Ajay Kumar Tarafdar Vs. the Appropriate Authority and ors. - Court Judgment

Jayanta Kumar Biswas, J.

1. The writ petitioner is aggrieved by the order of the appropriate authority, under Section 269UD(1) of the Income-tax Act, 1961, dated May 13th, 2004 directing that the property in question would be deemed to be purchased by the Central Government for Rs. 11,10,000/-, being the amount equal to the amount of apparent consideration.

2. The petitioner and the private respondents entered into a sale agreement dated August 31st, 1987. In terms of the agreement the immovable property located at 50, Radhanath Choudhury Road, Kolkata-700 015 (land measuring about ninety cottahs together with a one storied brick built building and outhouses with covered shades and a water reservoir) was to be sold by the private respondents to the petitioner for Rs. 11,10,000/-. On September 14th, 1987 the parties to the agreement submitted the requisite statement in form 37-I before the appropriate authority. By the pre-emptive purchase order under Section 269UD(1) of the Income-tax Act, 1961 dated November 19th, 1987 the appropriate authority ordered purchase of the property by the Central Government for Rs. 11,10,000/-. Feeling aggrieved the petitioner moved this Court by filing writ petition No. 5508 of 1987; a stay order was made.

3. Challenging the validity of the provisions of chapter XXC, inserted in the Income-tax Act, 1961 by the Finance Act, 1986, civil Writ Petition No. 2821 of 1986 (C.B. Gautam v. Union of India and Ors.) was filed before the Delhi High Court. That writ petition was transferred to the Apex Court. By Judgment and order dated November 17th, 1992 (reported at : [1993]199ITR530(SC) ) that writ petition was allowed by their Lordships of the Apex Court. Their Lordships held that a compulsory purchase order under Section 269UD(1) could not have been made unless the parties to the agreement had been given opportunity of showing cause and hearing. An application for clarification was moved by the Union of India. By order dated November 27th, 1992 that application was disposed of. Their Lordships said, 'We, accordingly, clarify by this supplemental direction to be read as part of the Judgment that, in respect of cases other than that of the petitioner, C.B. Gautam, the period of two months referred to in Section 269UD(1) shall be reckoned with reference to the date of disposal of each of such pending matters either before this Court or before the High Courts, as the case may be. Where, however, the stay orders inhibiting the authorities from taking further proceedings are vacated, the period referred to in the said Section 269UD(I) shall be reckoned with reference to the date of such vacating of the stay orders. This clarification and further direction shall be supplemental to and be treated as parts of the main Judgment.

4. After the constitution bench decision of the Apex Court Section 269UD was amended. In terms of the amended provision the appropriate authority was required to make an order for purchase, if any, within three months from the end of the month in which the statement referred to in Section 269UC was received by the appropriate authority, if such statement was received on or after June 1st, 1993. In the present case the writ petition filed by the petitioner in 1987 was pending decision in this Court. By order dated November 6th, 2003 that writ petition was disposed of setting aside the order of the appropriate authority dated November 19th, 1987, and remitting the matter to the appropriate authority for giving fresh decision, after giving opportunity of hearing to the parties, within eight weeks from the date of communication of that order dated November 6th, 2003. All points were kept open.

5. That order of this Court dated November 6th, 2003 was communicated to the appropriate authority on December 5th, 2003. Thereupon the appropriate authority issued the show cause notice dated December 15th/18th, 2003 calling upon the petitioner and the private respondents to explain why the property should not be purchased in terms of provisions in Section 269UD(1) of the Income-tax Act, 1961. The petitioner submitted his explanations on January 2nd, 2004. The appropriate authority fixed the hearing of the matter for February 5th, 2004. Hearing did not take place, and the appropriate authority of its own accord adjourned the hearing for February 25th, 2004. Hearing, however, took place on February 26th, 2004. Further hearing was adjourned until April 29th, 2004. By a letter dated April 26th, 2004 the petitioner informed the appropriate authority that it lost Jurisdiction to give decision in the matter, since the period for making the order had expired. He said that he would participate in the proceedings without prejudice to his rights and contentions. The appropriate authority finally heard the matter on April 29th, 2004. It made the order of preemptive purchase on May 13th, 2004. Feeling aggrieved, the petitioner took out the present writ petition, a restraint order was made and such interim order is still in force.

