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A-z (industrial) Premises Vs. Competent Authority, Iac - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Mumbai
Decided On
Judge
Reported in(1985)12ITD451(Mum.)
AppellantA-z (industrial) Premises
RespondentCompetent Authority, Iac
Excerpt:
1. these two appeals are filed by a-z (industrial) premises co-operative society ltd. and by shri n.m. virwani, against the order of acquisition passed by the competent authority under section 269f(6) of the income-tax act, 1961 ('the act'), dated 24-2-1984 acquiring property consisting of leasehold land measuring 17,199 sq. yards along with structures constructed thereon bearing c.s. no. 1/265, 267, 439, 440, 2/267 and 3/267 of lower parel division,, bombay.2. the facts relating to these appeals are that by an indenture of lease dated 21-5-1966, amrut banaspati com. ltd., a company limited under the companies act, 1956, leased to virwani construction co., a proprietary concern of shri n.m. virwani ('the lessee'), a piece and parcel of vacant land measuring in the aggregate 17,199 sq......
Judgment:
1. These two appeals are filed by A-Z (Industrial) Premises Co-operative Society Ltd. and by Shri N.M. Virwani, against the order of acquisition passed by the competent authority under Section 269F(6) of the Income-tax Act, 1961 ('the Act'), dated 24-2-1984 acquiring property consisting of leasehold land measuring 17,199 sq. yards along with structures constructed thereon bearing C.S. No. 1/265, 267, 439, 440, 2/267 and 3/267 of Lower Parel Division,, Bombay.

2. The facts relating to these appeals are that by an indenture of lease dated 21-5-1966, Amrut Banaspati Com. Ltd., a company limited under the Companies Act, 1956, leased to Virwani Construction Co., a proprietary concern of Shri N.M. Virwani ('the lessee'), a piece and parcel of vacant land measuring in the aggregate 17,199 sq. yards equivalent to 14,380 sq. metres situated at Fergusson Road, Parel, Bombay, for a period of 98 years from 21-5-1966 subject to payment of a monthly rental of Rs. 35,258. In pursuance of this lease agreement, the lessee entered into possession of the land and commenced construction of buildings thereon, to be used as an industrial estate. The lessee entered into agreements with several parties ('the unit-holders'), for the sale to them of the different industrial units on the terms and conditions contained in the respective agreements, with the said unit-holders. The agreements, for the sale of these industrial units to the unit-holders, are stereotyped and are in a printed form, a specimen copy of which has been supplied to us. According to these agreements for sale, the lessee constructed units and sold to the respective unit-holders the units selected by each of them. There are some 368 units in this industrial estate, covering 2,27,422 sq. ft. floor area.

As per the terms of the sale agreements, the price was agreed to be paid in certain instalments. The possession of the units would be delivered to the unit-holders after the structure was made ready for use and occupation, provided the agreed consideration was paid to the lessee. Upon possession of the units, being delivered by the lessee to the unit-holders, the latter would be entitled to use and keep the said units. The unit-holders would carry on, on the premises, a 'service industry', meaning thereby a light industry ancillary to various large industrial establishments in the neighbourhood. On the completion of the entire structure and on receipt by the lessee of full payment for all the amounts due and payable to him by all the unit-holders, the lessee would co-operate with the unit-holders in incorporating a private limited company or a co-operative society. The rights of the members of the private limited company or the co-operative society would be subject to the rights of the lessee, under the agreement to sell, and the lease or assignment to be executed in pursuance of this agreement. Ambubhai & Diwanji, a firm of solicitors, would prepare an assignment and all other documents to be executed in pursuance of the agreement to sell, as also the memorandum and articles of association in connection with the formation, registration and/or incorporation of a private limited company or a co-operative society. The unit-holders would deposit an amount of Rs. 500 each towards the proportionate share of the cost of secretarial work, connected with the incorporation of the private limited company/co-operative society.

3. It appears that in pursuance of these agreements between the lessee and the unit-holders, a co-operative society was formed by the name of A-Z (Industrial) Premises Co-operative Society Ltd. ('the society'). An agreement was, thereafter, entered into on 14-7-1972 between the lessee and the society, whereby in consideration of the aggregate sum of Rs. 80,50,960, already received by the lessee from the respective unit-holders prior to the formation of the society, the lessee at the request and under the direction of the unit-holders, who had formed themselves into a cooperative society, assigned, transferred and assured to the society all that leasehold piece and parcel of land, together with the structures standing thereon known as A-Z (Industrial) Premises Co-operative Society, together with the benefits of the covenant contained in the deed of lease executed by Amrut Banaspati Co.

Ltd. in favour of the lessee for the period of 98 years from 21-5-1966, i.e., the date of the execution of the original lease deed by Amrut Banaspati Co. Ltd. in favour of the lessee.

4. The competent authority took note of the deed dated 17-4-1972, whereby the lessee assigned the property to the co-operative society for an apparent consideration of Rs. 80,50,960. He was of the opinion that the apparent consideration was far below the fair market value of the property. He, therefore, got the entire property valued by the District Valuation Officer (DVO), attached to the Income-tax Department. The DVO, by his report dated 29-6-1977, valued the property at Rs. 1,45,50,000. The competent authority was, therefore, satisfied that the valuation made by the DVO represented the fair market value of the property. In this view of the matter, he had reason to believe that (i) the immovable property was of a fair market value exceeding Rs. 25,000 ; (ii) fair market value of such property exceeded the apparent consideration, therefore, by more than 15 per cent of such apparent consideration ; and (iii) the consideration for such transfer, as agreed to between the parties, had not been fully stated in the instrument of transfer with the object of facilitating the reduction or evasion of the liability of the transferor to tax, in respect of any income, including capital gains arising on the transfer or facilitating concealment of any income or any money or any other assets which had not been or which ought to have been disclosed by the transferee for the purposes of the Indian Income-tax Act, 1922, or the Income-tax Act, 1961 or the Wealth-tax Act, 1957. He, therefore, directed the proceedings for the acquisition of this property to be initiated under Section 269D of the Act. The competent authority got the proclamation made as required under Section 269D(2)(b). Further, copies of the notices under Section 269D(1) were duly served both on the transferor and the transferee. Thereafter, he issued notices under Section 269F(1) to the transferor and the transferee from time to time. On behalf of the society, the main objection taken was, to the fact, that the DVO's report was as on 14-7-1972, whereas the sales were effected on the units to the unit-holders on 1966 onwards. For the reasons recorded by the competent authority in his order, he found no substance in the objection on behalf of the society on this ground. The competent authority found that the sales of the units by the lessee to the unit-holders were spread over from 1966 to 1971. From the various valuation reports seen by him, it was evident that the cost of the construction in 1966 was Rs. 28 per sq. ft., rising to Rs. 45 per sq.

ft. in 1972. At a very conservative estimate, according to informal inquiries made by the competent authority from the professionals, the cost of construction for various years from 1966 to 1971 could be taken at Rs. 28 to Rs. 39 per sq. ft. Based on the yearwise distribution of sales of units, as mentioned above, the weighted average rate worked out to Rs. 34.11 per sq. ft. of the plinth area. By applying this valuation to the total plinth area of the estate amounting to 3,14,490 sq. ft., the fair market value was arrived at Rs. 1,07,27,254. Even this amount, according to him, exceeded the apparent consideration not only by 15 per cent but also by 25 per cent. He further proceeded to observe that the transferor, i.e., the lessee, was liable to income-tax. According to him, the advantages both to the lessee and the unit-holders by understating the value in the instrument of transfer, were obvious. Under the provisions of Section 269C(2)(a) of the Act, this was conclusive proof that the consideration for the transfer, as agreed to between the parties, has not been truly stated in the instrument of transfer. According to him, the presumption, as mentioned in Section 269C(2)(b), also arose in this case. In view of this matter, he was of the opinion that (a) the property transferred was of a fair market value exceeding Rs. 25,000 ; (b) that the fair market value of the property exceeded the apparent consideration by more than 15 per cent thereof ; and (c) the consideration for such transfer, as agreed to between the parties, had not been truly stated in the instrument of transfer with the objects mentioned in Section 269C(1).

