tenants, who is now dead, and an unregistered association called 'Chunnilal Compound Tenants' Association', for and on behalf of the all tenants filed appeals in I.T. (Acq) Nos. 1 and 2/Bang/ 1976-77 before the Income-tax Appellate Tribunal Bangalore Bench, Bangalore. On June 30, 1976, the Tribunal dismissed them, however, upholding the decision of the Inspecting Assistant Commissioner on their maintainability with a declaration that tenants cannot be ejected under section 269I of the Act. Aggrieved by the said declaration of the Tribunal, the Inspecting Assistant Commissioner filed appeals in ITA Nos. 21 and 22 of 1976 (IAC v. K. B. Nagarala : [1986]162ITR170(KAR) ) before this court. On April 1, 1985, a Division Bench of this court of which one of us (PUTTASWAMY J.) was a member allowed them and deleted the said declaration.
5. As the order made by the Inspecting Assistant Commissioner stood confirmed by this court on April 1, 1985 (IAC v. K. B. Nagarala : [1986]162ITR170(KAR) ), the Inspecting Assistant Commissioner on June 11, 1985, has issued separate but identical notices under section 269I of the Act, calling upon the transferor, the transferee, the tenants and others to vacate and hand over possession of the premises in their occupation within the time specified therein failing which authorizing the officer named therein to forcibly take possession of the same under the Act. One such notice issued by the Inspecting Assistant Commissioner on June 11, 1985, reads thus :
'To
Mr. H. N. Shah,
Chunilal Compound,
Station Road,
Bijapur.
Whereas, an order under sub-section(6) of section 269F of the Income-tax Act, 1961 (43 of 1961), passed on March 23, 1976, for acquisition of immovable property bearing Boa. House and vacant Site No. 1760/1B, Ward III, situated at Station Road, Bijapur, Karnataka State, has become final in terms of clause (a)/(b) (i)/(b)(ii) of the Explanation to sub-section(1) of section 269I of the said Act on April 1, 1985;
I, R. Bhardwaj, the Competent Authority duly authorized under section 269B of the said Act, hereby give notice to you, who are in possession of the aforesaid immovable properly to surrender and deliver to me/ to Sri G. Muthukrishnan, Executive Engineer, Bangalore Central Division-II, 23/24, Infantry Road, Bangalore-1, duly authorized in writing by me in this benefit, within 30 days of the service of this notice upon you.
2. In terms of sub-section(2) of section 269I of the Act, if you refuse of fail to comply with the directions contained in the foregoing para of this notice, I, Competent Authority, or Shri G.jMuthukrishnan, Executive Engineer, Bangalore, Central Division-II, 23/24, Infantry Road, Bangalore-I, will take possession of the aforesaid immovable property and if need be use such force as may be necessary.'
6. In Writ Petition Nos. 11353 to 11364, the petitioners who are all tenants have challenged the notice under section 269I of the Act, on diverse grounds that will be noticed and draft with by us in due course. In Writ Petition No. 11570 of 1985, the transfer has challenged the notice and has sought for a writ in the nature of prohibition restraining the Inspecting Assistant Commissioner from executing the same.
7. The respondents have resisted these writ petitions.
8. Sri W. K. Joshi, learned advocate, has appeared for the petitioners in Writ Petitions Nos. 11353 to 11364 of 1985. Sriyuths K. S. Ramabhadran and J. N. S. Prasad, learned advocates, have appeared for the petitioner in Writ Petition No. 11570 of 1985. Sri G. Sarangan, learned special standing counsel for the Income-tax Department, has appeared for the respondents.
9. We will first examine whether these are fit cases for our interference under article 226, then Writ Petition No. 11570 of 1985 of the transferee and therefore the other writ petitions.
10. In the acquisition proceedings, the transferee and all the tenants were notified and on a consideration of the objections filed by them and others, the Inspecting Assistant Commissioner made his order on March 23, 1976, which has become final. The transferor and the transferee had not challenged the order of the Inspecting Assistant Commissioner earlier. The impugned notices only seek to effectuate that order. If this court were to interfere with the notices, it would be really interfering with the acquisition proceedings that have become final and binding on the petitioners and others. Any attempt by the petitioners to undo the acquisition proceedings and that too at this distance of time should not be countenanced by this court. We are of the opinion that the conduct of the petitioners, delay and laches disentitle them for the equitable relief under article 226 of the constitute. Even though we will be justified in dismissing these writ petitions on this short ground, without examining all others grounds, we propose to examine them also and state our views.
