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Commissioner of Income-tax, Gujarat Ii Vs. Vimlaben Bhagwandas Patel and Kamlaben Kanjibhai Patel - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberFirst Appeal Nos. 1105 and 1106 of 1975
Judge
Reported in(1979)GLR413; (1979)0GLR413; [1979]118ITR134(Guj)
ActsIncome Tax Act, 1961 - Sections 52, 131, 132(5), 147, 148, 148(2), 269, 269A, 269A(1), 269C, 269C(1), 269C(2), 269D, 269D(1), 269D(2), 269E, 269E(3), 269F, 269F(6), 269G, 269H, 269-I, 269J, 269J(4), 269P, 269P(1), 269S, 271, 271(1) and 279A; Wealth Tax Act, 1957 - Sections 18
AppellantCommissioner of Income-tax, Gujarat Ii
RespondentVimlaben Bhagwandas Patel and Kamlaben Kanjibhai Patel
Appellant Advocate G. N. Desai, Government Pleader instructed by; R. P. Bhatt, Adv. of R. P. Bhatt & Co.
Respondent Advocate J.P. Shah, Adv.
Cases ReferredState of Kerala v. Madhu
Excerpt:
direct taxation - apparent consideration - section 269 a (a) (i) of income tax act, 1961 - apparent consideration depends on terms and conditions as regards in instrument of transfer - incase besides price of money something more required to be done or forbidden to be done at instance of transferor by transferee - such requirement certainly amount to apparent consideration since it is specified in instrument of transfer itself - apparent consideration would be sum being price of property in question besides price of shares that respondent-transferee paid under instrument of transfer for purpose of determining whether fair market value exceeded apparent consideration by prescribed margin so as to justify acquisition proceedings. - - , type-a and of the same size and having the same.....b.k. mehta, j.1. these two appeals under s. 269h of the i.t. act, 1961, at the instance of the commissioner of income-tax, gujarat-ii, ahmedabad, are directed against the common order of the income-tax appellate tribunal, ahmedabad bench, ahmedabad of july 25, 1975, allowing the two appeals filed by the respective respondent-transferees herein from the order of the iac of income-tax, acquisition range-ii, ahmedabad, passed on january 16, 1975, acquiring two industrial sheds of type-a bearing block nos. 1/3 and 1/4 situate in the industrial estate set up by the baroda industrial development corporation (hereinafter referred to as bidco' for the sake of convenience) under s. 269f(6) of the aforesaid act as the fair market value of the respective sheds exceeded the apparent consideration in.....
Judgment:

B.K. Mehta, J.

1. These two appeals under s. 269H of the I.T. Act, 1961, at the instance of the Commissioner of Income-tax, Gujarat-II, Ahmedabad, are directed against the common order of the Income-tax Appellate Tribunal, Ahmedabad Bench, Ahmedabad of July 25, 1975, allowing the two appeals filed by the respective respondent-transferees herein from the order of the IAC of Income-tax, Acquisition Range-II, Ahmedabad, passed on January 16, 1975, acquiring two industrial sheds of type-A bearing block Nos. 1/3 and 1/4 situate in the industrial estate set up by the Baroda Industrial Development Corporation (hereinafter referred to as BIDCO' for the sake of convenience) under s. 269F(6) of the aforesaid Act as the fair market value of the respective sheds exceeded the apparent consideration in the respective instruments of transfer of February 5, 1973, and had not been truly stated with the ulterior object of tax evasion and/or facilitating concealment of income or assets. Since the questions raised in both these appeals before us are identical, and also because the facts and circumstances of both the cases are similar, we intend to dispose of these two appeals by this common judgment. In order to appreciate the rival contentions raised in these two appeals before us in proper perspective, it would be profitable to set out, briefly, the nature of the property, the history of transfer, how the proceedings were initiated by the competent authority, what opportunity of hearing was given to the persons interested - whether known or unknown - in the course of the proceedings, what material was collected and relied upon by the said authority for reaching the conclusion as he did, how he did ascertain the fair market value of the properties in question, and what influenced him in spelling out the ulterior object of the transferor or transferee in stating the consideration for transfer of the properties, and certain other connected relevant developments.

2. The two properties with which we are concerned in these two appeal are the two industrial sheds of A-type bearing block Nos. 1/3 and 1/4 situate in the industrial estate of BIDCO in the city of Baroda. These two sheds are standing on the plots of land of S.Nos. 1034 and 1035, respectively, each admeasuring 6,424. sq. feet having a built up structure of 4,927 sq. ft. out of which pucca structure is occupying a built up area of 2,427 sq. ft. while temporary structure is occupying 2,467 sq. ft. in each of these plots leaving the remaining plot of land open. It should be noted that there is a marginal discrepancy of about 31 feet in the total built up area as compared to the break up of the area of the permanent and temporary structures as given in the order of the Tribunal. The respective respondent-transferee of each of these appeals has paid a consideration of Rs. 29,521 to the transferor, M/s. Sigil (India) Services Pvt. Ltd., which had its factory in the sheds for manufacturing diesel engines which they shifted to some other area in the city of Baroda with the result that they decided to dispose of the two sheds. The deed of conveyance was executed by and between the principal officer of M/s Sigil (India) Services Pvt. Ltd., and the respective respondent-transferee on February 5, 1973. It has been, inter alia, stated in the respective deed of conveyance that the transferor-company was the original allottee of the two sheds from BIDCO and consequently purchased the same in pursuance of the ownership scheme of the State Government, which prompted BIDCO to sell the sheds to their original allottees, and, accordingly, the transferor-company had acquired the sheds by purchase under the deed of conveyance of August 19, 1970, for a consideration of Rs. 19,105 and since the respective transferees was desirous of purchasing the sheds in question in view of their requirement, the transferor-company had agreed to sell the sheds in question with the permission of November 25, 1972, accorded by the board of directors of BIDCO for a consideration of Rs. 29,521 to each transferee on the condition to observe the approved terms of the ownership scheme. It is common ground that both the sheds are of the same type, viz., type-A and of the same size and having the same built up area of permanent as well as temporary structures. The permanent structure is a pucca built up industrial shed while the temporary structure is only having a roof over it with all sides open. It is also an admitted fact that the respondent-transferee in each case was desirous of purchasing the respective shed as her husband had a factory in the adjoining sheds in partnership with his brothers. It is not disputed that each of the respondent-transferees had purchased shares of BIDCO of the face value of rs. 18,600 in all which the transferor-company was holding under the original scheme of allotment in pursuance of which they were holding as allottees, as well as under the ownership scheme in pursuance of which they purchased. Under the original scheme of allotment of BIDCO, there were different charges for the right of occupation of these sheds of different types, and accordingly, the relevant rules known as 'Baroda Industrial Estate Rules, 1958' prescribed Rs. 180 per month by way of charges for occupying A-type block. these charges were raised to Rs. 304.50 per month with effect from July 1, 1963. There is some dispute as to the nature of these charges, whether they were in the nature of rent or they were in the nature of the licence fees by way of compensation for occupation. We shall refer to it at the appropriate time. The allottee of A-type block was under obligation, under the aforesaid rules, to purchase four shares of BIDCO of the nominal value of Rs. 1,000 each. The extraordinary general meeting of the BIDCO was convened on March 24, 1969, to consider, and if thought fit, to pass, with or without modification, a resolution that the sheds be sold to the existing holders for a consideration of Rs. 19,105 for an A-type shed provided the holder subscribes and purchases at part 13 shares of Rs. 1,000 each of BIDCO besides one share from the shareholder of BIDCO not being a holder of a shed of the nominal value of Rs. 1,000 at Rs. 1,600. The resolution adopted at the aforesaid meeting has not been placed on the record of the competent authority or before the Tribunal, but it transpires from the copy of the letter of January 10, 1974, addressed to the respondent-transferee of First Appeal No. 1105/75, by the secretary of BIDCO that at the instance of the Government of Gujarat, the ownership scheme was passed in the aforesaid extraordinary general meeting of the company held on 24th March, 1969, and the selling cost for A-type shed was Rs. 19,105 being the cost of the block besides Rs. 18,600 being the value of shares. It appears that each respondent-transferee has given on leave and licence basis the pucca shed to M/s. Jyoti Ltd., one of the leading public limited companies manufacturing electrical motor, switches, etc., at the net rate of Rs. 1,583 per month exclusive of all outgoings by way of charges for occupation with effect from April 1, 1973. Each of the temporary sheds had been let out by the respective respondent-transferees with effect from September 1, 1973, to M/s. Ashok Engineering Works, in which husbands of the respondents before us are partners, for a net rent of Rs. 500 per month under the two lease deeds of December 29, 1973. Each of the respondent-transferees thus could manage to earn Rs. 2,083 for each industrial shed with the result that net annual yield which each of them realised was to the tune of about Rs. 24,996.

3. The IAC, Acquisition Range-II, Ahmedabad, therefore, decided to issue notice under section 269D(1) initiating proceeding for acquisition of the two sheds in question in his order of June 27, 1973, for the reasons recorded by him in the said order. Accordingly, he issued a notice under s. 269D(1) of the I.T. Act, 1961, on June 27, 1973, for initiating the proceedings for the acquisition of the aforesaid two industrial sheds and invited objections, if any, to be filed by the transferor-company, respondent-transferee and M/s. Jyoti Ltd., being the occupier of the premises, or by any other personal interested in the said immovable properties, within the stipulated period as prescribed under s. 269D(1) and (2) of the I.T. Act, 1961. Shortly stated, the material part of the reasons recorded by the competent authority for initiation of proceedings under s. 269C(1) are as under :

'2... Although the transferee contended that the cost of the property will be more, because to purchase one shed within the Industrial Developing Corporation compound, buyer has to take up shares of the Baroda Industrial Development Corporation worth Rs. 18,000 the return on the investment by way of rent is quite substantial. One M/s. Jyoti Ltd. have occupied the property, and they pay a rent of Rs. 1,583 per month (agreement to this effect has been executed). In view of this, apparent consideration is too low to be accepted.

3. Further, factors which help the transferor to fetch a consideration substantially more than what is stated in the instrument of transfer are -

(i) Location : Property is situated in the industrial area ofBaroda city and it is encircled by differenttypes of industries.(ii) Possession : Transferee got vacant possession.(iii) Leasehold Freehold.or freehold :(iv) Potentially of The property being an industrial shed can well beutilisation for expected to fetch maximum return by way of rentmaximum return: because it enjoys all the facilities required fora factory. 4. In view of the above facts (paras. 2 & 3) the estimated fair market value of the immovable property on the date of sale would at least be as under :

Rs.(i) Value of the land 6,524 sq.ft.(@ Rs. 40 per sq.ft) 26,096(ii) Value of structure @ Rs. 15 per sq.ft. for4,927 sq. ft.) 73,905---------1,00,001NowEstimated fair market value 1,00,001Apparent consideration (as indicated inForm No. 37-G) considering shares worth Rs. 18,000. 47,521----------52,480Excess estimated fair market value over apparentconsideration. 52,480(percentage of such excess about 110%) 5. From the above, it is evident (prima facie) that the estimated fair market value exceeds the apparent consideration by more than 25% of such consideration.

6. This brings us to the possible tax effect in the hands of the transferor and transferee - (i) In the hands of the The transferor, M/s. Sigil (India)transferor Services (P.) Ltd., is manufacturingand selling diesel engines and pumps,etc., and their turnover is understoodto be more that 25 lakhs and thecompany is having its head officer atBombay and (it is learnt) that itis assessed at Bombay. Capital gainarising from the transfer wouldincrease the tax liability of thetransferor.(ii) In the hands of the The transferee is not assessed to tax.transferee But, it is reported that she hasfiled her return of income for theassesment year 1972-73 before the I.T.O., Baroda, showing an income of Rs.827 only. Transferee owes anexplanation of source of funds forinvestment in the property. In thiscase, possibility of untaxed income ofher husband covering the clandestineportion of price of the propertycannot be ruled out'.

4. The aforesaid notice initiating proceedings was first served on the respondent-transferees as well as the licensee-occupier on July 5, 1973, as required under s. 269D(2)(a). Strangely, it was published in the Gazette of July 7, 1973, as required under s. 269D(1) while it was published, as required under s. 269D(2)(b) in the office of the competent authority as well as in the locality by affixing a copy thereof to conspicuous place in the office and a conspicuous part of the property as well as by the beat of drum on December 3, 1973. These dates have relevance since a serious grievance has been made about the validity of the proceedings. It appeared that the respective respondent-transferees on receipt of the notice on 5th July, 1973, sought for a fortnight's time for filing objections. She also by her letter of August 1, 1973, inquired from the competent authority as to what were the reasons which made him to believe that the apparent consideration fell short of the fair market value of the prescribed limit and that there was ulterior prohibited objective. She also wanted to know whether her chartered accountant would be allowed to inspect the records and documents in connection with the aforesaid notice. The competent authority had, by his letter of August 1, 1973, informed the respondent-transferee in reply in her letter of July 3, 1973, that in no case extension of time beyond the period of limitation as prescribed under s. 269D(1) could be granted, and that she must file her objections within time. the respondent, therefore, by her letter of August 3, 1973, invited the attention of the competent authority to her letter of August 1, 1973, requesting him to furnish certain information in connection with the notice. The competent authority took a strange stand and informed the respondent by his letter of August 8, 1973, that it was not possible to divulge to her at this stage of the proceedings the reasons for initiating action for acquisition, though she was at liberty to file her objections against the acquisition proceedings. The respondent, therefore, by her letter of August 12, 1973, contended that she could not be compelled to file her objections without knowing the reasons for initiation of the proceedings which were of a judicial nature. She, therefore, requested him to furnish reasons and also to let her know, whether she would have the right to the inspection of her files. Reminders were also sent in this connection of August 23, 1973, and August 25, 1973. The competent authority, by his letter of September 4, 1973, expressed his inability to furnish reasons since the question of adequacy thereof was within the competence of the judicial authority only. However, as regards the request for inspection of her files, she would be permitted to inspect the letters and the documents if any, filed by her on payment of necessary charges. She inquired by her letter of September 10, 1973, as to what charges she would be required to pay for inspection and to issue a chalan accordingly and fix the date of inspection as September 19, 1973. The correspondence rested there for some time,and again it was revived by her letter of December 6, 1973, when she requested the competent authority to give her the notice published under s. 269D(2)(b), on coming to know that it had been affixed on the front wall of the shed on December 3, 1973. She again sent a reminder in that connection by her letter of September 2, 1974. The competent authority thereupon sent a challan for Rs. 2.50 payable at the State Bank of Baroda branch in response to the aforesaid letter of the respondent of 2nd September, 1974. Under cover of the letter of September 30, 1974, of the competent authority she was furnished with a certified copy of the notice published in the locality. Meanwhile by the letter of December 15, 1973, the competent authority requested the respondent to attend before him on January 4, 1974, with necessary documentary evidence in support of the objections preferred by her. In reply to this letter of the competent authority, the respondent again requested the authority to give inspection of the files and the reasons recorded for initiating the acquisition proceedings, and to determine the fair market value according to the direction given in the Government of India, Circular No. F132(15)/72/-TPL of November 25, 1972. She also annexed the report of her valuer with the aforesaid letter of December 31, 1973. She also contended in the said letter that only the standard rent of the property can be considered to be her yield in the matter and invited the attention of the competent authority to the various decisions of the Supreme Court as well as other High Courts in that behalf. It appears that the respondent could not attend the hearing before the competent authority at Baroda on account of the disturbances in connection with the Navnirman movement in the city of Ahmedabad till 18th April, 1974, when the respondent appeared before the competent authority accompanied by her chartered accountant, Shri J. P. Thakkar, and filed a copy of the agreement with M/s. Jyoti Ltd., Baroda. She was furnished with the valuation report of the Valuation Officer by the competent authority on that day and also the reasons recorded by the competent authority in his order of June 27, 1973, for initiating acquisition proceedings so as to enable her to file her objections against the report of the Valuation Officer and also against the said order of the competent authority and the next date was fixed as May 6, 1974. It appears that on account of some misunderstanding, the valuer of the respondent could not be heard by the competent authority and, therefore, the hearing was again fixed for 1st June, 1974. it is not clear from the sheets of the proceedings or from the records what was the nature of her objections before the competent authority on that day. It is not clear from the record whether the competent authority recorded the evidence of the registered valuer or merely heard him as a representative of the respondent-transferee. it is disclosed from the letter dated August 26, 1974, of the respondent that the competent authority has, after the hearing on 1st June 1974, collected some information from the agent, Bank of Baroda, Industrial Estate Branch, Baroda, on or about August 8, 1974. She requested the competent authority, by her aforesaid letter, to furnish her with a copy of the statement of the agent recorded by the competent authority. By his letter of September 4, 1974, the competent authority asked the respondent to furnish him with a copy of the lease deed and/or leave and licence agreement with M/s. Jyoti Ltd., and also state the date from which M/s. Ashok Engineering Works occupied a part of the said property and the amount of rent agreed between the parties. She furnished the leave and licence agreement entered into between the respondent and M/s. Jyoti Ltd. under cover of the letter of September 24, 1974. the competent authority has thereafter passed an order on June 16, 1975, rejecting all the objections of the respondent and holding that the fair market value of both the sheds exceeded the apparent consideration by more than 25% since in his opinion the fair market value on the date of transfer of each shed would be Rs. 1,00,001 while the apparent consideration was only Rs. 29,521 and, therefore, the presumption about the ulterior object of tax evasion or concealment of income arose since the consideration for transfer was not truly stated.