6. Counsel for the petitioner has argued five points: (i) the preemptive purchase order of the appropriate authority is liable to be set aside, since it was made after expiration of the period for making it fixed by this Court in order dated November 6th, 2003, and in any case, the one fixed by the provisions in Section 269UD(1); (ii) copy of the agreement or deed regarding contemporaneous transaction referred to in the show cause notice and then relied on by the appropriate authority at the time of making order, having not been supplied to the petitioner, in spite of demand, the order is liable to be set aside on the ground that it was made in violation of principles of natural justice; (iii) although the appropriate authority was required to record specific finding regarding tax evasion, it is apparent on the face of the order that no such finding was recorded, and hence the order is liable to be set aside; (iv) when admittedly the sellers, in the capacity of owners, were not in actual physical possession of the property which had been leased out, and the decree made in the eviction suit was pending execution before the appropriate Civil Court, the appropriate authority could not have treated the property as an unencumbered property, and hence the order, having been made on such assumption, is liable to be set aside; and (v) the appropriate authority had no power, authority and jurisdiction to declare agreements entered into by the petitioner with the occupants of the property as void, since the foundational facts and legal basis for giving such declaration were totally missing.

7. Counsel for the revenue has contended that the order was made by the appropriate authority within the time fixed by this Court in the order dated November 6th, 2003, and that, in any case, within the period fixed by the provisions in Section 269UD of the Income-tax Act, 1961. His contention is that the period of limitation was to be counted from the date at which the certified copy of the order dated November 6th, 2003 was received by the appropriate authority. He has referred me to the opposition filed by the revenue stating that the appropriate authority received the certified copy from the law department only on March 22nd, 2004. His contention is that since in the order dated November 6th, 2003 it was not said that the parties would act upon the signed copy thereof, the appropriate authority was not under any obligation to act upon the communication received by it on December 5th, 2003.

8. As to the question of violation of principles of natural justice, his contention is that not only the appropriate authority was not under any obligation to supply the materials connected with the contemporaneous transaction referred to in the show cause notice, but, as will appear from the reply to the show cause, the petitioner also did not demand the copy of the agreement or the deed or any other material. His contention is that in the facts and circumstances of the case it cannot be said that the petitioner did not get a reasonable opportunity to make an effective representation in response to the show cause notice. Regarding the question of finding on tax evasion, his submission is that in the show cause notice the requisite allegation was made, and hence a presumption was to be drawn, in the absence of any rebuttal evidence or materials produced by the petitioner, that the property was grossly undervalued with a view to concealing income and evading tax. He argues that there was no necessity to record any specific finding regarding tax evasion.

9. As to the view of the appropriate authority that the property was to be treated as an unencumbered one, his argument is that the writ Court is not empowered to reappreciate the materials for substituting its decision for that of the appropriate authority. He has argued that the appropriate authority took into consideration the fact of existence of the eviction of decree already put into execution. He pointed out that by setting apart the requisite sum for execution of the decree, the appropriate authority assessed the value of the property, and thus came to the conclusion about the gross undervaluation adopted for concealing income and evading tax. The decision of the appropriate authority declaring the aggrements with the occupants as void has been defended by him by saying that such agreements are clearly barred by provisions in Section 15 of the West Bengal Premises Tenancy Act, 1956.

10. Counsel for the private respondents has made it clear that his clients have nothing to say against the preemptive purchase order made by the appropriate authority, since for the consideration mentioned in the agreement for sale they were all along, and still are, ready and willing to sell the property. His precise submission is that since his clients never obstructed the happening of the transaction, in view of the Apex Court decision in Mrs. Rajalakshmi Narayanan v. Mrs. Margret Kathleen Gandhi and Ors. : [1993]201ITR681(SC) , they are entitled to get interest from either of the parties, that is, the Central Government or the petitioner whoever purchased the property. He says that in the facts and circumstances of the case his clients are entitled to get interest at the rate of fifteen per cent per annum as was granted by their Lordships of the Apex Court in the case he relies on.

