Holding

For the purpose of Chapter XX‑C, the property transferred is the entire immovable asset and if the total apparent consideration exceeds the prescribed limit and is undervalued by 15% or more, the provisions of Chapter XX‑C apply irrespective of the division of consideration among co‑owners.

Summary

The Revenue appealed a Gujarat High Court order that quashed a pre‑emptive purchase notice issued under Chapter XX‑C of the Income‑Tax Act. The respondents, co‑owners of an immovable property in Ahmedabad, had agreed to sell the whole property for Rs 47 lakhs, which exceeded the Rule 48‑K limit of Rs 25 lakhs for the area. The appropriate authority found the apparent consideration to be at least 15% below market value and issued a notice under Section 269‑UD. The High Court held that because each co‑owner received less than the prescribed limit, Chapter XX‑C did not apply. The Supreme Court reversed this, stating that the property transferred is the entire immovable asset, not the individual shares, and that when the total apparent consideration exceeds the limit and is undervalued by 15% or more, Chapter XX‑C is attracted regardless of how the consideration is divided. The Court set aside the High Court judgment, remanded the matter to the appropriate authority for fresh hearing, and directed the Revenue to disclose all valuation material.

Issues considered

The applicability of Chapter XX‑C of the Income‑Tax Act when co‑owners sell an immovable property and the apparent consideration per co‑owner is below the Rule 48‑K limit but the total consideration exceeds it.
Whether the property that is the subject of transfer is the whole immovable property or the individual undivided shares of co‑owners.
Interpretation of Rule 48‑K and Sections 269‑UC/269‑UD regarding apparent consideration and the 15% undervaluation test.
Whether the High Court erred in concluding that Chapter XX‑C was inapplicable.

Legislation cited

Income Tax Act, 1961s. 269-UC, s. 269-UD, s. Chapter XX-C
Income Tax Rules, 1962s. Rule 48-K

Subjects

Income TaxChapter XX-Cpre‑emptive purchaseapparent considerationRule 48-Kco‑ownersimmovable propertyvaluationundervaluationtax evasion

Judgment

.. APPROPRIATE AUTHORITY AND COMMISSIONER, INCOME TAX
v.
A

" SMT. VARSHABEN BHARATBHAI SHAH AND ORS.

MARCH 13, 2001

[S.P BHARUCHA, N. SANTOSH HEGDE AND Y.K. SABHARWAL, JJ.] B

Income Tax:

Income Tax Rules, I962: Rule 48-K.

Immovable prope11y-Sale of-Apparent consideration for-Pre-emptive c
purchase of-Co-owners entered into agreement for sale of immovable prop-
e1ty fora certain apparent consideration, ivhich exceeded the prescribed limit
for the relevant area under R. 48-K-Under the agreement co-owners sought
to transfer their equal half sha1~s in the said propel1y-High Cou11 held that
Chapter XX-C ofIncome Tax Act not"applicable since each co-owner would get D
less than the prescribed limit-C01rectness of-Held: Ifthe apparent consid-
erationfor transfer of immovable propel1y is more than the prescribed limit for
i· the relevant area and is less than the market value thereof by 15% or more,
notice for pre-emptive purchase can be issued-It is of no consequence that the
apparent consideration ivith respect to each transferor is less than the pre-
E
. scribed limit-Immovable prope1ty is the subject of transfer and not the one
half shares of the co-own~r.,-llence, Chapter XX-C_ is clearly applicable-
Income Tax Act, i96J, Ss. 269-UC, 269-UD and Chapter XX-C.

The second and third respondents entered into an agreement to sell
to the first respondent immovable property for an apparent consideration, F

• . which was more than the prescribed limit for the relevant area under Rule
48-K of the Income Tax Rules, 1962, The appropriate authority of the
Revenue came to the conclusio_n that the apparent consideration was less
than the market value in respect of the said property hy 15 % or more,
Accordingly, an order of pre-emptive purchase of the said property was
G
made under Section 269-UD of the Chapter XX-C of the Income Tax Act,
1961,

The respondents challenged the aforesaid order in a writ petition
-~
before the High Court contending that under the agreement respondents
Nos, 2 and 3 sought to transfer their equal half shares in the said property, H
349
350 SUPREME COURT REPORTS [2001] 2 S.C.R

-
A The High Court held that each co-owner would get less than the prescribed
limit under Rule 48-K of the Rules and, therefore, tbe provisions of Chap-
ter XX-C of the Act would not apply. Hence this appeal.

