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Rambhai Manja Nayak, Vs. Union of India - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberSpecial Civil Application Nos. 310 to 312 of 1976
Judge
Reported in(1983)34CTR(Guj)230; (1983)1GLR623; [1983]142ITR211(Guj)
ActsIncome Tax Act, 1961 - Sections 52, 119, 269A, 269B, 269C, 269D(1), 269E, 269E, 269F, 269G, 269H, 269-I, 269J, 269J(1), 269K, 269K(1), 269L and S and 271 ;Constitution of India - Article 31(2); ;Wealth Tax Act, 1957 - Sections 18
AppellantRambhai Manja Nayak, ;union Bank of India and ;manubhai S. Rajput
RespondentUnion of India
Appellant Advocate K.N. Raval, Adv.
Respondent Advocate S.N. Shelat, Adv.
Cases ReferredBasudev Sahu v. Union of India
Excerpt:
direct taxation - acquisition - chapter 20-a and section 269j (1) of income tax act, 1961, articles 14 and 31 (2) of constitution of india and section 18 of wealth tax act, 1957 - order directing dispossession of petitioners challenged - petitioners dispossessed under section 269j (1) - section 269j (1) provides that where any immovable property is acquired under chapter 20-a central government shall pay compensation for such acquisition - merely because petitioners sought to be evicted under scheme of chapter 20-a on their interest in property having been acquired it cannot be said that they were discriminated in contravention of article 14 - provision for compulsory acquisition of immovable property in chapter 20-a for public purpose - said provision does not suffer from vice of.....ahmadi, j. 1. where any immovable property is subjected to acquisition under the provisions of chap. xxa-of the i.t. act. 1961 (hereinafter called 'the act'), can the tenants who are in occupation of different parts of the said property be evicted therefrom under s. 269i of the act with a view to vesting it absolutely in the central government free from all encumbrances, is the question which we are required to consider in these three petitions brought by the tenants of the acquired property. the facts giving rise to these petitions, briefly stated, are as under : the property which is the subject-matte of acquisition is a three-storeyed building known as 'shamalaji kripa' standing on a parcel of land, bearing tikka no. 8-3, survey no. 3-7 of revenue survey no. 554/b, situate at.....
Judgment:

Ahmadi, J.

1. Where any immovable property is subjected to acquisition under the provisions of Chap. XXA-of the I.T. Act. 1961 (hereinafter called 'the Act'), can the tenants who are in occupation of different parts of the said property be evicted therefrom under s. 269I of the Act with a view to vesting it absolutely in the Central Government free from all encumbrances, is the question which we are required to consider in these three petitions brought by the tenants of the acquired property. The facts giving rise to these petitions, briefly stated, are as under :

The property which is the subject-matte of acquisition is a three-storeyed building known as 'Shamalaji Kripa' standing on a parcel of land, bearing Tikka No. 8-3, Survey No. 3-7 of Revenue Survey No. 554/B, situate at Sayajiganj, Station road, Baroda. It consists of the ground floor and three storeys. The ground floor of the said property was let some time in November, 1966, to the Union Bank of India, Sayajiganj Branch, Baroda, on a monthly rent of Rs. 1,600, exclusive of municipal taxes. A portion of the ground floor by the side of the staircase was given on rent to Shri Manubhai S. Rajput some time in April, 1968, on a monthly rent of Rs. 125 for a pan shop. The upper floors were let to the partners of Satkar Hotel and Restaurant under two separate rent-notes of March, 1968, in respect of the first floor and June, 1970, in respect of the second and the third floors. The rent in respect of the first floor was fixed at Rs. 1,500 per month exclusive of municipal taxes. The rent in respect of the second and the third floors was fixed at Rs. 2,500 per month, exclusive of municipal taxes. The restaurant has an air-conditioned hall with a capacity to accommodate 32 persons and an additional 112 persons in the remaining portion. The hotel on the second and the third floors has the capacity to accommodate 36 beds. The partners of the said concern claim to have invested a sum of Rs. 1,40,000 in furnishing and equipping the premises for the purpose of running a hotel-cum-restaurant. According to them their monthly wage bill is around Rs. 5,000 and their annual turnover is around Rs. 7,00,000. The aforesaid three tenants, who have filed the present three petitions, claim that they are in occupation of different parts of the aforesaid property since the last several years.

2. M/s. S. S. Parshottamdas & Company, the original owners of the property in question, incurred heavy debts and were not able to honour their financial commitments. As the creditors were pressing hard for payment, a committee consisting of eight principal creditors was appointed to manage the affairs of the said concern. By virtue of the powers conferred on the said committee, it negotiated and finalise a deal for the sale of the said property for a sum of Rs. 4,50,000 to respondents Nos. 5 to 10. A deed of conveyance was executed in favour of the said purchasers on December 27, 1973, and the same was got registers on February 18, 1974. The petitioners contend that the entire sale consideration of Rs. 4,50,000 was utilised in discharging the debts of M/s. S. S. Parshottamdas & Company. Under the sale deed the transferors delivered constructive possession of the property to the transferees and directed the tenants to attorn to the transferees. According to the terms of the conveyance, the rent falling due till the date of the execution of the document was to be recovered by the transferors and the rent for the period subsequent thereto was to be recovered by the transferees.

3. After the execution of the conveyance, M/s. S. S. Parshottamdas & Company by their letter dated February 5, 1974, gave intimation to the tenants about the sale of the property and called upon them to pay the net to the transferees with effect from February, 1974. Pursuant to the said request the tenants attorned in favour of the transferees and started paying the rent in respect of the demised premises to the transferees.

4. It appears that after the execution and registration of the deed of conveyance in respect of the property in question, respondent No. 3, the competent authority appointed under s. 269B of the Act, examined the transaction and fame to the conclusion that there was reason to believe that the said immovable property having a fair market value exceeding Rs. 25,000 had been transferred for an apparent consideration which was less than the fair market value of the said property. According to him the fair market value of the property exceeded the apparent consideration the consideration mentioned in the deed of conveyance had not been truly stated in the said instrument with the object of (a) facilitating the reduction or evasion of the liability of the transferor to pay tax under the Act in respect of the income arising from the transfer; and/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 Act or the Indian I.T. Act, 1922, or the W.T. Act, 1957. On his having reason to so believe, the third respondent initiated proceedings for the acquisition of the property in question under Chap. XX-A of the Act. A notice under sub-s. (1) of s. 269D of the Act was published in the Government of India Gazette and was also served on the transferors, the transferees as well as the petitioners of these three petitions in their capacity as the occupants of the different parts of the said property. Annexure 'C' to the petitions is a copy of the said notice dated August 31, 1974, printed on page 6637 of the Gazette of India of November 16, 1974. Individual notices were forwarded to the petitioners by letters of December 10, 1974, annex. 'D' to the petitions. After following the procedure required by law, on the conclusion of the hearing of objections, an order of acquisition of the property was passed under sub-s. (6) of s. 269F of the Act on December 12, 1975. The said order became final on January 27, 1976. The third respondent, therefore, in exercise of power conferred by sub-s. (1) of s. 269-I of the Act, directed the petitioners, who were the occupants of different parts of the acquired property, to deliver possession thereof to the Central Govt. within thirty days from the date of service of the notice dated February 5, 1976, forwarded with the forwarding letter of February 7, 1976. Respondent No. 4 was authorised to take over possession of the property in question on the expiry of the prescribed period. The petitioners, apprehending that they were likely to be dispossessed, preferred the present three petitions under art. 226 of the Constitution challenging the right of the Competent Authority to dispossess them in pursuance of the impugned notices, Annex. 'A', to the petitions.

5. Before we proceed to consider the various submissions made by the learned counsel for the petitioners, it would be advantageous to refer to the legislative history leading to the insertion of Chapter XX-A of the Act. The Government of India appointed the Direct Taxes Inquiry Committee under the Chairmanship of Mr. Justice K. N. Wanchoo, Retired Chief Justice of India, in March, 1970, inter alia, to recommend concrete and effective measures (i) to unearth black money and prevent its proliferation through further evasion' (ii) to check avoidance of tax through various legal devices, including the formation of trusts; and (iii) to reduce tax arrears. After a preliminary study of the problem, the Committee submitted an interim report towards the end of 1970 recommending some important changes of a radical nature for immediate implementation. On the basis of the said interim report, the Taxation Laws (Amendment) Bill, 1971 (No. 115 to 1971), was presented to Parliament for enacting a law, inter alia, for the acquisition of immovable properties in certain cases of transfer to counteract to counteract evasion of tax. This Bill was referred to a Select Committee which suggested certain amendments. A comprehensive bill incorporating the changes suggested by the Committee was presented to Parliament and was enacted as the Taxation Laws (Amendment) Act, 1972. By virtue of the enactment of the said Act, Chap. XX-A consisting of s. 269A to s. 269S came to be inserted in the Act with effect from November 15, 1972.

