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2018 DIGILAW 565 (CAL)

Ashwani Kapur v. Union of India

2018-08-14

DEBANGSU BASAK

body2018
JUDGMENT : Debangsu Basak, J. The petitioner has assailed an Order dated July 29, 1993 passed under Section 269(UD)(1) of the Income Tax Act, 1961 by the appropriate authority, exercising the right of pre-emption. 2. Learned Senior Advocate for the petitioner has submitted that, the impugned order is perverse. It has taken into consideration matters which are extraneous. It has proceeded on a method of valuation which is incorrect. The appropriate authority has compared incomparable properties for the purpose of arriving at the valuation. On the aspect of the methods of valuations that may be availed of by the appropriate authority in order to judge the value of an immovable property with a tenant, learned Senior Advocate for the petitioner has relied upon 2001 Income Tax Reports (248) 541 (Lytton Hotel Pvt. Ltd. v. Airport Authority & Ors.), 2003 Income Tax Reports (263) 498 (Airport Authority & Ors. v. Lytton Hotel Pvt. Ltd. & Ors.), 1998 Income Tax Reports (231) 318 (Mrs. Kailash Suneja v. Airport Authority (Delhi)), 2001 Income Tax Reports (251) 1 (Airport Authority & Anr. v. Kailash Suneja & Anr.) and 2004 (266) Income Tax Reports 204 (K.L. Suneja & Anr. v. Union of India & Ors.). He has relied upon 1993 Income Tax Reports (199) 530 (SC) (C.B. Gautam v. Union of India & Ors.) and submitted that, Section 269UE underwent an amendment subsequent thereto. He has submitted that, the appropriate authority is not entitled to receive the immovable property free from encumbrances any longer. Therefore, the factum of existence of a tenancy had to be taken into consideration by the appropriate authority while valuing it. It had ignored the tenancy. It was not entitled to do so. Since the immovable property was encumbered with a tenancy, the value in respect thereof cannot be same as that of an immovable property which is without a tenancy. The valuation arrived at by the department is wrong. The decision to exercise the right of pre-emption stand vitiated. 3. Learned Senior Advocate for the petitioner has contended that, the impugned order suffers from vice of breach of principles of natural justice. The petitioner was not afforded sufficient time to reply to the show-cause notice. It is dated July 21, 1993. The same was received by the petitioner on July 26, 1993. The petitioner was given a hearing on July 27, 1993. The petitioner was not afforded sufficient time to reply to the show-cause notice. It is dated July 21, 1993. The same was received by the petitioner on July 26, 1993. The petitioner was given a hearing on July 27, 1993. He has submitted that, the authorities did not furnish the valuation reports noted in the documents produced before the competent authority. The petitioner is entitled to such documents. On the aspect of violation of principles of natural justice, he has relied upon 2002 Income Tax Reports (257) 495 (I.T.C. Ltd. v. Airport Authority & Ors.), 2001 Income Tax Reports (251) 197 (SC) (Sona Builders v. Union of India & Ors.) and 2003 Income Tax Reports (260) 481 (Commissioner of Income-Tax v. Kishanlal & Sons (Udyog) Pvt. Ltd.). On a query from the Court, he has submitted that, the date of superannuation of the petitioner was January 1, 2007. 4. Learned Advocate appearing for the department has submitted that, the question of violation of principles of natural justice does not arise in the facts of the present case. The petitioner was issued a show-cause notice dated July 21, 1993. The petitioner was given a hearing on July 27, 1993. All contentions raised by the petitioner were recorded at the hearing. The petitioner was heard. The show-cause notice was preceded by queries, raised by the department. The petitioner had replied to such queries. The other private respondents had responded to the show-cause notice. Therefore, no prejudice was caused to the petitioner. 5. On the method of valuation, learned Advocate for the department has submitted that, the correct method of valuation was employed. Possession was with the tenant. Such fact was taken into consideration. He has relied upon 1999 Income Tax Reports (235) 118 (Appropriate Authority v. Smt. Sudha Patil) and Laws (SC) 2001 8 163 (Union of India v. Shatabadi Trading and Investment Private Limited) in support of his contentions. 6. Learned Advocate appearing for the respondent no. 6 has submitted that, the impugned order stands vitiated since appropriate method of valuation was not employed. 7. The following issues have arisen for consideration in the present writ petition :- (i) Is the impugned order vitiated by breach of principles of natural justice ? (ii) Did the authorities take extraneous materials into consideration while passing the impugned order ? (iii) To what relief or reliefs are the parties entitled to ? 8. 7. The following issues have arisen for consideration in the present writ petition :- (i) Is the impugned order vitiated by breach of principles of natural justice ? (ii) Did the authorities take extraneous materials into consideration while passing the impugned order ? (iii) To what relief or reliefs are the parties entitled to ? 