# C.B. GAUTAM v. U.0.I

- **Citation:** [1992] Supp. 3 S.C.R. 12
- **Court:** Supreme Court of India
- **Decided:** 1992-11-17
- **Case number:** Transferred Case No.26 of 1987
- **Bench:** M.H. Kania, Cj. J.S. Verma, s:c. AGRAWAL, Yogeshwar Dayal, Dr. A.S. Anand
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/c-b-gautam-v-u-0-i-11893
- **Pages:** 44

## Headnote

Income Tax Act, 1961: Chapter XX-C-Sections 269-UD, 269
UE-Compulsory pre-emptive purchase of property by Government to check
C tax evasiori-Constitutional validity of-Reasons for such purchase
recorded-Whether a substitiite for opportunity of hean"ng-Such reasons to
be inc01porated in the order or recorded separately and communicated--Opportunity to show cause+-Need for-Vesting of property in Central Government-'Free from all encumbrances' -Whether violative of Article 14 of the
D
Constitution-Whether could be read down-Monthly tenancies in such
properties-Whether terminated on" acquisition by Government-Section 269
UD(l)-To clan"fy that encumbrance or lease created to defeat provisions of
Chapter XX~C would be void-Amendment-Suggested.
Constitution of India, 1950: Article 14--Chapter XX-C of Income Tax
E Act-Check on. Tax evasion-compulsory purchase of property by Govemment-,-Free from all encumbrances-Whether .violative of
Administrative Law: Pn"nciples of Natural Justice-Provisions for
recording reasons-Whether a substitute for opportunity of hean"ng-ComF
municating reasons-Ne.cessity of-Show cause notice-Affording of-Need
for even though not provided in the statute.
The petitioner proposed to purchase a plot of land from its owner
· who held it under a lease executed by the Delhi Development Authority
(DDA). Initially the owner entered into an agreement to transfer the
G leasehold rights in the said property to the petitioner and paid an advance.
On the sa~e day an agreement for the construction of a structure on the
· said plot was entered into between the owner and the petitioner. Thereafter
a fresh agreement to sell the said plot along with the leasehold rights in
the said land was executed, wherein the owner agreed to transfer to the
H
petitioner his leasehold rights in the said land along with the ownership
12
C.B. GAUTAM. v. U.0.I.
13
of the building put up thereon for Rs.16 lakhs. The petitioner was also A
liable under the agreement to pay Ks.3.4 lakhs to DDA on account of
unearned increase. As per the requirements of Section 269 UC of the
Income Tax Act, 1961 the said agreement to sell the property along with
Form 37-1 giving the required particulars, was furnished to the appropriate authority. After getting the report of the registered valuer, the B
appropriate authority passed an order for purchase of the property by the
Central Government under Section 269 UD (1) of the Income Tax Act and
served the same on the petitioner. No specific reason was given for the
compulsory purcha~e of the property. The order of the appropriate
authority was challenged by the petitioner before the High Court by
way of a Writ Petition. This Court transferred to itself the said Writ C
Petition.
On behalf of the petitioner, it was col)tended that no guidelines were
-prescribed in Chapter XX-C of the Income Tax Act for the exercise of the
drastic power of pre-emptive purchase wherein the Government was not D
even required to comply with the provisions of the Transfer of Property
Act in regard to title of the property, and so the provisions of Chapter
XX-C confer unfettered discretion on the appropriate authority, which is
arbitrary; that the provisions of Chapter XX-C were bad in law as they did
not comply with principles of Natural Justice as no opportunity was to be E
given to the intending purchaser; that the requirement of recording
reasons was not sufficient in the absence of recording them in the order
of purchase or communicating the reasons to the transferor or the transferee along with the Order; that there has been failure to provide the mode
of valuation of property where the title was disputed or the sale was part
of a resolution of some dispute between the transferor and the transferee F
or where there was an adjustment in the price on account of tenancy rights
vested in the transferee or on account of encumbrance etc.; and that a law
providing for the acquisition or compulsory purchase of immovable
property, even in the

## Text

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A
B
C.B. GAUTAM
v .
. UNION OF INDIA AND ORS.
NOVEMBER 17, 1992/NOVEMBER 27, 1992
(M.H. KANIA, CJ. J.S. VERMA, s:c. AGRAWAL, YOGESHWAR
DAYAL AND DR. A.S. ANAND, JJ.]
