Authority & Commissioner Income Tax Vs. Smt. Varshaben Bharatbhai Shah
& Ors  Insc 136 (13 March 2001)
Bharucha,, N. Santosh Hegde & Y.K. Sabharwal Bharucha, J.
Revenue is in appeal by special leave against the judgment and order of a
Division Bench of the High Court of Gujarat. The judgment and order was passed
on a writ petition filed by the first respondent in the following
On 12th August, 1995, the second and third respondents
entered into an agreement to sell to the first respondent immovable property
situated in Ahmedabad for the sum of Rs.47 lakhs. The appropriate authority of
the Revenue came to the conclusion that the apparent consideration in respect
of the said immovable property under the said agreement was less than the
market value thereof by 15% or more.
a notice dated 6th
November, 1995 was
issued to the respondents to show cause why the said immovable property should
not be subjected to pre-emptive purchase under Chapter XX-C of the Income Tax
Act, 1961. The respondents showed cause, but the order of pre-emptive purchase
was made by the appropriate authority. This order was challenged in the writ
the High Court, it was contended that what had been transferred by the second
and third respondents to the first respondent were their equal half shares in
the said immovable property and that they owned such equal half shares was
indicated in their income tax returns and in the said agreement, which stated
that the earnest money had been paid by two separate cheques to the second and
third respondents. The High Court said, There may be one agreement for transfer
of property where the transferors may be co-owners or joint owners. It may be
that the share of the transferor is not specified. It may happen that there may
be one transferee or more than one. The question to be examined is whether the
provisions of Chapter XX-C of the Act would be attracted or not in a case where
co-owners have agreed to transfer their property rights and each co-owner is to
be paid an amount of consideration which is less than the amount specified,
i.e., each co-owner-transferor will get less than Rs.25 lakhs as per the
agreement. The High Court followed the judgment of the Madras High Court in
K.V. Kishore & Anr. vs. Appropriate Authority & Ors. (189 I.T.R. 264).
It held that it was in the case before it clear that what was agreed to be
transferred was the individual undivided share in the said immovable property
and the value of each such share was less than Rs.25 lakhs.
transferors were co-owners and each co-owner was getting an apparent
consideration that was less than the limit prescribed, that is, less than Rs.25
lakhs. The provisions of Chapter XX-C were not attracted even though the amount
that all the co- owners received exceeded Rs.25 lakhs.
the High Court, it was not disputed on behalf of the Revenue that all the
reports obtained by it in regard to the valuation of the said immovable
property had not been supplied to the respondents. For that reason, the High
Court came to the conclusion that the principles of natural justice had not
been followed. The High Court characterized as perverse a finding of the
appropriate authority in regard to the case of the first respondent that no
unaccounted money had figured in the sale transaction. For all these reasons,
the High Court quashed the order of pre-emptive purchase.
K.V. Kishore & Anr. vs. Appropriate Authority & Ors. (189 I.T.R. 264) a
learned Single Judge of the Madras High Court held, more or less on similar
facts, thus :
giving deep consideration to these rival submissions, the following facts would
clinchingly establish the case in favour of the petitioners. It is not denied
or it is not disputed that the original allottee, A. Srinivasan, died in the
year 1962. He being a Hindu, governed by the Hindu Succession Act, on his
death, his wife and children acquired a vested right to the definite quantified
shares in the property left behind by him. As owners of their respective
shares, they were competent to enter into a family arrangement which they did
on April 8, 1987, under the terms of which, each one of respondents Nos.4 to 8
were allotted a definite share in the property.
April 8, 1987, they were individual owners of definite shares in the property.
Each one could deal with only his respective share and he cannot deal with the
share of another. The property which so fell to the share of each individual
will come definitely within the definition of the words property. Such a sharer
was entitled to transfer his property to a third person. Merely because a
plurality of such individual owners joined together to enter into one single
agreement to transfer their respective shares in favour of one or more persons,
that would not make any difference to the main issue that what each transferred
is his definite share in the property. Viewed from that perspective, the
agreement entered into between the petitioners and respondents Nos.4 to 8 is to
be understood only as an agreement to convey the respective undivided shares of
respondents Nos.4 to 8. It is not in dispute that the value of each such share
is less than Rs.10,00,000. The recitals in the agreement in more than one place
refer to the fact that what is sold, is the individual undivided share in the
property. Consequently, the impugned order made under Chapter XX-C of the Act
taking the total consideration, the collective shares, cannot be sustained.
aforesaid judgment of the Madras High Court was Inspector General of
Registration & Ors. (189 I.T.R. 270) and by the Karnataka, Calcutta and Delhi High Courts in the Commissioner of Income-Tax & Ors. (221
I.T.R. 375) and I.T.R. 924) respectively.
