Court quashes order under Income-tax Act citing lack of reasons, emphasizes right to hearing

Appropriate Authority And Others Versus Mass Traders Pvt. Limited And Others

Appropriate Authority And Others Versus Mass Traders Pvt. Limited And Others - [1993] 202 ITR 741, 111 CTR 294 Issues Involved:
1. Validity of the order under section 269UD(1) of the Income-tax Act, 1961.
2. Opportunity of hearing for the purchaser before the appropriate authority.
3. Right of the purchaser to challenge the order of the appropriate authority.
4. Locus standi of the intervener.
5. Remand of the matter to the appropriate authority.

Detailed Analysis:

1. Validity of the Order under Section 269UD(1) of the Income-tax Act, 1961:
The court examined the validity of the order dated July 25, 1989, under section 269UD(1) of the Income-tax Act, which directed the purchase of the property by the Central Government for Rs. 1,84,06,325. The learned single judge quashed the order on grounds that the appropriate authority had previously considered the consideration amounts adequate and granted a no objection certificate. The escalation in price within a year did not justify a different conclusion by the authority without strong reasons or suspicion. The court found that there was hardly any application of mind to the relevant facts, and the reasons for resiling from the earlier view were not forthcoming, thus quashing the impugned orders.

2. Opportunity of Hearing for the Purchaser Before the Appropriate Authority:
The court emphasized the necessity of providing a reasonable opportunity of being heard to the parties affected by an order under section 269UD(1), as established in C.B. Gautam v. Union of India [1993] 199 ITR 530. The Supreme Court held that the requirement of a reasonable opportunity must be read into the provisions of Chapter XX-C, and failure to provide such an opportunity renders the order bad in law. The court found that respondent No. 1 (the purchaser) and respondents Nos. 2 and 3 (the owners) had the right to be heard and show cause against the pre-emptive purchase order.

3. Right of the Purchaser to Challenge the Order of the Appropriate Authority:
The court acknowledged that the purchaser had the right to challenge the order of the appropriate authority. Despite the contention that the Central Government had already made the payment and taken possession, the court held that the legal position, as clarified in Gautam's case, necessitated affording an opportunity to the purchaser. The court distinguished this case from Rajata Trust v. Chief CIT [1992] 193 ITR 220, noting that the latter was decided before the Supreme Court's interpretation in Gautam's case.

4. Locus Standi of the Intervener:
The court examined whether the intervener, a shareholder of the first respondent-company, had the locus standi to challenge the order. It held that a shareholder does not acquire any interest in the assets of the company and cannot equate his interest with the company's assets. The court referred to Mrs. Bacha F. Guzdar v. CIT [1955] 27 ITR 1 (SC) and other cases, concluding that the intervener had no locus standi to challenge the order as his personal rights were not infringed.

5. Remand of the Matter to the Appropriate Authority:
The court decided to remit the matter to the appropriate authority for fresh consideration and decision in accordance with law, after affording an opportunity to the purchaser and the owners to put forth their case. The court provided specific directions for the remand, including the requirement for the purchaser to deposit the agreed amount with interest, and stipulated the conditions under which the appropriate authority should decide the matter afresh.

Conclusion:
The court allowed the writ appeals, set aside the order of the learned single judge, and quashed the order of the appropriate authority dated July 25, 1989. The matter was remitted to the appropriate authority with directions to decide afresh after providing an opportunity to the affected parties. The court also outlined conditions for the remand, including the deposit of the consideration amount with interest by the purchaser and the retention of the property by the Central Government until the matter is decided.