Income Tax Act, 1961: Chapter XX-C-Sections 269-UD, 269
UE-Compulsory pre-emptive purchase of property by Government to check
C tax evasiori-Constitutional validity of-Reasons for such purchase
recorded-Whether a substitiite for opportunity of hean"ng-Such reasons to
be inc01porated in the order or recorded separately and communicated--Opportunity to show cause+-Need for-Vesting of property in Central Government-'Free from all encumbrances' -Whether violative of Article 14 of the
D
Constitution-Whether could be read down-Monthly tenancies in such
properties-Whether terminated on" acquisition by Government-Section 269
UD(l)-To clan"fy that encumbrance or lease created to defeat provisions of
Chapter XX~C would be void-Amendment-Suggested.
Constitution of India, 1950: Article 14--Chapter XX-C of Income Tax
E Act-Check on. Tax evasion-compulsory purchase of property by Govemment-,-Free from all encumbrances-Whether .violative of
Administrative Law: Pn"nciples of Natural Justice-Provisions for
recording reasons-Whether a substitute for opportunity of hean"ng-ComF
municating reasons-Ne.cessity of-Show cause notice-Affording of-Need
for even though not provided in the statute.
The petitioner proposed to purchase a plot of land from its owner
· who held it under a lease executed by the Delhi Development Authority
(DDA). Initially the owner entered into an agreement to transfer the
G leasehold rights in the said property to the petitioner and paid an advance.
On the sa~e day an agreement for the construction of a structure on the
· said plot was entered into between the owner and the petitioner. Thereafter
a fresh agreement to sell the said plot along with the leasehold rights in
the said land was executed, wherein the owner agreed to transfer to the
H
petitioner his leasehold rights in the said land along with the ownership
12
C.B. GAUTAM. v. U.0.I.
13
of the building put up thereon for Rs.16 lakhs. The petitioner was also A
liable under the agreement to pay Ks.3.4 lakhs to DDA on account of
unearned increase. As per the requirements of Section 269 UC of the
Income Tax Act, 1961 the said agreement to sell the property along with
Form 37-1 giving the required particulars, was furnished to the appropriate authority. After getting the report of the registered valuer, the B
appropriate authority passed an order for purchase of the property by the
Central Government under Section 269 UD (1) of the Income Tax Act and
served the same on the petitioner. No specific reason was given for the
compulsory purcha~e of the property. The order of the appropriate
authority was challenged by the petitioner before the High Court by
way of a Writ Petition. This Court transferred to itself the said Writ C
Petition.
On behalf of the petitioner, it was col)tended that no guidelines were
-prescribed in Chapter XX-C of the Income Tax Act for the exercise of the
drastic power of pre-emptive purchase wherein the Government was not D
even required to comply with the provisions of the Transfer of Property
Act in regard to title of the property, and so the provisions of Chapter
XX-C confer unfettered discretion on the appropriate authority, which is
arbitrary; that the provisions of Chapter XX-C were bad in law as they did
not comply with principles of Natural Justice as no opportunity was to be E
given to the intending purchaser; that the requirement of recording
reasons was not sufficient in the absence of recording them in the order
of purchase or communicating the reasons to the transferor or the transferee along with the Order; that there has been failure to provide the mode
of valuation of property where the title was disputed or the sale was part
of a resolution of some dispute between the transferor and the transferee F
or where there was an adjustment in the price on account of tenancy rights
vested in the transferee or on account of encumbrance etc.; and that a law
providing for the acquisition or compulsory purchase of immovable
property, even in the absence of any proof of tax evasion, would violate the
provisions of Articles 14 and 19(1) (g) of the Constitution of India as being 0
excessive and unreasonable. It was also contended that the provisions of
Chapter XX-C were bad in law as there was no appeal or revision provided
against orders made by appropriate authorities and such order had
serious civil consequences and cast aspersion on the parties of attempted
tax evasion; and that the rights of monthly tenants and mortgages and p
14
SUPREME COURT REPORTS [1992) SUPP. 3 S.C.R.
A
other encumbrance holders would be affected, as they could only claim a
share in the compensation awarded to the owner, which cannot substitute
their secured rights in the immovable property.