5. In the opinion of the competent authority, the presumption was not rebutted since no evidence was led by the transferee who had admittedly not disclosed the source of income prior to the purchase of the property in question. He, therefore, concluded as under :

'... It is, therefore, reasonable to infer that the under-statement in the value of the property was with the object to facilitate the concealment of income/moneys which had not been disclosed for the purpose of the Indian Income-tax Act, 1922, or this Act. Thus, investment made by her to the extent of the difference between the fair market value and the apparent consideration stated in the instrument of transfer represents income from sources which had not been disclosed to the department. No evidence has been led to the contrary.'

6. In that view of the matter, he ordered that the property in question should be acquired under s. 269F(6) of the I.T. Act, 1961.

7. Both the transferees, therefore, carried the matter in appeal before the Income-tax Appellate Tribunal, Ahmedabad. The main contentions raised before the Tribunal, inter alia, were about, the validity of the initiation of proceedings inasmuch as the locality notice published under s. 269D(2)(b) was much beyond the period of limitation prescribed for filing objection and, therefore, the condition precedent for initiation having not been satisfied, the competent authority had no jurisdiction to acquire the property, and the acquisition order was bad in law, void and ineffective being in violation of the principles of natural justice, inasmuch as the materials collected and relied upon by the competent authority were not disclosed to the respondent-transferee and in any case the fair market value of the property did not exceed the apparent consideration by the prescribed limits and, therefore, the order of acquisition should be set aside.

8. All these contentions impressed the Tribunal, which, by its order of July 25, 1975, allowed the appeals and set aside the order of acquisition for the reasons stated therein. This order is the subject-matter of these two first appeals before us. The respondent-transferees have filed cross-objections to assail the order of the Tribunal in so far as it disagreed with and rejected some of the contentions of the respondent-transferees.

9. A number of contentions, main as well as intermediate, have been forcefully urged on both the sides and the questions have been debated in detail since many appeals are pending before this court and before the Tribunal and involve similar questions. The learned Government Pleader, appearing for the CIT, who is appellant before us, raised the following five questions of law in support of the appeals :

10. Firstly, according to the learned Government Pleader, the Tribunal has committed an error of law because it has failed to interpret and appreciate correctly the meaning of the words 'apparent consideration' as defined in s. 269A(1)(i) of the I.T.Act, 1961. According to the definition 'apparent consideration' would mean only that consideration which is stated in the instrument of transfer if the transfer is by way of sale. No other consideration, if at all paid by the transferee, de hors the instrument of transfer, can be considered by the Tribunal. Admittedly, the consideration stated in the instrument of transfer (in the deed of conveyance of February 5, 1973) was Rs. 29,521, and the Tribunal was clearly in error in accepting the case of the respondent-transferee that since she was required to purchase the shares of the BIDCO of the nominal value of Rs. 18,000 held by the transferor, it should also be considered as a part of the consideration and, therefore, the transferee should be held to have been paid in all Rs. 48,121.

11. Secondly, the learned Government Pleader contended that the Tribunal has committed an error of law in holding that the order of acquisition was bad in law and void because the competent authority has published the notice as prescribed under s. 269D(2)(b) beyond the period of limitation prescribed under s. 269E for filing objections and, therefore the condition precedent for initiation of proceedings was not satisfied.

12. Thirdly, the Tribunal was clearly in error in law in holding that the order of acquisition was bad in law and void as it violated the principles of natural justice and fair play, inasmuch as the competent authority did not disclose the materials gathered by him to the respondent-transferee because he was under no obligation to disclose all the materials which he had collected unless he had relied upon the same for purposes of finding out whether or not the order of acquisition should be made.

13. Fourthly, in any case, the Tribunal committed an error on the matter of principle for determining the fair market value while applying the rental method of valuation, inasmuch as it adopted a highly irrelevant principle of valuation of capitalisation of actual rental instead of capitalisation based on standard rent under the law in force for the time being since the standard rent, according to the Rent Control Act as the force in Gujarat, pegged down the rent to the rates prevalent in 1940 or to the date when the premises were first let out.

14. Lastly, it was contended by the learned Government Pleader that the Tribunal fell into legal error in holding that the initiation of proceedings by the competent authority was vitiated since he was influenced by an extraneous consideration regarding the concealment of the clandestine income of the husband of the transferee. In the submission of the learned Government Pleader, the competent authority can decide to initiate the proceedings the moment he is satisfied that the fair market value exceeded the apparent consideration by 15% and in case where it exceeds by 25% A a conclusive presumption would arise under s. 269C(2)(a) that the transferor and transferee have not stated the apparent consideration truly with the result that the rebuttable presumption prescribed in s. 269C(2)(b) about the ulterior prohibited objective would follow which the parties to transfer can rebut by leading evidence in that behalf. The Tribunal according to the learned Government Pleader, lost sight of the fact that if the competent authority, while deciding to initiate proceedings, found that the transferor and transferee both had ulterior prohibited object, the fact that one ground is found to be defective or non-existent would by itself not vitiate the order of initiation of proceedings since it is permissible to the competent authority to initiate proceedings on one ground alone.

15. The learned Government Pleader, in the course of his address on the main arguments, raised a number of subsidiary pleas which we will refer to at the appropriate stage.

16. The above contentions were sought to be repelled by the learned advocate for the respondent-transferees by urging that the competent authority lacked the initial jurisdiction to initiate proceedings because there were no reasons for the formation of the belief contemplated by s. 269C(1) since they must have a direct nexus or live link with the material coming to the notice of the competent authority. As a matter of fact, according to the learned advocate for the respondent-transferees, there was no material whatsoever which could have furnished and the reasons to the competent authority in holding the belief. In the submission of the learned advocate the reasons recorded in the order of June 27, 1973, for initiation of the proceedings have no basis. It is not clear as to from what material the competent authority assessed the value of land at Rs. 4 per sq.ft. or the value of structure at the rate of Rs. 15 per sq.ft. and on the basis thereof estimated the fair market value of Rs. 1,00,001. The learned advocate for the respondent-transferees made a serious grievance that the competent authority was influenced by an absolutely extraneous and irrelevant consideration while considering the possible tax effect of not stating the fair market value correctly in the instrument of transfer. While considering the possible tax effect in the hands of the transferee, the competent authority has observed that she owned an explanation for the source of funds for investment in the property and the possibility of untaxed income of her husband covering the clandestine portion of price of the property and the possibility of untaxed income of her husband covering the clandestine portion of price of the property cannot be ruled out. Accordingly to the learned advocate, the competent authority could not have considered the monthly amount of compensation of Rs. 1,583 from M/s. Jyoti Ltd. as the basis for working out the annual yield while capitalising the value of the property in question. The competent authority could not have lost sight of the fact that the arrangement between the respondents and M/s. Jyoti Ltd. for the occupation of the industrial sheds was for a short duration of eleven months only commencing from 1st April, 1973, and ending on 28th February, 1974. The said transaction of leave and licence between the respective respondent-transferees and M/s Jyoti Ltd. could not have furnished the objective material for ascertaining the fair market value. A serious grievance was made about the view of the Tribunal when it rejected the contention raised on behalf of the respondent-transferees that the preliminary notice in the Gazette for initiation of proceedings should have necessarily preceded the individual notice to the transferor, transferee and occupier as prescribed under s. 269D(2)(a). In any case the competent authority had no jurisdiction to initiate the acquisition proceedings since the locality notice as prescribed under s. 269D(2)(b) was issued clearly beyond the period of limitation prescribed under s. 269E for purposes of filing objections by the interested persons and, therefore, the condition precedent for initiation of proceedings had not been complied with. It was further urged that the competent authority acted in violation of the principles of natural justice as rightly held by the Tribunal inasmuch as he did not disclose the report of the agent, Bank of Baroda, Industrial Estate Branch, Baroda, indicating the value of the property which the bank had estimated for purposes of advancing loans, and also the particulars about the land rates prevalent in Markarpura and Gorva area of the City of Baroda, and relying on the same for purposes of finding support to the conclusion of fair market value reached by the competent authority. A grievance was also made that the competent authority ought to have given an opportunity to the respondent-transferees to examine her/their valuer for purposes of explaining his report as well as for establishing the infirmities in the report of the Valuation Officer relied upon by the competent authority, and that the Tribunal committed an error of law in not appreciating this aspect of the matter about the failure of the competent authority to comply with the principles of justice in recording the evidence of the valuer. Lastly, it was urged that proceedings Under Chapter XX-A for acquisition of the property to counteract evasion of tax are quasi-criminal and the consequences being penal in nature, it is obligatory on the competent authority to establish for initiation of the proceedings and making the order of acquisition ultimately that the fair market value definitely exceeded the apparent consideration beyond the permissible limits by cogent, unequivocal and uncontroverted evidence. If in a given case the tentative as well as final conclusion rests on slender, tenous, vague and indefinite materials, the proceedings must fail. in any case, in the perspective of such sweeping powers of acquisition of properties with an avowed object to counteract the effect of tax evasion, the competent authority prefer that recognized method of valuation which is favourable to the revenue, to another but he must prefer the least fair market value estimated on application of all the recognized methods of valuation so that it may not result in an unreal situation where the property might be acquired on a non-existent, irrelevant or fictitious ground. Lastly, it was urged that the impugned order of acquisition is bad in law and void since the Commissioner has granted the approval mechanically to the said order without applying his mind to the facts and circumstances of the case, and with hearing the parties as he is obliged to, before a valid and legal order can be made under s. 269F(6) of the I.T. Act, 1961. It is in this context of the rival contentions that we have to determine, whether the Tribunal was in any way in legal error in setting aside the order of the acquisition passed by the competent authority as it did.

Broadly stated, the following points arise for our consideration in view of the river contention :

(1) What is the nature of the power under s 269C of the I.T. Act, 1961, and of the proceedings in connection therewith (2) What is the nature of satisfaction of the competent authority under s. 269C - whether it is subjective satisfaction exclusively or is a subjective satisfaction on objective facts (3) What are the conditions precedent which are required to be satisfied before the competent authority can exercise his jurisdiction of initiating proceedings (4) What should be the scope and content of the principles of natural justice to be observed by the competent authority in the course of the inquiry for acquisition of property under Chapter XX-A (5) What is the width and scope of the term 'apparent consideration' as defined in s. 269A(a)(i) (6) Whether the principles pertaining to fixation of fair market value enunciated by courts in the matter of acquisition of land and building for public purpose should be wholly imported in determining the fair market value in the context of acquisition proceedings under Chapter XX-A of the I.T. Act, 1961 (7) What should be the best method of valuation that may be adopted by the competent authority for finding out the fair market value of a property in dispute Can he prefer any known or recognized method of valuation of property which may be beneficial solely to the revenue or is he required to adopt the least of those valuations arrived at after applying all the known and recognized methods (8) What are the obligations which the Commissioner has to fulfill before he grants his approval to a proposed order of acquisition by the competent authority

17. We will deal with these questions seriatim in the same order in which they have been framed. we will also examine the respective findings of the Tribunal as challenged in appeal or cross-objections, as the case may be, with reference to each of our answers to the above questions.

18. Re Question No.1 : In order to find out the nature of the power under s. 269C of the I.T. Act, and the proceedings in connection therewith as contained in Chap. XX-A, it would be advisable to bear in mind the legislative background of this provision. A committee was constitute by the Government of India under the Chairmanship of Justice Wanchoo to suggest ways and means for effectively dealing with the problems of black money, tax evasion and tax arrears. Wanchoo Committee, otherwise known as 'Direct Taxes Enquiry Committee' submitted an interim report at the end of 1970 to the Government of India recmmending certain immediate measures for unearthing black money and countering tax evasion. In pursuance of these recommendations, the Government of India introduced in Parliament of August 12, 1971, the Taxation Laws (Amendment) Bill of 1971 which, amongst other things, proposed introduction of Chap. XX-A in the I.T.Act, 1961. The title of Chap. XX-A is indicative of the nature of the power and the proceedings. It is captioned As 'Acquisition of immovable properties in certain cases of transfer to counteract evasion of tax'. Chapter XX-A comprises of 16 sections (ss.269A to 269P). The material provisions, so far as the first question is concerned, are contained in s. 269C, s. 269E, s. 269F, s. 269G, s. 269-I and s. 269J. Broadly, the scheme contained in these sections is that for the reasons to be recorded by the competent authority if he has reason to believe that in respect of a transfer of an immovable property worth more that Rs. 25,000 the fair market value thereof exceeds the consideration specified in the instrument of transfer of such property by more than 15%, he can initiate proceedings for acquisition of the said property, if the object of the parties in not truly stating the consideration is to facilitate reduction or evasion of tax liability of the transferor for the income arising under such transfer, or is to facilitate concealment of any income, moneys or other assets not disclosed by the transferee for the purposes of the Income-tax Act or wealth-Tax Act . He shall initiate the proceedings for acquisition of such an immovable property by a notice to that effect in the Official Gazette. He is also under an obligation to serve such notice published in the Gazette on the parties to the transfer, persons in occupation of the property as well as known interested parsons. He has also to publish the substance of such notice in some conspicuous place in the locality and in his office, and also by customary mode of publication as prescribed. Parties to the transfer, occupier as well as any known interested person has to file his objections within 45 days from the date of publication of the notice in the Gazette or 30 days from the date of personal service, whichever is later; and an unknown interested persons has to file his objection within 45 days of the publication of notice in the Gazette. These objection are to be filed before the competent authority in writing. Thereupon the competent authority has to fix a day for hearing with prior notice to the persons objecting to the acquisition, and to the transferee irrespective of the fact of his filing the objections. Every such person objecting and the transferee have a right to be heard at the time of hearing so fixed. competent authority is empowered to make such further inquiry as he thinks fit before disposing of the objections. He has to give us decision in respect of every such objection by reason in writing. On consideration of the objections, and the relevant materials on his record, the competent authority may make an order for acquisition of property in question before him, if he is satisfied that the consideration specified in the instrument of transfer by the parties in respect of the immovable property having a fair market value of more that Rs. 25,000, falls short of the fair market value thereof by more that 15% with an ulterior object of tax evasion by the transferor or concealment of income by the transferee, subject to the approval of the CIT. This order of acquisition is final subject to appeal the Tribunal and a further appeal to the High Court on a question of law. Such property vests in the Central Government free of all encumbrances on the possession thereof being taken over by the competent authority or his authorised representative within thirty days of the date of notice calling upon the transferee to hand over possession; provided the transferee is not discharged from the liability in respect of the encumbrances which may be enforced against him by a suit for damages. The Central Government is under an obligation to pay for such acquisition compensation in a sum equal to the aggregate of the amount of apparent consideration for such transfer besides 15% of such amount in addition thereto, subject to reduction of such amount of compensation for damages to the property after it is transferred to the transferee and before its vesting in the Government, and also to the increase of the amount of compensation for improvements made after the transfer and before the publication of the notice of initiation of proceedings in the Gazette. The question of reduction or increase of compensation would be decided by the court on reference. The amount of difference between the compensation amount so determined and the fair market value of the property acquired is deemed have been realised by the Central Government as penalty from the transferee for being a party to a wrong, and he would not be liable for any further penalty under s. 271 of the I.T.Act or s. 18 of the W.T. Act. In short, this is the scheme contained in Chapter XX-A.