6. The Objects and Reasons for the enactment of the Taxation Laws (Amendment) Act, 1972, were : (i) to counter evasion of tax through understatement of the value of immovable property in sale deeds and also to check the circulation of black money by empowering the Central Government to acquire immovable properties, including agricultural lands, at prices which correspond to those recorded in the sale deeds, and (ii) to improve the present arrangement for valuation for the purposes of income-tax, wealth-tax and gift-tax laws of buildings and lands and other assess, by augmenting the set-up of the official valuation machinery and enhancing its powers on the one hand, and by bringing about better regulation and discipline over non-official valuers on the other. Bearing in mind these objects, particularly the first one, we may now proceed to refer to the relevant provisions in the newly inserted Chap. XX-A of the Act.

7. Section 269A defines certain expressions used in the Chapter. According to the said section 'immovable property' means any land or any building or part of a building, and includes, where any land or any building or part of a building is transferred together with any machinery, plant, furniture, fittings or other things, such machinery, plant, furniture, fittings or other things also. The Explanation to that definition shows that for the purposes thereof land, building, part of a building machinery, plant, furniture, fittings and other things include any rights therein. The term 'transfer', in relation to any immovable property, means transfer of such property by way of sale of exchange. The expression 'instrument of transfer' means the instruments of transfer registered under the Registration Act, 1908. In the present petitions we are concerned with the transfer of property by way of sale, the instrument of transfer whereof was admittedly registered on February 18, 1974. It is in this context that we must now read the definition of the expression 'apparent consideration'. According to clause (a) of s. 269A, the expression 'apparent consideration', in relation to any immovable property transferred, means, if the transfer is by way of sale, the consideration for such transfer as specified in the instrument of transfer. In the instrument of transfer of the property in question, the consideration mentioned is Rs. 4,50,000. We may next refer to the definition of the expression 'fair market, value' contained in clause (6) of s. 269A of the Act. 'Fair market value', in relation to any immovable property transferred, 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 of such property. It may here be mentioned that, according to the Revenue, the fair market value of the property on the date of execution of the instrument of transfer was around Rs. 7,25,000 determined on the basis of the yield method. Section 269B relates to the appointment and jurisdiction of a competent authority. Section 269C empowers the competent authority to initiate proceedings for the acquisition of any immovable property which has been transferred if he has reason to believe that -

(i) the fair market value of the property in question exceeds Rs. 25,000;

(ii) the property has been transferred for an apparent consideration which is less than the fair market value of the property;

(iii) the fair market value of the property exceeds the apparent consideration therefor by more than fifteen per cent of such apparent consideration; and

(iv) the consideration for the transfer of the property as agreed to between the parties has not been truly stated in the instrument of transfer with the object of either -

(a) facilitating the reduction or evasion of the liability of the transferor to pay tax in respect of any income (whether by way of capital gains or otherwise) 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 purpose of the Act, or the Indian Income-tax Act, 1922, or the Wealth-tax Act, 1957.

8. Before initiating such proceedings, the competent authority must record his reasons for doing so. Sub. s. (2) of s. 269C provides that where the fair market value of such property exceeds the apparent consideration therefor by more than twenty-five per cent of such apparent consideration, it shall be conclusive proof that the consideration for such transfer as agreed to between the parties has not been truly stated in the instrument of transfer; or; where the property has been transferred for an apparent considerations which is less than its fair market value, it shall be presumed, unless the contrary is proved, that the consideration for such transfer as agreed to between the parties has not been truly stated in the instrument of transfer with such object as is referred to in clause (a) or clause (b) or sub-s. (1) of that section. Once the competent authority decides to initiate proceedings for the acquisition of any immovable property, s. 269D provides that a notice to that effect shall be published in the Official Gazette provide a period of nine months from the end of the month in which the instrument of transfer in respect of such property is registered has not expired. In other words, no proceedings for the acquisition of any immovable property can be initiated after the expiration of the period of nine months from the end of the month in which the instrument in respect of that property is registered. Sub-s. (2) of s. 269D enjoins upon the competent authority to cause a notice regarding the initiation of proceedings to be served on the transferor, the transferee, the person in occupation of the property, if the transferee is not in occupation thereof, and on every person whom the competent authority knows to be interested in the property. The expression 'person interested' as defined in clause (g) of s. 269A includes all person claiming, or entitled to claim, an interest in the compensation payable on account of the acquisition of such property. The sub-section further requires publication of the notice by affixing a copy thereof at some conspicuous part of the property and also by making known, in such manner as may be prescribed, the substance of such notice at convenient places in the locality. Section 269E provides for the filing of objections to the acquisition of the said property. All persons referred to in clause (a) of sub-s. (2) of s. 269D as well as persons interested in the property under acquisition may file objections in writing against the proposed acquisition. On receipt of these objections the competent authority must fix a day and place for the hearing of the objections as required by s. 269F of the Act. All persons who have been given notice of hearing are entitled to be heard in person or through an authorised representative. The section contemplates that the competent authority will, after hearing the objections, make a written order stating the reasons for his decision with respect to each objection. If after hearing the objections the competent authority is satisfied that the immovable property is of a fair market value exceeding twenty-five thousand rupees, that such property has been transferred for an apparent consideration which is less than the fair market value and that the consideration for such transfer has not been truly stated in the instrument of transfer with such object as is referred to in s. 269C, he may make an order for the acquisition of the property after obtaining the approval of the Commissioner of Income-tax specified in this behalf by the Board. If the competent authority is not satisfied on any of the points stated above, he must declare that the property will not be acquired under the provisions of the said Chapter. If the competent authority decides to acquire the property, the transferor or the transferee or any other person who has objected to the acquisition may file an appeal under s. 269G against the said order to the Appellate Tribunal within prescribed period. Under s. 269H, the Commissioner or any person aggrieved by any order of the Appellate Tribunal may, within the stipulated period, prefer an appeal against such order to the High Court on a question of law. After the order for the acquisition of the property becomes final, the competent authority may by notice in writing, order any person who is in possession of the immovable property to surrender or deliver possession thereof to him or to any other person duly authorised by him in that behalf within thirty days from the date of service of the notice. If any person refuses or fails to comply with such notice, the competent authority may take possession of the immovable property by the use of such force as may be necessary, including the requisitioning of the services of a police officer to assist him in obtaining possession of the property. Sub-s. (4) of s. 269-I says that once the possession of the immovable property is obtained as per the provisions of the said section, the property shall vest absolutely in the Central Govt. free from all encumbrances. The proviso to that sub-section, however, clarifies that nothing in the said sub-section shall operate to discharge the transferee or any other person (not being the Central Govt.) from liability in respect of such encumbrances and, notwithstanding anything contained in any other law, such liability may be enforced against the transferee or such other person by a suit for damages. Section 269J seeks to lay down the quantum of compensation payable by the Central Government for the acquisition of such property. It provides that the compensation payable by the Central Govt. for the acquisition of the property will be equal to the aggregate of the amount of the apparent consideration plus fifteen per cent. of such consideration. Sub section (2) of that section provides that where, after the transfer of the property in question to the transferee but before the vesting of the property in the Central Govt., the property has been damaged or where, after the transfer of such property to the transferee but before the date of publication of the notice in the Official Gazette under sub-s (1) of s. 269D any improvements have been made to the property, the compensation payable shall be reduced or enhances, as the case may be, by agreement between the competent authority and the persons entitled to compensation within fifteen days from the date of vesting and in default of such agreement as the court may, on a reference, determine. Sub-s (4) of that section next provides that the amount by which the compensation payable under sub-s. (1) in respect of any immovable property acquired falls short of the amount which would have been payable as compensation if that property had been acquired under the Land Acquisition Act, after the issue of a preliminary notice under s. 4 of that Act on the date of publication on the Official Gazette of the notice under sub-s. (1) of s. 269D, shall be deemed to have been realised by the Central Govt. as a penalty from the transferee for being a party to a transfer with such object as is referred to in clause (a) or clause (b) of sub-s. (1) of s. 269C, and no penalty shall thereafter be levied for any assessment year on the transferee under clause (iii) of sub-s. (1) of s. 271 of the Act or under clause (iii) of sub-s (1) of s. 18 of the W.T. Act, 1957. Section 269K provides that the amount of compensation payable under s. 269J shall be tendered to the person or persons entitled thereto, as soon as may be, after the property becomes vested in the Central Govt. It further provides that if there is any dispute regarding the apportionment of the compensation amongst persons claiming to be entitled thereto, the amount shall be deposited in the court to which the dispute is referred. Section 269L entitles the competent authority to seek the assistance of Valuation Officers for the purpose of determining the fair market value of the property in question and for the purpose of determining the reduction or increase in the amount of compensation for any damage or improvement to the property in question. The rest of the provisions in the said Chapter are not relevant for our purpose.