On behalf of the respondents, it was contended that in pursuance of
B Wanchoo Committee's report, Chapter XX-A was introduced in the Income Tax Act, but as those provisions were found inadequate for dealing
with the evil of under-valuation of immovable properties in sale deeds and
agreements to sell, Chapter XX-C was introduced into the Income Tax Act ·
and these very reasons furnish adequate quidelines for the exercise of
c power conferred under Chapter XX-C; that the provisions of Chapter
XX-C were not penal in nature and the rights of the Transferor were not
prejudicially affected as he would get the consideration for which he agree
to sell the property under the agreement to sell; that where the price might
have been lowered for bona fide reasons like sale to close relatives specific
provisions exist; that the interest of transferee was not affected since an
D agreement by itself would create no interest in the property under the
provisions of Transfer of Property Act; that after the deletion of Article
19(1), there was no fundamental right to acquire any immovable property;
that there was no violation of principles of Natural Justice as the affected
person could challenge the order of purchase as arbitrary by filing a
E
petition before a Court of law and the authorities would have to disclose
the reasons to satisfy the Court that they acted on relevant considerations
germane ta the object of Cha!Jter XX-C in taking the decision to purchase
the property; that since the decision to purchase a property was taken by
three high officers who have adequate knowledge in the matter, lack of
F
G
provision for appeal or revision would not make any difference, that
Chapter XX-C did not provide for communicating the reasons; that as
regards tenants and mortagages the property purchased under Section 269
UD would vest in the government free from all encumbrances; that however, the provisions could be read down in such a way that encumbrances
on the property in question and Jong term leases thereon which created
· interests in favour-of parties who might have nothing to do with tax evasion
attempted in the sale of immovable property would not be affected by the
acquisition; that unless the agreement provided for sale of the property
free from ·encumbrances or leasehold rights, such encumbrances or
leaseholds rights in the property would not be affected; that since tenancies
H created no interest in the properties,. the monthly tenants could not have
C.B. GAUTAM. v. U.O.I.
15
any grievance; and that the property vested in the Government only on A
possession being taken by it and till such time the owner continued to be
in possession, he had no right to claim interest.
Allowing the Writ Petitfon, this Court,
HELD: 1.1. The very historical setting in which the provisions of B
Chapter XX-C of the Income Tax Act, 1961 were enacted'suggests that it
was intended to be resorted to only in cases where there is an attempt at
tax evasion by significant under-valuation of immovable property agreed
to be sold. This conclusion is strengthened by instruction No.1A88 issued
by the Central Board of Direct Taxes, Government of India, Ministry of C
Finance, Department of Revenue which emphasised that the main objective
of the provisions of Chapter XX-C is to check proliferation of black money
in real estate transactions and to enforce declaration of the true value of
immovable properties that are the subject of transfer between the parties.
The Central Board has pointed out in the said Instructions that, in
administering the provisions of the said Chapter, it has to be ensured that D
no harassment is caused to bona fide and honest purchasers or sellers of
immovable property and there is no erosion of the confidence of the public
in the sense Qf justice and fair play of the Income Tax Department.
(36-E-H, 37-A]
1.2. The powers of compulsory purchase conferred under the E
provisions of Chapter XX-C of the Income Tax Act, f 961 are intended to
be used only in cases where in an agreement to sell an immovable property
in an U:'ban area to which the provisions of the said Chapter apply, there
is a significant undervaluation of the property concerned, namely, of 15
percent or more. If the appropriate authority concerned is satisfied that F
in an agreement to sell immovable 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 under-valuation has been done with a view to evade tax. or course,
such a presumption is rebuttable and the intended seller or purchaser can
lead evidence to rebut such a presumption. Moreover, an order for comG
pulsory purchase of immovable property under the provisions of Section
269 UD requires 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.
(38-F, H; 39-A, B] H
A
B
16
SUPREME COURT REPORTS [1992) SUPP. 3 S.C.R
1.3. It cannot therefore said that the provisions of Chapter XX·C
confer an unfettered discretion on the appropriate authorities to order the
purchase by the Central Government of immovable properties agreed to
be sold. The provisions cannot also be regarded as conferring arbitrary
discretion on the appropriate authorities. Hence the provisions of the said
Chapter are not violative of Article 14 of the Constitution. [41-D]
CIT, Gi~arat-!J v. Smt. Vimlaben Bhagwandas Patel & Anr., (1979)
118 ITR 134, approved.
KP. Varghese v. Income Tax Officer, Emakulam & Anr., (1981) 131
C
ITR 597, referred to.
2.1. It must be borne in mind that courts have generally read into
the provisions of the relevant sections a requirement of giving a reasonable
opportunity of being heard before an order is made which would have
adverse civil consequences for the parties affected. This would be parD
ticularly so in a case where the validity of the section would be open to a
serious challenge for want of such an opportunity. (43-F]
E
F
G
2.2. The time frame within which the order for compulsory purchase
has to be made is a fairly tight one but the urgency is not such as would
preclude a reasonable opportunity of being heard or to show cause being
given to the parties likely to be adversely affected by an order of purchase
under Section 269 UD(l). The enquiry pursuant to the explanation given
by the lntending purchaser or the intending seller might be a somewhat
limited cme or a summary one but it cannot be said that the time limit
provided is so short as to preclude an enquiry or show cause altogether.
