| SooperKanoon Citation | sooperkanoon.com/830068 |
| Subject | Direct Taxation |
| Court | Chennai High Court |
| Decided On | Feb-11-1997 |
| Case Number | Writ Petn. No. 16777 of 1995 |
| Reported in | (1997)140CTR(Mad)112 |
| Appellant | Sterling Horticulture and Research Ltd. |
| Respondent | Appropriate Authority and ors. |
| Cases Referred | G.B. Gautham v. Union of India (supra |
JAYASIMHA BABU, J. :
The proposed transferee has filed this petition challenging the order made by the Appropriate Authority directing the pre-emptive purchase of the property known as 'Grayshott' in the Registration District of Madras-Chengalpattu and the Sub-Registration District of Mylapore bearing No. 5, Greenways Road, Adayar, Madras, now known as 4, Bishop Garden Extension, Raja Annamalaipuram, Madras-28 and measuring 2 acres 11 grounds 792 sq. ft., the amount of the discounted consideration being Rs. 19,18,04,260.
2. From 37-I was filed by the petitioner and the owner, respondent No. 2 herein, on 27th July, 1995. That Form 37-I opens with the statement that it is an agreement made on 27th July, 1995 between the parties whereby the parties had agreed to transfer the property aforementioned. The particulars of the agreement are set out as annexures thereto. The area of the vacant land is mentioned as 6180 sq. mtrs. The area occupied by the superstructure is mentioned as 4406.92 sq. mtrs. The total land area is 10587 sq. mtrs.
3. The approximate FSL in the area is mentioned as 1 to 1.5. The sum of Rs. 19,75,00,000 was the amount specified as consideration for the transfer of the land and building. The date on which the consideration is to be paid is specified as 15 days from the date of the receipt of the approval from the office of the Appropriate Authority. It is also mentioned in Form 37-I that the property had been mortgaged to IDBI, Madras, for a term loan facility.
4. With regard to the applicability of the provisions of Urban Land (Ceiling and Regulation) Act, 1976, it is mentioned therein that Act was not applicable as the land is Horticultural land.
5. The Appropriate Authority after receiving that Form 37-I, issued a notice under S. 269UD(1A) of the IT Act wherein a reference was made to the Form 37-I as also to the copies of the agreement dt. 27th July, 1995 and 9th Aug., 1995 filed along with that Form.
It was mentioned therein that the property had been inspected by the District Valuation Officer (DVO) on 9th Oct., 1995 and by the members of the Appropriate Authority on 20th Oct., 1995 and that based on such inspection and the value of the other properties, which the Appropriate Authority considered comparable, the authority was prima facie, of the view that there was significant undervaluation to the extent of 51.37%, giving rise for a presumption of attempt to evade tax.
6. Two such properties were mentioned in that notice as being comparable to this property. The first was a property said to be popularly known as Soundarya Nursery, on Annasalai, Madras-35. It was mentioned in that notice that the property Soundarya Nursery measuring 32 grounds and 1453 sq. ft. was the subject-matter of the agreement of sale dt. 14th June, 1995 and that the rate per ground in that agreement was Rs. 82.59 lakhs. The other property mentioned in that notice was one at Boat Club Road, Madras measuring 2 acres and 33507 sq. ft. which had been agreed to be sold under agreement dt. 20th April, 1995 at the rate of Rs. 58.77 lakhs per ground.
7. Petitioner as also respondent 4 replied to the show cause notice wherein it was inter alia, pointed out that the two properties mentioned in the show cause notice were not comparable, that the agreed consideration was the true consideration and that there was no attempt to evade payment of tax. They also mentioned certain other properties as being more comparable to the property which was the subject-matter of the agreement.
