M/S Wire & Fabriks (Sa) vs Appropriate Auty. Income Tax ...
2011 Latest Caselaw 5435 Del

$~30


*            IN THE HIGH COURT OF DELHI AT NEW DELHI

+             W.P. (C) 1286/1995


%                          Date of Decision : 11th November, 2011.


       M/S WIRE & FABRIKS (SA)                                ..... Petitioner
                      Through:            Mr. C. Mukund, Advocate with Ms.
                                          Firdouse Qutb Wani, Advocate.

                     versus


       APPROPRIATE AUTY. INCOME TAX DEPTT.     ..... Respondent

Through: Ms. Rashmi Chopra, Advocate.

CORAM:

HON'BLE MR. JUSTICE SANJIV KHANNA HON'BLE MR. JUSTICE R.V.EASWAR

1. Whether Reporters of local papers may be allowed to see the judgment?

2. To be referred to the Reporter or not ?

3. Whether the judgment should be reported in the Digest?

SANJIV KHANNA,J: (ORAL)

M/s. Wire & Fabriks (S.A.) Ltd. has filed the present Writ Petition for

issue of writ of Certiorari and quashing of the order dated 22nd March, 1995

passed by the respondent No. 1-Appropriate Authority under Section 269

UD(1) of the Income Tax Act, 1961 (Act, for short).

2. The petitioner had entered into an agreement dated 18.12.1994 with

Mr. K. A. Sethi and Ms. C.K.Handa, respondents No. 3 & 4 to purchase

Flat No. 802, Madhuban, 55, Nehru Place, New Delhi measuring 896 sq.ft.

(hereinafter referred to as the property) for total consideration of Rs.

24,19,200/-, which included an amount of Rs. 1,18,200/- towards cost of

wood-paneling, fixtures, carpets etc. This bifurcation was mentioned in the

agreement to sell dated 18.12.1994.

3. On 19.12.1994, the parties to the agreement to sell filed an

application/statement in Form No. 37-I under Rule 48-L of the Income Tax

Rules, 1962. Thereafter, vide letter/notice dated 30.12.1994, the petitioner

was asked to furnish information/details required by the Appropriate

Authority. These details/information were furnished on 9.1.1995. On the

same date the Appropriate Authority had physically inspected the property,

and carried out measurements of the built up area of the property. The

physical measurement of the property was required as in the valuation

report, the built up area of the property was stated to be 981 sq. ft. and not

896 sq. ft., as declared in the agreement to sell/Form 37-I. On actual

measurement, it was found that the built up area of the flat was, in fact,

981 sq. ft. Therefore, it was decided to treat the built up area of 986 sq. ft.

declared in Form No. 37-I as correct.

4. Before dealing with the proceedings and the impugned order passed

by the Appropriate Authority, it would be relevant to refer to some orders

passed in this writ petition. On 17.4.1995 notice was issued and accepted

by the respondent No. 1. By order dated 17.4.1995, the court had directed

that status quo regarding possession the property should be maintained

and the Central Government need not pay the consideration amount as

required under Section 269 UD (1) of the Act. Respondents No. 3 & 4 later

on entered appearance and had moved an application for modification of

the said order, being CM No. 4020/95. The said application was disposed

of on 30.08.1995 stating that the period for making payment by the Central

Government in terms of Section 269 UG (1) would commence from the

date of this order. The stay order dated 17th April, 1995 was accordingly

vacated. Thereafter, the petitioner filed an application being CM No.

523/96 seeking stay of auction of property scheduled for 22nd January,

1996. The auction was stayed subject to the condition that the petitioner

should deposit with respondent No.1 within a period of 10 days a sum of

Rs. 24 lakhs, which would be without prejudice to the rights and

contentions of the parties. It was made clear that in case, this amount was

not deposited, the respondent No. 1 would be free to re-auction the

property forthwith.

5. Thereafter, the petitioner filed an application being CM No. 2321/98,

which was disposed of on 17.4.1998. The court in this order noticed the

factual background and the orders passed including judgment of this Court

in Kailash Suneja Vs. Appropriate Authority, (1998) 231 ITR 318 (Del.)

and passed the following directions:

(i) subject to the petitioner filing an undertaking on an affidavit through its attorney or a senior official duly authorized under a resolution of the Board in the terms indicated hereinafter, the possession of the property shall be delivered to the petitioner; the possession of the petitioner shall be in the capacity of a receiver; he shall not alter the status quo, nor create third party interest, nor part with possession nor create any encumbrance in favour of a third party;

(ii) The petitioner shall undertake that in the event of the petition being dismissed and respondents No. 1 and 2 being held entitled to compulsory purchase of the property, the petitioner shall hand over peaceful vacant possession to respondents 1 and 2 within the time appointed by the court".

