ORDER UNDER S. 269UD–Validity.
Ratio :
The impugned order under section 269UD is set aside
having been passed without application of mind by the appropriate
authority and arbitrarily in the circumstances of the case.
Held :
The terrace is not accounted for in the built-up
area for calculation of the rate. Once this aspect is admitted by
the appropriate authority, it was apparent that the initiation of
proceedings under Chapter XX-C was without any basis. In view of
the aforesaid clarification, it is clear that the pruchaser is
not entitled to the exclusive use of the terrace. There is no
question of any balance F. S. I. because the petitioner has
purchased only a flat and not a bunglow. In the impugned order,
the Appropriate Authority has straight way stated that looking
to all the apsects of the case, it was of the view that the fair
market value of the subject property is Rs. 46 lakhs on the date
of the agreement, giving a market rate of Rs. 3,415.00 per square
foot as against the disclosed consideration of Rs. 38,00,000.00.
for arriving at this calculation, the Appropriate Authority has
not stated upon which sale instance it had relied upon for
holding that the value of the property on the date of the
agreement to sell would be Rs. 46 lakhs as against the disclosed
consideration of Rs. 38 lakhs. It is true that in the show cause
notice, the appropriate authority has referred to all the eight
sale instances. But in the show cuase notice, it is now where
mentioned that the appropriate authority is relying upon a
particular sale instance or arriving at a conclusion that the
fair market value of the property under question would be Rs. 46
lacs. In any set of circumstances, it cannot be inferred that the
petitioner has purchased the property by under-valuing the
considertaion or that the apparent consideration is less than 15%
of the fair market value of the property under purchase. In this
view of the matter, the impugned order is without application of
mind and, therefore, arbitrary and hence is required to be set
aside.
Application :
Also to current assessment year.
Income Tax Act 1961 s.269UD
JUDGMENT
M.B. Shah, C.J.
1. The petitioner, who is the purchaser of flat No. 2 situate on the first floor of the building called “Garden Homes”, Khar, Bombay, has challenged the order of compulsory purchase, dt. 25th March, 1994, passed by the Appropriate Authority, Bombay. By the impugned order, the Appropriate Authority arrived at the conclusion that the fair market value of the subject property is Rs. 46 lakhs on the date of the agreement (22nd June, 1992) as against the disclosed consideration of Rs. 38 lakhs and, therefore, the difference is much more than 15 per cent.
2. The aforesaid order is passed with regard to a residential flat, being flat No. 2, admeasuring 1,347 sq. ft. on the first floor of “Garden Homes”, Khar, Bombay. It is the contention of the petitioner that he was the owner of another flat situated at Worli and that in June, 1992, he entered into an agreement for the sale of the said flat for a consideration of Rs. 45 lakhs and in view of the provisions of s. 54 of the IT Act, 1961 (hereinafter referred to as “the Act”), the petitioner was required to invest the sale proceeds in another residential flat to obtain tax benefits. Hence, on 22nd June, 1992, the petitioner entered into an agreement for the purchase of the flat in question from respondents Nos. 5 and 6 for a consideration of Rs. 38 lakhs. The petitioner paid Rs. 3.80 lakhs as earnest money. As per the agreement, the balance was required to be paid within a period of 15 days from the date of receipt of the NOC from the IT authorities under Chapter XX-C of the Act. On 23rd June, 1992, the petitioner and respondents Nos. 5 and 6 filled in Form No. 37-I. It is the contention of the petitioner that on 23rd June, 1992, the property was inspected by the Valuation Officer and in the valuation report he deducted an amount of Rs. 65,151 as discount for 120 days which would be the time to be taken by the Appropriate Authority for passing an order under Chapter XX-C and for paying the consideration. He also deducted Rs. 1.5 lakhs as the price of the garage; Rs. 60,000 as the price of fixtures and Rs. 5,000 as transfer fees; thus according to the Valuation Officer the discounted amount of consideration was Rs. 35,19,849 for the flat admeasuring 1,347 sq. ft. which works out at the rate of Rs. 2,613 per sq. ft. The valuation report is produced on record at Ext. “D” to the petition. The Valuation Officer has made the following endorsement on the valuation report :
“7.7. Having regard to sale instances given on p. 6 and also considering some appreciation, I am of the opinion that the declared rate of Rs. 2,613 per sq. ft. of the subject bungalow is not grossly understated”.
The basis for initiation of the proceedings under Chapter XX-C was because of the following endorsement made on behalf of the Appropriate Authority below the aforesaid report :
“What about terrace ? It is not accounted for in B.U.A. rate calculation. Any balance FSI ?”
In view of the aforesaid endorsement, the Appropriate Authority passed an order, dt. 27th August, 1992, for compulsory purchase of the aforesaid flat under Chapter XX-C of the Act. The petitioner challenged the said order by filing Writ Petition No. 2096 of 1992.
