Supreme Court of India
APPROPRIATE AUTHORITY AND ANR.versusKAILASH SUNEJA AND ANR.
- Citation
- 2001 INSC 345
- Decided
- 7 August 2001
- Disposal
- Dismissed
- Bench
- S RAJENDRA BABU
Holding
The Supreme Court held that the High Court should not interfere with the Appropriate Authority's valuation if a reasonable method is adopted, and dismissed the appeals.
Summary
The respondents entered into a sale agreement for a tenanted immovable property in Delhi for Rs. 79 lakhs and filed Form 37(1) under Chapter XX‑C of the Income Tax Act. The Appropriate Authority (AA) determined that the consideration was 24% below the fair market value (FMV) by comparing the subject property with three other properties using a comparative sale method and ordered its purchase. The Delhi High Court set aside the AA's order, holding that the valuation method was unreasonable because it compared incomparable properties. On appeal, the Supreme Court held that the AA may adopt any reasonable valuation method among the several permissible ones and that the High Court's interference was unwarranted absent any loopholes or lacunae in the AA's reasoning. Consequently, the Court dismissed the appeals, affirming the AA's valuation and purchase order.
Issues considered
- Whether the High Court can interfere with the valuation method adopted by the Appropriate Authority under Chapter XX‑C of the Income Tax Act.
- Whether the valuation method used by the Appropriate Authority was unreasonable or suffered from procedural lapses.
- What is the scope of judicial review under Articles 226 and 136 of the Constitution in matters of valuation by the Appropriate Authority.
Legislation cited
- Constitution of Indias. Article 136, s. Article 226
- Income Tax Act, 1961
Subjects
Income TaxFair Market ValueValuation methodsAppropriate AuthorityJudicial ReviewArticle 226Article 136Immovable Property AcquisitionComparative Sale MethodTenanted Property
Judgment
APPROPRIATE AUTHORITY AND ANR. A
V.
KAILASH SUNEJA AND ANR.
AUGUST 7, 2001
- [S. RAJENDRA BABU AND K.G. HALAKRISHNAN, JJ.] B
Income Tax:
Income Tax Act, 1961-Chapter XX-C-Acquisition of Immovable
property by Appropriate Authority-Valuation of Fair Market Value-Basis C
of-Held, adoption of any method of valuation of the property by the
Appropriate Authority cannot be interfered with-On facts, there are loopholes
or lacunae in the process of reasoning adopted by the Appropriate Authority
in arriving at the conclusions-Hence, acquisition of property is improper.
D
Constitution of India, 1950-Article 136 and 226-Scope of Judicial
Review.
An agreement for sale of an immoveable tenanted property situated on
a plot measuring 800 square yards in Delhi, was entered into by respondents
for a consideration of Rs. 79 lakhs. A statement in Form No. 37-1 was E
furnished before petitioner-Appropriate Authority as per the provisions under
Chapter XX-C of the Income Tax Act, 1961. The Appropriate Authority made
an order of purchase of the property under the provisions of the Act on finding
that the apparent consideration has been under-valued by 24 % of fair market
value of the property. The fair market value of the property was calculated
by the Appropriate Authority after considering sale instances of three different F
properties. The respondents filed Writ Petitions before High Court against
the o.rder of the Appropriate Authority. The High Court allowed the Writ
Petitions of the respondents by holding that the method of valuation of the
fair market value of the property is not just and reasonable on the ground
that the Appropraite Authority has compared the values of incomparable G
properties.
In appeal to this Court, the Appropriate Authority contended that there
were several methods of calculating fair market value of an immovable
property; that the High Court could not interfere with the calculations of fair
343
H
344 SUPREME COURT REPORTS [2001] SUPP. 1 S.C.R.
A market value of the property, if it chooses any of the methods; and that the
scope of interference of the High Court under Article 226 of the Constitution
is very limited.
Dismissing the appeals, the Court
-
B
-
HELD : The scope of interference under Article 226 of the Constitution
is very limited, but that is only in the nature of a judicial review of the
proceedings and not by way of appeal or revision where the scope of
interference is much wider. In cases of the present nature, where several
methods are available for finding out the value of the property and if any
method is adopted by the Appropriate Authority, which may be reasonable,
C then it may not call for any interference. However, if there are loopholes or
lacunae in the process of reasoning adopted by the Appropriate Authority in
arriving at the conclusions then the parties who appear before the authorities
will definitely have a reason to have heart burn. It is unjustifiable if one
method of valuation is adopted and benefit given to one party is not adopted
D in the other case to arrive at the conclusion. In this background, if the High
Court had examined the matter and arrived at a conclusion, it is not necessary
for this Court to interefere with the finding in a proceeding arising under
Article 136 of the Constitution. 1349-H; 350-A, B, Cl
Appropriate Authority and Anr. v. Sudha Patil (Smt.) and Anr., 11998) 8
E SCC 237 and C.B. Gautam v. Union of India, 11993) I SCC 78, referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 6050-51
of 1998.
From the Judgment and Order dated 17. 12.97 of the Delhi High
Court in C. W.P. No. 5220/93 and 1988 of 1994.
