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CASE NO.: Appeal (civil) 5426  of  1997

PETITIONER: APPROPRIATE AUTHORITY & COMMISSIONER INCOME TAX

       Vs.

RESPONDENT: SMT. VARSHABEN BHARATBHAI SHAH & ORS.

DATE OF JUDGMENT:       13/03/2001

BENCH: S.P. Bharucha,, N. Santosh Hegde & Y.K. Sabharwal

JUDGMENT:

BHARUCHA, J. L...I...T.......T.......T.......T.......T.......T.......T..J

   The  Revenue  is in appeal by special leave against  the judgment  and order of a Division Bench of the High Court of Gujarat.   The  judgment  and  order was passed  on  a  writ petition  filed  by  the first respondent in  the  following circumstances.

   On  12th August, 1995, the second and third  respondents entered  into  an agreement to sell to the first  respondent immovable  property  situated  in Ahmedabad for the  sum  of Rs.47  lakhs.  The appropriate authority of the Revenue came to the conclusion that the apparent consideration in respect of  the said immovable property under the said agreement was less  than  the  market  value   thereof  by  15%  or  more. Accordingly, a notice dated 6th November, 1995 was issued to the  respondents  to  show  cause  why  the  said  immovable property  should  not be subjected to  pre-emptive  purchase under  Chapter  XX-C  of  the Income  Tax  Act,  1961.   The respondents  showed  cause,  but the  order  of  pre-emptive purchase  was made by the appropriate authority.  This order was challenged in the writ petition.

   Before  the  High Court, it was contended that what  had been  transferred by the second and third respondents to the first  respondent  were their equal half shares in the  said immovable  property  and  that they owned  such  equal  half shares  was indicated in their income tax returns and in the said agreement, which stated that the earnest money had been paid  by  two  separate  cheques to  the  second  and  third respondents.   The  High  Court  said,  There  may  be  one agreement for transfer of property where the transferors may be  co-owners or joint owners.  It may be that the share  of the  transferor is not specified.  It may happen that  there may  be one transferee or more than one.  The question to be examined  is  whether the provisions of Chapter XX-C of  the Act would be attracted or not in a case where co-owners have agreed  to transfer their property rights and each  co-owner is  to be paid an amount of consideration which is less than the  amount  specified, i.e., each co-owner-transferor  will

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get  less  than Rs.25 lakhs as per the agreement. The  High Court followed the judgment of the Madras High Court in K.V. Kishore  &  Anr.   vs.  Appropriate Authority &  Ors.   (189 I.T.R.   264).   It held that it was in the case  before  it clear  that  what  was  agreed to  be  transferred  was  the individual  undivided  share in the said immovable  property and  the value of each such share was less than Rs.25 lakhs. The transferors were co-owners and each co-owner was getting an  apparent  consideration  that was less  than  the  limit prescribed,  that is, less than Rs.25 lakhs.  The provisions of  Chapter  XX-C were not attracted even though the  amount that  all  the  co- owners received  exceeded  Rs.25  lakhs. Before  the High Court, it was not disputed on behalf of the Revenue that all the reports obtained by it in regard to the valuation  of  the  said  immovable property  had  not  been supplied  to  the  respondents.  For that reason,  the  High Court  came to the conclusion that the principles of natural justice had not been followed.  The High Court characterized as perverse a finding of the appropriate authority in regard to  the  case  of the first respondent that  no  unaccounted money  had  figured in the sale transaction.  For all  these reasons,  the  High Court quashed the order  of  pre-emptive purchase.

