TaxTMI 
TaxTMI 
2007 (5) TMI 639
X X X X Extracts X X X X
X X X X Extracts X X X X
....7,945 sq. mtrs. with two godowns and certain other structures. The appellant Mithilesh Kumari (for short-the vendor), the owner of the property, entered into an agreement to sale dt. 18th Dec., 1993 for sale of the aforesaid property in favour of the prospective buyers for a consideration of Rs. 99,84,500. The sale price was calculated at the rate of Rs. 1,051 per sq. yd. and a sum of Rs. 40,00,000 was paid in advance by the prospective buyers to the vendor vide cheque dt. 18th Dec., 1993. It was agreed between the parties that they shall obtain a certificate in Form No. 37-I of the IT Act and within one month thereafter the sale deed shall be got executed. According to the prospective buyers however the actual possession of the said property i.e. godown Nos. 13 and 14, guardroom and office premises was delivered to them and with respect to 1/4th undivided share of the remaining open land, only symbolic possession was delivered to them on 18th Dec., 1993. The appellants furnished the required information about the agreement to sale in accordance with the provisions of s. 269UC of the IT Act to the Appropriate Authority of the IT Department in Form No. 37-I, together with agreement ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd would therefore be required to be sub-divided into plots. The prospective buyers in their separate reply to the show cause notice contended that in notification of the Sub-Registrar, Government of Rajasthan, Jaipur the market price of the land in Durgapura area as on 1st April, 1991 for the first category has been fixed at the rate of Rs. 550 per sq. mtr. and in the second category at the rate of Rs. 450 per sq. mtr. and if 12 per cent on the aforesaid amount is added on account of time element of two years, this would work out to Rs. 690 per sq. mtr. Besides, sub-division of the property would be required to be got approved from JDA which would mean leaving 30 per cent to 40 per cent of the land open for roads and parks and incurring cost for development of such roads, parks, water supply and provision of electricity and cost of demolition of the present structure and removal of debris would require at least six months. The prospective buyers submitted an additional representation on 24th March, 1994 that a piece of land similar to the one cited in show-cause notice situated in Triveni Nagar Scheme measuring 116.13 sq. mtrs. was sold on 3rd June, 1993 for a sum of Rs. 1,00,000 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....propriate Authority was liable to be set aside because such authority was required to ascertain the market rate prevalent in respect of the land similar to that of the land in dispute both from the point of view of the nature of the land and its location. If the market rates adopted for the comparison, were the rates applicable in respect of a totally different type of land, cost of converting the land under pre-emptive purchase to the kind of the land whose rates were being adopted for the purpose of comparison had to be accordingly worked out. The Appropriate Authority has however failed to do so. It adopted the rates of a developed residential building plot whereas the land in question was an undeveloped large agricultural plot of land. Such comparison therefore could not be made without providing for adequate deductions towards the cost of development and the area to be lost for providing roads, parks and other civic amenities in the process of sub-dividing the property into small developed plots. The learned single Judge erroneously refused to examine the legality of the pre-emptive purchase order on the ground that the power of judicial review under Art. 226 of the Constituti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g the rates notified by the Government for registration of the conveyance deeds which have since received legislative recognition in newly inserted provision of s. 50C of the IT Act. The learned single Judge has thus proceeded to pass his judgment on the basis of presumptions and surmises, the impugned judgment is therefore suffering from error apparent on the face of the record. It was argued that learned single Judge was not correct in holding that the market value of the land has to be adopted merely looking at the rates prevalent in the market in the locality or situation of the plot and the potentiality of its use. The learned single Judge on that basis in fact refused to examine the correctness of the pre-emptive purchase order which in fact was based on erroneous, irrelevant and irrational reasons. 