Mount Plaza Builders Pvt. Ltd. Vs. Appropriate Authority and Others - Court Judgment

Bakthavatsalam, J.

1. The prayer in the writ petition is as follows :

'... to call for the records of the first respondent in proceedings No. A. A. /MDS No. 8(159) 10/90-91, dated October 22, 1990, and quash the same by issue of a writ of certiorarified mandamus or other appropriate writ, direction or order and directing the first respondent to exercise the right of pre-emptive purchase under Chapter XX-C of the property situate at No. 601, Mount Road, Madras, or issue a 'no objection certificate' in respect thereof under section 269UL(1) and pass such further or other order or orders...'

2. The petitioner challenges the order of the first respondent dated October 22, 1990, stating that the case is not capable of being proceeded with further either to exercise the right of pre-emptive purchase under section 269UD of the Income-tax Act, 1961, or to issue a 'no objection certificate' under section 269UL(1) of the Income-tax Act, 1961.

3. The petitioner, a company registered under the Companies Act, is carrying on a business of developing immovable properties, among others. In the course of business, the petitioner-company entered into an agreement on August 29, 1990, with respondents Nos. 3 and 4 herein. Respondent No. 4 was the owner of a property comprising 14 grounds and 496 sq. ft. in the registration district of Thousand Lights, Central Madras, which forms part of a larger extent of land derived by him in terms of a family partition in 1967. The land derived by respondent No. 4 was leased out to respondent No. 3 for a period of 30 years with an option to renew it for a further period of 30 years till 2027. An agreement was entered into on March 22, 1980, between respondent No. 3 and respondent No. 4, whereunder the third respondent agreed to purchase the land in question and the entire consideration was paid by respondent No. 3 to one Balasubramanian on his own behalf and on behalf of his minor son, B. Srinivasan, after obtaining the orders of the court in O. P. No. 209 of 1981, on the file of the Principal City Civil Court, Madras. However, the sale deed was not executed in favour of respondent No. 3 immediately thereafter and, based on the order dated March 22, 1980, an application was made to the authorities for the issue of a 'no objection' certificate and the first respondent issued the 'no objection' certificate on December 17, 1986, and the said 'no objection' certificate related to the transfer of 43 grounds and 635 sq. ft. of land. Out of this land, an extent of 14 grounds and 496 sq. feet was offered by respondent No. 3 and respondent No. 4 to the petitioner for development of the said property and to put up construction thereon. The agreement entered into between the petitioner on the one hand and respondents No. 3 and 4 on the other on August 29, 1990, sets out the terms mutually agreed upon between the parties for the development of; the property. Under the bona fide belief that this agreement was only an agreement for development and was not one envisaged under Chapter XX-C of the Income-tax Act, 1961, a statement in Form No. 37-I was not filed. But, in order to avoid confrontation with the Income-tax, Department, it is alleged that the petitioner filed a statement in Form No. 37-I. In column 9 of the statement in Form No. 37-I, the parties are required to furnish particulars of the consideration for the transfer and the petitioner had stated that the said column was not applicable and in reply to column 9(ii), wherein it is stated that if the transfer is by way of exchange for a thing, to estate the price that such thing would fetch on sale in the open market on the date of agreement for transfer, the petitioner replied as follows :

'37% of built up areas in the superstructure to be built which is approximately 37,000 square feet, nationally valued at Rs. 2.22 crores F. S. I. permissible by MMDA is 2.75 on the basis that built area would be around 1,00,000 sq. ft.'

