Wp/2110/1994 Of Dattaram Bhikaji Telge And Ors v. Appr. Authority Constituted Under The Income-Tax Act And Ors

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO. 2110 OF 1994 Bombay 400 002. ) 5.Union of India )..Respondents Mr.A.K.Jasani with Mr.V.Mannadiar i/b. Mannadiar & Co., Advocates for the petitioners..Mr. R.Ashokan,Advocate for the respondents. CORAM:F.I.REBELLO ANDJ.H.BHATIA,JJ.DATE:15[th] June,2009. JUDGMENT : (PER J.H.BHATIA,J.) 1. The petitioners have challenged the order passed under Section 269 UD(1) of the Income Tax Act, 1961 by the Appropriate Authority for purchase of the property belonging to the petitioner Nos. 1 and 2 and agreed to be sold to the petitioner Nos. 3 and 4. 2.To state in brief, admitted facts are that petitioner Nos. 1 and 2, being brothers inter-se, hold the property situated at Ghatla Village, Chembur. The property bears Plot No.565 and is having total FSI 870.8 sq. mtrs. The petitioner Nos. 1 and 2 hold half share each in the same. Petitioner Nos. 1 and 2 separately entered into development agreement with petitioner Nos. 3 and 4 and the consideration of the property to be sold was fixed at Rs.26 lakhs each. As per the agreement, the petitioner Nos. 3 and 4 were to construct and give one flat of 988 sq. ft. area to each of the petitioner Nos. 1 and 2. The value of the construction was about Rs.6 lakhs. They were also to be provided with alternative accommodation till the said flat could be ready and given to them. The period for development and construction of flat was fixed at 18 months and the approximate rent for the alternative accommodation to be provided to each of them was assessed at Rs.4,000/- per month. The agreement with petitioner No.1 was entered into on 20.4.1994 and the agreement with petitioner No.2 took place on 17.5.1994. As per the provisions of Section 268 UC, the statements in the prescribed proforma were submitted by the petitioners to the respondent no.1 – Appropriate Authority. On 12.8.1994, the Appropriate Authority issued show cause notice to the petitioners as to why the said property should not be purchased by the Central Government by passing an order under Section 269 UD (1) of the Income Tax Act. According to the Appropriate Authority, the consideration as per the agreement between the parties was much less than the market value. The respondent No.1 quoted three different transactions in the show cause notice in support of the view taken by him. The petitioners submitted their reply to the show cause notice and explained that the transactions in respect of the three properties quoted in the show cause notice were not relevant taking into consideration the area in which they were located and the nature of the properties in comparison to the property to be sold by the petitioners Nos. 1 and 2 to the petitioner Nos. 3 and 4. They also relied upon certain transactions to show that the consideration fixed by them was certainly not less than the market value and it was slightly higher than the consideration in those transactions. It was pointed out that the highest consideration in a transaction dated 28.2.1994 was around Rs.840/- per sq. ft. FSI, while as per the calculation made by the petitioners, the consideration in their transaction comes to Rs.1017/- per sq. ft. of the FSI. They contended that the valuation report, showing the consideration in the present case at Rs.932/- per sq. ft. of FSI was not correct. 3.After hearing the petitioners, the respondent No.1 passed the impugned orders dated 30.8.1994 under Section 269 UD(1) of the Income Tax Act and directed that the share of the petitioner No.1 in the property be purchased for consideration of Rs.18,70,340/- and the share of the petitioner no.1 be purchased for Rs.18,68,430/-. Accordingly, order was issued on the same day to the petitioner Nos. 1 and 2 to hand over the necessary documents and the possession of the property to the Appropriate Authority. These two orders have been assailed in the present petition by the transferors and the transferees. 3.After hearing the petitioners, the respondent No.1 passed the impugned orders dated 30.8.1994 under Section 269 UD(1) of the Income Tax Act and directed that the share of the petitioner No.1 in the property be purchased for consideration of Rs.18,70,340/- and the share of the petitioner no.1 be purchased for Rs.18,68,430/-. Accordingly, order was issued on the same day to the petitioner Nos. 1 and 2 to hand over the necessary documents and the possession of the property to the Appropriate Authority. These two orders have been assailed in the present petition by the transferors and the transferees. 