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CASE NO.:

Appeal (civil) 1415-1416 of 2000

PETITIONER:

SRI K.V. SHIVAKUMAR AND ANR.

RESPONDENT:

APPROPRIATE AUTHORITY AND ORS.

DATE OF JUDGMENT: 17/02/2000

BENCH:

S.B. MAJMUDAR & D.P. MOHAPATRA & R.P. SETHI

JUDGMENT:

JUDGMENT

2000 (1) SCR 991

The Judgment of the Court was delivered by

D.P. MOHAPATRA, J. Leave granted in Special Leave Petition (Civil) Nos.

13085-86/1996.

All the cases were heard together with the consent of the parties and are

being disposed of by this judgment.

The controversy raised in these cases relate to the validity of the pre-

emptive purchase of a building in the city of Bangalore under Section 269-

UE of the Income Tax Act, 1961 (for short 'the Act') and its sale by the

Central Government. This is the second round of this litigation to this

Court. The exercise which started towards the end of 1990 is yet to reach

finality.

The property in controversy is a double storied building bearing Nos. 775

to 809 situated at Old Taluk Cutchery Road, Bangalore. It consists of shops

presently in occupation of tenants. M/s. Vidyavati Kapoor Trust represented

by Mohan Lal Kapoor entered into an agreement with M/s. Rajatha Trust

represented by Shiv Kumar on 28.11.1990 for sale of the said property for a

consideration of Rs. 1,55,00,000. When transferor and the transferee

jointly submitted application in the prescribed form to the Appropriate

Authority under Section 269-UC of the Act, action for pre-emptive purchase

of the property was taken by the Appropriate Authority. The Authority being

prima facie satisfied that the property has been under valued with a view

to evade tax initiated action for pre-emptive purchase of the property by

the Central Government by the Order dated 24th June, 1991. The Appropriate

Authority directed that the property be purchased by the Central Government

at a discounted value of Rs. 1,50,17,084. The proposed transferor and

transferee challenged the said order in Writ Petition Nos. 5614 and 6516 of

1991 before Karnataka High Court. Both the writ petitions were dismissed by

the single Judge by the Order dated April 19, 1991. The writ petitioners

preferred Writ Appeal Nos, 1297 and 1318 of 1991 before Division Bench of

the High Court. The appeals were dismissed by the Division Bench by

judgment dated August 23, 1991. A Certificate of fitness for filing appeal

before the Supreme Court was however, granted by the Division Bench. The

transferor preferred Civil Appeal No. 3849 of 1991 before this Court. By

order dated 13th March, 1996, a Bench of three learned judges of this Court

allowed the appeal relying on the decision of the Constitution Bench in

C.B. Gautam v. Union of India & Others, [93] 1 SCC 78. Since it will be

necessary to refer to the said order later in this judgment, the order is

quoted in extenso :

"Order

This appeal by Certificate is against the decision of the Karnataka High

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Court reported in 194 ITR 584 (Vidyavati Kapoor Trust v. Chief Commissioner

of Income Tax and Ors.) which was affirmed by the Division Bench of that

Court in 194 ITR 593. During the pending of this appeal, the Constitution

Bench of this Court in C.B. Gautam v. Union of India and Ors., [1993] 1 SCC

78 has overruled the impugned judgment of the Karnataka High Court stating

clearly that the view taken in the impugned judgment of the Karnataka High

Court does not lay down the correct Jaw. This being so, the impugned

judgment has to be reversed following the decision of the Constitution

Bench in C.B. Gautam's case.

Learned counsel for D.P. Sharma, the 4th respondent, who is stated to be

one of the three joint purchasers during the interreg-num and who claimed

that the sale has been confirmed in their favour during the pending of this

appeal, submitted that the trans-action in their favour being complete, in

view of clarification made in para 43 of the decision in C.B. Gautam's

case, no interference should be made in this appeal for this reason. We are

unable to accept this submission. The other alleged joint purchasers are

not before us and all the necessary facts to enable us to take the view

that transaction in the present case falls within the category specified in

para 43 of the decision in C.B. Gautam's case are not before us. We are,

therefore, unable to hold that notwithstanding the overruling of the

impugned judgment by the Constitution Bench in C.B. Gautam's case, this

appeal should not be allowed and the transaction should remain unaffected.