19. Having regard to the purpose underlying the power invested in the competent authority under s. 269C(1), and particularly the condition precedent for the exercise of such power, and the presumptions to be raised in connection therewith in respect of untrue statement of consideration as well as ulterior objective of concealment of income or tax evasion prescribed under s. 269C(2), and more particularly having regard to the deeming fiction provided in s. 269J(4) prescribing that the amount of difference in compensation payable for such acquired property and its fair market value will be treated as penalty realised by the Central Government with clarification that the transferee will not be exposed to further penalty under the I.T. Act or W.T. Act, we do not feel any doubt in our mind that the nature of the power is a penal power and the proceedings in respect thereto are quasi-criminal. the learned Government Pleader, however, urged that the power under s. 269C and the proceedings in connection therewith should not be considered penal and quasi-criminal because,in effect and substance, it is a power to acquire the property for public purpose, viz., curbing the evil of black money and it is only by way of consequential provision that Parliament has provided that the difference between the amount of compensation and the fair market value should be treated as if it was penalty realised by the Central Government. In support of this submission he has invited our attention to the various observations made in the final report of the Direct Taxes Enquiry Committee in paragraphs 2.6, 2.25, 2.26, 2.194 and 2.209 of Chap, 2 dealing with black money and tax evasion. the observations made in paragraphs 2.25 and 2.26 have been specially emphasised by the learned Government Pleader. We have considered these observations only so far as they are relevant to trace the history of this new innovation in the I.T.Act, 1961. But we do not think that any new light is thrown in this connection. In the ultimate analysis, we have looked to the provisions themselves in order to determine the nature thereof. We do not think that there is any ambivalence in the provisions themselves which may require us to look to the history of the legislation. the entire scheme, as conceived and incorporated in Chap. XX-A, postulates a basic premise that the under-statement of consideration in an instrument of transfer by sale is untruly made if it falls short of the fair market value by 25%, and the ulterior motive should be presumed to be the concealment of income to tax evasion, unless rebutted by the parties to the transfer. To put it differently, Parliament has provided artificial rules of evidence so as to raise the presumption about the guilt of the parties to the transfer in respect of the offence of tax evasion or income concealment. The rationale underlying these provisions is to cure the economy of the nation by operating upon the cancerous growth which is destroying every life tissue and fibre of the nation by curbing the black money and tax evasion which have the pernicious effect of 'seriously undermining the equity concept of taxation and warping its progressiveness'. This scheme is sought to be implemented broadly by providing for a power to acquire such properties at the grossly under-stated consideration and forfeit the difference between such consideration and the fair market value to the Government as penalty. The learned Government Pleader pointed out that the Government does not compulsorily purchase the property by paying merely the apparent consideration, but also pays 15% which is more in the nature of solatium. The learned Government Pleader would have been justified in this argument provided there had not been consequential provision for forfeiting the difference between the apparent consideration and the fair market value to the Government as penalty as a necessary consequence of holding the parties guilty of the income-tax offence and deciding to acquire the property. It is the entire scheme which is to be viewed for purposes of finding out whether the power is penal in nature and the proceedings are quasi-criminal proceedings. Chief Justice Chagla, speaking for a Division Bench of the Bombay High Court in CIT v. Gokuldas Harivallabhdas : [1958]34ITR98(Bom) , in the context of the nature of proceedings under s.28(1)(c) of the Indian I.T. Act, 1922, held that the gist of the offence under the said section is not giving a false explanation but concealment of the particulars of his income of deliberately furnishing inaccurate particulars thereof, and that there is a difference between assessment proceedings and penalty proceedings, because assessment proceedings are taxing proceedings while penalty proceedings are criminal proceedings.

20. The Supreme Court in CIT v. Anwar Ali : [1970]76ITR696(SC) approved the decision of the Bombay High Court in Gokuldas's case : [1958]34ITR98(Bom) and the view of the Gujarat High Court in CIT v. L.H. Vora : [1965]56ITR126(Guj) and of the High Court of Patna in CIT v. Mohan Mallah : [1964]54ITR499(Patna) that proceedings under s. 28(1)(c) were penal in nature and it was for the department to establish that the assessee was guilty of concealment of particulars of income, Grover J., speaking for the court, posed the problem as to the nature of penalty proceedings in the following terms (page 700) :

'The first point which falls for determination is whether the imposition of penalty is in the nature of a penal provision. the determination for the question of burden of proof will depend largely on the penalty proceedings being penal in nature or being merely meant for imposition of an addition tax, the liability to pay such tax having been designated as penalty under section 28.......It appears to have been taken as settled by now in the sales tax law that an order imposing penalty is the result of quasi-criminal proceedings (Hindustan Steel Ltd. v. State of Orissa : [1972]83ITR26(SC) ). In England also it has never been doubted that such proceedings are penal in character : Fattorini (Thomas) (Lancashire) Ltd. v.IRC [1943] 11 ITR (Supp) 50 .

21. The next question is that when proceedings under section 28 are penal in character what would be the nature of the burden upon the department for establishing that the assessee is liable to payment of penalty. As has been rightly observed by Chagla C.J. in CIT v. Gokuldas Harivallabhdas : [1958]34ITR98(Bom) the gist of the offence under section 28(1)(c) is that the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income and, therefore, the department must establish that the receipt of the amount in dispute constitutes income of the assessee......... Before penalty can be imposed the entirety of circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars.' The above view was reiterated by the Supreme Court in CIT v. Khoday Eswarsa and Sons : [1972]83ITR369(SC) and held that penalty proceedings being penal in character, the department must establish that the receipt of the amount in dispute constitutes income of the assessee; and must have before it before levying penalty cogent material or evidence from which it could be inferred that the assessee has consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars in respect of the same and that the disputed amount is revenue receipt. The learned Government Pleader, however, submitted that these decisions cannot be of any assistance to us since they are rendered in the context of the provisions contained in s. 28(1)(c) of the Indian I.T. Act, 1922, the proceedings under which were penalty proceedings ex facie and the ratio thereof cannot be pressed into service in the context of the present proceedings which are essentially in the nature of acquisition proceedings. We are afraid this is too broad a submission which we cannot accede to for the simple reason, as we have stated, that it is not merely the untrue statement of consideration in the instrument of transfer that attracts the exercise of the power under s. 269C but coupled with that untrue statement, the ulterior motive of tax evasion or concealment of income is the gist of the offence, and till that ulterior motive is established and found, the power in question cannot be exercised. It is no doubt true that some artificial rules of evidence have been provided by Parliament; but none the less, it is this evidence which will furnish the proof of gist of the offence, namely, concealment of income or evasion of tax, and since for purposes of effectuating the said objective, the immovable properties are transferred. Parliament has, in its legislative wisdom, thought fit to provide for the acquisition thereof at something more than grossly under-stated consideration, and consequently providing for forfeiture of the amount in difference between the consideration and the fair market value to the Government as penalty. Forfeiture of entire property or sum is not a penalty is now no more open to debate in view of the decision of the Supreme Court in R. S. Joshi, STO v. Ajit Mills Ltd. [1977] 40 STC 497, where the court was called upon to determine whether it is permissible for the State legislature to enact that sums collected by dealers by way of sales tax but not exigible under the State law shall be forfeited to the public exchequer. In that context Krishna Iyer J., speaking for the majority court, referred to the dictionary meaning of the term 'penalty' and quoted with approval the meaning thereof from Black's Legal Dictionary that the word 'penalty' is found to be generic in its character, including both fine and forfeiture. The majority court ruled as under (page 507) :

'This word 'forfeiture' must bear the same meaning of a penalty for breach of a prohibitory direction. The fact that there is a arithmetical identity, assuming it to be so, between the figures of the illegal collections made by the dealers and the amounts forfeited to the State cannot create a conceptual confusion that what is provided is not punishment but a transference of funds.'

22. In that state of law, therefore, we must answer the first question accordingly that the power under s. 269C is penal in nature and the proceedings are quasi-criminal.

23. Re Question No. 2 : This question cannot be a subject-matter of fierce debate since the legislature has adopted a known and recognized phraseology for describing the condition precedent for initiating acquisition proceedings under s. 269C. The competent authority must have reason to believe that the fair market value of the property of more than Rs. 25,000 exceeds the apparent consideration stated in the instrument of transfer, and the parties have agreed to make untrue statement with the ulterior motive of tax evasion or concealment of income. a similar provision contained in s. 147 and s. 148 of the I.T. Act, 1961, where the ITO has been invested with a power to reassess an assessee whose income has escaped assessment for any assessment year, came up for consideration before the Supreme Court in ITO v. Lakhmani Mewal Das : [1976]103ITR437(SC) . Khanna J., speaking for the Court, held as under (page 445) :

'It would appear from the perusal of the provisions reproduced above that two conditions have to be satisfied before an Income-tax Officer acquires jurisdiction to issue notice under section 148 in respect of an assessment beyond the period of four years but within a period of eight years from the end of the relevant year...... Both these conditions must co-exist in order to confer jurisdiction on the Income-tax Officer. It is also imperative for the Income-tax Officer to record before initiating proceedings as required by section 148(2)...... The grounds or reasons which lead to the formation of the belief contemplated by section 147(a) of the Act must have a material bearing on the question of escapement of income of the assessee from assessment because of his failure or omission to disclose fully and truly all material facts. Once there exist reasonable grounds for the Income-tax Officer to form the above belief, that would be sufficient to clothe him with jurisdiction to issue notice. Whether the grounds are adequate or not is not a matter for the court to investigate. The sufficiency of the grounds which induce the Income-tax Officer to act is, therefore, not a justiciable issue... The existence of the belief can be challenged by the assessee but not the sufficiency of the reasons for the belief. The expression 'reason to believe' does not mean a purely subjective satisfaction on the part of the Income-tax Officer. The reason must be held in good faith. It cannot be merely a pretence. It is open to the court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on theformation of the belief and are not extraneous or irrelevant for the purpose of the section. To this limited extent, the action of the Income-tax Officer in starting proceedings in respect of income escaping assessment is open to challenge in a court of law. (See observations of this court in the cases of Calcutta Discount Co. Ltd. v. ITO : [1961]41ITR191(SC) and S. Narayanappa v. CIT : [1967]63ITR219(SC) while dealing with the corresponding provisions of the Indian Income-tax Act, 1922).'

24. The learned advocate for the respondent-transferee urged that in the context of the power of acquisition under s. 269C read with s. 1269D, the competent authority will have jurisdiction to initiate proceedings only when he is satisfied about the two conditions, viz., (i) the fair market value exceeding the apparent consideration, and (ii) the ulterior motive of tax evasion or concealment of income in agreeing to make untrue statement in the instrument of transfer, and also after he publishes a preliminary notice in the Gazette and in the locality as well as serves it on the transferor, transferee and the occupier and other known interested persons. We will refer to this contention about the preliminary notice being a condition precedent for exercise of the jurisdiction shortly, but on the limited question as to the nature of satisfaction, we are of the opinion that the satisfaction of the competent authority for initiation of acquisition proceedings is a subjective satisfaction of objective facts stated above. As the Supreme Court has said in Lakhmani Mewal Das's case : [1976]103ITR437(SC) , the reasons for the formation of the belief must have a rational and direct connection with the material coming to the notice of the competent authority, though the question of sufficiency or adequacy of material is not open to judicial review. The learned advocate for the respondent-transferee, therefore urged that in the present case there was no direct nexus between the reasons and the material collected by the competent authority. As a matter of fact in the order of the competent authority of June 27, 1973, there is no material whatsoever before the competent authority from which it could have been satisfied about the aforesaid condition precedent for initiation of proceedings. In paragraph 1 of his aforesaid order, he referred to the measurement of the open plot of land and that of the built up area thereof and to the apparent consideration and the average rate worked out on the basis thereof. In para. 2, there is a reference to the reason which prompted the transferor-company to dispose of these two sheds and the contention of the transferee regarding the obligation to purchase shares for Rs. 18,000 of the BIDCO and to the yield of Rs. 1,583 per month earned by the transferee from M/s. Jyoti Ltd. In para. 3, the reference is to the location, position and nature of the holding of the land and potentiality thereof. The learned advocate for the respondent-transferee, therefore, made a grievance that when the competent authority stated in para. 4 that 'in view of the above facts (paras. 2 and 3) the estimated fair market value of the immovable property on the date of the sale would at least be as under...', the inference drawn by the competent authority in para. 4 that the value of land admeasuring 6,524 sq. ft. would be Rs. 26,096 at the rate of Rs. 4 per sq. foot and the value of structure admeasuring 4,927 sq. ft of Rs. 73,905 at the rate of 'Rs.15 per sq. foot is not only unwarranted but highly conjectural. He also made a grievance that the entire irrelevant and extraneous material has gone into consideration of the competent authority while he was considering the possible tax effect in the hands of the transferor and the transferee, when he observed that the possibility of the untaxed income of the husband of the transferee covering the clandestine portion of price of the property cannot be ruled out. This aspect, namely, concealment of income by the husband of the transferee is not at all relevant. When the proceedings are initiated under s. 269C the reasons for the formation of the belief must have relevance to and direct nexus with the material before him. If any irrelevant material or extraneous consideration has weighed with the competent authority, and in the present case on the own recording of the aforesaid reasons by the competent authority, his satisfaction is vitiated ex facie. It should be noted that the Tribunal has accepted this contention that the satisfaction of the competent authority was vitiated by the irrelevant and extraneous consideration. The learned Government Pleader for the revenue urged that even assuming that sons extraneous reason has gone into the consideration of the competent authority as found by the Tribunal, even then, the power of the competent authority to initiate proceedings cannot be assailed because he could have as well initiated proceedings on finding the ulterior motive of tax evasion by the transferor. In other words, the effort of the learned Government Pleader was to impress upon us that if there are more than one objective facts on which the subjective satisfaction could be rested, the fact that one of the grounds is irrelevant, non-existent or illusory would not vitiate the subjective satisfaction. The learned Government Pleader tried to draw support for this contention by inviting our attention to the two decisions of the Supreme Court. The first decision on which reliance has been placed is State of Orissa v. Bidyabhushan Mohapatra : (1963)ILLJ239SC , where the question was, whether the order of dismissal passed as a result of findings of fact out of which some were found to be non-existing could be sustained. The court ruled that if the order of dismissal may be supported on any findings as to substantial misdemeanour for which the punishment can lawfully be imposed, it is not for the court consider whether that ground alone would have weighed with the authority in dismissing the public servant. The Supreme Court reiterated the same principle in Railway Board, New Delhi v. Niranjan Singh, : (1969)IILLJ743SC .

25. In State of Maharashtra v. Babulal Kriparam Takkamore : [1967]2SCR583 , a similar question arose for consideration before the Supreme Court where the order superseding the Municipal Corporation of the City of Nagpur was under challenge. The High Court of Bombay held that the State Government exercised its power under s. 408 of the City Nagpur Corporation Act, 1950, on the grounds which were not reasonably related to its legitimate exercise and the finding upon which the order was passed was rationally impossible on the materials before the State Government, with the result that the said order of supersession was set aside. The State of Maharashtra went in appeal before the Supreme Court. It was sought to be contended on behalf of the respondent before the Supreme Court that, since the opinion of the State Government was based on two grounds out of which one was non-existent or irrelevant, the order was invalid and should be set aside. The Supreme Court referred to its decision in Dwarka Das Bhatia v. State of Jammu & Kashmir : 1957CriLJ316 , as well as its decision in Bidyabhushan Mohapatra's case : (1963)ILLJ239SC . Justice Bachawat, speaking for the court, explained the principle underlying the aforesaid two decisions in the following terms (p. 1359) :

'An administrative or quasi-judicial order based on several grounds, all taken together, cannot be sustained if it be found that some of the grounds are non-existent or irrelevant and there is nothing to show that the authority would have passed the order on the basis of the other relevant and existing grounds. On the other hand, an order based on several grounds some of which are found to be non-existent or irrelevant can be sustained if the court is satisfied that the authority would have passed the order on the basis of the other relevant and existing grounds, and the exclusion of the irrelevant or non-existent grounds could not have affected the ultimate opinion or decision.'

