Pre-emptive purchase under Chapter XX-C fails where a bona fide public auction shows no undervaluation and notice is vague.

Pre-emptive purchase under Chapter XX-C was held inapplicable to a bona fide public auction of trust property where the sale was publicly advertised, the highest bid reflected market value, and no fraud or material undervaluation was shown. The notice issued before action under section 269UD(1) was also held defective because it did not disclose the material relied upon or the provisional grounds for proposed purchase, denying a meaningful opportunity to respond. On that basis, the compulsory purchase order was quashed and the no objection certificate was directed to be issued.

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Issues: (i) Whether pre-emptive purchase under Chapter XX-C of the Income-tax Act could be ordered in respect of land sold pursuant to a public notice and auction conducted by the Charity Commissioner. (ii) Whether the show-cause notice issued before action under section 269UD(1) was required to disclose the material and provisional grounds on which pre-emptive purchase was proposed.

Issue (i): Whether pre-emptive purchase under Chapter XX-C of the Income-tax Act could be ordered in respect of land sold pursuant to a public notice and auction conducted by the Charity Commissioner.

Analysis: The property belonged to a public trust, whose sale was subjected to statutory scrutiny under section 36(1) of the Bombay Public Trusts Act, 1950 and publication under rule 24(4) of the Bombay Public Trusts (Gujarat) Rules, 1961. Offers were invited from the public, the petitioner's offer was the highest, and there was no finding of fraud or any circumstance indicating that the bid was not genuine. In such a bona fide transaction, the highest price realised in the public auction was to be treated as reflecting market value, and the materials did not justify a conclusion of significant undervaluation or an attempt to evade tax so as to attract section 269UD(1) of the Income-tax Act, 1961.

Conclusion: Pre-emptive purchase was not justified and the order under section 269UD(1) of the Income-tax Act, 1961 was unsustainable.

Issue (ii): Whether the show-cause notice issued before action under section 269UD(1) was required to disclose the material and provisional grounds on which pre-emptive purchase was proposed.

Analysis: A notice preceding compulsory purchase is not an empty formality. It must inform the affected parties of the material relied upon and the provisional conclusions so that they may meet the case against them and controvert the basis of proposed action. A vague notice that does not disclose the grounds or supporting material denies a fair and reasonable opportunity of showing cause, contrary to the requirements implicit in section 269UD(1A) of the Income-tax Act, 1961 and the principles of natural justice.

Conclusion: The notice was required to be specific and the vague notice was legally defective.

Final Conclusion: The compulsory purchase order was quashed, and the appropriate authority was directed to issue the no objection certificate under the relevant provisions of the Income-tax Act, 1961.

Ratio Decidendi: Chapter XX-C pre-emptive purchase can be exercised only where the apparent consideration shows significant undervaluation supporting a rebuttable inference of tax evasion, and the affected party must receive a notice disclosing the material and grounds of the proposed action so as to afford a real opportunity to meet the case against it.

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