(43-G, H; 44-A]
2.3. Therefore the· requirement of a reasonable opportunity being
given to the concerned parties, particularly to the intending purchaser and
the intending seller must be read into the provisions of Chapter XX-C.
Before an order for compulsory purchase is made under Section 269 UD,
the intending purchaser and the intending seller must be given a
reasonable opportunity of showing cause against an order for compulsory
purchase being made by the appropriate authority concerned. The
provisions of Chapter XX-C can be resorted to only where there is a
significant under-valuation of property to the extent of 15% or more in the
H agreement of sale, as evidenced by the apparent consideration being .lower
'
r
C.B. GAUTAM. v. U.0.1.
17
than the fair market value by 15% or more. Although a presumption of an A
attempt to evade tax may be raised by the appropriate authority concerned
B
in case of the aforesaid circumstances being established, but such a
presumption is rebuttable and this would necessarily imply that the con·
cerned parties must have an opportunity to show cause as to why such a
presumption should not be drawn. Moreover, in a given transaction of an
agreement to sell there might be several bo~a fide consideration which
might induce a seller to sell his immovable property at less than what
might be considered to be the fair market value. There might to some
dispute as to the title of the immovable property as a result of which it
might have to be sold at a price lower than the fair market value or a
subsisting lease in favour of the intending purchaser. There might similarC
ly be other genuine reasons which might have led the seller to agree to sell
the property to a particular plirchaser at less than· the market value even
in cases where the purchaser might not be his relative. Unless an intending
purchaser or intending seller is given on opportunity to show cause against
the proposed order for compulsory purchase, he would not be in a ·position D
to rebut the presumption of tax evasion. To give an interpretation to the
provisions which would lead to such a result would be utterly unwarranted.
The very fact that an imputation of tax evasion arises where an order for
compulsory purchase is made and such an imputation casts a slur on the
parties to the agreement to sell lead to the conclusion that before such an
imputation can be made against the parties concerned, they must be given E
an opportunity to show cause that the under-valuation in the agreement
for sale was not with a view of evade tax. Although Chapter XX-C does not
contain any express provision for the affected parties being given an
opportunity to be heard before an order for purchase is made under
Section 269 UD, not to read the requirement of such an opportunity would
be to give too literal and strict an interpretation to the provisions of F
Chapter XX-C. There is no express provision in Chapter XX-C barring the
giving of a show cause notice nor is there anything in the languace of
Chapter XX-C which would lead to such an implication. The observance
of principles of natural justice is the pragmatic requirement of fair play
in action. Therefore, the requirement of an opportunity to show cause G
being given before an order for purchase by the Central Government is
made by an appropriate authority under Section 269 UD must be read into
the provisions of Chapter XX-C. There is nothing in the lan~uage of
Section 269 UD or any other provision in the said Chapter which would
negate such an opportunity being given. Moreover, if such a requirement H
·.·
18
SUPREME COURT REPORTS (1992) SUPP. 3 S.C.R.
A were not read into the provisions, they would be seriously open to challenge
on the ground of violation of the provisions of Article 14 on the ground of
non-compliance with principles of natural justice. The provision that when
an order for purchase is made under Section 269 UD, reasons must be
recorded in writing is no substitute for a provision requiring a reasonable
B
c
opportunity of being heard before such an order is made. (44-B-H; 45-A·E]
Union of India v.J.N. Sinha &Anr., (1971) 1 SCR 791 and Olga Tellis
& Ors. v. Bombay Municipal Corporation & Ors. etc., (1985) Suppl. 2 SCR
51, relied on.
3. Section 269 UD(l), in express terminology, provides that the
appropriate authority may make an order for the purchase of the property
"for reasons to be recorded in writing". Section 269 UD(2) casts an obligation on the authority that it ''shall cause a copy of its order under
sub-section (1) in respect of any immovable property to be served on the
transferor". It is, therefore, inconceivable that the order which is required
D to be served by the appropriate authority under sub-section (2) would be
the one which .does not contain the reasons for the passing of the order or
is not accompanied by the reasons recorded in writing. It may be permissible to record reasons separately but the order would be an incomplete
. order unless either the reasons are incorporated therein or are served
E
separately along with the order on the ·affected party. The reasons for the
order must be communicated to the affected party. [46-B-D]
Govemment of India and Anr. v. Maxim A. Lobo and Anr., (1991) 190
ITR 101, approved.
F
Vidyavati Kapoor Trust v. Chief Commissioner of Income Tax and Ors.,
(1992) 194 ITR 584, overruled.