6. In terms of the said order, an undertaking has been furnished and

the petitioner is in the possession of the property. As noticed above, the

sellers-respondents No. 3 & 4 have been paid and have not entered

appearance at the time of arguments. It appears that they have nothing to

state in view of the factual background of the case noted above.

7. The petitioner, in the present proceedings, has challenged the order

of the acquisition dated 22.3.1995 principally on three grounds:

(1) Appropriate Authority's failure to grant adequate time and fair hearing to the petitioner, resulting in violation of principles of natural justice;

(2) Appropriate Authority has taken into consideration the material which was not confronted, stated and mentioned in the notice dated 10th March, 1995 issued by the Appropriate Authority to the petitioner why the property should not be acquired under Section 269 UD (1);

(3) Failure of the Appropriate Authority to take into consideration the material and relevant factors and taking into consideration irrelevant factors in deciding and determining whether there was under-statement of consideration.

Other aspects connected with and intertwined with the three

contentions have been noted below.

8. Contention Nos. 1 and 2 are somehow interconnected and are being

taken up together. Form No. 37-I was filed with the Appropriate Authority

on 19.12.1993. Therefore, the Appropriate Authority was required to either

grant permission or acquire the property under Section 269 UD on or

before 31st March, 1995. Appropriate Authority called for information by

letter/notice dated 30.12.1994, which was replied and furnished on

9.1.1995. Appropriate Authority had also officially inspected and

measured the property on 9.1.1995. The Appropriate Authority thereafter

issued notice on 10.03.1995. In this notice, it was stated :-

"3. That the subject flat consists of 895 sq. ft. as per information given in the Agreement to sell dated 18.12.1994, However, on actual measurement, the built up area of the flat has been found at 981 sq. ft. The apparent consideration of Rs. 24,19,200/- includes an amount of 1,18,200/- account of value of furniture etc. Therefore, the declared rate of the subject flat comes to Rs. 24,19,200/- minus 1,18,200 = Rs. 23,01.000/- divided by 981 = --2346 per sq. ft. The apparent consideration disclosed is considered low if sale instances of similar other properties in this locality are considered. Your attention is invited to the sale instance of flat no. 512 Ansal Tower, Nehru Place, New Delhi for an apparent consideration of Rs. 15,53,750/-. This sale instance property was agreed to be sold as per Agreement dated 30.11.1993 and consisted of built up area of 424 sq. ft. Therefore, the unit rate per sq. ft. comes to Rs. 15,53,750/- ÷ 424 = Rs. 3665/- per sq. ft. If an adjustment of time gap @ 1% per month at +13% and floor difference of (--) 3% is made, the rate on the basis of this sale instance comes to Rs. 3665 X 1.10 = Rs. 4031 per sq. ft. Therefore, the value of the subject property/flat on the basis of their sale instance works out to Rs. 4031 X 981 sq. ft. Rs. 39,54,411/- as against the apparent consideration disclosed at Rs. 23,01.000/-

4. You are hereby given an opportunity as being heard in this matter and show cause as to why pre-emptive purchase order U/s 269 UD (1) of the Income Tax Act should not be made. For this purpose, you may appear before the Appropriate Authority on 21.3.1995 at 10.30 A.M. either personally or through (sic) your authorized representative. You are also requested to produce

before the Appropriate Authority on the aforesaid date and time the original title deed of the property together with photo copies thereof for verification and return. In case of failure to arrange representation on the aforesaid date and time, necessary orders will be passed in accordance with law on the basis of material already available on record without any further reference to you."

9. As stated above, the hearing was fixed before the Appropriate

Authority on 21.3.1995 at about 10.30 a.m. On 21.3.1995, the petitioner

filed their response which was dated 18.3.1995. They raised two

contentions, that the building "Madhuban" cannot be compared with the

building "Ansal Tower", as in the cause notice dated 10th March, 1995,

which has been reproduced above, the respondent No. 1 had referred to

the sale instance of the Flat No. 512, Ansal Towers, Nehru Place, which

was sold as per the agreement dated 30.11.1993 for Rs. 15,53,750/-. The

petitioner pointed out the difference between two buildings in a chart

enclosed with the reply dated 18.3.1995. The said chart is relevant and is

re-produced below:

"Statement comparison of the building Madhuban with Ansal Tower.

Madhuban Ansal Tower

1. It is a building construction of which has 1. It is building construction of been completed about 20 years back and an which has been old type building. completed about 1½ years back only and a modern type building.

2. Its quality of construction is not as good 2. It's quality of construction as that of Ansal Tower. is very good than Madhuban.

3. Residual life of the building is much less 3. Residual life of building is than that of Ansal Tower because it is a much more than Madhuban old building and construction is not so good. because it is a new building.