5. In exercise of the powers conferred on him as the competent authority, in respect of the area in which the property was situated and after obtaining the approval of the Commissioner, he ordered that the property, being the leasehold land measuring 17,199 sq. yards together with the structures now standing thereon, to be acquired under the provisions of Chapter XX-A of the Act.

6. The society has filed this appeal before the Tribunal on various grounds ; firstly, objecting to the initiation of the proceedings for acquisition of the entire property ; secondly, objecting to the service of the notice under Section 269D(1) only on the transferor, i.e., the lessee, and the transferee, i.e., the society, and not serving the notices on the various purchasers of the units in the industrial estate. Further, the society has objected to the observation by the competent authority that the society had not produced any worthwhile evidence to support its claim. The society was duly represented by the registered valuer before the competent authority, as provided under Section 269-0 of the Act, and all the evidence regarding the valuation of the properly under consideration was produced before the competent authority as well as the DVO. Further, objection is taken to the competent authority not accepting the valuation given by the society's registered valuer of Rs. 77 lakhs, and not properly appreciated the basis for such valuation. Objection is also taken to the competent authority overlooking the fresh report of the DVO, which was apparently sent to him after the society put in an appearance before the DVO and submitted the evidence as required by him. The society has also objected to the action of the competent authority in not disclosing to the society at any stage of the proceedings, the nature of inquiries made by him and the information gathered by him and in ignoring the evidence and the material submitted by the society, as required by the DVO, on the reference made to the DVO by the competent authority. The competent authority had erred, according to the society, in not supplying to the society a copy of the fresh valuation report understood to have been submitted by the DVO to him in response to a reference made to the DVO by the competent authority. Objection is also taken to the competent authority relying on one-sided information and evidence gathered by him, without giving an opportunity to the society, to counter the same. Objection is also taken to the Commissioner according his approval to the impugned order of the competent authority, without giving a reasonable opportunity to the society of being heard. It was finally submitted by the society that the conditions, specified in Section 269F(6), were not duly satisfied in this case and the order of the competent authority for acquisition of the immovable property was bad in law and may, therefore, be quashed or cancelled. During the course of the hearing of the appeal, the society has also objected to the transaction being treated as a sale of the entire industrial estate. It was merely an assignment of the lease.

7. The transferor, i.e., the lessee, in this case, has also appealed against the order of the competent authority on the ground that there was no justification for initiating the proceedings under Section 269F(6). Further objection is taken also to the notice not being given to the unit-holders, but only to the lessee and the society. Objection is also taken to the non-acceptance by the competent authority of the valuation of Rs. 77 lakhs, made by the registered valuer for the society. The lessee has, therefore, prayed for the cancellation of the acquisition order passed by the competent authority.

8. Arguing on behalf of the society, Shri D.M. Harish, the learned Counsel, has proceeded to invite our attention to the transfer deed dated 14-7-1972 between Shri Virwani, the lessee, and the society. It is submitted that the units of various sizes were sold to the 368 purchasers as listed at pages 21 to 29 of the paper book. The dates on which the respective units were sold, the areas of the respective units and the price for which these units were sold to them, were also mentioned in the list. These sales were effected as per the specimen agreement for sale, at pages 30 to 45 of the paper book. As per the terms and conditions of this agreement, the sale of the nuit to the nuit-holders was complete in all respects on the date on which the last instalment of the payment was made by the unit-holder and the possession thereof was given to the unit-holder. All further action to be taken in respect of the unit, such as its upkeep, payment of municipal charges, electricity charges, water charges, etc., had to be borne by the respective unit-holder, with effect from the date on which the possession was given to the unit-holder. The only right pertaining to the industrial unit which continued to remain with the lessee, i.e., the lease of the land on which the industrial estate was constructed, was also agreed to be transferred to the society or a private limited company, whichever the unit-holders found convenient to incorporate.

The lessee had no intention of retaining any part of the ownership over the property with himself. This was very clear from the terms of the agreements for the sale of the units to the unit-holders. As per the list at pages 21 to 29 of the paper book, the lessee had sold 2,57,422 sq. ft. carpet area to these unit-holders for the total amount of Rs. 80,50,960. This was the amount incidentally mentioned in the conveyance deed, now under consideration, as a historical event leading to the assignment of the lease to the society. Some of the units were sold for Rs. 35 per sq. ft., some were sold at Rs. 30 per sq. ft. and some were sold at Rs. 25 per sq. ft. The average price came to Rs. 31.28 per sq.

ft.

9. Referring to the note recorded by the competent authority for initiation of the acquisition proceedings in respect of this estate at pages 12 and 13 of the paper book, the learned Counsel has proceeded to point out that the competent authority has mentioned that it was found, that the apparent consideration was far below the fair market value of the property. The competent authority has not mentioned any basis for this comment. No local inquiry was ever made. No comparable cases have been indicated. No source of information has been indicated. For arriving at any conclusion regarding the adequacy or otherwise of the consideration, the competent authority should have relied on some specific material, which has not been done.

10. Further, Shri Harish has proceeded to invite our attention to the valuation report submitted by Shri S.G. Vaidya, the DVO, at pages 13 to 17 of the paper book, The valuation report is as on 14-7-1972, i.e., the date of the conveyance. Actually, the units have been sold over a large span of time from April 1966 to 27-8-1970, i.e., a period well over four years. Even the last sale was completed two years before the date on which the valuation was made by the DVO. Referring to the contents of the valuation report, it is brought to our notice that in paragraph No. 6.4 (p. 16 of the paper book), the valuation report has mentioned that keeping in view the specifications and condition of the buildings, reproduction rate of Rs. 45 per sq. ft. of plinth area, including area of balconies, was considered reasonable by the Valuation Officer. He had further added that an amount of Rs. 4 lakhs was added over this towards the cost of lifts, tube-well, suction and overhead tank, paving, etc. Here again, there was no basis for the valuation arrived at on this hypothetical figure of Rs. 45 per sq. ft. There was no sale in the locality near about the date of conveyance for which the DVO has proceeded to value the estate.

11. In the notice of acquisition under Section 269D(1), dated 13-7-1977, the competent authority has proceeded to observe that the conveyance deed was dated 14-7-1972, which was registered on 1-11-1976.

The learned Counsel has proceeded to argue that the law for the acquisition of immovable property was introduced by the insertion of Chapter XX-A in the Act with effect from 15-11-1972. According to him, the competent authority was invested with the power to acquire the property with effect from 15-11-1972. He could not have proceeded to acquire the property which was already conveyed to the unit-holders between 1966 to 1970, the leasehold of which was transferred from the lessee to the society in July 1972.

12. Referring to the specimen agreement to sell, at pages 30 to 45 of the paper book in Clause 1, it was mentioned that the lessee had transferred a specific unit with a specific area to the respective unit-holders for a specific price. The area mentioned in this agreement is the carpet area. For example, for unit No. 204, in respect of which a xerox copy of the agreement to sell has been filed, the carpet area was 1,085 sq. ft. This was sold for Rs. 32,635. Some of the units in the higher storeys were with the additional advantage of a balcony in front of the lift and the lessee had taken half area of the balcony into consideration. As against this, from the report of the DVO, it is seen that he (DVO) has taken the entire plinth area of the estate into consideration without making any deduction for the area covered for the walls, staircases, lavatories, lift shaft, etc. He has merely taken the outer dimension of the building for applying a flat rate of Rs. 45, unconcerned with the fact that there were six staircases in the building with six lifts and a 6 ft. wide corridor running through the entire length of the estate on all the storeys, with four lavatory blocks on each floor of the building.

13. As against this, the learned Counsel has proceeded to argue that the society had filed a valuation report by a registered valuer before the competent authority in the proceedings before him. A copy of this registered valuer's report, namely, that of M.B. Sabnis & Co., the consulting engineer, was placed at pages 46 to 49 of the paper book.

Here, the registered valuer has taken note of the facts relevant for the valuation of the entire estate. In the report at page 47 of the paper book, the valuer has mentioned that the units were being sold as the construction of the building progressed. Hence, for valuation of the estate, the prevailing rates during 1966-67 and 1967-68, had to be taken since the work has already been completed during 1968-69. In the report, the valuer has proceeded to observe that the lifts, w.c.

blocks, water arrangements, drainage arrangements, electrical arrangements and roads were common and the cost of these were distributed on all the units. It is stated, that Excell lifts were used in the estate. He has taken due note of the fact that the lifts in that period were costing Rs. 10,000 per floor for industrial purposes.