4.1. An order for compulsory purchase· results in the rights of
holders of encumbrances and leasehold rights being destroyed or sigG nificantly dif!1inished. In a given case it might happen that the property is
intended to be sold under an agreement to sell subject to encumbrances
and leasehold rights, and very often agreement to sell the immovable
property may not provide that the property sold would be free from
encumbrances or leasehold rights. In such a case, the apparent consideration, even if it is equivalent to the fair market value, would be indicative
H of the market value of the property subject to such encumbrances. If, in
C.B. GAUTAM. v. U.0.1.
19
such a case an order for compulsory purchase is made, the result would A
be that the property would be compulsorily purchased and the amount to
be paid for the purchase would be only equal to the apparent consideration
which would not take into account the value of the encumbrances on the
property like mortgages or the leasehold rights and so on. A property may
be heavily encumbered and its value can be considerably depressed if it
were sold subject to encumbrance~. So also a property in respect of which
there.is a subsisting lease for a substantial period of time would fetch a
comparatively low price because the purchase thereof would not carry with
B
it the right to possession or occupation during the subsistence of the
leasehold interests. In such cases, the amount of apparent consideration
could be even less than the value of the encumbrances or the leasehold C
interests. An order for compulsory purchase in such cases would necessarily result in gross injustice to the encumbrance holders and lessees and
to their being deprived of their rights without they being in the any way
involved in an attempt at tax evasion. It is, therefore, difficult to uphold
the last part of sub-section (1) of Section 269 UE insofar as it provides D
that the property in respect of which an order under sub-section (1) of
Section 269 UD is made shall vest in the Central Government free of all
encumbrances. The expression "free of all encumbrances" is liable to be
struck down as arbitrary, without any rational nexus with the object of the
legislation in question and violative of Article 14 of the Constitution.
Similarly, the provisions of sub-section (2) of Section 269 UE must be read E
down so as to make them inapplicable to bona fide lessees in possession
or bona fide encumbrance holders in possession. [47-F-H; 48-A-E] .
4.2. In order to save a statute or a part thereof from being struck
down it can be suitably read do\vn. But such reading down is not permisF
sible where it is negatived by the express language of the statute. Reading
down is not permissible in such a manner as would fly in the face of the
express terms of the statutory provisions. In view of the express provision
in Section 269 UE that the property purchased would vest in the Central
Government "free from all encumbrances" it is not possible to read down
the section. [49-F, G]
G
4.3. 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 H
20
SUPREME COURT REPORTS [1992) SUPP. 3 S.C.R.
A
such encumbrances and leasehold interests as are subsisting thereon
except for such of them as are agreed to be discharged by the vendor: before
the sale .is completed. If under the relevant agreement to sell the property
it is agreed to be sold free of all emcumbrances or certain emcumbrancesit would vest in the Central Government free of such encumbrances.
B
Similarly, sub-section (2) of Section 269 UE will be read down so that if
the holder of an encumbrance or a lessee is in possession of the property
and under the agreement to sell the property it is not provided that the
sale would be free of such encumbrances or leasehold interests, the encumbrance holder or the le.ssee who is in possession will not be obliged to
deliver the possession of the property to the appropriate authority or any
C
person authorised by it and the provisions of sub-section (3) also would
not apply to such persons. If the provisions of Section 269 UE are read
down in the manner indicated above then the provisions of sub-section (6)
of that section do not present any difficu!ty because the vesting in the
Central Government would be subject to such encumbrances and leasehold
D
rights. f 49-G, ff; 50-A-C]
Rambliai Manja Nayak v. Union of India, (1983) 142 ITR 239, distinguished.
5. As far as monthly tenancies are concerned, they do not pose any
E
difficulty because monthly tenants are also lessees in law although their
right is a very limited one. If the agreement to sell does· not provide for
vacant possession or the determination of 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
F
269 UD(l); but such tena.nts would loss the protection given to tenants
under the rent 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. The loss of the
protection of the rent control acts cannot be regarded as an interest for
which any compensation is liable to be paid. [50-D-F]
G
6.1. Wliere an agreement for sale provides that the property is
intended to be sold free of all emcumbrances or leasehold rights, the order
for purchase of such property under Section 269 UD (1) would result in
the said property vesting in the Central Government free of such enH cumbrances or leasehold interests. In such a case the holders of the
C.B. GAUTAM. v. U.0.1.