11. In support of his contentions counsel for the petitioner has cited to me the decisions in Moi Engineering Ltd. and Anr. v. Appropriate Authority and Ors. : [1992]198ITR270(Cal) ; C.B. Gautam v. Union of India and Ors. : [1993]199ITR530(SC) ; Vysya Bank Ltd. v. Apropriate Authority of Income Tax and Ors. : [1998]233ITR560(Cal) ; Appropriate Authority and Anr. v. R.C. Chawla and Ors. : [2001]249ITR450(SC) ; Appropriate Authority and Anr. v. Kailash Suneja and Anr. : [2001]251ITR1(SC) ; Sona Builders v. Union of India and Ors. : [2001]251ITR197(SC) . Counsel for the revenue, in his turn, has given me the decisions in C.B. Gautam v. Union of India and Ors. : [1993]199ITR530(SC) ; Bhoruka Finance Corporation v. Union of India and Ors. : [1993]202ITR723(KAR) ; Union of India and Ors. v. Smt. Vidya R. Bijur and Ors. : [1994]209ITR803(KAR) ; Associated Cement Companies Ltd. and Anr. v. Appropriate Authority and Ors. : [1995]213ITR288(Cal) ; Appropriate Authority and Anr. v. Smt. Sudha Patil and Anr. : [1999]235ITR118(SC) . As I have already mentioned counsel for the private respondents, in support of his contentions, has cited to me the decision in Mrs. Rajalakshmi Narayanan v. Mrs. Margret Kathleen Gandhi and Ors. : [1993]201ITR681(SC) .

12. The questions which have arisen for consideration are: (i) whether on the grounds noted before the preemptive purchase order made by the appropriate authority is liable to be quashed; (n) whether an order remitting the matter to the appropriate authority is to be, or rather can be, made, if the impugned preemptive purchase order is set aside; (iii) whether an order is to be made directing payment of interest to the private respondents by the party that succeeds in the case.

13. I find that in the facts and circumstances of the case the principal question is whether the preemptive purchase order was made by the appropriate authority within the time for making it. While it is the specific case of the petitioner that an order could not be made by the appropriate authority after expiration of the statutory time limit fixed for the purpose, it is not the case of the revenue that even after expiration of the statutory, time limit the appropriate authority could make an order for preemptive purchase. The case of the revenue rather is that the order impugned in the writ petition was made within the time limit. There is a dispute about the period within which the order was to be made by the appropriate authority. According to the petitioner it was to be made within the period fixed by this Court in the order dated November 6th, 2003, since the parties agreed for a shorter period, though at that date the statutorily fixed period was three months from the end of the month in which the statement was to be received by the appropriate authority. Counsel for the petitioner has contended that even if a period of three months was to be considered the period for making the order, in the present case the appropriate authority did not make the order within that period.

14. On the admitted facts, I am unable to agree with counsel for the revenue that the appropriate authority made the order within the time fixed either by this Court or by the statute. The appropriate authority had full knowledge of the constitution bench decision. In terms thereof the decision in the present case was to be given within a period of three months from November 30th, 2003, since the writ petition in question was disposed of on November 6th, 2003. According to the directions given by their Lordships of the Apex Court, in the present case the appropriate authority was to proceed on the basis that the statement in form 37-I was received by it on November 6th, 2003. The appropriate authority issued the show cause notice dated December 15th/18th, 2003. Admittedly the order was made only on May 13th, 2004, when the three month period available in terms of provisions in Section 269UD was to expire on February 29th, 2004. I think on the facts of the case and in the face of the statutory provision existing on November 6th, 2003, it cannot be said that since the period of eight weeks was fixed by this Court, the appropriate authority lost the requisite power to make the order after January 30th, 2004 when the eight week period from the date of communication of the order dated November 6th, 2003 expired.

15. It seems to me that the period of eight weeks was fixed in the order dated November 6th, 2003 not because the parties agreed for a shorter period, but in ignorance of the statutory period of three months introduced by the 1993 amendment. Before that amendment the statutory period for making the order was two months; at the time the constitution bench decision was given that was the period. I have to proceed on the basis that the Court does not make an order contrary to the provisions of law. I am therefore unable to hold that the period of eight weeks from the date of communication was fixed in the order dated November 6th, 2003 either for shortening the statutory period or with full knowledge of the longer period available under the statute. Hence I hold that the appropriate authority was to make the order within a period of three months from the end of November 2003, since the writ petition concerned was disposed of by order dated November 6th, 2003. I so hold on the basis of the unambiguous direction given by their Lordships of the apex in the constitution bench decision.