9. It becomes clear from the aforesaid resume of the relevant provisions of Chapter XX-A of the Act that where any immovable property of a fair market value exceeding Rs. 25,000 has been transferred for an apparent consideration which is less than the fair market value and the latter value exceeds the former value by more than 15 per cent., the competent authority may proceed to acquire the property after stating the reasons in support thereof in writing, provided that no such acquisition proceedings shall be initiated after the expiration of nine months from the end of the month in which the instrument of transfer was registered. The proceedings for acquisition must be initiated by a notice published in the Official Gazette. The law enjoins on the competent authority to cause notice of initiation of acquisition proceedings to be served on the transferor, the transferee, the person in occupation of the property and every person who is known to the competent authority to be interested in the property. On receipt of such a notice the transferor, the transferee, the occupant or person interested in the property sought to be acquired may file objections against the acquisition of the said property. The competent authority must then fix the date of hearing and give notice thereof to the objectors and the transferee whether or not he has lodged his objections against the proposed acquisition. The competent authority will then proceed to dispose of each and every objection in writing by stating the reasons in support of his decision. If the competent authority is satisfied that (a) the immovable property to which the proceedings relate is of a fair market value exceeding Rs. 25,000, (b) the fair market value exceeds the apparent consideration by more than 15 per cent. of the apparent consideration and (c) the consideration for such transfer has not been truly stated in the instrument of transfer with the object of facilitating the reduction or evasion of liability of the transferor to pay tax in respect of the income arising from the transfer for the purposes of the Act, the Indian I.T. Act, 1922, or the W.T. Act, 1957, he may after obtaining the approval of the Commissioner make an order for the acquisition of the said property. This decision is subject to appeal to the Appellate Tribunal and the decision of the Tribunal is subject to appeal to the High Court on a point of law. After the decision to acquire the property becomes final, the competent authority is empowered to issue a notice calling upon the occupant of the said property to surrender or deliver possession of the premises in his occupation to him or his delegate within thirty days of the receipt of the notice. If the occupant fails to comply with the notice, he may be dispossessed by use of force and, if necessary, by requisitioning the services of the police. On the possession of the acquired property having been thus obtained, the law says that the property shall vest absolutely in the Central Govt. free from all encumbrances. Provision for the payment of a quantified amount by way of compensation is also made in section 269J of the Act. This, broadly speaking, is the scheme of Chap. XX-A of the Act.

10. At the hearing of these petitions the learned counsel for the petitioners made the following submissions :

(1) The subject matter of acquisition under Chap. XX-A can only be the bundle of rights in the property that is transferred under the instrument of transfer and since the tenancy rights of the petitioners in the said property were not transferred, constructive possession only having been delivered to the transferee, the acquisition proceedings could never b in respect of the said tenancy rights and hence the consequential order calling upon the petitioners to deliver actual vacant possession of the premises in their occupation is unsustainable.

(2) there being no express provision in Chap.XX-A empowering acquisition of tenancy rights and since such a power cannot be implied, tenancy rights cannot be the subject-matter of acquisition under the said chapter.

(3) The phrase 'free from all encumbrances' used in sub-s. (4) of s. 269-I would not take within its ambit leasehold or tenancy rights which are not encumbraces in the strict sense of the term and hence the petitioners cannot be evicted from the premises in their occupation.

(4) If it is held that under the scheme of Chap.XX-A tenancy rights can also be the subject-matter of acquisition it would tantamount to deprivation of property without payment of compensation and would, therefore, be violative of arts. 19(1)(f) and 31 (as it then stood) of the Constitution.

(5) The object of Chap.XX-A being to penalise tax-dodgers who have been guilty of understating the value of the property sold under the instrument of transfer, third parties, such as tenants, who are not parties to the instrument of transfer, cannot be penalised by being deprived of the possession of the demised premises in their actual occupation.

(6) If it is held that Chap.XX-A permits acquisition of tenancy rights and taking over of possession from the tenants in actual occupation of the acquired property, a different procedure for eviction of tenants of such property, from the normal procedure under the Bombay Rent Act, would be resorted to in contravention of art. 14 of the Constitution.

(7) If it is held that Chap.XX-A permits acquisition of tenancy rights and eviction of tenants, the said provisions would encroach upon Entry 18 of List II of the Seventh Schedule to the Constitution and would, therefore, be beyond the competence of Parliament to enact the said law.

(8) If it is held that Ch.XX-A permits acquisition of tenancy rights, the said provisions would be liable to be struck down on the ground that they suffer from the vice of excessive delegation without proper guidelines.

(9) chapter XX-A can either be a law relating to acquisition under art. 31(2) or a law relating to tax or penalty under art. 31(5) of the Constitution. If it is a law relating to acquisition, compensation cannot be illusory and if it is a law relating to taxation or penalty, it must not in fringe art. 19(1)(f) of the Constitution since the protection of art. 31(2B) will not be available to such law. Viewed in any manner, therefore, if Chap.XX-A permits acquisition of tenancy rights, it is liable to be struck down as unconstitutional.

(10) The impugned action is contrary to the instructions of the Central Board of Direct Taxes as averred in paragraph 11(T)(1) of the petition which instructions have a binding effect on the Revenue; and

(11) The impugned action has been initiated mala fide as averred in para. 11(p) of the petition.

11. The first three contentions being inter-connected may be dealt with together. We have already indicted the provisions of Chap. XX-A and the scheme thereof and we have no hesitation in coming to the conclusion that Chap. XX-A is a Code by itself and provides for acquisition of immovable properties to counteract the evasion of tax. Before the competent authority can initiate proceedings for the acquisition of any property, certain fundamental facts set out in s. 269C(i) have to be established. It is only after the competent authority has reason to believe that any immovable property of a fair market value exceeding Rs. 25,000 has been transferred for an apparent consideration which is less than the fair market value and that the consideration for such transfer has not been truly stated in the instrument of transfer with the object of facilitating the reduction or evasion of the liability of the transferor to pay tax under the Act in respect of any income arising from the transfer or 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 Fact or the Indian I.T. Act, 1922, or the W.T. Act, 1957, that the competent authority can initiate proceedings for the acquisition of such property provided of course he must have reason to beliefs that the fair market value of the property exceeds the apparent consideration therefore by more than 15 per cent. of such apparent consideration. It is only thereafter that the competent authority can issue the preliminary notice under s. 269D(1) of the Act. Clause (a) of sub-s. (2) of that section is important for our purpose and may be reproduced at this stage :

'(2) The competent authority shall - (a) cause a notice under sub-section (1) in respect of any immovable property to be served on the transferor, the transferee, the person in occupation of the property, if the transferee is not in occupation thereof, and on every person whom the competent authority knows to be interested in the the property.

