Ashwin Bhagwandas Choksey vs Appropriate Authorities

S.C. Gupte, J.(Oral)—This petition is filed under Article 226 of the Constitution of India by Petitioners, who are auction purchasers of a property acquired by the Appropriate Authority under Chapter XXC of the Income-Tax Act 1961. The petition challenges a decision of the Appropriate Authority calling upon the Petitioners to pay ''unearned incremental charges'' demanded by the original owner of the property, namely, Collector of Mumbai in respect of the property.

The short facts of the case may be stated as follows :

The petition concerns an immovable property, being leasehold Plot No.100 situated in Government Industrial Estate at Kandivili, Mumbai along with the industrial building constructed thereon. This property was given on lease by the Government of Maharashtra through Additional Collector, Mumbai Suburban District to one M/s. Superphone India Ltd. ("Superphone") for a term of 30 years at an annual rent and on terms and conditions set out in the lease. By an agreement between Superphone and one M/s. Scitech Center ("Scitech"), Superphone agreed to sell, transfer and assign this property for a consideration of Rs. 64,19,700/- to Scitech. In pursuance of the proposed sale, Form No.37I under Chapter XXC of the Income Tax Act, 1961 was filed by the parties for the requisite permission of the Appropriate Authority for assignment of leasehold rights. In pursuance of this application, the Appropriate Authority exercised its option under Section 269UD of the Income Tax Act for purchase of the property. The property was, accordingly, acquired by the Appropriate Authority and, thereafter, put up for a public auction. In pursuance of the public auction, the Petitioners, as highest bidders in the auction sale, were declared the purchasers of the property. The Petitioners paid the purchase price to the Appropriate Authority and were put in possession of the property. Subsequent to this purchase, whilst the matter of execution of the conveyance was pending, the Collector of Mumbai raised a demand for Rs.3,42,000/- as unearned incremental charges payable to the Collector in accordance with the terms of the original lease consequent upon the transfer of the property. This demand was made on the Petitioners. The Petitioners, in turn, called upon the Appropriate Authority to pay these incremental charges. The Appropriate Authority, however, by its impugned notice dated 24 June 1991, took up a stand that the responsibility to pay this sum was of the auction purchaser and called upon the Petitioners to pay the same so as to obtain the necessary permission of the Collector for execution of the deed of conveyance. This notice/demand is challenged by the Petitioners in the present petition.

At the outset it is important to note that the Petitioners do not challenge the demand of unearned incremental charges raised by the Collector of Mumbai per se. What they challenge is the fastening of the liability to pay such charges on the Petitioners as auction purchasers. It is their case that these charges ought to be paid by the vendor, i.e. the Appropriate Authority.

The demand of unearned incremental charges is made by the Collector in pursuance of a stipulation contained in the original lease deed in favour of Super phone. The clause (Clause 10) is extracted below :

"The Lessee shall not at any time, assign under let the said plot or any part thereof or otherwise transfer his rights or interest under this lease to anybody without the previous consent in writing of the Collector and it shall be open to the Collector while granting such consent to impose a condition requiring the lessee to pay to the Government half the unearned increment in the event of any assignment under letting or transfer as above whether out right or as a result of an unredeemed mortgage and every such assignee, under lessee or transfer or shall use the said plot only for the purpose of which it has been let out under the terms hereto."

It is the case of the Appropriate Authority that the property was auctioned by the Income Tax Department on "as is where is" basis and any liability accruing subsequent to the sale or any liability coming to the notice of the transferee after the sale and not in the knowledge of the department at the time of the sale is the liability of the auction purchaser.

The answer to the question as to whether payment of unearned incremental charges demanded by the Collector of Mumbai is the responsibility of the Appropriate Authority as the assignor of the leasehold interest or of the Petitioners as the auction purchaser, will have to be considered on the basis of the terms and conditions of the auction sale. The relevant conditions of the auction sale, which are not in dispute, are set out below:

"12. All expenses for conveyance including legal charges, stamp duty and registration fees, as applicable, will have to be borne but the purchaser. The purchaser will also have to pay all outstandings pertaining to the property. Details of outstandings known to the I.T. Department will be announced at the time of the auction."

"16. The properties are sold in the same state and condition as they stand at the time of completion of sale. The said properties shall remain at the sole risk of the purchaser from the date of his taking possession or signing the conveyance deed, whichever is earlier."

"17. The intending purchaser shall abide by the orders of the Government of Maharashtra, passed form time to time, under Section 22 of the Maharashtra Cooperative Societies Act, 1960, regulating the membership of the Cooperative Societies, MIDC Regulations, BMC Regulations, Urban Land Ceiling Act, or any other relevant laws/regulations etc. as the case may be."

In accordance with these conditions, it is only the outstandings known to the IT Department, which have to be announced at the time of the sale. The sale itself is on "as is where is" basis. If any demand is made towards any outstandings pertaining to the property, which were not known at the time of the auction, the responsibility to honour such demand is clearly that of the auction purchaser. The clause unequivocally requires the purchaser to pay all outstandings pertaining to the property. Any order of the Government of Maharashtra under any relevant law or regulation in respect of the subject property must be honoured by the auction purchaser. Such order would include any demand made by the State Government as head lessor and enforceable under the Maharashtra Land Revenue Code.

Learned Counsel for the Petitioners relies on Clause 10 of the lease deed quoted above and contends that the obligation to obtain a prior permission or consent in writing of the Collector of Bombay or Additional Collector, as the case may be, for effectuating the transfer of the auction premises and to pay any demand of unearned increment is that of the assignors. The submission is that the Appropriate Authority, after vesting of the property under Chapter XXC of the Income Tax Act, steps into the shoes of the assignors, namely, Super phone. We are afraid that is not a correct reading of the law. The vesting has occurred in the present case prior to the decision of the Supreme Court in the case of C.B. Gautam v. Union of India, (1993) 199 ITR 530 (SC); (1993) 1 SCC 78 and the amendments introduced by Finance Act, 1993 to the Income Tax Act after that case. Such vesting as on the material date is free of any encumbrances. There is no question, in the premises, of the Appropriate Authority being subjected to any of the commitments or obligations of the original assignors.

The relevant clause of the lease deed, quoted above, gave an option to the Collector to require payment of half unearned incremental charges in the event of any assignment or transfer. The Collector chose to raise such demand after the auction purchase was effected. These charges were not known to the Department at the time the auction sale was effected. Such demand would obviously be covered, as we have noted above, in the conditions of sale quoted above.

In the premises, there is no merit in the challenge to the demand of the unearned incremental charges from the Petitioners. The Petitioners'' contention that the demand must be honoured by the Appropriate Authority, is without any substance.

Rule is, accordingly, discharged and the petition dismissed.

In pursuance of the interim order passed by this Court on 14 October 1991, the State (Respondent Nos. 3 and 4) was directed to give permission for assignment of lease in favour of the Petitioners on the Petitioners'' furnishing a bond to Respondent No.3 to pay the sum of Rs.3,42,400/- if called upon to do so, as a result of the outcome of this petition. In pursuance of these directions, the Respondents gave their permission and the assignment of lease has been, accordingly, executed in favour of the Petitioners on 27 December 1991. Now that the petition is dismissed, the Petitioners shall pay the amount of Rs.3,42,000/- to Respondent No.3 in accordance with the bond within four weeks.