11. Sriyuths Ramabhadran and Prasad strenuously contend that the long delay in the payment of the compensation amount which had lost all its market value and the non-payment of even the interest thereon clearly justify this court to annual the impugned notice issued against the transferee and direct the respondents not to proceed with the delivery of the property and completion of the acquisition proceedings.
12. Sri Sarangan contends that compensation determined under Chapter XX-A of the Act had to be paid only on the property vesting with the Central Government and for any delay in payment of compensation, the petitioners themselves are responsible.
13. The proceedings for acquisition become final only on April 1, 1985, on which day this court disposed of the appeals of the Inspecting Assistant Commissioner (IAC v. K. B. Nagarala : [1986]162ITR170(KAR) ). Before that, the Inspecting Assistant Commissioner could not even initiate proceedings for delivery and take possessions also, Before delivery, the property does not vest in the Central Government. Section 269K if the Act that regulates payment or deposit of compensation reads thus :
'Payment or deposit of compensation. --(1) The amount of compensation payable in accordance with the provisions of section 269J for the acquisition of any immovable property shall be tendered to the person or persons entitled thereto, as soon as may be, after the property becomes vested in the Central Government under sub-section(4) of section 269I.'
14. The section, the validity of which is not in challenge, requires the Central Government to deposit or make payment of compensation only after the acquired property vests in it under sub-section(4) of section 269I of the Act and not before that. The reason for making such a provision is obvious. Without delivery of the acquired property, the title to the same does not pass and vest in the Central Government and till that time, the non-deposit or payment cannot be laid at the doors of the Central Government. Even for the delay in the completion of the acquisition proceedings, the transferee cannot blame the Central Government. The deposit or payment can only be in terms of this provision and cannot be otherwise. If that is so, the transferee can make no grievance of the delay in payment of compensation. We see no merit in the contention of the transferee and we reject the same.
15. Sri Joshi contends that a lease created under the Transfer of Property Act was not an encumbrance that is capable of extinguishment under section 269I(4) of the Act.
16. Sri Sarangan contends that a lease is an encumbrance and is capable of extinguishment.
17. The term 'encumbrance' is not defined in Chapter XX-A of the Act or section 2 of the Act. The term 'encumbrance' is not a term of art with only one meaning in all situations. The terms 'encumbrance', being a general term, has to be understood in the context in which it occurs.
18. In the context of Chapter XX-A, a lease, without an iota of doubt, is an encumbrance and can be extinguished.
19. In Rambhai Manja Nayak v. Union of India : [1983]142ITR211(Guj) , the Gujarat High Court, examining the very question, reviewing all the cases and the juristic principles, had ruled that a lease was an encumbrance and was capable of extinguishment under Chapter XX-A of the Act. We are in respectful agreement with the views expressed by their Lordships on this aspect.
20. On the foregoing discussion, we see no merit in this contention of Sri Joshi and we reject the same.
21. Sri Joshi contends that section 269I of the Act was a legislation dealing with entry No. 18 of List II (State List) of the Seventh Schedule to the Constitution-Land, that is to say, rights on or over land, land tenures including the relation of landlord and tenant, and the collection of rents; transfer and alienation of agricultural land; land improvement and agricultural loans; colonization--and was beyond the competence of the Union Parliament.
22. Sri Sarangan contends that section 269I of the Act occurring in Chapter XX-A of the Act had been enacted by Parliament by virtue of the legislative powers derived by article 246(1) and entry No. 82 of List I of the Union List of Seventh Schedule to the Constitution and was within its legislative competence and was valid.
23. In Writ Petition No. 7399 of 1984 and connected cases decided on March 5, 1986, Mysore, Kirloskar Ltd. v. Union of India : [1986]160ITR50(KAR) , we had occasion to notice some of the important rules for the interpretation of entries found in the Seventh Schedule to the Constitution. We do not contention of Sri Joshi bearing in mind the principles stated therein and the rulings of the Supreme Court referred to therein.