F
Shail Kumar Dwivedi for the Appellants.
M.S. Syali, K.K. Mohan and Ms. Geetanjali Mohan for the
Respondents.
G .The Judgment of the Court was delivered by
RAJENDRA BABU, J. The property comprised in No. G-4(0ld No.
C-62), Maharani Bagh, New Delhi on a plot measuring about 800 sq. yards
was agreed to be sold pursuant to an agreement dated July I, 1993 for a sale
consideration of Rs. 79 lakhs. The property consists of two floors - ground
H and the first - and is in occupation of the tenants. The agreement provided
APPROPRIATE AUTHORITY v. KAILASH SUNE.IA [RAJENDRA BABU. J.] 345
for symbolic delivery of the possession while it was open to the purchaser to A
make use of the portion over the roof on the first floor. An application in
Form 37(1) was filed on 9.7.1993. The Appropriate Authority worked out the
fair market value of the property and the apparent consideration fell short by
24 per cent of the fair market value. The Appropriate Authority_ compared the
property in question with three different properties as sale instances to arrive B
at the correct market value of the property in question : (1) G-8, Maharani
Bagh, (2) D-18, Maharani Bagh, and (3) N-62, Panchsheel Park. The High
Court went into the mode of calculation of fair market valu~ adopted by the
Appropriate Authority and stated that in respect of property ·comprised in D-
18, Maharani Bagh the agreement had been entered into on 25.6.1991 and on
account of the time gap of 24 months, the adjustment of plus 24 per cent was C
to be made and in respect of property comprised in G-8, Maharani Bagh,
there was basement potential and, therefore, adjustment of minus 10 per cent
was to be made by the Appropriate Authority on that count. This basis is
termed to be perverse. In identical circumstances when the valuation adopted
by the Appropriate Authority was challenged in Appropriate Authority &
Anr. v. Sudha Patil (Smt.) and Anr., [I 998] 8 SCC 237, this Court after D
examining the decision in CB.Gautam v. Union of India, [1993] 1 SCC 78
and the absence of provision of filing an appeal against the order made by
the Apprcpriate Authority, had stated that the conclusion of the Appropriate
Authority regarding the fair market value in a matter of compulsory acquisition
of immovable property after considering all the germane and relevant materials E
should be accepted and the same should not be made a subject matter of the
examination as if it is an appeal. Reasons set forth by the Appropriate Authority
are as follows :
Subject property /st sale instance
F
- Sale agreement Apparent Declared land rate works
9.7.93 sale con- out at Rs. 2 l ,821 per sq.
sideration mt. Value to be increased
at I% per month for 24
Sale deed dated
25 .6.91, 24 months
earlier
agi:-eement
sale
months 24%.
Has no base- 10% to be Thus value to be added is G
ment deducted 14% (24%-10%) if 14%
is added the land rate of
subject property would
come to Rs. 21,821 x 14%
Rs. 24,875 or Rs. 25,000 H
346 SUPREME COURT REPORTS (2001) SUPP. I S.C.R.
A per sq. mt.
Value of land Rs. 1.30 crores
Depreciated value of the Rs. 9,35, 758
structure
Total value of the subject
B property Rs. 1,39,33, 758
The property is Depreciated vlaue for 6 years Rs. 87,78,267
tenanted at 8% is calculated at: (Rs. 1,39,33,758 x
.63)
c (a) Thus the value of the Rs. 87,78,267
subject property is
(b) To this rent for 6 years is Rs. 1,42,092
added
Has barsati
potential of the
D Has no barsati
area is 149.90
potential Rs.
sq. mt.
(c) This is to be added. The 37,27,500
value of the subject property Rs, 1,26,42,859
is fixed at Or
E Rs. 1,26,45,000
This is 58% more than the
apparent consideration of the
(Rs. 79,99,390)
subject property.
Subject D-18 (known
Property as 1-15),
Maharani 2nd sale instance
F
-
Bagh
Sale deed dated
Sale agreement 1.12.1992 Rs. I.I I
crores
Adjusted declared land rate
G works out at Rs. 29,587 per
sq. mt.
Value to be increased at 1%
per month 7 months earlier
to sale agreement.
H For 7 months + 7%
APPROPRIATE AUTHORITYv. KAILASH SUNEJA [RAJENDRA BABU,J.] 347
FAR (not so much FAR (140-100) - 28% A
as the 2nd instance)
Side open (not
available/which is
available in 2nd - 5%
instance) B
Has no basement - 10
potential
+ 7% - 43%
- 36%
c
Declared land rate deducting Rs. 18,950 per sq. mt.
