A notice served on the transferor or transferee before the initiation of proceedings for acquisition of property under Section 269D of the Income-tax Act, 1961, is illegal and all subsequent proceedings including the order acquiring the property are vitiated.

N.K.Sodhi, J.

1. This appeal filed by the Commissioner of Income-tax under Section 269H of the Income-tax Act, 1961 (for short, "the Act"), is directed against the order dated October 21, 1978, of the Income-tax Appellate Tribunal, Chandigarh, whereby the order of acquisition passed by the competent authority acquiring the property in dispute under Section 269F(6) of the Act was set aside and the two appeals filed by the transferor and the transferee allowed.

2. The facts giving rise to this appeal which are not in dispute may first be noticed. Shop-cum-flat No. 26 in the Vegetable Market at Chandigarh was sold by Des Raj Gupta, respondent No. 1, to Smt. Ram Piari, wife of Kesar Singh Lamba, respondent No. 2, as per sale deed dated February 23, 1973, for an apparent consideration of Rs. 91,000. The competent authority had reason to believe that the apparent consideration was less than the fair market value of the property and a reference was, therefore, made to the Valuation Officer, Chandigarh, to determine the said value of the property so transferred. As per his report, the fair market value was Rs. 1,28,750. On receipt of this report, the competent authority initiated proceedings for acquiring the aforesaid property and accordingly notice under Section 269D(1) of the Act was sent on July 26, 1973, for publication in the Official Gazette. It was published on August 11, 1973. A copy of that notice was served on the transferor and the transferee on July 30, 1973, and a copy thereof was also pasted on a conspicuous part of the property on August 20, 1973. The transferor and the transferee filed their objections on September 10, 1973, and October 5, 1973, respectively, and after hearing the parties, the competent authority made an order dated March 30, 1978, for acquisition of the property. It is common ground between the parties that the aforesaid shop-cum-flat had been rented out to Kesar Singh Lamba and Sons on a monthly rent of Rs. 400 and that a rent note dated March 1, 1973, was executed between the landlord and the tenant. It is also not in dispute that the competent authority while acquiring the property did not issue any notice to the tenant, namely, Kesar Singh Lamba and Sons. Being aggrieved by the order of acquisition, the transferor and the transferee both filed separate appeals which were disposed of by the Appellate Tribunal by a common order dated October 21, 1978. The Tribunal did not hear the parties on the merits as it was of the opinion that the mandatory provisions of Section 269D(2) of the Act had not been complied with. The appeals were allowed and the order of acquisition was set aside on the two grounds reproduced hereunder :

"(a) That there being no issue of notice to the person in possession of tire property, the initiation of the proceedings as provided under Section 269D of the Act was not complete and, therefore, acquisition proceedings were void ab initio.

(b) That no order could be passed without complying with the mandatory provisions of Section 269D(2) of the Act and service on the person in possession of the property being a must, the order passed is bad,"

3. Mr. R.P. Sawhney, learned counsel for the Department, has strenuously urged that the Tribunal was not right in setting aside the order of acquisition merely because notice under Section 269D(2) of the Act had not been served on the tenant. He contended that even though it was necessary to serve the tenant yet the order could not be set aside because the tenant did not challenge the order of acquisition before the Tribunal and the transferor and the transferee both of whom had been personally served could not assail the acquisition proceedings on the ground of non-service of notice on the tenant. There is merit in this contention.

4. It is true that under Sub-section (2) of Section 269D of the Act, a notice had to be served on the person in occupation of the property sought to be acquired under Chapter XX-A of the Act. This