IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No 8154 of 2000 For Approval and Signature: Hon'ble CHIEF JUSTICE MR DM DHARMADHIKARI and Hon'ble MR.JUSTICE A.R.DAVE ============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements? 2. To be referred to the Reporter or not? : NO 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the Civil Judge? : NO -------------------------------------------------------------- JAYSHREE RAJENDRA SHROFF Versus APPROPRIATE AUTHORITY (INCOME TAX) -------------------------------------------------------------- Appearance: MR JP SHAH for Petitioners MR MIHIR JOSHI FOR MR MANISH R BHATT for Respondent No. 1 -------------------------------------------------------------- CORAM : CHIEF JUSTICE MR DM DHARMADHIKARI and MR.JUSTICE A.R.DAVE Date of decision: 05/09/2000 C.A.V. JUDGEMENT (Per D.M. DHARMADHIKARI, C.J. #. Under Chapter XX-C of the Income-Tax Act, 1961 (for short `the Act'), the Central Government, through the Appropriate Authority, has power to make preemptive purchase of any immovable property, where it finds that the apparent consideration of any proposed transfer of the said property is less than its real value and there is intention to evade payment of tax. #. In exercise of powers contained in Section 269UD(1) of the Act, the Appropriate Authority, as defined in Section 269UB, passed the impugned order dated 17-5-2000 of preemptive purchase of Plot No. 38 out of Survey No. 593, City Survey No. 3390, Munjeri, Bibwewadi in the layout of Sindh Hindu Co-operative Housing Society Ltd., Pune. The Appropriate Authority, by the impugned order, held that the property above described having a fair market value of Rs.1.2 crores was agreed to be sold by Mrs. Roma Motiram Chandiramani (petitioner no. 4) in favour of Smt. Jayshree Rajendra Shroff and two other members of her family (petitioners nos. 1, 2 and 3) for a paltry sum of Rs.61 lakhs. The Appropriate Authority, after granting opportunity of hearing to the transferor and the transferees, found no justification in their stand that the agreed amount of consideration of the property involved was less than the market price, because one Shri M.K. Advani, who was appointed as caretaker of the property by the transferor, started asserting rights of a lessee, on the basis of his long possession of the property. #. The Appropriate Authority had also issued a notice of preemptive purchase to said Shri Advani, who is admittedly in actual occupation of the property. Shri Advani has sent a formal reply of the notice to the Appropriate Authority stating therein that he is in possession of the property in question since 1984 as a caretaker, and under an agreement between him and the landlord, his monthly salary as caretaker was being adjusted towards the rent of the property in his use and actual occupation. The Appropriate Authority, thereafter, called upon Shri Advani by notice dated 21-2-2000 to produce necessary evidence in support of his claim of status as a lessee of the property. The aforesaid notice was not responded to by the so called lessee Shri Advani, and therefore, the Appropriate Authority communicated to him the following order:- "This Authority, therefore, proposes to hold that you have no right/interest in the property and that the property will vest in the Central Government free from any encumbrance as far as you claim is concerned, after an order u/s. 269(UD(1) of the I.T. Act is passed for preemptive purchase of the property. ...." In view of no reply of Shri Advani, the Appropriate Authority came to the conclusion as under:- "From the facts and circumstances it is clear that Shri Advani does not have tenancy rights. His claim that he is appointed as a caretaker and that the salary as a caretaker is being adjusted towards the rent of the property is ill-founded and not backed by any evidence." #. The Appropriate Authority, thus, came to the conclusion that Shri Advani is in occupation as caretaker of the property and can claim no rights of the lessee of the property and the apparent consideration in the agreement of sale entered into between the transferor and the transferees is less than the real value of the property under consideration. The Appropriate Authority, therefore, by the impugned order dated 17-5-2000 (Exh. I) made preemptive purchase of the property for the apparent consideration stated in the agreement and directed that the property shall vest in the Central Government in terms of Section 269UE of the Act. After passing the aforesaid order of preemptive purchase and declaring the property to have vested in the Central Government, the Office of the Chief Commissioner of Income-Tax wrote a letter dated 16-6-2000 to the transferor (petitioner no. 4) calling upon her that in terms of the agreement of sale dated 31-10-1999 and particularly clause (3) of the said agreement, as a vendor, she is bound to handover the peaceful and vacant possession of the property to the purchaser, which, in case of preemptive purchase, to the Central Government. The transferor was, therefore, called upon to handover the vacant and peaceful possession of the property, as a result of preemptive purchase to the Central Government. To the said letter, a reply is sent by the transferor informing that Shri Advani, the alleged caretaker of the property has instituted a civil suit registered as Special Civil Suit No. 926 of 2000 in the Court of Civil Judge (S.D.), Pune, against the transferor and the Appropriate Authority, claiming therein status of a lessee of the property and seeking a permanent injunction, restraining the transferor and the Appropriate Authority from enforcing the order of preemptive purchase passed under Section 269UE of the Act. The transferor in his reply also stated that since he had received full amount of agreed consideration from the transferees, the Central Government should make the payment of preemptive purchase to the transferees. After receiving a reply from the transferor to the notice demanding delivery of vacant