Andhra Pradesh H.C : This writ petition is directed against the order bearing No. AA/HYD/1(85)/4/98-99, dt. 26th Aug., 1999, of the Appropriate Authority under Chapter XX-C of the IT Act, 1961

Counsel Appeared : Y. Ratnakar, for the Petitioner : S.R. Ashok, for the Respondent

JUDGMENT

S.R. NAYAK, J. :

This writ petition is directed against the order bearing No. AA/HYD/1(85)/4/98-99, dt. 26th Aug., 1999, of the Appropriate Authority under Chapter XX-C of the IT Act, 1961 (‘the Act’) the 1st respondent herein refusing to grant no-objection certificate (‘NOC’) for transfer of property which the petitioners have agreed to purchase from the 2nd respondent herein.

2. The land admeasuring Ac. 22.5 situated at Elichibaiguda, Bakaram, Hyderabad, belonged to a family called Chenai family. Under a decree in O.S. No. 38 of 1967, dt. 20th Oct., 1967, passed by the Chief Judge, City Civil Court, Hyderabad, the above land has fallen to the share of the 2nd respondent, viz., Mrs. K.S. Chenai. This land was given under perpetual lease to DBR Mills Ltd. (‘DBR’). Presently, the subject property is under the occupation of DBR. It appears that the DBR has filed a declaration under the Urban Land (Ceiling & Regulation) Act, 1976 showing the subject land as belonging to it and later the said land was excluded from the hands of heirs of Chennai family by the Special Officer & Competent Authority under the provisions of Urban Land (Ceiling & Regulation) Act. It further appears that in the hands of DBR, the Special Officer and Competent Authority held that 16 acres of land as protected under s. 4(11) of the Urban Land (Ceiling & Regulation) Act and the balance of 6.5 acres was declared as excess out of the land in the hands of the DBR. Against the said determination made by the Special Officer and Competent Authority, a writ petition is filed in this Court and the same is pending. Since the DBR stopped paying the annual lease amount of Rs. 1,000 from 1992 and committed default in payment of rent to the respondent No. 2, the respondent No. 2 has filed the suit O.S. No. 120 of 1995 in the Court of the IV Addl. Judge, City Civil Court, Hyderabad for eviction of the DBR and the said suit is currently pending. In addition to the above litigation, there is a spate of pending litigations in relation to the subject property between the 2nd respondent and the DBR.

3. The petitioner Nos. 1 and 2, who are carrying on business as property dealers and real estate developers, approached the respondent No. 2 to negotiate the possibility of purchasing the subject property on ‘as is where is basis’ with full awareness and knowledge of the pending litigation in respect of the land. The petitioners after necessary negotiations agreed to acquire all rights, title and interest of the 2nd respondent in the subject property and the 2nd respondent agreed to transfer her rights in the said property to the petitioners on ‘as is where is basis’. Accordingly, an agreement was entered into on 3rd Dec., 1998, between the 2nd respondent on the one hand and the petitioners on the other setting out the various terms and conditions of their agreement. An application was made in Form No. 37-I signed by the transferor and the transferees to the Appropriate Authority which was received by it on 17th Dec., 1998. From No. 37-I itself is an agreement reduced into writing by the parties and the terms and conditions of the transfer are set out in the said Form No. 37-I. Coming to the sale consideration, the particulars set out at Column No. 5(ii) of Form No. 37-I are extracted hereinbelow : “(ii) If the transfer is by way of exchange for Independent commercial complex of 40,000 a thing/things, or by way of exchange for a sq. ft. built-up area on the land admeasuring thing/things and a sum of money, please 3,000 sq. yds. cash consideration of Rs. state the price that such thing(s) would fetch 60,00,000 (Rupees sixty lakhs) in all total on sale in the open market on the date of apparent consideration is quantified at Rs. agreement for transfer and such sum of 4.60 crores with cl. 8 of the agreement.” money. The total sale consideration is quantified at Rs. 4.60 crores as indicated above. Subsequent to the filing of the Form No. 37-I, the respondent No. 1 by its notices under s. 269UC(4) of the Act dt. 25th Jan., 1999 and dt. 24th Feb., 1999, required the petitioners to file non-encumbrance certificates and municipal tax receipts and parent deeds. These formalities were complied with by the petitioners on 11th Feb., 1999 and 9th March, 1999. Subsequently, an order was received from the 1st respondent on 26th Aug., 1999 stating that the case is closed as non est. The order dt. 26th Aug., 1999 reads : “Government of India Office of the Appropriate Authority, Income-tax Department, “Kendriya Sadan,” 4th floor, ‘A’ Wing 17th Main,

