1. By this petition filed under art. 226 of the constitution of India the petitioners are challenging the legality of the notice under s. 269D(1) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), served on the petitioners by the competent authority, namely, the Inspecting Assistant Commissioner of Income-tax, Acquisition Range I, Bombay, on August 27, 1974.
2. The facts which have given rise to these proceedings are required to be noted briefly. An immovable property admeasuring about 5,160 square metres situated at Kurla and bearing old Survey No. 72 was mortgaged by the owners, Messrs. Turakhia Syndicate, in favour of the trustees of Shree Lohana Sthapit Mahila Vikas Griha Trust. The mortgagors failed to clear the mortgage dues, and as per the covenants, the property was put to auction. The advertisement appeared in the newspapers on December 13, 1971, and the petitioners purchased a portion of the property admeasuring 3,495.02 square metres on December 17, 1971, for a sum of Rs. 5,80,000. The conveyance was duly executed on May 4, 1972, and registered on November 16, 1979.
3. In the meanwhile, the Competent Authority served the impugned notice upon the petitioners. The notice, inter alia, states that the Competent Authority has reason to believe that the immovable property, the value of which exceeds Rs. 25,000, has been transferred by the trustees in favour of the petitioners for an apparent consideration which is less than the fair market value of the property. The notice was issued by the Competent Authority as the transfer attracted the provisions of s. 269C of the Act giving rise to the Competent Authority to acquire the property. The petition has been filed to challenge the initiation of the proceedings by the Competent Authority.
4. Mrs. Nanavati, the learned counsel appearing in support of the petition, submitted that the assumption of jurisdiction by the Competent Authority under s. 269C of the Act was totally erroneous. The learned counsel submitted that the provisions of s. 269C would attract provided the consideration for the transfer is agreed to between the parties. In the present case, the consideration was not by agreement between the transferor and the petitioners, but the property was purchased in an auction. Section 269C(1) of the Act reads as under :
'269C. Immovable property in respect of which proceedings for acquisition may be taken. - (1) Where the competent authority has reason to believe that any immovable property of a fair market value exceeding twenty-five thousand rupees has been transferred by a person (hereafter in this Chapter referred to as the transferor) to another person (hereafter in this Chapter referred to as the transferee) for an apparent consideration which is less than the fair market value of the property and that the consideration for such transfer as agreed to between the parties has not been truly stated in the instrument of transfer with the object of -
(a) facilitating the reduction or evasion of the liability of the transferor to pay tax under this Act in respect of any income arising from the transfer; or
(b) facilitating the concealment of any income or any moneys or other assets which have not been or which ought to be disclosed by the transferee for the purposes of the Indian Income-tax Act, 1922 (XI of 1922), or this Act or the Wealth-tax Act, 1957 (XXVII of 1957);
the competent authority may, subject to the provisions of this Chapter, initiate proceedings for the acquisition of such property under this Chapter :
Provided that before initiating such proceedings, the competent authority shall record his reasons for doing so :
Provided further that no such proceedings shall be initiated unless the competent authority has reason to believe that the fair market value of the property exceeds the apparent consideration therefor by more than fifteen per cent. of such apparent consideration.'
4. The plain reading of this section indicates that the competent authority can assume jurisdiction provided the consideration for the transaction is one which is agreed to between the parties. In the case of an auction it is impossible to hold that the price for the transfer was by an agreement between the parties. In this view of the matter, the assumption of jurisdiction by the competent authority under section 269C of the Act was obviously without any basis.
5. Shri Pradhan, appearing on behalf of the department, urges that the petitioners should not be granted relief in these proceedings because the competent authority has merely served a notice under section 269D of the Act and it is open to the petitioners to raise this contention in that inquiry. It was also urged that an appeal is provided in case the petitioners are aggrieved. In my judgment, there is no merit in the submissions made on behalf of the Department. The grievance of the petitioners is in respect of the assumption of jurisdiction, and no notice could be issued by the competent authority unless the basic requirements of section 269C of the Act are satisfied. In these circumstances, no valid purpose would be served by directing the petitioners to appear before the competent authority. On the other hand, it would merely lead to multiplicity of proceedings. In these circumstances, the petitioners are entitled to the relief sought in the petition.
6. Accordingly, the rule is made absolute in terms of prayer (b) of the petition. In the circumstances of the case, there will be no order as to costs.