4.Heard the learned Counsel for the parties and perused the show cause notices issued by the respondent No.1, valuation reports prepared by respondent Nos. 2, 3 and 4, the replies filed by the petitioners and the affidavits filed on behalf of the parties. 5.It is not in dispute that the total FSI available to the petitioners Nos. 1 and 2 is 890.8 sq. mtrs. and there was some structure on the same and the property was used by petitioners Nos. 1 and 2 for their residence. Petitioners Nos. 1 and 2 hold half share each in the said property and thus FSI available to each of them was 445.4 sq. mtrs. Converted into square feet, the l FSI available to each of them was 3596 sq. ft. As per the agreement, the petitioners Nos. 3 and 4, the petitioners Nos. 3 and 4 would construct one flat having area of 988 sq. ft. at the cost of Rs.6 lakhs. Thus, deducting the FSI used in the flats, FSI available to the purchaser would be 2698 sq. ft. The agreed consideration was Rs.26 lakh, inclusive of the amount of Rs.6 lakh being the cost of construction of the flat to be given to the transferor. As per the valuation report, in respect of the share of petitioner No.1 – Dattaram, in view of deferred payments to the extent of Rs.16 lakh and the payment of Rs.4 lakh as the earnest money the deferred value of the payment after discounting the interest on the deferred payment would be Rs.18,70,340/-. In this amount, they added Rs.6,00,000/- towards cost of construction of the flat and Rs.72,000/- towards 18 months’ rent at the rate of rs.4,000/- per month. The scrap value of the old construction was taken at the rate of Rs.30/- per sq. ft. and was assessed at Rs.36,630/-. Thus, as per the valuation report, the net consideration, including the cost of construction of the flat was Rs.25,05,710/-. 6.The valuation report reveals that as per the agreement with the petitioner No.2 – Pandharinath, he had received Rs.1,00,000/- as earnest money and the balance amount of Rs.19,00,000/- was to be paid in certain instalments within 6 to 30 months. Applying the same formula as was applied in the case of petitioner No.1, the net consideration for the property of the petitioner No.2 was assessed at Rs.25,14,480/- and thus the rate per sq. ft. of available FSI was assessed at Rs.932/-. 7.As per the explanation submitted by the petitioners, the minimum period of construction of the flat was 18 months and the transferees would be liable to provide alternative accommodation to the transferor as long as the construction of the flat was not completed and possession was not handed over to them and this period could also increase taking into consideration several difficulties, which the developer has to face in completion of such projects. It is further contended that the rent was taken at the minimum of Rs.4,000/- but it could also be more than that. Besides this, for taking the property on rent, it would be necessary to give deposit of Rs.2 lakhs for each flat and the interest at the rate of 15% on that deposit has also to be taken into consideration. Thus, as per the petitioners, the rate was not less than Rs.1017/- per sq. ft. of available FSI. 8.To come to the conclusion that the consideration in the present transaction was less than the market value, the Appropriate Authority had quoted three transactions which are shown in Annexure “A” with the show cause notice. All these transactions were approved by the Appropriate Authority. The first transaction was in respect of Bungalow No.6 at Brindavan Park Co-op. Housing Society Ltd. Deonar. The area of the property was 1749 sq. ft. and the rate was Rs.2699/- per sq. ft. of FSI. After deduction of cost of construction and the cost of borrowing, net rate was assessed at Rs.1749/-per sq. ft. That transaction had taken place on 4.3.1994. The second transaction pertains to Bungalow No.2 also in Brindavan Park, CHS Ltd., Deonar. The area was 2012 sq. ft. The agreed rate was Rs.2371/-. After necessary deductions in respect of cost of borrowing and construction, the net rate was found to be Rs.1476/- per sq. ft. This transaction had taken place on 20.3.1994. Third transaction was in respect of land and the structure at Chembur. The available FSI was 2655 sq. ft. and the rate was Rs.1531/- per sq. ft. of FSI. 9.In the reply submitted by the petitioners, it was pointed out that the first two properties were Bungalows in Brindavan Park Co-op. Housing Society. That area is known as Brindavan Bungalow Scheme and it is a very peaceful place surrounded by lush greenery with the hills and rich gentry used to reside in those bungalows. The residents of that area included famous film star Raj Kapoor and his residence is still situated in that Bungalow Scheme. It is contended that property No.3 is situated at a prima location at 20[th] Road, near Chembur Station, which lies in a commercial zone. On the other