16. I do not see how the date of receiving the certified copy of the order by the appropriate authority was relevant for the purpose of making the order. 1 am unable to see any merit in the contention that since nothing was mentioned in the order dated November 6th, 2003 that parties should act upon a signed copy thereof, the appropriate authority was to proceed with the matter only on receipt of the certified copy thereof The date of receiving the certified copy was absolutely irrelevant for the purpose of making the order by the appropriate authority. It seems to me that the plea is clearly afterthought. The appropriate authority issued the show cause notice on December 15th/18th, 2003. Hence it does not fit in its mouth to say that it was empowered to make the order within three months from March 22nd, 2004, when it received the certified copy of the order dated November 6th, 2003 from the Law Department of the Government. It is therefore manifestly clear that the order was made by the appropriate authority long after expiration of the statutory period of three months. As already noted the period of three months expired on February 29th, 2004; the order was made on May 13, 2004. In view of the authorities given to me and in view of the admitted legal position, I have no hesitation in holding that the appropriate authority was not empowered to make the order after February 29th, 2004. The order is therefore liable to be quashed on this ground alone.

17. In so far as the question of violation of principles of natural justice is concerned, I am unable to agree with counsel for the revenue that the appropriate authority was under no obligation to supply the materials connected with the contemporaneous transaction referred to in the show cause notice. In the Apex Court decision in Sona Builders v. Union of India and Ors. : [2001]251ITR197(SC) , and again in the single bench decision of this Court in Vysya Bank Ltd. v. Apropriate Authority of Income Tax and Ors., : [1998]233ITR560(Cal) , it was clearly held that materials relied on must be disclosed in the show cause notice, and that they should be supplied to the party asking to show cause. In the present case, in his reply, the petitioner dealt with the agreement that was mentioned in the 1987 show cause notice. In the show cause notice dated December 15th/18th, 2003 a different agreement was referred to. In the reply to the show cause the petitioner called upon the appropriate authority to disclose the basis of valuation of the alleged contemporaneous transaction. The admitted position is that neither the materials were disclosed, nor was the copy of the agreement supplied. Hence I hold that the order was made also in violation of the principles of natural justice.

18. Regarding the question of tax evasion, the admitted position is that in the impugned order the appropriate authority did not record any findings. The relevant parts of the order are verbatim reproduction of the order made by the appropriate authority in 1987. The brief recital was followed by the relevant parts, and those parts were followed by a more brief summing up part. The contention that in the face of the allegation made in the show cause notice a presumption was to be drawn regarding attempted tax evasion, in my view, cannot justify the absence of a specific finding of the appropriate authority recorded in the order for the purpose. Counsel for the petitioner- has rightly said that if such a presumption could be visualize in view of the allegations made in the show cause notice, then there was no need of making any reasoned order by the appropriate authority. From the authorities cited by him to me (particularly from the one in Vysya Bank Ltd. v. Appropriate Authority of Income-tax and Ors. : [1998]233ITR560(Cal) , I find that he is fully justified in assailing the order on this ground. Hence I hold that for absence of a specific finding recorded in the order regarding attempted tax evasion by the parties, the order is fatally vitiated.

19. Then comes the question whether the appropriate authority was justified in treating the property as an unencumbered property. I am unable to agree with counsel for the revenue that since an eviction decree, already put into execution, was in existence, the appropriate authority was justified in proceeding on the basis that it was an unencumbered property. The admitted position was that the owners of the property were not in actual physical possession thereof. In terms of the agreement the petitioner was not to get delivery of possession from the owners. The property in its entirety was in the actual physical possession of several occupants. Only because an eviction decree had been passed and such decree was put into execution, by no reasoning it could be said that at the time of execution of the sale agreement the property was to be treated as an unencumbered property. The decisions in Appropriate Authority and Anr. v. R.C. Chowla and Ors. : [2001]249ITR450(SC) and Appropriate Authority and Anr. v. Kailash Suneja and Anr., : [2001]251ITR1(SC) support the case of the petitioner.

20. It is also to be noted that absolutely without any reason the appropriate authority brushed aside the valuation obtained by the petitioner from the appropriate valuer. Hence it cannot be said that the foundation of the order was a reasonable one. Counsel for the revenue is absolutely right in saying that in exercise of the writ powers, I am not supposed to reappreciate the materials for giving an independent decision and substituting it for that of the appropriate authority. In my view, the question here is not whether the materials are to be reappreciated and the decision of the appropriate authority is to be substituted. The question rather is whether the appropriate authority proceeded on a lawful foundation. To my mind, the assumption that the property in question was an unencumbered property was not based on any legal foundation. Hence it cannot be said that the order was made by the appropriate authority in accordance with law.