21
encumbrances and leasehold interests wmdd have to obtain their compen• A .
sation from the amount awarded as the purchase price to the owner of the
property. This appears to be a fair construction because in such a case the
apparent consideration can be expected to include the value of such
leasehold interests or encumb~nces. 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 B
(2) of Section 269 UA. Sub-section (5) of Section 269 UE makes it amply
clear that such persons viz., the encumbrance holder or 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 GovernC
ment under Section 269 UD. [50-G, H;,51-A-D]
6.2. If a lt:ase or an encumbrance is found to be bogus it can be
treated as of no legal effect and in that event it would not affect any of the
rights of the Central Government on the vestiqg of the property in the
event of an order for purchase being made under Section 269 UD (1). If it D
is so considered necessary the provisions of the Chapter might be so
amended as to clarify that if any lease or encumbrance is created with a
view to defeat the provisions of Chapter XX-C such lease or encumbrance
will be regarded as void or ignored for the purposes of the 'said Chapter.
That, however, is for the Parliament to consider. [51-E, F]
E
7. In the instant case, the order for compulsory purchase under
Section 269 UD (1) of the Income Tax Act which was served on the
petitioner on the night of 15th December, 1986, has been made without any
show cause notice being served on the petitioner and without the petitioner F
or other affected parties having been given any opportunity to show cause
against an order fQr compulsory purchase nor were the reasons for the
said order set out in the order or communicated to the petitioner or other
concerned parties along with the order. Hence the order is clearly bad in
law and it is set aside. (51-H; 52·A]
G
8. In view of the fact that the object of the provisions of Chapter
. XX-C is a laudable object, namely, to counter evasion of tax in transactions
of a sale of immovable property, it is necessary to limit the retrospective
operation of this judgment in such a manner as not to defeat the acquisitions altogether. If the original time frame prescribed in Chapter XX-C is H
22
SUPREME COURT REPORTS [1992) SUPP. 3 S.C.R.
A rigidly applied it would not be possible for the appropriate authority
concerned to pass an order under Section 269 UD (1) at all in respect of
the property in question. In order to avoid that situation and, yet to ensure
that no injustice is caused to the petitioner, the statement in Form 37-I
submitted by the petitioner shall be treated as if it were submitted on the
B
date of this judgment. Thereafter if the appropriate authority considers it
fit, it may cause a sh~w cause notice calling Qpon the petitioner and other
concerned parties to show cause why an order for compulsory purchase of
the property in question should not be made under the provisions of
sub-section (I) of Section 269 UD and give a reasonable opportunity to the
petitioner and such other concerned parties to show cause against such an
C order being made. In view of the limited time-frame this will have to be
done with a sense of urgency. It after such an opportunity is given the
appropriate authority so considers it fit, it may hold an ·enquiry, even
though summary in nature, and may pass an order for compulsory pur·
chase by the Central Government of the property in question under Section
D 269 UD (1): The appropriate authority will have to decide whether an
inquiry is called for in the facts and circumstances of the case after the
show cause notice is issued. [52-B-F]
India Cement Ltd. v. State of Tamil Nadu, [1990] 1SCC12, relied on.
E
9. If the order for compulsory purchase of the property is made
hereafter the intending vendor will ~offer to some extent by reason of the
fact that he will get the purchase amount several years after the time he
would have got it had the order under challenge been held valid. However,
he would have retained the possession of the property in question. Taking
F
into account these factors and taking note of the fact that immovable
properties in urban areas have gone up steeply in value during the last few
years, it is directed that in case an order for compulsory purchase is made
the Central Government shall pay to the intending seller the amount of
the apparent consideration plus interest at 9 per cent per annum from the.
date the order challenged against was made. [53-A-C]
G
10. As far .as completed transactions are concerned, namely, where
after the order for compulsory purchase under Section 269 UD of the
Income Tax Act was made and possession has been taken over, compensation paid to the owner of the property and accepted without protest,
H there is no reason to upset those transactions and hence, nothing said in
<
C.B. GAUTAM. v. U.0.1. [KANIA, CJ.)
23
this judgme .. t will invalidate such purchases. The same will be the position A
where public auctions have been held of the properties concerned and they
are purchased by third parties. In those cases also nothing which is stated
in this judgment will invalidate the purchases. [53-C, D]
11. In respect of cases pending before Courts, the periQd of tWo
months referred to in Section 269 U{l(l) shall be reckoned with reference B
to the date of disposal of each of such pending matters either before this
Court or before the High Courts as the case may be. Where, however, the
. stay orders inhibiting the authorities from taking further proceedings are
vacated, the period referred to in Section 269 UD (1) shall be reckoned
with referred to the date the stay orders are vacated. [54-H; 55-A]
C
12. In respect of matters pending at various stages before the
authorities, Form 37-1 shall be deemed to have been filed as on the date
of the main judgment (17.11.1992) for purposes of completion of proceed·
ings in terms of Section 269 UD (1). [55-B, CJ
Ed. : (The clarifications contained in paras 11 and 12 above were
issued by this Court in its order dated 27.11..1992 on an application filed
by the Union of India. The said order forms part of the main judgment).
