Gujarat H.C : Pre-emptive purchase of property and consequential order of even date at Annexure E/1 vesting the property in Government under s. 269UE(2)

Counsel Appeared

J.P. Shah, for the Petitioners : B.J. Shelat for M/s R.P. Bhatt, for the Respondent

C.K. THAKKER, J. :

RULE

Mr. J.P. Shah, learned counsel for the petitioner prays to delete Dr. Shshikant Karsandas Patel, respondent No. 2 as, according to him, the petitioner does not seek any relief against that respondent.

Permission granted.

Original respondent No. 1 Appropriate Authority will now be treated as sole respondent. Mr. B.J. Shelat instructed by M/s R.P. Bhatt, appears and waives service of Rule. In the facts and circumstances of the case, the matter is taken up today for final hearing.

2. This petition is filed by the petitioner for quashing and setting aside the order Annexure E dt. 28th April, 1995, passed by Appropriate Authority in exercise of powers under s. 269UD(1) of the IT Act, 1961 (hereinafter referred to as “the Act”), of pre-emptive purchase of property and consequential order of even date at Annexure E/1 vesting the property in Government under s. 269UE(2) of the Act being illegal, ultra vires and unconstitutional. It is the case of the petitioner that it is a non-trading corporation incorporated under the Bombay Non-trading Corporation Act, 1959. It consists of members who belong to lower middle class. One Dr. Shshikant Karsandas Patel, whose family was settled in the United States, decided to sell the property in question with a view to get himself to settle in America. The petitioner-association, therefore, entered into an agreement on 20th Jan., 1995, to purchase sub-plot No. 2 of Final Plot No. 178 under Town Planning Scheme No. 3, admeasuring 743 sq. yds. with a superstructure thereon situated behind Mount Carmel High School, Navrangpura, Ahmedabad, for an apparent consideration of Rs. 45,25,000. A copy of Banakhat is annexed to the petition. According to the petitioner Corporation, all expenses of stamp paper, registration charges, advocate fees and miscellaneous expenses were to be borne by the petitioner. Since the amount of apparent consideration exceeded Rs. 10 lacs, vendor and vendee filled in Form No. 37-I of the Act in accordance with the provisions of the Act on 23rd Jan., 1995. In that Form also, it was mentioned that transfer expenses were to be borne by the purchaser. It is asserted by the petitioner that the fact regarding expenses were specifically mentioned because according to usual practice in the State, such expenses were to be shared equally by transferor and transferee. For a substantial long period, nothing was done by the respondent Authority. Transferor as well as transferee believed that Appropriate Authority was satisfied about the consideration and bona fide transaction. However, the respondent Authority, in purported exercise of power under s. 269UD (1A) of the Act issued a show-cause notice and called upon the transferor and transferee on 20th April, 1995, alleging that taking into account consideration of the sale instance property (SIP) apparent as well as discounted consideration of property under consideration (PUC) was understated by more than 15%. The transferor and transferee were, therefore, asked to show cause as to why action under Chapter XX-C of the Act should not be taken against them and the property should not be ordered to be purchased under s. 269UD(1). The parties were called upon to file written reply/submission within stipulated period, failing which Appropriate Authority would presume that they had no objection to the proposed order under s. 269UD(1) of the Act.