12. A plain reading of this sub-section makes it clear that the law requires the person in actual occupation of the property, if the transferee is not in occupation thereof, to be served with an individual notice to enable him to file objections under s. 269E of the Act against the proposed acquisition. Thus, once the competent authority has reason to believe that the jurisdictional facts set out in s. 269C exist, he may initiate proceedings for the acquisition of the property by notice to that effect published in the official Gazette. In addition to this general notice published in the Official Gazette, the competent authority is enjoined with the duty to serve individual notices on the transferor, the transferee and the person in occupation of the property, if the transferee is not in occupation thereof, as well as on every person known to be interested in the property. If it was not the intention of Parliament to acquire tenancy rights or rights of persons in occupation of the property, there was no need to provide for the service of individual notices on such occupant or occupants. Section 269E further provides for preferring of objections against the proposed acquisition by the transferor or the transferee or any other person referred to in clause (a) of sub-s. (2) of s. 269C within the prescribed period. Sub-section (3) of s. 269E clarifies that the objection may be made under sub-s. (1) that the provisions of clause (a) of sub-s. (2) of s. 269C do not apply in relation to any immovable property on the ground that the fair market value of such property does not exceed the apparent consideration therefore by more than 25 per cent. of such consideration. This is with a view to rebutting the presumption arising under clause (a) of sub-s. (2) of s. 269C of the Act. Therefore, the person in actual occupation of the property has a right to object to the proposed acquisition if he is likely to be adversely affected by the proposed acquisition. If his right or interest in the property under acquisition was not intended to be extinguished, there was no point in conferring upon him a right to file objections against the proposed acquisition. Section 269F enjoins upon the competent authority the duty to fix a day and place for the hearing of the objections by giving notice thereof to every person who has objected to the proposed acquisition. Sub-section (2) of s. 269F further provides that every person to whom a notice is given under sub-s. (1) shall have the right to be head on his objections. The competent authority has to record his decision in writing giving reasons for the decision with respect to each objection. Sub-section (8) thereof requires the competent authority to serve a copy of his order on every person who has objected to the proposed acquisition. This is because the objector has a right to prefer an appeal under s. 269G to the Appellate Tribunal against an order made by the competent authority for the acquisition of the immovable property. The scheme of ss. 269D, 269E and 269F is, therefore, akin to the provisions of ss. 4, 5A and 6 of the Land Acquisition Act. The Act, however, gives additional rights of appeal under ss. 269G and 269H which are not to be found in the Land Acquisition Act. It is only after the order of acquisition made under sub-s. (6) of s. 269F becomes final that the competent authority is entitled to issue a notice ordering the person in actual possession of the property to surrender or deliver possession thereof to him or his delegate within thirty days from the receipt of the notice. If such occupant refuses or fails to comply with the notice, the competent authority or his delegate is empowered to dispossess him, if necessary, by the use of force including seeking of assistance of a police officer. After the possession of the immovable property is thus obtained from the occupant or occupants, the law declares that 'the property shall vest absolutely in the Central Government free from all encumbrances'. The language of this provision is similar to s. 16 of the Land Acquisition Act which says that after the Collector has made his award under s. 11, he may take possession of the acquired land, which shall thereupon vest absolutely in the Government free from all encumbrances. These provisions indicate beyond any manner of doubt that once the immovable property in question is acquired under the provisions of Chap. XX-A of the Act, the interest of the occupant in the said property, if there be a person other than the transferee in occupation thereof, would also be acquired and would stand extinguished on the property vesting absolutely in the Central Government free from all encumbrances.

13. Unlike the provisions in the Land Acquisition Act for the determination of compensation, s. 269J(1) of the Act provides that where any immovable property is acquired under the provisions of the said chapter, the Central Government shall pay for such acquisition compensation which shall be a sum equal to the aggregate of the amount of the apparent consideration for its transfer and 15 per cent. of the said amount. The additional 15 per cent. to be paid over and above the aggregate of the apparent consideration is akin to solatium to be paid under the Land Acquisition Act. The Act, therefore, does not leave the question of determination of compensation open but quantifies the compensation under s. 269J(1) of the Act. Section 269K(1) next provides that the amount of compensation payable under s. 269J shall be tendered to the person or persons entitled thereto, as soon as may be, after the property becomes vested in the Central Government. sub-section (2) of s. 269K next provides that if any dispute arises as to the apportionment of compensation amongst the persons claiming to be entitled thereto. the Central Govt. shall deposit in court the compensation required to be tendered under sub-s. (1) and refer such dispute for the decision of the court, which decision shall be final. 'Court', according to clause (c) of s. 269A, means a principal civil court of original jurisdiction unless the Central Government has appointed any special judicial officer to perform the functions of the court under the said chapter. Therefore, the dispute as to the apportionment of compensation has to be referred to the court under the said chapter. Therefore, the dispute as to the apportionment of compensation has to be referred to the court for its decision, that is, for judicial adjudication. The words 'person or persons entitled thereto' used in sub-s. (1) of s. 269K clearly contemplate that there may be a person other than the transferee who may claim to be entitled to compensation. If the words are read in conjunction with the provisions of sub-s. (2) of ss 269D, 269E and 269F of the Act, it becomes clear that besides the transferee the persons who may claim to be entitled to compensation could be the occupants of the acquired property from whom actual possession of the property is obtained. We may, with a advantage, refer to the observation of this court in CIT v. Vimlaben Bhagwandas Patel : [1979]118ITR134(Guj) :

'...the decision of the competent authority to acquire would expose not only the transferee to the consequences of being deprived of the property but also the transferor to the liability of capital gains ... and, in a given case, may affect also the persons interested in the said property having tenancy rights or any encumbrance thereof'

14. It is, therefore, difficult to accede to the contention that the Act does not provide for payment of compensation to the occupants of the acquired property. There is, therefore, no substance in the contention that tenancy right are not contemplated to be the subject-matter of acquisition under Chapter XX-A of the Act.

15. In order to escape from this inevitable conclusion, counsel for the petitioners made bold to contend that tenancy rights not being an encumbrance would not vest in the Central Government under sub-s. (4) of s. 269-I of the Act. In support of this contention counsel invited our attention to the following observations in District Bank Limited v. Webb [1958] 1 All ER 126 (p. 149 of [1958] 1 WLR).

'In the first place, I am not satisfied that a lease was an incumbrance to these parties. It is true that in certain circumstances a lease may be regarded as an incumbrance, but it seems to me that an incumbrance, normally, is something in the nature of a mortgage and nor something in the nature of a lease or tenancy ...'

16. These observations themselves suggest that in certain circumstances a lease may be regarded as an encumbrance. In the facts of that case, the lease was executed on March 25, 1952, whereby Mr. & Mrs. Webb demised the property to Mr. George Edward Webb and his partner, Mr. Donald Martin, for a period of 21 years. On July 28, 1954, a memorandum was executed by Mr. & Mrs. Webb to secure the latter's bank account. On October 14, 1954, another memorandum was executed to secure Mrs. Webb's bank account. On November 8, 1954, the property was conveyed by Mr. & Mrs. Webb for pound 4,200 which contained a recital that the vendors are 'seized in unencumbered fee simple in possession upon trust for sale of the property in question'. The contention raised was that by reason of this recital in the conveyance Mr. & Mrs. Webb were estopped from setting up the existence of the lease. The question which arose for consideration was whether the representation contained in the conveyance created an estoppel. The context in which the recital was used in the conveyance led the court to observe that the lease of March 25, 1952, was not intended to be covered by the expression 'incumbrance' used in the recital in the conveyance deed. The decision, therefore, cannot be read as laying down a broad proposition that a lease or a tenancy can never be an encumbrance. In our view, the question whether a lease or a tenancy is an encumbrance must depend on the context and setting in which the said expression is used.

17. The contention urged on behalf of the petitioners that tenancy right is not an encumbrance may be examined jurisprudentially. Salmond on Jurisprudence, 12th edition, at page 241, observes as under :

'Rights may be divided into two kinds, distinguished by the civilians as jura in re propria and jura in re aliena. The latter may also be conveniently termed encumbrances, if we use that term in its widest permissible sense. A right in re aliena or encumbrance is one which limits or derogates from some more general right belonging to some other person in respect of the same subject-matter. All others are jura in re propria .... The terms jus in re propria and jus in re aliena were devised by the commentators on the civil law, and are not to be found in the original source. Their significance is clear. The owner of a chattel has jus in re propria-a right over his own property; the pledgee or other encumbrance of it has jus in re aliena-a right over the property of someone else.

There is nothing to prevent one encumbrance from being itself subject to another. Thus a tenant may sublet; that is to say, he may grant a lease of his lease, and so confer upon the sub-lessee a jus in re aliena of which the immediate subject-matter is itself merely another with of the same quality. The right of the tenant in such a case is dominant with regard to that of the landowner, but servient with regard to that of the sub-lessee.'

18. Proceeding further, on page 243, the learned author further observes :

'The chief classes of encumbrances are four in number, namely, Leases, Servitudes, Securities, and Trusts. A lease is the encumbrance of property vested in one man by a right to the possession and use of it vested in another.'

19. These observations leave no doubt in our minds that the expression 'encumbrance' in its wider connotation takes within its fold the right of a tenant to occupy the property of another under an agreement of lease.