26. A Full Bench of this court had an occasion to consider this decision in Special Criminal Application No. 204 of 1974 (Vasantlal Dhansukhlal Jariwala v. G. N. dike, Secretary to Govt. of Gujarat : (1976)17GLR122 with Special Criminal Application No. 7 of 1975 (Kanubhai Bhailalbhai Chokshi v. State of Gujarat : (1976)17GLR122 ) decided on June 19, 1975 (Per Divan C.J.) in the context of the various decisions of the Supreme Court as well as other High Courts under the Maintenance of Internal Security Act and/or the Conservation of Foreign Exchange and Prevention of Smuggling Act where the unanimity of opinion is that if the satisfaction of the detaining authority is based on several grounds some of which are irrelevant or non-existent or vague, the satisfaction is vitiated. In other words, that would be the price of subjective satisfaction since it would not be possible for the court to decide as to which grounds weighed with the authority for passing the detention order. When the decision of the Supreme Court in Takkamore's case : [1967]2SCR583 , was sought to be relied upon by the detaining authority before the Full Bench in order to sustain the said detention order on the principle of severance, Divan C.J., speaking for the Full Bench, observed as under (p.143) :

'State of Maharashtra v. B. K. Takkamore : [1967]2SCR583 , was a case in which there was not doubt the subjective satisfaction of a statutory authority but it was on determination of facts which must exist independently and objectively... Looking to the fact that the opportunity of show-cause notice was to be given and also looking to the fact that default in the performance of duties imposed upon the Corporation under the Corporation act or any other law for the time being in force, the objective facts and the satisfaction of the State Government though subjective was required to be arrived at in respect of objective facts, a different principle appears to have been laid down, namely, that the rule of severance and exclusion of bad grounds should be applied... It may also be pointed out that in this case before the Supreme Court it was found as a matter of fact that the satisfaction the State Government was based on its conclusions on each of the grounds separately and also on the basis of all the grounds collectively.'

27. In the context of s. 269C of the I.T. Act, the competent authority must have reason to believe about the ulterior motive of the transferor of tax evasion or tax reduction or of the transferee about the concealment of income which he should disclose for tax purposes. This is an objective fact about which the competent authority must be satisfied besides another objective fact that the fair market value of the property in question exceeds by the prescribed margin the apparent consideration thereof. The competent authority, in the present case, has been satisfied about both the basic facts, viz., the fair market value exceeding the apparent consideration, and the ulterior motive of the transferor and transferee. If, therefore, his finding about the ulterior motive of the transferor cannot be sustained as some irrelevant or extraneous factor has gone into consideration of the competent authority, even then, his order to initiate proceeding can be sustained in law on the ulterior motive of the transferor alone. The principle enunciated in Takkamore's case : [1967]2SCR583 , would, therefore, squarely apply and we are of the opinion that the Tribunal clearly committed an error of law in holding that the decision of the competent authority is vitiated as a result of one of the findings held to be based on an irrelevant ground. The learned advocate for the respondent-transferee,therefore, attempted to persuade us that there wan no rational nexus between the reasons for satisfaction and the material before the competent authority We are afraid, we cannot agree with the learned advocate because the competent authority has in para. 2 prima facie found that the return on investment by way of rent is quite substantial since M/s. Jyoti Ltd. have occupied the property and they pay a rent of Rs. 1,583 per month and in that view the apparent consideration would be too low to be accepted. It is an admitted fact that the respective respondent-transferees have given their respective pucca sheds to M/s. Jyoti Ltd. on leave and licence basis for a monthly charge of Rs. 1,583 for a period of eleven months. It might be that the competent authority at that stage may be broadly considering the investment and the return without applying the yield method in all its entirety. However, we cannot at the initiation stage expect the competent authority to work out in detail the yield theory and make his meticulous finding in consequence thereof. Even if we ignore his observations in paras. 3 and 4 of his order for initiation of proceedings regarding the location of the property, the nature of holding of land, vacant possession, etc., or the price of the land and structure, it cannot be said that his satisfaction was based on material which was irrelevant or non-existent. In that view of the matter, therefore, we are of the opinion that the Tribunal was clearly in error in holding that the decision of the competent authority in initiating proceedings was vitiated.

28. Re. question No. 3 : It is common ground between the revenue and the respective respondent-transferees that the conditions mentioned in s. 269C(1) and s. 269D(1) should be fulfilled before the proceedings can be initiated. In other words, the conditions precedent for exercise of the jurisdiction, according to both the sides, are, (i) transfer of immovable property worth more than Rs. 25,000 in value; (ii) excess fair market value of the property over the apparent consideration by 15% ; (iii) ulterior motive of tax evasion or concealment of income for such untrue statement of apparent consideration in the instrument of transfer of such property; (iv) recording of reasons by the competent authority; and (v) publication of notice to that effect in the Official Gazette. Here the agreement between the parties ends. The debate between the parties is on the question, whether the competent authority can exercise the jurisdiction without individual notice to the persons specified in s. 269D(2) and publication thereof in the locality and in his office as prescribed in s. 269D(2)(b). Section 269D(1) provides, so far as it is material for our purposes, as under :

'269D(1) The competent authority shall initiate proceedings for the acquisition under this Chapter, of any immovable property referred to in section 269C by notice to that effect published in the Official Gazette :

Provided that no such proceedings shall be initiated in respect of any immovable property after the expiration of a period of nine months from the end of the month in which the instrument of transfer in respect of such property is registered under the Registration Act, 1908.'

29. Section 269D(2)(a) enjoins the competent authority to cause a notice under sub-s. (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 every known interested person. Section 269D(2)(b) enjoins the authority to cause such a notice to be published in his office by affixing its copy to a conspicuous place, and in the locality in which such immovable property is situate by affixing a copy to conspicuous part of the property and also by making known the substance of such notice in the prescribed manner at convenient places in the said locality. There is a two-fold contention urged on behalf of the respondent-transferee. In the first place, it is contended that these three notices (hereinafter referred to as 'Gazette notice', 'individual notice' and 'locality notice') should be published in manner so as to subserve their purpose. In other words all the three notices should be served simultaneously so that the affected of interested persons, known or unknown , can file their objections within the period of limitation prescribed under s. 269E. Secondly, it has been contended that non-service of individual notice or locality notice within the period of limitation prescribed under s. 269E for filing objections would render the entire acquisition proceedings non est since the said requirements are mandatory provisions of law.

30. In Raza Buland Sugar Co. Ltd. v. Municipal Board : [1965]1SCR970 it was held that the question, whether a particular provision of statute which ex facie appears mandatory since it has used the word 'shall' or is merely directory, cannot be resolved by any general formula and that it is a question of fact in each case which the court can answer having regard to the nature of the provision, the intention of the legislature in making it, the serious general inconvenience or injustice to persons resulting from it being considered mandatory or directory, the relation of a particular provision or other provisions dealing with the same subject and other relevant considerations of a particular case including the language of the provision. The provisions contained in s. 269D(2)(a) and (b) are, in our opinion, mandatory provisions having regard not only to the legislative mandate expressed by the use of word 'shall' but also having regard to their purpose and nature, namely, to afford to persons likely to be affected prejudicially, an opportunity of being heard so as to show cause against the proposed acquisition proceedings and the serious inconvenience that will be caused to those affected persons, inasmuch as they would lose their valuable right or interest in the property without being heard. Section 269E, it should be recalled, provides for filing objections against the acquisition of any immovable property, in respect of which a notice has been published in the Official Gazette under sub-s. (1) of s. 269D, by the transferor, the transferee or the occupier other than the transferee, and any other known interested person within a period of 45 days from the date of publication of the Gazette notice or a period of thirty days from the date of service of notice on such person under the said clause whichever period expires later, as well as by any other unknown person interested in such immovable property within 45 days from the date of such publication. The requirements contained in s. 269D(2)(a) and (b) about the private notice and the locality notice are, therefore, no doubt, related to this right of filing objections. We will presently consider what is the effect of non-service of individual notice or the locality notice within the aforesaid prescribed period of limitation for filing objections. For the limited purpose of the relation of the requirement of individual notice or locality notice with the right of filing objections we would like to refer to the provisions contained in s. 269E. If there is non-service of individual or locality notice within the aforesaid period of limitation, a question, no doubt, would arise, whether the right of a known or unknown interested person to file objections would be time barred with the result that he would have no opportunity of being heard in the matter of acquisition of his property In other words, he would be condemned unheard since the entire decision of acquisition of property rests on the finding of the competent authority that the transferor or transferee has committed the offence of tax evasion or concealment of income. The requirement of private notice as well as locality notice must necessarily therefore, be held to be a mandatory provision of law. Even then the question would arise, whether an act done in breach of such a mandatory provision is perforce a nullity as contended by the learned advocate for the respondent-transferees and as found by the Tribunal. In Dhirendra Nath Gorai v. Sudhir Chandra Ghosh : [1964]6SCR1001 , a question arose whether non-observance of the provision of s. 35 of the Bengal Money Lenders Act, 1940, which prescribed the contents of sale proclamation which, inter alia, should specify the property to be sold would vitiate the proceedings as nullity since that provision was a mandatory provision of law. Subba Rao J., as he then was, speaking for the court, posed this neat question of law - whether an act done in breach of a mandatory provision is perforce a nullity He quoted with approval the passage from the judgment of Mukerjee J. in Ashutosh Sikdar v. Behari Lal ILR[1908] Cal 61:

'... an irregularity is a deviation from a rule of law which does not take away the foundation or authority for the proceeding, or apply to its whole operation, whereas a nullity is a proceeding that is taken without any foundation for it, or is so essentially defective as to be of no avail or effect whatever, or is void and incapable of being validated.' and also considered the workable test laid down by Justice Coleridge in Holmes v. Russel [1841] 9 Dowl 487 as to whether a party can waive the objection about the breach of a mandatory provision, and ultimately summed up the position of law in the following terms (page 1305) : 'Where the court acts without inherent jurisdiction, a party affected cannot by waiver confer jurisdiction on it, which it has not. Where such jurisdiction is not wanting, a directory provision can obviously be waived. But a mandatory provision can only be waived ifit is not conceived in the public interest, but in the interest of the party that waives it.'

31. In Director of Inspection of Income-tax (Investigation) v Pooran Mull & Sons : [1974]96ITR390(SC) , a somewhat similar question arose, whether a provision for the benefit of an individual person whose property was seized could waive the benefit. One Pooran Mall was a partner in a number of firms, some of which were doing business at Bombay and some at Delhi. His residence and business premises at Delhi were searched on October 15/16, 1971. His premises at Bombay were also searched on 15th, when the petitioner was present there. Books of accounts, documents and some jewellery and a large amount of cash amounting to Rs. 61,000 were seized from the business premises at Delhi. On 16th October, a search in the branch offices of the Laxmi Commercial bank and the Punjab National Bank was carried out. 84 silver bars were seized from Laxmi Commercial Bank and 30 silver bars were seized from the Punjab National Bank. Pooran Mall claimed that these bars belonged to M/s. Pooranmal and Sons of Bombay who sent the same to the Motor and General Finance Company of which he was a partner, and the latter firm kept those bars with the two banks. 84 bars were kept in the account of M/s. Udey Chand Pooranmal for an alleged overdraft limited while 30 silver bars were pledge with the Punjab National Bank in the account of the finance company. In all these aforesaid firms, the petitioner was a partner and the case of the revenue was that all these bars were the undisclosed assets of the petitioner. The ITO concerned made a summary inquiry under s. 132(5) of the I.T. Act, 1961, and ordered on January 12,1972, that all the assets seized except some ornaments, had to be retained for being appropriated against the tax dues of Pooranmal from 1969 onwards. It appears that the respondent-firm, M/s. Pooranmal & Sons, and its another partner, who was respondent No.2, filed Writ Petition No. 82 of 1972 challenging the aforesaid order of the ITO. A consent order was made in the said writ petition on April 6, 1972, agreeing that the impugned order be quashed and the department be permitted to look into the matter afresh after giving an opportunity to the respondent-firm to place its case before the department in respect of the contention that the property belonged to the firm and not to Pooranmal individually, and the case was to be finalised within two months. After the disposal of the writ petition, the ITO duly held a fresh inquiry and passed an order on June 5, 1972, holding that the silver bars belonged to Pooranmal individually and not to the respondent-firm. The respondent-firm and its other partner filed another Writ Petition No. 595 of 1972 contending, inter alia, that the ITO had no jurisdiction to pass the impugned order beyond the period prescribed in sub-s. (5) of s. 132. The revenue sought to repel this contention by urging that the limitation provided in s. 132(5) is for the benefit of the person concerned and it was competent for him to waive this benefit which the respondent-firm waived by allowing the consent order to be made. Upholding the contention of the revenue, Alagiriswami J., speaking for the court, said that the period of limitation is one intended for the benefit of the person whose property has been seized, and it is open to the aggrieved person, as happened in that case, to waive the period of limitation since it was for the benefit of the individual concerned. The said decision of the Supreme Court finds support from Craies on Statute Law, 6th edn., at page 269, where the principle is deduced as under :

'As a general rule, the conditions imposed by statutes which authorise legal proceedings are treated as being indispensable to giving the court jurisdiction. But if it appears that the statutory conditions were inserted by the legislature simply for the security or benefit of the parties to the action themselves, and that no public interest are involved, such conditions will not be considered as indispensable, and either party may waive them without affecting the jurisdiction of the court.'

In Maxwell on the Interpretation of Statutes, 11th edn., at p. 375, the same principle is reiterated as under : -

'Everyone has a right to waive and to agree to waive the advantage of a law or rule made solely for the benefit and protection of the individual in his private capacity, which may be dispensed with without infringing any public right or public policy.'

32. A Full Bench of this court was required to consider in Dungarlal Harichand v. State of Gujarat : AIR1977Guj23 , 34, as to what is the effect of non-service of a notice, under r. 21(1) of the Bombay Town Planning Rules, on a tenant of a plot of land which was sought to be reconstituted under the relevant town planning scheme. The contention urged on behalf of the tenant was that the said rule required the Town Planning Officer to issue notice to all persons whose rights in or over the land are affected, and the final scheme sanctioned by the Government to the extent if affected the petitioner before the Full Bench was null and void since there was a breach of such mandatory provision, inasmuch as the petitioner - tenant affected was not served with the prescribed notice. In support of this contention, reliance was placed on behalf of the petitioner in that case on the earlier decision of Division Bench of this court in East India Co. v. Official Liquidator, Raj Ratna Mills [1970] 11 GLR 457; 40 Comp Cas 297, in which the official liquidator sought the direction of the court to sell the property under s. 457(1) of the Companies Act without taking our summons for the direction and, consequently, therefore without notice to the petitioning-creditor as required by r. 139 of the Companies (Court) Rules, 1959. The Full Bench, distinguishing that decision in East India Co.'s case [1970] 11 GLR 457; 40 Comp Cas 297 (Guj), referred and followed the decision of the Supreme Court in Dhirendra Nath Gorai v. Sudhir Chandra Ghosh : [1964]6SCR1001 , and observed as under in paragraph 19 (p. 1168) :

'It should not be forgotten that the Town Planning Officer strictly complied with the requirements of sub-rule (1) of rule 21 as that constituted an essential requirement before the publication of the draft scheme. That publication had to be made under sub-rule (1) of rule 21 in public interest. It is for that reason that publication in one or more newspapers published in the regional language and circulating within the jurisdiction of the local authority is prescribed. There is a further requirement of posting the notice in prominent places at or near the area comprised in the scheme and also at the office of the Town Planning Officer. The underlying object in causing such wide publicity is to see that every owner of any property or right which is injuriously affected may make representation or raise objections before the Town Planning Officer. The public notice contemplated under sub-rule(3) is only at the stage of the draft scheme publication. The persons affected or persons interested have already been notified by the publication made in accordance with the requirement of sub-rule (1) of rule 21. Individual notice were contemplated under the old sub-rule (3) for the reason that at the stage of the draft scheme, the Town Planning Officer would have come to know about persons affected or persons interested. Persons interested or persons affected are entitled to put in their claims under section 69 for compensation. It is for the reason that claims would have to be put in by individuals in response to the publication made in accordance with rule 21(1) that the provision for special notice under sub-rule (3) (old) was contemplated. It cannot, therefore, be said that failure to serve special notice upon persons interested or persons affected constitutes an essential element or factor which would nullify a scheme finally approved by the Government or render it void. So, we have to distinguish a minimum essential element or factor or feature from the others. The mere fact of failure on the part of the Town Planning Officer to comply with such other comparatively non-essential requirements cannot render his decision as one rendered without jurisdiction or lacking in jurisdiction.'