Height of each floor was twelve and a half ft., which indicated that the units were of light industrial type, and this fact was ascertained after inspection of the various units of the estate. The valuer has proceeded to observe that there were no decorative features in the estate. The terrace was finished with Indian patent stone for waterproofing. The steel doors were of ordinary type with rolling shutters. He has proceeded to observe that the rates for construction for the various items involved had been taken as per the rates that were prevailing in the Bombay Port Trust in 1967, which have been taken into consideration. Further, the valuer has proceeded to measure the cubic contents of the estate and applied the Bombay Port Trust rates for its construction as per the type of construction. The total cost of the building has been arrived at Rs. 68.5 lakhs, to which has been added Rs. 1.5 lakhs for a canteen building which is a ground floor structure. Thus, the total cost arrived at was Rs. 70 lakhs. Adding thereof 10 per cent of the estimated builder's profit, the valuation for the entire estate has been arrived at Rs. 77 lakhs.

14. The learned Counsel has, after showing the superficial nature of the DVO's report, vis-a-vis, the valuation report furnished by the registered valuer, after a thorough inspection and physical measurement of the cubical contents of the building, proceeded to explain why the valuation was made for January 1968. The construction was commenced on 9-12-1965, as per the commencement certificate issued by the municipal corporation. Actually, the first set of the units were already sold in April 1966, and that is why the registered valuer has proceeded to value the units at 1967 rates, whereas the learned DVO has valued the property at the rates prevailing in 1972. The learned Counsel has proceeded to invite our attention to the completion certificate issued by the municipal corporation on 8-5-1970 (p. 120A of the paper book), where the municipal corporation has taken note of the fact that the lessee had filed a completion certificate on 9-10-1969. The completion certificate could not have been filed on this date unless on that date not only the building construction was completed, but all the statutory requirements necessary under the Bombay Municipal Corporation Act were complied with.

15. It is argued by the learned Counsel for the society, that the competent authority had no material before him except the report of the DVO at the time of initiating the proceedings under Section 269C. In this connection, the learned Counsel for the society has invited our attention to the Bombay High Court decision in the case of Unique Associates Co-op. Hsg. Society Ltd. v. Union of India [1984] 16 Taxman 127 dated 8-11-1983. He has furnished a copy for ready reference placed at page 133 of the paper book. Following the Supreme Court decision in the case of K P. Varghese v. ITO [1981] 131 ITR 597, the Bombay High Court has observed in paragraph No. 9 of its decision that the observations of the Supreme Court in the case of K.P. Varghese (supra), though in different context, could be well applied while construing the provisions of Section 269C. Indeed, the powers to be exercised under Section 269C are circumscribed by various conditions which are set out in the section itself. According to the learned Judge of the Bombay High Court, the submissions on behalf of the petitioner that the competent authority had no jurisdiction to initiate the proceedings in that case because there was no material whatsoever to come to the conclusion that the consideration stated in the instrument of transfer was not the true consideration, and such understatement was made with the object of facilitating the reduction or evasion of the tax, deserved acceptance. The powers under Section 269C could be exercised, provided the requisite conditions for exercise of the powers were satisfied. According to the learned Judge, in the absence of any material whatsoever available to the competent authority, it was impossible for any reasonable or prudent man to reach the conclusion that the consideration stated in the instrument of transfer was untrue and that was done with the object of facilitating the reduction or evasion of tax. Proceeding further, the learned Judge has proceeded to observe, that what we were interpreting was a taxing statute, and while interpreting the same, a very strict compliance with the legal provisions was necessary. He proceeded to observe that the presumption under Section 269C(2) was not available at the initial stage.

16. Thus, briefly, the argument on behalf of the society, to the report submitted by the DVO is that the report is for the valuation of the property as on 14-7-1972, whereas actually the units were constructed much earlier and in fact the first set of several units were sold as far back as April 1966. Therefore, the DVO's report was wholly irrelevant for determining the issue, whether the society had understated the consideration for the purpose of the conveyance deed.

Further, the learned Counsel has submitted that the DVO has proceeded to value the entire industrial estate by merely measuring the outer dimension of the property taking the entire plinth area into consideration, whereas the units were sold by the lessee, i.e., the promoter of the industrial estate, on the carpet area basis. Finally, it is the submission on behalf of the society that the rate of Rs. 45 per sq. ft. was totally arbitrary and wholly unsupported by any comparable case. It was argued on behalf of the society that not only it has not been established, but it has not even been hinted that the price stated in the document was not true. The motive, as required to be established under Section 269C, has not been brought out. Unless the competent authority was able to establish that the price stated in the conveyance was 'untrue' and not merely lower, the proceedings under Chapter XX-A did not lie. Further, the learned Counsel has proceeded to argue that the very basis on which the entire proceedings have been started, namely, the DVO's report has been rejected by the competent authority himself in paragraph No. 7 of his order. The competent authority had proceeded to value the property at Rs. 34.11 per sq. ft., as against Rs. 45 determined by the DVO. The competent authority himself had knocked the bottom of his own ease. It was obligatory on the part of the competent authority to establish that something more had passed by way of consideration, over and above what was stated in the conveyance deed. This onus was not discharged by the competent authority.

17. The learned Counsel has proceeded to refer to another Bombay High Court decision in the case of Blue Star Ltd. v. Santosh Datta [1983] 15 Taxman 548. It is pointed out that in this case, the Bombay High Court had held that the competent authority could not have proceeded to value the property as on the date of the conveyance. What was relevant, was the value of the property as on the date on which it was agreed to be sold.18. Referring to paragraph No. 7 of the order of the competent authority the learned Counsel has proceeded to argue that no reasons have been assigned by the competent authority to show that the valuation report submitted by the society was found wanting. Further, he has not even mentioned that he has rejected the report. The competent authority has proceeded to observe that as a result of the informal inquiries made by him from professionals, it was found that the cost of construction for the relevant years was from Rs. 28 to 39 per sq. ft. What was the nature of the inquiries Why were the results of such inquiries not made available to the society for refuting the same Who were the professionals, who were consulted by the competent authority 19. Reference is also made to the Tribunal's decision in the case of Minerva Dealers (P.) Ltd. [IT Acq. No. 2 (Bom.) of 1977-78, dated 9-11-1977] (pages 53 to 117 of the paper book). The construction in this case was completed nearabout the same date on which the construction in the instant case was completed. The agreement for sale was dated 30-3-1971. The actual sale was on 30-6-1972. In this case, the Valuation Officer had valued the property at Rs. 20 per sq. ft.

against Rs. 16 per sq. ft, disclosed by the contracting parties. The Tribunal, after going through the facts of the case, did not uphold this valuation of even Rs. 20 per sq. ft. and they upheld the valuation of Rs. 16 per sq. ft., as disclosed by the contracting parties. A copy of another agreement dated 11-12-1973, between Lunidaram Tulsidas Punjabi and others, has been brought to our notice where the valuation was disclosed at the rate of Rs. 25 per sq. ft., which was not objected to by the competent authority, and no acquisition proceedings were started (pages 121 to 131 of the paper book). Reference was made to page 84 of the paper book, where the Tribunal has mentioned certain other cases, where the competent authority had accepted as late as 1973 and 1975 transfers at the rate of Rs. 20 to Rs. 24 per sq. ft. Numerous such instances were brought to our notice from the facts brought to the notice of the Tribunal in various cases, such as at pages 83, 84 and 106 of the paper book. In the case of Minerva Dealers (P.) Ltd. (supra), the Tribunal held that inasmuch as the apparent consideration shown in the conveyance deed was Rs. 16 per sq. ft. of the carpet area, the Tribunal was of the opinion that the fair market value could not have exceeded 15 per cent of the apparent consideration on the basis that the intending purchaser would not have paid anything more than Rs. 18 per sq. ft. in that case. They, therefore, held that the competent authority could not have assumed jurisdiction to pass an acquisition order in this case.