2nd Block, Koramangala, Bangalore-560034No. AA/HYD/1/(85)4/98-99 Dated 26th Aug., 1999 Sri Khorshed Shapoor Chenai, 5-9-22, Transferor Shapoorwadi, Adarshnagar, Hyderabad M/s Ashis Developers, 4-4-1, Sultan Bazar, Hyderabad. Sri Rajkumar Malpani, Sri Niketan Apartments, Transferees Basheerbagh Palace Colony, Hyderabad Sir(s) Madam, Sub : Joint Statement in F.No. 37-I filed by you on 17th Dec., 1998 in connection with transfer of property located at Bagh Elchibaiguda, Bakaram, Hyderabad-Reg. Ref : 1. This office letter dt. 25th Jan., 1999 & 24th Feb., 1999

2. Your letters received in this office dt. 11th Feb., 1999, 19th July, 1999 & 10th Aug., 1999. Please refer to the above. On going through the note submitted by Sri B. Satyanarayana Murthy, A.R., it is also noticed that various litigations are pending in respect of ownership of property. It is also noticed that DBR Mills Ltd. is in occupation of the subject property and is claiming ownership. M/s DBR Mills Ltd. has been declared as sick industrial company under the provisions of SICA, and the issue is pending before the BIFR. The permission of the BIFR is to be obtained before any assets of DBR Mills Ltd. is alienated. In view of the above, it has been decided to close the case as non est. You are advised to file a fresh Form 37-I as and when the litigation pending is finalized, and after obtaining the permission of BIFR. Yours faithfully, Sd/(B. Arulappa) Dy. CIT (Hq.) C/o Appropriate Authority, Bangalore.” Hence, this writ petition assailing the legality and validity of the above order of the appropriate authority.

4. Shri Y. Ratnakar, the learned counsel for the petitioner, would contend that the 1st respondent-authority was not justified in closing the case and lodging the Form No. 37-I filed for NOC and that if the Central Government does not want to purchase the property because of the pending litigations between the 2nd respondent and DBR, the only course open to the Central Government would be to issue NOC. The learned counsel would maintain that the 1st respondent-authority has only two options, viz., either to order purchase of property or, in the event the Central Government does not want to purchase the property as per the terms and conditions of agreement, to issue NOC. In support of his submission, the learned counsel would place reliance on the judgments in Appropriate Authority vs. Tanvi Trading & Credits (P) Ltd. (1991) 100 CTR (SC) 278 : (1991) 191 ITR 307 (SC), DLF Universal Ltd. vs. Appropriate Authority (2000) 160 CTR (SC) 401 : (2000) 243 ITR 730 (SC), Ramanlal B. Pandya vs. Union of India (1997) 143 CTR (Kar) 190 : (1998) 230 ITR 454 (Kar), Savitri Devi vs. Appropriate Authority (1995) 123 CTR (Del) 1 : (1995) 211 ITR 10 (Del), Dwarkanath Chatterjee vs. Union of India (1995) 127 CTR (Cal) 116 : (1995) 213 ITR 470 (Cal), IOL Ltd. vs. S.C. Prasad (1995) 124 CTR (Bom) 64 : (1996) 217 ITR 52 (Bom), Sunil Kumar vs. Ushadevi Radhakrishna Pathi (1999) 151 CTR (Mad) 226 : (1997) 233 ITR 245 (Mad).