4. It is alleged in the affidavit that, by a letter dated May 21, 1990, the appropriate authority raised various queries in regard to the said agreement and, subsequently, the first respondent directed the parties to submit a fresh statement in Form No. 37-I after rectifying the defects pointed out in the said letter. So, the parties entered into another agreement, i.e., the petitioner and respondents Nos. 3 and 4, and this agreement was in substitution of the previous agreement and it was filed on June 27, 1990, which was received by the first respondent on June 28, 1990. The first respondent started making enquiries and especially by letter dated July 24, 1990, requested the parties to the agreement to state whether the property proposed to be transferred is hit by the provisions of the Tamil Nadu Urban Land (Ceiling and Regulation) Act, 1978, for which a reply was sent on August 8, 1990, stating that the property is not hit by the provisions of the Act. Thereafter, on August 17, 1990, the first respondent issued a letter to the petitioner and respondents No. 3 and 4 stating that they had examined Form No. 37-I statement filed on June 28, 1980, along with the agreement dated June 27, 1990, and that they again find them selves unable to act on the documents filed by the parties for the reasons stated in the said letter and one of the objections related to the consideration. On receipt of the above letter, it is alleged that, even though the particulars called for by the first respondent were irrelevant, in order to finalise the transaction, the petitioner and respondents No. 3 and 4 agreed to enter into a fresh agreement on August 29, 1990. A fresh statement in form No. 37-I was filed on August 30, 1990. The first respondent again called upon the parties to state whether the land is hit by the provisions of the Tamil Nadu Urban Land (Ceiling and Regulation) Act, 1978, and to produce an urban land clearance certificate, if not hit the provisions. The first respondent was told that the property was not hit by the Tamil Nadu Urban Land (Ceiling and Regulation) Act, 1978, and the parties were required to appear before the appropriate authority on October 11, 1990, for an opportunity of being heard. At this stage, the impugned order was issued by the first respondent.

5. It is alleged in the affidavit filed in support of the writ petition that the impugned order is in violation of the principles of natural justice and that the impugned order declining to issue the 'no objection' certificate amounts to improper and arbitrary exercise of the power vested in the appropriate authority under Chapter XX-C of the Income-tax Act and amounts to deliberate misuse of the said power. It is also stated that the request to the Registrar not to register the document is also not authorise in law and such a direction is ultra vires and is an act totally in excess of the power conferred on the appropriate authority under the Income-tax Act. The appropriate authority has no jurisdiction to question the correctness of the terms agreed to between the parties or demand a better title than that offered by the owner to the proposed purchaser and the proceedings of the appropriate dated October 22, 1990, and August 17, 1990, are totally without jurisdiction and amounts to an unlawful exercises of the power not vested in the said authority. It is also alleged that various grounds are taken to challenge the validity of the provisions of the Income-tax Act especially Chapter XX-C of the Income-tax Act, 1961, which I do not think it necessary for the purpose of this case to detailed in this order.

6. Notice of motion has been ordered by me on November 23, 1990.

7. A counter-affidavit has been filed by respondents Nos. 1 and 2. It is stated in paragraph 6 of the counter-affidavit as follows :

'I deny the allegation in paragraph 4 of the affidavit. The petitioner is a company and it cannot be a partnership firm. If the petitioner refers to an earlier agreement between the third and fourth respondent with a partnership firm, Messrs. Mount Plaza Builders Private Limited, that agreement is cancelled. Further, in the letter returning the agreement, it was pointed out that, in view of the liabilities exceeding Rs. 3 crores to the Indian Overseas Bank, the bank should have been shown as a party in the consideration. The agreement dated June 27, 1990, was also returned. The consideration as stated in the agreement has been qualified as the built up area on an estimated basis of Rs. 2.22 crores. It is important to mention that when a property is being transferred, there must be a certainty both about the subject-matter of the transfer and the consideration therefore. The parties had intentionally introduced several uncertainties in the following.

1. The F. S. I. that is likely to be sanctioned.

2. The approved plan of the proposed construction with specifications for each stage. Without the above requirements, it will impossible to find out the monetary value of the constructed space that is to be given to the vendor in exchange for a certain amount of land. The petitioners' contention that it would not be possible in the circumstances to secure an approved plan in so far as the transfers did not propose to construct while transfers have not acquired ownership is incorrect. In all cases of development agreement, the developer and the transferor do draw up detailed plans on the basis of which they invite interested purchasers to purchase areas to be constructed. The future purchasers may insist on fittings or furnishings to the space they propose to by but it is the developer who draws up detailed plans for the project and either the owner applies or gives a power of attorney to the developer to make an application on his behalf.

The submission of the petitioner would itself show that the agreement proposes to transfer ownership of land to the developer which is contradictory to the averment of the petitioner belief (sic) detailed in para 3 pages 6 and 7 of the affidavit.'

8. It is also stated in the counter-affidavit that the appropriate authority has got inherent power to return the documents which are defective in nature and there was no mistake in the orders or arbitrary exercise of power and that the appropriate authority has also got an inherent right and power to call for correction of defects and amendments inasmuch as the appropriate authority has the responsibility to the Government and, ultimately, to the public of purchasing only such properties as have clear title. It is also submitted that, if the terms of the agreement bristle with uncertainties, the appropriate authority not only has the power but is sunder a duty to call attention to the same and have them amended to ensure a fair deal to the seller and or to the Government. It is maintained in the counter that the impugned orders have been issued in the lawful exercise of powers vested under Chapter XX-C of the Income-tax Act. With regard to the constitutional validity of the provisions of Chapter XX-C, the High Courts have been directed to refer the same to the Supreme Court.