20. It is submitted that in the assessee's case, the average cost works out to Rs. 31.28 per sq. ft. In the instances at page 84, the competent authority had not objected to the transfer at the rate of Rs. 25 per sq. ft. Further, in the case at page 121 of the paper book, a rate of Rs. 20 per sq. ft. has not been objected to. The department has not been able to substantiate any case of under statement or attempted evasion. The learned Counsel proceeded to sum up that the very initiation of the acquisition proceedings was invalid and without jurisdiction. There was no material for any such initiation. The very foundation for the initiation of the proceedings was the report of the DVO, which suffered from three defects mentioned earlier. The competent authority's action was equally untenable inasmuch as he had relied on totally inadmissible evidence, hearsay evidence and evidence, if any, not made available to the society for being refuted.

21. Appearing on behalf of the transferor, i.e., the lessee, Shri K.K.Ramani, has proceeded to argue that the property was a leasehold.Hence, the value had to be discounted, depending on the number of unexpired period of the lease. Further, he has highlighted that the DVO's report was in July 1972, whereas the units were sold as far back as in 1966. Further, in respect of the rest of the ground of appeal, he has supported the arguments made by Shri D.M. Harish for the society.

22. Appearing on behalf of the competent authority, Shri G.S. Jetly, the standing counsel for the Income-tax Department, has proceeded to argue that the main thrust of the arguments on behalf of the contracting parties was the date on which the property should be valued. In this connection, he referred to the definition of the term 'fair market value', as defined in Section 269A(d) of the Act. In Sub-clause (i), it is submitted that in relation to any immovable property transferred by way of sale, being immovable property of the nature referred to in Clause (e)(i) of the same clause, means the price that the immovable property would ordinarily fetch on sale in the open market on the date of execution of the 'instrument of transfer', for such property. According to him, 'instrument of transfer' was further defined in Clause (f) to mean the instrument of transfer registered under the Registration Act, 1908, or the statement registered under Section 269AB of the Act with the competent authority. Reading Clauses (f) and (d) of Section 269A, it was clear that the instrument of transfer, which was registered with the Registrar, was the deed, dated 14-7-1972. The law required that the fair market value would be the price that the immovable property would fetch on sale in the open market on the date of such transfer, i.e., 14-7-1972. In this connection, he referred us to Section 269F(9)of the same Act, according to which in any proceedings under Chapter XX-A in respect of any immovable property, no objection could be entertained on the ground that although the apparent consideration of the property was less than the fair market value of the property on the date of the execution of the instrument of transfer, this consideration, as agreed to between the parties, has been truly stated in the instrument of transfer because such consideration was agreed to having regard to the price that such property would have ordinarily fetched on such transfer in the open market on the date of the conclusion of agreement to transfer the property, except where such agreement has been registered under the Registration Act.

23. Referring to the valuation report submitted on behalf of the society, the learned Counsel for the competent authority has stated that the approved valuer for the society had valued the property as for January 1968, as mentioned at page 47 of the paper book. Actually, the property was being sold piecemeal from 1966 to 1970. Therefore, according to him, the valuation report, as for any valuation report in 1968, was wholly irrelevant. Referring to the type of construction under consideration, he referred to paragraph No. 6.2.2 of the report of the DVO. It was submitted that the building was an RCC framed structure, designed to take heavy loads required for industrial estate building. The individual units and corridors were provided with cement concrete flooring. In the entrance near the staircase, terrazo tile flooring was provided. The common toilets were provided with terrazo tile flooring with glazed tile flooring in w.c.s. The windows were of steel glazed type. The entrance doors to units were of steel frame with some having partly steel panels or partly glazed panels. On the ground floor, rolling shutters were provided to some units. Each unit was provided with one small bathroom with nahni trap. According to the counsel, for this type of construction, the cost of construction was bound to be substantial. It could not be as low as in the other cases, relied upon by the learned Counsel for the society. Referring to paragraph No. 4 of the acquisition order, the learned Counsel for the competent authority has proceeded to argue that no evidence was filed before the competent authority, to show that the report of the DVO was not reliable. Further, the counsel argued that if the date of the agreement to sell was taken as the proper valuation date, the provisions of Section 269F(9) would be rendered nugatory. Referring to the reasons recorded by the competent authority for initiating proceedings, it was submitted by the learned standing counsel that the reasons fully complied with the provisions of Section 269B of the Act.

As regards the valuation report relied upon by the competent authority for initiating proceedings, it was stated that only the existence of a belief was necessary in the mind of the competent authority, before the proceedings were initiated. No material was needed for entertaining such a belief. Relying on the Calcutta High Court decision in Rai Bahadur G.V. Swaika Estate (P.) Ltd. v. M.N. Tewari [1980] 126 ITR 310, the Delhi High Court decision in CIT v. State of Punjab [1983] 139 ITR 602, the Karnataka High Court decision in Devichand Pannaji & Co. v.CIT [1982] 138 ITR 789 and the Supreme Court decision in S. Narayanappa v. CIT [1967] 63 ITR 219, the standing counsel has proceeded to argue that the competent authority was invested with powers to initiate certain proceedings after he entertained certain belief. This was as explained by the learned Judges of the Supreme Court in the case of S.Narayanappa (supra). This was merely an administrative power. It was not a judicial function, and the basis for the entertainment of such plea was not justifiable. Referring to the Bombay High Court decision in the case of Unique Associates Co-op. Hsg. Society Ltd. (supra), relied upon by the learned Counsel for the society, it is stated that the facts of the case there were different. Apparently, there were some vacant flats in the building and, therefore, the learned Judge of the Bombay High Court arrived at a different decision. The learned standing counsel has proceeded to argue that the comparable cases stated on behalf of the society are not strictly comparable in every respect.

Some distinguishing facts or features are there in every case, such as the location of the property, the type of the property, etc. For example, as regards the property referred to at page 118 of the paper book it was the case of a grain godown and not a multistoreyed building as in the instant case. As regards the property at page 121 of the paper book in the case of Lunidaram Tulsidas Punjabi, the description of the property was not available. As regards the reliance on the Bombay High Court decision in the case of Blue Star Ltd. (supra), on behalf of the society, the learned standing counsel has proceeded to argue that in that case, it was not clear whether the agreement to sell was registered. If it was registered, naturally, the date of the agreement to sell was the relevant valuation date. If it was not registered, apparently the learned Judge of the Bombay High Court had omitted to take note of the last clause of Section 269F(9). It was a clear case of per incuriam. Later on, the learned standing counsel has submitted a note in writing, stating that from the facts on record, in the case of Blue Star Ltd. (supra), it appears that the agreement for sale dated 21-3-1972 was not registered under the Registration Act. At the same time, it was apparent that the Hon'ble High Court had not considered a most important and relevant provision of law, having a far-reaching bearing on the subject, viz., Section 269F(9). According to him, it seems that the attention of the Hon'ble High Court was not invited to this provision. In view of this, he has submitted that the said judgment of the Bombay High Court in the case of Blue Star Ltd. (supra), cannot be relied as an authority in favour of the society. In support of his submission, he has placed reliance on certain observations at page 150 in Salmond on Jurisprudence, twelfth edn. of 1966 regarding ignorance of statute, where it was stated that a Court may know of the existence of a statute and yet not appreciate its relevance to the matter in hand ; such a mistake is again such incuria as to vitiate the decision. Even a lower Court can impugn a precedent on such grounds. Without prejudice to this argument, the learned standing counsel has proceeded to submit that the fair market value even on the date of the agreement to sell exceeded the apparent consideration by more than 25 per cent.

24. As regards a query from the Bench, whether it was an outright sale of an immovable property or a mere assignment of the lease and the quantum of stamp duty paid, it was submitted by the learned Counsel for the competent authority that the proceedings had commenced on the basis of the agreement dated 14-7-1972, under which the property was sold. It was this agreement which was represented for the purpose of registration. The society had filed Form No. 37G prescribed under Rule 48G of the Income-tax Rules, 1962 ('the Rules'), with the registering authority. This statement had to be furnished to the registering officer under Section 269P(1) of the Act. The details of the property sold were mentioned as three buildings ; ground floor, first floor, second floor and third floor. The consideration for the transfer was stated to be Rs. 80,50,960. A copy of Form No. 37G. was submitted for ready reference. The learned standing counsel submitted on the basis of the agreement dated 14-7-1972 and the said Form No. 37G that the acquisition proceedings were commenced for the transfer of the entire immovable property and, therefore, it was not correct on the part of the society, according to the standing counsel, to state that only the lease was assigned.