7. Shri Paras Kuhad argued that the determination of fair market value of the Appropriate Authority was wholly illegal because it was based on adoption of a totally incorrect price of the disputed land taking it to be a developed plot on the basis of the solitary example of auction sale dt. 7th Nov., 1992 of plot No. A-19, Triveni Nagar, Jaipur. Adoption of such rate was unreal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sonings were therefore mutually contradictory and totally inconsistent. In any case, Triveni Nagar not being the closest locality, there being four other localities absolutely adjacent to the area in question, comparison with the plot of Triveni Nagar could not be made. If at all the rates of the nearby plot area for the purpose of comparison were to be taken, such comparison ought to have been made on the basis of sale transactions of the plots in the adjacent localities. The authorities could not in isolation have picked up the sales reflecting the price of the transaction which took place in December, 1992. The Appropriate Authority committed an error of law in adopting the market rate of a developed building plot and applying the same to an undeveloped covered area bearing industrial godown. The impugned order of pre-emptive purchase was therefore vitiated under law. When comparison for the purpose of valuation was made with a developed vacant residential plot, the property in question was also required to be reduced to the status of residential development vacant building plot before the comparative rates could be adopted or in the alternative the property should have either b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n namely the co-owner of the open land forming part of the property who was very much interested person within the meaning of Chapter XX-C of the IT Act and non-service of notice upon her vitiated the entire proceedings. The order of pre-emptive purchase was merely based on surmises and conjectures without there being any credible material to suggest any attempted evasion of tax. While notice was given to the appellants on different grounds but the ultimate order that has been passed on 30th March, 1994 is based on a totally different consideration. It was not within the competents of the Appropriate Authority to travel beyond the scope of show-cause notice. Shri Paras Kuhad further argued that the Appropriate Authority had apparently considered the report of the Valuation Officer but copy of the report of the Valuation Officer was not supplied to the petitioner. This clearly prejudiced the case of the petitioner because it was obligatory upon the Appropriate Authority to supply a copy of the same to the petitioner. The copy of the valuation report has been placed on record by the vendor/appellant along with an application filed at the time of hearing and Shri Paras Kuhad on tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....001) 170 CTR (SC) 180 : (2001) 251 ITR 197 (SC), Dr. Anand Prakash vs. Appropriate Authority (2006) 205 CTR (Del) 125 : (2006) 287 ITR 395 (Del) and Musthafa Ummer & Anr. vs. Appropriate Authority & Ors. (2002) 173 CTR (Ker) 402 : (2001) 254 ITR 134 (Ker). 8. Shri B.L. Sharma, the learned senior counsel appearing for the vendor argued that the disputed property is part of the land of khasra No. 126 admeasuring 17 bighas and 12 biswas which was jointly purchased by Smt. Mithilesh Kumari and Smt. Krishna Roongta vide sale deed dt. 17th June, 1970. While Mithilesh Kumari who is the vendor had 25 per cent share in the property, but Smt. Krishna Roongta's share was 75 per cent. Bank of Baroda advanced loan in the sum of Rs. 42 lacs for construction of 15 godowns on the said land. Godowns were constructed in the year 1977 and let out to Food Corporation of India in 1978. Though the unregistered partnership firm with 10 partners was formed in the year 1977 and with an addition of three more partners there were 13 partners in the year 1979 which number fell down to 12 in the year 1984, but this partnership was meant only for the purpose of saving income-tax. None of these partners e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s Court, was made in big and small amounts spread over last 14 years. Valuation of the property has now increased to Rs. 20-25 crores. It was submitted that the vendor had served a notice on the prospective buyer on 27th April, 2005 to pay an interest of 20 per cent per annum in addition to the contracted amount. The balance amount payable on as 31st March, 2005 was more than Rs. 285 lacs. The learned counsel placed reliance on the judgment of Hon'ble Supreme Court (sic-Gujarat High Court) in D.J. Works vs. Dy. CIT (1992) 102 CTR (Guj) 2 : (1992) 195 ITR 227 (Guj) and argued that Hon'ble Supreme Court (sic-Gujarat High Court) in that case directed that penal interest would be payable if the amount of interest is wrongly retained. It was argued that prospective buyers herein being in possession of the property made huge additions and alterations therein by adding more floor area and thereby created sprawling show rooms. They also constructed huge industrial sheds and rented out the office building and the guardroom and they are also earning money by renting out the open area for social functions like marriage and party etc. Reference was made to the letter dt. 18th May, 1994....