8. The writ petition relates to a flat measuring about 2,100 square feet being flat No. D-113, 58/3 Ballygunge Circular Road, Kolkata-700 019. The flat is located in a housing complex known as the Saptaparni Cooperative Housing Society. The respondents Nos. 4 and 5 are the owners of such flat. The petitioner is the agreement holder. The respondent no. 6 is the tenant in respect thereof. 9. The petitioner entered into an agreement to purchase the flat on April 21, 1993 with the respondent Nos. 4 and 5. The consideration was for a sum of Rs. 13,00,000/- out of which the petitioner paid a sum of Rs. 12,00,000/- to the respondent Nos. 4 and 5. The petitioner filed the requisite form under Section 269UC of the Act of 1961 on May 4, 1993. A team of valuers visited the flat on May 17, 1993. The appropriate authority raised a query and issued a requisition for clarification to the petitioner on July 15, 1993. The same was received by the petitioner on July 17, 1993. The petitioner answered such queries on July 20, 1993. A show-cause notice dated July 21, 1993 was issued by the appropriate authority which was received by the petitioner on July 26, 1993. The respondent Nos. 4 and 5 and the respondent No. 6 submitted written reply to such show-cause notice. The petitioner did not submit any written reply. He, however, appeared before the appropriate authority on July 27, 1993. Such show-cause notice was decided by the impugned order. The impugned order records the contentions of the transferor and the transferee. The respondent Nos. 4 and 5 as the transferors were not present at the hearing. The respondent No. 6 as the tenant was also not present in the hearing. The contentions of the transferors contained in the written reply have been noted in the impugned order. The contentions raised by the petitioner, who was present at the hearing, have also been noted. 10. 4 and 5 as the transferors were not present at the hearing. The respondent No. 6 as the tenant was also not present in the hearing. The contentions of the transferors contained in the written reply have been noted in the impugned order. The contentions raised by the petitioner, who was present at the hearing, have also been noted. 10. At the hearing before the appropriate authority, the petitioner did not contend that, the time to reply to the show-cause notice or the hearing was short or inadequate. The petitioner did not seek adjournment of the hearing. The petitioner proceeded with the hearing without raising any issue with regard to compliance with the principles of natural justice. 11. Sona Builders (supra) has found, in the facts of that case, that the appropriate authority had failed to comply with the principles of natural justice. In that case, there was a request for adjournment. Such request for adjournment was turned down. Moreover, the transferor was located in Jaipur and was required to come to the hearing at Delhi. The time period granted by the appropriate authority, in the facts of that case, was found to be insufficient. In the present case, as noted above, the petitioner never asked for any adjournment. Therefore, in the facts of the present case, it cannot be said that, there was any breach of the principles of natural justice by the appropriate authority. The first issue is, therefore, answered in the negative and against the petitioner. 12. At the hearing, the petitioner raised the issue of the valuation being made on incomparable basis, with the subject flat being compared with incomparable flats. The petitioner also contended that, the valuation of the two flats submitted on behalf of the department cannot be compared with that of the subject flat as the other two flats were not tenanted. The petitioner also highlighted the fact that the entire premises was mortgaged with UCO Bank and that, there was a litigation pending. Moreover, there is tenant at the premises concerned and that, the petitioner has no right or interest of any kind at the flat as the petitioner is neither a tenant nor a sub-tenant. The fact that the transferors, namely, the respondent nos. 4 and 5, were also embroiled in litigation was also highlighted. 13. The impugned order deals with every contentions raised by the petitioner. The fact that the transferors, namely, the respondent nos. 4 and 5, were also embroiled in litigation was also highlighted. 13. The impugned order deals with every contentions raised by the petitioner. So far as encumbrance of the entire premises with UCO Bank is concerned, the impugned order finds that, the agreement for purchase contained in the clause that the sale was free from all encumbrances. Therefore, assuming that the properties to the encumbered with the UCO Bank, then also, the petitioner would not be bothered as the liability of such encumbrance will fall upon the transferors being the respondent Nos. 4 and 5. In any event, the encumbrance to UCO Bank was in respect of the entire complex. The right of an individual flat owner will be affected minimally. The subsisting tenancy was also considered. It was found that, the tenancy was originally for three years and subsequently extended. It proceeds on the basis as if, the tenancy will expire on August 4, 1993. It notes that, the petitioner is the employee of the tenant and in possession of the flat. It also notes that, in the event the tenancy is given up by the respondent No. 6, its employee, the petitioner herein, will be benefited by a property which is worth much more than the agreed consideration. The impugned order also deals with the contention of comparison of incomparable properties. It notes that, although the valuation of two other flats was made on the basis that they were not encumbered with tenancy, nonetheless, the factum of the deductions was considered. It proceeds to say that, the tenancy is not recognised. 