25. As regards the basis for the rate of Rs. 45 per sq. ft. adopted by the DVO for valuing the property on the plinth area basis, Shri Jetly has placed before us a memorandum [issued on 15-6-1983 by the Chief Engineer (Valuation), Government of India, regarding the uniformity on the basis of valuation of properties in India. In the said memorandum, the Chief Engineer has proceeded to observe that during his visit to Bangalore and Bombay in the month of May 1983, it was found that only in Karnataka, the CPWD was following the plinth area rates of the Karnataka CPWD for valuation purposes. Practically, in the whole of India the CPWD was following the plinth area rates approved by CPWD along with cost indices approved by the department. This was because the CPWD had the basic data and details of specifications, of which such rates and cost indices were derived. The Valuation Officers at Bangalore had expressed their difficulties about getting such basic data from the local CPWD. Therefore, the Chief Engineer had directed that in Karnataka also, the CPWD may gradually switch over the valuation on the basis of CPWD plinth area rates. Further, detailed instructions were issued in the memorandum regarding the valuation of properties in various areas as on 1-1-1970 with base year as 1955, 1970 and later in 1976. The tabular information indicates what should be the difference in rates between Bombay and Delhi, and how the valuation rate should be enhanced from year to year from 1957 to 1983. Further, a table, indicating the revised plinth area base as 1-1-1971, is placed before us, indicating the rates to be applied to the non-residential buildings, being offices with RCC frame structures, load bearing structures, hospitals, schools, residential buildings, etc. The learned standing counsel has proceeded to sum up that it was not as if the report submitted by the DVO was totally hypothetical without any foundation and arbitrary. It was a scientific report on the basis of experience gained by the CPWD over a large number of years.

26. Shri Harish, the learned counsel for the society, on rejoinder, has given detailed arguments meeting the various arguments made on behalf of the competent authority. In the first place, regarding the argument on behalf of the competent authority, based on Section 269F(9), to the effect that unless the agreement to sell was registered under the Registration Act, the relevant valuation date could be only the date of the conveyance and none else, Shri Harish has referred us to the Gujarat High Court decision in the case of CIT v. Ochhavlal Laljibhai Dharia [1980] 125 ITR 301. On the basis of this decision, the learned Counsel has proceeded to argue that Section 269F(9) only excludes evidence on unregistered agreement for purposes of rebutting the presumption permitted to be raised about the untrue statement of consideration under Section 269C(2)(a). Such agreements, however, are admissible for purpose of rebutting the presumption permitted to be raised under Section 269F(2)(b), that the object of the untrue statement of consideration, was tax evasion or concealment of income.

In other words, an objector can always rely on such agreements entered into, before Chapter XX-A was put on the statute book, to rebut the presumption about the object underlying the untrue statement of consideration. Section 269F(9) would, therefore, operate for the limited purpose of shutting out the evidence, in the nature of unregistered agreements to disprove the untruthfulness of the statement of consideration. An objector can, however, press into service such evidence in the nature of an unregistered agreement, to satisfy the competent authority, that the difference between the apparent consideration and the market value of a property sought to be transferred, was not motivated with the ulterior object of tax evasion or concealment of income.

27. As regards the reliance on behalf of the competent authority on the mere report of a Valuation Officer, our attention is again invited to the Bombay High Court decision in the case of Unique Associates Co-op.

Hsg. Society Ltd. (supra). In paragraph No. 9, the learned Judge has specifically taken note of the fact that the only material with the competent authority was the report of the Valuation Officer. Referring to the four criteria laid down in paragraph No. 5 of the High Court decision, the High Court observed that the competent authority had not satisfied the creteria laid down for initiating proceedings under Section 269C for acquisition of the property. He referred to the fact that the DVO's report was dated 20-6-1977. The competent authority recorded the reason on 11-7-1977 and initiated the proceedings by issuing the notice on 13-7-1977. In between, he has not made any inquiries, whatsoever, to substantiate his belief that the society had tried to evade tax in the manner specified in Section 269C.28. Shri Harish has further proceeded to elucidate that, as can be seen from the terms and tenor of the reasons recorded by the competent authority for initiating proceedings under Section 269C, the competent authority has proceeded to deal with the transaction as a sale of an immovable property, in respect of which he has taken into consideration the fair market value as applicable to an immovable property under Section 269A(d)(i). He proceeded to submit that, as stated earlier in his arguments, this is a case of assignment of a lease. This is covered by Section 269A(d)(ii) and, therefore, what we have to see was whether the premium that such transfer would ordinarily fetch in the open market on the date of the execution of the instrument of transfer of the property, if the consideration for such transfer has been by way of premium only. Here, he invited our attention to the observation made by the DVO in paragraph No. 5.1 of his report at page 15 of the paper book, that the land was held on lease for a period of 98 years from 21-5-1968. The ground rent payable for 17,199 sq. yards of land was Rs. 35,258 per month, i.e., Rs. 4,23,906 per annum, which works out to Rs. 24.6 per sq. yard of land. The lease rent capitalised at six and a half per cent, amounted to a land rate of Rs. 378 or say Rs. 380 per sq.

yard. The DVO has proceeded to observe that keeping in view the location, size and situation of the land, this rate was highly reasonable. As the lease rent based on full rate was payable, the DVO had added nothing in the valuation towards land value. Shri Harish stated that the DVO in his report has dealt with this issue, and found that the lease rent at the rate of 24.6 per sq. yard, capitalised at the rate of six and a half per cent of the land rent, was quite reasonable. Therefore, in fact, he has given a clean chit regarding the proper statement of the lease value. Therefore, there is no understatement on account of the fair market value for the transfer of the lease. The entire proceedings have proceeded on totally erroneous basis.

29. Further, he has proceeded to point out that originally, the definition of 'fair market value' was only in relation to the sale of an immovable property. There was no reference to understatement of premium or otherwise on the assignment of a lease. The law on the subject was amended with effect from 1-7-1982 by the Income-tax (Amendment) Act, 1981, so as to include in the definition for the term, 'fair market value' in relation to transfer of property by way of lease. Since on the express terms of law, a transfer by way of lease was not the subject-matter of acquisition proceedings prior to 1-7-1982, the competent authority lacked the jurisdiction to initiate proceedings in the case of the present assignment of the lease, which had taken place on 14-7-1977 much earlier than 1-7-1982.

30. As regards the adequacy of the price for the units, it was stated that the construction had started in September 1965 and it was completed on 9-10-1969 vide municipal engineer's letter at page 120 of the paper book. The mid-point was somewhere in January 1968. That is why the registered valuer had valued the property for January 1968. In the acquisition order passed by the competent authority and also in the course of his argument, the learned standing counsel had made the only ground for rejecting the registered valuer's report and it was that the property was valued for January 1978, for which there was no justification. The registered valuer had valued the property on the basis of the amount it would have cost, and the estimated profits which the promoter could have made. He was an engineer. He was not an estate broker.

31. The correspondence at page 52 of the paper book would show that the society had several interviews with the DVO and valuable information was placed before him regarding the nature and type of the construction of the property. No hearing was given after that by the DVO. The report that the DVO might have furnished after these interviews, was also not made available to the society. The order of acquisition, passed by the competent authority, was against all principles of natural justice.

32. As regards the comments made by the learned standing counsel regarding the Bishen Udyog Premises Co-operative Society Ltd. at page 118 of the paper book, Shri Harish proceeded to argue that no doubt, it was a mere grain godown. But as has been commented upon by the DVO, the walls were 18 ft. high and the floor was sufficiently thick to take the load of the foodgrain bags. The life of the building was stated to be 50 years and yet the valuation of Rs. 20 per sq. ft. was accepted to be reasonable by the competent authority. Shri Harish proceeded to argue that his arguments on the basis of Minerva Dealers (P.) Ltd. were not met by the learned standing counsel at all. Further, as regards the property of Lunidaram Tulsidas Punjabi, the submission on behalf of the competent authority that the type of the building was unknown, is positively erroneous. As could be seen from the description at page 123 of the paper book, the property was a factory building consisting of ground, first and second floors.