20. The scheme of Chap. XX-A, with which we are concerned, clearly shows that once the competent authority initiates proceedings for the acquisition of any immovable property, a notice is required to be published in the Official Gazette and individual notices are required to be served on the transferor, the transferee, the person in occupation of the property and every other person who is interested in the property. The recipients of such notices are entitled to file objections and the statute enjoins upon the competent authority to accord them a hearing. After the competent authority has heard the objectors, he has to dispose of each objection in writing by stating the reasons in support of his decision. If the competent authority then decides to acquire the property in question after that decision becomes final, he is required to call upon the occupant to surrender or deliver possession of the property to him or his delegate. If the occupant fails to comply with his requisition, he may be evicted by use of such force as is considered necessary. The law, therefore, clearly envisages the removal of the occupant from the acquired property before the property vests in the Central Government. It is in this setting that court has to consider the effect of the vesting in the Central Government. The work 'vest' is one of variable import and does not have a fixed connotation. It would take color from the context in which it is used in a given piece of legislation. In some cases it may convey the meaning that the vesting is entitle and in some other cases the vesting may be in possession only. In the context in which the word is used in sub-s. (4) of s. 269-I we have not the slightest hesitation in concluding that the vesting in the Central Government is absolute, that is to say, free from all encumbraces. It is only after all interests - proprietary as well as possessory - are extinguished on the acquisition of the property that the property vests absolutely in the Central Government free from all encumbrances. In the context, 'encumbrances' must be given the widest possible meaning and would certainly include leasehold or tenancy rights. Section 16 of the Land Acquisition Act, which employs a similar phraseology, reads as under :

'When the collector has made an award under section 11, he may take possession of the land which shall thereupon vest absolutely in the Government free from all encumbrances.'

21. In Collector of Bombay v. Nusservanji Rattanji Mistri, : [1955]1SCR1311 , the Supreme court, after examining the scheme of the statute, which is similar to Chap.XX-A of the Act, explained the meaning of the expression 'encumbrance' in the following words (p. 305) :

'Under section 16, when the Collector makes an award, 'he may take possession of the land which shall thereupon vest absolutely in the Government free from all encumbrances'. the word 'encumbrance' in this section can only mean interests in respect of which a compensation was made under section 11, or could have been claimed.'

22. While explaining the term 'interest', their Lordships observed as under (p. 305) :

'In its normal acceptation, 'interest, means one or more of those rights which go to make up 'ownership'. It will include, for example, mortgage, lease, charge, easement and the like ...'

23. These observations, therefore, make it crystal clear that the vesting in the government of the acquired and is absolute and free from all encumbrances, such as, mortgage, lease, charge, easement and the like. Again in Fruit and Vegetable Merchants Union v. Delhi Improvement Trust, : [1957]1SCR1 , while referring to ss. 16 and 17 of the Land Acquisition Act, their Lordships of the Supreme court observed as under (p. 358).

'On the other hand, sections 16 and 17 of the Land Acquisition Act (Act 1 of 1894), provide that the property so acquired, upon the happening of certain events, shall 'vest absolutely in the Government free from all encumbrances'. In the cases contemplated by sections 16 and 17 the property acquired becomes the property of the Government without any conditions or limitations either as to title of possession. The Legislature has made it clear that the vesting of the property is not for any limited purpose or limited duration.'

24. A Division Bench or this court in Mangaljibhai Roopjibhai v. State [1972] 13 GLR 649, after reproducing s. 53 of the Bombay Town Planning Act (XXVII of 1955), observed as under :

'When lands required by the local authority vest absolutely in the local authority free from all encumbrances under section 53, clause (a), all persons in occupation of such lands would cease to be entitled to occupy the same. Such persons would have to be evicted from the lands and possession of the lands would have to be handed over to the local authority.'

25. This, in the opinion of the court, would be the result as under s. 53A all lands required by the local authority must vest absolutely in the local authority free from all encumbrances.

26. We do not consider it necessary to multiply authorities because it is plain to us that the context and setting in which the phrase is used in sub-s. (4) of s. 269-I envisages absolute vesting in title free from all encumbrances, that is, extinction of interests of all persons interested in the property including tenants in occupation thereof.

27. We have already pointed out earlier that Chap.XX-A was inserted in the Act on the basis of the recommendations made by the Wanchoo Committee in its interim report submitted some time in December, 1970. That Committee was appointed, inter alia, to recommend concrete and effective measures to unearth black money and prevent its proliferation through further evasions to check avoidance of tax through various devices and to reduce tax arrears. In Chap. 2 of its final report submitted in December, 1971, the Committee observed as under (para.2-10) :

'Black money and tax evasion, which go hand in hand, have also the effect of seriously undermining the equity concept of taxation and warping its progressiveness. Together, they throw a greater burden on the honest taxpayer and lead to economic inequality and concentration of wealth in the hands of the unscrupulous few in the country. In addition, since black money is in a way 'cheap' money too, because it has not suffered reduction by was of taxation, there is a natural tendency among those who possess it to use it for lavish expenditure and consumption. The existence of black money has, to a large extent, been responsible for the inflationary pressures, shortages, rise in prices and economically unhealthy speculation in commodities. Part of black money, which is not utilised in lavish consumption, goes into the purchase of bullion, precious stones and other valuable articles. This, in turn, encourages large-scale smuggling of gold, etc., into the country, causing considerable strain on its already tight balance of payments position. Further, by keeping their ill-gotten gains outside the country as deposits in foreign banks or with their own associate concerns, whether earned in deals abroad or transferred out of India through clandestine channels, the tax evaders deprive the country of a part of its wealth which could have been put to productive use ...'

28. Dealing with the question of checking under valuation of immovable properties, the Committee made the following observations in para 2.194 of its report :

'2. 194. Evasion of direct taxes in our country is closely linked with the practice of under-valuation of properties by the taxpayers, whether in the transfer documents relating to immovable properties, or in their returns of net wealth, or when explaining the source of cost of construction. The absence of a proper valuation machinery in the income-tax department helps the tax dodgers in more than one way. It facilitates utilisation of unaccounted money in investments. It also provides scope for reduction of liability to direct taxes, whether on income, capital gains,wealth or gifts. Due to the opportunities available for understating the value of assets in the guise of honest difference of opinion, tax dodgers are able to evade the penal consequences and merrily continue their game of tax evasion.'

29. Proceeding further, the Committee in para. 2.206 of its report pointed out that one of the convenient devices frequently adopted for secretly utilising black money is to invest it in immovable property by understating the purchase price. This not only saves stamp duty but also results in evasion of income-tax and wealth-tax in the hands of the investor, while the vendor escapes his proper liability to capital gains tax. In addition, it creates a fresh nucleus of black money in the hands of the vendor, which leads to its proliferation in the economy. The Committee, therefore, pointed out that it was for this reason impelled to recommend in its interim report compulsory acquisition of immovable properties in certain cases where the sale deeds do not reflect the fair market value. The Committee felt that such a measure would act as an effective deterrent and curb the tendency to under-state the consideration in documents relating to transfer of immovable properties. It is in this context that chap.XX-a came to be inserted in the Act, by the Taxation Laws (Amendment) Act, 1972, with effect from November 15, 1972. The constitutional challenge to the provisions of Chap.XX-A of the Act must be viewed in this background.

30. Before we proceed to deal with the constitutional challenge to the provision of Chap.XX-A of the Act, it would be advantageous to refer to the relevant entries in the Seventh Schedule to which our attention was drawn by the learned counsel for the petitioners. Entry 82 in List I (Union List) reads -

'Taxes on income other than agricultural income'.

31. Entry 18 in List II (State List) reads as under :

'Land, that is to say, right in or over land, land tenures including the relation of landlord and tenant, the collection of rents; transfer and alienation of agricultural land; land improvement and agricultural loans; colonisation.'

32. Entry 42 in List III (Concurrent List) provides for the acquisition and requisitioning of property. It was contended that if the court takes the view that the newly added Chap.XX-A also envisages acquisition of tenancy rights, its constitutionality would be open to challenge on the grounds : (i) it violates arts. 19(1)(f) and 31(2) as they then stood; (ii) it transgresses the field occupied by Entry 18 of List II; (iii) it is ultra vires art. 14 inasmuch as the protection accorded to tenants against eviction by the Bombay Rent Act is sought to be taken away from this class of occupants while tenants of other properties continue to receive the same protection; (iv) it is ultra vires art. 31(2) as the compensation provided is illusory; and (v) it suffers from the vice of excessive delegation.

