1989 (5) TMI 37 - HC - Income Tax

Court Upholds Income-tax Act Section, Orders Payment & Property Protection

The court upheld the constitutional validity of Chapter XXC of the Income-tax Act, 1961, and directed the petitioner to pay the balance sale consideration ... Immovable Property Issues Involved:1. Constitutional validity of Chapter XXC of the Income-tax Act, 1961.2. Interim orders regarding the payment of consideration and status quo.3. Seller's entitlement to balance sale consideration and interest.4. Applicability of capital gains tax and wealth-tax.5. Directions for the petitioner to pay the balance consideration.6. Preservation and custody of the property during the pendency of the writ petition.Issue-wise Detailed Analysis:1. Constitutional Validity of Chapter XXC of the Income-tax Act, 1961:The petitioner challenged the order of the appropriate authority dated November 7, 1988, made under section 269UD(1) of the Income-tax Act, 1961, which held that the property in question was fit for purchase by the Central Government. The petitioner sought a declaration that Chapter XXC of the Act, containing sections 269U to 269UO, be declared unconstitutional and that respondents Nos. 1, 2, and 3 be restrained from taking any action in terms of the order passed under section 269UD(1) of the Act.2. Interim Orders Regarding the Payment of Consideration and Status Quo:When the writ petition came up for admission, Rule D.B. was issued, and by way of an interim order, it was directed that respondents Nos. 1 to 3 would not pay the consideration till further orders, and status quo was also directed to be maintained. This interim order was challenged by the fourth respondent, who filed an application for its modification.3. Seller's Entitlement to Balance Sale Consideration and Interest:The fourth respondent, the seller, prayed for the modification of the interim orders, stating that he was prepared to sell the property either to the Central Government or to the petitioner in terms of the agreement dated September 10, 1988, upon receipt of the balance sale consideration. Alternatively, he prayed for interest at the rate of 24% per annum on the balance of the consideration if not directed to be paid.4. Applicability of Capital Gains Tax and Wealth-tax:The seller raised concerns about potential liabilities for capital gains tax or wealth-tax. It was noted that the seller had purchased the plot for Rs. 4,007.66 and was selling it for over Rs. 28 lakhs. The court acknowledged that these tax issues would be determined by the income-tax authorities at the appropriate time.5. Directions for the Petitioner to Pay the Balance Consideration:The court directed the petitioner to pay the balance sale consideration amounting to Rs. 18,19,178 to the seller within two months. The seller was required to invest the amount liable to capital gains tax under sections 54D, 54E, or 54F of the Act or any other capital gains tax avoidance scheme and file an undertaking to that effect. If the petitioner succeeds in the writ petition, the seller shall execute the sale deed and get it registered. If the petitioner fails, the Central Government shall pay the petitioner the amount of the 'apparent consideration' along with interest.6. Preservation and Custody of the Property During the Pendency of the Writ Petition:The property was placed in custodia legis, with the concerned Commissioner of Income-tax appointed as the receiver. The property was to be secured with barbed wire fencing by the Income-tax Department to prevent squatters or unauthorized occupants. The fourth respondent was required to file an undertaking confirming the absence of such occupants.Conclusion:The court modified the interim orders made on November 22, 1988, to the extent specified and disposed of the applications CMs Nos. 5297 and 5535 of 1988. The directions ensured that the balance sale consideration was paid to the seller, the property was preserved, and the interests of all parties were safeguarded pending the final decision on the writ petition.