33. In saiyed Mohammed Abdullamiya Uraizee v. Ahmedabad Municipal Corporation : AIR1978Guj82 , before the same Full Bench consisting of S. Obul Reddi c. J., J. B. Mehta J. (as they then were) and myself, a similar contention was urged on behalf of the petitioners, who were served with notices of eviction under s. 54 of the Bombay Town Planning Act, that the mandatory safeguard of individual notice having not been complied with under r. 21(3) and r. 21(4) at the time of reconstitution of their plots under s. 32(1) by the Town Planning Officer, the scheme was ultra vires the Act. J. B. Mehta J., speaking for the Full Bench, said that as far as this contention was concerned, it was completely concluded by the Full Bench decision in Dungarlal Harichand's case [1976] 17 GLR 1152; : AIR1977Guj23 , that a right to individual notice under r. 21(3) and (4) was not so mandatory as to have a nullifying consequence since they were merely additional procedural safeguards and were not essential minimum requirements and the violation of such an additional procedural safeguard which was not in the nature of an essential minimum procedural requirement as in the case of r. 21(1) of a general notice would not render the scheme null and void or as transgressing the jurisdictional limits so as to entitle a party to challenge the same under art. 226. In view of this settled legal position, therefore, we have to consider whether the provisions contained in s. 269D(2)(a) and (b) of the I.T. Act, 1961, can be said to be provisions conceived in public interest so as to constitute essential minimum prcedural requirements, the violation of which would have consequences of nullifying the entire acquisition proceedings, or they are in the nature of additional safeguards so as to enable the persons interested or the persons affected by the proposed acquisition to appear before the competent authority and file their objections. It cannot be gainsaid that the provisions of individual notice as well as locality notice prescribed in s. 269D(2)(a) and (b) are merely additional safeguards conceived in the interest of the persons interested or persons affected and, therefore, they cannot, by any stretch of imagination, be said to be in public interest to that the violation of these prescriptions would offend the rule of audi alteram partem as to have nullifying consequences rendering the action of the competent authority as one without jurisdiction. There is also an inherent indication in the structure of s. 269D which lends support to the view which we are taking. Under s. 4 of the Land Acquisition Act, 1894, the legislature has prescribed publication of preliminary notification for initiation of acquisition proceedings. Sub-section (1) of s. 4 enjoins the appropriate Government to publish a notification, whenever it appears to it that land in any locality is needed or is likely to be needed for any public purpose, in the Official Gazette, and the Collector to cause public notice f the substance of such notification to be given at convenient places n the said locality. Sub-section (2) of s. 4 provides as under :

'(2) Thereupon it shall be lawful for any officer, either generally or specially authorised by such Government in this behalf, and for his servants and workmen, - to enter upon... {1}

34. In view of the peculiar mandate of s. 4 courts have, on a number of occasions, read that the legislative intent is that the authorised officer of the Government will have jurisdiction to initiate acquisition proceedings and to do consequential acts and things only upon publication of preliminary notice in the Official Gazette as well as the substance thereof in the locality. They have been considered to be conditions precedent to the exercise of powers under s. 4 of the Land Acquisition Act (vide Narendrajit Singh v. State of U.P. : [1978]2SCR254 and Khub Chand v. State of Rajasthan : [1967]1SCR120 .

35. In the case before us we are unable to read such a mandate in s. 269D so as to agree with the learned advocate for the respondents that individual as well as locality notices are conditions precedent for initiating acquisition proceedings. If that had been the legislative intent as contended on behalf of the respondents, it would have been appropriately expressed as has been done in s. 4 of the Land Acquisition Act. The Legislature would have said in no uncertain terms by prescribing that the competent authority shall initiate proceedings for acquisition of immovable property by a notice to that effect published in the official Gazette as well as by individual and locality notices. There was no necessity, if the legislative intent had been to treat individual and locality notices as jurisdictional facts or conditions precedent for exercise of the jurisdiction, to provide for such notices in sub-s. (2) instead of in sub-s. (1). The Full Bench of this court in Dungarlal Harichand's case [1976] 17 GLR 1152 (Guj) as well as in Saiyed Mohammed's case [1977] 18 GLR 549 (Guj) [FB] construed new sub r. (3) of r. 21 of the Bombay Town Planning Rules as merely additional safeguards and not jurisdictional facts or conditions precedent for exercise of powers by the Town Planning Officer. The said sub-r. (3) provided as under :

'(3) The Town Planning Officer shall before proceeding to deal with the matters specified in clauses (i), (ii) and (xiii) of sub-section (1) of section 32 publish a notice in the Official Gazette and in one or more newspapers circulating within the jurisdiction of the local authority. Such notice shall specify the matters which are proposed to be dealt with by the Town Planning Officer and State that all persons who are affected by any of the matters specified in the notice shall communicate in writing their objections to the Town Planning Officer within a period of fifteen days from the publication of the Official Gazette. Such notice shall also be posted at the office f the Town Planning Officer and of the local authority and the substance of such notice shall be posted at convenient places in the said locality.'

36. The Full Bench considered this provision only as an additional opportunity prescribed with a view to ensure proper and fair hearing to the persons affected at the statg of consideration of the draft scheme and the failure to comply with this objective has been held by the Full Bench as not amounting to breach of the rule of audi alteram partem so as to render the draft scheme a nullity. The provisions with which we are concerned as to the individual as well as locality notice as prescribed in s. 269D(2)(a) and (b) are similar to those contained in new sub-r. (3) of r. 21 of the Town Planning Rules which have been considered by the Full Bench in the aforesaid two decisions as merely additional safeguards the breach of which may entitle the persons interested or affected thereby to challenge the acquisition proceedings as illegal; but in the absence of such a challenge by an affected or interested person, it cannot be said that want of locality notice or for that matter individual notice would per se render the acquisition proceedings null and void and without jurisdiction.

37. In Chatturam v. CIT [1947] 15 ITR 302, the Federal Court rejected the contention urged on behalf of the assessee that the assessment proceedings were without jurisdiction since notices under s. 22(1) and (2) of the Indian I.T. Act, 1922, were issued on April 20, 1940, in a partially excluded area to which the Indian Finance Act of 1940 had been extended by a notification of May 26, 1940, and held that this contention was founded on misunderstanding of the jurisdiction of the ITO under the Indian I.T. Act, 1922, to assess and bring to tax the taxable income since the jurisdiction was not conditional on the validity of the notices issued under s. 22 because a person, even before a notice is published in the newspapers under s. 22(1) or before he receives a notice under s. 22(2), gets a form of return from the ITO and submits his return, and it would be futile to contend that the ITO is not entitled to assess the party or that the party is not liable to pay any tax because a notice had not been issued to him. The learned advocate for the respondents attempted to persuade us that inasmuch as limitation has been prescribed under s. 269E for filing objections with reference to the date of publication of the Gazette notice, it must be construed that the individual notice as well as locality notice are also conceived and prescribed in the public interest and must necessarily precede the Gazette notice, otherwise persons interested or affected and not known to the competent authority may not have an opportunity of filing objections and being heard in the matter of the proposed acquisition. This is too broad a submission with which, we are afraid, we cannot agree. It is no doubt true that s. 269E provides a period of limitation for filing objections by therefor, transferee, occupant and any other known interested person, of 45 days from the publication of the Gazette notice or 30 days from the service of the individual notice whichever is later. It also provides a limitation for filing objections by an unknown interested person within 45 days from the date of the publication of the Gazette notice. It was, therefore, urged that if individual notice and/or locality notice are not served with the result that the persons interested or affected to do not get an opportunity of making their submissions against the proposed acquisition, it would virtually offend the rule of audi alteram partem and, therefore, it must be held that want of individual notice or locality notice would render the acquisition proceedings a nullity. We cannot subscribe to this view because what s. 269E aims at is merely to provide for limitation and cannot have a bearing on the larger question of jurisdiction. The apprehension that if a known or unknown interested or affected person is unable to file objections for want of individual or locality notice on account of the expiry of the limitation does not appear to us to be well-founded, because it is an accepted principle that limitation would begin to run from the knowledge-actual or constructive, of the party affected or interest by the proposed acquisition on the principle of fair play and natural justice as held by the Supreme Court in State of Punjab v. Mst. Qaisar Jehan Begum : [1964]1SCR971 , where the Supreme Court was concerned with the period of limitation prescribed for making an application for reference. The Supreme Court held that a liberal and mechanical construction of the words 'six months from the date of the Collector's award' occurring in the second part of clause (b) of the proviso to s. 18 of the Land Acquisition Act would not be appropriate and the knowledge of the party affected by the award, either actual or constructive, being an essential requirement of fair play and natural justice, the expression used in the proviso must mean the date when the award is either communicated to the party or is known by him either actually or constructively. The requirement of the service of individual or locality notice as prescribed in s. 269D(2)(a) and (b) is not a condition precedent for initiation of acquisition proceedings and the breach of the said provision would not render the acquisition proceedings a nullity. The acquisition proceedings can be initiated when the two conditions prescribed in s. 269C(1) are complied with and a notice to that effect is published in the Official Gazette by the competent authority. The want of individual notice or the locality notice may render the proceedings illegal if any interested or affected person, known or unknown, who suffers the evil consequences as a result of breach thereof, appears and objects on the ground. We do not think that the individual notice or the locality notice should necessarily precede the Gazette notice and that any change in the sequence would render the proceedings a nullity. The right of the interested or affected person to file his objections against the proposed acquisition under s. 269E would be time barred only if he files the objections beyond the prescribed period of limitation from the date of actual or constructive knowledge of the proposed acquisition. In that view of the matter, therefore, we must hold that the Tribunal was clearly in error in holding that non-publication of the locality notice within the period of limitation prescribed under s. 269E would render the acquisition proceedings a nullity.

38. A subsidiary contention was urged in the course of the discussion of the above question, viz., as to when the competent authority is under obligation to initiate the proceedings It was urged by the learned Government Pleader for the revenue that the moment the competent authority has reason to believe that the fair market value of the property transferred exceeds the apparent consideration stated in its instrument of transfer by 25%, he has no discretion in the matter, and he must initiate the proceedings, because, the presumption prescribed under s. 269C(2)(a) and (b) would automatically arise as a matter of course. In other words, the presumption prescribed under s. 269C(2)(a) and (b) would also arise at the initial stage. The learned advocate for the respondent-transferees has joined issue by urging that till the initiation is directed by the competent authority, there are no proceedings, and in no case the presumption can operate at the state prior to the commencement of the proceedings. Clause (b) of sub-s. (2) provides in effect that where the apparent consideration is less than the fair market value of the property transferred, it shall be presumed, unless the contrary is proved, that the agreed consideration has not been stated truly in the instrument with the object of tax evasion. Clause (a) provides that if the fair market value of a property exceeds the apparent consideration by more than 25%, it shall be conclusive proof that the agreed consideration has not been truly stated. The learned Government Pleader has taken us through the bill where this provision was to be found in s. 269F which provides for hearing of objections. The learned Government Pleader has invited our attention that the legislature has clearly evinced its intent by shifting the provision from one dealing with hearing of objections to the one dealing with initiation of proceedings and also has emphasised that the presumptions are to arise in any proceedings under the Chapter which would clearly include the proceedings prior to the decision of initiation of acquisition proceedings. The learned Government Pleader for the revenue, in this connection, invited our attention to a decision of the Delhi High Court in Mahavir Metal Works P. Ltd. v. Union of India : [1974]95ITR197(Delhi) , where the Delhi High Court has held that if the fair market value of the property as determined by the department valuer is higher by the prescribed margin than the consideration stated in the deed, then in view of s. 269C(2) the competent authority must be taken to have reason to believe that the consideration has not been truly stated in the deed and the understatement was made with the object of tax evasion. We must frankly admit that we have not been able to appreciate the rationale underlying the rule of evidence contained in sub-s. (2)(a) of s. 269C. It does not appear to be fair and just that there should be any presumption by an artificial rule of evidence that mere disparity between the apparent consideration and the fair market value by a prescribed margin of 25% would be conclusive proof that the parties to a transfer have been untruthfully stating the agreed consideration in the instrument of transfer since there may be countless bona fide cases where the agreed consideration may be lower than the fair market value on the date of the execution of sale deed. We have been to our wit's end to find out as to whether the legislature really intended that the presumption provided in sub-s. (2)(a) and (b) would operate before the proceeding are initiated, and if so, what is its practical value since sub-s (3) of s. 269E permits an objector to rebut the presumption raised in clause (a) of sub-s. (2) of s. 269C. The Delhi High Court was, therefore, constrained to hold that the presumption raised by clause (a) of sub-s. (2) was rebuttable in view of sub-s. (3) of s. 269E. The presumption prescribed in clause (a) of sub-s. (2) is clearly a rebuttable provision in every case including a case falling under clause (a). The moot question which has been raised, is whether this presumption would arise at the stage prior to the decision of the competent authority to initiate acquisition proceedings. We are of the opinion that the submission made by the learned Government Pleader does not appear to be well founded for the obvious reason that the competent authority may, on satisfaction of the two conditions mentioned in s. 269C(1) initiate proceedings for acquisition of such property under Chap. XX-A subject to the provisions of the Chapter, and the competent authority can initiate proceedings for acquisition under the Chapter, s. 269C, by a notice to that effect published in the official gazette as provided in s. 269D. In our opinion, the competent authority can initiate proceedings for acquisition on the conditions precedent being satisfied only by an appropriate notice in the Official Gazette to that effect. Therefore, it follows that till the appropriate notice in the Gazette is not published the proceedings for acquisition under Chap. XX-A of an immovable property referred to in s. 269C are not initiated. The learned Government Pleader, therefore, attempted to persuade us that the decision of the competent authority to initiate proceedings for acquisition is 'subject to the provisions of this Chapter' and, therefore, the presumptions prescribed in cls. (a) and (b) of sub-s. (2) of s. 269C would govern such a decision. We are afraid the learned Government Pleader is reading more in the clause 'subject to the provisions of this Chapter' than what is warranted. The decision of the competent authority to initiate proceedings is subject to the other provisions made in the chapter which would only mean that subject to the publication of the preliminary notice in the Gazette as well as individual and locality notices so far as may be applicable and subject to the important limitation in particular that he cannot initiate proceedings unless the fair market value of the property exceeds the apparent consideration by more than 15%, none the less, the proceedings would be initiated only after a notice to that effect in the Gazette. In that view of the matter, therefore, we are of the opinion that the presumptions prescribed in cls. (a) and (b) of sub-s (2) of s. 269C would not operate at any stage prior to the decision of the competent authority for initiation of the proceedings.