5. On the other hand, the learned senior standing counsel for the IT Department would contend that there is no such rule that the moment Form No. 37-I is filed, the Appropriate Authority has got only two options, one is to exercise its right to pre-emptive purchase or in alternative issue NOC to the application. The learned senior standing counsel would submit that the observations of the Supreme Court in the case of Tanvi Trading & Credits (P) Ltd. (supra), were made having regard to the peculiar circumstances of that case, and as such the same cannot be stretched to the extent the petitioners intend to do. The learned standing counsel placed reliance on the judgment of the Karnataka High Court in Chamundi Hotels (P) Ltd. vs. Appropriate Authority (1997) 139 CTR Kar) 220 : (1997) 225 ITR 590 (Kar) in support of his submission. The only question that arises for decision is whether the reasons given by the 1st respondent— Appropriate Authority in its order dt. 26th Aug., 1999 for refusing to issue NOC is legal and justified. The Supreme Court in Tanvi Trading & Credits (P) Ltd.’s case (supra) has observed : “We agree that two alternatives are open under the scheme of the legislation:—(i) the Union of India through the appropriate authority could buy the property, or (ii) in the event of its decision not to buy, it has to issue a ‘No Objection Certificate’ leaving it open to the parties to deal with the property. In that view of the matter, the High Court was right in its conclusion. The special SLP is dismissed. No costs.” It is very clear and evident from the above declaration of the apex Court that whenever Form No. 37-I for obtaining NOC by the parties is filed, the Appropriate Authority has two options, viz., either to grant NOC or to order purchase of property by the Central Government. Chapter XX-C containing ss. 269U to 269UO was inserted by the Finance Act, 1986 providing for purchase by the Central Government of immovable properties in certain cases of transfer in replacement of the provisions of Chapter XX-A containing ss. 269A to 269S of the Act, relating to acquisition of immovable properties in certain cases of transfer to counteract tax evasion. Chapter XX-C was introduced in view of the Long-term Fiscal Policy (LTFP) announced by the Central Government because the provisions of Chapter XX-A had miserably failed in achieving the objective and containing the mischief of tax evasion by way of transfer of immovable properties. In appreciating the question whether the reason given by the 1st respondentAppropriate Authority in the impugned order could be valid and legal ground, this objective behind the Chapter XX-C should be borne in mind. If that objective is kept in mind and in the light of the judgment of the Supreme Court in the case of Tanvi Trading & Credits (P) Ltd. (supra), it should be held that there is no third option except the two options noted by the Supreme Court in the case of Tanvi Trading & Credits (P) Ltd. (supra).

8. The above decision of the Supreme Court has been followed in a large number of cases. The Appropriate Authority cannot go into the defects in the agreements between the parties or adjudicate upon their rights and obligations or cannot declare agreement as non est or improper. The Appropriate Authority cannot assume the jurisdiction of a civil Court to decide the title question. Only a competent civil Court or fact-finding statutory Tribunal can decide whether DBR has acquired title to the subject property. The jurisdiction of the Appropriate Authority is confined to looking into the adequacy of sale consideration only. In taking this view, we are fortified by the decisions in the following cases : Tanvi Trading & Credits (P) Ltd. (supra), DLF Universal Ltd. (supra), Ramanlal B. Pandya (supra), Savitri Devi (supra), Dwarkanath Chatterjee (supra), IOL Ltd. (supra), Sunil Kumar (supra) and Tanvi Trading & Credits (P) Ltd. vs. Appropriate Authority (1991) 92 CTR (Del) 136 : (1991) 188

ITR 623 (Del).

9. In DLF Universal Ltd.’s case (supra), a Division Bench of the Supreme Court observed : “Sub-s. (4) of s. 269UC was considered by this Court in Jagdish A. Sadarangani vs. Government of India (1998) 146 CTR (SC) 105 : (1998) 230 ITR 442 (SC). That case related to the interpretation of the provisions of sub-s. (4) of s. 269UC of the Act. Sadarangani, the appellant entered into an agreement dt. 7th Sept., 1995, for purchase of certain property in Madras for a sum of Rs. 5.50 crores. The property comprised land and built-up area. On the same date, on application in Form No. 37-I was filed before the Appropriate Authority. A letter dt. 30th Oct., 1995 was addressed by the Appropriate Authority to both the transferors and the transferees seeking certain clarifications in respect of certain points. After reply was received, the Appropriate Authority by order dt. 11th Dec., 1995, held that in view of the prohibition of s. 6 of the Tamil Nadu Urban Land Ceiling Act the agreement dt. 7th Sept., 1995, to transfer the entire land including the excess vacant land, shall be deemed to be null and void and in that view of the matter, the Appropriate Authority could not effectively exercise its powers with regard to pre-emptive right to purchase the subject property. This Court referred to its earlier decision in Appropriate Authority vs. Tanvi Trading & Credits (P) Ltd. (1991) 100 CTR (SC) 278 : (1991) 191 ITR 307 (SC), which approved the decision of the Delhi High Court as follows : “Sub-s. (4) was inserted in s. 269UC by the Finance Act, 1995, w.e.f. 1st July, 1995. Sec. 269UC, as it stood before the said amendment of 1995, came up for consideration before the various High Courts. In Tanvi Trading & Credits (P) Ltd. vs. Appropriate Authority (1991) 92 CTR (Del) 136 : (1991) 188 ITR 623 (Del), a Division Bench of the Delhi High Court has considered the provisions contained in ss. 269UC, 269UD and 269UL of the IT Act. It has been held that the only right which s. 269UD of the Act confers on the Appropriate Authority is to enable it to make an order for purchase of the immovable property at an amount equal to the amount of the apparent consideration and that it does not give jurisdiction to the Appropriate Authority to adjudicate upon the legality of the transaction which is proposed to be entered into by the applicant and that s. 269UD is not concerned with the validity of the sale. According to the said decision of the High Court the only order which can be passed under s. 269UD is an order to purchase and no other order and if an order of purchase is not passed then it is imperative and obligatory on the part of the Appropriate Authority to issue the certificate of non-objection under s. 269UL(3). The said decision of the Delhi High Court came up for consideration before this Court in Appropriate Authority vs. Tanvi Trading & Credits (P) Ltd. (1991) 100 CTR (SC) 278 : (1991) 191 ITR 307 (SC). This Court, while dismissing the special leave petition against the said judgment of the Delhi High Court, has said : ‘We agree that two alternatives are open under the scheme of the legislation : (i) The Union of India through the Appropriate Authority could buy the property, or (ii) in the event of its decision not to buy, it has to issue a ‘no-objection certificate’ leaving it open to the parties to deal with the property. In that view of the matter, the High Court was right in its conclusion.’