The petitioner and Dr. Patel filed replies to the above show-cause notice on 26th April and 27th April, 1995, respectively. It was, inter alia, contended by them that it was not an appropriate case of pre-emptive purchase. It was submitted that SIP was not at all comparable sale instance, inasmuch as, the property in that case was located near High Court where a number of commercial complexes were there, whereas PUC was not in commercially developed area. It was also pointed out that PUC had no frontage except 9.15 mtrs. portion of plot which could be used as approach to the property. The shape of the plot was odd and highly irregular. Hence, PUC could not be efficiently developed for commercial purposes. On the other hand, shape of SIP was regular and had frontage of 17.68 mtrs. i.e., more than double on the 20 ft. wide road and, hence, it could very well be utilised and developed for commercial use. It was also contended that size of PUC plot was almost double than the size of SIP. The larger plot could not be compared with a smaller plot which would fetch high price. It was also disputed that Appropriate Authority had not independently valued PUC and merely on hypothesis of undervaluation, show-cause notice was issued. The petitioner relied upon two sale instances in support of his argument. Reliance was also placed on the fact that entire transfer expenses were to be borne by him. On all these grounds, it was submitted that it was not a fit case for pre-emptive purchase and proceedings were required to be dropped. Appropriate Authority after considering replies submitted by the parties passed an order on 28th April, 1995, holding that in the facts and circumstances of the case, the Authority was satisfied that PUC was fit for pre-emptive purchase under s. 269UD(1) of the Act and accordingly order to purchase PUC was passed. Dealing with the submissions of parties and arriving at satisfaction, Appropriate Authority in para 5 observed as under : “5. The abovementioned submissions have been carefully gone through and the same have been dealt with by us as under : (1) The PUC is situated on a 30 ft. wide T.P. Road taking off from Ashram Road, behind Mount Carmel High School. Ahmedabad Municipal Corporation has divided the city into residential and commercial zones according to the pace of commercial development of a particular zone. The PUC lies in a commercial zone. Hence, it is not accepted that there is no commercial development around PUC. The comparison of the PUC and the SIP vide file No. AHD 893 is, therefore, fair and reasonable. (2) The PUC has a frontage on a 30 ft. wide T.P. Road, though the frontage is narrow, it does not affect the value of the PUC substantially compared to the SIP since the SIP, due to its proximity to the High Court suffers from the problems of traffic and vehicular pollution. (3) The shape of the plot does not affect the value of the PUC considerably. Regarding the size of the PUC, the land area of the PUC is 621.24 sq. mts. whereas that of the SIP is 348.66 sq. mts. The size of the PUC plot is an asset rather than a liability. The size of the PUC is more viable to be developed commercially compared to the SIP in view of certain restrictions imposed by the Municipal Corporation like provision for parking, etc. (4) As already discussed in sub- paras 1, 2 and 3 above, the PUC is comparable to the SIP, we cannot allow any deduction from the rate of the SIP. (5) Regarding the contention of independent valuation of the PUC, the market rate of the PUC per sq. mtr. based on the SIP, is not less than Rs. 8,925 whereas the apparent rate as per Form No. 37- I comes to Rs. 7,141 only. The rate is, therefore, understated by more than 15%. (6) The first sale instance quoted (file No. AHD-886) is the property is situated on the dead end of a 20 ft. wide road, taking off from C.G. Road, whereas the PUC is situated on a 30 ft. wide T.P. Road taking off from Ashram Road. Moreover, this SIP lies in a residential zone with available FSI 1.00. The PUC, on the other hand, is in a commercial zone and the available FSI is 1.33. Even if this instance is accepted as comparable, the apparent rate of the PUC per sq. mtr. after giving due weightage to the available FSI is considered to be understated by more than 15%.

The second sale instance quoted (file No. AHD-890) is the property situated on a 40 ft. wide T.P. Road taking off from C.G. Road. This property had a garrage of 181.47 sq. mtrs. of built-up area occupied by two tenants and the liability of vacating the tenants was with the purchaser. The apparent land rate and discounted land rate per sq. mtr. of this property comes to Rs. 9,017 and Rs. 8,826 respectively. The corresponding rates in the case of the PUC are Rs. 7,141 and Rs. 6,928. This again proves understatement in the case of PUC by more than 15% beyond any doubt. (7) The bye-laws of the Municipal Corporation have nothing to do with the value of the PUC in as much as the said bye-laws are equally applicable to all the cases and are not imposed specifically against the PUC. (8) It is contended that the transfer expenses are to be borne by the purchaser. Again, it does not affect the value of the property since such expenses are payable by transferee only in the case of SIP vide file No. 898 as also in the case of two instances quoted in the submissions. (9) The contentions in the sub-paras (9), (10) and (11) of para 4 above, have been raised in the written submissions received on 27th April, 1995, in the afternoon. We wish to clarify that after considering all the negative aspects of the PUC as pointed out by both the transferor and transferee have been carefully considered and the market rate of the PUC per sq. mtrs. is not less than Rs. 8,925 after evaluating all the pros and cons of the PUC. The rate as per 37-I of Rs. 7,141 per sq. mtr. is, therefore, understated by more than 15%.”