39. Re : question No. 4 : We do not feel any doubt that having regard to the nature of the power which is, as held above, penal, and also having regard to the nature of the proceedings, which are quasi-criminal, the competent authority must be held to be a quasi-judicial authority. The real question before us is, whether the competent authority should conduct the inquiry as if it is a regular trial or whether he is not fettered by any rules of evidence and can collect any material from any source and can act upon such material after disclosure to the person affected or interested in the property sought to be acquired. It is a trite position of law that the ITO is not bound by any technical rules of the law of evidence and it is open to him to collect materials to facilitate assessment even by private inquiry, but if he desires to use such material, he must disclose it to the assessee, who must be given an adequate opportunity of explaining it (vide : C. Vasantlal & Co. v. CIT : [1962]45ITR206(SC) (SC). It is also axiomatic to say that a proceeding for assessment is not a suit for adjudication of a civil dispute, and the income-tax authorities, having power to assess and recover tax, are not judges deciding a lis between the citizen and the State, but they are administrative authorities whose proceedings are regulated by statute. The tax legislation, though it requires a machinery to be set up for assessment and tax collection, the proceedings before the taxing authorities do not bear the character of an action between a citizen and State (vide : S. S. Gadgil v. Lal and Co. : [1964]53ITR231(SC) . The income-tax authorities are also not strictly bound by the rules of evidence and whatever material having evidentiary value can be taken into account, though such material is to be brought to the notice of the assessee, who must have an adequate opportunity to controvert the same (vide : CIT v. East Coast Commercial Co. Ltd. : [1967]63ITR449(SC) ). It is no more open to debate that the ITO is not fettered by technical rules of evidence and pleadings and he is entitled to act on any material which may not be accepted as evidence in a court of law. However, the ITO is not entitled to make a pure guess and cannot make any order without relevant material and on bare suspicion (vide : Dhakeswari Cotton Mills Ltd. v. CIT [1954] 26 ITR 775 (SC)). It was, therefore, urged by the learned Government Pleader for the revenue that these principles will apply proprio vigore in acquisition proceeding under Chapter XX-A of the I.T. Act. On the other hand, it was urged on behalf of the respondent-assessee that having regard to the nature of the proceedings which are penalty proceedings resulting in deprivation of property at a gross under value, the transferee is in the position of an accused in a criminal trial and, therefore, all the ingredients of the offence for which penalty can be imposed must be established by the revenue. In support of this contention, reliance was sought to be placed on behalf of the respondent-transferees on the decision of the Bombay High Court in CIT v,. Gokuldas Harivallabhdas : [1958]34ITR98(Bom) and the Supreme Court in CIT v. Anwar Ali : [1970]76ITR696(SC) and CIT v. Khoday Eswarsa and Sons : [1972]83ITR369(SC) and the two decisions of this court in CIT v. S. P. Bhatt : [1974]97ITR440(Guj) and Addl. CIT v. I. M. Patel & Co. : [1977]107ITR214(Guj) . It appears to have been taken as settled law by now that an order imposing penalty is the result of quasi-criminal proceeding (vide : Hindustan Steel Ltd. v. State of Orissa : [1972]83ITR26(SC) ; : [1972]83ITR26(SC) . Penalty proceedings are penal in character ex facie. In Khemka & Co. (Agencies) Pvt. Ltd. v. State of Maharashtra : [1975]3SCR753 , the Supreme Court ruled that imposition of penalty gives rise to substantive liability which can be viewed as a fine for the infringement of law also, and is comparable to a punishment for the commission of an offence. the Full Bench of this court in I. M. Patel's case : [1977]107ITR214(Guj) , therefore, held that the penalty contemplated in s. 271(1)(a) and other sections in Chap. XXI of the I.T. Act, 1961, can be imposed by an ITO as distinguished from regular criminal court and the proceedings in relation thereto are quasi-criminal proceedings and they provide for offences which can be dealt with by the departmental authorities. In R. S. Joshi, STO v. Ajit Mills Ltd. : [1978]1SCR338 , the Supreme Court considered whether word 'penalty' would include forfeiture, and referred to Black's Legal Dictionary and approved the meaning given therein that :

'... the word'penalty' is found to be generic in its character, including both fine and forfeiture. A 'fine' is a pecuniary penalty and is commonly (perhaps always) to be collected by suit in some form. A 'forfeiture' is a penalty by which one loses his rights and interest in his property.'

40. The Supreme Court also quoted with approval the observation of Chief Justice Taney in State of Maryland v. Baltimore & Ohio RR Co. [1846] 11L Ed 714 at p. 722, that a forfeiture is always to be regarded as a punishment inflicted for a violation of some duty enjoined upon the party by law. It cannot be gainsaid that the power contained in s. 269F(6) for making an order for acquisition of a property for committing an offence of making an untrue statement in an instrument of transfer with the ulterior motive of tax evasion coupled with the right of the Government under s. 269J(4) to realise the difference between the apparent consideration and the market price as a penalty is in effect and substance, a power for imposing punishment indicating forfeiture of the aforesaid amount of difference to the Government for the income-tax offence. we have, therefore, to spell out what would be the contents of the principles of natural justice before the competent authority having regard to the nature of the power of acquisition for tax offence and the proceedings in connection therewith. It is axiomatic to say that the rules of natural justice are not inflexible rules not is there any straitjacket formula in that behalf. They may differ in different circumstances (vide Hira Nath Mishra v. Principal, Rajendra Medical College, ranchi : (1973)IILLJ111SC . The rules of natural justice are not embodied rules, and it is a question of fact in each case whether they are complied with or not (vide Suresh Koshy George v. University of Kerala : [1969]1SCR317 ). In Local Government Board v. Arlidge [1915] AC 120, 132 (HL), Viscount Haldane L.C. observed :

'Such a body as the Local Government Board has the duty of enforcing obligations on the individual which are imposed in the interests of the community. In this it resembles other great departments of the State. When, therefore, Parliament entrusts it with judicial duties, Parliament must be taken, in the absence of any declaration to the contrary, to have intended it to follow the procedure which is its own and is necessary if it is to be capable of doing its work efficiently'.

41. In De Verteuil v. Knaggs [1918] AC 557 (PC), the Judicial Committee of the Privy Council, in the context of the powers of the Governor under s. 2 of the Immigration Ordinance of Trinidad, spelt out a duty on the part of the Governor, 'of giving to any person against whom the complaint is made a fair opportunity to make any relevant statement which he may desire to bring forward and a fair opportunity to correct or controvert any relevant statement brought forward to his prejudice'.

42. In University of Ceylon v. Fernando [1960] 1 All ER 531 (PC) an inquiry was held into an allegation by one student, B, that another, F, had cheated in an examination. B gave evidence when F was not present. The allegation was found proved. F alleged that the decision was void as contrary to the rules of natural justice, in that the inquiry officer had not tendered B for cross-examination. The Privy Council said that this could not in itself be regarded as a breach of the rules of natural justice but it might have been a more formidable objection if F's request to question B had been refused. The Supreme Court in Suresh Koshy's case : [1969]1SCR317 , referred to this decision and said that it was not necessary for the court in the case to take assistance from the ratio of that decision because the witnesses who gave evidence against the delinquent were examined in his presence and he was allowed to cross-examine them and that he was given every opportunity to present his case before the inquiry officer. It is no doubt true that rules of natural justice do not envisage necessarily in every case the compliance with the strict rules of law of evidence and the procedure followed at the trial in the court. The minimum requirement is with a view to safeguard and vouchsafe that the Tribunal acts in a just manner.

43. In State of Kerala v. K. T. Shaduli Yusuff [1977] 39 STC 478, the Supreme Court was required to consider as to what should be the contents of rules of natural justice in the context of best judgment assessment under s. 17(3) of the Kerala General Sales Tax Act, 1963. Bhagwati J., speaking for the majority, ruled as under (p. 481) :

'Now, the law is well settled that tax authorities entrusted with the power to make assessment of tax discharge quasi-judicial functions and they are bound to observe principles of natural justice in reaching their conclusions. It is true, as pointed out by this court in Dhakeswari Cotton Mills Ltd. v. CIT [1954] 26 ITR 775 (SC) that a taxing officer 'is not fettered by technical rules of evidence and pleadings, and that he is entitled to act on material which may not be accepted as evidence, in a court of law', but that does not absolve him from the obligation to comply with the fundamental rules of justice which have come to be known in the juris-prudence of administrative law as principles of natural justice. It is, however, necessary to remember that the rules of natural justice are not constant; they are not absolute and rigid rules having universal application. It was pointed out by this court in Suresh Koshy George v. University of Kerala : [1969]1SCR317 ; : [1969]1SCR317 , that 'the rules of natural justice are not embodied rules' and in the same case this court approved the following observations from the judgment of Tucker L.J. in Russell v. Duke of Norfolk [1949] 1 All ER 109 (CA) : 'There are, in my view, no words which are of universal application to every kind of inquiry and every kind of domestic tribunal. The requirements of natural justice must depend on the circumstances of the case, the nature of the inquiry, the rules under which the tribunal is acting, the subject-matter that is being dealt with, and so forth. Accordingly, I do not derive much assistance from the definitions of natural justice which have been from time to time used, but, whatever standard is adopted, one essential is that the person concerned should have a reasonable opportunity of presenting his case'.'

44. The Supreme Court thereafter examined the power of a STO under the Kerala General Sales Tax to make the best judgment assessment under s. 17(3) of the said Act. The proviso to sub-s. (3) enjoins the STO to give an opportunity of being heard to the dealer whose return in found to be incorrect or incomplete so as to afford him an opportunity to prove the correctness or completeness of such return. the majority court, therefore, read in this proviso that the proof of a fact can be furnished by production of evidence, and evidence includes oral evidence of witnesses and the opportunity envisaged by the proviso necessarily carries with it the right to examine witnesses and that would include equally the right to cross-examine the witnesses examined by the STO. In the perspective of this settled legal position of law, we have to examine as to what would be the contents of the principles of natural justice in the inquiry before the competent authority. By an large, it can be said that in the inquiry under Chap. XX-A of the I.T. Act, 1961, the transferor and/or transferee as well as the occupant and any other known interested person should be told the nature of allegations against him including the material collected so far by the competent authority, and be furnished copies of the statements recorded and those of the documents collected by the competent authority on which he intends to rely so as to give the person interested or affected an opportunity to state his case and to correct or controvert the material sought to be relied upon, and the competent authority should act in a just manner at all stages of such inquiry which would necessarily imply that the authority shall furnish any other additional material which it might have collected after the initiation of the proceedings in the course of the inquiry to the person interested or affected by the proposed acquisition. It has been urged by the learned advocate for the respondent-transferees that the competent authority can initiate proceedings if at all he is satisfied that the fair market value of the property transferred exceeds the apparent consideration by the prescribed margin and an untrue statement has been made as to the consideration in the instrument of transfer with an ulterior motive of tax evasion. In the process of prima facie determining the fair market value of a property, it is implicit in the very nature of the process that he has to obtain relevant and cogent material of comparable properties and unless he has got the statements of persons who may be the owners, lessees or occupants of such properties, or the report of the Valuation Officer opining about the excess of the fair market value by a prescribed margin, or any other reliable relevant material such as in the nature of sale deed, lease deed, etc. he cannot prima facie satisfy himself about the first condition precedent for initiation of the proceedings. In any case, it was urged on behalf of the respondent-transferees that s. 269E(3) permits the objector to object that the fair market value of the property does not exceed the apparent consideration by 25% and/or the property had not been transferred with an ulterior motive of tax evasion as termed under s. 269C(2)(b). In other words, the objector can prove that the consideration has not been untruly stated by proving that the fair market value does not exceed the apparent consideration by 25% and/or in any case the object of difference, if any, in the statement of consideration was not with any ulterior motive of tax evasion. The objector can prove this only by evidence and the evidence would include documentary as well as oral evidence. the objector, therefore, has a right not only to lead and adduce oral and/or documentary evidence that may be necessary in this connection, but also to cross-examine the witnesses whose statements the competent authority might have recorded. The objector can also pray before the competent authority that the evidence of persons concerned, who can throw light on the question at issue or the materials that may be collected before or in the course of inquiry held by the competent authority for hearing objections under s. 269F, may be recorded and the objector may be allowed to cross-examine them. In the perspective of this position of law, we have to examine, whether the Tribunal was, in any way, in error in holding that, in the present case, the competent authority violated the principles of natural justice and fair play, inasmuch as he relied upon the valuation report which the Bank of Baroda had obtained in respect of the property in question in both these appeals for purposes of advancing loans to the respondent-assessees and also the particulars which the said authority had collected in respect of the rates prevalent in the market at the relevant time of the lands situate in Makarpura and Gorva area of Baroda city without disclosing the materials to the respondent-transferees much less affording them an opportunity to controvert the same. It is common ground that these materials have been relied upon by the competent authority without the same being disclosed to the respondent-transferees. It cannot be denied that the competent authority has, for purposes of finding out the market value of the property in question in both these appeals, considered and relied upon the valuation report and the rates of lands in Makarpura and Gorva areas of Baroda city. The Tribunal was, therefore, perfectly justified in reaching the conclusion as it did that the competent authority has acted in violation of the principles of natural justice in relying on the material without disclosing it to the respondent-transferees and affording an opportunity of being heard in that connection. As a matter of fact, the respondent-transferee of First Appeal No. 1105 of 1975, made a request by letter dated 26th August, 1974, that the Agent, Bank of Baroda, Industrial Estate Branch, Baroda, was called on by the competent authority, on 8th August, 1974, and if any statement of the agent was recorded by the competent authority, he was requested to furnish a copy of the same to the respondent. It is, therefore, really surprising that the competent authority did not think it fit to inform the respondent that no such statement was recorded and/or did not furnish the material, if any, collected by him from the Bank of Baroda. We must put on record our dissatisfaction with the method of conducting the entire inquiry by the competent authority in this case. The competent authority did not furnish the respondent-transferee with the valuation report of the Valuation Officer till 18th April, 1974, in spite of repeated requests and demands by her. The most disappointing part of this case before us is that the respondents were not permitted to have inspection of the files of their own cases in spite of repeated requests and reminders in the matter and willingness to pay the necessary charges for holding the inspection. The competent authority informed the respondent-transferee that she may have an inspection only of those papers and documents filed by her and not of the entire file. It is high time that these authorities should appreciate the role envisaged for them and the powers which they wield and the far-reaching repercussions their decisions have in matters like acquisition of property, to counteract the evasion of tax under Chap. XX-A of the I.T. Act, 1961. Courts have on every occasion reminded these authorities having power to impose penalties that they are independent quasi-judicial authorities acting in quasi-criminal proceedings the decisions of which visit the persons affected with evil consequences and, therefore, it is necessary for them always to bear in mind that they have to act in a just manner at every stage of inquiry and they should not at any time advertently or inadvertently assume the role of prosecutors. In these particular two cases before us, we unfortunately carry an impression that the competent authority concerned did not have the proper perspective of the functions and powers which he was called upon to discharge and wield. The fact that this was the first set of cases under this new Chap. XX-A may be an extenuating circumstance but not a justifying reason. In any case, the Tribunal has rightly held that the competent authority has failed to act in a just manner and, therefore, his order of acquisition was vitiate.

45. A grievance was made on behalf of the respondent-transferees that no opportunity of examining the witnesses was given. As a matter of fact, this was also the first set of cases which was being handled by the chartered accountant appearing on behalf of the respondent-assessees. He had also not taken sufficient care of the interest of the respondent-transferees. In the circumstances, therefore, he did not ask for any opportunity to cross-examine the Valuation Officer or had not requested the competent authority to exercise the powers vested in him under s. 269M which invested the competent authority with all the powers of Commissioner under s. 131 of the I.T. Act, 1961. It is expected of chartered accountants, income-tax practitioners and advocates representing the causes of interested persons to be more vigilant in the matter and see that the competent authority exercises the legal powers vested in him so as to ascertain the truth in the matter. We, therefore, agree with the Tribunal that the order of acquisition was vitiated as the competent authority has acted in violation of the principles of natural justice, inasmuch as the relevant material relied upon by him was not disclosed to the respondent-transferees.

46. The learned Government Pleader urged that the Tribunal ought to have remanded the matter after setting aside the order of acquisition so as to enable the competent authority to complete the inquiry according to the correct legal principles. Since the Tribunal found ultimately that there was no evidence whatsoever which could have sustained the order of acquisition, the Tribunal might not have thought fit to remand the matter to hold a fresh inquiry from the point where it was found defective. In the view which we are taking we will consider this request of the learned Government Pleader at the time of making final order in these appeals.