33. Article 19(1)(f) as it then stood conferred on all citizens the right to acquire, hold and dispose of property. Clause (5) of art. 19, however, limited the operation of the said fundamental right by providing that nothing in sub-clause (f) of clause (1) of art. 19 shall affect the operation of any existing law imposing reasonable restrictions on the exercise of any of the rights conferred by the said sub-clause either in the interest of the general public or for the protection of the interest of any scheduled tribe. Article 31 (as amended by the twenty-fifth amendment with effect from April 20, 1972) provided for compulsory acquisition of property before its repeal with effect from June 20, 1979, by the 44th Amendment Act, 1978. It read as under :

'(1) No person shall be deprived of his property save by authority of law.

(2) No property shall be compulsorily acquired save for a public purpose and save by authority of a law which provides for acquisition of requisitioning of the property for an amount which may be fixed by such law or which may be determined in accordance with such principles and given in such manner as may be specified in such law; and no such law shall be called in question in any court on the ground that the amount fixed or determined is not adequate or that the whole or any part of such amounts to be given otherwise than in cash ...'

(2B) Nothing in sub-clause (f) of clause (1) of article 19 shall effect any such law as is referred to in clause (2) ...

(5) Nothing in clause (2) shall effect - ...

(b) the provisions of any law which the State may hereafter make -

(i) for the purpose of imposing of levying any tax or penalty ...'

34. We may next refer to art. 31C as it then stood :

'Notwithstanding anything contained in article 13, no law giving effect to the policy of the State towards securing the principles specified in clause (b) or clause (c) of article 39 shall be deemed to be void on the ground that it is inconsistent with or takes away or abridges any of the rights conferred by article 14, article 19 of article 31; and no law containing a declaration that it is for giving effect to such policy shall be called in question in any court on the ground that it does not give effect to such policy ...'

35. The latter pat of this article was declared invalid by the Supreme Court in Keshavananda Bharati v. State of Kerala, : AIR1973SC1461 . Article 39, which forms part of the Directive Principles of State Policy, gives a mandate to the State to direct its policy towards securing, inter alia :

'(b) that the ownership and control of the material resources of the community are so distributed as best to subserve the common god; and (c) that the operation of the economic system does not result in the concentration of wealth and means of production to the common determent.'

36. Mr. Raval, the learned counsel for the petitioners, submitted that the provisions in chap.XX-A, in so far as they seek to drive sitting tenants of their right to occupy the demised property, fall within the scope of Entry 18 of List II inasmuch as the said provisions seek to encroach upon the relationship of landlord and tenant in respect of the acquire property. We fine it difficult to accept this contention. Chapter XX-A introduces a deterrent by way of acquisition of immovable property in cases of under valuation of property to counteract evasion of tax. It makes no provision to regulate the relationship of landlord and tenant. Like the Land Acquisition Act it also provides for acquisition of interest of all persons interested in the property which is the subject-matter of acquisition. It seeks to acquire all interests in the property, including the interests of tenants, so that the property can ultimately vest absolutely in the Central Government free from all encumbrances. The provisions of Chap.XX-A, therefore, can by no stretch be said to bear on the relationship of landlord and tenant and, therefore, it is difficult to uphold the argument that the said provisions encroach upon the files covered by Entry 18 of List III in the Seventh Schedule to the Constitution. In this view that we take it is not necessary for us to examine the submission of Mr. Shelat, learned counsel for the Revenue, that Entry 18 of List II merely governs the relationship of landlord and tenant in respect of open lands and not buildings and that such relationship, in so far as buildings are concerned, may be governed by Entries 6 or 7, List III, in the Seventh Schedule to the Constitution.

37. Entry 82 in List I empowers Parliament to levy taxes on income other than agricultural income. Income-tax therefore, is a tax on income. Now, there are three stages in the imposition of tax, namely, (i) declaration of liability; (ii) assessment of tax; and (iii) recovery of tax. The last would include coercive measures for the realisation of tax from those who are unwilling to pay tax which is legally due from them. One of the methods of disciplining such reluctant taxpayers is imposition of penalty. Undervaluation of immovable property at the time of transfer is one of the causes which has led to the generation of black money. The large-scale evasion of tax by understating the value of the immovable property transferred had to be plugged by far more drastic measures as the existing penal provisions in the Act were found to be inadequate. The Wanchoo Committee in its interim report, therefore, recommended realisation of penalty to the extent stated in sub-s. (4) of s. 269J of the Act by acquisition of the immovable property so transferred. The provisions of Chap. XX-A were, therefore, introduced for securing the twin objectives of curbing generation of black money and evasion of tax by understating the value of the property in the instrument of transfer. The scheme of Chap.XX-A is essentially to penalise the tax-dodges who seek to evade payment of tax by resorting to the dubious method of undervaluing the property transferred under the instrument of transfer. The said Chapter was introduced in the Act to cure the economy of the State. 'by operating upon the cancerous growth which is destroying every live tissue and fibre of the nation by curbing black money and tax evasion which have the pernicious effect of 'seriously undermining the equity concept of taxation and warping its progressiveness'.' That is why a Division Bench of this court in CIT v. Vimlaben Bhagwandas Patel, : [1979]118ITR134(Guj) , concluded that the nature of the power conferred by the said provisions was penal and the proceedings were quasi-criminal. That is because sub-s. (4) of s. 269J seeks to forfeit the difference between the market value of the property at the date of publication of notice under s. 269D(1) and the compensation payable under s. 269J(1) to the Government by way of penalty. The primary purpose of the introduction of Chapter XX-A under the Act is, therefore, to penalise the tax dodgers who, by resorting to the dubious method of undervaluing the immovable property transferred under the instrument of transfer, seek to evade the payment of tax. Acquisition of immovable property which is the subject-matter of under valuation, is, therefore, an integral part of the said scheme of imposition of penalty introduced in the Act with a view to securing the twin objectives of curbing generation of black money and preventing evasion of tax. In pith and substance, therefore, the provisions in Chap.XX-A are intended to penalise the tax-dodgers. As held by the Supreme Court in Kannan Devan Hills Produce Co. Ltd. v. State of Kerala, : [1973]1SCR356 , and State of Karnataka v. Ranganatha Reddy. : [1978]1SCR641 , the court must look to the pith and substance of the legislation to determine its validity. If in pith and substance the legislation belongs to Entry 82 in List, I, acquisition of property to achieve the avowed object of Parliament will not take it out of the purview of the said entry. We are, therefore, of the opinion that the newly added Chapter XX-A clearly falls within the purview of Parliament, that is, is squarely covered by Entry 82 in List I of the Seventh Schedule. That being so, it is not required to satisfy the requirements of art. 31(2) of the Constitution, in view of the overriding effect of clause (5)(b)(i) thereof.

38. We may now proceed to examine the validity of the provisions in the said Chapter on the assumption that they cover two distinct subjects, namely : (i) acquisition of immovable property; and (ii) realisation of penalty. the first falls within the ambit of Entry 42 in List III - acquisition and requisitioning of property - and the second is covered by Entry 82 in List I. Parliament was indisputably competent to enact the impugned legislation even if it was covered by the aforesaid two entries. If Parliament had the power to legislate on both the subjects covered by the impugned provisions, it could as a matter of legislative arrangement incorporate the provisions relating to both the subjects in a single statute. Therefore, merely because provisions concerning acquisition of immovable property are incorporated in the Act, their validity cannot be doubted on the ground that they are outside the scope of Entry 82 in List I.