8. By the impugned order of 27th Nov., 1995, the Appropriate Authority has, inter alia, held that the property had been undervalued and that presumption of attempt to evade tax had not been rebutted. The finding regarding undervaluation is primarily based on the transaction relating to the property at Boat Club Road. Though the property known as Soundarya Nursery was mentioned in the show cause notice, the Authority ultimately held that property was not comparable. Counsel for the petitioner rightly criticised the failure of the Authority to disclose in the show cause notice the fact that the property Soundarya Nursery had been agreed to be sold under an earlier agreement dt. 16th Feb., 1995 for a consideration of Rs. 11.74 crores and that the Appropriate Authority had given a no objection certificate for the sale of that property at that price. The agreement of 14th June, 1995 referred to in the show cause notice is said to be the agreement which the Department had seized after conducting a raid on the premises of the proposed purchaser Goldmine Investments. The consideration specified in that agreement is said to be over Rs. 26 crores.
9. As regards the transaction considering in the Boat Club Road property, the petitioner had raised several grounds in support of its objection that that property was not comparable to the property which was agreed to be sold to the petitioner. It had been pointed out, inter alia, that this property had been exempted from the purview of the provisions of the Urban Land (Ceiling and Regulation) Act only on the ground that 2/3rd of the total extent was used for horticulture. It had also been held by the authority under the said Act that if the use of the land ceased to be for horticulture, the exemption would no longer be available. The implication was that that 2/3rd of the property was not to be used for purposes other than horticulture. It had also been pointed by the petitioner that the Boat Club Road property was closer to Mount Road which is the main thoroughfare and is the heart of the commercial activity in the city, that the Boat Club road was also off on the main Road Chamiers Road, and the value prevailing in that Boat Club area was much higher than the value prevailing in Bishop Garden. It was also pointed out that while the Boat Club Road was close to Chamiers Road, this property was in the interior and had to be approached through a narrow winding road from Greenways Road. The extent of the schedule property was such that it extended upto and beyond the canal which again was a factor in determining the value of the land. The approach to the land was only from the frontage abutting the main road and approach was required to be provided from the interior and new roads would have to be laid on the property for that purpose.
10. The Appropriate Authority apart from mentioning these objections, has not dealt with them at all. The Authority has merely asserted its opinion that the Boat Club Road property is comparable to this property and that the value of the land on Boat Club Road should be adopted as the fair market value for this property situated in the interior of Bishop Garden.
11. Even after holding that the Soundarya Nursery was not to be compared with this land, nevertheless, the Authority referred to the further transaction concerning the Soundarya Nursery, to hold that notwithstanding the horticultural character of 2/3 of the land, it had potential for being used as commercial or residential plots and, therefore, a price much higher than the apparent consideration would be the market price.
12. The Authority in para 4.2 of the order referred to what it considered to be the recent trend in the real estate business obtaining in the city. It opined that the residential complexes are being developed with luxury apartments. In para 4.3 it recorded the view that in view of what it considered to be a significant feature in the real estate market, it would be highly unrealistic to compare instances of sale of small extent of land with sales of large extents. These reasons were recorded for rejecting the petitioners contention that the instances of sale of land measuring upto 11.5 grounds in the adjacent areas of Raja Annamalaipuram, Kesavaperumalpuram which showed that the market price ranging from Rs. 18 to Rs. 36 lakhs per ground, were not comparable.
13. In para 4.4 of the order, the authority has held that Soundarya Nursery is situate in Anna Salai and, therefore, it has developmental potential for commercial construction and for that reason, the Authority held that it would not be proper to compare that property with this property.
14. The Authority was thus of the view that this property was not to be regarded as one with potential for commercial construction. It emphasised the fact that this property is in residential locality in para 4.5 of the order. It disposed of the objections raised by the petitioner with regard to the differences between this property and the Boat Club property by merely stating 'There is hardly any difference between these properties as far as locational advantages are concerned, development potential also is the same; extent of land is more or less similar'.
15. It is not in dispute that the Boat Club Road property is over two and half kms. away; that that property is off Chamiers Road which joins Mount Road. The schedule property is situated farther away from Mount Road, does not abut any main road, is situated much in the interior, has to be approached by a narrow winding road and two thirds of this property has to be retained as horticulture land while there was no such restriction on the property in Boat Club Road.