ORIGINAL JURISDICTION : Transferred Case No.26 of 1987.
Civil Writ Petition No.2821 of 1986 of the Delhi 'High Court.
Harish N. Salve, Ravinder Narain, Ms. Amrita Mitra, Rajan Narain,
D.N. Mishra, Vibhu Bakhru, Vivek Kohli and P.A.S. Rao (For M/s J.B.D.
& Co.) for the Petitioner.
G. Ramaswamy, Attorney General, Dipankar Gupta, Solicitor
General, Dr. Gauri Shankar, Ranbir Chandra, C.V.S. Rao and P. Parmeswaran for the Respondents.
The Judgment/Order of the Court were delivered by
KANIA, CJ. The petitioner herein filed Civil Writ Petition No.2821
of 1989 in the Delhi High Court challenging the validity of the provisions
of Chapter XX-C inserted in the Income Tax Act, 1961 (referred to herein
as 'the Income Tax Act') by the Finance Act of 1986. That writ petition
D
E
F
G
has been transferred to this Court as a test case. The order transferring H
24
SUPREME COURT REPORTS [1992) SUPP. 3 S.C.R.
A
the said Writ Petition was made on 20.9.89.
B
c
D
.E
F
G
The relevant facts lie within a narrow compass. The petitioner is the
intending purchaser of a plot of land bearing No. B-7/108A, situated at
Safdarjung Enclave, New Delhi, admeasuring 253 sq. mtrs. The owner of
the property is one Jai Lal s/o Ghazi Ram. The said owner held the said
plot under a lease executed by the Delhi Development Authority on
25.2.81. On 4.2.85 the o\vner entered into an agreement to transfer the
leasehold rights in the said property to the petitioner and a sum of Rs.4S
lakhs was paid as the advance price. On the same day. an agreement for
the construction of a structure on the plot was entered between the said
'
parties. On 9.7.86 a fresh agreement to sell the residential house put up on
the aforesaid plot of land along with the leasehold rights in the said land
was executed between the parties wherein the owner agreed to transfer to
the petitioner his leasehold rights in the said land along with the ownership
of the construction, namely, the building put up thereon, for Rs.16 lakhs.
In addition, the petitioner was liable under the agreement to pay Rs.3.4
lakhs to the Delhi Development Authority on account of the unearned
increase. On the coming into force of Chapter XX- C of the Income Tax
Act, which was brought into effect from 1st October, 1986 by a Notification
dated 7.8.86 in the area with which we are concerned, the said agreement
to sell the said property along with Form No.37-I in duplicate were
furnished to the appropriate authority as per the requireffif?t~ Rf ~~ctiQn
269UC of the Income Tax Act. After getting the report of the registered
valuer, the appropriate authority passed an order for the ·purchase by the
Central Government of the said property, namely, the lease hold rights in
the land and the o\vnership of the said building under section 269UD (1)
of the Income Tax Act and served the same on the petitioner in the night
of December 15, 1986. No specific reason was given in the said order for
the compulsory purchase of the said property. All that was stated was
" ... considering all the relevant facts and for the reasons recorded as required. It is decided that the said property is fit for purchase by the Central
Government at an equal amount of the apparent consideration ... " The said
order has been challenged in this petition on various grounds.
As we will presently show, the controversy which remains after
analysing the respectiv.e stands of Mr. Salve, learned counsel for the
petitioner, and learned Attorney General, who appears for the responH
de!1ts, is fairly narrow. It is, therefore, not necessary to set out the submis-
\
\
~·
C.B. GAUTAM. v. U.0.1. [KANIA, CJ.)
25
sions of respective counsel in much detail or to cite all the authorities A
referred to by counsel.
In brief, it was submitted by Mr. Salve that the effect of Chapter
XX-C of the Income Tax Act is to confer on the authority concerned,
referred to in the said Chapter as "appropriate authority" powers of comB
.pulsory purchase of immovable property as a punitive measure where the
said authority takes the view that there was under-valuation of the property
in an agreement for sale with a view to avoid tax. He submitted that the
factors which supported this conclusion were that the order of the appropriate authority for purchase of the property ipso jure
operate~ to vest
the property in the Government, and the scope of the vesting is far in C
excess of the right proposed to be transferred. To complete the title of the
Government no further requirement like the execution of a conveyance is
required and the Government is not even required to comply with the
. provisions of the Transfer of Property Act. It was submitted by him that
· on the plain language of Chapter XX-C there was no guideline prescribed D
as to where this drastic power of pre-emptive purchase was to be exercised.
