TaxTMI 
TaxTMI 
1983 (10) TMI 73
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....lahabad, consisting of three partners, namely, Smt. Sulochni Devi Tandon and her two sons Sarvshri Badri Vishal Tandon and Girish Tandon (the transferors). The transferee is a co-operative society, the Prayag Upnivesh Evam Avas Nirman Sahkari Samiti Ltd. having its registered office at B-77A, Dariyabad, Allahabad ('the society'). There were two registered agreements dated 11-7-1975 and 15-7-1975 executed by the transferors in favour of the society to sell the property in question for an apparent sale consideration of Rs. 3 lakhs. Thereafter, since the Urban Land (Ceiling and Regulation) Act, 1976 had come on the statute book on 28-1-1976, the permission of the Governor of U.P. under section 20 of that Act was obtained for this transfer on 5-9-1980. Thereafter on 10-10-1980, the sale deed was executed which was registered on 14-10-1980. The said sale deed was executed in pursuance of the agreement to sell and the said permission accorded by the Governor of U.P. under section 20. The society transferred the property in question to its members by subdividing it into various plots and the sale deeds were executed in their favour. The competent authority initiated the acquisition procee....
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....nbsp; proceedings pending were dropped ---------------------------------------------------------------------------------------- 1. Smt. Raj Kumari Dwivedi Plot No. 22 27-10-1980 3-6-1981 ---- 2. Mrs. Chinmoyee Mukerjee Plot No. 23 10-11-1980 3-6-1981 ---- 3. Dr. Gopalji Tandon Plot N....
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....sferors, the transferee society and nine members thereof, namely, Smt. Raj Kumari Dwivedi, Mrs. Chinmoyee Mukerjee, Dr. Gopalji Tandon, Shri Brij Mohan Lal Mehra, Smt. Shukla Dutta, Shri Virendra Saran, Smt. Chandra Kanti Gupta, Shri Keshav Sahai and Smt. Madhu Sahai. 4. Shri S.K. Garg, chartered accountant for the society raised a preliminary objection to the maintainability of the acquisition proceedings on the ground that Chapter XXA of the Act was ultra vires the Constitution of India. He pointed out that two writ petitions in this regard were also pending before the Supreme Court---P. Shantha v. IAC [WP No. 4444 of 1981] and M.S.P. Raja v. IAC [WP No. 4330 of 1981], wherein it was stated that on 17-8-1981 the Supreme Court issued rule nisi on these writ petitions. 5. Next, referring to the provisions of section 269C relating to the initiation of the acquisition proceedings Shri Garg submitted that the conditions precedent for the exercise of that power by the competent authority were not satisfied and so for this reason too the acquisition proceedings stood vitiated. In this connection he stressed on the import of the expressions 'reason to believe' and 'fair market value' a....
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....ings. (viii) that the property was heavily encumbered and heavy payments were to be given to the tenants and the residents and that as against Rs. 20,000 taken by the departmental valuer as payable for probable settlement with the tenants to get the building vacated, the total amount of such liability would be Rs. 4,20,896.60 (details supplied). (ix) that out of the four methods available for the valuation of the building only the minimum value could be taken as held by the Hon'ble Gujarat High Court in the case of Sarabhai M. Chemicals (P.) Ltd. v. P.N. Mittal, Competent Authority, IAC [1980] 126 ITR 1. (x) that the available sale instances were not taken by the competent authority into consideration (page 113 of the paper book of the society). (xi) that the presumption of understatement under section 269C(2) could not be drawn at the initial stage vide the decision of the Hon'ble Gujarat High Court in the case of CIT v. Smt. Vimlaben Bhagwandas Patel [1979] 118 ITR 134." Reference was also made by Shri Garg to the decision of the Hon'ble High Court in Mohammed Mahboob Ali Saheb v. IAC [1978] 113 ITR 167 (AP) for the proposition that section 269D(2)(a) being a mandatory provi....