possession of the property, and on knowing the fact that Shri Advani, the alleged caretaker has filed a civil suit in Civil Court at Pune, the Office of the Chief Commissioner by the impugned letter dated 12-7-2000 (Exh. I) informed the transferor and to the transferees that the purchase consideration amounting to Rs.58,45,441/has been deposited in the account of the Appropriate Authority, Ahmedabad on 29-6-2000. #. By this joint petition filed by the transferor and the transferees, the order dated 17-5-2000 passed under Section 269UD(i) of the Act of preemptive purchase of the property in question under consideration and the impugned communication dated 12-7-2000 (Exh. Q) depositing the purchase consideration in the account of the Appropriate Authority, under sub-section (2) of Section 269UG of the Act have been challenged. #. Before considering the grounds of challenge made to the impugned order and the notice of deposit of the purchase consideration, it is necessary to examine the relevant provisions on preemptive purchase contained in Chapter XX-C of the Act. Section 269UA provides definitions of expressions `agreement for transfer', `apparent consideration', `Appropriate Authority', `immovable property' The relevant sub-clause (e) of said Section which is relevant for our purposes defines the word "person interested" as under:- "269UA(e) `person interested', in relation to any immovable property, includes all persons claiming, or entitled to claim, an interest in the consideration payable on account of the vesting of that property in the Central Government under this Chapter." (underlining for emphasis) As required by Section 269UC, any proposed transfer of property in specified area can be effected only after service of notice by transferor and transferee in the prescribed Form No. 37-I, to afford an opportunity to the Appropriate Authority, to make, if necessary, an order of preemptive purchase. Section 269UD contains the procedure which has to be followed by the Appropriate Authority before making an order of preemptive purchase. The procedure requires giving of notice and an opportunity of hearing to the transferor and the transferee as also to the `person interested' e.g.. one in actual occupation of the property. The relevant provision contained in Section 269UD(1A) reads as under:- "269UD(1A) Before making an order under sub-section (1), the appropriate authority shall give a reasonable opportunity of being heard to the transferor, the person in occupation of the immovable property if the transferor is not in occupation of the property, the transferee and to every other person whom the appropriate authority knows to be interested in the property." There is no dispute that there has been a compliance of procedure contained in sub-section (1A) of Section 269UD of the Act as transferor, transferees and Shri Advani, the person in actual occupation of the property were granted of opportunity of being heard. Section 269UE contains the provision of vesting of property in Central Government. The Section in its entirety is relevant for the purpose of this case as arguments were advanced by the counsel for the petitioners and on behalf of the Central Government differently on the interpretation of the same:- Vesting of property in Central Government. "269UE.(1) Where an order under sub-section (1) of section 269UD is made by the appropriate authority in respect of an immovable property referred to in sub-clause (i) of clause (d) of section 269UA, such property shall, on the date of such order, vest in the Central Government in terms of the agreement for transfer referred to in sub-section (1) of section 269UC: Provided that where the appropriate authority, after giving an opportunity of being heard to the transferor, the transferee or other persons interested in the said property, under sub-section (1A) of section 269UD, is of the opinion that any encumbrance on the property or leasehold interest specified in the aforesaid agreement for transfer is so specified with a view to defeat the provisions of this Chapter, it may, by order, declare such encumbrance or leasehold interest to the void and thereupon the aforesaid property shall vest in the Central Government free from such encumbrance or leasehold interest. (2) The transferor or any other person who may be in possession of the immovable property in respect of which an order under sub-section (1) of section 269UD is made, shall surrender or deliver possession thereof to the appropriate authority or any other person duly authorised by the appropriate authority in this behalf within fifteen days of the service of such order on him: Provided that the provisions of this sub-section and sub-sections (3) and (4) shall not apply where the person in possession of the immovable property, in respect of which an order under sub-section (1) of section 269UD is made, is a bona fide holder of any encumbrance on such property or a bona fide lessee of such property, if the said encumbrance or lease has not been declared void under the proviso to sub-section (1) and such person is eligible to continue in possession of such property even after the transfer in terms of the aforesaid agreement for transfer. (3) If any person refuses or fails to comply with the provisions of sub-section (2) the appropriate authority or other person duly authorised by it under that sub-section may take possession of the immovable property and may, for that purpose, use such force as may be necessary. (4) Notwithstanding anything contained in sub-section (2), the appropriate authority may, for the purpose of taking possession of any property referred to in sub-section (1), requisition the services of any police officer to assist him and it shall be the duty of such officer to comply with such requisition. (5) For the removal of doubts, it is hereby declared that nothing in this section shall operate to discharge the transferor or any other person (not being the Central Government) from liability in respect of any