Adair Dutt
& Co. India Pvt. Ltd. Vs. The Appropriate Authority Income Tax Department
[1996] INSC 1200 (25
September 1996)
Kuldip
Singh, K.T. Thomas Thomas, J.
ACT:
HEAD NOTE:
Whether
a bona fide statutory tenant has the right to continue in possession even after
an order of purchase was made under Section 269-UE (1) in Chapter XX-C of the
Income Tax Act, 1961 (for short `the Act'), is the question sught to be raesed
in this appeal. Accroding to the appellant the answer to the said question must
be in the affirmative.
A
brief sketch of the facts:
The
appellant - a Private Limited Company - is tenant on the ground floor of a
building situate on the Mount Road (now called Anna Salai), Madras. On
30.3.1989, owner of the building entered into an agreement with another person
for sale of the building, for a sum of Rs.26 lacs. The Appropriate Authority
constituted under Chapter XX-C of the Act, on coming to know of the aforesaid
agreement initiated proceedings, in exercise of its powers under the said
Chapter for purchase of the building. He ordered the building to be purchased
by the Central Government for the same consideration as shown in the agreement
in accordance with section 269-UA(c) of the Act. Appropriate Authority then
issued a communication to the appellant informing it that the building stood
vested in the Central Government by virtue of Section 269-UE(1) of the Act free
from all encumbrances with effect from 22.6.1989. The appellant was requested
to surrender possession of the building. A writ petition was filed before the
High Court of Madras challenging the said communication and the subsequent
request. A Division Bench of the Madras High Court dismissed the writ petition.
This appeal by special leave has been filed against the judgment of the Division
Bench.
The
two sub-sections of Section 269-UE of Chapter XX-C of the Act which are
relevant for this appeal are quoted below:
"269-UE.
Vesting of property in Central Government –
(1)
Where an order under Sub-section (1) of Section 269-UD is made by the appropriate
authority in respect of an immovable property referred to in sub-clause (i) of
clause (d) of Section 269-UA, such property shall, on the date of such order,
vest in the Central Government free from all encumbrances.
(2)
The transferor or any other person who may be in possession of the immovable
property in respect of which an order under sub-section (1) of Section 269-UD
is made, shall surrender or deliver possession thereof to the appropriate
authority or any other person duly authorised by the appropriate authority in
this behalf within fifteen days of the service order on him." The
contention of the appellant before the Madras High Court was two-fold. First is
that as the Constitution Bench of this Court in C.B. Gautam vs. Union of India
& Ors., (1983) 1 SCC 78, has struck down the expression "free from all
encumbrances" in sub-section (1) of section 269-UE, what was vested with
the Central Government is only the right of the erstwhile owner of the building
without affecting the leasehold right of the appellant. Second is that appellant`s
right in the building has been protected by the Tamil Nadu (Lease and Rent
Control) Act, 1960 (for short `the T.N. Act') and as such his statutory right
connot be by-passed through the vesting process.
Division
Bench of Madras High Court repelled both contentions. Learned Judges pointed
out that the transferor has stipulated in the agreement for sale dated
30.3.1989 (which led to the action take by the Appropriate Authority) that the
transfer of the premises shall be free from all encumbrances and then held:
"when the agreement in this case provides for a sale free of all
encumbrances, the property agreed to be sold would also vest in the Central
Government free of such encumbrances. Only in a case where the agreement does
not provide that the sale would be free from all encumbrances holder of leases
in possession may not be obliged to deliver possession of the property".
Regarding the second contention the High Court pointed out that even otherwise
the provisions of the T.N. Act do not afford any protection to the tenants of
the buildings owned by Central Government.