   In  K.V.   Kishore & Anr.  vs.  Appropriate Authority  & Ors.  (189 I.T.R.  264) a learned Single Judge of the Madras High Court held, more or less on similar facts, thus :

   After   giving  deep  consideration   to  these   rival submissions, the following facts would clinchingly establish the  case in favour of the petitioners.  It is not denied or it   is  not  disputed  that   the  original  allottee,   A. Srinivasan,  died  in  the  year 1962.  He  being  a  Hindu, governed by the Hindu Succession Act, on his death, his wife and  children  acquired  a  vested  right  to  the  definite quantified  shares  in the property left behind by him.   As owners  of  their respective shares, they were competent  to enter  into a family arrangement which they did on April  8, 1987,  under  the  terms of which, each one  of  respondents Nos.4  to 8 were allotted a definite share in the  property. After April 8, 1987, they were individual owners of definite shares  in the property.  Each one could deal with only  his respective  share  and  he  cannot deal with  the  share  of another.   The  property which so fell to the share of  each individual will come definitely within the definition of the words   property.  Such a sharer was entitled to  transfer his  property to a third person.  Merely because a plurality of  such individual owners joined together to enter into one single  agreement  to  transfer their respective  shares  in favour  of  one  or more persons, that would  not  make  any difference  to the main issue that what each transferred  is his  definite  share  in  the property.   Viewed  from  that perspective,   the  agreement  entered   into  between   the petitioners  and respondents Nos.4 to 8 is to be  understood only  as  an  agreement to convey the  respective  undivided shares of respondents Nos.4 to 8.  It is not in dispute that the value of each such share is less than Rs.10,00,000.  The recitals  in  the agreement in more than one place refer  to the  fact  that  what is sold, is the  individual  undivided share  in  the property.  Consequently, the  impugned  order made  under  Chapter  XX-C  of  the  Act  taking  the  total consideration,  the  collective shares, cannot be  sustained .

   The  aforesaid  judgment  of the Madras High  Court  was

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followed  by  that High Court in N.C.  Rangesh &  Ors.   Vs. Inspector  General of Registration & Ors.  (189 I.T.R.  270) and  by the Karnataka, Calcutta and Delhi High Courts in the cases  of Appropriate Authority & Ors.  Vs.  J.S.A.  Raghava Reddy  & Ors.  (199 I.T.R.  508), Surinder Gupta Vs.   Chief Commissioner  of  Income-Tax & Ors.  (221 I.T.R.   375)  and Webster  Industries  Ltd.  Vs.  Union of India & Ors.   (225 I.T.R.  924) respectively.

   The  Bombay  High Court has taken the contrary  view  in Jodhram  Daulatram  Arora & Ors.  Vs.  M.B.  Kodnani &  Ors. (221  I.T.R.   368).   In this case the vendor was  one  and there  were  three purchasers.  It was contended that  under the  agreement in question the vendor had agreed to sell  to each  of  the purchasers an undivided 1/3rd interest in  the flat  and each of the purchasers individually had agreed  to buy an undivided 1/3rd share in the flat from the vendor for the   total   consideration    of   Rs.14,06,000/-;     that consideration  for the purchase of each such interest in the flat  should be valued at Rs.4,68,667/-, which was less than the  limit of Rs.10 lakhs;  and that, in the  circumstances, the  appropriate  authority had no jurisdiction  to  proceed under  Chapter XX-C.  The judgments of the Madras High Court in  the cases of K.V.  Kishore and N.C.  Rangesh were cited. The  Bombay High Court did not accept the contention and  it distinguished  these  judgments.  The agreement in  question before  it, it said, was a composite agreement in respect of the  flat.   There  was  nothing   in  the  agreement  which indicated that the purchasers had agreed to buy individually an  undivided 1/3rd share of the flat from the vendor.   All the concerned parties had filed Form No.37-I and, therefore, it  was not open to them now to contend that Section 269- UD had  no  application  and the appropriate authority  had  no jurisdiction.