hand, the property involved in the present transaction is situated at distance of 2.5 kms. away from the railway station. It has a very small frontage. It has also no independent passage. After providing two flats to the transferors under the agreement, there would not be sufficient land for construction of bungalows. Taking into consideration these circumstances, this property cannot be compared with any of the properties shown in the three transactions relied upon by he Appropriate Authority. It is contended that ready houses command a higher rate than the property to be constructed. Besides that, the petitioner Nos. 3 and 4 entered into this transaction to develop the land and naturally they would expect some profit which would again be subjected to heavy income tax. The petitioners also quoted four transactions to show that the consideration in the present transaction was not less than the market rate. Out of them, the first transaction took place on 5.11.1992. It was pertaining the land with existing structure situated at Village Ghatla in Chembur. The property of the petitioners is in the same area. The area of the property was 1893 sq. ft. and the rate was Rs.550/- per sq. ft. of FSI. Other three transactions had taken place in January,February and March, 1994. Transaction No.2 dated 15.1.94 is not relevant because it is pertaining some property in the industrial zone. Transaction No.3 dated 28.2.94 is again situated in Deonar Farm Road, Chembur which is at a short distance from the Bungalow Scheme referred above. The area of the property was shown 2125 sq. mtrs. and the rate was Rs.840/- sq. ft. of FSI. Fourth transaction was dated 28.3.1994 pertaining the land situated in Wadhavali Village, Dr. C.D.Gidwani Marg, Chembur. The property was situated in commercial zone and its price was Rs.600/- per sq. ft. This transaction is also not much relevant though it indicates that during the same period prices in commercial zone were also not more than the consideration in the present case. 1994. Transaction No.2 dated 15.1.94 is not relevant because it is pertaining some property in the industrial zone. Transaction No.3 dated 28.2.94 is again situated in Deonar Farm Road, Chembur which is at a short distance from the Bungalow Scheme referred above. The area of the property was shown 2125 sq. mtrs. and the rate was Rs.840/- sq. ft. of FSI. Fourth transaction was dated 28.3.1994 pertaining the land situated in Wadhavali Village, Dr. C.D.Gidwani Marg, Chembur. The property was situated in commercial zone and its price was Rs.600/- per sq. ft. This transaction is also not much relevant though it indicates that during the same period prices in commercial zone were also not more than the consideration in the present case. 10.From the impugned order, it appears that the transactions referred to and relied upon by the petitioners and particularly the transaction No.3 have not been properly considered by the Appropriate Authority. The Appropriate Authority appears to have taken into considerations the three transactions which were relied upon in the show cause notice. In the affidavit filed by M.P.Ahuja, the Assistant Commissioner of Income Tax on 25.2.2009, it is contended that those transactions were not relied upon. However, on reading para 8 of the 11.The learned Counsel for the petitioners placed on record the sanctioned Development Plan of the `M’ Ward where this property is situated. He pointed out the location of the properties the transactionsin respect of which were relied upon by the Appropriate Authority and those relied upon by the petitioners, The learned Counsel for the respondents contended that this Map was not placed before the Appropriate Authority. On hearing the learned Counsel for the parties, in our opinion, to understand the location of this property and other properties involved in other transactions, this Map would be useful. On perusal of the record, we find that the Appropriate Authority has not properly considered the different transactions relied upon by the petitioners. As pointed out above, there is a conflict as to whether the transactions referred to in the show cause notice were relied upon or not for the purpose of passing the impugned order. The learned Counsel for the petitioners pointed out that in para 8 of the impugned order, the Appropriate Authority,taking into consideration the three transactions referred to in the show cause notice, came to conclusion that the prices ranged between Rs.1476/- per sq. ft. and Rs.1749/- per sq. ft. of the FSI . In view of this, he drew an inference that the fair market value of the subject property must be at least Rs.1200/- per sq. ft. of FSI. If those three transactions would not have been considered not relevant, it