33. As regards the rate of Rs. 45, stated to be justified on behalf of the competent authority, Shri Harish has proceeded to argue that the evidence now sought to be brought forward on behalf of the competent authority, i.e., memorandum issued by the Chief Engineer to the Valuation Officers working under him, was not only not made available to the society but even to the competent authority during the course of the proceedings. What was made available to him was merely a valuation report, without any indication how the valuation was arrived at.

Further, even the statement brought forward in support of the ready reckoner issued by the Chief Engineer, the rate of Rs. 240 per sq.

metre sought to be applied by the DVO applied to office buildings. It had no application to a factory building. The industrial estate under consideration was merely service industry, as could be seen from page 1 of the agreement to sell. It was not meant for heavy industry. The DVO had, however, proceeded to value the property as if it was an RCC frame structure 'designed to take heavy loads required for industrial estate building' vide paragraph No. 6.2.2 of his report at page 16 of the paper book. As regards the Tribunal's order in WT Appeal No. 113 (Bom.) of 1979, extracts from which were provided on behalf of the competent authority at the time of hearing, it was submitted that what was furnished by the learned standing counsel was merely an extract. The full text of the Tribunal's order was not furnished. Moreover, even the extracts clearly showed that, what was sought to be valued there was merely a residential unit.

34. Regarding the arguments on behalf of the competent authority on the basis of the nature of the belief or satisfaction to be recorded for initiating proceedings, the learned Counsel has proceeded to explain the dictum laid down by the learned Judges of the Calcutta High Court in the case of Rai Bahadur G.V. Swaika Estate (P.) Ltd. (supra). The learned Counsel has proceeded to point out that in the end, the learned Judges have proceeded to drop the proceedings as the necessary pre-conditions for the initiation of the proceedings were not satisfied. He has proceeded further to argue that even in the case of Devichand Pannaji & Co. (supra,) the proceedings had ultimately to be dropped.

35. Finally, dealing with the argument on behalf of the competent authority that a construction should be placed on the statute which may be workable, reference was made to the observations of the Bombay High Court in the case of Unique Associates Co-op. Hsg. Society Ltd. (supra) that since this was a taxing statute, strict interpretation had to be given to the terms of it.

36. We have carefully considered the facts and circumstances of the case and the arguments on either side. Though a large number of grounds have been taken by the transferor and the transferee in the instant case, objecting to the order of the competent authority dated 24-2-1984, the arguments have unfortunately proceeded in a zig-zag manner. Therefore, we have to state the facts and grounds in a proper sequence, even at the risk of repetition, and to deal with them, accordingly.

37. The facts are that by an indenture of lease dated 21-5-1966, made between Amrut Banaspati Co. Ltd. and Virwani Construction Co., a proprietary concern of Shri N.M. Virwani, hereinafter referred to as the lessee, vacant land measuring 17,199 sq. yards equivalent to 14,380 sq. metres situated at Fergusson Road, Parel, Bombay, was leased by Amrut Banaspati Co. Ltd. to the lessee for a period of 98 years from 21-5-1966 for the payment of a monthly rent of Rs. 35,258. The lessee started construction of an industrial estate consisting of 368 units on 9-12-1965 and completed the same on 9-10-1969. During the construction of the industrial estate, the lessee started selling the units to the unit-holders from April 1966 onwards. All the 368 units were sold by 9-10-1970, for a total amount of Rs. 80,50,960, by a stereo type/printed agreement to as many persons, hereinafter referred to as the unit-holders. As per the agreement, on payment of the agreed price either in lump sum or by instalments, the unit became the property of the unit-holder and thereafter he became liable for its proper maintenance and upkeep and payment of electricity, water and municipal charges as his own liability. One of the terms of the agreement was that, after the sale of all the units, the unit-holders would form a private limited company or a co-operative society and the lessee, i.e., Shri N.M. Virwani, would assign the unexpired lease which was in his favour to the private limited company/co-operative society without any further payment. On the sale of all the units, a co-operative society, by the name of A-Z (Industrial) Premises Co-operative Society Ltd. was formed. The objects of the society, as recorded in the bye-laws, are as under : The objects of the society shall be - B. 1.1. The purpose of the society is primarily to constitute an organisation of persons, who have taken flats in the blocks or buildings of flats known as A to Z Industrial Estate, constructed on the land bearing Plot C.S. No. 1/265-439-440-267-1/267-2/267-3/267, admeasuring 17,199 sq. yards, located at Lower Parel Division as required by Section 10 of the Maharashtra Ownership Flats (Regulation of the Promotion of Construction. Sale, Management and Transfer) Act, 1963, and in pursuance of which, its objects shall be : (a) to obtain an assignment of title in the land and building, referred to above, from promoter, Shri Nathumal Mengraj Virwani, and to receive all documents of title relating to the property which may be in his possession or power, as required by Section 11 of the Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act (Regulation of the promotion of construction, etc.) ; (b) to manage, administer and maintain the said property in accordance with the co-operative principles and enforce the obligations of the flat-purchasers to the society and inter se.

(c) to provide social and other amenities to members who have taken flats ; (d) to borrow monies as and when required for carrying out the objects of the society, subject to the provisions made in these bye-laws for regulating the manner and limit of raising loan funds ; (e) to do all other things that may be necessary to expedite attainment of the purpose and objects of the society specified in these bye-laws ; (f) the society shall not act beyond the scope of the above objects, without necessary amendments to these bye-laws duly approved by the registering authority.

Sections 10 and 11 of the Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act, 1963, referred to in the aforesaid bye-law read as under : 10. (1) As soon as a minimum number of persons required to form a cooperative society or a company have taken flats, the promoter shall within the prescribed period submit an application to the Registrar for registration of the organisation of persons who take the flats as a co-operative society or as the case may be, as a company and the promoter shall join, in respect of the flats which have not been taken in such application for membership of a co-operative society or, as the case may be, of a company. Nothing in this section shall affect the right of the promoter to dispose of the remaining flats in accordance with the provisions of this Act.

(2) If any property consisting of building or buildings, is constructed or to be constructed then the promoter shall inform the Registrar as defined in the Maharashtra Co-operative Societies Act, 1960, accordingly, and in such case it shall not be lawful to form any co-operative society or company.

11. A promoter shall take all necessary steps to complete his title and convey to the organisation of persons who take flats, which is registered either as a co-operative society or as a company as aforesaid, or to an association of flat-takers his right, title and interest in the land and building, and execute all relevant documents therefor, in accordance with the agreement executed under Section 4, and if no period for the execution of the conveyance is agreed upon, he shall execute the conveyance within the prescribed period, and also deliver all documents of title, relating to the property which may be in his possession or power.

Shortly thereafter, by an agreement dated 14-7-1972, between the lessee and the society, the lessee 'assigned, transferred and assured unto the assignee' the land leased by him from the company for the unexpired period of the lease. The agreement was registered with the Registrar on 1-11-1976. The society submitted a statement in Form No. 37G under Rule 48G to the competent authority on 8-10-1976. The competent authority got the entire land and building valued by the DVO, who submitted his report dated 29-6-1977, valuing the property at Rs. 1,45,50,000, The competent authority recorded his reasons for initiating proceedings under Section 269C and, thereafter, after issuing a notice to the lessee and the society, proceeded to acquire it by his order dated 28-2-1984 under Section 269F.38. The first and the foremost objection raised on behalf of the society, as stated earlier, is that the lease was assigned by the deed dated 14-7-1972. The Chapter XX-A authorising the officials of the Income-tax Department to acquire properties in certain cases, was placed on the statute book with effect from 15-11-1972. The competent authority, however, notified the property for acquisition by a Gazette notification, dated 30-7-1977. It was submitted on behalf of the society that Chapter XX-A had no retrospective effect and a property conveyed by a deed dated 14-7-1972, could not have been acquired by a law placed on the statute book with effect from 15-11-1972. We find no substance in the argument on behalf of the society on this issue. A very similar case had come up before the Bombay High Court in the case of Amarchand Jainarain Agarwal v. Union of India [1983] 142 ITR 410, which initially came up before a single Judge in writ petition filed by Amarchand Jainarain Agarwal under article 226 of the Constitution of India in Amarchand J. Agarwal v. Union of India [1983] 142 ITR 402 (Bom.), who upheld the action of the departmental authorities on the plea that the transfer deed was registered after the coming into force of Chapter XX-A. The Appeal by Amarchand Jainarain Agarwal was dismissed by the Division Bench in Amarchand Jainarain Agarwal's case (supra). In the instant case also, though the relevant conveyance deed is dated 14-7-1972, it was registered on 1-11-1976, well after the coming into force of Chapter XX-A. The objection on behalf of the society, on this ground is overruled.

