HIGH COURT OF BOMBAY

Hiten Rashmikant Mehta

Union of India

F.I.REBELLO AND J.P.DEVADHAR, JJ.

WRIT PETITION NO. 588 OF 1993

OCTOBER 24, 2007

Section 269C of the Income-tax Act, 1961 - Acquisition of immovable properties - Proceedings for - Whether Chapter XX-A applies not only to transactions where a person has become a member of a society, but also to transactions where a person acquires right to a flat in a society, on account of his acquiring shares relating to a flat in the society by entering into an agreement or arrangement in that benefit and on such transaction Chapter XX-C could not be applicable - Held, yes

Section 269UC of the Income-tax Act, 1961, read with rule 48L of the Income-tax Rules, 1962 - Purchase of immovable property by Central Government - Restrictions on transfer of immovable property - Whether rule 48L(2)(a), which provides that in respect of agreement to transfer entered into before 1-10-1986 (i.e., before coming into force Chapter XX-C) to which Chapter XX-A is not applicable, statement in Form No. 37-I be filed within time stipulated therein, is in conformity and consistent with provision of Act and, therefore, rule 48L is constitutionally valid - Held, yes

Section 269UD of the Income-tax Act, 1961 - Purchase of immovable property by Central Government - Order by appropriate authority - Whether where appropriate authority had not furnished particulars of sale instances relied upon in show cause notice of acquiring petitioner’s immovable property in spite of repeated request by petitioner and appropriate authority had not given any reasons as to why sale instance relied upon by petitioner was not comparable, without furnishing same, appropriate authority could not have passed order of acquiring property in question - Held, yes

FACTS

The petitioners had obtained NOC from the society for transfer of the flat in its favour. Thereupon on 30-8-1986, the petitioners entered into an agreement for purchase of the flat in question from the member for a consideration of Rs. 15,30,000. In the agreement it was recorded that out of the total consideration, the petitioners have paid Rs. 6 lakhs to the member on or before the execution of the said agreement and that the balance consideration of Rs. 9,30,000 would be paid by the petitioners on the date on which possession o the flat in question was handed over to the petitioners. It was further recorded in the agreement that the five shares bearing distinctive Nos. 31 to 35 (both inclusive) of Rs. 50 each which entitled the holder of the said shares the right to use and occupy the flat in question has been handed over to the petitioners and that an irrevocable power of attorney had been executed by the member in favour of the petitioners, so as to enable the petitioners to get the said five shares as well as the flat in question duly transferred to the name of the petitioners. On 26-9-1986, the petitioner filed a statement in Form No. 37EE for registration of the above transaction with the competent authority. In the meantime, the Act was amended with effect from 1-10-1986, by which section 269RR was inserted to the effect that Chapter XX-A would not apply to or in relation to the transfer of immovable property made after 30-9-1986 and Chapter XX-C was inserted empowering the Central Government to purchase immovable properties in certain cases of transfer. On 14-10-1986, the petitioner as a matter of abundant caution, submitted a statement in Form No. 37-I under section 269UC stating that the provisions of Chapter XX-C or rules framed there under were not applicable because the transfer of the said flat was completed prior to 30-9-1986. However, the appropriate authority constituted under Chapter XX-C called upon the petitioners to furnish certain particulars relating to the flat in question. The petitioners furnished the requisite information. Thereafter, without giving an opportunity of hearing to the petitioners, the AA passed an order on 12-12-1986 under section 269UD(1) for purchase of the flat in question. Challenging the said order, the petitioners filed a writ petition in the Court and by way of interim relief, implementation of the purchase order dated 12-12-1986 was stayed. Thereafter, by an ex parte order dated 16-12-1992, the Court, on the basis of a statement made by the revenue set aside the purchase order dated 12-12-1986 and remanded the matter back to the appellate authority for deciding the matter afresh in the light of the decision of the Apex Court in the case of C. B. Gautam v. Union of India [1993] 199 ITR 530. In the meantime the competent authority constituted under Chapter XX-A held that the said flat would not be acquired under Chapter XX-A. But as regards the proceedings under Chapter XX-C, the appropriate authority issued a show cause notice as to why the flat should not be purchased under section 269UD(1) in light of the sale instances set out therein. The petitioner submitted the transfer of the flat in question took place prior to 30-9-1986 and, therefore, Chapter XX-A and not Chapter XX-C was applicable in the case in that once the competent authority held that the said flat would not be acquired under Chapter XX-A, the same could not be purchased under Chapter XX-C, and the petitioner sought particulars of the sale instances set out in the notice. The petitioners referred to sale of a flat on the 7^th floor of the said co-operative housing society on 7-7-1986, in which the flat in question was situated and petitioner was submitted that sale of the said flat which was comparable with the flat, had been approved by the appropriate authority under Chapter XX-C, therefore, it was not proper to initiate proceedings for purchase of the flat. However, the appropriate authority passed order on 15-2-1993 under section 269UD(1) deciding to purchase the flat.

Challenging the said order, as also the constitutional validity of Rule 48L, the petitioner filed the petition.