Then this Court construed sub-s. (4) of s. 269UC as under : ‘We are unable to construe the provisions contained in sub-s. (4) of s. 269UC as conferring a power on the Appropriate Authority to decide the question about the legality of the agreement which has been entered into by the parties and on the basis of which the statement under s. 269UC(2) has been submitted. What is contemplated by sub-s. (4) of s. 269UC is that if there is a defect in the statement submitted under s. 269UC(2), which must comply with the requirements of sub-s. (3), then the Appropriate Authority may intimate to the parties concerned about the said defect and given them the opportunity to rectify the defect within a period of fifteen days from the date of such intimation or within such further period as may be allowed by the Appropriate Authority on an application made in this behalf. The said provision in sub- s. (4) of s. 269UC envisages a defect which can be removed/rectified within the period of fifteen days or the further period which is given by the Appropriate Authority. A defect regarding the legality and validity of the agreement which renders the agreement void and unenforceable cannot be rectified. Since a defect which cannot be rectified was not within the contemplation of the legislature in enacting sub-s. (4) of s. 269UC, a defect regarding the legality or validity of the agreement would not fall within the ambit of the said provision. The Objects and Reasons of the Bill which was enacted as Finance Act, 1995, also do not give an indication that by inserting sub-s. (4) in s. 269UC Parliament intended to confer a power on the Appropriate Authority to go into the legality or validity of the agreement’.

In Ramanlal B. Pandya’s case (supra), the Karnataka High Court held : “……….I find considerable force in the submission of learned counsel for the petitioners that it was not permissible for the second respondent to pass the impugned order for the reasons set out in the impugned order. The object of introduction of Chapter XX-C of the Act was to confer a right on the Central Government to purchase the properties at the apparent sale consideration shown in the agreement to sell entered into between the parties with a view to curb the transfer of black money from one hand to another while transferring immovable properties. It is well-settled that the right guaranteed to the Central Government is the right of pre-emptive purchase of the properties in respect of which an agreement to sell has been entered into between the parties….. A reading of the various provisions of Chapter XX-C, and more particularly ss. 269UD, 269UF, 269UG and sub-s. (3) of s. 269UL of the Act make it abundantly clear that the only two options available to the Appropriate Authority on receipt of the statement under sub-s. (3) of s. 269UC of the Act in respect of immovable property are either to make an order for purchase by the Central Government of such immovable property are either to make an order for purchase by the Central Government of such immovable property at an amount equal to the amount of apparent consideration shown in the agreement or to issue a certification of no-objection certifying that it has no-objection to transfer such an immovable property for the amount equal to the apparent consideration stated in the agreement, in respect of which it has received a statement under sub-s. (3) of s. 269UC of the Act. To my mind, it appears that it is not permissible for the Appropriate Authority to go into the legality or otherwise of the agreement entered into between the vendor and the vendee, or the desirability or advisability of certain stipulations provided in the agreement either looked at from the interest of the vendor or the vendee……”.