- 36% 29,587 x .64
Value of the land of the 52 x 18,950
subject property Rs. 98,54,000 D
Depreciated value of the 9,33,758
structure R.s. 1,07,87,758
Tenanted Depreciated value at the rate Rs. 67,96,287
of 8% (Rs. 1,07,87,758 x .63) E
Rental increase for years Rs. 1,42,092.00
=Rs. 28,21,655
Barsati potential Total value of the subject Rs. 97,60,034
148.90 sq. mt. x property 22% higher than to AC F
18,950
3rd sale instance
Subject
N-62, Panchsheel Park
Property
800 sq. yds. having
Sa.le agreement FAR
- 9.7.1993
Land rate declared works out 29,4, 1993
at Rs. 28,455 per sq. mt. sale agreement
G
consideration
If the rate of increase of I% Rs. 1,56,00,000
per month
Rs. 35,02,220 H
348 SUPREME COURT REPORTS [2001] SUPP. I S.C.R.
A 4 months + 4% time gap
No open area Falling open area Rs. 1,91,02,220
No basement -5%
potential Basement available 10%
B +4% - 15%
= -11%
The land rate works out at Rs.
25,333 (28,455 x .89)
Land rate of subject property
c (ground floor 1st floor) 520
sq. mt.
= 25,333 x 520
= Rs. 1,31,73, 160.00
= 1,31,73,160.0
D
Depreciated = 9,33,758.00
value of the
structure
Rs. 1,41,06,918.00
E
The Appropriate Authority added one per cent every month. The basement ·
and barsati p::itential was also taken into account. The Appropriate Authority
took into lccount the subject property was tenanted and made certain
calculations such as 6 years deferred value at 8 per cent and 6 years rent was
F added to the value arrived at by the above process.
The High Court disapproved this process of arr:ving at the figures and
that the apparent consideration fell short of the fair market value by more
than 15 per cent and, therefore, the High Court held that the action is incorrect.
G The Department contends that the learned Judges of the High Court
could not have sit on judgment over the manner of calculations made by the
Appropriate Authority. If any of the factors set out therein had been ignored
in the matter of arrival of fair market value, the same would have affected
the consideration made by the Appropriate Authority.There are several methods
of arriving at fair market value such as comparative sale method or the
H capitalisation of the rent, i.e., yield method or any other appropriate method.
APPROPRIATE AUTHORITYv. KAI LASH SUNEJA [RAJENDRA BABU, J.] 349
But when the Appropriate Authority adopted one or the other method and in A
that process there is no inherent error or the factors taken note of by the
Appropriate Authority being relevant, it is submitted that it is not open to the
High Court to have interfered with such a matter. This Court in Sudha Patil's
case [supra] has stated that when the Appropriate Authority comes to the
conclusion one way or the other after giving due opportunity to the parties B
concerned and there has been under-valuation on that basis by more than 15
per cent of the fair market value, the Appropriate Authority had jurisdiction
to interfere with the same.
The High Court took the view that there is nothing on record to suggest
as to what were the. special reasons for making a purchase order in respect C
of wholly tenanted property. Even assuming that there was some justification
for the authority to initiate proceedings for the pre-emptive purchase of the
property under Chapter XX-C of the Act;the method of valuation of the fair
market value had to be ju5t and reasonable. The authority has compared the
values of incomparable properties. While considering comparable instances,
the instances of tenanted properties had to be taken into consideration and D
not vacant properties by discounting without any factual or legal basis. While
the agreement in relation to property at Maharani Bagh had been entered into
in June 1991, the agreement for the property in question was entered into on
July 1, 1993. Therefore, there is no basis for adding 24% on the hypothetical
basis that there would be increase of I per cent every month. E
In respect of tenancy, the plea taken before the High Court is that the
purchaser had mutual terms to get the property vacated from the tenant.
While the ground floor tenancy was from the year 1979 and the first floor
tenancy was from the year 1967, there is hardly any justification to presume
that the tenants would vacate in 5/6 years. The sale instance in respect of F
property comprises in S-39-A, Panchsheel Park, which was substantially
tenanted with?ut any justification, was not taken into consideration, though
rent capitalisation method was applied in that case. Why in respect of one
tenanted property rent capitalisation method was applied to work out the fair
market value and in the other case land and building method was applied is G
not clear. It is on this basis the High Court allowed the writ petition before
it.
It is no doubt true that the scope of interference under Article 226 of
the Constitution is very limited, but that is only in the nature of a judicial
review of the proceedings and not by way of appeal or revision where the H
350 SUPREME COURT REPORTS [2001) SUPP. I S.C.R.
A scope of interference is much wider. In cases of the present nature where
several methods are available for finding out the value of the property and
if one or the other method is adopted by the Department and that may be
reasonable, il may not call for any interference. However, ifthere are loopholes
or lacunae in the process of reasoning adopted by that authority in reaching
the conclusion as in the present case that the tenanted property would be
B vacated soon or that the property is close to the vicinity of the situation of
the subject property if compared, adopting different methods of valuation,
then the parties who appear before the authorities will definitely have a
reason to have a heart burn. If one method of valuation is adopted and benefit
is given to one party and why that method is not adopted in the other case
C to reach the conclusion the other way is not clear and in our opinion it is
unjustifiable. If in this background the High Court examined the matter and
arrived at a conclusion one way or the other, we do not think it is necessary
for us to interfere with that finding in a proceeding arising under Article 136
of the Constitution.
D Hence these appeals shall stand dismissed. No costs.
B.S. Appeals dismissed.
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