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....iance. Proceeding further Shri Gulati submitted that the subsequent conduct of the society was irrelevant. Pointing out that one set of proceedings had been dropped, be submitted that if proceedings had been dropped against the members, the question of their being continued against the society could not arise. He submitted that the powers under sections 269C and 269D could not be used as a mere cloak or pretence for making a roving enquiry or for fishing investigation. Reference in this connection was also made by him to the decision of the Calcutta High Court in Tube Mill (India) (P.) Ltd. at page 85. He pointed out that the mere complaint received by the income-tax authorities could not provide any 'reason to believe' unless mind was applied by the competent authority. Referring to the decision of the Supreme Court in Chhugamal Rajpal v. S.P. Chaliha [1971] 79 ITR 603, he submitted that the conclusion that there was a case for investigating the truth of the alleged transaction, was not the same thing as saying that there were reasons for the issue of the notice. Next, he referred to the decision of the Supreme Court in the case of Sheo Nath Singh v. AAC [1971] 82 ITR 147 to empha....
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....Chinmoyee Mukerji, Smt. Shukla Dutta and Shri B.M.L. Mehra submitted that his submissions were the same as made by Shri Gulati. 9. Dr. R.R. Misra represented Smt. Raj Kumar Dwivedi and Shri Virendra Saran (against when the acquisition proceedings had been dropped). Dr. Misra pointed out that the concept of a 'fair market value' had to be seen with reference to the facts and circumstances of each case and that in the present case there were many limitations which restricted the fair market value. In this connection he pointed out that without the permission of the Government under section 20 the property could not be sold and that the permission could be withdrawn if the transfer was not made according to the conditions mentioned therein. In this connection he pointed out that even the rate at which the transfer could be made, had been fixed by the Government. Therefore, he submitted that there was no free or open market. He also emphasised that owing to these restrictions any collusion between the seller and the purchaser was excluded. Elaborating on his submission he pointed out that only such examples could be relevant for a case of this nature where the transfer was subject to ....
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....uisition proceedings even though started well, could not be continued in view of the Finance Act, 1981. He also submitted that no opportunity was afforded to Shri Virendra Saran regarding the acquisition proceedings against the society. Next, he pointed out that there was no application of mind by the Commissioner while according his approval and that he had just signed. He also referred to the decision of the Hon'ble Allahabad High Court in the case of Kishan Lal v. IAC [1983] 142 ITR 312 for the initiation of acquisition proceeding was completed only when the Gazette containing the notification became available to the public and that it was for the department to show that it had taken action in time. 10. Shri K.K. Roy, the learned departmental representative strongly relying upon the acquisition order submitted that before the competent authority the material consisted of a complaint dated 26-11-1980 and that the notices were issued after taking the due approval of the Commissioner and after application of mind. He submitted that up to the stage when the competent authority issues notice under section 269D(1) the proceedings under Chapter XXA are of an administrative nature and ....
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.... 97 (SC), Prodyut Kumar Dutta v. Competent Authority, IAC [1982] 134 ITR 42 (Cal.), P.S. Gandhi v. CWT [1983] 141 ITR 105 (All.) and Asharfi Lal Gupta's case. With reference to the decision of the Supreme Court in Ahmed G.H. Ariff v. CWT [1970] 76 ITR 471, he submitted that 'property' is a term of the widest import and that it signifies every possible interest which a person can clearly hold and enjoy. He also pointed out that the rate applied by the Valuation Officer was based upon the letter dated 6-4-1981 of the corporation. Next, he submitted that the rate of development charges had to relate to the date of execution of agreement to sell and not to the date of the sale. Summing up his arguments Shri K.K. Roy submitted that notwithstanding the permission given by the Government under section 20 an open market had to be presumed in terms of the decision of the Supreme Court in the case of Pandit Laxmi Kant Jha. He, therefore, argued that the acquisition order was quite valid. 11. We have carefully considered the rival submissions and have also gone through the various decisions referred to on both the sides. So far as the preliminary objection taken by Shri Garg is concerned, w....
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....he belief have to have a rational and direct connection with the material coming to the notice of the competent authority, though the question of sufficiency or adequacy of the material is not open to judicial review. If the competent authority only has a vague feeling that the sale transaction may be bogus or that there was a case for investigating the truth of the alleged transaction it would not be sufficient for justifying the issue of notice. The words 'reason to believe' suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that though the competent authority may act on direct or circumstantial material but not on mere gossip or rumour. The competent authority would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by section 269C(1). The Tribunal can always examine this aspect though the declaration of sufficiency of the reasons for the belief cannot be investigated by it. Further, there must be a direct nexus or live link between the material coming to the notice of the competent authority and the formation of h....