would be impossible to draw any inference about the market value of the subject property on the basis of the prices of those properties. On perusal of the impugned order, we find that except the reference to the said prices of those three properties, the Appropriate Authority has not given any reason as to how the market value of the said property could be at Rs.1200/- per sq. ft. The Appropriate Authority noted that since the difference between the fair market value and the apparent consideration is more than 15% as required by the Hon’ble Supreme Court in C.B.Gautam vs. Union of India, it was found to be a fit case for property to be purchased under Section 269 UD(1). As per the calculation made by the Appropriate Authority, the apparent consideration is about Rs.932/- per sq. ft. of FSI. If 15% is added therein, this may come to Rs.1072/-. On the other hand, according to the petitioners, as per their calculations, the consideration was Rs.1017/- per sq.ft. of FSI and if 15% is added thereto, it may come to Rs.1170/- per sq. ft. In view of this, the difference between the fair market price fixed by the Appropriate Authority and the apparent consideration with an addition of 15% is not much. Therefore, it is necessary that the Appropriate Authority should have given valid reasons and the data to come to fix the fair market price was fixed at Rs.1200/- per sq. ft. If it would have been slightly less, possibly the property could not be purchased under Section 269 UD (1). 12.The impugned orders also revealed that in respect of the share of petitioner No.1 – Dattaram, the Appropriate Authority worked out the consideration payable by the Central Government to Rs.18,70,340/-. He observed out out of the amount of consideration of rs.20 lakhs, Rs.4 lakhs were paid as earnest money and payment of the remaining Rs.16 lakhs was deferred and, therefore, discounted value of the deferred payment was worked out at Rs.14,70,340/-. By making addition of Rs.4 lakhs already paid, he determined the consideration to Rs.18,70,340/-. In the case of petitioner N.2 – Pandarinath, the amount of Rs.1 lakh was paid as earnest money and payment of balance amount of Rs.19 lakhs was deferred. The discounted value of the deferred payment was worked out at Rs.17,68,430/-. By adding Rs.1 lakh already paid, the consideration payable by the Central Government was worked out at Rs.18,68,430/- by the Appropriate Authority. As already pointed out, as per the valuation report, net apparent consideration of property of petitioners Nos. 1 and 2 was worked out at Rs.25,05,710/- and Rs.25,14,480/- and that valuation report was basis of the show cause notices. It would show that Appropriate Authority gave conflicting and contrary findings in respect of net apparent consideration and the fair market value to be paid by the Government. It shows non-application of mind by the Appropriate Authority in passing the impugned order. 13.Taking into consideration all these material and the circumstances, we find that the impugned orders passed by the Appropriate Authority under Section 269 UD cannot be sustained. However, in our considered opinion, it will be appropriate to remand the matter back to the Appropriate Authority for hearing the matters afresh by permitting both sides to produce additional material, if any, and to take a final decision on the show cause notices issued to the petitioners Nos. 1 and 2.circumstances, we find that the impugned orders passed by the Appropriate Authority under Section 269 UD cannot be sustained. However, in our considered opinion, it will be appropriate to remand the matter back to the Appropriate Authority for hearing the matters afresh by permitting both sides to produce additional material, if any, and to take a final decision on the show cause notices issued to the petitioners Nos. 1 and 2. 14.For the aforesaid reasons, the impugned orders dated 30.8.1994 passed by the respondent No.1 against the petitioners Nos. 1 and 2 shall stand set aside. However, the matters are remanded back to the respondent No.1 for fresh hearing and disposal as per law. It will not be necessary for the respondent No.1 to issue any fresh notice. The petitioners who have already submitted their reply shall be at liberty to file any additional material, including the sanctioned development plan of the area in support of their contentions. At the same time, the Department shall also be at liberty to place any additional material in support of the show cause notices. The petitioners shall appear before the Appropriate Authority on 6[th] July, 2009 at 11.00 a.m. and the Appropriate Authority shall decide the matter within four months from5c the date of appearance of the petitioners. (J.H.BHATIA,J.) (F.I.REBELLO, J.)