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2000 Supreme(Cal) 558
High Court Of Calcutta
SEN GUPTA
LYTTON HOTEL PVT.LTD. - Appellant
Versus
APPROPRIATE AUTHORITY - Respondent
W. P. 1833 Of 1993
Decided On : 11/15/2000
GOUTAM CHAKRABORTY
In proceedings for pre-emptive purchase of property under Section 269ud of the Income-tax Act, 1961, the show-cause notice must spell out the basis for the presumption of undervaluation and the materials on which such findings were arrived at, in accordance with the principles of natural justice. The final order for pre-emptive purchase must record satisfaction as to the undervaluation and evasion of taxes, and the method of valuation used must be legally acceptable, particularly for tenanted properties.
Headnote:
INCOME TAX - PRE-EMPTIVE PURCHASE OF PROPERTY - VALIDITY OF SHOW-CAUSE NOTICE AND FINAL ORDER - REQUIREMENT OF TENTATIVE FINDINGS AND BASIS FOR PRESUMPTION OF UNDERVALUATION - METHOD OF VALUATION - PRINCIPLES OF NATURAL JUSTICE.
Fact of the Case:
The petitioner challenged an order passed by the Appropriate Authority under Section 269ud(1) of the Income-tax Act, 1961, holding that there was an understatement of apparent consideration in the property in question and exercising pre-emptive purchase. The petitioner contended that the show-cause notice did not contain any particulars, materials, or reasons for the proposed purchase, violating natural justice principles. It was also argued that the condition precedent for initiating proceedings under Section 269ud(1) was not satisfied as there was no finding that the alleged undervaluation was made with an intent to evade tax.
Finding of the Court:
The court held that the show-cause notice did not mention any tentative findings or basis for concluding that the apparent consideration was understated by 15% or more of the market price, as required by judicial pronouncements. However, the court found that the petitioner was not affected by this omission as they had produced materials to rebut the presumption of undervaluation before the appropriate authority. Regarding the final order, the court held that the appropriate authority did not record any satisfaction as to the undervaluation and evasion of taxes, as required by law. The court also found that the method of valuation used by the departmental engineer, based on comparable sale instances, was not legally acceptable for a tenanted property.
Issues: 1. Whether the show-cause notice issued for pre-emptive purchase under Section 269ud was valid and complied with the principles of natural justice. 2. Whether the final order for pre-emptive purchase was legally sustainable in the absence of satisfaction recorded as to undervaluation and evasion of taxes. 3. Whether the method of valuation used by the departmental engineer was legally acceptable for a tenanted property.
Ratio Decidendi: 1. The court held that the show-cause notice was not vitiated by the omission to record tentative findings or basis for concluding undervaluation, as the petitioner was not affected by this omission. However, the court emphasized the importance of compliance with natural justice principles, requiring the show-cause notice to spell out the basis for the presumption of undervaluation and the materials on which such findings were arrived at. 2. The court held that the final order for pre-emptive purchase was not sustainable as the appropriate authority did not record any satisfaction as to the undervaluation and evasion of taxes, as required by law. The court also found that the method of valuation used by the departmental engineer, based on comparable sale instances, was not legally acceptable for a tenanted property, as it did not reflect the true market value.
Final Decision: The court set aside the impugned order exercising pre-emptive purchase and directed the respondent authority to issue a no-objection certificate in terms of Section 269ul(3) of the Income-tax Act, 1961.
( 1 ) THE petitioner in this writ application has challenged an order dated July 29, 1993, passed by the Appropriate Authority of the Income-tax Department, Calcutta (respondent No. 1 herein), under Section 269ud (1) of the Income-tax Act, 1961 (hereinafter referred to as "the said Act" ).
( 2 ) BY the said impugned order it has been held by the respondents that there has been understatement of apparent consideration in the property in question being premises No. 14/1, Sudder Street, Calcutta, and it was a fit case to exercise pre-emptive purchase as laid down in Chapter XX-C of the said Act.
( 3 ) THE short fact of the case is that respondent No, 5 being the present owner by and under an agreement in writing dated May 21, 1995, agreed to sell and the writ petitioner herein agreed to purchase the said property at consideration of Rs. 75. 05 lakhs subject to existing tenancy and other terms and conditions as contained in the agreement. The said property is encumbered with the monthly tenancy created by respondent No. 5 in favour of the pro forma respondents Nos. 6 and 7 who were once sought to be evicted unsuccessfully. The property in question in wakf property. So the Joint Charity Commissioner, Vadodara Division, Gujarat, with whom the wakf is registered had to and indeed permitted to sell the said property by an order dated August 17, 1992, read with order dated June 4, 1993. The said order was passed at the instance of respondent No. 5 permitting to sell the same at Rs. 75. 05 lakhs to the petitioner. Before the said order was passed, it had been advertized in two newspapers inviting offers. Pursuant to the said advertisement, the petitioner applied to the said Commissioner.
( 4 ) ON or about July 26, 1995, a show cause notice dated July 21, 1993, was issued by respondent No. 1. The writ petitioner filed an objection to the said notice dated July 21, 1993. After having considered the reply to the said show cause the aforesaid impugned order was passed.
( 5 ) MR. Goutam Chakraborty, senior advocate, contends for the petitioner that in the instant case show-cause notice pursuant to which the proceedings were initiated and the said impugned order passed contains no particulars or materials or reasons as to why the said property was proposed to be purchased by respondent No. 1. There is not even mentioned therein that the property was being sought to be purchased for the reasons that are the requirement under the provisions of the said Act for such pre-emptive purchase as held by the Supreme Court in C. B. Gautam v. Union of India.
( 6 ) THE entire proceedings including the said impugned order are violative of the principles of natural justice and thus illegal, invalid and bad. In this connection, he has relied on the following decisions : vysya Bank Ltd. v. Appropriate Authority of Income-tax, read with Appropriate Authority of Income-tax v. Vysya Bank Ltd. Shreyas Builders v. M. D. Kod-nani [2000] 242 ITR 320 (Bom) ; Jagdish Electronics (India) Pvt. Ltd. v. Appropriate Authority [2000] 242 ITR 326 (Bom) ; Lily Shavak Doctor v. Union of India. He further contends that the condition precedent for initiation of any proceedings for purchase of immovable property under Section 269ud (1) of the said Act is that the appropriate authority has to be satisfied that there is a significant undervaluation by 15 per cent, or more of the market value of the property and that such undervaluation has been with a view to evade tax. The show-cause notice issued in the instant case would ex facie demonstrate that this condition precedent had not been satisfied in the instant case. There is no observation nor allegation that there was any undervaluation of the property by 15 per cent, or more of the market value. Moreover, there was also no allegation therein that there was any alleged undervaluation of the property and that too with a view to evade tax. In the premises respondent No. 1 had no right, authority or jurisdiction t