6. Various contentions were raised by Mr. J.P. Shah, learned counsel for the petitioner. It was submitted that exercise of power was beyond jurisdiction as there was no allegation of avoidance and evasion of tax by the parties. In absence of such allegation, exercise of power was bad in law, Mr. Shah also submitted that no positive finding has been recorded by Appropriate Authority as to how it came to a definite conclusion that apparent and discounted consideration of PUC was understated by more than 15%. This is a sine qua non or condition precedent for exercise of power under Chapter XX-C and as the said condition is not fulfilled, the order requires to be quashed. Mr. Shah vehemently contended that Appropriate Authority has committed serious error in placing reliance on SIP. Considering the location, shape, area, frontage and commercial development of SIP and PUC, no reasonable and prudent man would compare PUC with SIP. On all aspects which can be said to be relevant and germane for fixing market price, SIP was better situated and price of PUC could not have been fixed on that basis. Impugned order, therefore, also requires to be interfered with. Mr. Shah submitted that reliance placed by transferee on two sale instances were relevant and considering those two sale instances, the Authority ought to have held that apparent as well as discounted consideration of PUC could not be said to be understated by more than 15%.

Mr. B.J. Shelat, learned counsel for the respondent, in the other hand, supported the order passed by Appropriate Authority. He submitted that notice in accordance with law was issued by Appropriate Authority calling upon transferor and transferee as to why an action under s. 269UD(1) should not be taken against them. The parties submitted their written statements and after considering them, on exercise of statutory power, the Appropriate Authority bona fide passed order which cannot be said to be illegal, improper or contrary to law. Mr. Shelat submitted that this Court is exercising extraordinary jurisdiction under Art. 226 of the Constitution of India and it will not substitute its opinion for the opinion of Appropriate Authority. When action is taken by keeping in mind relevant facts and circumstances, judicial review is not called for to interfere with the said satisfaction by disturbing the finding arrived at by respondent Authority. The petition, therefore, requires to be dismissed.

On the facts and in the circumstances of the case, the petition requires to be allowed. Apart from any other reason, in our opinion, Appropriate Authority has committed grave error of law apparent on the face of record in placing reliance on SIP and in passing the impugned order on that basis. As is clear, while passing the impugned order, Appropriate Authority has referred to and relied upon consideration and market price of SIP. However, it is the case of the petitioner that SIP could not be said to be a comparable sale instance. Regarding situation of SIP and PUC, Appropriate Authority observed that both SIP and PUC were situated in commercial zone. PUC was situated behind Mount Carmel High School in commercial zone. It was not accepted that there was no commercial development around PUC. In our view, Mr. Shah is right in contending that even if PUC is situated in commercial zone, it is indeed a relevant factor whether there is commercial development around PUC. Likewise, it is also important to bear in mind whether frontage available to SIP was much more than the one available to PUC. The Appropriate Authority observed. “Though the frontage is narrow, it does not affect the value of the PUC substantially compared to the SIP….”

Mr. Shah rightly contended that it cannot be said that narrow frontage does not affect value of the property. Regarding shape also, Appropriate Authority was not right in not allowing deduction particularly when it did not dispute the submission of the petitioner that PUC was having odd shape of the plot.