9. I have already stated that it is not necessary for me to go into the validity of the provisions of the Income-tax Act, 1961, especially, Chapter XX-C of the Income-tax Act for the purpose of deciding the case on hand.

10. Mr. Ramachandran, learned counsel appearing for the petitioner, contends that respondents Nos. 1 and 2 have no power to question an agreement so far as an agreement is entered into. In other words, if A agrees to sell to B a property for price C, the first respondent has no business to question the consideration or the terms of the agreement. Learned counsel states that the first respondent cannot say whether the agreement is a valid one or not and so far as the parties have entered into an agreement under the provisions of the Act, the first respondent has to grant a 'no objection' certificate or proceed to purchase the property under the provisions of the Income-tax Act and that, under sub-sections (2) and (3) of section 269UL of the Income-tax Act, 1961, such an obligation is cast on the Department. Apart from that, learned counsel argues that no order for acquisition by way of pre-emptive purchase can be passed beyond two months and relies for this upon the decision of a Division Bench of this court in Government of India v. Maxim A. Lobo : [1991]190ITR101(Mad) .

11. Per contra, Mrs. Nalini Chidambaram, learned senior counsel appearing for the Income-tax Department, contends that a look at the agreement would show that it is a void agreement in that it is void for uncertainty and points out that unless there is a valid agreement, the authorities cannot proceed to act under the provisions of the Income-tax Act. Learned senior counsel states that the first requisite under Chapter XX-C is an agreement for transfer and that it should be a valid agreement and points out that under section 269UL and 269UL(2) of the Income-tax Act, apart from inherent powers, the Department has got incidental powers to pass orders like the order impugned before me. Learned senior counsel also refers to Administrative Law, 5th edition by H. W. R. Wade, page 216, and also to the decision in ITO v. M. K. Mohammed Kunhi [1969] 71 ITR 815. Learned senior counsel refers me to section 29 of the Indian Contract Act and states that, when an agreement is void for uncertainty, there is no valid contract and as such, the Department is entitled to take note of the agreement and refuse to act on the said agreement produced by the parties and submits that the two agreements which were entered into between the parties in this case (sic).

12. Before deciding the question on head, it is necessary to refer to certain statutory provisions of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'). Chapter XX-C, consisting of section 269U to 269UO, has been introduced by the Finance Act, 1986. Section 269UA(b) of the Act defines 'apparent consideration' and it runs as follows :

'(b) 'apparent consideration ',-

(1) in relation to any immovable property in respect of which an agreement for transfer is made, being immovable property of the nature referred to in sub-clause (i) of clause (d), means, - (i) if the immovable property is to be transferred by way of sale, the consideration for such transfer as specified in the agreement for transfer;'

Section 269UA(d) defines 'immovable property', which is as follows :

'immovable property ' means -

(i) any land or any building or part of a building, and includes, where any land or any building or part of a building is to be transferred together, with any machinery, plant, furniture, fittings or other things, such machinery, plant, furniture, fittings or other things also.

Explanation. - For the purposes of this sub-clause, 'land, building, part of a building, machinery, plant, furniture, fittings and other things' include any rights therein; (ii) any rights in or with respect to any land or any building or a part of a building (whether or not including any machinery, plant, furniture, fittings or other things therein) which has been constructed or which is to be constructed, accruing or arising from any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement of whatever nature), not being a transaction by way of sale, exchange or lease of such land, building or part of a building;

Section 269UC of the Act places certain restrictions on transfer of immovable property which is to the following effect :

'269UC. (1) Notwithstanding anything contained in the Transfer of Property Act, 1882 (4 of 1882), or in any other law for the time being in force, no transfer of any immovable property of such value exceeding five lakh rupees as may be prescribed, shall be effected after an agreement for transfer is entered into between the person who intends transferring the immovable property (hereinafter referred to as the transferor) and the person to whom it is proposed to be transferred (hereinafter referred to as the transferee) in accordance with the provisions of sub-section (2) at least three months before the intended date of transfer.......