24. Chapter XX-A of the Act which is a complete code in itself has been inserted by the Taxation Laws (Amendment) Act, 1972, to provide for acquisition of immovable property in certain cases of transfer to counter-act evasion of tax, which necessarily means income-tax, one of the direct taxes levied in the country. chapter XX-A was enacted on the recommendations of the Direct Taxes Inquiry Committee headed by Mr. Justice K. N. Wanchoo, retired Chief Justice of India.
25. The power to legislate on taxes on income other than agricultural income comprehends in itself the power to make provisions fore levy of penalties. We are of the view that the the provisions in Chapter XX-A of the Act are really in the nature of penalty provisions to counteract evasion of income-tax and, therefore, fall within the purview of entry No. 82 of List I. At any rate, Chapter XX-A including section 269I of the Act are incidental or ancillary to the subject of taxes on income other than agricultural income. From this, it follows that section 269I of the Act was within the legislative competence of the Union Parliament and is not a legislation on a subject exclusively reserved to States under List II in the Seventh Schedule to the Constitution.
26. In Rambhai Manja Nayak's case [1983] 142 ITR 211, the Gujarat High Court, repelling a similar challenge to section 269I of the Act, has expressed thus (pp. 234 to 236) :
Mr. Raval, learned, counsel for the petitioners, submitted that the provisions in Chap. XX-A, in so far as they seek to deprive sitting tenants of their right to occupy the demised property, fall within the scope of entry 18 of List II inasmuch as the said provisions seek to encroach upon the relationship of landlord and tenant in respect of the acquired property. We find difficult to accept this contention. Chapter XX-A introduces a deterrent by way of acquisition of immovable property in cases under-valuation of property to counteract evasion of tax. It makes no provision to regulate the relationship of landlord and tenant. Like the Land acquisition Act, it is also provides for acquisition of interest of all persons interested in the property which is the subject-matter of acquisition. It seeks to acquire all interests in the property, including the interests of tenants, so that the property can ultimately vest absolutely in the Central Government free all encumbrances. The provisions of Chap. XX-A, therefore, can by no stretch of imagination be said to bear on the relationship of landlord and tenant and, therefore, it is difficult to uphold the argument that the said provisions encroach upon the filed covered by entry 18 of List II in the Seventh Schedule to the Constitution......
The primary purpose of the introduction of Chapter XX-A under the Act is, therefore, to penalise the tax-dodgers who, by resorting to the dubious method of undervaluing the immovable properly transferred under an instrument of transfer, seek to evade the payment of tax. acquisition of immovable property which is the subject-matter of under-valuation is, therefore, an integral part of the said scheme of imposition of penalty introduced in the Act with a view to securing the twin objectives of curbing generation of black money and preventing evasion of tax. In pith and substance, therefore, the provisions in Chap. XX-A are intended to penalise the tax-dodgers. As held by the Supreme Court in Kanan Devan Hills Produce Co. Ltd. State of Kerala, : [1973]1SCR356 and State of Karnataka v. Ranganatha Reddy, : [1978]1SCR641 , the court must look to the pith and substance of the legislation to determine its validity. If, in pith and substance, the legislation belongs to entry 82 in List I, cquisition of property to achieve the avowed object of Parliament will not take it out of the purview of the said entry. We are, therefore, of the opinion that the newly added Chapter XX-A clearly falls within the purview of Parliament, that is, is squarely covered by entry 82 in List I of the Seventh Schedule. That being so, it is not required to satisfy requirements of art. 31(2) of the Constitution, in view of the overriding effect of clause (5)(b)(i) thereof.......'
27. We are in respectful agreement with these views expressed by their Lordship of the Gujarat High Court.
28. On the foregoing discussion, we hold that there is no merit in this contention of Sri Joshi and we reject the same.
29. Sri Joshi next contends that section 269I of the Act that chooses tenants in occupation of buildings acquired under Chapter XX-A of the Act and those governed by the Karnataka Rent Control Act, for a different and hostile treatment, was violative of article 14 of the Constitution.
30. Sri Sarangan contends that section 269I of the Act, an incidental provision to effectuate Chapter XX-A of the Act, at any rate on the application of the principles enunciated by the Supreme Court in Prakash Amichand Shah v. State of Gujarat : AIR1986SC468 , was not violative of article 14 of the Constitution.