39. The next dispute between the parties before us is as to the nature of the indenture dated 14-7-1972. What was sought to be transferred by this deed. According to the lessee and the society on appeals before us, it is submitted that the purpose of the deed dated 14-7-1972, was merely the assignment of a lease. According to the competent authority, it is a sale and transfer of the immovable property along with the lease of the land on which it stood. The detailed arguments on either side have been reproduced in extenso earlier in this order. We shall not repeat them. On a careful perusal of the sale deeds of the units to unit-holders, our conclusion is that the units were already sold by the lessee to the unit-holders vide agreements with the respective unit-holders. The unit-holders were already put in possession of their respective units, with all the liabilities attending thereto, on receipt of the consideration from each of them. Regarding the argument on behalf of the competent authority based on the recital in Form No.37G, filed by the society before the competent authority on 8-10-1976, we have to accept the argument on behalf of the society that that was how the office bearers of the society understood the transaction at that time, erroneously though, it is for us to determine the real nature of the transaction. Further, as regards the mention in the deed dated 14-7-1972 that the lease was being transferred for the consideration of Rs. 80,50,960, in our opinion, this recital has to be read in the context of the understanding given by the lessee to the unit-holders, that he would assign the lease to the society or the private limited company as and when incorporated by the unit-holders.

On receipt of the amount of Rs. 80,50,960 from the unit-holders, the lessee irretrievably transferred the complete ownership to the unit-holders with a view to enabling them to enjoy, in full measure the ownership of their respective units. The lessee had given an undertaking in the agreements with them that he would assign the lease to the society/private limited company as and when incorporated. By the deed dated 14-7-1972, he was merely fulfilling this obligation by assigning the lease to the society. The society was formed for the limited purpose of obtaining the title to the land and building from Shri N.M. Virwani, the lessee, and to receive all documents etc., relating to the property, which may be in his possession as required by Section 11 of the Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act. Sections 10 and 11 of the said Act also leave nothing to doubt about the nature of the ownership of these units. Thus, the deed dated 14-7-1972 is only an assignment and not a sale deed. Incidentally, while on this subject, we may refer to the Tribunal, Delhi Bench decision in ITO v. R.K.Sawhney [1982] 2 ITD 207, where the Special Bench after a comprehensive survey of the case law on the subject, arrived at a decision to the same effect, namely, that the tenement holders were the owners, whereas the private limited company, which was formed for the joint management of the common obligations, was not the owner even for the purposes of Section 22 of the Act.

40. The next dispute, which follows from the dispute dealt with in the preceding paragraph, is that, according to the society, since the transaction was not of sale, Chapter XX-A, as it stood on the relevant date, had no application to the facts of the case. Prior to its amendment by the Income-tax (Amendment) Act, 1981, with effect from 1-7-1982, Section 269A(d) defined 'fair market value' merely with reference to an immovable property transferred by sale. It had no reference to a transfer by any other mode than a sale. It was only after the amendment of Section 269A(d) that the transfers, by way of leases, were covered by the provisions of Chapter XX-A. On behalf of the competent authority, it is stoutly maintained that since the transaction was sale, and nothing but sale, this agrument was not available to the society. In the circumstances, the main question that will have to be answered by us is, whether the instrument dated 14-7-1972, brought about a sale of the property, or whether it was merely an assignment of lease. We have already answered this question in the preceding paragraph to the effect that the deed dated 14-7-1972 merely evidenced an assignment of lease, since on the relevant date, i.e., 14-7-1972, i.e., the date of the deed, or even on the date on which it was registered with the Registrar, i.e., on 1-11-1976, the assignment of lease was not within the purview of Chapter XX-A. The assignment of leases came within the scope of this Chapter only after 1-7-1982. Therefore, in our opinion, the competent authority could not have invested himself with jurisdiction to assail this transaction under Chapter XX-A. The entire proceedings suffer from lack of jurisdiction.

41. The next dispute between the parties is, what was the fair market value of the property. According to the society, the lessee did not stand to gain any further consideration on the execution of this instrument. He was merely executing this instrument in compliance of the undertaking given by him to all the unit-holders separately and which he was statutorily required under Sections 10 and 11 of the Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act. According to the competent authority, the fair market value was Rs. 1,45,50,000. Since we have held that it was merely an assignment of a lease, in our opinion, there should be no dispute about the consideration for which the society was acquiring the lease. The DVO himself has, in paragraph No. 5 of his valuation report, already certified that the lease money at the rate of Rs. 35,258 per month was quite adequate for the land under consideration. The DVO or even the competent authority has not suspected any understatement of premium, contemplated in Section 269A(d)(ii). Even if it was held that the provisions of Section 269A(d)(ii) were applicable to the transaction covered by the deed dated 14-7-1972, the DVO's paragraph No. 5 rules out action under Section 269C.42. The next dispute is, whether the four criteria laid down in Section 269C for initiation of proceedings have been satisfied. These four criteria have been analysed by the Bombay High Court in the case of Unique Associates Co-op. Hsg. Society Ltd. (supra), in paragraph No. 5 of their decision dated 8-11-1983. The first criterion is that the immovable property of the fair market value exceeding Rs. 25,000, was transferred. Maybe this criterion is satisfied.

The second criterion is that the fair market value of the property should have exceeded the apparent consideration by more than 15 per cent of such consideration. According to the society, however, the competent authority has, admittedly, got no material in his possession to satisfy this condition except a report from the DVO. The Bombay High Court has held in the case of Unique Associates Co-op. Hsg. Society Ltd. (supra) that such a report from the DVO was not enough for satisfying this criterion.

Further, according to the society, as regards the third and the fourth criteria laid down by the learned Judges of the Bombay High Court that the consideration for transfer, as agreed between the parties, has not been truly stated in the instrument of transfer and such untrue statement of consideration, was with the object of facilitating the reduction or evasion of the liability of the transferor or the transferee to pay tax under the provisions of the Income-tax Act and the Wealth-tax Act, the competent authority had not only no material for such a belief but also has not even recorded that he had any material for entertaining such a belief. The competent authority has not refuted this allegation before us. As explained by the Bombay High Court, the powers under Section 269C could be exercised, provided all the four prerequisite conditions for the exercise of the powers are satisfied. According to the learned Judges, in the absence of any material whatsoever available to the competent authority, it was impossible for any reasonable or prudent man to reach the conclusion that the consideration stated in the instrument of transfer was untrue, and that was shown with the object of facilitating reduction or evasion of tax. In the instant case, the facts are exactly identical. We find that the competent authority has not been in a position to challenge even this submission on behalf of the society. Since we find that of the four prerequisite conditions necessary for initiation of proceedings under Section 269C, as explained by the Bombay High Court in the case of Unique Associates Co-op. Hsg. Society Ltd. (supra), barring the first, none of the conditions are satisfied in this case.

In our opinion, the competent authority has wrongly initiated proceedings under Section 269C in this case.

43. The next dispute is regarding non-compliance with the provisions of Section 269D(2)(a), even assuming that the transaction was one of sale.