4. It is not as prestigious building is Ansal Tower 4. It is a prestigious building th because only Eighth floor is occupied by the as most of building Ist to 15 private sector organization and rest of the floor floor is occupied by the th i.e. Ist to 7 floor are occupied by the Hindustan Multinational companies. Fertilizer corporation.

5. It is not maintained as good as ANSAL Tower. 5. It is maintained better than Madhuban.

      6. Common area had facility is much less              6. Common area and
       than Ansal Tower.                                    facility is much more than
                                                            Madhuban.

      7. At (sic) the time of construction of Madhuban      7. At the time of
       DDA regulations were not so restrictive than as      construction of Ansal Tower
      at present when the building Ansal Tower is           D.D.A. regulations were more
       constructed.                                         restrictive than at the time of
                                                            construction of Madhuban.

      8. The building Madhuban is inside and not            8. The building Ansal Tower is on
          on main road and have no private parking          main road and have better
         facility.                                          approach and have private
                                                            parking facility.

                                                                                              th
      9. The office in question is in eight floor which     9. The office compared is in 5 is
      a top floor just below the roof which is also         in a 15 storied building.
      a shed back to the value of the office space.



      Note:      An office accommodation of about 2000 sq. ft. in the building Ansal Tower
                                             th

has been agreed to be sold in 14 floor some time in May 1994 for a total consideration of Rs. 54.64 lacs i.e. Rs. 2732/- per sq. ft. Thus agreement for sale of th office space in a old building on 8 floor at Rs. 2568/- per sq. ft. is at a fair market price in Dec. 1994."

10. The second contention raised in the reply dated 18.3.1995 was that

difference of one per cent for each floor referred to in the show cause

notice dated 10th March, 1995 was merely an presumption without any

evidence and deduction on account of the higher floor should be much

more.

11. Hearing took place on 21st March, 1995. As noticed above, the

impugned order for acquisition of the property under Section 269 UD (1) of

the Act was passed on 22.03.1995 i.e. one day after the hearing had taken

place.

12. In the impugned order dated 22.3.1995, the Appropriate Authority

has referred to another sale instance in Chiranjeev Tower, which was sold

by public auction by Income Tax Department on 15.2.1995. As per the

Appropriate Authority, the flat in Chiranjeev Tower was sold for Rs. 4558/-

per sq.ft. The impugned order dated 22.3.1995 in paragraph 3 specifically

states that during the course of hearing on the same date, the sale

instance of the flat of Chiranjeev Tower, Nehru Place admeasuring 2919

sq. feet was brought to the notice of the petitioner. As noticed above, the

sale instance of the flat in Chiranjeev Tower, Nehru Place was not

mentioned in the show-cause notice dated 10th March, 1995 and thus was

relied upon by the Appropriate Authority for the first time only at the time of

hearing. The petitioner was not given any time to rebut or offer any

explanation or distinguishing factors in respect of Chiranjeev Tower, Nehru

Place. This was a serious lapse and failure on the part of the Appropriate

Authority. As the Appropriate Authority did not adjourn the hearing or give

even a day's time to the petitioner to respond and an offer an explanation

with regard to the said sale instance, reliance placed on the said sale

instance in the impugned order makes it vulnerable and bad in law.

13. Records produced before us shows that the petitioner, on 22.3.1995,

had prepared and had filed a detailed submissions going into about three

and a half pages. The said submissions, it appears, were not accepted by

the Appropriate Authority and had to be filed at the Dak counter. On the

submission, the Appropriate Authority has recorded "Received at 10.30

a.m. placed on file, signed 23.3.1995". As noticed above the impugned

order was passed on 22.3.1995.

14. In the statement enclosed with the reply dated 18.3.1995, the

petitioner had highlighted the difference between the Madhuban Tower

and Ansal Tower. Madhuban Tower was constructed 20 years back and is

an old building. This is not disputed but an admitted position. Madhuban

Tower does not have any private parking facility. Further, Madhuban

Tower is located inside and is not on the main road, whereas Ansal Tower

is on the main road and has private parking facility. Another distinguishing

factor pointed out by the petitioner was that the property in question was

located on the 8th Floor, the top floor, and the built up area was 896 sq. ft.,

whereas the sale instance of Ansal Tower relied upon to the Appropriate

Authority was of a flat on the 5th Floor in a fifteen story building and of a

smaller size having a built up area of 424 sq. ft.