47. Re. Question No. 5 :- The term 'apparent consideration' is defined to mean, in the case of transfer by way of sale, the consideration for such transfer as specified in the instrument of transfer, and in the case of a transfer by way of exchange of thing or things the market price thereof and in the case of a thing or things and sum of money, the aggregate of the market price and such sum. We are concerned with the question as to what was the apparent consideration in the present case before us. It should be recalled that the Tribunal has accepted the case of the respondent-transferees that since each of the respondent-transferees was required to purchase the shares of BIDCO of the nominal value of Rs. 18,600 held by the transferor, it should also be considered as a part of the consideration and, therefore, each transferee should be held to have paid in all Rs. 48,121 comprising of Rs. 29,521 as the price of the structure and Rs. 18,600 as the price of shares. We do not think that the Tribunal has committed any error on the facts and in the circumstances of this case in accepting that the apparent consideration was Rs. 48,121 for the sale of the property in question. It is no doubt true that on the plain reading of the definition of the term 'apparent consideration' in the case of a transfer by way of sale, it would be consideration as specified in the instrument of transfer. It does not follow, therefore, that only that consideration which is paid by way of price for the property would amount to apparent consideration since apparent consideration is that consideration which is specified in the instrument of transfer. In other words, de hors the instrument of transfer the transferee is not entitled to contend before the competent authority that he or she has paid any amount in cash or kind to the transferor but if besides the price of the property any consideration is agreed to be given by the transferee to the transferor, it would certainly amount to apparent consideration. In the ultimate analysis, it depends on what are the terms and conditions as regards consideration for the property in the instrument of transfer. If besides the price of the property something more is required to be done or forbidden to be done at the instance of the transferor by the transferee, it would certainly amount to consideration since it is specified in the instrument itself. In the present case, we have, therefore, to find out what was the agreement between the parties in the instrument of transfer as to its consideration. The instrument of transfer is of 5th February, 1973, by M/s. Sigil (India) Services Pvt. Ltd., in favour of Kamlaben K. Patel and Vimlaben B. Patel - the respondent-transferees of First Appeals Nos. 1105 and 1106 of 1975, respectively, The respective sale deeds sought to convey the industrial sheds of A-type bearing blocks Nos. 1/3 and 1/4, respectively, of equal size and dimension admeasuring 6,524 sq. ft. comprising of 4,927 sq.ft. of built up area out of which the pucca structure was occupying an area of 2,427 sq. ft. while temporary structure was occupying an area of 2,487 sq. ft. leaving the remaining plot of land open, together with the right to enjoy an electric connection of 39 H.P. after obtaining sanction of the board of directors of BIDCO dated 25th November, 1972, on the condition that the transferee would abide by the terms and conditions prescribed under the ownership scheme of BIDCO in pursuance of which the transferor purchased the said sheds from BIDCO. Now, it is not in dispute that under the ownership scheme conceived at the instance of the Governor of the State of Gujarat and adopted in the extra ordinary general meeting of the members of BIDCO held on 24th march, 1969, the selling cost of A-type block was Rs. 19,105 being cost of block along with land in addition to Rs. 18,600 being the value of shares. In other words, the total value of the block comes to Rs. 37,705. The letter of the Secretary of BIDCO of January 10, 1974, addressed to Vimlaben B. Patel -the respondent-transferee of First Appeal No. 1105 of 1975 - clearly establishes that any purchaser under the ownership scheme was bound to pay besides the price of the shed a sum of Rs. 18,600 being the value of the shares. It should be noted that under the regulations framed by BIDCO styled as 'Baroda Industrial Estate Rules, 1958' every concern or person taking a block was under an obligation to purchase a specified number of shares. In the case of A-type of block, the purchaser had to purchase in all four shares of Rs. 1,000 each. This is provided in r. 7 of the aforesaid rules. In the extraordinary general meeting of the members of BIDCO held on 24th March, 1969, it was resolved to raise additional capital and also to sell the blocks to the respective occupants so as to raise sufficient funds for purposes of meeting the liabilities of the Corporation. Each such occupant-purchaser was to subscribe for 13 additional shares of BIDCO of the value of Rs. 1,000 each at par besides purchasing one such share of Rs. 1,000 at the price of Rs. 1,600 from the existing shareholder who did not occupy or hold any block in the industrial estate with a view to compensate such shareholder who was not paid any dividend till then. Such occupant-purchaser had to pay a sale price of Rs. 19,105 by way of price of the block. This is an admitted position by both the sides though a resolution in that behalf is not placed on the record of the case. The notice of the said extraordinary general meeting of 24th March, 1969, is placed on the record and in pursuance of this notice the resolution for raising capital and selling the block was passed. It is no doubt true that the deeds of conveyance executed in favour of the respondent-transferees in respect of the respective property in question in terms specify by way of consideration Rs. 29,501 for the transfer of the property. However, in the said deeds of conveyance, as stated above, it has been clearly stated that the respective respondent-transferee has to abide by the terms and conditions of the ownership scheme as approved by the general meeting of the members of BIDCO which, inter alia, included the aforesaid condition. The learned Government Pleader appearing on behalf of the Commissioner attempted to persuade us that nothing has been placed on the record to show much less to satisfy the competent authority that the present respondent-transferees were under any statutory or contractual obligation to purchase the shares which the transferor, M/s. Sigil (India) Services pvt. Ltd., was required to purchase in pursuance of the resolution of BIDCO. This contention of the learned Government Pleader does not appear to us to be well-founded. In the first instance, we have read the relevant terms and conditions in the deeds of conveyance of 5th February, 1973, executed between the transferor and the transferees. We have also referred to the letter of January 10, 1974, bearing reference No. 6/74 of the secretary of BIDCO addressed to one of the respondent-transferees. The competent authority has also, in its order of June 27, 1973, recording reasons for initiating the proceedings under s. 269C, stated as under :

Rs.'Apparent consideration (as indicated in the formNo. 37-G) (considering shares worth Rs. 18,600) 47,521.'

The competent authority has in his final order of January 16, 1975, deciding to acquire the property, observed as under in para. 26 :

'... It is not disputed that the amount specified in the instrument of transfer is only Rs. 29,521. The amount expended for the purchase of shares of BIDCO worth Rs. 18,600 has not been mentioned as consideration for transfer. That the bye-laws of BIDCO provide that every holder of the block must purchase shares worth Rs. 18,600 is a consideration which is extraneous and independent of the instrument of transfer.'

The Tribunal in para. 40 of its common order, disposing of the two appeals preferred by the respondent-transferees, observed as under :

'Now there is evidently no dispute in this case that the consideration stated in the instrument of transfer is Rs. 29,521, which having regard to the definition of the expression 'apparent consideration' in s. 269A(a) should be regarded as the 'apparent consideration'.It is also not in dispute that besides the sum of Rs. 29,521 the appellant-transferee also had to purchase or acquire the shares of BIDCO of the value of Rs. 18,600 which it was claimed by the appellant is part of the consideration for the purchase of the property in question.'

48. In that view of the matter, therefore, we do not feel any hesitation in holding that the apparent consideration in the present case was Rs. 29,521 being the price of the property in question besides Rs. 18,600 being the price of shares which the respondent-transferee had agreed to purchase under the instrument of transfer, namely, the deed of conveyance of 5th February, 1973. The learned Government Pleader invited our attention in this connection to Form No. 37G, which a transferee has to furnish to the office registering the documents, under s. 269P(1) along with the instrument of transfer where the consideration for transfer at item No. 8 was stated to be Rs. 29,501 only. We do not think that this will make any material difference if the definition of the term 'apparent consideration' as given in s. 269A(a) prescribes otherwise, since there cannot be any estoppel on the point of law. We will, therefore, proceed on the basis that the apparent consideration was Rs. 48,121 for purposes of determining whether the fair market value exceeded the apparent consideration by the prescribed margin so as to justify the acquisition proceedings.

49. Questions Nos. 6 & 7 : We will deal with both these questions simultaneously as they are inter-connected. It is axiomatic to say that the principles which courts have from time to time enunciated for fixation of fair market value in the matter of acquisition of land and building for public purpose are to provide for the loss of property to the owner acquisition. Courts have, therefore, always striven in the direction of finding out the just equivalent compensation to be paid for acquisition of the totality of the interest in the land or building sought to be acquired. Section 15 of the Land Acquisition Act, 1894, which would govern the question of compensation provides that the collector shall be guided by the provisions contained in ss. 23 and 24 while determining the amount of compensation. No doubt, s. 23 prescribes that court shall take into consideration, amongst other things, the market value of the land at the date of publication of the notification under s. 4(1) while determining the amount of compensation Courts in India have recognised the English principle of 'reinstatement' in the matter of determining compensation for acquisition of land or property though it has not been specifically mentioned in s. 23(1). The principles for determining the market value have been fully expounded by the Privy Council in Rajah of Vizianagaram (Vyricherla Narayana Gajapathiraju) v. Revenue Divisional Officer, Vizagapatam (known as 'Chemundu's case') . The Judicial Committee in Chemudu's case defined the market value as price which a willing vendor might reasonably expect from a willing purchaser. It would, therefore, in our opinion not be safe to wholly import the principles enunicated by courts in ascertaining the market value while determining the amount of compensation for acquisition of a property or a land since the perspective of the acquisition under the Land Acquisition Act and that under Chap. XX-A of the I.T. Act, 1961, are slightly different. The perspective of the purpose under Chap. XX-A is acquisition of properties to counteract evasion of tax and curb the circulation of black money while that under the Land Acquisition Act is the necessity of the property for implementation of a given public need of community. It should also not be lost sight of that s. 269C empowers the competent authority to initiate acquisition proceedings if he has reason to believe that the apparent consideration as stated in the instrument of transfer falls short of the fair market value of the property in question by a prescribed margin and the statement of the apparent consideration is with an ulterior motive of evasion of tax. The fair market value is defined in s. 269A(d) as to mean the price of an immovable property which it would ordinarily fetch on sale in the open market on the date of execution of the instrument of transfer of such property. It should be recalled that the market value which is a relevant consideration as prescribed under s. 15 of the Land Acquisition Act is not defined by the legislature, and the Judicial Committee, therefore, in Chemudu's case , defined the market value as the price which a willing vendor might reasonable expect from a willing purchaser. The learned Government Pleader urged that the principles enunciated by courts in determining the market value for purposes of determining compensation should not be wholly imported in determining the fair market value in the context of acquisition proceedings under Chap. XX-A of the I.T. Act, because the court has to determine the fair market value in view of its definition as to mean the price that the immovable property would ordinarily fetch on sale in the open market. The court must give some meaning to the word 'ordinarily' because the wholesale adoption of the meaning ascribed to 'market value' under the Land Acquisition Act by the Courts may result in a given case in frustration of the object of the power since an evil practice had developed in the property market to understate the consideration of transfer in the instrument of transfer with a view to avoid or reduce the tax liability or to facilitate the concealment of income or moneys. In this connection, the learned Government Pleader invited our attention to the observation made by the Wanchoo Committee in the relevant paragraphs of Chap. II dealing with black money and tax evasion where it is recognized by the said Committee that an evil practice has developed to make an under-statement of the apparent consideration. Therefore, the competent authority as well as the court has to be vigilant in scrutinizing such instruments of transfer in the locality or area where such evil practice has firmly gained the ground. the adverb 'ordinarily' has got a nuance or the shape to indicate and imply that extraordinary consideration which might have prevailed with the transferee in purchasing the property should be generally ignored. The Supreme Court in Purshottam N. Amarsay v. CWT : [1973]88ITR417(SC) quoted with approval the principle enunciated by the House of Lords in IRC v. Crossman [1937] AC 26; 2 EDC 537 (HL) that 'if sold in the open market' it does not contemplate actual sale or the actual state of the market, but only enjoins that it should be assumed that there is an open market and the property can be sold in such a market, and on that basis, the value has to be found out. It is no doubt true that in order to initiate acquisition proceedings the competent authority must be satisfied about the fair market value of the property transferred exceeding the apparent consideration by a prescribed margin. He has, therefore, to find out prima facie as to what is the fair market value of the property in question. The courts have enunciated the principles for finding out the market value for purposes of awarding compensation for acquisition of land under the Land Acquisition Act. The basis fact which is to be inquired into and adjudicated upon before initiating acquisition proceedings under Chap. XX-A as well as for awarding compensation under the Land Acquisition Act is the same, namely, what is the market value of the property in question. None the less, the perspective of these two proceedings are different. Unless this is borne in mind one would be tempted to import and apply these principles wholly in the course of both these proceedings. The necessity of keeping the proper perspective of the nature of proceedings is borne out by two decisions of the Supreme Court in Corporation of Calcutta v. Smt. Padma Debi : [1962]3SCR49 , and Rustam Cavasjee Cooper v. Union of India : [1970]3SCR530 . Padma Debi's case was in the context of property tax under the Calcutta Municipal Act (3 of 1923), while Rustam Cavasjee Cooper's case was in the context of the principles of acquisition under the Banking Companies (Acquisition and Transfer of Undertakings) Act (22 of 1969). The Supreme Court in Padma Debi's case : [1962]3SCR49 , held that the rental value cannot be fixed higher than the standard rent under the Rent Control Act for purposes of determining the gross annual letting value of a building for purposes of the property tax. This decision in Padma Debi's case : [1962]3SCR49 , was followed in Guntur Municipal Council v. Guntur Town Rate Payers' Association; : [1971]2SCR423 , where the question was the method of assessment of annual value of lands and building under s. 82(2) of the Madras District Municipalities Act (5 of 1920). The Supreme Court, following the earlier decision in Padma Debi's' case : [1962]3SCR49 , ruled that the essential test was, what rent the premises can lawfully fetch if let out to a hypothetical tenant, and that the municipality is not free to assessee any arbitrary annual value and has to look to and is bound by the fair or standard rent which would be payable for a particular premises under the Rent Control Act in force during the year of assessment. The Supreme Court in Guntur Municipal Council's case : [1971]2SCR423 , found itself unable to agree to make any distinction between building s the fair rent of which had actually been fixed by the Rent Controller and those in respect of which no such rent had been fixed, and in the former case the municipal authorities have to arrive at their own figure of fair rent in accordance with the principles laid down in the Rent Control Act. On the other hand, in r. C. Cooper's case [1070] 40 Comp Cas 325 the Supreme Court ruled that for purposes of awarding compensation of land and building of an undertaking acquired under the Banking Companies (Acquisition and Transfer of Undertakings) Act on the basis of 12 times the amount of annual rent or the rent which the building may reasonably expected to be let from year to year reduced by certain specific items was not a relevant principle of valuation of buildings. The court held as under (p. 387) :

'This provision, in our judgment, does not lay down a relevant principle of valuation of buildings. In the first place, making a provision for payment of capitalised annual rental at twelve times the amount of rent cannot reasonably be regarded as payment of compensation having regard to the conditions prevailing in the money market. Capitalization of annual rental which is generally based on controlled rent under some State Act at rates pegged down to the rates prevailing in 1940, and on the footing that investment in buildings yields 8 1/3 per cent. return furnishes a wholly misleading result which cannot be called compensation. Value of immovable property has spiralled during the last few years and the rental which is mostly controlled does not bear any reasonable relation to the economic return from property. If the building is partly occupied by the bank itself and partly by a tenant, the ascertained value will be twelve times the annual rental received, and the rent for which the remaining part occupied by the bank may reasonably be expected to be let out... Vacant premises have a considerably larger value than business premises which are occupied by tenants. The Act instead of taking into account the value of the premises as vacant premises adopted a method which cannot be regarded as relevant. Prima facie, this would not give any reliable basis for determining the compensation for the land and buildings.'

50. The learned advocate for the respondent-transferees relied on the line of decisions following Padma Debi's case : [1962]3SCR49 , while the learned Government Pleader for the revenue relied on the line of decisions following R. C. Cooper's case [1970] 40 Comp Cas 325 (SC) for purposes of sub-standing their rival contentions as to what principles should be adopted in applying the yield theory for purposes of fixing the fair market value. We are trying to emphasise that the perspective of proceedings will have to be borne in mind before applying the principles enunciated by courts in different contexts. We do not want to lay down that these principles enunciated by the courts as general invariable rules for purposes of determining the market value under the Land Acquisition Act or for determining the retable value under municipal legislation would be totally irrelevant; but to import and apply them wholly without having regard to the perspective of the problem on hand would result in distorted answers.