9. Again, Appropriate Authority has committed an error of law on the face of the record in observing that though frontage of PUC was narrow on 30 ft. wide T.P. Road, whereas SIP was having wide road, it would not affect the value of PUC substantially compared to SIP, inasmuch as, SIP, due to its proximity to the High Court, suffered from the problem of traffic and vehicular pollution. Ordinarily, wide frontage should be considered as beneficial to the property than narrow frontage. It is true that heavy traffic or vehicular pollution may adversely affect the property but then there must be some material or evidence on record on the basis of which Appropriate Authority may form an opinion by recording a definite finding to that effect. In absence of such finding or material on record, no inference can be drawn nor conclusion can be arrived at that because of proximity to particular place, there would be problem of traffic and vehicular pollution. Despite these facts, Appropriate Authority in sub-para (4) of para 5 compared PUC with SIP and no deduction from the rate of SIP was allowed to PUC. The above approach of Appropriate Authority cannot be said to be legal and in accordance with law.

Appropriate Authority has also erred in not relying upon sale instances of SIP-1 and SIP-2 on which reliance was placed by the petitioner. SIP-1 is situated at the end of C.G. Road which, according to the petitioner, is commercially developed area. PUC is situated on Ashram Road but on to wide T.P. Road taking off from Ashram Road. Similarly, SIP-2 is situated on 40 ft. T.P. Road taking off from C.G. Road which is also occupied by two tenants and it ought to have been considered in its proper perspective. Mr. Shah is right in submitting that the fact that the transfer expenses were to be borne by the purchaser is a relevant fact and it ought to have been given due importance. The Authority was not right in observing that it would not affect value of the property. Apart from the above grounds, in our opinion, Mr. Shah is right in submitting that the satisfaction as contemplated by s. 269UD(1) must be based on objective facts. There must be evidence and material to arrive at conclusion and satisfaction. Rejection of sale instances and/or grounds and/or reasons put forth by the party is one thing. At the most, it can be said to be a negative finding for not accepting the case of the transferor/transferee. But the law requires something more. In our opinion, it is incumbent upon the Appropriate Authority to come to a positive finding and definite conclusion that the property was undervalued. In absence of such a finding or conclusion, no order under s. 269UD(1) can be made. A similar question arose before us in Special Civil Application No. 869 of 1995 decided by us on 30th Jan., 1995. (sic 30th March, 1995) [reported as Anagram Finance Ltd. vs. Appropriate Authority & Anr. (1995) 127 CTR (Guj) 193] Considering the relevant provisions of the Act as also the decision of the Hon’ble Supreme Court, in Barium Chemicals Ltd. & Anr. vs. Company Law Board & Ors. AIR 1967 SC 195, we observed : “The combined reading of s. 269UD(1A) and (1B) of the Act leaves no room of doubt that it is a question of objectively decision-making process by taking into consideration all relevant materials which have come before hearing authority and considering the rival aspects of the matter. Moreover, requirement of law is to specify the grounds on which the order of pre-emptive purchase is made. That obligation does not stop by merely rejecting the submissions made before it. Rejection of submissions made by the vendors or transferee or person interested in the property, does not lead to consequence that grounds for making pre-emptive purchase exists. Sine qua non is that the reasons must exist on the material placed before it for supporting the action taken for pre- emptive purchase under s. 269UD of the Act. The order clearly falls short of this requirement.”

In our opinion, the point is concluded by the above decision also. Since no satisfaction has been arrived at by the respondent on the basis of objective facts and no reasons have been recorded for coming to a positive conclusion as to why there was difference of more than 15%, the order cannot be said to be in accordance with law and must be quashed and set aside.

14. For the foregoing reasons, the petition requires to be allowed and is accordingly allowed. The impugned orders dt. 28th April, 1995 at Annexures. E and E/1 passed by Appropriate Authority are hereby quashed and set aside. Respondent is directed to complete necessary formalities within a period of six weeks from the date of the receipt of the order of the Court including issuance of clearance certificate. Rule is made absolute. No order as to costs.

[Citation:218 ITR 29]