It was submitted by him that in the absence of such guidelines the
_,provisions of Chapter XX-C confer an unfettered discretion on the ap-
- propriate authority under Chapter XX-C to compulsorily purchase immovable properties and such a provision conferred unfettered power which was
liable to be exercised arbitrarily and, therefore, violated the provisions of E
Article 14 of the Constitution. It was urged by him that, if a view were taken
that the legislative history of Chapter XX-C shows that the power to
purchase immovable property conferred thereunder was to be exercised
only to counter tax evasion, the provisions were still bad in law as they did
not .comply with the principles of natural justice which are now accepted F
as a requirement for compliance with Article 14 of the Constitution. There
is no provision in Chapter XX-C for any opportunity being given to the
intending purchaser or intending vendor of the immovable property concerned to show cause against the compulsory purchase of the property.
There is no provision even for given them a notice of the intention of the G
appropriate authority to order purchase of the property. The mere requirement of recording, reasons is not sufficient in the absence of any requirement that they must be set out in the order of purchase or communicated
to the transferor or the transferee. It was further submitted by him that the
provisions of the said Chapter were unconstitutional on account of their
failure to provide for the mode of valuation of property taking into account H
26
SUPREME COURT REPORTS (1992) SUPP. 3 S.C.R.
A
the requisite factors for adjustment of the value as where the title of the
property is disputed or the sale is a part of the resolution of some dispute
between the transferor and transferee or where there is an adjustment in
the price on account of tenancy rights vested in the transferee or on
account of encumbrance£ and so on. It was urged by him that the want of
B
c
these provisions made the legislation totally unreasonable and this lacuna
eould not be cured bY. framing rules. It was further submitted by him that
a law providing for the acquisition or compulsory purchase of immovable
property, even in the absence of any proof of tax evasion would violate the
provisions of Article 14 and Article 19{1)(g) of the Constitution as being
excessive and unreasonable.
It was further urged by. Mr.--Salve that the provisions of the said
Chapter were bad in law as there was no appeal or revision provided
against orders made by appropriate authorities for compulsory purchase
of immovable properties which orders had serious civil consequences and
D cast an asper~ion on the parties of attempted tax evasion. It was submitted
- that this was all the more so in view of the other factors pointed by him,
Mmely, that .the appropriate auth9rities are not required to give any show
cause notice to the parties . concerned before an order for compulsory
purchase is made, and are not required to supply any reasons to the parties
, concerned whiCh led the appropriate authorities to the conclusion that
. E there was an intended tax evasion in the agreement to sell the immovable
property concerned. It was submitted by hini that the provisions of the said
Chapter are clearly arbitrary, excessive and they infringe the provisions of
Article 14 ·of the Constitution in so far as under the provisions when an
order for compulsory purchase the rights of leaseholders, monthly tenants
F
and mortgagees and other encumbrance holders are destroyed without a~y
adequate provision for compensation to them. The mere provision that
such encumbrance holders and the holders of the leasehold rights on the
premises could claim a share in .the compensation awarded to the owner
is no substit.ute for their secured rights in the immovable property concerned.
G
It was, on the other had, submitted by learned Attorney. General that
the history leading to. the enactments of Chapter XX-C and the circumstan-
~s under which Chapter XX-C was introduced have been elaborately dealt
with in paragraphs 7 and 8 of the main counter affidavit. A perusal of
H paragraphs .7 and 8 of the counter affidavit shows that the main reason
'
""'
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C.B. GAUTAM. v. U.0.1. [KANIA, CJ.]
27
behind the introduction of this Chapter "in the Income Tax Act was the A
desire to curb the large scale evasion of income-tax and to counter other
modes of tax evasion adopted by various assessees to deprive the Government of its legitimate tax dues. It was felt that a lot of tax evasion was
involved in transfers of immovable properties in urban areas. Refer,ence is
made in the affidavit to the recommendations of Direct Taxes Inquiry B
Committee chaired by the Hon'ble Mr. Justice Wanchoo, retired Chief
Justice of India and known as the Wanchoo Committee. In its interim
report in 1970 the Wanchoo Committee took the view that understatement
of prices in the sale deeds of the immovable properties was a widespread
method of tax evasion and recommended, by way of a drastic remedy, that · C
the Government should empower itself to acquire property where the
consideration was found to be understated in the sale deeds. It was in
pursuance of this recommendation that the provisions of Chapter XX-A
were introduced in the Income Tax Act. However, provisions of that
Chapter were found inadequate for dealing with the evil of under-valuation· D
of immovable properties in sale deeds and agreements to sell with a view
to evade tax and certain difficulties emerged in the effective enforcement
of the provisions of Chapter XX-A. It was in these circumstances that
Chapter XX-C was introduced into the Income Tax Act.