Bombay High Court has taken the contrary view in (221 I.T.R. 368). In this case
the vendor was one and there were three purchasers. It was contended that under
the agreement in question the vendor had agreed to sell to each of the
purchasers an undivided 1/3rd interest in the flat and each of the purchasers
individually had agreed to buy an undivided 1/3rd share in the flat from the
vendor for the total consideration of Rs.14,06,000/-; that consideration for
the purchase of each such interest in the flat should be valued at Rs.4,68,667/-,
which was less than the limit of Rs.10 lakhs; and that, in the circumstances,
the appropriate authority had no jurisdiction to proceed under Chapter XX-C.
The judgments of the Madras High Court in the cases of K.V. Kishore and N.C. Rangesh
Bombay High Court did not accept the contention and it distinguished these
judgments. The agreement in question before it, it said, was a composite
agreement in respect of the flat. There was nothing in the agreement which
indicated that the purchasers had agreed to buy individually an undivided 1/3rd
share of the flat from the vendor. All the concerned parties had filed Form
No.37-I and, therefore, it was not open to them now to contend that Section
269- UD had no application and the appropriate authority had no jurisdiction.
269-UA defines certain terms for the purposes of Chapter XX-C, which deals with
the purchase by the Central Government of properties in certain cases of
transfer. An agreement for transfer is defined by clause (a) thereof to mean an
agreement for the transfer of any property.
is defined by clause (d) to mean any land or any building or part of a building
and any rights in or with respect to any land or any building or a part of a
in relation to any property means, by reason of clause (f), the transfer of
such property by way of sale or exchange or lease for a term of not less than
consideration is defined by clause (b) to mean, if the immovable property is to
be transferred by way of sale, the consideration for such transfer as specified
in the agreement of transfer. Section 269- UC places restrictions on the
transfer of immovable property. What are relevant for our purpose are
sub-sections (1), (2) and (3) of Section 269-UC and they read thus :
Notwithstanding anything contained in the Transfer of Property Act, 1882 (4 of
1882), or in any other law for the time being in force, no transfer of any
property in such area and of such value exceeding five lakh rupees, as may be
prescribed, shall be effected except after an agreement for transfer is entered
into between the person who intends transferring the property (hereinafter
referred to as the transferor) and the person to whom it is proposed to be
transferred (hereinafter referred to as the transferee) in accordance with the
provisions of sub-section (2) at least [four] months before the intended date
The agreement referred to in sub-section (1) shall be reduced to writing in the
form of a statement by each of the parties to such transfer or by any of the
parties to such transfer acting on behalf of himself and on behalf of the other
Every statement referred to in sub-section (2) shall, - i) be in the prescribed
set forth such particulars as may be prescribed; and iii) be verified in the
prescribed manner, and shall be furnished to the appropriate authority in such
manner and within such time as may be prescribed, by each of the parties to
such transaction or by any of the parties to such transaction acting on behalf
of himself and on behalf of the other parties.
269 UD, so far as it is relevant, reads thus:
[Subject to the provisions of sub- section (1A) and (1B), the appropriate
authority], after the receipt of the statement under sub-section (3) of section
269UC in respect of any property, may, notwithstanding anything contained in
any other law or any instrument or any agreement for the time being in force,
make an order for the purchase by the Central Government of such property at an
amount equal to the amount of apparent consideration :
making an order under sub-section (1), the appropriate authority shall give a
reasonable opportunity of being heard to the transferor, the person in occupation
of the property if the transferor is not in occupation of the property, the
transferee and to every other person whom the appropriate authority knows to be
interested in the property.
order made by the appropriate authority under sub-section (1) shall specify the
grounds on which it is made.] (2) The appropriate authority shall cause a copy
of its order under sub-section (1) in respect of any property to be served on
the transferor, the person in occupation of the property if the transferor is
not in occupation thereof, the transferee, and on every other person whom the
appropriate authority knows to be interested in the property.