14. The petitioner was given a copy of the valuation report which was relied upon by the department at the hearing before the appropriate authority. The valuation report calculates the fair market value of the property concerned. It takes into account two flats around the same locality. One flat is at premises No. 19, Ballygunge Circular Road, Kolkata – 700019. The subject flat is located at premises No. 58, Ballygunge Circular Road, Kolkata - 700019. The valuation report takes note of the time difference. It also takes into account the age of the building, specification, amenities and local surroundings. The super built up area is also taken into consideration. It provides for adjustment of various heads as noted in the valuation report. The valuation report takes note of the time difference. It also takes into account the age of the building, specification, amenities and local surroundings. The super built up area is also taken into consideration. It provides for adjustment of various heads as noted in the valuation report. It arrives at the figure of a sum of Rs. 28,35,000/- as the fair market value. That apart, the value of one more property in Ballygunge Circular Road was taken into consideration. Again deductions on various heads were allowed. 15. K.L. Suneja & Anr. (supra) has held that, the appropriate authority cannot go into the question of validity of the agreement of the transfer of the property or the locality of the transaction or the title of the vendor. In the present case, the appropriate authority has not questioned the validity of the agreement to transfer the property or the location of the property or the title of the vendor. It has however questioned the quality of the encumbrance, that is the tenancy. It is entitled to do so. The Single Bench judgment in Lytton Hotel Pvt. Ltd. (supra) was upheld by the Division Bench. It has been held that, when the property has an encumbrance of tenancy, the valuation for acquisition of such property has to be considered with the encumbrance. 16. It has also held that when a property is so encumbered, the valuation by the land and building method may not be appropriate unless the question of depression in the value on account of inevitable tenancy is considered. In Mrs. Kailash Suneja (supra), the land and building method deployed for the purpose of valuation of a property encumbered with tenancy was questioned. Such decision of the Delhi High Court was upheld by the Supreme Court. I.T.C. Ltd. (supra) has held that, the appropriate authority had erred in taking into account the built up area in working out the fair market rate. 17. None of the authorities cited with regard to valuation postulates that, the appropriate authority must value a property on rental basis when it doubts the tenancy. In the present case, the tenancy itself has been doubted in the impugned order. There are good reasons for doubting the tenancy. The respondent no. 4 and 5 are the owners. As owners they had entered into an agreement to sell the flat to the petitioner. In the present case, the tenancy itself has been doubted in the impugned order. There are good reasons for doubting the tenancy. The respondent no. 4 and 5 are the owners. As owners they had entered into an agreement to sell the flat to the petitioner. The petitioner was and still is in possession and occupation of the flat. At the time of the agreement for purchasing the flat, the petitioner was in employment of the respondent no. 6. The respondent no. 6 is the tenant. The petitioner had superannuated from service with effect from January 1, 2007. In the event the petitioner is allowed to purchase the flat, then, it will remain in possession. The flat will have a tenancy without the tenant being in possession. The petitioner is no longer the employee of the respondent no. 6 since January 1, 2007. 18. The situation with regard to tenancy was no different when the appropriate authority was considering the proceedings under Section 269UD of the Act of 1961. The tenancy of the respondent no. 6 at that point of time was protected under the provisions of the West Bengal Premises Tenancy Act, 1956. The respondent no. 6 was not immune from eviction under the Act of 1956. Ignoring such aspect or even if taking into such aspect, then also, if the transaction was allowed by the appropriate authority at that point of time, then, the petitioner would have become the owner of the flat with the respondent no. 6 being a tenant in respect thereof and not being in possession of the flat, at least subsequent to the superannuation of the petitioner. The respondent no. 6 was in possession of the flat as a tenant, by