39. Before the repeal of art. 19(1)(f) and art. 31 any the Forty-fourth Amendment Act, 1978, the right to acquire, hold and dispose of property was a fundamental right conferred on every citizen of this country. the acquisition of private property could be effected by law which provided for payment of compensation. The obligation to pay just compensation was considered to be an incident of the power a compulsory acquisition both under common law as well as under eminent domain. Our Constitution, as it was first enacted, raised this obligation to the status of a fundamental right by forbidding acquisition of property even for a public purpose except on payment of compensation : (vide article 31(2) of the Constitution). By the Twenty-fifth Amendment which amended art. 31(2) with effect from the 20th April, 1972, this concept regarding payment of compensation under-went a radical change. Firstly, the word 'compensation' was substituted by the word 'amount' and the question of adequacy of the amount payable for acquisition of property was made not justiciable. Secondly, by the introduction of clause (2B) in art. 31 it was provided that the law enacted in accordance with the requirements of clause (2) of art. 31 will not be required to answer the challenge that it offends art. 19(1)(f) of the Constitution. Article 31(5) provided that nothing in clause (2) shall affect the provisions of any law which the State may hereafter make for the purpose of imposing or levying any tax or penalty. If the legislation falls solely within the purview of Entry 82 of List I, it will not be required to satisfy the conditions of art. 31(2) of the Constitution. We are, however, presently examining the challenge on the basis that the newly introduced Chapter in the Act covers two distance subjects, namely, acquisition of immovable property and realisation of penalty. In other words, we are examining the validity of the said provisions on the premise that it is partly a law providing for the acquisition of immovable property which is the subject-matter of transfer, the consideration whereof has been understated in the instrument of transfer. That is to say, we are examining the validity of its provisions on the premise that art. 31(5) has no application. Article 31(2) after the Twenty-fifth Amendment says that no property shall be compulsorily acquired or requisitioned save for a public purpose and save by authority of a low which provides for acquisition of requisitioning of the property for an amount which may be fixed by such law or which may be determined in accordance with such principles and given in such manner as may be specified in such law; and no such law shall be called in question in any court on the ground that the 'amount' so fixed or determined is to adequate or that the whole or any part of such amount is to be given otherwise than in cash. Put in positive terms, art. 31(2) provides that private property can be compulsorily acquired by authority of law provided the acquisition is for a public purpose and the law provides for payment of an amount which is either fixed by law of is to be determined in accordance with such principles and given in such manner as is specified by such law. The law shall not be called in question in any court on the ground that the amount so fixed or determined is not adequate. In other words, private property can be expropriated for a public purpose provided the law under which it is acquired provides for the payment of an amount which is fixed by law or which is to be determined in accordance with some principle stated by such law. As pointed out by the Supreme Court in State of Karnataka v. Ranganatha Reddy, : [1978]1SCR641 , the overwhelming view of the majority of judges in Keshvananda Bharati's case, : AIR1973SC1461 , was that the amount payable for the acquired property, either fixed by the Legislature or determined on the basis of principles engrafted in the law of acquisition, cannot be wholly arbitrary or illusory, notwithstanding the amendment of art. 31(2) by the Twenty-fifth Amendment. (The effect of the valid part of art. 31C inserted by the Twenty-fifth Amendment was, however, not taken consideration while making the aforesaid observation).

40. Two questions, therefore, arise for consideration, namely : (1) does the newly added Chapter in the Act seek to compulsorily acquire immovable property for a public purpose; and (ii) whether the amount payable for the acquired property fixed by the impugned legislation is illusory as contended by the learned counsel for the petitioners. We need not reiterate the reasons which impelled the Wanchoo Committee to make the recommendations it made in its interim report submitted to the Government some time in December, 1970. It was on the basis of the said recommendations that the Taxation Laws (Amendment) Act, 1972, inserting Chap.XX-A in the Act came to be passed. The purpose and object of this enactment is to curb the generation of black money which has permeated the whole fabric of our society and to prevent tax evasion by understating the value of the immovable property transferred under the instrument of transfer. Before Chap.XX-A was inserted in the Act, provision for imposition of penalty made in the Act was found to be inadequate. That is why the Wanchoo Committee thought that drastic powers were required to curb the menace of tax evasion through under valuation of real estate. If this was the purpose for the insertion of Chap.XX-A in the Act, can it be said that it was not introduced to serve a public purpose We have no hesitation, therefore, in coming to the conclusion that provision for compulsory acquisition of immovable property in Chap.XX-A of the Act is for a public purpose.

41. The scheme of Chapter XX-A, which we have considered in extenso earlier, discloses that Parliament desired to impose a penalty and sought to realise it in the manner set out in sub-s. (4) of s. 269J of the Act. That sub-section seeks to forfeit to the Government by way of penalty the difference between the market value of the property at the date of publication of notice under sub-s. (1) of s. 269D and the compensation payable under sub-s. (1) of s. 269J. The realisation of this deemed penalty throws a cloak of immunity around the transferee against being penalised under clause (iii) of sub-s. (1) of s. 271 of the Act or clause (iii) of sub-s. (1) of s. 18 of the W.T. Act. On a conjoint reading of sub-ss. (1) and (4) of s. 269J it becomes clear that in effect and substance full market value of the acquired property at the date of publication of notice under sub-s. (1) of s. 269D (as it is treated as analogous to s. 4 of the Land Acquisition Act) is paid but the amount in excess of the amount fixed under sub-s. (1) is actually forfeited or realised by way of penalty. Since the penalty is recovered in this manner from the transferee, the transferee is clothed with immunity to avoid double jeopardy. In other words, out of the gross amount which is payable by way of compensation under the Land Acquisition Act, on the premise that publication of notice under sub-s. (1) of s. 269D of the Act is akin to a notification issued under s. 4 of the Land Acquisition Act, one part thereof as determined by sub-s. (1) of s. 269J is directed to be paid as compensation and the residue is directed by sub-s. (4) to be forfeited as penalty. It is true that so far as the latter part, that is, the residue is concerned, it is like paying by one hand and recovering by the other. If the residue was not realised as penalty in this manner, the transferee would have to face penalty proceedings under s. 271 of the Act and s. 18 of the W.T. Act. Since there is an automatic realisation of penalty under the scheme of Chap.XX-A, the law grants immunity to the transferee so that he may not be taxed twice. The transferor will still have to face the music under s. 52 of the Act. Viewed in this perspective it is difficult to say that the compensation payable under Chap.XX-A is illusory. Even if this approach is not correct and sub-s. (1) of s. 269J is read in isolation as was done by the learned counsel for the petitioners, it is difficult to say that the compensation determined by the statute is illusory. We are, therefore, of the opinion that even if the provisions relating to acquisition of property in Chap. XX-A pertain to the field covered by Entry 42 of List II, the acquisition being for a public purpose and the amount stated in sub-s. (1) of s. 269J not being illusory, the requirements of clause (2) of art. 31, as it stood after the Twenty-fifth Amendment and before its deletion by the Forty-fourth Amendment, were clearly satisfied.

42. It was, however, contended by the learned counsel for the petitioners that Chap.XX-A nowhere expressly provides for the payment of compensation to the tenants of the property under acquisition. He submitted that as the primary object of Chap.XX-A is to penalise tax dodgers, innocent persons, such as sitting tenants, who are not parties to the instrument of transfer cannot be penalised by depriving them of their right to occupy the said property. He further submitted that by acquiring the interest of tenants in the immovable property in question, a different procedure for their eviction from the property is sought to be followed, giving a go-by to the normal procedure under the Bombay Rent Act and to that extent Chap.XX-A is violative of art. 14 of the Constitution. There is no merit in any of these submissions. In the first place, the scheme of Chap.XX-A clearly seeks to acquire interest of all persons in the property which is the subject-matter of acquisition. Sub-s. (2) of s. 269B in terms provides for service of individual notices on persons in occupations of the property and on every person known to the competent authority to be interested in the property, with a view to enabling him to file objections against the proposed acquisition. That means that the occupants or tenants have a right to object to the acquisition of the property occupied by them. Again, under s. 269F notice of the date and place of hearing has to be given to every person who has objected to the proposed acquisition. That means the occupants of the property proposed to be acquired are entitled to a hearing if they oppose the acquisition. It is only after hearing the objectors and after deciding each objection on its merits, for reasons to be stated in writing, that the competent authority can decide to acquire the property. That decision is subject to two appeals. It is only after the decision of the competent authority becomes final that persons in occupation of property can be evicted thereform in the manner set out in s. 269-I of the Act. After actual possession of the immovable property in question is obtained, under sub-s. (4) of that section, the property vests absolutely in the Central Govt. free from all encumbrances. We have already pointed out earlier that the words 'free from all encumbrances' suggest that all interests in the property must stand extinguished so that the vesting in the Central Govt. is complete and absolute. Sub-s. (1) of s. 269J states the amount to be paid by way of compensation for the acquired property. The scheme is very akin to the scheme of the Land Acquisition Act. It is, therefore, difficult to agree with the submission that the Act does not provide for payment of compensation to occupants of the acquired property. There is nothing in the provisions of Chap. XX-A to conclude that the law does not envisage payment of compensation from the total amount stipulated in sub-s. (1) of s. 269J to persons interested in the property other than the transferee. Since all interests in the property are sought to be extinguished, every person having some right or interest in the property is entitled to compensation for the extinction or acquisition of that right. Therefore, the submission that the newly added Chapter does not expressly or by implication provide for payment of compensation to the tenants of the property is clearly without merit.