encumbrances on the property and, notwithstanding anything contained in any other law for the time being in force, such liability may be enforced against the transferor or such other person. (6) Where an order under sub-section (1) of section 269UD is made in respect of an immovable property, being rights of the nature referred to in sub-clause (ii) of clause (d) of section 269UA, such order shall have the effect of - (a) vesting such right in the Central Government; and (b) placing the Central Government in the same position in relation to such rights as the person in whom such a right would have continued to vest if such order had not been made. (7) Where any rights in respect of any immovable property, being rights in, or with respect to, any land or any building or part of a building which has been constructed or which is to be constructed, have been vested in the Central Government under sub-section (6), the provisions of sub-sections (1), (2) (3) and (4) shall, so far as may be, have effect as if the references to immovable property therein were references to such land or building or part thereof, as the case may be." Section 269UF requires, in the event of passing of an order of preemptive purchase and vesting of property in the Central Government, to pay, by way of consideration, for such purchase an amount equal to the amount of apparent consideration. Section 269UG is also reproduced in full hereunder being relevant for considering the contentions advanced by the parties on the action of the Central Government in depositing the purchase consideration with the Appropriate Authority instead of making payment of the same to the transferor or to the transferee:- Payment or deposit of consideration. "269UG.(1) The amount of consideration payable in accordance with the provisions of section 269UF shall be tendered to the person or persons entitled thereto, within a period of 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, sub-section (6), of section 269UE: Provided that if any liability for any tax or any other sum remaining payable under this Act, the Wealth-tax Act, 1957 (27 of 1957), the Gift-tax Act, 1958 (18 of 1958) the Estate Duty Act, 1953 (34 of 1953), or the Companies (Profits) Surtax Act, 1964 (7 of 1964), by any person entitled to the consideration payable under section 269UF, the appropriate authority may, in lieu of the payment of the amount of consideration, set off the amount of consideration or any part thereof against such liability or sum, after giving an intimation in this behalf to the person entitled to the consideration. (2) Notwithstanding anything contained in sub-section (1), if any dispute arises as to the apportionment of the amount of consideration amongst persons claiming to be entitled thereto, the Central Government shall deposit with the appropriate authority the amount of consideration required to be tendered under sub-section (1) within the period specified therein. (3) Notwithstanding anything contained in sub-section (1), if the person entitled to the amount of consideration does not consent to receive it, or if there is any dispute as to the title to receive the amount of consideration, the Central Government shall deposit with the appropriate authority the amount of consideration required to be tendered under sub-section (1) within the period specified therein: Provided that nothing herein contained shall affect the liability of any person who may receive the whole or any part of the amount of consideration for any immovable property vested in the Central Government under this Chapter to pay the same to the person lawfully entitled thereto. (4) Where any amount of consideration has been deposited with the appropriate authority under this section, the appropriate authority may, either of its own motion or on an application made by or on behalf of any person interested or claiming to be interested in such amount, order the same to be invested in such Government or other securities as it may think proper, and may direct the interest or other proceeds of any such investment to be accumulated and paid in such manner as will, in its opinion, give the parties interested therein the same benefits therefrom as they might have had from the immovable property in respect whereof such amount has been deposited or as near thereto as may be." What is to be noted is that under sub-section (2) of section 269UG, the purchase consideration can be deposited by the Central Government with the Appropriate Authority within a specified period only "if any dispute arises as to the apportionment of the amount of consideration amongst persons claiming to be entitled thereto" Under Section 269UH where the Central Government fails to tender or deposit the purchase consideration as required by sub-section (1) or subsection (2) and (3) of Section 269UG, the order of purchase of the immovable property by the Central Government made under sub-section (1) of Section 269UD shall stand abrogated and the immovable property shall stand revested in the transferor. Section 269UH with the proviso thereunder is also relevant and is reproduced hereunder: Re-vesting of property in the transferor on failure of payment or deposit of consideration. "269UH.