1997 (4) TMI 47 - HC - Income Tax

Court quashes order based on irrelevant considerations, directs issuance of 'no objection' certificate under section 269UL(3)

The court quashed the order dated July 19, 1989, finding it based on irrelevant considerations. The appropriate authority was directed to issue a ... Pre-emptive purchase - apparent consideration versus fair market value - scope of appropriate authority under Chapter XX-C - no objection certificate under section 269UL(3) - rejection of statement filed under section 269UC(3) - time-limit for exercise of power under section 269UD provisoRejection of statement filed under section 269UC(3) - scope of appropriate authority under Chapter XX-C - apparent consideration versus fair market value - The impugned order annexure D rejecting the statement in Form No. 37-I was unsustainable and liable to be quashed. - HELD THAT: - The court held that the appropriate authority under Chapter XX-C is confined to two alternatives on receipt of a statement under section 269UC(3): either to make an order for pre-emptive purchase at the apparent consideration shown in the agreement or, if it does not exercise that right within the statutory period, to issue a certificate of no objection under section 269UL(3). The authority has no jurisdiction to adjudicate on the validity, legality or peripheral contingencies of the underlying sale (such as urban land ceiling clearance, sanction of plans, uncertainty of built-up area, or adequacy of disclosures like income-tax particulars) when deciding whether the apparent consideration evidenced by the agreement is significantly undervalued vis-a-vis fair market value. The reasons recorded in annexure D were held to be extraneous to the statutory inquiry (which is limited to determining apparent consideration and market value and whether undervaluation of 15% or more exists) and therefore the rejection of the statement was legally erroneous.Annexure D is quashed.No objection certificate under section 269UL(3) - time-limit for exercise of power under section 269UD proviso - pre-emptive purchase - The appropriate relief is a direction to the authority to issue a no objection certificate rather than remitting the matter for fresh consideration. - HELD THAT: - Applying the statutory scheme and proviso to section 269UD, the court observed that if the authority fails to make an order for purchase within the prescribed period (thereby not exercising the pre-emptive right), the only statutory consequence is issuance of a no objection certificate under section 269UL(3). Remitting the matter for fresh consideration would circumvent the clear time-limits and could prejudice the parties by exposing them to a later exercise of the pre-emptive right after market values change. Precedents of High Courts and the Supreme Court support the view that where no purchase order is made, the authority must issue the no objection certificate. In the circumstances of this case the court directed issuance of the certificate within two months.The second respondent is directed to issue the no objection certificate under section 269UL(3) within two months.Final Conclusion: The order dated July 19, 1989 (annexure D) rejecting the Form No. 37-I is quashed; the appropriate authority is directed to issue the certificate of no objection under section 269UL(3) in respect of the filed statement within two months; no order as to costs. Issues Involved:1. Whether the order, annexure 'D', is liable to be quashedRs.2. If the order, annexure 'D', is liable to be quashed, whether the matter is required to be remitted to the second respondent for fresh consideration or the second respondent should be directed to issue a certificate of 'no objection', as contemplated under sub-section (3) of section 269UL of the ActRs.Issue-wise Detailed Analysis:Issue 1: Whether the order, annexure 'D', is liable to be quashedRs.The petitioners sought to quash the order dated July 19, 1989, and for the second respondent to issue a no objection certificate under section 269UL(3) of the Income-tax Act, 1961. The first petitioner, the owner of a piece of land, entered into an agreement to sell the land to the second petitioner. They filed a statement under section 269UC(3) in Form No. 37-I, seeking a no objection certificate. The second respondent rejected the statement as defective.The court examined whether the order was passed on extraneous and irrelevant considerations. The object of Chapter XX-C of the Act is to curb the transfer of black money in property transactions. The court found that the reasons given by the second respondent were irrelevant and extraneous to the power conferred under Chapter XX-C. The appropriate authority's role is limited to deciding whether the apparent sale consideration is undervalued by 15% or more compared to the fair market value.The court referred to the Supreme Court decision in C. B. Gautam v. Union of India, which stated that Chapter XX-C provisions could be used only where there is significant undervaluation of property. The appropriate authority's only options are to purchase the property or issue a no objection certificate. The reasons given in the impugned order, such as the absence of a sanctioned plan and clearance from the urban land ceiling authority, were found to be irrelevant.The court concluded that the reasons assigned by the second respondent were erroneous in law and unsustainable. The appropriate authority cannot reject the statement based on the legality or advisability of the agreement's stipulations. The Delhi High Court's decision in Tanvi Trading and Credits P. Ltd. v. Appropriate Authority supported this view, stating that the appropriate authority's role is to decide whether to purchase the property or issue a no objection certificate.Issue 2: If the order, annexure 'D', is liable to be quashed, whether the matter is required to be remitted to the second respondent for fresh consideration or the second respondent should be directed to issue a certificate of 'no objection', as contemplated under sub-section (3) of section 269UL of the ActRs.The court considered whether to remit the matter for fresh consideration or direct the second respondent to issue a no objection certificate. The court noted that sub-section (1) of section 269UD of the Act confers power on the appropriate authority to make an order for the purchase of the immovable property. The proviso to sub-section (1) of section 269UD prohibits the appropriate authority from making any order after the expiration of the specified period.The court found that if the appropriate authority fails to pass an order within the specified period, the only option left is to issue a no objection certificate. Remitting the matter for fresh consideration would cause serious financial loss to the parties due to the potential increase in the property's market value. The appropriate authority must function within the power conferred by the statute and cannot be permitted to reconsider the matter after the specified period.The court referred to the Delhi High Court's decision in Tanvi Trading and Credits P. Ltd., which held that if no order for purchase is passed, the appropriate authority must issue a no objection certificate. The Supreme Court's observations in the same case confirmed that if the appropriate authority decides not to buy the property, it must issue a no objection certificate.Conclusion:1. The order dated July 19, 1989, annexure 'D', is quashed.2. The second respondent is directed to issue a certificate of 'no objection' under section 269UL(3) of the Act within two months from the date of receipt of the court's order.3. No order as to costs. The rule issued is made absolute, and the petition is disposed of accordingly.