10. The Delhi High Court in Savitri Devi’s case (supra) observed : “We need not go into the presidential value of the above decision, as we are bound by the decisions of this Court, which clearly lay down that the Appropriate Authority acting under s. 269UD cannot go into the legality of the agreement before him and his only power is to make an order of purchase for the Central Government or grant a ‘no-objection certificate’.”

11. The Calcutta High Court in Dwarkanath Chatterjee’s case (supra) held : “Having heard learned counsels appearing for the parties and after giving my serious consideration to the submissions made on behalf of the

parties, I am of the view that Mr. Mitra was right in his submission that s. 269UD of the Act does not confer any authority, power or jurisdiction to the Appropriate Authority to go into the question of title of the writ petitions in respect of the property in question which is sought to be sold on the basis of the agreement for sale.”

12. In IOL Ltd.’s case (supra) the Bombay High Court held : “It is necessary to reiterate that it is not open to the Appropriate Authority constituted under s. 269UB of the Act to travel beyond the jurisdiction conferred under s. 269UD of the Act. The Appropriate Authority can only make an order of purchase for the Central Government or issue a no-objection certificate. It is not open to the Appropriate Authority to declare the agreement non est……” In Tanvi Trading & Credits (P) Ltd.’s case (supra), the Delhi High Court held : “As we read s. 269UD, it is clear that the only right which it confers on the Appropriate Authority is to enable it to make an order for purchase of the immovable property at an amount equal to the amount of the apparent consideration. Furthermore, the first proviso stipulates the time within which such an order can be passed. Sec. 269UD, therefore, contains the pre- emptive right of purchase by the Central Government. The said provision does not give jurisdiction to the Appropriate Authority to adjudicate upon the legality of the transaction which is proposed to be entered into by the applicant……” Although the learned senior standing counsel for the IT Department placed reliance on the judgment of a learned Single Judge of the Karnataka High Court in Chamundi Hotels (P) Ltd.’s case (supra) for the proposition that it cannot be said as a matter of rule that the moment Form No. 37I is filed, the Appropriate Authority has got only two options indicated above, we do not think it necessary for us to consider that judgment at least for two reasons, firstly, because of the binding decision of the Supreme Court in Tanvi Trading & Credit (P) Ltd. case (supra) and DLF Universal Ltd.’s case (supra), and secondly because of the fact that the decision of the Karnataka High Court can be distinguished on facts also.

The next question to be considered is what is the nature of the relief the Court should grant in the instant case ? Shri Y. Ratnakar, the learned counsel for the petitioners, placing reliance on the judgment of the Supreme Court in DLF Universal Ltd.’s case (supra) and judgment of the Karnataka High Court in Ramanlal B. Pandya’s case (supra), would maintain that it is a fit case where the respondent— Appropriate Authority be directed to issue NOC to the petitioners. In Mohinder Singh Gill vs. Chief Election Commission AIR 1978 SC 851 the Supreme Court has opined : “When a statutory functionary makes an order based on certain grounds, its validity must be judged by the reasons so mentioned and cannot be supplemented by fresh reasons in the shape of affidavit or otherwise….” In the instant case, the only reason given by the respondent—Appropriate Authority to reject Form No. 37-I, application of the petitioner is that there are various pending litigations between the 2nd respondent and DBR. No other reasons are stated in the impugned letter to reject the application. Since we have held that the reason given by the Appropriate Authority to reject the application in Form No. 37-I is not tenable and since there are no other reasons given by the Appropriate Authority to reject the application and in the light of the judgment of the Supreme Court in DLF Universal Ltd.’s case (supra), we think that it is a fit case where a direction shall go to the respondent—Appropriate Authority to issue NOC. In the result and for the foregoing reasons, writ petition is allowed with no order as to costs. The impugned order bearing No. AA/Hyd/1(85)/4/98-99, dt. 26th Aug., 1999 of the 1st respondent—Appropriate Authority is quashed. A direction shall be issued to the 1st respondent— Appropriate Authority to issue NOC to the petitioners in respect of 22.5 acres of land situated at Elichibaiguda, Bakaram, Hyderabad, in File No. AA/Hyd/1(85)/4/98-99, dt. 26th Aug., 1999, to enable the said property to be transferred by the 2nd respondent in favour of the petitioners subject to the petitioners performing prescribed formalities, if any. That rule nisi has been made absolute as above.

[Citation : 251 ITR 546]