By an interim order, dt. 29th September, 1992, the Division Bench of this Court restrained respondents Nos. 1 and 2 from tendering the amount payable under s. 269UF(2) till the petition was heard for admission. Thereafter, on 30th September, 1992, the order was modified to the extent that the amount payable under s. 269UF(2) was directed to be deposited with the prothonotary and senior master on or before 6th October, 1992, and the prothonotary and senior master was directed to invest the said amount in a nationalised bank.
On 31st January, 1994, the aforesaid Writ Petition No. 2096 of 1992 was admitted. The Court directed the petitioner to deposit in the Court Rs. 38 lakhs, less Rs. 3.80 lakhs which has been paid to the vendor as earnest money. It was also directed that if the amount is deposited as aforesaid, respondents Nos. 1 and 2 shall give a hearing to the petitioner and pass a fresh order on or before 31st March, 1994, provided the petitioner co-operates.
In view of the aforesaid order passed by this Court, on 28th February, 1994, a show-cause notice was issued by the Appropriate Authority which is produced on record and after hearing the petitioner and the vendor, the impugned order, dt. 25th March, 1994, was passed. That order was challenged by filing the present petition on 21st April, 1994. Subsequently, on 27th July, 1994, the earlier Writ Petition No. 2096 of 1992, which had challenged the order of compulsory purchase, dt. 27th August, 1992, was withdrawn.
3. At the time of hearing of this petition, learned counsel for the petitioner vehemently submitted that the impugned order passed by the Appropriate Authority is arbitrary and that the sale instances relied upon by it clearly established that there is no undervaluation or, in any case, it is not more than 15 per cent. of the fair market value arrived at by the Appropriate Authority. In the present case, the Appropriate Authority has, while passing the first order, relied on the following three sale instances :
———————————————————————-
ANALYSIS OF THE COMPARABLE THREE INSTANCES RELIED UPON BY THE
VALUATION OFFICER, APPROPRIATE AUTHORITY
———————————————————————-
Case No. Details of Value Built up Rate per Rate per
and Date property (Rs.) area sq. ft. sq. ft.
sq. ft. less 15
per cent.
----------------------------------------------------------------------
7808 Bungalow 41,50,000 1,519 2,679 2,277
No. 8 ---------
(26-7-91) Golden 40,69,993
Acres, Ruia (discounted)
Park, Juhu
7871 Bungalow 58,50,000 2,620 2,183 1,855
No. 4 ---------
(21-8-91) Golden 57,45,244
Beach (discounted)
Bungalow
Society
Ruia Park
8145 Bungalow 48,00,000 2,136 2,236 1,900
No. 7 ---------
(10-9-91) Silver 47,75,558
Sand, Juhu (discounted)
Tara Rd.
----------------------------------------------------------------------
Subsequently, the Appropriate Authority has not relied upon the aforesaid sale instances, but has relied upon the following five sale instances :
———————————————————————-
Case No. Chronological Name of Built up Market Less 15
and Date Sl. No. building area rate per cent.
sq. ft. (Rs.) net rate
(Rs.)
----------------------------------------------------------------------
9118 III Flat No. 1,166 3,109 2,642
(31-3-1992) 501, 5th
Shangrilla
Khar
(Actually
it is at
Bandra)
8482 II 601 and 602 504 3,610 3,068
(16-12-1991) Mangal Mitra,
16th Road,
Khar, 6th
Floor
8323 I Half flat, 486 3,039 2,583
7th Fl.
702 Link-way,
Khar
9436 V Flat No. 10, 867 3,353 2,850
(26-5-1992) 2nd Fl.
Nugget, Khar
9244/95 IV Flat No. 51, 1,380 4,218 3,585
(24-4-1992) Chitrakoot,
14th Road,
Khar
----------------------------------------------------------------------
At this stage, we would further note that in the impugned order, in para. 7, the competent authority has clarified as under :
“The second confusion is regarding the terrace. During the course of our inspection, we found that there was a terrace above, but the same is not exclusive to the subject property. This is for common use. The reference to the two terraces which was subsequently rectified as one terrace in the order, dt. 24th/25th September, 1992, is inadvertent which occurred in the order because of the description given in column No. 7 of Form No. 37-I where the description of the property is given as bungalow No. 2 with terrace. While passing the first order, perhaps the number of the bungalow, viz., 2 was wrongly attached with terrace, thus describing the property as bungalow with two terraces. Subsequently, this was rectified as one terrace. In fact, as stated earlier, though there is terrace above but this is not attached with the subject property exclusively. It seems that while inspecting the property at the time of passing the first order, dt. 27th August, 1992, the portion of balcony was taken as terrace. Be that as it may, on our inspection, we found that the subject property consists of three bed rooms, one kitchen, one drawing-cum-dining room and one closed balcony, two toilets (one attached) and a servant toilet. The built-up area is the same as given in the report of the Valuation Officer. With this preliminary clarifications, we may now deal with the arguments of the learned Representatives.”
Further, it is also clarified that the terrace is not accounted for in the built-up area for calculation of the rate.