The society has objected to the order of the competent authority, on the ground that the due notices were not issued to the persons in occupation of the property, if the transferee was not in occupation thereon and on every other person, whom the competent authority knew to be interested in the property. Under Section 269D, the competent authority is expected to initiate proceedings for the acquisition of a property by a notice. Subsection (2) of this section makes it obligatory for the competent authority to cause such notice to be served on the transferor, the transferee, the person in occupation of the property, if the transferee was not in occupation thereof, and on every other person whom the competent authority knew to be interested in the property. Objection is taken on behalf of the society to the fact that the competent authority was aware of the fact, that the land was a leasehold from Amrut Banaspati Co. Ltd. Further, it was in occupation by the 368 unit-holders. The unit-holders were not the society. The society was a separate entity, distinct from the unit-holders. The competent authority has apparently issued notices merely to the transferor and the transferee, i.e., the lessee and the society, but not to the owner of the land, i.e., Amrut Banaspati Co.

Ltd. and the occupants namely, the unit-holders. The mandatory requirement of law was overlooked. This allegation has not been refuted by the competent authority. In our opinion, in the circumstances, the proceedings have not been properly initiated and require to be quashed on this ground also, even if the transaction was one of sale.

44. The next dispute between the parties is that, assuming the transaction envisaged in the deed dated 14-7-1972 was a sale, what was the relevant date for the purpose of valuation of the property.

According to the competent authority, the relevant date was the date of registration. Reliance for this is placed on the provisions of Section 269A(d)(i), read with Section 269A(f). According to the competent authority, the date has to be 14-7-1972, as has been adopted by the DVO, being the date on which the transfer of property had taken place.

On behalf of the society, this proposition is objected to on two grounds. In the first place, as explained by the learned Judges of the Bombay High Court in the case of Blue Star Ltd. (supra), if it was the case of transfer of property by way of sale, the date of the agreement to sell was the relevant date. This decision had to be read with the Gujarat High Court decision in the case of Ochhavlal Laljibhai Dharia (supra). Secondly, the argument is that since this was not a case of sale of the property at all but merely an assignment of a lease, the provisions of Section 269A(d)(i) had no application as this provision did not apply to a case of assignment of lease. The proper provision would be Section 269A(d)(ii). But this provision was placed on the statute book much later, i.e., on 1-7-1982. It was argued on behalf of the competent authority that the decision of the Bombay High Court in the case of Blue Star Ltd. (supra) suffered from per incuriam. As explained in the commentary by Salmond on Jurisprudence, we could ignore the decision of the Bombay High Court on this issue. We think not. We decline to accept that the learned Judges of the Bombay High Court might not have observed the last clause of Section 269F(9), while interpreting this subsection. It was not as if the relevant provision was an obscure provision, hidden in some remote part of the statute, or in some other statute altogether. It was a part and parcel of Section 269F(9). Further, taking into consideration the explanation provided by the Gujarat High Court in the case of Ochhavlal Laljibhai Dharia (supra), we shall respectfully follow the Bombay High Court decision in the case of Blue Star Ltd. (supra), that in a case like this, if it was a case of sale and not merely an assignment of lease, it was not obligatory on the part of the competent authority to follow a valuation as on the date of the conveyance deed. If it was a case of assignment of lease, Section 269A(d)(ii) having been brought on the statute book much later, the question of any valuation did not arise. Naturally, then we are faced with the alternative question, as to what should be the other date which would be relevant in the case before us, if it was a case of a sale and not an assignment of lease. We are not told whether there was any agreement to sell between the lessee and the society if the transaction dated 14-7-1972, was one of sale. We find that the amount of Rs. 80,50,960 stated to have been received by the lessee from the unit-holders, was received between April 1966 to August 1970, spread over a period of four years. We have one report of a chartered engineer on the record, viz., that of M.S. Sabnis & Co., who has valued the property at Rs. 68,36,850. Adding thereto the cost of the canteen and the estimated builder's profit, he has valued the property at Rs. 77 lakhs. This report is for January 1968, which falls between the first and the last sale of the units by the lessee to the unit-holders. In our opinion, it will be quite safe to ascertain the value of the property as on this date, which covers up the entire period, during which the sales progressed. We find that nowhere in the valuation report furnished by the DVO or in the order of the competent authority, it has been stated or even suggested that this report from M.S. Sabnis & Co. suffered from any infirmity. Even during the course of the arguments before us, the learned standing counsel has not shown any infirmity in this report. It is an unchallenged report by an expert. We shall accept it. Since the value of the property was Rs. 77 lakhs, even assuming it is held that this was not a case of assignment of lease but a case of transfer of property by sale, there has been no understatement of the apparent consideration stated in the transfer deed, vis-a-vis the fair market value of the property, as evidenced by this report. In the circumstances, in our opinion, even if this was a case of sale of the property, the primary condition under Section 269C, viz., understatement of the consideration for the sale is not established, the competent authority could not have initiated the provisions of Section 269C/269F.45. As regards the arguments on behalf of the competent authority, regarding the reliability of the valuation report furnished by the DVO, in the first place, it is for a wrong valuation date as explained by the Bombay High Court in the case of Blue Star Ltd. (supra). Apart from that, in our opinion, the very fundamentals assumed by the DVO are totally irrelevant. He has proceeded according to a table, which is relevant for office buildings and not for an industrial estate.

Secondly, at no stage of the proceedings, we have been told of the basis on which these figures have been worked out. In the circumstances, in our opinion, the valuation report by the DVO requires to be rejected.

46. Regarding the order of the competent authority based on information gathered from inquiries from the professionals, we have not been told who these professionals were and what information they furnished. Not only to the lessee or the society but even to us, the relevant material has not been made available. Frankly, it is impossible for us to accept the valuation arrived at by the competent authority, on unsupported tables of the chief engineer and the informal advice rendered by the professionals, whose identity is not revealed to us. In our opinion, the competent authority has not followed the rules of natural justice in not making the material on the basis of which he proceeded all throughout, such as the professionals' advice, etc., available to the contracting parties.

47. In our opinion, the reliance on behalf of the society to the comparable cases is also well founded. In similar circumstances, the competent authority has accepted valuation as low as Rs. 20 per sq. ft.

in other cases during the same period for similar type of construction, whereas in the instant case, the competent authority has not been able to look with equanimity at the disclosed rate of Rs. 31.28 per sq. ft., that too, without any convincing material or compelling reasons to support his action. The action of the competent authority smacks of certain amount of arbitrariness.

48. In brief, our decisions on the various issues raised before us are as under: (i) The society has objected to the acquisition of the property under Chapter XX-A, which is placed on the statute book on 15-11-1972, by applying this Chapter to transaction dated 14-7-1972.

It is the case of the society, that the competent authority could not have applied this Chapter, retrospectively. This objection is overruled. (Paragraph No. 38) (ii) The argument on behalf of the appellants that the indenture dated 14-7-1972 was merely an assignment of lease was accepted. The argument on behalf of the competent authority that the indenture witnessed a sale of immovable property was rejected. (Paragraph No. 39) (iii) Since transfer of property by way of lease was not within the purview of Chapter XX-A prior to 1-7-1982, the entire proceedings taken by the competent authority were held to be without jurisdiction. (Paragraph No. 40) (iv) Application of the provisions of Section 269A(d)(ii) were held inapplicable in consequence of the observations made by the DVO in paragraph No. 5 of his report. (Paragraph No. 41) (v) Three out of four pre-conditions necessary for initiation of proceedings under Section 269C were found to be not satisfied in this case. Hence, held that the competent authority wrongly initiated proceedings under Section 269C, even if transaction was one of sale. (Paragraph No. 42) (vi) Notices under Section 269D(2)(a) were not issued to all persons interested in the property. Hence, held that proceedings were not properly initiated, even if transaction was one of sale. (Paragraph No. 43) (vii) 14-7-1972 was not the relevant date for valuation of the property. Since, understatement of consideration not established, this is not a fit case for action under Section 269C/269F. (Paragraph No. 44) (viii) Report of the DVO was based on unreliable premises. Hence, unacceptable. (Paragraph No. 45) (ix) Order of the competent authority based on inadmissible evidence. Hence, contrary to rules of natural justice. (Paragraph No. 46) (x) Reliance on behalf of the society on comparable cases for valuation of the property was well founded. (Paragraph No. 47) 49. In the result, the order of the competent authority under Section 269F(6), acquiring the property consisting of the leasehold land and the structures thereon, requires to be and is, accordingly, vacated.

Both the appeals are allowed.


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