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....ket value' of the property as per the Inspector's report dated 25-4-1981 but neither the copy of the Inspector's report was placed on the record for our perusal nor it detailed as to what was the amount of the fair market value. In the reasons recorded there is a blank and the fair market value is not specified. The learned departmental representative was fair enough to state before us that even in the original 'reasons recorded' this blank was not filled. It, therefore, becomes clear that without the exact amount of the fair market value being before it, the competent authority could not have had reason to believe that the consideration for the transfer of the property agreed to between the parties had not been truly stated in the instrument of transfer. Let us now have a look at the materials which were before the competent authority for the formation of the belief that the consideration for the transfer had not been truly stated in the instrument of transfer. It is not under dispute that the property in question was fully tenanted and in the occupation of the sitting tenants. In reply to a query from the Bench the learned departmental representative stated that the names of the ....
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....s capable from four different methods, the method which leads to the least valuation will have to be taken for the present purposes. Again, as rightly pointed out on behalf of the appellants, even if the mean of the two methods, i.e., rent yield method and land and buildings method is taken, the question of valuation would be concluded in the present case in favour of the assessee. Here it also needs to be mentioned that the concept of an 'open market' (which is a notional concept) postulates that there should be a willing purchaser and a willing seller in respect of the property with all its incidents. There is a lot of force in the submissions raised by Dr. Mishra that in the present case the market was only as open as the conditions and circumstances attendant on the property in question allowed it to be. In other words, the market for the sale of the property in question had to be viewed with reference to the circumstances that the property was in occupation of sitting tenants who could neither be evicted nor whose rents could be increased in view of the rent control legislation in force ; that the tenants had to be paid money for the improvements made and for leaving the premi....
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....bsp; Mr. Justice K.N. Seth 110.00 2. Shri Daya Prakash Mittal (Half Residence) 55.00 3. Shri Kailash Chandra Mittal (Half Residence) 55.00 4. Shri Satya Pal Prabhakar 88.75 5. Shri Kesha....
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....; Rs. Rs. 1. Appurtenant land (built up area plus the land attached) measuring 4,424 sq. yds. x 45 1,99,080 2. Surplus land 29,040---4,424---7,464 (for rates), i.e., 17,152 sq. yds. x 40 6,86,080 &....
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....; ------------ As against this, the valuation according to the appellants is as follows: Rs. 1. Gross maintainable rent (as detailed above) 593.75 per month Rs. 7,125.00 per annum 2. Outgoings to be deducted: (i) Municipal taxes&nb....
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....follows: Rs. 1. Depreciated cost of four bungalows not charged from, the tenants of the bungalows as per Valuation Officer's report 1,25,819.00 2. Further rebate allowed to the five occupants of the bungalows for the improvements effected by them in the residences: (i) Shri Keshav Sahai 10,000.00 (ii) Shri Satya Pal Prabhakar Rs. 28,273.75 (iii) Mr. Justice K.N. Seth: (a) Improvement rebate 24,109.00 (b) Cost of boundary wall made by the &nb....
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....the development expenses which as per the society, it would have to incur (as detailed in the impugned acquisition order) is Rs. 11,49,660.84. The appellants have given the authority for such expenses. If to this an amount of Rs. 1,50,000 payable to the 19 tenants is also taken into consideration, it would total up to Rs. 15,99,660.84. Therefore, it is clear that the competent authority could not have merely considered the question of the acquisition of the property under Chapter XX-A on the basis of the apparent consideration of Rs. 3 lakhs. The real sale consideration would have to include the apparent sale consideration as well as the amount which the society would have to pay to the tenants of the out-houses and to the other tenants as and by way of development charges. The appellants have duly supported their contentions with documents regarding development charges, rents, improvements, etc. The appellants' calculation of the amount of Rs. 1,50,000 at the rate of Rs. 9,000 per tenant for 12 tenants and at the rate of Rs. 6,000 per tenant for seven tenants does not all appear to be excessive. In the case of CIT v. Ganesh Builders [1979] 116 ITR 911, the Hon'ble Bombay High Cour....