The
Constitution Bench of this court has struck down the words " free form all
encumbrances" in sub-section (1) of Section 269-UE of the Act. The material
portion of the judgment is extracted below:
"In
view of the express provision in section 269-UE that the property purchased
would vest in the Central it is not possible to read down the section as
submitted by learned Attorney General. In the result, the expression `free from
all encumbrances' in sub-section (1) of Section 269-UE is struck down and
sub-section (1) of Section 269-UE must be read without the expression `free
from all encumbrances' with the result the property in question would vest in the
Central Government subject to such encumbrances and leasehold interests as are
subsisting thereon except for such of them as are agreed to he discharged by
the vendor before the scale is completed." However, the Bench approved the
distinction that in case the agreement for sale contains the stipulation to the
effect that the property would be sold free from all encumbrances or certain
encumbrances then the vesting in the Central Government would be free form such
encumbrances. The following passage in the judgment makes the position clear:
"As
we have stated earlier where an agreement for sale provides that the property
is intended to be sold free of all encumbrances or leasehold rights, the order
fro purchase of such property under Section 269-UD (1) in the said Chapter
would result in the said property such encumbrances or leasehold interests. In
such a case the holders of the encumbrances and leasehold interests from the
amount awarded as the purchase price to the owner of the property. This appears
to be fair construction because in such a case the apparent consideration such
leasehold interests or encumbrances......." It was not disputed before us
that the agreement for sale executed by the erstwhile owner, regarding the
property in question, contained a stipulation that the property would be sold
free of all encumbrances. However, learned counsel tried to get support for
this contention from a decision of the Karnataka High Court in Tata Consulting
Engineers and another vs. Union of India and others (1994) 206 ITR 237, wherein
it has been observed that "the Supreme Court did not specifically consider
a case which ignoring or suppressing the fact that the premised were in the
occupation of a monthly tenant who had not agreed to vacate, the agreement of sale,
without referring to such tenancy, provided for delivery of vacant possession
at the time of sale. Chapter XX-C also does not provide for a case where the
agreement of sale contained an incorrect information regarding possession, that
is agreeing to deliver vacant possession even though vacant possession could
not be delivered having regard to the fact that the premises were in the
occupation of a bona fide tenant." The Karnataka High Court concluded that
"on the facts and circumstances set out above, in so far as the tenant is
concerned, the term of the sale agreement providing for delivery of vacant
possession should be read down as only providing for delivery of vacant
possession of the remaining portions of the premises." The said view of
the learned single judge of the Karnataka High Court is not in consonance with
the reasoning of this Court in C.B. Gautam (supra). The position has been
clearly stated by this Court in the judgment as follows:
"
The holders of the encumbrances and leasehold interests which would be
destroyed in this manner can be said to be persons interested as contemplated
in clause (e) of sub- section (2) of Section 269-UA. In this connection, we may
refer to sub-section (5) of Section 269-UE which declares that nothing in the said
Section which deals with the vesting of property in the Central Government
shall operate to discharge the transferor or any other person (not being the
Central Government) from liability in respect of any encumbrances on the
property and notwithstanding anything contained in any other law for the time
being in force such liability may be enforced against the transferor or such
other person. This provision makes it amply clear that tin the case we have
just referred to, the encumbrance holder of the holder of the leasehold rights
could claim the fair value of his encumbrance or the leasehold interest out of
the amount paid on account of the purchase price to the owner of the immovable
property acquired by the Central Government under Section 269-UD." In this
context we may point out that the Constitution Bench in C.P. Gautam (supra)
considered whether such vesting in the Central Government would affect monthly
tenancies.
The
following observation has been made regarding that aspect:
"As
far as monthly tenancies are concerned, they do not pose any difficulty because
monthly tenants are also lessees in law although their right is a very limited
one.
If the
agreement to sell does provide for vacant monthly tenancies such tenancies
would continue even on an order for purchase by the Central Government being
made by the appropriate authority concerned under Section 269-UD (1) ; but such
tenants would lose the protection laws because such laws are not made
applicable to properties owned by the Central Government with the result that
their tenancies could be terminated by the Central Government." (emphasis
supplied) Learned counsel for the appellant, however contended that the T.N.
Act applies even to buildings owned by the Central Government and hence the
aforesaid observation connot apply to the tenancy rights protected by the said
Act. We agree that the Constitution Bench has not considered the situation
where the monthly tenancy is protected by a rent control legislation. No doubt,
learned judges have stated in the impugned judgment that "in relation to
such statutory tenancy rights there is no protection as such available, as the
rent control laws are inapplicable to properties owned by the Central
Government and such tenancies could be terminated by the Government." The
aforesaid finding in the impugned judgment is also challenged in this appeal.
Learned counsel contended that though the T.N. Act excludes government
buildings from its purview such exclusion is confined to buildings owned by the
State Government because of the definition contained in the T.N. Act for the
word "building" as meaning "State Government".
We
think that the question regarding application of T.N. Act to buildings owned by
the Central Government must be considered afresh by the High Court in view of
the aforesaid contention. We, therefore, set aside the judgment under challenge
and remit this case to the High Court for disposal of the writ petition afresh
in the light of the observations made above.
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