51. The next question which, therefore, arises is; what should be the proper method of valuation, and which method or methods should be adopted in the context of the power and proceedings under Chap. XXA of the I.T. Act, 1961 The learned Government Pleader invited our attention to the decisions of the Calcutta High Court in J. N. Bose v. CWT : [1976]104ITR83(Cal) and in Debi Prosad Poddar v. CWT : [1977]109ITR760(Cal) , where the Calcutta High Court spelt out three broad principles after referring to a number of decisions on the point under the Land Acquisition Act, W.T. Act and capital gains under the I.T. Act. The said three principles are that, (i) there is no fixed market for immovable property; (ii) there is bound to be some amount of guess work, but it must be an intelligent one 'based on certain objective factors which have a rational nexus with the valuation'; and (iii) there are different methods of valuation, and as to 'which would be suitable for a particular property must depend upon the particular features of the property'. Of these methods, that one should be preferred which can provide more objective data for reliance. It was urged on behalf of revenue that having regard to the particular features of the properties in question before us, which are industrial sheds with temporary structures and open land appurtenant thereto, the only relevant method of valuation which can provide objective data for reliance would be the rental method of valuation and more particularly because in the present case there is no sufficient data on record for applying the land and building method or the comparable sales method (vide State of Kerala v. P. P. Hassan Koya AIR 1968 SC 1201; CWT v. V. C. Ramchandran : [1966]60ITR103(KAR) (Mys) and CED v. Radha Devi Jalan : [1968]67ITR761(Cal) . The learned Government Pleader, therefore, submitted that the Tribunal committed an error of law, inasmuch as while applying the rental method of valuation it acted on the irrelevant principle of adopting the standard rent of the property in question as if the problem was finding out its annual letting value since, in the first instance, the predecessor in title of the respondent-transferees was not a tenant but was merely a licensee and in any case in respect of the vacant premises the adoption of the basis of standard rent would not give the correct valuation of the property in question on the authority of the decision of the Supreme Court in R.C. Cooper's case [1970] 40 Comp Cas 325. We have, therefore, to address ourselves, in the first instance, to the question as to which of the methods of valuation should be adopted for purposes of determining the fair market value. It is axiomatic to say that 'all valuations involve an element of guesswork and intuition. If it is not actually put to the test, who can be sure how much a building is worth If it is put to the test,is it certain that the property was let at the best rent which could be obtained Is the building ideal, either in size or location, for one particular occupant, who would be prepared to pay more than any other tenant If so, ought this to be taken into account ?' de Mellows Taxation of Land Transactions, 2nd edn., p. 528). are different methods and approaches to find out the market value of a property, like (i) comparable sales method; (ii) rental method of valuation; and (iii) land and building method (vide Parks' Principles and Practice of Valuations). the host of problems which the application of these methods raises makes it difficult choice as to which method should be preferred. In Garton v. Hunter [1969] 1 All ER 451 : [1969] 2 QB 37 (CA), the question was about finding out the retable value of a caravan. The rate payer contended before the Lands Tribunal that the contractor's basis was correct which gave the retable value of pound 5,100. On the other hand, the Valuation Officer evaluated the property at pound 8,700 on an estimated profits basis. The Land Tribunal rejected both these valuations and substituted its own by reaching a figure of pound 5,750 on the actual rent basis as adjusted for certain factors. The Valuation Officer carried the matter to the Court of Appeal. The Court of Appeal remitted the matter to the Tribunal to reconsider it in the light of the court's judgment since it had misdirected itself in limiting the inquiry to actual rent and making adjustments to it and should have taken into account the estimates given by the opposing valuers on the contractor's basis and the profits basis. Lord Denning M. R. and Winn L.J. in their speeches said that admissible evidence was not confined to the best evidence but included all relevant evidence, its goodness or badness going only to weight and not to admissibility, while Russel L.J. said that it was by no means clear that the two rejected approaches could not be an aid in arriving at the estimation. It is, therefore, difficult to agree with the learned Government Pleader that only the yield method appropriate and suitable for the property in question should be preferred. It may happen in a given case that the evidence for applying the other methods may not be available or satisfactory. But to insist on finding out the market value by applying only one particular method, would not give the correct estimation of the fair market value of a property. It is, therefore, said by Ungoed-Thomas J. in Re. Hayes' Will Trusts : Pattinson v. Hayes [1971] 2 All ER 341 ; [1971] 1 WLR 758, 768 (Ch D) in the context of the power of sale of executor and administrator of realty to one of the beneficiaries at the estate duty valuation, as under :

'It does not mean that the price to be fixed by valuation is the highest possible price that might be obtained. It has been established time and again in these courts, that there is a range of price, in some circumstances wide, which competent valuers would recognise as the price which 'property would fetch if sold in the open market'. The section does not require that the top price together with the lowest price in the range may be expected to be the least likely price within the range, to be obtained from the open market. The most likely price, in the absence of consultation between the valuers representing conflicting interests, would presumably be the mean price.'

52. This principle has been applied for development land tax and for other taxes in the United Kingdom (vide : Mellows Taxation of Land Transactions, 2nd edn. p. 31).

53. The question before us is, whether we can apply this principle of mean of the prices evaluated by the valuers of the conflicting interests, namely, the revenue and the transferor and/or transferee. In Smt. Tribeni Devi v. Collector, Ranchi : [1972]3SCR208 , the Supreme Court indicated the general principle for determining compensation under ss. 23 and 24 of the Land Acquisition Act.. The Supreme Court referred with approval to its earlier decision in Special Land Acquisition Officer, Bangalore v.T. Adinarayan Setty : AIR1959SC429 , that in ascertaining the market value of the land the methods of valuation to be adopted are :(i) opinion of experts; (ii) the price paid within a reasonable time in bona fide transactions of purchase of the lands acquired or the lands adjacent to the lands acquired and possessing similar advantages; and (iii) a number of years' purchase of the actual or immediately prospective profits of the lands acquired. P. Jaganmohan Reddy J., speaking for the court, thereafter observed as under (p.1420) :

'These methods, however, do not preclude the court from taking any other special circumstances into consideration, the requirement being always to arrive as near as possible at an estimate of the market value. In arriving at a reasonable correct market value, it may be necessary to take even two or all of those methods into account inasmuch as the exact valuation is not always possible as no two lands, may be the same either in respect of the situation or the extent or the potentiality nor is it possible in all cases to have reliable material from which that valuation can be accurately determined.'

54. Therefore, in the perspective of the acquisition proceedings under Chap. XX-A of the I.T. act, 1961, which are, as stated above, penal provisions having far-reaching repercussions, the competent authority must be satisfied and assured by cogent, reliable and relevant evidence that the fair market value of the property in question exceeds the apparent consideration by a prescribed margin. It would be too hazardous to prefer one of the recognized methods of valuation which may be advantageous to the cause of the revenue and arrive at an estimation of fair market value of a property on the basis thereof. Such a lopsided approach on the part of the competent authority would not be in consonance with the burden of proof required to be discharged in such quasi-criminal proceedings. It would be virtually acting on too slender a material since 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 under s. 52 of the I.T. Act, 1961, and, in a given case, may affect also the persons interested in the said property having tenancy rights or any encumbrance thereon. The principle of resorting to the method of capitalisation of return in the case of land with building used for commercial purposes should not be imported wholly and applied mechanically in the perspective of the proceedings in Chap. XX-A of the I.T. Act, 1961. It is desirable, and we fell incumbent, on the part of the competent authority, to assure himself fully, lest there may be margin of error in determining the fair market value of a property in the course of the proceedings under Chap. XX-A that he may resort to checks and counterchecks by applying two or all of these methods as indicated by the Supreme Court in Smt. Tribeni Devi's case : [1972]3SCR208 . The competent authority shall, therefore, as far as possible, collect all the relevant materials and evidence by applying the well-known and recognized methods, viz., land and building method, contractor's method, rental or yield basis method and comparable sales method, and work out each estimation of the market value on application of all the four methods, and for purposes of countercheck compare it with the municipal valuation for retable purposes wherever it is possible, since it cannot be said with certainty that preference of one method to another should be a real aid in arriving at the real estimation as pointed out by Russel L.J. in Garton's case [1969] 1 All ER 451. The preference of the revenue for yield method by taking actual rent in cases of the occupied property and realisable rent in cases of vacant property and allowing municipal taxes on the basis of annual letting value has two infirmities; (i) presumption of the maintainability of rent over a long term of period; and (ii) necessity to make allowances for all outgoings in the course of this long term (vide : Maintainable rent in Rating by Ryder). The choice of a appropriate rate of capitalization for purposes of estimating the value by applying yield theory is also a vexed problem depending on may uncertainties and imponderables such as effect of economic policies, consequent legislation for effectuating them and market conditions emerging as a result thereof. The learned Government Pleader for the revenue was at pains to impress upon us that if the standard or control rent method is to be adopted as the basis for application of yield theory, the necessary and invariable consequence thereof must be that the rate of capitalization should be between 20% and 33% since that would be the yield of the gift edged securities which are not prone to fluctuating market condition and price mechanism. We will presently indicate our view on this vexed problem but for the present purposes suffice it to say that the competent authority should not, in the course of proceedings under Chap. XX-A, prefer one method to others. On the Contrary, as indicated by the Supreme Court in Tribeni Devi's case : [1972]3SCR208 , the requirement being always to arrive as near as possible at an estimate of market value, it is necessary for him to collect all the necessary and available relevant, cogent and satisfactory materials and evidence from any reliable source and arrive at the estimation of the market value by applying all the three aforesaid methods, and, if possible, by adopting the land residual technique or building residual technique and compare each of the estimations with the municipal valuation for purposes of property tax assessment and adopt, generally, the minimum valuation of these arrived at by application of all the relevant methods and tests, unless there may be some special facts and circumstances in a given case where he may be constrained to apply one or two methods only and/or adopt the higher valuation than the minimum one for reasons to be recorded by him. We are of the opinion that this approach commends to us having regard to the overall circumstances including the nature of the power and proceedings under Chap. XX-A and the pitfalls in applying one or the other methods and picking up the highest valuation convenient to the revenue. Our attention has been invited by the learned advocate for the respondent-transferees to the commentary by Chaturvedi and Pithisaria on Income-tax Law, 2nd edn., on s. 269A, at page 2670, where the learned authors have hinted at such a possible contention on behalf of a person interested in such proceedings. The paragraph reads as under :

'It is obvious that, for determining the fair market value for the purpose of section 279A(d) more care and caution is required than in the case of valuation for the purpose of Wealth-tax Act, because the resultant load under Chapter XX-A is much more drastic than that in the case of wealth-tax assessment. The competent authority may consider the valuation of the property arrived at by the rental method (in case of let out property) and then check it against the valuation arrived at by land and building method as also that adopted by municipal corporation. This is subject to the proposition that in cases of let out properties, the valuation arrived at by rental method cannot be enhanced (though it may be taken at a lesser figure) on account of any valuation arrived at by land and building method or any other method. It seems that the person interested may claim for the purpose of Chapter XXA that the minimum valuation of those arrived at by all the recognized methods is to be adopted. Justice requires that instead of taking a much too technical view in the matter of such valuation, a broadly practical and realistic approach, from the point of view of the willing purchaser, is to be taken.'

55. A subsidiary contention which was debated in the course of the arguments is as to what should be the basis in the rental method of valuation for estimating the fair market value. In our opinion, the course which we have suggested above of comparing each of the estimations worked out by applying the recognized methods and comparing it with the municipal valuation for purposes of property tax would, by and large, meet with the contention urged on behalf of the respondent-transferees that in the application of rental method of valuation only the standard rent should be taken as the basis for purposes of annual yield of a property.

56. The next subsidiary contention which was urged was as to what should be the suitable, appropriate and just rate of capitalisation for purposes of estimating the value. The Supreme Court in P.P. Hassan Koya's case AIR 1968 SC 1201 has held that it cannot be laid down as a general rule applicable to all situations and circumstances that a multiple approximately equal to the return from gilt-edged securities prevailing at the relevant time forms an adequate basis for finding out the market value of the land. As stated above, the answer to the question depends on many uncertainties and imponderables such as economic policies, consequent legislation for their implementation and the emerging market conditions as as a result thereof. the various legislations for purposes of implementing the politico-economic goal of the State have made investment in the property market highly insecure and unattractive. The High Court of Kerala in State of Kerala v. Madhu [1974]KLT 143 extending the decision of the Supreme Court in P.P. Hassan Koya's case AIR 1968 SC 1201, held that

interest from gilt-edged securities has no application to the present day condition since land investment is not considered the best investment in the present circumstances. No purchaser would go for purchase of the property where his return on the investment would be 3 to 5 per cent. when there are competitive and alluring investments in the money market, viz., insurance policies, unit trust, preferential shareholdings, company and bank deposits, equity shareholdings of corporations having prospect of return ranging between 12 to 15 per cent. and also of capital appreciation which prove more attractive particularly because they provide tax benefit also to the investors. An investor, including a purchaser of real property would also consider alternative investments in the market. His real anxiety would be to earn higher return on his investment. All the factors bearing relevance on other kinds of investments will also operate in the case of investment in realities. Lean and Goodall in their book Aspects of Land Economics (1966) have observed as under :

'With exceptions the level of yields in the real property market tends to follow the level of yields in the investment market and the relative yields in the real property market often follow the yields of their closest substitutes in the investment market.

57. Lawrence and Rees in their book Modern Methods of Valuation of Land, Houses and Building and Ralph turkey in his book The Economics of Real property endorsed the same view. The impression that properties in cities are appreciating in value is not well founded because if such property is fully tenanted, the rent which the property owners are likely to receive is governed by the rent legislation which will necessarily have effect on its value. It should also be borne in mind that investment in real properties is not necessarily out of the savings or earnings of an individual. A purchaser of a property has to rely on the borrowing from housing finance agencies or banks or Life Insurance Corporation. The lending rate of such institutions vary from 10 to as much as 14 of 15 per cent. The return on gilt-edged securities like 3% conversion loan or other Government securities works out between 5 to 6.44%. The prime money rates for advances by banks are between 14 to 15%. The net average yields of preference dividend is between 12 to 13% as indicated in the report of the Reserve Bank of India. The rate of capitalisation should, therefore, be not unreal and must have regard to the commercial rate of return after taking into consideration the various constraints and insecurities in the property market. Our attention has been invited to the provision contained in s. 11(1) of the Urban Land (Ceiling and Regulations Act, 1976, which prescribes the payment of amount of compensation for vacant land acquired under s. 10(3) by the State Government to an interested person in the income bearing land at the rate equal to 8 1/3rd times the net average annual income actually derived from such land during the period of five consecutive years immediately preceding the date of publication of the notification under s. 10(1). In other words, the necessity of compensating the interest of an income bearing land by an amount of eight and one-third times the net average annual income so as to provide a return of 12% per annum is recognised and incorporated as the relevant principle in a stature enacted for purposes of acquiring excess land and compensating them by the Union Government. In our opinion, therefore, the just, reasonable and appropriate rate of capitalisation would be eight and one-third times the net average annual income which would give the yield of 12% per annum on the investment of capital in property. The net average annual income may be worked out in the course of application of the rental method of valuation by determining the net average annual income after allowing the proper deductions or outgoings from gross income on account of insurance, taxes, repairs and management or by adopting rough method as provided in cls.(3) and (4) of Sch. II of the Urban Land Ceiling Act by taking 60% of the average annual gross income of the last five years immediately proceeding the initiation of the proceedings and ignoring 40% thereof which should be deducted in lieu of the outgoings. In that view of the matter, which we have taken on contentions 6 and 7 we are of the opinion that the entire matter should be remanded to the Tribunal after setting aside its order with the direction that the Tribunal shall remit the entire matter to the competent authority for estimating the fair market value as indicated by us in this order after disclosing all the relevant materials and evidence collected by him and after giving opportunities to the respondent-transferees and any other interested or affected person/s that may appear before him and decide the question afresh in the light of the entire evidence and materials that might have been placed or may be placed before him hereafter.

58. Re. Question No.8 : This question relates to the non-application of mind by the Commissioner while granting approval under s. 269F(6) to the order of acquisition of the property. It is no doubt true that the approval is not to be granted mechanically and the Commissioner has to apply his mind to all the relevant facts and circumstances as established before the competent authority from the materials and evidence gathered by him and he may hear the persons affected or interested if he thinks fit in the particular facts and circumstances of a case so that he may be apprised of the real question in dispute though it is not necessary for him to hear

59. the affected or interested person/s as a matter of course in every case. In the present case, we must agree with the learned advocate for the respondent-transferees that the Commissioner had mechanically granted the approval without applying the mind since admittedly the materials in the nature of valuation report of the Bank of Baroda as well as particulars of the land rates in Makarpura and Gorva area of Baroda city have not been disclosed to the respondent-transferees and, therefore, the order of the Commissioner granting approval is without the application of his mind and the order of acquisition, therefore, suffers from that infirmity, which would have vitiated the entire order, but in view of our decision to remand the matter to the Tribunal with the direction to the Tribunal to remit the entire matter to the competent authority, who will be required to decide afresh the entire matter in the light of the evidence that may be placed before him, he would be also required to obtain fresh approval of the Commissioner as envisaged in s. 269F(6) of the I.T. Act, 1961.

60. The result is that these appeals are allowed. The orders of the Tribunal are set aside and both the matters are remanded to the Tribunal with the direction to remit the entire matter to the competent authority after setting aside the orders of the competent authority so as to enable him to carry out the directions given above.

61. Decree be drawn accordingly with no order as to costs.

62. Gross-objections of the respondent-transferees shall stand dismissed in view of the main order in the appeals. Since the matter is remanded, there will be no order as to costs in cross-objections.


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