HELD

Constitutional validity of Rule 48L

Chapter XX-A applies to transactions involving transfer of immovable properties up to 30-9-1986 and Chapter XX-C applies to transactions involving transfer of immovable properties made or effected from 1-10-1986. Rule 48DD prescribes the time limit for filing statement in Form No.37EE in respect of transactions covered under Chapter XX-A and rule 48L prescribes the time limit for filing statement in Form No. 37I in respect of transactions covered under Chapter XX-C. (PARA 17)

The petitioner submitted that rule 48L(2) insofar as it applies to the agreement for transfer entered into before 1-10-1986 is unconstitutional. The argument was that when Chapter XX-C applies to the transfer of immovable property made from 1-10-1986, rule 48L which is a machinery provision for implementing the provisions of Chapter XX-C cannot provide that Chapter XX-C would apply to transfers made before 1-10-1986. There was no merit in that contention because rule 48L(2)(a) applies to those agreement for transfer which are entered into before 1-10-1986 to which Chapter XX-A is not applicable. (PARA 18)

As per section 269A(h)(ii), the term ‘transfer’ in Chapter XX-A includes transactions such as, (a) becoming a member of acquiring shares in a co-operative society, company or other association of persons, or (b) entering into any agreement or any arrangement which has the effect of transferring or enabling the enjoyment in respect of a building or a part of a building. In other words, Chapter XX-A inter alia applies to transactions, where a person, pursuant to an agreement for transfer of shares acquires any right in respect of a flat in a co-operative society. Obviously, the transactions entered into by and between the parties up to 30-9-1986 which do not have the effect of transferring or enabling the enjoyment of the immovable property, would not be covered under Chapter XX-A. Since Chapter XX-C came into force with effect from 1-10-1986, rule 48L(2)(a) provides that in respect of agreement to transfer entered in to before 1-10-1986 to which Chapter XX-A is not applicable, statement in Form No. 37-I be filed within the time stipulated therein. Thus, rule 48L is in conformity and consistent with the provisions of the Act. Consequently, the challenge to the constitutional validity of rule 48L rule must fail. (PARA 19)

Whether the agreement dated 30-8-1986 had the effect of transferring the flat in question in favour of petitioners so as to attract provisions of Chapter XX-A

The revenue submitted that in the instant case, the possession of the flat in question was received by the petitioners on payment of the balance consideration after 1-10-1986, the society had transferred the flat in favour of the petitioner after 1-10-1986 and, therefore, transfer of the flat in question took place after 1-10-1986 and, hence, Chapter XX-C was applicable in the instant case. (PARA 22)

It was difficult to accept the argument of the revenue, because Chapter XX-A applies not only to the transactions relating to transfer of immovable properties but also to transactions, where a person acquires any right in or with respect to any building or part of a building by becoming a member or acquiring shares in a co-operative society, company or other association of persons, or by entering into any agreement or arrangement in that behalf. In other words, Chapter XX-A applies not only to the transactions where a person has become a member of a society, but also to the transactions where a person acquires right to a flat in a society, on account of his acquiring shares relating to a flat in the society by entering into an agreement or arrangement. In the instant case, the society had already approved transfer of the flat in question by the member in favour of the petitioners. The petitioners on payment of part of the sale consideration had been put in possession of the five shares relating to the flat in question along with the duly filled in transfer form, and the vendor had executed an irrevocable power of attorney in favour of the petitioners for completing the transaction. In those circumstances, the transaction in question would be squarely covered by the provisions of Chapter XX-A. (PARA 23)

The argument of the revenue that the petitioners were put in possession of the flat in question after 1-10-1986 and, therefore, Chapter XX-C would be applicable to the case of the petitioners could not be accepted, because section 269A(h) read with section 269AB of the Act expressly provide that, where a person acquires any right in respect of a flat in a co-operative society on account of his entering in to an agreement or arrangement in that behalf, then such transaction would be covered under Chapter XX-A. Therefore, in the facts of the instant case, irrespective of the fact that the petitioners were put in possession of the flat in question after 1-10-1986, in view of the fact that the petitioner acquired a right in respect of the flat in question on account of their entering into an agreement prior to 1-10-1986, the transaction would be clearly covered by the provisions of Chapter XX-A. (PARA 26)

Assuming that Chapter XX-C would apply to the facts of the instant case, on merits, the impugned order could not be sustained. As held by the Supreme Court in the case of C. B. Gautam (supra), the provisions of Chapter XX-C can be resorted to only when there is a significant under valuation to the extent of 152 of the fair market value with a view to evade tax. In the instant case, on perusal of the impugned order, it was seen that the fair market value of the flat in question had not been determined at all and, therefore, purchase of the flat in question on the footing that there was under valuation to the extent of 15 per cent of the fair market value had to be held to be without any basis. (PARA 27)

Moreover, in the instant case admittedly, the appropriate authority had not furnished the particulars of sale instances relied upon in the show cause notice in spite of repeated letters addressed by the petitioners in that behalf. Without furnishing the particulars of the sale instances set out in the show cause notice, the appropriate authority could not have passed the impugned order in breach of the principles of natural justice and had not given any reasons as to why the sale instance relied upon by the petitioners was not comparable. (PARA 28)

Thus in view of above, the impugned order was to be set aside and the petition was to be allowed.

CASE REVIEW:

Decision of the Madras High Court in K.K. Anandam Anand v. Union of India [1995] 212 ITR 9/[1994] 76 Taxman 53.

Decision of the Gujrat High Court in Shantivan Corpn. v. Sub-Registrar [1991] 189 ITR 583/55 Taxman 394 distinguished on facts.