Case Note & Summary
The writ petition challenged an order dated 21st September 1993 passed by the appropriate authority under Section 269UD(1) of the Income Tax Act, 1961, ordering pre-emptive purchase of a flat on the ground that the apparent consideration was less than the fair market value by 15% or more. Petitioner No.1, a private limited company engaged in business as builders and contractors, and Petitioner No.2, its director, agreed to sell a flat admeasuring 1112 square feet in an under-construction building to Respondent No.5 for a lump sum of Rs.28,56,000/-. The payment schedule was staggered and the building was under construction. The petitioners filed Form No.37-I on 18th June 1993. The appropriate authority, after inspection, issued a show cause notice on 26th August 1993, alleging undervaluation based on sale instances in the Green Acres complex. The petitioners replied on 14th September 1993, contending that Green Acres was a highly luxurious complex with facilities like a swimming pool, health club, and playground, located about 3 km away, and thus not comparable. They provided sale instances from Parasrampuria Tower No.5, an adjacent building in the same complex, where flats were sold at a lower rate of Rs.1,900/- to Rs.2,000/- per square foot in May 1993, whereas the subject flat was sold at Rs.2,259/- per square foot in June 1993. The appropriate authority had granted no-objection certificates for those sales. Despite this, the authority passed the impugned order on 21st September 1993, rejecting the petitioners’ comparable instances solely due to a two-month time gap, and held the flat to be undervalued. It directed deposit of the consideration amount in the authority's account because the construction was incomplete. The petitioners argued threefold: first, that reliance on Green Acres was erroneous; second, that the comparable instances from Parasrampuria Tower No.5 were more appropriate and showed no undervaluation; and third, that the failure to tender the apparent consideration within the period prescribed under Section 269UG resulted in abrogation of the order and re-vesting of the property under Section 269UH, relying on the Supreme Court decision in Union of India v. Dr. A.K. Garg (256 ITR 660). The respondents contended that the sale instances of the petitioners were correctly rejected due to the time gap, and that tendering was not required because the flat was under construction. The High Court, after considering the submissions, held that once the appropriate authority accepted that the Green Acres sale instances were not comparable, the very basis for its tentative belief of undervaluation vanished, and with no other material on record, an order under Section 269UD(1) could not be sustained. The court further observed that rejecting the comparable instances from the same complex merely on the ground of a two-month time gap, without any evidence of a significant price increase, was unjustified. Additionally, the court held that under Section 269UG, it was mandatory to tender the apparent consideration within the prescribed period regardless of the construction status. The respondents’ failure to do so meant that the order stood abrogated and the property re-vested in the petitioners by virtue of Section 269UH. Consequently, the impugned order dated 21st September 1993 was quashed and set aside, the petition was allowed, and rule was made absolute in terms of prayer clause (a) with no order as to costs.
Headnote
A) Income Tax - Pre-emptive Purchase - Comparable Sale Instances - Income Tax Act, 1961, Section 269UD - The appropriate authority issued a show cause notice based on sale instances at Green Acres complex, but in the impugned order accepted that those flats were not comparable because they were luxurious with superior amenities. The petitioners provided comparable sale instances from the adjacent Parasrampuria Tower No.5 in the same complex, sold at a lower price just two months earlier, which the authority had previously accepted as fair. The authority rejected these instances solely on the ground of a two-month time gap without evidence of any price increase. Held that once the basis for the tentative belief of undervaluation vanished and no other material existed, an order under Section 269UD(1) could not be passed (Paras 8-9). B) Income Tax - Pre-emptive Purchase - Mandatory Tender of Apparent Consideration - Income Tax Act, 1961, Sections 269UG, 269UH - After the order under Section 269UD(1) for an under-construction flat, the appropriate authority deposited the apparent consideration in its own account instead of tendering it to the sellers, citing the building's incomplete status. The court held that under Section 269UG, tendering the amount within the prescribed period is mandatory, and failure to do so results in abrogation of the purchase order and re-vesting of the property in the seller under Section 269UH. The fact that the property is under construction does not excuse compliance. Held that the order stood abrogated and the property re-vested in the petitioners (Para 10).
Issue of Consideration
Whether the order of pre-emptive purchase under Section 269UD(1) of the Income Tax Act, 1961 was valid when the comparable sale instances relied upon by the appropriate authority were found not comparable, and whether non-tendering of apparent consideration within the statutory period vitiates the order and results in re-vesting of property.
Final Decision
The writ petition was allowed. The impugned order dated 21st September 1993 passed under Section 269UD(1) was quashed and set aside. Rule made absolute in terms of prayer clause (a) with no order as to costs.
Law Points
- appropriate authority can draw presumption of undervaluation if apparent consideration is less than fair market value by 15% or more
- once the basis of tentative belief vanishes order cannot be passed
- rejection of comparable sale instances of same complex solely due to minor time gap without evidence of price increase is not justified
- mandatory tendering of apparent consideration within statutory period under Section 269UG is required even if property is under construction
- failure to tender leads to abrogation and re-vesting under Section 269UH