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ch, 1994 as well as on 24th March, 1994. In neither of those objections did the appellants raise any objection about the reasonable opportunity being not provided to them. It was argued that no notice was required to be issued to other co-sharers of the disputed property/partners of the unregistered firm because the assessee in point No. 4 of Form 37-I declared the vendor Smt. Mithilesh Kumari being the absolute owner of the disputed property as the only interested person. Besides, no objection was raised by any one else either before the Appropriate Authority or even before this Court. It was argued that the valuation on the basis of the rates notified by the Government for the purpose of registration of conveyance deeds under the Rajasthan Stamp Act was not relevant for deciding the controversy in question. Reliance placed by the appellants on s. 50C of the IT Act was wholly misplaced because it merely provided for adoption of valuation made by the Stamp Valuation Authority only when the value adopted and the consideration received by the assessee as a result of transfer of capital asset is less than the value assessed by such authority. Besides s. 50C being a newly introduced pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iscounting for the tenancy if a mode of valuation is adopted by the Department, the High Court should not have termed the same as illegal, irrational or arbitrary." Referring to the Constitutional Bench judgment in C.B. Gautam (supra), it was argued that the Hon'ble Supreme Court in that case while upholding the validity of Chapter XX-C considered the aspect that the time frame within which compulsory order of purchase has to be made is fairly tight one, held that the proceedings should be carried out with a sense of urgency. It was held that even if after an opportunity is given to the assessee, the Appropriate Authority considers appropriate, it may hold an enquiry even though such enquiry has to be summary in nature before passing a compulsory purchase order. The reasonable opportunity of hearing is therefore to be consistent within the available time frame. The assessee cannot insist on detailed and protracted enquiry. It was argued that this Court on 19th April, 1994 passed an interim order to the effect that the status quo shall be maintained by the parties and the period from which the stay order remains in operation shall be excluded for making the payment by the respon....
X X X X Extracts X X X X
X X X X Extracts X X X X
....provide an opportunity of hearing. In order therefore to scrutinize the validity of the order, the Court has to examine the decision making process and not the merits of the decision itself so as to arrive at a different conclusion and substitute it for that of the Appropriate Authority. Functions of the Appropriate Authority being akin to that of a quasi judicial body, therefore, its order are subject to judicial review within the scope available for writ of certiorari. At the same time, however, this power of judicial review would not extend to the status of the appellate powers and for that matter, revisional powers where the scope of interference is much wider. It is within this available scope of interference that the learned single Judge examined the validity of the impugned pre-emptive purchase order and upheld the same and we have to now in this appeal examine the correctness of the judgment passed by learned single Judge which exercise in effect would also extend to examining validity of the impugned pre-emptive purchase order on the grounds that have been raised before us. 12. Argument that the Appropriate Authority while basing its order on the comparable sale price o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....onstructing drainage, sewerage and water supply and electricity supply and would have required huge investments for carrying out all these developments. Learned counsel in this connection relies on the judgment of Hon'ble Supreme Court in Sahib Singh (supra) and Charan Deep Singh Estate (P) Ltd. (supra) (sic), and argued that the Appropriate Authority has refused to consider that developing land in question to the level of comparable property would