We may, however, observe that whatever remedy is available to the alleged

purchaser for recovery of the amount, if any, paid by him, would remain

unaffected by this decision.

Accordingly, the appeal is allowed. No costs."

After the two writ petitions filed by the transferor and the transferee

were dismissed by the single Judge of the High Court, the Central Govern-

ment, in whom the property vested in pursuance of the order passed by the

Appropriate Authority under Section 269-UD read with Section 269-UE of the

Act, put up the property for auction sale. In the sale notice it was

recited, inter alia that the property which is to be sold under Lot No. 6

is free from encumbrances except that it is occupied by tenants. In the

auction held on 28th June, 1991 K,V. Shivakumar who is one of the trustees

of M/s. Rajatha Trust gave the highest bid of Rs. 2,77,00,000. The bid was

accepted. The auction purchaser deposited 25% of the bid amount, i.e. Rs.

47,01,000. The balance amount was to be paid by 22nd September, 1991.

Though the auction purchaser was repeatedly reminded to deposit the balance

amount of about Rs, 2,30,00,000 he failed to pay the said amount.

On September 19, 1991, the auction purchaser filed Writ Petition No. 20686

of 1991 in the High Court of Karnataka seeking a direction to the

Appropriate Authority and the Chief Commissioner of Income Tax to evict the

tenants from the property ia question by taking recourse to the provisions

of Section 269-UE of the Act and for a direction to the Authority to

deliver vacant possession of the property to him within a reasonable

period; alternatively the writ petitioner prayed that in case the Central

Government cannot comply with the demand of the auction pur-chaser then it

should refund the amount of Rs. 47,00,000 with interest @ 15 per cent per

annum. One T.N. Omesh claiming to be nominee of the auction purchaser

instituted Writ Petition No. 20687 of 1991 seeking identical reliefs. Both

the writ petitions were disposed of by the judgment dated 26th March, 1992,

rendered by a single Judge, holding, inter alia, that the writ petitioners

were not entitled to any relief in exercise of jurisdiction under Article

226 of the Constitution, The learned single Judge held that the auction

purchaser was fully conscious that the property was in occupation of

tenants and it would not be possible for the Authority to deliver vacant

possession of the property. The learned Judge further held that the auction

purchaser having committed default in payment of the balance bid amount is

not entitled to seek the relief sought in the writ petitions. The judgment

of the learned single Judge was subject matter of Writ Appeal Nos. 696 and

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697 of 1992 filed by K.V. Shivakumar and T.N. Umesh. The appeals were

dismissed by the Division Bench of the High Court by the judgment dated

15.2,1996. The said judgment was challenged before this Court in Special

Leave Petition (C) Nos. 13085-13086 of 1996. In these cases this Court by

Order dated 22.7.1996 issued notice to the respondents indicating that the

matter would be disposed of finally at the notice stage itself.

During pendency of these cases in this Court M/s,.Vidyavathi Kapoor Trust

represented by Kamal K. Kapoor filed Writ Petition No. 33470 of 1996 in the

High Court of Karnataka seeking a writ of certiorari quashing the order

dated 28.11.1996 passed by the Appropriate Authority under Section 269-

UD(l) of the Act and seeking a writ of mandamus to the Chief Commissioner

of income Tax, Bangalore to issue 'No Objection' to the petitioner and the

proposed transferee since the property in question has revested with the

transferor. The proposed transferee, M/s. Rajatha Trust, represented by its

trustee K.V. Shiva Kumar also filed Writ Petition No. 34820 of 1996 in the

Karnataka High Court seeking similar reliefs. On the petitions filed by the

writ petitioners for transfer of the writ petitions, this Court by Order

dated 24th July, 1998, transferred the two writ petitions to this Court.

The cases are numbered as Transfer Case Nos. 22 and 23 of 1998. The appeals

arising from the two SLPs and the two Transfer Cases have been tagged

together for hearing.

Chapter XX-C comprising of Sections 269-U to 269-UO deals with purchase

made by the Central Government of immovable property in certain cases of

transfer. While Chapter XX-A applies to transfers made upto 30th September,

1986; this Chapter applies to transfers made after that date. Under the

provisions power is conferred on the Central Govern-ment to purchase any

property covered by the Chapter for the same consideration for which it is

proposed to be transferred. These provisions were introduced for securing

the twin objective of curbing generation of black money and evasion of tax

by under-stating the value of the property in the instrument of transfer.