virtue of the petitioner being in its employment. Even with the petitioner continuing to remain in employment of the respondent no. 6, if the petitioner was allowed to purchase the flat, he would have become the owner, with the possession of the tenant merging with the possession of the owner. With the petitioner superannuating, the petitioner no longer remained in the employment of the respondent no. 6. The respondent no. 6 would, therefore, loose possession of the flat immediately on the date of superannuation of the petitioner. The petitioner therefore would have the flat in question without a suit for eviction in either scenario. With the petitioner superannuating, the petitioner no longer remained in the employment of the respondent no. 6. The respondent no. 6 would, therefore, loose possession of the flat immediately on the date of superannuation of the petitioner. The petitioner therefore would have the flat in question without a suit for eviction in either scenario. In fact, he would have the flat immediately on the appropriate authority not exercising the right of pre-emption. A tenancy is understood to be a right to occupy an immovable property upon payment of the agreed rent in respect thereof. The respondent no. 6 would not to be in possession if the appropriate authority allowed the transaction at that point of time. This militates against the concept of tenancy. Therefore, the appropriate authority had sufficient reasons not to recognize the tenancy. An impugned order is required to be adjudged on the basis of the reasons contained therein. However, it is permissible to consider the materials placed before the appropriate authority to decide whether the view expressed in the impugned order is sustainable or not. A Writ Court needs not interfere with the view expressed in an impugned order, if such view is plausible on the basis of the materials made available. It is not called upon to be an appellate authority even if there is no provision for appeal against the impugned order. As discussed above, I find no infirmity in the view expressed by the appropriate authority questioning the tenancy. 19. Learned Senior Advocate for the petitioner has contended that Section 269UE was amended by substituting the words “free from all encumbrances” with effect from November 17, 1992. He has submitted that, such amendment was pursuant to C.B. Gautam (supra). Under the amended provisions of Section 269UD, the property vests in the Central Government in terms of the agreement for transfer. In the present case, therefore, the Central Government will, upon exercise of rights under Section 269UD, have the same rights as that of the petitioner. The petitioner is in possession and occupation of the flat. The Central Government will have possession and occupation of the flat from the petitioner. It will be subject to the same terms and conditions as that of the agreement for purchase entered into between the petitioners and the respondent nos. 4 and 5 that to say that, the purchase will be free from all encumbrances. The Central Government will have possession and occupation of the flat from the petitioner. It will be subject to the same terms and conditions as that of the agreement for purchase entered into between the petitioners and the respondent nos. 4 and 5 that to say that, the purchase will be free from all encumbrances. The tenancy of the respondent no. 6 will continue to remain, with the tenant not being in actual physical possession or occupation of the property. Unless, the respondent no. 6 surrenders the tenancy, although it is not in possession, it will continue to remain liable for payment of the rent to the owner, which will then be the Central Government. Section 269UE, allows a mechanism to the appropriate authority to declare any encumbrance or leasehold right to be void. Such section cannot be construed to mean that, at the time of valuing the immovable property, the appropriate authority will not be entitled to claim that a transaction is sham or that the encumbrance created was for the purpose of defeating the provisions of the Act of 1961. In my view, at the time of valuing the property, the appropriate authority can consider an encumbrance to have been created for the purpose of defeating the provisions of Chapter XX-C of the Act of 1961 and value the property as if the same was without such encumbrance. None of the authorities cited, disallows such a course of action. All the authorities cited with regard to deployment of the rental method for the purpose of valuation are on a fact situation where, the tenancy was not doubted. Authorities of Court are not be read as statues. Deviation of any fact scenario can affect the applicability of the ratio of the cited authority on the subject matter to be decided. 20. In view of the discussions above, it cannot be said that the appropriate authority took extraneous materials into consideration while passing the impugned order. The second issue is answered in the negative and against the petitioner. 21. No relief can be granted to the petitioner in the present writ petition. The third issue is answered accordingly. 22. W.P. No. 2821 of 1993 is dismissed. Interim orders, if any, stand vacated. No order as to costs.