31. Chapter XX-A of the Act has been enacted to counteract evasion of taxes and provide for acquisition of properties acquired by such evasion. If acquisition should be completed, then those that are in possession of the property, in whatever character they are in possession, have to be dispossessed. Without such a power, the very purpose of Chapter XX-A of the Act will be rendered nugatory and defeated. On any view, on the application of the principles enunciated by the Supreme Court in Prakash Amichand Shah's case : AIR1986SC468 , which had only reiterated the earlier ruling of the Supreme Court in State of Gujarat v. Shantilal Mangaldas, : [1969]3SCR341 , the challenge of the petitioners to section 269I based on article 14 of the Constitution is without any merit. In Rambhai Manja Nayak's case : [1983]142ITR211(Guj) , the Gujarat High Court on a details examination of this very contention, has also rejected the same. We are in respectful agreement with the views expressed by their Lordships of the Gujarat High Court on this aspect also. We see no merit in this contention of Sri Joshi either.
32. Sri Joshi lastly contends that section 269I of the Act confers unguarded, uncanalised and uncontrolled power on the authority to dispossess persons in occupation of the property and in particular tenants who are in lawful possession and is violative of article 14 of the constitution.
33. Sri Sarangan contends that section 269I of the Act, does not confer unguided, uncanalised and uncontrolled power on the authority and was not violative of article 14 of the Constitution. Before initiating acquisition proceedings, the Inspecting Assistant Commissioner is required to apply his mind to the circumstances set out in section 269 of the Act and then record his reasons. On initiating proceedings, the Inspecting Assistant Commissioner is required to notify the transferor, the transferee, the tenants and all others who are believed to have an interesting property, consider their objections and then make an order under the Act,. The order of the Inspecting Assistant Commissioner is subject to two appeals.
34. Every one of the provisions of Chapter XX-A and section 269I of the Act clearly set out the policy and provides full and complete guidance for the exercise of power. The power conferred is not unguided, uncanalised and uncontrolled. We are clearly of the view that section 269I of the Act does not suffer the vice of excessive delegation and is not violative of article 14 of Constitution. We see no merit in this contention of Sri Joshi and we reject the same.
35. As all the contentions urged for the petitioners fail, these writ petitions are liable to be dismissed. We, therefore, dismiss these writ petitions and discharge the rule issued in all these cases. But, in the circumstances of the cases, we direct the parties to bear their own costs.
36. Order on the oral application made by the petitioners for a certificate of fitness to appeal to the Supreme Court under articles 133 and 134A of the Constitution and for stay.
37. Immediately after we completed the dictation of our order dismissing these writ petitions, Sriyuths Prasad and Joshi made oral applications under articles 133 and 134A of the Constitution for issue of a certificate of fitness to appeal to the Supreme Court on the ground that the questions decided by us are substantial questions of law of general importance and they need to be decided by the Supreme Court and for stay of our order for two months.
38. Sri Sarangan opposes the oral applications made by the petitioners.
39. In upholding the validity of section 269I of the Income-tax Act, which is one of the principle questions that arises in these cases, we have followed the ruling of the Gujarat High Court in Rambhai Manja Nayak's case : [1983]142ITR211(Guj) , which had followed the ruling of the Delhi High Court in Mahavir Metal Works (P.) Ltd. : [1974]95ITR197(Delhi) . In both these cases, the High Courts of Gujarat and Delhi have granted certificate of fitness to appeal to the Supreme Court which we are informed are still pending disposal before the Supreme Court. We are of the view that the questions raised and decided in these cases are substantial questions of law of general importance and they need to be decided by the Supreme Court. We, therefore, allow the oral applications made by the petitioners, grant a certificate of fitness to appeal to the Supreme Court under article 133 of the Constitution and direct the Registrar to issue the necessary certificates.
40. While these writ petitions were pending, the petitioners had the benefit of an order of stay. We consider it proper to stay the operation of our order and continue the earlier order to stay for a period of 60 days from this day. We, therefore, stay the operation of our order in these cases for a period of 60 days from this day and continue the earlier order of stay for the same period.