Satish Balan and Others vs Union of India (UOI) and Others

D.G. Karnik, J.—By this petition, the petitioners challenge the order dated 22nd May 1995 passed by the respondent No. 2 � appropriate authority constituted under Chapter XXC of the Income Tax Act, 1961 acquiring the property bearing plot No. 70P, Suburban Scheme III, Chembur Garden, Chembur (for short �the said property�).

The respondent No. 3, who is represented by his legal representatives, was the owner of the said property. By an agreement of sale dated 10th February 1995, the respondent No. 3 agreed to sell the said property to the petitioners for a total consideration of Rs. 1,15,00,000/to be paid in two installments, that is to say Rs. 11,50,000/paid at the time of the agreement and the balance of Rs. 1,03,50,000/to be paid at the time of the sale which was to be completed within 4 months. In accordance with the provisions of Chapter XXC of the Income Tax Act (for short �the I.T. Act�), the petitioners and the respondent No. 3 filed a statement in Form No. 371 as required u/s 269UC of the I.T. Act. After notice to the petitioners and the respondent No. 3 and after giving them an opportunity of being heard, the appropriate authority (the respondent No. 2) passed an order acquiring the said property. That order is impugned in this petition.

Mr. Porus Kaka, learned Counsel appearing for the petitioners, assailed the order of acquisition on several grounds. He firstly submitted that in C.B. Gautam Vs. Union of India and Others, , the Supreme Court has held that the provision of preemptive purchase, for apparent consideration by the Government of the immovable property proposed to be transferred does not confer arbitrary or unfettered discretion on the appropriate authority to compulsorily purchase immovable properties. The acquisition is to be effected only when there is a significant undervaluation in the agreement of sale with a view to evade tax and an order of compulsory purchase of immovable property can be made only if the appropriate authority is satisfied that the apparent consideration, as shown in the agreement of sale, was less than the fair market value by 15% or more. Relying upon a decision of a Division Bench of this Court in Vimal Agarwal Vs. Appropriate Authority and others, , Mr. Kaka submitted that there might be several bonafide considerations which may induce a seller to sell his immovable property at less than the fair market value such as (a) the vendor might be in immediate need of money and unable to wait till a buyer is found who is willing to pay the fair market value for the property, (b) there might be some dispute as to the title to the immovable property as a result of which it might have to be sold at a price lower than the fair market value, or (c) there might be a subsisting lease/tenancy which would reduce the value of the property. Mr. Kaka submitted that the original respondent No. 3, who was the owner of the property, was aged and required immediate money in the evening of his life for medical treatment and other needs. He was in distress and therefore it was a distress sale which reduced the price. He secondly submitted that there was a sitting tenant occupying the whole of the structure standing on the said property. The tenant was also claiming right of possession over the entire open plot and the petitioners were necessarily required to take into consideration the encumbrance of a tenant and the cost redeeming it, i.e. the cost of obtaining possession from the tenant before they could develop the said property. Taking into consideration that cost, the market value of the said property was considerably reduced and the agreed price was not less than the market price by over 15% which was prerequisite for passing an order for compulsory acquisition of the said property. Mr. Kaka, thirdly, submitted that the sale instances relied upon by the appropriate authority were not comparable as they were sale instances of builtup commercial units/apartments while the said property was an open land with single storied structure wholly in occupation of a tenant. The sale instances relied upon by the appropriate authority were of the properties which were abutting the main SionTrombay Road while the property in question was situated in an interior area at a distance of about 3 km. from the properties of which sale instances were relied upon by the Department. The sales were therefore not comparable and were irrelevant for determining market value of the said property. He further submitted that the respondents had pointed out several sale instances of comparable properties or properties situated near the said property which were not properly considered by the appropriate authority. On proper consideration of the sale instances relied upon by the petitioners, the market value of the said property would be more or less equal to the agreed price. Mr. Kaka also handed over to us a map obtained from �Google Earth� showing the locations of the said property, properties of the sale instances relied upon by the petitioners and the properties of the sale instances relied upon by the appropriate authority in its order. Counsel for the respondents did not dispute the correctness of the said map which is taken by us on record.