The scheme under Chapter XX-A and XX-C is essentially to penalise the tax-

dodgers who seek to evade payment of tax by resorting to the dubious method

of undervaluing the property transferred under the instrument of transfer.

In C.B. Gautam's case (supra) the Constitution Bench upheld the validity of

the provisions of Chapter XX-C of the Act holding inter alia that the said

chapter providing for pre-emptive purchase of immovable property proposed

to be transferred does not confer arbitrary or unfettered discre-tion on

the Appropriate Authority to compulsorily purchase immovable property and

does not violate Article 14 of the Constitution of India. This Court

observed :

"The powers of compulsory purchase conferred under the provisions of

Chapter XX-C are intended to be (and are being) used only in cases where,

in an agreement to sell an immovable property in an urban area to which the

provisions of that Chapter apply, there is a significant undervaluation of

the property by 15 per cent, or more. If the Appropriate Authority is

satisfied that the apparent consideration shown in the agreement for sale

is less than the market value by 15 per cent, or more, it may draw a

presumption that this undervaluation has been done with a view to evading

tax. Such a presumption, however, is rebuttable and the intending seller or

purchaser can lead evidence to rebut it. Moreover, the reasons for such

acquisition which are required by Section 269-UD to be in writing must be

germane to the object for which the chapter was introduced, namely to

counter attempts to evade tax."

Considering the meaning and import of "free from all encumbrances" under

Section 269-UE this Court observed :

"Section 269-UE must be read without the expression "free from all

encumbrances" with the result that the property in question would vest in

the Central Government subject to such encumbran-ces and leasehold

interests as are subsisting thereon except for such of them as are agreed

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to be discharged by the vendor before the sale is completed. If under the

relevant agreement to sell the property is agreed to be sold free of all

encumbrances or certain encumbrances, it would vest in the Central

Government free of such encumbrances. Similarly, sub-section (2) of Section

269-UE will be read down so that if the holder of an encumbrance or an

lessee is in possession of the property and under the agreement to sell the

property, it is not provided that the sale would be free of such

encumbrances or leasehold interests, the encumbrance holder or the lessee

who is in possession will not be obliged to deliver possession of the

property to the appropriate authority or any person authorised by it and

the provisions of sub-section (3) also would not apply to such persons."

Summing up its conclusion this Court gave certain directions in relation to

completed transactions as well as matters pending before the Courts or

other authorities. The relevant portion of the Judgment reads :

"This brings us to the question of relief. We find that the order for

compulsory purchase under Section 269-UD(l) of the Income Tax Act which was

served on the petitioner on the night of December 15, 1986, has been made

without any show-cause notice being served on the petitioner and without

the petitioner or other af-fected parties having been given any opportunity

to show cause against an order for compulsory purchase nor were the reasons

for the said order set out in the order or communication to the petitioner

or other concerned parties with the order. In view of what we have stated

earlier, the order is clearly bad in law and it is set aside.

The next question is as to the consequence to follow. In view of the fact

that the object of the provisions of Chapter XX-C is a laudable object,

namely, to counter evasion of tax in transactions of sale of immovable

property, we consider it necessary to limit the retrospective operation of

our judgment in such a manner as not to defeat the acquisitions altogether.

We find that, if the original time-frame prescribed in Chapter XX-C is

rigidly applied, it would not be possible for the Appropriate Authority

concerned to pass an order under Section 269-UD(l) at all in respect of the

property in question. In order to avoid that situation and, yet to ensure

that no injustice is caused to the petitioner, we order, in the facts and

circumstances of the case, that the statement in Form Ho. 37-1 submitted by

the petitioner as set out earlier shall be treated as if it were submitted

on the date of the signing of this judgment. Thereafter, if the Appropriate

Authority considers it fit, it may issue a show-cause notice calling upon

the petitioner and other concerned parties to show cause why an order for

compul-sory purchase of the property in question should not be made under

the provisions of sub-section (1) of Section 269-UD and give a reasonable

opportunity to the petitioner and such other con-cerned parties to show

cause against such an order being made.

We may clarify that, as far as completed transactions are concerned,

namely, where, after the order for compulsory purchase under Section 269-UD

of the Income-tax Act was made and possession has been taken over,

compensation was paid to the owner of the property and accepted without

protest, we see no reason to upset those transactions and hence, nothing we

have said in the judgment will invalidate such purchases. The same will be

the position where public auctions have been held of the properties

concerned and they are purchased by third parties. In those cases also,

nothing which we have stated in this judgment will invalidate the

purchases.