Allowing the appeal, the Court

B HELD : 1. What has to be seen for the purposes of attracting
Chapter XX-C of the Income Tax Act, 1961 is what is the property which is
the subject-matter of transfer and what is the apparent consideration for
such transfer. This has to be seen in a real light "ith due regard to the
object of the chapter and not in an artificial or technical manner. If the
apparent consideration for the transfer is more than the limit prescribed
c for the relevant area under Rule 48-K of the Income Tax Rules, 1962 what
has then to be seen is whether the apparent consideration for the property ,,
is less than the market value thereof by 15% or more. If so, notice for pre- '
emptive purchase can be issued and it is then for the parties to the transac-
tion to satisfy the appropriate authority that the apparent consideration is
D the real consideration. [356-H; 357-A]

2. In the present case, the agreement is for the sale .of immovable
property. That the equal shares of the second and third respondents are to
be transferred to the first respondent is a necessary incident of such sale.
The parties to the transaction, filed Form No. 37-1 with the appropriate
E authority and, correctly, stated that what was being sold was the said
immovable property and not the one half shares of the second and third
respondents. It also stated, correctly, the total apparent consideration for
the transfer of the said immovable property. There is not doubt at all that
what was to be transferred was the said immovable property and that the
F consideration for such transfer was more than the prescribed limit for the
relevant area under Rule 48-K of the Rules. It is of no consequence that the
second and third respondents owned the said immovable property as ten-
ants-in-common or that this is how they had shown their ownership in
their income tax return•. The High Court was in error in concluding that
G . what bad been sold by the second and third respondents to the first
respondent was their equal share in the said immovable property, that the
apparent con•ideration was, therefore, less than the prescribed limit under
Rule 48-K and that, therefore, the provisions of Chapter XX-C would not
apply. [357-C-E]

H 3. Even if the agreement of transfer had been so drawn as to show
APPROPRIATE AUTHORITY AND COMMISSIONER INCOME TAX 11. SMT. V.B. SHAH (BHARUCHA, J.J 351

the transfer of the equal shares of the second and third respondents in the A
said immovable property, the conclusion would have been the same, for,
looked at realistically, it was the said immovable property which was the
"' subject of the transfer. [357-F]

Jodhram Daulatram Arora v. M.B. Kodnan4 221 ITR 368 (Born.),
approved. B

KV Kisha rev. Appropriate Authority, 189 ITR 264 (Mad); N.C. Rangesh
v. Inspector General of Registration, 189 ITR 270 (Mad.); Appropriate Au-
'f thority v. J.S.A. Raghava Reddy, 199 ITR 508 (Kar.); Surinder Gupta v. Chief
Commissioner of Income Tax, 221 ITR 375 (Cal.) and Webster Industries l.Jd.
v. Union of India, 225 ITR 924 (Del.), overruled.
c
CIVIL APPELL!JE JURISDICTION: Civil Appeal No. 5426 of 1997.

From the Judgment and Order dated 5 and 6.2.96 of the Gujarat High
Court in SCA No. 10405195.
D
S. Ganesh, Kamlendra Misra, B.V. Balaram Das and Ms. Sushma Suri
for the Appellants.

R.F. Nariman, Kavin Gulati, Jatin Zaverl and Harisb l Jbaveri for the
Respondents.
E
The Judgment of the Court was delivered by

BHARUCHA, J. The Revenue is in appeal by special "leave against the
judgment and order of a Division Bench of the High Court of Gujarat. The
judgment and order was passed on a writ petition filed by the first respondent
in the following circumstances. F
On 12th Augus~ 1995, the second and third respondents entered into
~ an agreement to sell to the first respondent immovable property situated in
Ahmedabad for the sum of Rs.47 lakhs. The appropriate authority of the
Revenue came to the conclusion that the apparent consideration in respect of
the said immovable property under the said agreement was less than the G
market value thereof by 15% or more. Accordingly, a notice dated 6th
November, 1995 was issued to the respondents to show cause why the said
immovable property should not be subjected to pre-emptive purchase under
Chapter XX-C of the Income Tax Act, 1961. The respondents showed cause,
but the order of pre-emptive purchase was made by the appropriate authority. H
352 SUPREME COURT REPORTS [2001] 2 S.C.R.
A This order was challenged in the writ petition.