Mr. Ashokan, the learned Counsel for the Union of India and the Appropriate Authority supported the impugned order. He submitted that the sale instances relied upon by the appropriate authority could be looked into after giving an appropriate discount for the better location as also the fact that they were of builtup commercial units and not of land. Since there were no sale instances of open land or land with a small structure constructed thereon, the sale instance of the builtup apartments could be referred to as a guide for arriving at proper valuation of the said property. Relying upon a decision of the Supreme Court in Union of India and Others Vs. M/s. Shatabadi Trading and Investment Pvt. Ltd. and Others, , he submitted that the scope of judicial review of an order passed by the appropriate authority under Chapter XXC of the I.T. Act was limited and no ground for interference in the decision of the appropriate authority was made out.

Mr. Soli Dastoor, learned Senior Advocate appearing for the respondent No. 3 � original owner, submitted that the agreement for sale was entered into on 10th February 1995, under which the respondent No. 3 was to get the entire consideration within a period of

4 months. However, after the order for compulsory acquisition of the said property was passed, the petitioners had filed the present petition and obtained a stay of the order. Neither the petitioners nor the respondent Nos. 1 and 2 have paid the balance consideration to the respondent No. 3. The petitioner No. 3 died waiting in vain to receive the consideration and, therefore, his heirs were entitled to interest at the rate of 20% per annum payable by the petitioners if the impugned order was set aside and at the rate of 15% per annum if the impugned order was upheld and the consideration was to be paid by the respondent Nos. 1 and 2. In support, he referred to and relied upon two decisions of the Supreme Court in Mrs. Rajalakshmi Narayanan Vs. Mrs. Margret Kathleen Gandhi and others, and Appropriate Authority, Income Tax Department Vs. R. Shanmuganathan, .

We have perused copies of the impugned order, the agreement of sale, declaration made by the petitioners and the respondent No. 3 in Form No. 371, report of the valuation officer attached to the office of the respondent No. 2 � appropriate authority, and the objections raised by the petitioners before the appropriate authority, which are annexed to the petition. We have also perused the affidavit in reply filed by Mr. Anup Agarwal, Deputy Commissioner of Income Tax opposing the petition.

In case of C.B. Gautam�s (supra), the Supreme Court has held that only when there is a significant undervaluation in the agreement of sale, that is to say where the apparent consideration falls short of the fair market value by 15% or more, then only the order for compulsory acquisition of the property can be made. We would therefore be required to consider whether the finding arrived at by the respondent No. 2 that the apparent consideration was substantially less than the market value, is in any way perverse. Perversity may arise on account of ignoring the materials produced by the parties before the respondent No. 2 or on account of looking to and taking into consideration the materials which were not admissible and/or where the finding is such that no reasonable person trained in law would, on the available materials, arrive at the conclusion arrived at by the appropriate authority.

For the purpose of ascertaining the market value of the said property, the appropriate authority relied upon the report of the valuation officer (see para 3 of the impugned order). The valuation officer has held that the area of the said property was 465 sq. m. and the permissible FSI was 0.75. Thus, the total buildable area of the said property was 3754 sq. ft. The said property consists of a land with single storied structure thereon, whole of which was let out to a tenant who was also in possession also of the entire open plot of the land. The builtup area in occupation of the tenant is 724 sq. ft. Relying upon the report of the valuation officer, the appropriate authority held that the FSI available for construction to the petitioners was 3754 � 724 = 3030 sq. ft., the discounted value of which as per the agreement was Rs. 1,12,41,407. The appropriate authority then held that the cost of accommodating the tenant before the purchaser could construct a new building was Rs. 4,34,400/. This was arrived at on the basis that the tenant would be required to be provided with equal accommodation of 724 sq. ft. in the new construction and the cost of construction of 724 sq. ft. builtup area at Rs. 700/per sq. ft. would come to Rs. 4,34,400/.

Mr. Kaka, learned Counsel for the petitioners, submitted that no tenant, who is in occupation of whole of the property and without whose consent and cooperation any construction and redevelopment of property is not possible, would agree to vacate the tenanted property by merely agreeing to receive in the new construction a flat of equal area only. Even if the proceedings were to be instituted against a tenant u/s 13(1)(hh) of the Bombay Rent Act as was in force at that time, still the landlord would be required to be provided similar accommodation to the tenant. The litigation would drag on for several years, if not decades, and therefore the owners would have to negotiate and offer much more area to the tenant. He further pointed out that without removal of the tenant, it was not possible to develop the property at all as the structure in possession of the tenant was in the middle of the said property which could not be developed without demolishing the existing structure. The tenant was also defacto in possession of the entire open land though there was a dispute whether he had a right to occupy the open space as a tenant or otherwise. Such a tenant would be also required to be compensated not only for the structure of which he was a lawful tenant, but also for the area of the open land in his possession. The tenant would thus demand much bigger area in the redeveloped property. Mr. Kaka put before us the three probabilities of the petitioners being required to give 1500 sq. ft. or 1250 sq. ft. or 1000 sq. ft. area to the tenant and submitted that if any one of these probabilities was taken into consideration, the value of accommodating a tenant arrived at Rs. 4,34,400/by the appropriate authority was abysmally low. We see considerable force in the contention of Mr. Kaka. We also notice that the appropriate authority has not given good reasons why it assumed that cost of settling the tenant was only Rs. 4,34,400/as held by the valuation officer. Acceptance of the valuation report prepared by the valuer attached to its office by the appropriate authority, in our view, suffers from nonapplication of mind. In any event, the appropriate authority has not disclosed reasons why the report was accepted by it in the light of the submissions of the petitioners.