16. What appears to have weighed with the Authority is the agreement of June 1995 in relation to Soundarya Nursery which showed that that land had been agreed to be sold at Rs. 85 lakh per ground. The Authority apparently was taken by surprise and must have felt that the transaction which they had approved in Feb., 1995 at a price of Rs. 11.7 crores should have within a period of six months, been agreed to be sold for Rs. 26 crores. The authority has, therefore, assured the petitioner and respondents had undervalued the property. The Authority reverted to the case of Soundarya Nursery in para 4.7 even of its order after it had held that it was not comparable in para 4.4 of the order, and emphasised that within short span of time there was steep increase in the land value. The Authority reverted to that transaction concerning Soundarya Nursery once again in para 4.8 to hold that the horticultural character of the land would not be a relevant factor for determining the market value of the land.
17. The authority itself appears to have been aware of the difficulties in comparing the Boat Club Road property with the schedule property when it stated in para 5 of the order that Boat Club property is fairly comparable with this property. No reasons have been given for rejecting the factors mentioned by the petitioner, as distinguishing this property from the property of Boat Club Road.
18. Learned senior counsel for the petitioner submitted that this order of the authority clearly discloses non-application of mind to factors which are materially relevant and, therefore, cannot be sustained.
19. Learned senior counsel for the petitioner also urged that the power and jurisdiction of the Authority is limited to cases where the Authority has some material on the basis of which it can reach a definite conclusion that the parties are attempting to evade payment of the proper amount of tax.
20. Learned senior counsel for the Revenue, on the other hand, contended that the order had to be read as a whole and a broad view taken and any minor inconsistency cannot be a ground for setting aside the order made by the Authority which had been given the exclusive power to hold summary enquiry for the purpose of determining the market value. Counsel contended that the order is not vitiated and is not liable to be set aside.
21. The impugned order cannot be sustained. Material factors which were required to be considered have not been considered. The authority has not given any reasons for rejecting the petitioners submission before it that the several factors pointed out by the petitioner rendered the Boat Club property non-comparable with this property. The valuation made by the Authoritys engineer, after inspection, also discloses that account had not been taken of the several factors relevant for valuation. The restriction on user of a large portion of the property has also not been properly considered.
22. Counsel for the Revenue submitted that the impugned order was made as the Authority was convinced that the market value was much higher than that stated in the agreement.
23. Though market value is nowhere mentioned in Chapter XX-C and the power conferred on the Authority to order purchase of the property by Central Government is apparently unrestricted, the Constitution Bench, of the apex Court in the case of C.B. Gautam v. Union of India : [1993]199ITR530(SC) after examining the history of the legislative provisions has laid down that an order for compulsory pre-emptive purchase must have some nexus with tax evasion; that a rebuttable presumption of intent to evade tax would arise if there was significant undervaluation by 15% or more, below the fair market value; that the transferor and transferee be given opportunity to rebut the presumption and that '.... an order for compulsory purchase of immovable property under the provisions of S. 269UD requires to be supported by reasons in writing and such reasons must be germane to the object for which Chapter XX-C was introduced in the IT Act, namely to counter attempts to evade tax'.
24. Sub-ss. (1A) and (1B) were inserted in S. 269UD of the Act, after this verdict of the apex Court, by the Finance Act, 1993 making it obligatory for the Appropriate Authority to give reasonable opportunity of being heard to the transferor, transferee, the person in occupation of the property, and to every other person whom the Authority knows to be interested in the property, and requiring the Authority to specify the grounds on which the order is made.
25. For the purposes of determining whether there is undervaluation, the fair market value has first to be determined. Great care should be exercised in determining that market value and speculation on likely market value cannot afford a legitimate basis for holding that parties intend evading tax by undervaluation. The guideline value for levy of stamp duty may not necessarily be the market value. However, well established principles, governing valuation, cannot be altogether ignored.