Before the High Court, it was contended that what had been transferred 1
by the second and third respondents to the first respondent were their equal
half shares in the said immovable property and that they owned such equal
half shares was indicated in their income tax returns and in the said agree-
B ment, which stated that the earnest money had been paid by two separate
cheques to the second and, third respondents. The High Court said, "There
may be one agreement for:transfer of property where the transferors may be
co-owners or joint owners. It may be that the share of the transferor is not
specified. It may happen that there may be one transferee or more than one.
c The question to be examined is whether the provisions of Chapter XX-C of
the Act would be attracted or not in a case where co-owners have agreed to
transfer their property rights and each co-owner is to be paid an amount of
consideration which is Jess than the amount specified, i.e., each co-owner-
transferor will get less than Rs.25 Jakhs as per the agreement." The High
Court followed the judgment of the Madras High Court in K. V. Kishore &
D Anr. v. Appropriate Authority & Ors., (189 l.T.R. 264). It held that it was in
the case before it clear that what was agreed to be transferred was the
individual undivided share in the said immovable property and the value of
each such share was Jess• than Rs.25 lakhs. The transferors were co-owners
and each co-owner was getting an apparent consideration that was less than
E the limit prescribed, that is, less than Rs.25 lakhs. The provisions of Chapter
XX-C were not attracted even though the amount that all the co- owners
received exceeded Rs.25 lakhs. Before the High Court, it was not disputed
on behalf of the Revenue that all the reports obtained by it in regard to the
valuation of the said immovable property had not been supplied to the
respondents. For that reason, the High Court came to the conclusion that the
F
principles of natural justice had not been followed. The High Court charac-.
te1ized as perverse a finding of the appropriate authority in regard to the case
of the first respondent that no unaccounted money had figured in the sale
transaction. For all these reasons, the High Court quashed the order of pre-
emptive purchase.
G
In K. V. Kishore & Anr. v. Appropriate Authority & Ors. (189 l.T.R. 264)
a learned Single Judge of the Madras High Court held, more or Jess on similar
facts, thus :

"After giving deep consideration to these rival submissions, the
H following facts would Clinchingly establish the case in favour of the
.I ""
APPROPRIATE AlJTIIORITY AND COMMISSIONER INCOME TAX v. SMT. V.B. SHAH (BHARUCHA, J.] 353

petitioners. It is not denied or it is not disputed that the original A
allottee, A. Srinivasan, died in the year 1962. He being a Hindu,
governed by the Hindu Succession Act, on his death, his wife and
children acquired a vested right to the definite quantified shares in the
property left behind by him. As owners of their respective shares, they
were competent to enter into a family arrangement which they did on
B
April 8, 1987, under the terms of which, each one of respondents
Nos.4 to 8 were allotted a definite share in the property. After April
8, 1987, they were individual owners of defmite shares in the
property. Each one could deal with only his respective share and he
cannot deal with the share of another. The property which so fell to
the share of each individual will come definitely within the definition c
of the words " property". Snch a sharer was entitled to transfer his
property to a third person. Merely because a plurality of such
individual owners joined together to enter into one single agreement
to transfer their respective shares in favour of one or more persons,
that would not make any difference to the main issue that what each
D
transferred is his definite share in the property. Viewed from that
perspective, the agreement entered into between the petitioners and
respondents Nos.4 to 8 is to be understood only as an agreement to
convey the respective undivided shares of respondents Nos.4 to 8. It
is not in dispute that the value of each such share is less than
Rs.10,00,000. The recitals in the agreement in more than one place E
refer to the fact that what is sold, is lhe individual •mdivided share
in the property. Consequently, the impugned order made under
Chapter XX-C oflhe Act taking !he total consideration, !he collective
shares, cannot be sustained ...............".

The aforesaid judgment of the Madras High Court was followed by that High F
Court in N.C. Rangesh & Ors. v. Inspector General of Registration & Ors.,
(189 I.T.R. 270) and by !he Karnataka, Calcutta and Delhi High Courts in
the cases of Appropriate Authority & Ors. v. J.S.A. Raghava Reddy & Ors.,
(i99 I.T.R. 508), Surinder Gupta v. Chief Commissioner of Income-Tax &
Ors., (221 I.T.R. 375) and Webster Industries Ltd. v. Union of India & Ors., G
(225 l.T.R. 924) respectively.