The appropriate authority has relied upon the three sale instances brought to its notice by the valuation officer for estimating market value of the said property. The two sale instances viz. case No. 16260 and case No. 17841 are in respect of commercial apartments situated in Corporate Park and Swastik Chambers which abut main SionTrombay Road. The third sale instance viz. case no 17529 is in respect of a residential apartment situate in Bezzola Complex which is also situated on the main SionTrombay Road and adjoining to the Corporate Park. The prices in respect of commercial properties for the first two sale instances were Rs. 9,405/and Rs. 9,794/per sq. ft. of builtup area while the sale of residential property was effected at Rs. 6,906/per sq. ft. of builtup area. All the three sale instances are in respect of builtup apartments forming part of the buildings. Further more, all the three properties were abutting the main SionTrombay Road whereas the said property is situated at a distance of about 3 km. from the apartments. The said property is situated in an interior and from the �Google Earth� map, we see that it is not abutting any main road. Besides, the order does not show how from the sale instances of commercial builtup apartments and a residential apartment, the value of a plot of land with a small single storied structure standing thereon was derved. We do not want to suggest that the market value of an open flat on which the apartment stands, the land value cannot be estimated. But some calculations would have to be made and some assumptions would also be required to be made for doing so. They have not been made or explained in the order of the appropriate authority. On the other hand, the petitioners have relied upon a sale instance at case No. 16669. Therein, the property was land with building and an agreement for sale was entered in October 1994. The deal transacted at Rs. 2,106/per sq. ft. The property was acquired u/s 169UD of the I.T. Act and on auction the property was sold at Rs. 5,076/per sq. ft. on 26th April 1995. For passing the order of acquisition u/s 269UD of I.T. Act, the I.T. Department had determined its fair market value at Rs. 3,700/per sq. ft. of FSI as on 24th February 1995. Thus, according to the Department, the fair market value of the property in case No. 16669 was Rs. 3,700/per sq. ft. on 24th February 1995 which very close to the date of agreement in the present case which is dated 10th February 1995. In para 9(v) of the impugned order, the respondent No. 1 has stated that the valuation officer has determined the value for the balance FSI of the said property at Rs. 3,836/per sq. ft. of FSI, which is higher than the market value of the property at sale instance case No. 16669 at Rs. 3,700/per sq. ft. of FSI. The appropriate authority has not given good reasons why it did not consider this instance to be comparable.

We are satisfied that the order of the appropriate authority suffers from following vices:

(i) The value of encumbrance of the tenancy has not been property calculated by the appropriate authority.

(ii) The appropriate authority has not given good reasons why it considered the three sale instances, viz. Case Nos. 16260, 17841 and 17529, as comparable and how it arrived at the value of an open plot of land with building occupying a small part of it on the basis of sale instances of builtup commercial/residential apartments.

(iii) The apparent authority has also not given good reasons why sale instance bearing case No. 16669 relied upon by the petitioners was not considered as comparable and why the price of the said property was not determined on the basis of the said sale instance.

For these reasons, the impugned order is required to be and accordingly is set aside and the matter is remanded back to the respondent No. 2 for deciding it afresh in the light of what is stated in para 11 above. Considering that the proceedings commenced in 1995, the appropriate authority to dispose off the proceedings not later than six months from today.

Since the matter is being remanded back to the respondent No. 2, we do not consider it necessary to answer the contentions regarding interest raised by the respondent No. 1. The heirs of respondent No. 3 shall however be entitled to put up their case regarding interest before the appropriate authority which it shall consider on its own merits.

Rule is made absolute to the extent indicated above.