48-K of the Income Tax Rules states that the value of any property for the
purposes of sub-section (1) of Section 269-UC shall be, where the agreement for
transfer prescribed under the said sub- section is entered into after 31st
July, 1995, Rs.25 lakhs for the city of Ahmedabad.
Constitution Bench of this Court dealt with the constitutionality of the Chapter
XX-C. Paragraph 21 of the judgment reads thus :
The legislative history of Chapter XX-C, the stand taken by the Union of India
and the Central Board of Direct Taxes as shown in the main counter-affidavit
and the affidavit of H.K. Sarangi, which has been filed after obtaining
instructions from the Income Tax Department and the Central Board of Direct
Taxes make it clear that the powers of compulsory purchase conferred under the
provisions of Chapter XX- C of the Income Tax Act are being used and intended
to be used only in cases where in an agreement to sell an immovable property in
an urban area to which the provisions of the said Chapter apply, there is a
significant undervaluation of the property in such areas as set out earlier,
the apparent consideration shown in the agreement for sale is less than the
fair market value by 15 per cent or more it may draw a presumption that this
undervaluation has been done with a view to evade tax. Of course, such a
presumption is rebuttable and the intended seller or purchaser can lead
evidence to rebut such a presumption.
an order for compulsory purchase of property under the provisions of Section
269- UD required to be supported by reasons in writing and such reasons must be
germane to the object for which Chapter XX-C was introduced in the Income Tax
Act, namely, to counter attempts to evade tax.
in our opinion, therefore, has to be seen for the purposes of attracting
Chapter XX-C is: what is the property which is the subject matter of transfer
and what is the apparent consideration for such transfer. This has to be seen
in a real light with due regard to the object of the chapter and not in an
artificial or technical manner. If the apparent consideration for the transfer
is more than the limit prescribed for the relevant area under Rule 48- K, what
has then to be seen is whether the apparent consideration for the property is
less than the market value thereof by 15% or more. If so, the notice for
pre-emptive purchase can be issued and it is then for the parties to the
transaction to satisfy the appropriate authority that the apparent
consideration is the real consideration for the transfer.
in the present case, the said agreement is for the sale of the said immovable
property. That the equal shares of the second and third respondents therein are
to be transferred to the first respondent is a necessary incident of such sale.
The parties to the transaction filed Form No.37-I with the appropriate
authority and, correctly, stated that what was being sold was the said
immovable property and not the one half shares of the second and third
respondents therein. It also stated, correctly, that the total apparent
consideration for the transfer of the said immovable property was Rs.47 lakhs.
This leaves us in no doubt at all that what was to be transferred was the said
immovable property and that the consideration for such transfer was the sum of
Rs.47 lakhs. It is of no consequence that the second and third respondents
owned the said immovable property as tenants in common or that this is how they
had shown their ownership in their income tax returns. We are, therefore, of
the opinion that the High Court was in error in concluding that what had been
sold by the second and third respondents to the first respondent was their
equal share in the said immovable property, that the apparent consideration
was, therefore, less than Rs.25 lakhs and that, therefore, the provisions of
Chapter XX-C would not apply.
should add that even if the agreement of transfer had been so drawn as to show
the transfer of the equal shares of the second and third respondents in the
said immovable property, our conclusion would have been the same for, looked at
realistically, it was the said immovable property which was the subject of the
of the opinion that the judgments of the Madras, Karnataka, Delhi and Calcutta High Courts referred
to above are based on a wrong approach and are erroneous. We approve of the
view taken by the Bombay High Court in Jodhram Daulatram Aroras case.
have pointed out, it was conceded before the High Court on behalf of the
Revenue that all the relevant reports pertaining to the valuation of the said
immovable property had not been disclosed to the respondents. We think, in
these circumstances, that the matter should go back to the appropriate
authority for hearing the matter afresh. It is not, therefore, necessary to
deal with the finding of the High Court about perversity.
appeal is allowed. The judgment and order under appeal is set aside. The matter
is remanded to the appropriate authority. The Revenue shall make available to
the respondents all the material, including reports, that it relied upon in
regard to the valuation of the said immovable property. The appropriate authority
shall then hear the parties afresh and pass an appropriate order. It shall do
so without taking into account any observation of the High Court in the
impugned judgment. In respect of the proceedings upon remand, no objection in
regard to limitation may be raised.
order as to costs.