15. The Appropriate Authority did notice the said differences in their

order dated 22.3.1995 and has stated that in view of the said differences,

they would adjust 5% for superior location and another 5% towards other

amenities. The order dated 22.3.1995 does not state or explain on what

basis, only 10% adjustment in all was allowed. Formula and rational 10%

deduction in all for factors mentioned above is not stated and cannot be

fathomed from the impugned order. The differences pointed out by the

petitioner are substantial and not innocuous or insignificant. These were

relevant and material considerations which are taken into account by every

seller or purchaser before purchasing a property. It is noticeable that the

Valuation Officer of the Appropriate Authority had stated that due to

locational disadvantage (as Ansal Tower was facing main road, whereas

Madhuban Tower was located inside the complex) 10% adjustment was

required. The valuation report did not take into consideration other

aspects like the age of the two properties and the factum that in Madhuban

Tower, there was no parking facility inside the complex. Age of the building

is an important and relevant consideration and a 20 years old construction does

not fetch the same price as a newly constructed commercial flat with

modern amenities. Purchasers and tenants normally have preference for

new buildings, which are better in quality and have more facilities and

considered a better address. Frequent maintenance and expenditure or

cost and inconvenience caused in 20 years' old building are other factors,

which depreciates the market value.

16. Appropriate Authority noticed that the two flats i.e. the flat in

question and the sale instance were located on the different floors i.e. on

8th and 5th floor respectively. Accordingly, deduction of 3% on account of

the floor difference has been given. This may be acceptable and

reasonable. However, no deduction and difference for the area of the flat

in the sale instance has been accounted for. Size of the flat in the sale

instance was smaller by almost 50%. Normally, smaller flats fetch a better

price than larger flats. It is also noticeable that the property in question

was located on the top floor.

17. The agreement to sell in the present case, as noticed above, is

dated 18.12.1994 whereas the agreement of the flat at Ansal Tower relied

upon by the Appropriate Authority is dated 30.11.1993. There is,

therefore, a gap of about 13 months between two sale deeds. Appropriate

Authority has added 1% per month on the sale price of the Ansal Tower

building to compute and calculated the acceptable sale price as on

18.12.1994. This adjustment is on hypothetical basis. Addition of 1% per

month equal to 13% is substantial, cannot be accepted and has been

adversely commented in Kailash Suneja Vs. Appropriate Authority,

(1998) 231 ITR 318 (DEL) wherein at page 352, it has been held as

under:

"What has been done by the Appropriate Authority is 1% is added for every month as if every month there is increase of 1% in the property. The basement potential of the properties considered and barsati potential is taken into account. Taking into account the subject properties tenanted, 6 years deferred value at 8% is calculated and 6 years rent is added to the value arrived at by the above process."

18. In the same judgment, it has been further observed at page 449 as

under:

"The agreement in respect of property G-8, Maharani Bagh, New Delhi, had been entered into in June, 1991, whereas the agreement for the property in question is dated July 1, 1993. We find no legal basis by adding 24 per cent on the hypothetical basis that there would be an increase of 1 per cent every month."

19. The aforesaid decision was made subject matter of the challenge by

Appropriate Authority before the Supreme Court in the case of

Appropriate Authority Vs. Kailash Suneja and the said decision is

reported in (2001) 6 SCC 563. The Supreme Court noticed the adverse

observations of the High Court on the mode of calculation of fair market

value by adding 1% per month in view of the time gap and did not interfere

with the said reasoning.

20. It may be noticed here that the appropriate authority, on the basis of

the sale instance, has come to the conclusion that the differences between

fair market value and the value declared in the agreement dated

18.12.1994 was about 41% less. This was calculated after giving

deduction of 10% on account of superior location and other factors.

However, while calculating the said amount, respondent No. 1 had added

13% adjustment increase because of the difference in the dates of the sale

instance relied upon by them, which is dated 30.11.1993 and the

agreement to sell in the present case, which is dated 18.12.1994. If we

exclude 13% from the said amount, the difference will be about 28%. As

noticed above, there are several other factors which have to be taken into

consideration for downward adjustment for comparison with the price

mentioned in the sale instance. As per the statute for acquisition of a

property under Section 269 UD, the difference between the fair market

value and the apparent consideration in the agreement should be more

than 15%. Keeping in view the facts of the present case, we are not

inclined to remand the matter for a fresh decision. It may be noticed that

there is a substantial time gap between the date of the impugned order

and the present decision. The petitioner has been in occupation of the

property as noticed above. In Kailash Suneja's case (supra), it has been

observed:-

"(15) Normally such cases where the pre-emptive purchase orders are passed in violation of the principles of natural justice may be remanded for fresh decision by the authority but in cases where reasons given by the authority in the order are found to be erroneous, ordinarily the question of remand would not arise and the said cases would be decided on the basis of the material on record."

In the present case, not only was there violation of natural justice, but even

the determination was not done on correct basis.

21. In these circumstances, we allow the present writ petition and quash

the order dated 22.3.1995 and set aside the said order. In the facts and

circumstances, no order as to costs.

SANJIV KHANNA,J

R.V.EASWAR, J

NOVEMBER 11, 2011 akb/vld