In the .result, the writ petition transferred is allowed to the extent

aforestated. Considering the facts and circumstances of the case, there

will be no order as to costs."

This Court overruled the decision of Karnataka High Court in Vidyawathi

Kapoor case (supra) and affirmed the decision of the Madras High Court in

GOI v. Maxim Alobo, (1991) 190 ITR 101 (Mad).

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Subsequently on an application filed by the Union of India for certain

clarifications and directions this Court passed an order of clarification

in the form of a further direction which is reported in [1993] 1 SCC 78

(Paragraphs 45-52).

After disposal of the appeal by this .Court setting aside the judgment of

the High Court relying on C.B. Gautam case (supra) the Appropriate

Authority gave an opportunity of hearing to the parties and disposed of the

matter afresh by the order dated 28.11.96. From the order it appears that

the Appropriate Authority has complied with the direction in the order

passed by this Court and has dealt with the matter in the light of the

principles decided in C.B. Gautam case (supra). From the discussions in the

order it is also clear that the contention which had been raised by the

transferor and the transferee and the interested party (D.P. Sharma) at the

earlier stages of the proceeding were with some modifications reiterated

before the Authority. On behalf of the transferor challenge was raised to

the notice dated 5.6.96 as being barred by time; objection was also raised

against the valuation of the property determined by the Appropriate

Authority and satisfaction of the Appropriate Authority regarding under-

valuation. The question was also raised whether the transferee was entitled

to deliver vacant possession of the building after getting the tenants

evicted. In the order these contentions have been dealt with in detail and

cogent reasons have been given for their rejection by the Authority. After

a thorough discussion of the entire case the Appropriate Authority recorded

its conclusions in these words :

"The reasons recorded by the learned Members of the Appropriate Authority

as on 24.1.1991 already communicated to all the parties concerned, are

still valid and have not been rebutted. We therefore estimate the market

value of Mohan Building in its tenanted state is Rs. 2,00,00,000 as on

28.11.1990. Thus, there is an under-valua-tion of namely 33% in the

agreement dated 28.11.1990 between M/s. Vidyavathi Kapoor Trust and M/s.

Rajatha Trust.

In view of the above conclusion, the Appropriate Authority is convinced

that there is under-vahiation of the apparent considera-tion in this case.

They have no doubt that this under valuation has been resorted to with an

intention to evade tax."

The Appropriate Authority in exercise of the powers vested in it under

Section 269-UD(l) of the Act ordered pre-emptive purchase of the immovable

properly in question and further ordered that in view of the fact that the

property has already been handed over to the Central Govern-ment by the

transferor on 26.2.1991 no separate order under Section 269-UD(2) was

passed. Reiterating the statutory provisions the Ap-propriate Authority

ordered :

"It is hereby declared that nothing in this order shall operate to

discharge the Transferors/Transferees or any other person (not being the

Central Government) from liability may be enforced against the

transferors/transferees or such other persons. Notwithstanding anything

contained in any other law or any instrument or agreement for the time

being in force as the Ap-propriate Authority has ordered the purchase of

the Schedule property, no claim by the transferees shall lie against the

trans-ferors for the reason of such transfer being not in accordance with

the agreement for the transfer of the impugned property entered into

between the transferors and the transferees.''

Shri S. Ganesh, learned counsel appearing for the appellant raised the

contention that in view of the order of this Court setting aside the

judgment of the High Court the property in question revested in the

transferors and therefore the entire proceeding should have been started de

novo instead of merely giving a notice of hearing to the parties.

Referring to the transfer cases the learned counsel appearing for the

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petitioner contended that the Appropriate Authority committed an error in

adopting a discounted value of the property and fixing its apparent

consideration at Rs. 1,50,17,084 as against the consideration of Rs.

1,55,00,000 specified in the agreement between the parties. He further

contended that from the discounted value a sum of Rs, 2,49,851 stated to be

due towards arrears of income-tax and wealth-tax in the case of Mohan-lal

Kapoor was illegally deducted. According to the learned counsel since the

apparent consideration as prescribed in Section 269- UA(b)(i) was not

tendered by the Central Government the order of purchase of the building by

the Central Government under sub-section (1) of Section 269-UD stood

abrogated and the property stood revested in the transferor.