   Section 269-UA defines certain terms for the purposes of Chapter  XX-C, which deals with the purchase by the  Central Government  of properties in certain cases of transfer.   An agreement for transfer is defined by clause (a) thereof to mean  an  agreement  for the transfer of  any  property. property  is defined by clause (d) to mean any land or  any building  or  part of a building and any rights in  or  with respect to any land or any building or a part of a building. Transfer  in relation to any property means, by reason  of clause  (f), the transfer of such property by way of sale or exchange  or lease for a term of not less than twelve years. Apparent  consideration is defined by clause (b) to  mean, if  the  immovable property is to be transferred by  way  of sale,  the  consideration for such transfer as specified  in the   agreement  of  transfer.    Section  269-  UC   places restrictions  on  the transfer of immovable property.   What are  relevant for our purpose are sub-sections (1), (2)  and (3) of Section 269-UC and they read thus :

   269-UC(1)  Notwithstanding  anything contained  in  the Transfer  of Property Act, 1882 (4 of 1882), or in any other law for the time being in force, no transfer of any property in  such area and of such value exceeding five lakh  rupees, as  may  be  prescribed, shall be effected except  after  an agreement  for  transfer is entered into between the  person who  intends transferring the property (hereinafter referred to  as the transferor) and the person to whom it is proposed to   be   transferred  (hereinafter   referred  to  as   the transferee) in accordance with the provisions of sub-section (2)  at  least  [four] months before the  intended  date  of

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transfer.

   (2)  The agreement referred to in sub-section (1)  shall be  reduced to writing in the form of a statement by each of the  parties  to such transfer or by any of the  parties  to such  transfer acting on behalf of himself and on behalf  of the other parties.

(3) Every statement referred to in sub-section (2) shall, - i) be in the prescribed form; ii) set forth such particulars as may be prescribed; and

iii) be verified in the prescribed manner, and shall be furnished to the appropriate authority in such manner and within such time as may be prescribed, by each of the parties to such transaction or by any of the parties to such transaction acting on behalf of himself and on behalf of the other parties.

Section 269 UD, so far as it is relevant, reads thus:

   269UD.(1)  [Subject  to the provisions of sub-  section (1A) and (1B), the appropriate authority], after the receipt of  the statement under sub-section (3) of section 269UC  in respect  of  any  property,  may,  notwithstanding  anything contained  in  any  other  law  or  any  instrument  or  any agreement for the time being in force, make an order for the purchase  by  the Central Government of such property at  an amount equal to the amount of apparent consideration :

   [(1A)  Before making an order under sub-section (1), the appropriate authority shall give a reasonable opportunity of being  heard to the transferor, the person in occupation  of the  property if the transferor is not in occupation of  the property,  the transferee and to every other person whom the appropriate   authority  knows  to  be  interested  in   the property.

   (1B) Every order made by the appropriate authority under sub-section  (1)  shall specify the grounds on which  it  is made.]

   (2)  The appropriate authority shall cause a copy of its order under sub-section (1) in respect of any property to be served  on  the transferor, the person in occupation of  the property if the transferor is not in occupation thereof, the transferee,  and on every other person whom the  appropriate authority knows to be interested in the property.

   Rule  48-K of the Income Tax Rules states that the value of  any  property  for the purposes of  sub-section  (1)  of Section  269-UC  shall be, where the agreement for  transfer prescribed under the said sub- section is entered into after 31st July, 1995, Rs.25 lakhs for the city of Ahmedabad.

   In C.B.  Gautam Vs.  Union of India & Ors.  [1993(1) SCC 78]  a  Constitution  Bench  of this Court  dealt  with  the constitutionality  of the Chapter XX-C.  Paragraph 21 of the judgment reads thus :

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   21.  The legislative history of Chapter XX-C, the stand taken  by the Union of India and the Central Board of Direct Taxes  as  shown  in  the  main  counter-affidavit  and  the affidavit  of  H.K.   Sarangi, which has  been  filed  after obtaining  instructions  from the Income Tax Department  and the  Central  Board of Direct Taxes make it clear  that  the powers of compulsory purchase conferred under the provisions of  Chapter  XX- C of the Income Tax Act are being used  and intended  to be used only in cases where in an agreement  to sell  an  immovable property in an urban area to  which  the provisions of the said Chapter apply, there is a significant undervaluation  of  the  property in such areas as  set  out earlier,  the apparent consideration shown in the  agreement for  sale is less than the fair market value by 15 per  cent or  more it may draw a presumption that this  undervaluation has  been done with a view to evade tax.  Of course, such  a presumption  is  rebuttable  and   the  intended  seller  or purchaser  can  lead evidence to rebut such  a  presumption. Moreover, an order for compulsory purchase of property under the  provisions of Section 269- UD required to be  supported by  reasons  in writing and such reasons must be germane  to the  object  for  which Chapter XX-C was introduced  in  the Income Tax Act, namely, to counter attempts to evade tax.