43. It is indeed true that the real culprits are those who are parties to the instrument of transfer. They are the persons who have deliberately understated the value of the immovable property transferred under the said instrument with a view to evading tax. The newly added Chapter also seeks to penalise the transferee who has purchased the property by resorting to such a dubious method. So far as the transferor is concerned, he cannot be penalised under the scheme of Chapter XX-A but he will certainly have to face penalty proceedings under s. 52 of the Act. The occupants or tenants of the property are undoubtedly innocent persons but in order to achieve the object of curbing generation of black money and preventing evasion of tax, individual interests have to be sacrificed in public interest. Unless all interests in the property are acquired, the scheme of Chap.XX-A would be a total failure. If the interest of tenants were to be excluded from the scheme of acquisition under Chap.XX-A it would be easy to defeat the provisions of the Chapter by introducing a tenant who is a friend or relative of the transferee in the property before the instrument of transfer is registered. In that case, if the rent fixed under the tenancy agreement is low, it would be in expedient for the Central Govt. to acquire the property with the interest of the tenant subsisting therein. That would completely defeat the scheme of Chapter XX-A. Of course, in that case, after the property is owned by the Central Govt., eviction proceedings can be taken under the ordinary law de hors the Act, but it would be time consuming. It is for this reason that the scheme of Chap. XX-A provides for the acquisition of all interests in the immovable property in question. Besides, the interest of innocent persons is not extinguished : without payment of compensation. They would be entitled to compensation from the amount stipulated under sub-s. (1) of s. 269J of the Act. Besides, the proviso to sub-s. (4) of s. 269-I clearly states that the transferee shall not be discharged from liability in respect of encumbrances and such liability can be enforced against him by a separate suit for damages. In the circumstances, it is difficult to hold that because the interest of innocent persons is sought to be expropriated, the provisions of Chap. XX-A are beyond the legislative competence of Parliament.

44. Once the interest of a tenant is compulsorily acquired, his interest in the subject matter of acquisition comes to an end and he is liable to be evicted from the property. He is then entitled to compensation from the total amount stipulated in sub-s. (1) of s. 269J of the Act. Once his interest is extinguished, he has no interest as a tenant whose interest has not been compulsorily acquire. The Land Acquisition Act also provides for acquisition of all interest and vesting of the property in Government free from encumbrances. Under that Act also once the interest of the tenants in the acquired property is extinguished, he is liable to be evicted from the said property and his only right is to clam compensation. Even under the provisions of the Bombay Rent Act tenants of property belonging to the State Government stand on a different footing and their eviction is not regulated by the provisions of the Rent Act. Therefore, merely because they are sought to be evicted under the scheme of Chap. XX-A on their interest in the property having been acquired, it cannot be said that they are discriminated in contravention of art. 14 of the Constitution in the matter of their eviction from the acquired property. We, therefore, do not see any merit in the contention base on art. 14 of the Constitution.

45. On the question of constitutional validity of Chap. XX-A of the Act, reliance was placed by the Revenue on three decisions, viz., (1) Mahavir Metal Works P. Ltd. v. Union of India : [1974]95ITR197(Delhi) ; (2) Basudev Sahu v. Union of India : [1976]102ITR572(Orissa) and (3) Tube Mill (India) Ltd. v. IAC : [1980]122ITR72(Cal) . In the first case, the Delhi High Court held that the acquisition of property under Chap.XX-A was for a public purpose within the meaning of art. 31(2), that the said provisions were neither discriminatory nor did they impose any unreasonable restriction on the right to hold property and that in any view they were protected by the umbrella of art. 31C of the Constitution inasmuch as on a liberal construction of cls. (b) and (c) of art. 39, it is clear that the impugned legislation fulfills the object of the said two clauses. It further held that if some innocent persons are hit, it cannot be helped because this was inevitable to achieve the main objective of the impugned legislation. In the second case, the Orissa High Court followed the decision of the Delhi High Court and, invoking the pith and substance test, held that the impugned legislation fell within the ambit of Entry 82 of List I of the Seventh Schedule.

46. In the third case, a learned single judge of the Calcutta High Court affirmed the view expressed by the Orissa High Court. These three decisions, therefore, support our conclusion so far as the validity of the impugned legislation is concerned.

47. It was faintly submitted by the learned counsel for the petitioners that Chap. XX-A, in so far as it provides for acquisition of tenancy rights, suffers from the vice of excessive delegation without proper guidelines. We see no substance in this contention. We have already pointed out earlier that in order to effectively implement the scheme to deter tax-dodgers from undervaluing the property sought to be transferred, it was absolutely necessary to acquire all interests so that the property may ultimately vest absolutely in the Central Govt. free from all encumbrances. At times while implementing a legislative policy which subserves a public purpose, individual interests have to be sacrificed. In such circumstances, if innocent persons have to suffer that cannot be helped. The provisions of Chap. XX-A outline the requirements for the exercise of power of acquisition by the competent authority. As pointed out earlier, if those jurisdictional facts do not do exist, the power cannot be exercised. Therefore, for the excercise of power of acquisition, guidelines have been indicated with sufficient clarity, but it was said that under s. 269-I, after the order for acquisition becomes final, the competent authority 'may' order the person in possession to surrender or deliver possession of the acquired property, which shows that unfettered discretion is conferred on the competent authority to order eviction. We do not think that the use of the word 'may' leaves any discretion in the competent authority to order eviction. It is not a matter left to the sweet will of the competent authority but the legislature has advisedly used the word 'may' to cover situations where it may not be necessary to issue a notice, for example, in the case of an occupant who voluntarily hands over possession before notice is issued. If, however, the property is in the occupation of a tenant, the competent authority is bound to resort to this provision to obtain possession from him because only then can the vesting be absolute and free from all encumbrances. To complete the acquisition, the competent authority must obtain actual possession of the property from all those who are in possession thereof and he has no option in the matter. There is, therefore, no merit in the contention that the use of the word 'may' in s. 269-I confers a discretion, without guidelines, in the competent authority in the matter of eviction of the occupants from the said property.

48. That brings us to the question whether the impugned action to acquire the property was contrary to the instructions issued by the CBDT which are binding on the Revenue under s. 119 of the Act. It is contended that instructions were issued to desist from acquiring tenanted properties to avoid hardship to the tenants and their families. In the additional affidavit filed on behalf of the Revenue it is stated that no such instructions have been issued but guidelines have been laid down that acquisition proceedings should be restricted to properties of comparatively larger value which do not have many tenants. It is further stated that as the property in question did not have many tenants, it was decided to invoke the powers of acquisition in the circumstances of the case. There is nothing on the record to come to the conclusion that instructions have been issued not to acquire any tenanted property and hence the contention must fail.

49. It was lastly contended that the decision to acquire the property was mala fide, inasmuch as it was to help a prominent Congress leader to secure possession of Nazarbaug Palace wherein the income-tax offices were presently housed. It is said that the said leader who wielded cinsiderable influence with the powers that be in the Central Govt. pressurised the authorities to acquire the property so that on getting possession from the tenants, the income-tax offices may be shifted therein and he may receive possession of his buildings from the said department. This allegation has been described as imaginary and ridiculous by the Under Secretary, CBDT, in para. 26 of his affidavit-in-reply. He has further stated that even if the possession of the acquired property is received, it will not be sufficient to house all the offices which are presently situated in Nazarbaug Palace building and, therefore, the question of vacating the property does not arise. Except making certain allegations in para. 11(P) of the petition, which have been emphatically denied, the petitioners have not placed any material on recored in support thereof. We must, therefore, reject this contention as baseless.

50. These were the only submissions urged before us by the learned counsel for the petitioners and as we do not see any merit in any of the grounds of challenged these three petitions must be dismissed and the rule in each of them must be discharged with costs. The interim relief granted in these three petitions will stand vacated subject to the direction given hereunder.

51. Before we part, we must state that at the time of admission of these three petitions, Mr. Shah who represented the petitioners stated before the court that did not press the challenged based on arts. 14 and 19 of the Constitution. In view of this statement, the petitioners were stopped from contending that the impugned action was ultra vires arts. 14 and 19 of the Constitution. However, we have not brushed aside the contensions based on the said two articles on this narrow ground but have dealt with them as pure questions of law to make this Judgment complete. Our thanks are due to the learned counsel for the petitioners as well as the Revenue for the able assistance rendered to us.

52. Mr. Rawal, the learned counsel for the petitioners, prays for acertificate of fitness to appeal to the Supreme Court under art. 133(1) of the Constitution. We are of the opinion that substantial questions of law of general importance which need to be decided by the Supreme Court arise in this group of writ petitions. We, therefore, direct the issue of a certificate of fitness as prayed for and further direct that the interim relief will continue for a period of eight weeks from today to enable the petitioners to obtain appropriate orders from the Supreme Court.


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