require at least 33 per cent of the land price to be incurred towards the cost of carrying out such developments. But on examination of the impugned order of pre-emptive purchase, we find that the Appropriate Authority in para 8 of the order has categorically noted this argument with reference to r. 11 of the Rajasthan Urban Areas (Sub-Division, Reconstruction and Improvement of Plots) Rules, 1975 and noted that the said Rule provides that the saleable area would be about 66 per cent and this may be more if the plot size is smaller but assuming that only 66 per cent would have available area for sale, yet out of 7,943 sq. mtrs. an area equal to 5,242.38 sq. mtrs. would have been available for sale. Appropriate Authority therefore by ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....molished, they would continue to have the same commercial potential which they had been having so far. Learned single Judge therefore rightly rejected this argument also on the premise that the appellants were carrying on their business from this place which was located near to airport. Similarly, the argument raised by the learned counsel for the appellants that when the land was being used jointly by the partnership firm, they had submitted a plan to JDA for commercial use of the land and only 15 per cent of the land could have been used for commercial purpose with remaining 85 per cent being left for provision of facilities like roads, open places, parking, provision of water and electricity etc. In alternative, it is argued that if godowns are considered as industrial use, the land being situated close to an already existing industrial area, its value should be assessed @ Rs. 100 per sq. mtr. Both these arguments were rightly rejected by the learned single Judge because the arguments were based on a mere hypothesis. The approved plan had come to an end with the dissolution of the firm and 1/4th of the land had come to the share of the vendor. These arguments were examined and r....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... cause notice dt. 21st March, 1994 submitted by the prospective buyers, it is found that their entire focus was on the comparability of the market value of the sale instance cited by the Department as against the market value of the land in dispute and apart from raising the argument similar to the vendor, reference was made to the rates notified by the Government for registration of conveyance deeds in Durgapura area and the fact that sub-division of the land would require 30 per cent to 40 per cent of the land to be left for the civic amenities, cost of making provision for amenities, additional cost of demolition of present structures and removal of debris. A similar and subsequent reply/objection submitted by the prospective buyers on 24th March, 1994 is also available on record. On perusal of this reply to show cause notice also, we find that arguments similar to the one raised in the previous reply dt. 21st March, 1994 were reiterated. But no argument as to the so-called encumbrances attached to the property was raised in either of them. Now when we look at the memorandum of writ petition, it is found that the prospective buyers have raised as many as 22 grounds (a to v) as t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....strict Valuation Officer when he visited the site again on 13th April, 1994, he in his letter dt. 13th April, 1994 stated that on receiving direction from the Appropriate Authority vide letter dt. 30th April, 1994 and the letter dt. 8th June, 1994 and 12th April, 1994 to the worthy Chief CIT himself, he had written to both the parties for handing over possession and fixed 13th April, 1994 as the date for the purpose. The request was made to the transferee to get the area demarcated but nothing was heard from any of the parties. When the Valuation Officer visited the site on 13th April, 1994 at about 11 AM for taking physical possession of the land, one of the prospective buyers, namely Shri R.K. Rawat was present there, in whose possession the property was. The Valuation Officer expressed his intention to take over the possession which was declined by the said Shri Rawat. No representative from the side of the transferor however was present but the transferee asserted that he was not in possession of the office building etc. including the outside space and stated that he was likely to take considerable period to vacate the place. The Valuation Officer in an application submitted to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at the opportunity of being heard must be adequate and effective and in absence of material relied on by the Appropriate Authority while forming the tentative view, such opportunity would be a mere