Shri G.L. Sanghi, learned senior counsel appearing for the purchaser DP.

Sharma supported the order of the Appropriate Authority and further

contended that the purchaser has been seriously prejudiced on account of

the delay in delivery of possession of the property.

We have perused the relevant records and carefully considered the entire

matter. We are not satisfied that the order dated 28.11.1996 passed by the

Appropriate Authority suffers from any serious illegality or infirmity

which warrants interference. The relevant points of law arising in the case

have been dealt with by the Constitution Bench in C.B. Gautam (supra) and

the validity of the Act has been upheld. We are in respectful agreement

with the said decision. The contention raised by the learned counsel for

the appellant that since the order of the Appropriate Authority was set

aside by this Court the property stood revested in the transferor, is in

the circumstances of this case unacceptable and is rejected. It was

expressly stated in the order of the Appropriate Authority and it was not

disputed before us that after the order of the Appropriate Authority for

compulsory purchase the transferee received the full consideration as

determined therein and delivered possession of the building to the Central

Govern-ment. Thereafter, they challenged the order in the Writ Petitions

filed in the High Court which were rejected and the matter was carried to

this Court in the appeal which was allowed relying on the C.B. Gautam case

(supra). This Court, in its order neither directed de novo proceeding nor

issued any direction to start the proceeding from any anterior stage. In

the circumstances no exception can be taken to the procedure followed by

the Appropriate Authority in issuing a fresh notice of hearing to the

proposed transferor, transferee and the interested person and disposing of

the matter in the manner discussed earlier. The property had already vested

in the Central Government and that position remained unaltered subject to

the fresh order to be passed by the Appropriate Authority.

In the order passed by the Appropriate Authority the working of the

discounted value of the apparent consideration of Rs. 1,55,00,000 and the

deductions made towards advance received by the transferor from the

transferee and the amount outstanding against Mohanlal Kapoor were set out.

From the discussions in the orders passed by the Appropriate Authority it

is clear that notice of the discounted value and the deductions proposed to

be made were given to the transferor. The transferor raised no objection

against the discounted value or the deduction made. Indeed the transferor

expressed its willingness to accept the balance amount of consideration.

Accordingly, a sum of Rs. 97,67,233 was paid to M/s. Vidyavathi Kapoor

Trust by cheque. On receipt of the amount the trans-feror delivered

possession of the property. From the record it appears that the respondents

stated before the Authority that the alleged mistake in adjusting the tax

arrears of Mohanlal Kapoor from the consideration payable to M/s.

Vidyavathi Trust could be sorted out between the depart-ment and the

transferor. It also appears from the record that Mohanlal Kapoor is one of

the trustees of M/s. Vidyavathi Trust and also one of the persons entitled

to dispose of 'Mohan building'. In these circumstances, it cannot be said

that the Central Government has failed to tender or deposit the whole or

any part of the amount of consideration required to be tendered or

deposited under Section 269-UG of the Act which entails the consequence of

abrogation of the purchase order and revestment of the property in the

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transferor. The use of the expression 'fails to tender' in section 269-UH,

considered in the context of the scheme of the Act in chapter XX-C,

connotes that the Central Government shall pay to the transferor the

apparent consideration as determined by the Appropriate Authority u/s 269-

UD read with section 269-UF, within one month from the end of the month in

which the immovable property concerned becomes vested in the Central

Government under sub-section (1) or as the case may be, under sub-section

(6) of section 269-UE. Section 269-UE clearly provides that where an order

under sub-section (1) of section. 269-UD is made by the Appropriate

Authority in.respect of an immovable property referred to in sub-clause (1)

of clause(d) of section 269-UA, such property shall on the date of such

order, vest in the Central Government. Indeed, in this case the Appropriate

Authority clearly stated in the order passed on 24.1.91 that the property

stood vested in the Central Government and the said position was reiterated

in the order passed by the Authority on 26.11.1996. Even assuming that

certain deductions made were not permis-sible the vesting order in favour

of the Central Government cannot be said to be vitiated on that count. The

contention raised by the learned counsel for the petitioner is rejected.

On the discussions in the foregoing paragraphs and for the reasons Stated

therein the appeals and the transfer cases are dismissed. No costs.