The Bombay High Court has taken the contrary view in Jodhram
Daulatram Arora & Ors. v. M.B. Kodnani & Ors., (221 I.T.R. 368). In this
_-'. case the vendor was one and there were three purchasers. It was contended
that under the agreement in question the vendor had agreed to sell to each H
.a
1

354 SUPREME COURT REPORTS [2001] 2 S.C.R.
A of the purchasers an undivided I/3rd interest in the flat and each of the
purchasers individually had agreed to buy an undivided I/3rd share in the flat
from the vendor for the total consideration ofRs.14,06,000; that consideration "t
for the purchase of each such interest in the flat should be valued at
Rs.4,68,667 ·which was less than the limit of Rs.IO lakhs; and that, in the
circumstances, the appropriate authority had no jurisdiction to proceed under
B
Chapter XX-C. The judgments of the Madras High Court in the cases of K. V.
Kishore and N.C. Rangesh were cited. The Bombay High Court did not accept
the contention and it distinguished these judgments. The agreement in ques-
tion before it, it said, was a composite agreement in respect of the flat. There
was nothing iu the agreement which indicated that the purchasers had agreed
c to buy individually an undivided I/3rd share of the flat from the vendor. All
the concerned parties had· filed Form No.37-1 and, therefore, it was not open
to them now to contend that Section 269- UD had no application and the
appropriate authority had no jurisdiction.

Section 269-UA defines certain terms for the purposes of Chapter XX-
D
C, which deals with the purchase by the Central Government of properties
in certain cases of transfer. An 'agreement for transfer' is defined by clause
(a) thereof to mean an agreement for the transfer of any property. 'Property'
is defined by clause (d) to mean any land or any building or part of a building
and any rights in or with respect to any land or any building or a part of
E a building. 'Transfer' in relation to any property means, by reason of clause
(t), the transfer of such property by way of sale or exchange or lease for a
term of not less than twelve years. "Apparent consideration" is defined by
clause (b) to mean, if the immovable property is to be transferred by way
of sale, the consideration for such transfer as specified in the agreement of
F transfer. Section 269- UC places restrictions on the transfer of immovable
property. What are relevant for our purpose are sub-sections (!), (2) and (3)
of Section 269-UC and they read thus :

"269-UC( I) Notwithstanding anything contained in the Transfer of
Property Act, 1882 (4of1882), or in any other law for the time being
G in force, no transfer of any property in such area and of such value
exceeding five lakh rupees, as may be prescribed, shall be effected
except after an agreement for transfer is entered into between the
person who intends transferring the property (hereinafter referred to
as the transferor) and the person to whom it is proposed to be .\...
H transferred (hereinafter referred to as the transferee) in accordance
APPROPRlA'IBAUI'HORITY AND COMMISSIONER INCOME TAX v. SMT. V.9. SHAH (BHARUCHA, J.J 355

with the provisions of sub-section (2) at least [four] months before A
" the intended date of transfer.

(2) The agreement referred to in sub-section (1) shall be reduced to
a
writing in the form of statement by each of the parties to such
transfer or by any of the parties to such transfer acting on behalf of
himself and on behalf of the other parties. B
(3) Every statement referred to in sub-section (2) shall,
'l'
(i) be in the prescribed form;

(ii) set forth such particulars as may be prescribed; and
c
(iii) be verified in the prescribed manner,

and shall be furnished to the appropriate authority in such manner and
within such time as may be prescribed, by each of the parties to such
transaction or· by any of the parties to such transaction acting on
behalf of himself and on behalf of the other parties."
D

Section 269 UD, so far as it is relevant, reads thus:

"269UD.(l) [Subject to the provisions of sub- section (IA) and (IB),
the appropriate authority], after the receipt of the statement nnder sub-
section (3) of Section 269UC in respect of any property, may, E
notwithstanding anything contained in any other law or any instru-
mentor any agreement for the time being in force, make an order for
. the purchase by the Central Government of such property at an
amount equal to the amount of apparent consideration :
F
[(IA) Before making an order under sub-section (I), the appropriate
..., authority shall give a reasonable opportunity of being heard to the
transferor, the person in occupation of the property if the transferor
is not in occupation of the property, the transferee and to every other
person whom the appropriate authority knows to be interested in the
property. G
(IB) Every order made by the appropriate authority under sub-section
.l (1) shall specify the grounds on which it is made.]

(2) The appropriate authority shall cause a copy of its order under
sub-section (I) in respect of any property to be served on the H
356 SUPREME COURT REPORTS [2001] 2 S.C.R.
A transferor, the person in occupation of the property if the transferor
is not in occupation thereof, the transferee, and on every other person
whom the appropriate authority knows to be interested in the
property."