   What,  in our opinion, therefore, has to be seen for the purposes  of  attracting  Chapter  XX-C  is:   what  is  the property which is the subject matter of transfer and what is the  apparent consideration for such transfer.  This has  to be seen in a real light with due regard to the object of the chapter  and  not in an artificial or technical manner.   If the apparent consideration for the transfer is more than the limit  prescribed  for the relevant area under Rule  48-  K, what   has  then  to  be   seen  is  whether  the   apparent consideration for the property is less than the market value thereof  by 15% or more.  If so, the notice for  pre-emptive purchase can be issued and it is then for the parties to the transaction  to  satisfy the appropriate authority that  the apparent  consideration  is the real consideration  for  the transfer.

   Now,  in the present case, the said agreement is for the sale  of the said immovable property.  That the equal shares@@          JJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJ of  the  second  and  third respondents therein  are  to  be@@ JJJJJJJJJJJJJJJ transferred  to the first respondent is a necessary incident of  such  sale.  The parties to the transaction  filed  Form No.37-I  with  the  appropriate  authority  and,  correctly, stated  that  what  was being sold was  the  said  immovable property and not the one half shares of the second and third respondents  therein.   It also stated, correctly, that  the total  apparent  consideration for the transfer of the  said immovable  property  was Rs.47 lakhs.  This leaves us in  no doubt  at  all that what was to be transferred was the  said immovable  property  and  that the  consideration  for  such transfer  was  the  sum  of  Rs.47   lakhs.   It  is  of  no consequence  that the second and third respondents owned the said immovable property as tenants in common or that this is how  they  had  shown their ownership in  their  income  tax returns.   We  are, therefore, of the opinion that the  High Court  was in error in concluding that what had been sold by the second and third respondents to the first respondent was their  equal share in the said immovable property, that  the apparent consideration was, therefore, less than Rs.25 lakhs and  that,  therefore, the provisions of Chapter XX-C  would

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not apply.

   We should add that even if the agreement of transfer had been so drawn as to show the transfer of the equal shares of the  second  and  third respondents in  the  said  immovable property,  our  conclusion  would have been  the  same  for, looked  at realistically, it was the said immovable property which was the subject of the transfer.

   We  are of the opinion that the judgments of the Madras, Karnataka,  Delhi and Calcutta High Courts referred to above are based on a wrong approach and are erroneous.  We approve of  the  view  taken  by the Bombay High  Court  in  Jodhram Daulatram Aroras case.

   As  we have pointed out, it was conceded before the High Court on behalf of the Revenue that all the relevant reports pertaining  to the valuation of the said immovable  property had  not  been disclosed to the respondents.  We  think,  in these  circumstances, that the matter should go back to  the appropriate  authority for hearing the matter afresh.  It is not,  therefore,  necessary to deal with the finding of  the High Court about perversity.

   The  appeal  is allowed.  The judgment and  order  under appeal  is  set  aside.   The  matter  is  remanded  to  the appropriate  authority.  The Revenue shall make available to the respondents all the material, including reports, that it relied upon in regard to the valuation of the said immovable property.   The  appropriate authority shall then  hear  the parties  afresh and pass an appropriate order.  It shall  do so  without taking into account any observation of the  High Court  in  the  impugned  judgment.    In  respect  of   the proceedings   upon  remand,  no   objection  in  regard   to limitation may be raised.

   No order as to costs.