(1) If the Central Government fails to tender under sub-section (1) of section 269UG or deposit under sub-section (2) or sub-section (3) of the said section, the whole or any part of the amount of consideration required to be tendered or deposited thereunder within the period specified therein in respect of any immovable property which has vested in the Central Government under sub-section (1) or, as the case may be, sub-section (6) of section 269UE, the order to purchase the immovable property by the Central Government made under sub-section (1) of section 269UD shall stand abrogated and the immovable property shall stand revested in the transferor after the expiry of the aforesaid period: Provided that where any dispute referred to in sub-section (2) or sub-section (3) of section 269UG is pending in any court for decision, the time taken by the court to pass a final order under the said sub-sections shall be excluded in computing the said period. (2) Where an order made under sub-section (1) of section 269UD is abrogated and the immovable property revested in the transferor under sub-section (1), the appropriate authority shall make, as soon as may be, a declaration in writing to this effect and shall - (a) deliver a copy of the declaration to the persons mentioned in sub-section (2) of section 269UD; and (b) deliver or cause to be delivered possession of the immovable property back to the transferor, or, as the case may be, to such other person as was in possession of the property as the time of its vesting in the Central Government under section 269UE." #. Learned counsel Shri J.P. Shah appearing for the petitioners, in assailing the impugned order of preemptive purchase and the direction of deposit of purchase consideration, has raised two grounds. Firstly it is urged that in making the order of preemptive purchase and in coming to the conclusion that apparent consideration does not represent the real market value of the property, the Appropriate Authority should not have lost sight of the fact, that the property was in actual occupation of Shri Advani, who was merely appointed as caretaker of the property, but had started asserting right of a lessee. #. The second ground urged with sufficient force and in detail is that there does not exist any dispute as to the apportionment of the amount of consideration within the meaning of sub-section (2) of Section 269UG and non-payment of the amount of consideration either to the transferor or to the transferee and illegal deposit of the same has the consequence of `abrogation' of the order of preemptive purchase under Section 269UH of the Act and the petitioners are entitled to a declaration of abrogation in terms of sub-section (2) of Section 269UH and for restoration of possession of the property to the transferor or the transferee. #. It is contended on behalf of the petitioners that as a result of preemptive purchase, the property vest in the Central Government with full powers to it to take possession of the property, if necessary, by use of police force under sub-section (4) of Section 269UE, and merely because Shri Advani, the alleged caretaker asserts rights of lessee and has filed a Suit, is no ground not to pay the purchase consideration to the transferor or the transferee and deposit the amount with the Appropriate Authority. It is submitted that Division Bench decision of this Court in the case of Hotel Mardias Private Limited v. Union of India and others (1996) 220 ITR 94 is directly on the point and supports squarely the contention advanced before us. Reliance is also placed in support of the contention on a Single Bench decision of Calcutta High Court in Madhusudhan Das and others v. Appropriate Authority of Income-Tax and others (1997) 223 ITR 351. ##. Learned counsel also read certain observations of the Supreme Court in the case of C.B. Gautam v. Union of India and others (1993) 1 SCC 78 which was relied in Asgar S. Patel and others v. Union of India and others (2000) 244 ITR 713 and another decision of Supreme Court in the case of Prima Realty v. Union of India and Others (1997) 223 ITR 655. ##. We have also heard learned counsel Shri Mihir Joshi appearing for the Central Government and the Appropriate Authority, who took us in detail through the provisions contained in Chapter XX-C and the decisions cited at the Bar. The contention advanced on behalf of the Central Government is that actual occupation of Shri Advani of the property by asserting rights of a lessee and filing a Suit for the purpose as also the inability of the transferor to deliver vacant possession of the property are relevant circumstances which are recognised in the provisions of Sections 269UE and 269UG, to afford a justification for the course adopted of the deposit of the purchase consideration with the Appropriate Authority instead of tendering or paying the same to the transferor or the transferee. Strong reliance has been placed on behalf of the Central Government on the decision of the Supreme Court in the case of C.B. Gautam (supra) and particularly certain observations made therein which we shall deal with in subsequent paragraphs of this judgment. The argument on behalf of the Central Government in substance is that the property vests in the Central Government on preemptive purchase `in terms of the agreement' of sale entered into between the parties. Under the terms of the agreement, the transferor has undertaken to obtain vacant possession of the property and deliver the same to the purchaser. The Central Government which stepped into the shoes of the purchaser can insist on delivery of vacant possession of the property. It is also contended that the actual occupier of the property, who is asserting rights of a lessee in the property, is covered by the definition of expression "person interested" as defined in clause (e) of sub-section (2) of Section 269UA. On vesting of property in Central Government, such lessee can claim only compensation for extinguishment of his rights as lessee, and is entitled to payment from the amount of consideration payable for the purchase of the property. Thus, there exists a dispute as to the apportionment of the amount of consideration between transferor and transferee on one side and Shri Advani, the alleged caretaker claiming leasehold rights on the property on the other. The existence of such dispute which is pending adjudication in civil suit furnishes a valid ground to the Central Government under sub-section (2) of Section 269UG to deposit the purchase consideration with the Appropriate Authority. ##. So far as the first ground of challenge to the impugned order dated 17-5-2000 (Exh. I) of preemptive purchase is considered, this Court finds no ground to quash the same. After due notice to the transferor, transferees and the person