Pre-emptive purchase does not extinguish subsisting leasehold rights; auction purchaser takes property subject to the lease.

A lessee, not being the transferor or transferee, had no basis to challenge a pre-emptive purchase order under Chapter XX-C merely on the strength of leasehold possession. However, a purchase under section 269UD(1) does not extinguish subsisting leasehold rights, and the auction purchaser takes the property subject to those rights. The direction relegating the lessee to a civil suit was unwarranted because the lessee's possession was undisputed, and the sale notice had to disclose the existing leasehold interest. The single judge's order was modified to preserve the lessee's protection while leaving the statutory pre-emptive purchase intact.

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Issues: (i) Whether a lessee, not being the transferor or transferee, could challenge the order of pre-emptive purchase made under Chapter XX-C of the Income-tax Act, 1961. (ii) Whether the lessee's possession and leasehold rights were extinguished by the order under section 269UD(1) and whether the auction purchaser would take subject to those rights.

Issue (i): Whether a lessee, not being the transferor or transferee, could challenge the order of pre-emptive purchase made under Chapter XX-C of the Income-tax Act, 1961.

Analysis: The challenge was examined in the context of the limited interest asserted by the appellant, namely, leasehold possession. The relevant order under Chapter XX-C was directed to pre-emptive purchase of the property, but the appellant was not a party to the transfer as transferor or transferee. The legal effect of such an order had to be tested against the nature of the appellant's interest and the scope of the statutory scheme.

Conclusion: The appellant had no basis to impeach the pre-emptive purchase order merely as a lessee.

Issue (ii): Whether the lessee's possession and leasehold rights were extinguished by the order under section 269UD(1) and whether the auction purchaser would take subject to those rights.

Analysis: The governing principle was that a pre-emptive purchase under section 269UD(1) does not displace subsisting leasehold rights. The auction purchaser acquires the property subject to the lessee's rights, and any attempt to obtain possession must conform to the law applicable to a leasehold property. Since the appellant's possession as lessee was not disputed, the direction relegating him to a civil suit was unwarranted. The Department's assurance that the auction notice would disclose the leasehold interest sufficiently safeguarded the appellant's position.

Conclusion: The lessee's rights remained protected, and the auction purchaser would take subject to the existing lease.

Final Conclusion: The order of the single judge was modified to recognise the appellant's subsisting leasehold protection while leaving the statutory pre-emptive purchase intact, and the writ petition stood disposed of accordingly.

Ratio Decidendi: A pre-emptive purchase under Chapter XX-C of the Income-tax Act, 1961 does not extinguish a subsisting lessee's rights, and the auction purchaser acquires the property subject to such leasehold rights.

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