1998 (11) TMI 124 - SC - Income Tax

Supreme Court Upholds Property Valuation Method under Income-tax Act, Awards Interest to Respondents

Appropriate Authority And Another Versus Smt. Sudha Patil And Another

The Supreme Court set aside the Karnataka High Court's judgment, affirmed the appropriate authority's decision under the Income-tax Act, 1961, regarding ... Merely because no appeal is provided for under the statute against an order passed by the appropriate authority under Chapter XX-C of the Act does the supervisory power of the High Court under article 226 get enlarged in any way and can the High Court in such a case exercise an appellate power and reappreciate findings to come to its own conclusion? Whether in the case in hand the conclusion arrived at by the appropriate authority with regard to the fair market value of the property in question was by taking into consideration all relevant and germane materials and whether the Department discharged the burden that lay on it in establishing that the apparent consideration of the property as indicated in the agreement of sale was less than its fair market value by 15 per cent.? Held that:- Merely because no appeal is provided for against the order of the appropriate authority, directing compulsory acquisition by the Government, the supervisory power of the High Court does not get enlarged nor the High Court can exercise an appellate power. Coming to the second question, on examining the order passed by the appropriate authority for arriving at a conclusion as to what would be the fair market value of the property in question agreed to be sold, we find that the said appropriate authority did consider all the germane and relevant materials produced before it in the course of the proceedings and formed its opinion that there is understatement of consideration in the agreement dated September 25, 1995, by an amount more than 15 per cent. of the fair market value. On the basis of several sale transactions which are all contemporaneously made and which have the same potentiality and situated in the same locality, the appropriate authority came to the conclusion that the fair market land rate could not be less than ₹ 850 per square foot. Further, in the absence of any irrebuttable materials adduced on behalf of the transferor or the transferee as to why in the impugned transaction the property has been agreed to be sold at ₹ 650 per square foot, the natural presumption arises that it was with a view to attempt to evade tax. We think it appropriate to direct that the entire amount lying in deposit together with the interest accrued thereon should be paid to the respondents. This appeal is accordingly allowed Issues Involved:1. Validity of the order passed by the appropriate authority under Chapter XX-C of the Income-tax Act, 1961.2. Whether the appropriate authority considered relevant and germane materials in arriving at the fair market value.3. The extent of the High Court's jurisdiction under Article 226 in reviewing the order of the appropriate authority.4. Entitlement to interest on the consideration amount in case of delay due to legal proceedings.Detailed Analysis:1. Validity of the Order Passed by the Appropriate Authority:The appeal arose from proceedings initiated under Chapter XX-C of the Income-tax Act, 1961, concerning the pre-emptive purchase of property by the appropriate authority. The property was sought to be purchased for the apparent consideration disclosed in a sale deed. The appropriate authority found that the rate at which the property was sold was significantly lower than the actual market value, leading to the conclusion that the property was undervalued by more than 15%. The method adopted by the authority was based on comparable sales of similar transactions. The High Court dismissed the writ petition challenging this order, holding that the appropriate authority followed the procedure set out in Gautam (C. B.) v. Union of India [1993] 199 ITR 530 (SC).2. Consideration of Relevant and Germane Materials:The appropriate authority relied on five transactions to determine the fair market value. The property in question was compared with properties situated at varying distances and with different characteristics. The Department's rationale for these comparisons was questioned, as it did not consider the proximity and specific nature of the properties adequately. The court found that the Department had eschewed relevant sale statistics provided by the appellant and relied on uncomparable properties, leading to an incorrect market value determination. The court concluded that the method adopted by the Department was defective, and the order was vitiated.3. High Court's Jurisdiction Under Article 226:The High Court's supervisory jurisdiction under Article 226 is limited to examining whether the Tribunal considered relevant materials or excluded irrelevant materials. The court cannot reappreciate evidence or substitute its conclusion for that of the Tribunal. The Supreme Court held that the High Court exceeded its jurisdiction by interfering with the appropriate authority's findings, as the authority had considered all relevant materials and followed the prescribed procedure.4. Entitlement to Interest on the Consideration Amount:The respondents contended that they should be entitled to interest on the consideration amount due to the delay caused by legal proceedings. The Supreme Court, referencing Rajalakshmi Narayanan v. Margaret Kathleen Gandhi [1993] 201 ITR 681 (SC), held that interest should be paid to the owner of the property when the sale could not be completed due to an order of purchase under section 269UD. The court directed that the entire amount lying in deposit, together with the interest accrued, should be paid to the respondents.Conclusion:The Supreme Court set aside the impugned judgment of the Karnataka High Court, affirmed the decision of the appropriate authority, and dismissed the writ petition filed before the High Court. The court directed that the entire amount lying in deposit, together with the interest accrued, should be paid to the respondents, but no costs were awarded.