3. Every statement referred to in sub-section (2) shall, -

(i) be in the prescribed form,

(ii) set forth such particulars as may be prescribed; and

(iii) be verified in the prescribed manner,

and shall be furnished to the appropriate authority in such manner and within such time as may be prescribed, by each of the parties to such transaction or by any of the parties to such transaction acting on behalf of himself and on behalf of the other parties.'

Section 269UL places certain restrictions on registration, etc., of documents in respect of transfer of immovable property and section 269UL(1) of the Act reads as follows :

'Notwithstanding anything contained in any other law for the time being in force, no registering officer appointed under the Registration Act, 1908 (16 of 1908), shall any document which purports to transfer immovable property exceeding the value prescribed under section 269UC unless a certificate from the appropriate authority that it has no objection to the transfer of such property for an amount equal to the apparent consideration therefor as stated in the agreement for transfer of the immovable property in respect of which it has received a statement under sub-section (3) of section 269UC, is furnished along with such document.'

Section 269UA(a) of the Act also defines 'agreement for transfer' which is to the following effect :

'(a) 'agreement for transfer ' means an agreement, whether registered under the Registration Act, 1908 (16 of 1908), or not, for the transfer of any immovable property;'

13. These provisions are inserted in the Act, and are brought in by Chapter XX-C in 1986, for the purpose of curbing the tendency of the vendors to evade the tax due to the Revenue. Chapter XX-C enables the Central Government to purchase immovable property in certain cases of transfer. Under this Chapter, a 'no objection' certificate has to be obtained for dealing with the property the value of which exceeds Rs. 10 lakhs. The facts of the case before me show that the first respondent has refused to act under Chapter XX-C. A reading of the impugned order clearly shows the intention of the first respondent. In my view, the reason given in the impugned order is wholly unreasonable and the first respondent has no jurisdiction to pass such an order. In this case, as pointed out by Mr. Ramachandran, learned counsel appearing for the petitioner, no order has been passed by the appropriate authority with the prescribed time. I am not able to understand the argument of Mrs. Nalini Chidambaram, learned senior counsel appearing for the first respondent, that the first respondent can go into the validity of the agreement which has been entered into between the parties. It is for the parties to the agreement to go through the transaction and the Department cannot have any say in the matter. If, on the other hand, the Income-tax Department feels that the agreement entered into between the parties is fishy, it is always open to the Department to make a pre-emptive purchase. Unfortunately, on the facts of this case, the Income-tax Department is taking an attitude which, in my view, is wholly arbitrary. A reading of the various provisions of Chapter XX-C clearly shows that the first respondent has no jurisdiction at all to pass such an order. Kanakaraj J. had occassion to consider the scope of the provisions of Chapter XX-C of the Act in Naresh M. Mehta v. Appropriate Authority : [1991]188ITR585(Mad) and the learned judge held that the law of pre-emption is bordering on a law of acquisition of property and must be strictly construed. The learned judge categorically held that if an application is made under section 269UC of the Act and if no order is passed within the prescribed time under section 269UD(1), it automatically follows that a certificate under section 269UL(3) must be issued. With respect, I agree with the view taken by the learned judge. If the facts of the case on hand are looked upon, it appears that the appropriate authority has not passed the orders under section 269UD(1) of the Act but at the same time contends that he would not issue a 'no objection' certificate under section 269UL(3) of the Act. This question has been clearly decided in favour of the petitioner in the decision cited supra. Karnakaraj J., while taking the view as stated in the decision referred to above, has taken note of the judgment of a Division Bench of the Calcutta High Court in Kelvin Jute Co. Ltd. v. Appropriate Authority : [1990]185ITR453(Cal) . I think the question raised by Mr. Ramachandran, learned counsel for the petitioner, is concluded by the judgment of Kanakaraj J., cited supra, in favour of the petitioner on this aspect.