26. It is not per se illegal for parties to agree upon the amount for which the property shall be transferred. It is only in cases where the parties intend to evade tax by recording a lower sum than that actually paid or promised to be paid, that Chapter XX-C can be invoked. Some material, to establish such intention is necessary to support the order under S. 269UD(1). The difference by over 15% between the apparent consideration and the fair market value as determined by the Authority while being a pre-condition for the exercise of the power, it is not conclusive of the intent to evade tax.
27. Learned counsel for the parties rightly submitted that it would not be unjust if the Authority were to be directed to reconsider the matter and make a fresh order, as the Authority has not dealt with the objections raised by the petitioner in the manner it ought to have done.
28. Having regard to the value of the property and the background in which the Authority felt convinced that it was necessary to make the order for pre-emptive purchase, I consider it just in the circumstances to direct the Appropriate Authority to consider the matter afresh and make a fresh order in accordance with law.
29. During the pendency of the writ petition, the Central Government has paid the discounted consideration to the vendor. The vendor has also accepted the same but has filed an affidavit wherein it is stated that it is willing to execute the sale deed in favour of the petitioner in case the impugned order is set aside.
30. Learned counsel for the Revenue submitted that the agreement on the basis of which Form 37-I was filed contains, inter alia, cls. 5 and 8 which show that the parties had agreed that any order of pre-emptive purchase by the Authority would be final. It is, however, clear that by signing Form 37-I the parties had agreed that the property would be sold to the proposed purchaser within fifteen days from the date the Authority granting no objection certificate. That event has not so far occurred in this case, as the impugned order is being set aside and the matter is remitted back to the Authority for fresh consideration in accordance with law.
31. Learned counsel for the Revenue also did not contend that the transferee does not have the right to question the impugned order. Counsel for the petitioner referred to the decision of the apex Court in the case of G.B. Gautham v. Union of India (supra) in which the apex Court set aside the order of the Appropriate Authority at the instance of the transferee. Counsel also referred to other decisions in support of his submission that the transferee is a person aggrieved and is one who has a right to challenge the order of pre-emptive purchase.
32. The impugned order dt. 27th Nov., 1995 is, therefore, set aside subject to the directions given below. The matter is remitted back to the Appropriate Authority for fresh consideration in accordance with law.
33. As the Central Government has already parted with a sum over Rs. 19 crores to the vendor who has with it, not only the advance paid by the petitioner but also discounted amount paid by the Department as well, the Department is entitled to proper protection for the amount which it has already paid. As the impugned order is being set aside at the instance of the petitioner, the petitioner is directed to deposit with the Appropriate Authority the sum paid by the Central Government as the discounted consideration together with interest thereon at the rate of 15% p.a. from the date of such payment by the Central Government to the transferor, till date of deposit by the petitioner. Such deposit shall be made by the petitioner within six weeks from to day. On such deposit being made by the petitioner, the Appropriate Authority shall make a fresh order after due consideration in accordance with law and after hearing the parties, within four weeks thereafter.
34. If the deposit is not made by the petitioner as directed above, the order of pre-emptive purchase shall stand restored and the petitioner shall not be entitled to question the same thereafter. The Central Government will then be free to sell the property by public auction.
35. Counsel for the petitioner contended that possession of the property should be given to the petitioner on deposit of the amount. I do not consider it proper to give any such direction. Possession will continue to remain with the Government until a fresh order is made after the petitioner deposits the amount as directed. In the event of the Authority directing pre-emptive purchase after fresh consideration, the amount deposited by the petitioner shall be refunded to the petitioner forthwith. If the Authority decides to grant a no objection certificate the amount deposited by the petitioner shall be appropriated by the Central Government without any liability on the part of the vendor to refund the discounted consideration, and the amount paid by the Government to the transferor shall be deemed to have been paid by the petitioner.