Once this aspect is admitted by the Appropriate Authority, in our view, it was apparent that the initiation of proceedings under Chapter XX-C was without any basis. In view of the aforesaid clarification, it is clear that the purchaser is not entitled to the exclusive use of the terrace. There is no question of any balance FSI because the petitioner has purchased only a flat and not a bungalow.
In the impugned order, the Appropriate Authority has straightaway stated that looking to all the aspects of the case, it was of the view that the fair market value of the subject property is Rs. 46 lakhs on the date of the agreement, giving a market rate of Rs. 3,415 per sq. ft. as against the disclosed consideration of Rs. 38,00,000. For arriving at this calculation, the Appropriate Authority has not stated upon which sale instance it had relied for holding that the value of the property on the date of the agreement to sell would be Rs. 46 lakhs as against the disclosed consideration of Rs. 38 lakhs. However, learned counsel for the respondents submitted that the Appropriate Authority has relied upon the sale instances which are referred to in the show-cause notice. It is true that in the show-cause notice, the Appropriate Authority has referred to all the aforesaid eight sale instances. But in the show-cause notice, it is nowhere mentioned that the Appropriate Authority is relying upon a particular sale instance for arriving at a conclusion that the fair market value of the property under question would be Rs. 46 lakhs. We do not know whether the Appropriate Authority has determined the fair market value of the property at Rs. 46 lakhs by averaging the rate of all the eight sale instances or by referring to any one particular sale instance.
In any set of circumstances, considering the aforesaid eight sale instances and the fact that the discounted rate per sq. ft. of the property under purchase comes to Rs. 2,613, and that out of eight sale instances, the price is more than that of the five sale instances referred to and relied upon by the Appropriate Authority, it cannot be inferred that the petitioner has purchased the property by undervaluing the consideration or that the apparent consideration is less than 15 per cent. of the fair market value of the property under purchase.
We further note that with regard to the first three sale instances on the basis of which the first order was passed, they clearly indicate that the apparent consideration paid by the petitioner was the fair market rate per sq. ft. We would also note that the sale instances were with regard to bungalows while the petitioner has purchased a flat.
As against this, learned counsel for the respondents referred to and relied upon the sale instance, dt. 24th April, 1992, which indicates that flat No. 51 in Chitrakoot, Khar, Bombay, admeasuring 1,380 sq. ft., was sold at the rate of Rs. 4,218 per sq. ft. However, we fail to appreciate this contention because the Appropriate Authority has not specifically relied upon the said sale instance for arriving at the conclusion that the fair market value of the subject property would be Rs. 46 lakhs on the basis of the said sale instance.
In this view of the matter, the impugned order is without application of mind and, therefore, arbitrary and hence is required to be set aside.
4. However, at this stage, learned counsel for respondents Nos. 5 and 6 raised a contention that because of the interim order passed by this Court, respondents Nos. 5 and 6 were deprived of their money for a period of 21 months. With regard to calculation of 21 months, there is no dispute between the parties. It is also an admitted fact that respondents Nos. 5 and 6 withdrew the amount deposited by the petitioner on the basis of the order passed by this Court on 31st January, 1994. Learned counsel for respondents Nos. 5 and 6, therefore, submitted that the petitioner should be directed to pay interest on the balance purchase price with interest at the rate of 20 per cent. per annum and for this purpose he relied upon the following paragraph from the decision rendered by the Supreme Court in the case of Rajalakshmi Narayanan vs. Margaret Kathleen Gandhi (1993) 201 ITR 681 (SC) : TC 6PS141.
“We may clarify that whether interest should be paid to the owner of an immovable property who has entered into an agreement to sell the same which cannot be completed by reason of an order of purchase under s. 269UD of the IT Act and at what rate, will have to be decided in the facts and circumstances of each case. All that can be observed by way of a general principle is that where such a seller has raised no objection or obstruction either to the purchase of his property by an order under s. 269UD or to the completion to the agreement of sale entered into by him but is unable to get the purchase price by reason of the said order and the stay order or orders passed by a Court, interest at an appropriate rate can, if equity so requires, be paid to him.”
Considering the aforesaid decision, learned counsel for the petitioner states that the petitioner should pay interest to the vendor at the rate which may be determined by this Court.
5. In the result, the petition is allowed. The impugned order, dt. 25th March, 1994 (Ext. “H” to the petition), is quashed and set aside. The Appropriate Authority is directed to hand over possession of the flat in question to the petitioner within a period of 15 days from today. The petitioner is directed to pay to respondents Nos. 5 and 6 interest at the rate of 20 per cent. per annum on the balance purchase price of Rs. 34,20,000, for a period of 21 months within a period of one month from today. It is clarified that it would be open to the Appropriate Authority to withdraw the amount deposited by them in this Court with interest accrued thereon.
Learned counsel for respondents Nos. 5 and 6 states that respondents Nos. 5 and 6 would execute the necessary documents for the sale of the said flat in favour of the petitioner.
6. Rule is made absolute with no order as to costs.