empty formality. This violated the principles of natural justice inasmuch as Art. 14 of the Constitution. In order to examine this argument, we have to scrutinize the show cause notice to find out as to what was the basis which formed the foundation of the view taken by the Appropriate Authority. The Appropriate Authority considered the agreement to sale and the apparent sale consideration disclosed therein which was agreed to be paid at the rate of Rs. 1,051 per sq. yd. total of which comes to Rs. 99,84,500. The Appropriate Authority then relied on the comparable sale instance of plot No. A-19 and disclosed its value at which this was sold by the JDA on 7th Nov., 1992 i.e. at the rate of Rs. 1,781 per sq. mtrs. It was on that basis that the Appropriate Authority tentatively held that if an adjustment of 5 per cent on account of less development, 10 per cent on account of large size of the subject property and + 12 per cent on account of time gap is made, adjusting such value by 5 per ce....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rther 10 per cent on account of built up structure etc. were not disclosed either by supply of the report of the Valuation Officer or the show-cause notice and that this has violated the principles of natural justice inasmuch as prejudiced the petitioner's right to defence. A reading of the show cause notice indicates that the price of the land Rs. 1,34,39,556 arrived at on the basis of comparable sale instance did not include the value of existing godowns and this was done in spite of the Valuation Officer having suggested for deduction of 10 per cent on account of built up structures. The Appropriate Authority in the show cause did not give deduction on that account and it categorically stated therein that the value arrived at by it did not include the value of existing godowns as well as commercial potential of the front part of the subject property. In para 7 of the impugned pre-emptive purchase order also the Appropriate Authority indicates that it was aware about the existing godowns bearing Nos. 13 and 14, besides offices and guardroom etc. and estimated value of the structures including godowns at Rs. 42 lacs. The Appropriate Authority also noted that there was no need ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... notice issued was found to be too vague and did not disclose the reasons thereof nor the material considered by the Appropriate Authority in reaching a tentative conclusion was disclosed. In that case, copies of the documents relating to sales instance relied on by Appropriate Authority were not furnished to the prospective buyers along with notice whereas in the present case such material relating to sales instance of plot No. A-19 in Triveni Nagar was duly disclosed in the show cause notice and material supplied to the prospective buyers. This case was also therefore distinguishable on facts. Delhi High Court in the judgment of Dr. Anand Prakash (supra), found that no documentary material collected by the Appropriate Authority was disclosed in the show cause notice and so it was held that this violated principles of natural justice. Musthafa Ummer & Anr. (supra) relied on by learned counsel Shri Paras Kuhad was again a case wherein it was held that it was necessary for the Appropriate Authority to supply all such material on which it has based its conclusion. Thus this does not render any help to the appellants. 20. Our conclusions are fortified from the ratio of the judgment....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s or has considered some extraneous and irrelevant materials or that the finding is based on no evidence or the finding is such that no reasonable man can come to such a conclusion on the basis of which the finding has been arrived at. This being the settled position, it is difficult to sustain a plea that when the order of the Tribunal does not provide for an appeal, the High Court can get its jurisdiction enlarged and exercise an appellate power while examining the correctness of the conclusion arrived at by such Tribunal. In the case of C.B. Gautam vs. Union of India (1992) 108 CTR (SC) 304 r/w (1993) 110 CTR (SC) 179 : (1993) 199 ITR 530 (SC) where the provisions of Chapter XX-C had been assailed as being ultra vires, the Constitution Bench of this Court negatived the contention raised that the provisions are arbitrary, since no appeal or revision has been provided against the order made by the Appropriate Authority for compulsory purchase of immovable property on the ground that the provisions of the said chapter could be resorted to only when there is an attempt at tax evasion by significant undervaluation of immovable property agreed to be sold and further reasons are requir....