14. The argument put forth by Mrs. Nalini Chidambaram, learned senior counsel appearing for the first respondent, that the first respondent has got inherent powers to test the validity of the agreement, in my view, is wholly unsustainable. I say sos because the purpose of introducing Chapter XX-C, as already stated, is as a measure for countering evasion of tax and Parliament inserted Chapter XX-A empowering the Government to acquire an immovable property on its sale or transfer under certain circumstances. This chapter, however, became unworkable on account of the procedures contemplated. Hence, Parliament deleted Chapter XX-A and introduced Chapter XX-C by the Finance Act, 1986. As such, it is clear that Chapter XX-C has been introduced by the Finance Act, 1986, as a measure for countering evasion of tax and empowering the Central Government to acquire property on its sale or transfer under certain circumstances where the appropriate authority comes to the conclusion that, on account of under valuation, the said property is fit for purchase by the Central Government. As such, the only question which the appropriate authority can decide is whether the property is undervalued or not. If the appropriate authority comes to the conclusion that the property has been undervalued, the Act empowers the Central Government to acquire the property so to say to make a pre-emptive purchase. Under section 269UD, the appropriate authority is empowered, for reasons to be recorded in writing, to make an order for purchase by the Central Government of such immovable property at an amount equal to the amount of the apparent consideration. This clearly shows that it confers on the Central Government a right to purchase any property covered by Chapter XX-C for the same consideration for which it is proposed to be transferred. The Central Government has the first option to purchase. As such, if the appropriate authority is not satisfied about the consideration shown in the agreement, a duty is cast upon him to make an order of suo motu purchase stating the reasons therefor. In my view, the appropriate authority cannot acquire any property arbitrarily or whimsically but only after sating the reasons which can withstand the tests in a court of law. Section 269UL states that no registering officer shall register any document unless a 'no objection' certificate, is obtained from the appropriate authority. As such, if the first respondent is not willing to grant a 'no objection' certificate, the only course open to the first respondent is to make a pre-emptiver purchase. I am not able to read any inherent power into the sections as stated by Mrs. Nalini Chidambaram, learned senior counsel for the first respondent. A reading of Chapter XX-C shows that the Parliament, in its wisdom, has not given any inherent power to the first respondent so as to enable this court to come to a conclusion that the appropriate authority is vested with some inherent powers, on a plain reading of the sections. In my view, surely, the first respondent has no inherent power at all to pass such an order like the present on which has been impugned before me. Various authorities cited by Mrs. Nalini Chidambaram, learned senior counsel, to show that inherent powers is vested with the first respondent are not helpful to decide the point reading inherent power. In my view, as has been held by Kanakaraj J., in Naresh M. Mehta v. Appropriate Authority : [1991]188ITR585(Mad) , Chapter XX-C is bordering on a law of acquisition of property and must be strictly construed. If the Income-tax Department is not willing to accept the statement filed before them, the only option left to them is to purchase the property at the same price. The first respondent cannot make a roving enquiry in the sense of going into the validity of the agreement at all. So far as there is an agreement between the purchaser and the seller which is filed with the statement as prescribed by the rules, the first respondent is bound to act on the agreement alone. In my view, the first respondent cannot go beyond the terms of the agreement or question the validity of the agreement. I am unable to accept the contention raised by Mrs. Nalini Chidambaram, learned senior counsel for the first respondent, that the first respondent has got inherent powers to test the validity of the agreement entered into between the parties.

15. That apart, on the facts of this case, it is seen that the impugned order is passed in violation of the principles of natural justice. It is clearly stated in paragraph 5 of the affidavit that the parties were required to appear on October 11, 1990, before the appropriate authority for an opportunity of being heard, though the letter did not state any specific objection to the transfer nor any other matter relating thereto except the query regarding the applicability of the Tamil Nadu Urban land (Ceiling and Regulation) Act. It seems that respondent No. 4 submitted a reply and furnished copies of the clearance of the competent authority stating that the property is not hit by the Tamil Nadu Urban Land (Ceiling and Regulation) Act. Suddenly, the impugned order came to be passed on October 22, 1990, which has been received by the petitioner and respondents Nos. 3 and 4, on October 31, 1990. In Government of India v. Maxim A. Lobo : [1991]190ITR101(Mad) , a Division Bench of this court held that, before passing an order under section 269UD(1) of the Act, at least a hearing is to be given to the party who is likely to be affected by the order proposed to be passed and the order passed without giving an opportunity of being heard would be in flagrant violation of the rule s of natural justice. The above principle laid down by the Division Bench squarely applies to the facts of this case. On this ground also, the impugned order has got to be set aside.

16. In the result, the writ petition will stand allowed and the impugned order is quashed. Normally, I would have been inclined to remit the matter to the first respondent for a fresh hearing. But, taking not of the fact that the statutory time limit had run out for the first respondent to make a pre-emptive purchase, a direction is issued to the first respondent to issue a 'no objection' certificate to the petitioner under Chapter XX-C of the Act in consonance with the principles laid down by Kanakaraj J. in Naresh M. Mehta v. Appropriate Authority : [1991]188ITR585(Mad) . Costs Rs. 1,000.