21. The last question regarding the validity of the order is whether the appropriate authority was justified in declaring that agreements between the petitioner and the occupants were void agreements. Here again, I am unable to agree with counsel for the revenue that the appropriate authority was justified in giving such a declaration. It is apparent on the face of the order that there was no foundation for making such declaration. The basic foundational fact that the tenancy in question was admittedly governed by the provisions of the West Bengal Premises Tenancy Act, 1956 was not there. It is not known whether the tenancy was governed by that 1956 Act or by the Transfer of Property Act, 1882. If the tenancy was governed by the 1882 Act, then by no reasoning provisions in Section 15 of the West Bengal Premises Tenancy Act, 1956 could have been pressed into service for testing the validity of the agreements between the petitioner and the occupants.

22. Moreover, even if the occupants agreed to give possession of the property to the petitioner, that would not have amounted to relinquishment of tenancy, though it might have been a case of assignment. Besides no provision of the Income Tax Act, 1961 empowered the appropriate authority to go into the validity of the agreements for declaring them genuine or void. In this context the decision in Mot Engineering Ltd. and Anr. v. Appropriate Authority and Ors., : [1992]198ITR270(Cal) is of assistance. By the agreements no bogus tenancy was created in the wake of proposed sale of the property for a grossly undervalued consideration. Hence I do not see how the appropriate authority could give the declaration that the agreements were void. The valuation determined by following such a process, cannot be accepted as a properly determined valuation. Consequentially the order suffered from incurable defects.

23. From the foregoing discussions it is apparent that the preemptive purchase order made by the appropriate authority cannot be sustained. Now the question is whether the matter has to be remitted to the appropriate authority for making a fresh order. I fully agree with the counsel for the petitioner that in such a situation there is no scope to remit the matter. His contention is supported by the authorities relied on by him (Moi Engineering Ltd. and Anr. v. Appropriate Authority and Ors., : [1992]198ITR270(Cal) ; Vysya Bank Ltd. v. Appropriate Authority of Income-tax and Ors., : [1998]233ITR560(Cal) ; and Sona Builders v. Union of India and Ors., : [2001]251ITR197(SC) . I do not find any justification to make an order remitting the matter. According to provisions in the relevant sections the appropriate authority, in the absence of a preemptive purchase order, was under the statutory obligation to give no objection to the sale transaction to be made by the parties. In my view, here also the appropriate authority incurred such an obligation to give no objection.

24. The only incidental question left is whether the private respondents are entitled to interest. In my view, the question should not detain us for more than a moment. The position was made clear by their Lordships giving the constitution bench decision. There it was held that the vendor must get interest for delay in completion of the transaction. The authority (at : [1993]201ITR681(SC) ) relied on by counsel for the private respondents reiterated the position. Counsel for the petitioner has argued that the question of granting interest is not to be considered rigidly. His contention is that it is to be decided on the facts of a particular case, and that in a given case interest may not be granted to the vendor. His argument is that in the present case the parties were governed by the terms and conditions of the sale agreement. He points out that apart from the initial payment of rupees one lakh, before execution of the conveyance the petitioner was to pay only a sum of rupees three lakh. He says that even if the petitioner succeeds in the present case, then he can be directed to pay interest only at the rate fixed by this Court, and that too only on the said sum of rupees three lakh.

25. In my view, this is a case where an order should be made directing the successful party to pay interest to the vendors. The admitted position is that out of the total consideration mentioned in the sale agreement a sum of rupees one lakh was paid by the petitioner. Thus whoever succeeds would be required to pay interest on the balance of the consideration amount. Here the private respondents never objected to the conclusion of the transaction. They never initiated any proceedings. They never said that either the Government or the petitioner should not be permitted to purchase the property. In my view, in this case it will be absolutely unfair not to grant interest to the private respondents. I think interest at the rate of nine per cent per annum, as was directed by the constitution bench, would be appropriate in the facts and circumstances of the case.

26. For these reasons 1 allow this writ petition. The impugned order of the appropriate authority dated May 13th, 2004 is hereby set aside The appropriate authority and all other authorities are hereby directed to issue the no objection certificate to the petitioner within a fortnight from the date of receipt of a copy of this order by them. The petitioner shall pay interest to the private respondents at the rate of nine per cent per annum. Needless to say that such interest shall be paid till today There shall be no order for costs in the case.

All parties shall act on signed and urgent certified xerox copies of this Judgment and order, both to be supplied on the usual undertakings.