X X X X Extracts X X X X
X X X X Extracts X X X X
....te its conclusion for that of the Tribunal. In the aforesaid premise, we are of the considered opinion 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." 21. There is yet another basis on which Shri Paras Kuhad, the learned counsel for the prospective buyers has argued that the prospective buyers were denied the reasonable opportunity of hearing and that is that the Form No. 37-I was filed by the parties on 31st Dec., 1993 and the Appropriate Authority took almost 70 days in issuing show cause notice. It is submitted that the show cause notice was issued on 8th March, 1994 and was received on 11th March, 1994 requiring the appellants to file their reply on 31st March, 1994. During this intergum of 12 days, there were two Saturdays i.e. 12th March, 1994 and 19th March, 1994 and two Sundays i.e. 13th March, 1994 and 20th March, 1994 and thereafter the State Government employees went on strike on 15th March, 1994. It is argued that because of the four holidays in between and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... land was agreed to be sold to the prospective buyers and therefore the other co-sharer namely Smt. Krishna Kumari Roongta was interested in the subject property as was evident from cl. (4) of the agreement to sale and in fact she had served notices on the IT Department disputing the transferability of the land, the Appropriate Authority in complete negation of the provisions of s. 269UD(1A) and violation of principles of natural justice did not provide an opportunity of hearing to Smt. Krishna Kumari Roongta. We are not able to countenance this argument because except for certain correspondence or notices by Smt. Krishna Kumari Roongta which were sent soon after the Appropriate Authority served a show cause notice on the prospective buyer and the vendor under s. 269UD, she has not taken any steps by submitting any objections before the Appropriate Authority or by joining the present proceeding at any stage either before the Single Bench or before the Division Bench or even by an independent legal proceeding. We are therefore not inclined to hold that she had exercised her right of first refusal that was contained in the dissolution deed. That right having not been exercised in the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Judge also rejected the argument that the rates notified by the State Government for the purpose of registration of the conveyance deeds should be made basis for determining the market value under Chapter XX-C. It has rightly been held that the prescription of such rate does not take into consideration the difference in the value of the plots even in the same locality having different situation and therefore such rate does not give proper guidance for valuation for the purpose of pre-emptive purchase. Rates notified by the Government for different areas form basis of charging stamp duty on registration of conveyance deeds before the registering authority under the provisions of Indian Stamp Act, 1899 which was applicable at the relevant time by virtue of Rajasthan Stamp Law (Adaptation) Act, 1952 enacted by the State legislature. Their Lordships of the Hon'ble Supreme Court in Painder Singh & Ors. vs. Union of India & Ors. (1995) 5 SCC 310 while considering this very question, albeit in the context of determination of compensation for the lands acquired under Land Acquisition Act, 1894, held that "the fixation by the Government of the amount under Stamp Act for fiscal purpose b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....LC rates fixed by the District Level Committee. Such rates by themselves cannot be a conclusive index of prevalent market rate of the land in a given area. In fact, the learned Appropriate Authority in para 6 of its order has clearly noted that subject property is situated on the main road leading to Durgapura, Railway Station and is very close to Tonk Road connected with a pubic road leading towards eastern side to residential colonies which have come up in its neighbourhood such as Vishnupuri and Mahavir Nagar on north side, Green Nagar and Arjun Nagar on eastern side and the vegetable oil factory of M/s Rohtas Industries Ltd. on the western side. 25. The Appropriate Authority has made valuation of the subject property by using not one but two modes. First mode adopted was by comparison with plot No. A-19 of Triveni Nagar with adjustments referred to above being given when its value comes to Rs. 99,84,500 and if the depreciated value of the godowns in the sum of Rs. 42 lacs is added thereto, total value of the subject property comes to Rs. 1,37,21,532 as against the apparent sale consideration of Rs. 99,89,500 which would reflect that the price of disputed property was declare....
X X X X Extracts X X X X
X X X X Extracts X X X X
....payable under the agreement to sale and the actual date of its payment to the appellant. Shri B.L. Sharma, learned senior counsel appearing for the vendor has in support of his arguments relied on the judgment of Constitutional Bench of Hon'ble Supreme Court in Mrs. Rajalakshmi Narayanan vs. Mrs. Margret Kathleen Gandhi & Ors. AIR 1993 SC 273, in which on account of interim order passed by the Delhi High Court in a pending writ petition against the order of pre-emptive purchase made by the Appropriate Authority, the vendor was neither able to dispose of the property to the third party nor was able to receive sale price. In those facts, their Lordships held that in the event of the pre-emptive purchase order passed by the Appropriate Authority being upheld, government shall pay to the vendor the purchase price stated as the consideration for sale in the agreement with interest at the rate of 15 per cent per annum. That was entirely distinguishable matter where even though the interim order was passed but the interest of the vendor was not protected in any manner. In the present case however the fact situation is entirely different. When the prospective buyers filed the writ peti....