Rule 48-K of the Income Tax Rules states that the value of any property for
B the purposes of sub-section (I) of Section 269-UC shall be, where the
agreement for transfer prescribed under the said sub- section is entered into
after 3 lst July, 1995, Rs.25 !alms for the city of Ahmedabad.

In C.B. Gautam v. Union of India & Ors., [1993] 1 SCC 78 a
C Constitution Bench of this Court dealt with the constitutionality of the
Chapter XX-C. Paragraph 21 of the judgment reads thus :

"21. The legislative history of Chapter XX-C, the stand taken by the
Union of India and the Central Board of Direct Taxes as shown in the
main counter-affidavit and the affidavit of H.K. Sarangi, which has
D been filed after obtaining instructions from the Income Tax Depart-
ment and the Central Board of Direct Taxes make it clear that the
powers of compulsory purchase conferred under the provisions of
Chapter XX- C of the Income Tax Act are being used and intended
to be used only in cases where in an agreement to sell an immovable
property in an urban area to which the provisions of the said Chapter
E
apply, there is a significant undervaluation of the 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 undervaluation has been .
done with a view to evade tax. Of course, such a presumption is
F rebuttable and the intended seller or purchaser can lead evidence to
rebut such a presumption. Moreover, au order for compulsory pur-
chase of property under the provisions of Section 269- UD required
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
G Income Tax Act, namely, to counter attempts to evade tax."

What, in our opinion, therefore, has to be seen for the purposes of
attracting Chapter XX-C is: what is the property which is the subject matter
of transfer and what is the apparent consideration for such transfer. This has
to be seen in a real light with due regard to the object of the chapter and
H not in an artificial or technical manner. If the apparent consideration for the
APPROPRIATE AUTHORITY AND COMMISSIONER JNCOME TAX v. SMT. V.B. SHAH [BHARUCHA, J.J 357
~ transfer is more than the limit prescribed for the relevant area under Rule 48- A
~ K, what has then to be seen is whether the apparent consideration for the
property is Jess than the market value thereof by 15% or more. If so, the
notice for pre'emptive purchase can be issued and it is then for the parties
to the transaction to satisfy the appropriate authority that the }i;parent
consideration is the real consideration for the transfer.
B
Now, in the present case, the said agreement is for the sale of the said
immovable property. Tnat the equal shares of the second and third respond-
~
ents therein are to be transferred to the first respondent is a necessary incident
of such sale. The parties to the transaction filed Form No.37-I with the
appropriate authority and, correctly, stated that what was being sold was the c
said immovable property and not the one half shares of the second and third
respondents therein. It also stated, correctly, that the total apparent consid-
eration for the transfer of the said immovable property was Rs.47 lakhs. TI1is
leaves us in no doubt at all that what was to be transferred was the said
immovable property and that the consideration for such transfer was the sum
of Rs.47 lakhs. It is of no consequence that the second and third respondents
-o
owned the said immovable property as tenants in common or that this is how
they had shown their ownership in their income tax returns. We are, therefore,
of the opinion that the High Court was in error in concluding that what had
. been sold by the second and third respondents to the first respondent was their
equal share in the said immovable property, that the apparent consideration E
was, therefore, less than Rs.25 lakhs and that, therefore, the provisions of
Chapter XX-C would not apply.

We should add that even if the agreement of transfer had been so drawn
as to show the transfer of the equal shares of the second and third respondents
in the said immovable property, our conclusion would have been the same F
for, looked at realistically, it was the said immovable property which was the
subject of the transfer.

We are of the opinion that the judgments of the Madras, Karnataka,
• Delhi and Calcutta High Courts referred to above are based on a wrong
G
approach and are erroneous. We approve of the view taken by the Bombay
High Court in Jodhram Daulatram Arora's case.

As we have pointed out, it was conceded before the High Court on
·" behalf of the Revenue that all the relevant reports pertaining to the valuation
of the said immovable property had not been disclosed to the respondents. H
358 SUPREME COURT REPORTS (2001] 2 S.C.R.
A We think, in these circumstances, that the matter should go back to the -
appropriate authority for heariug the matter afresh. It is not, therefore, .!
necessary to deal with the finding of the High Court about perversity.

The appeal is allowed. The judgment and order under appeal is set .
aside. The matter is remanded to the appropriate authority. The Revenue shall
B make available to the respondents all the material, including reports, that it
relied upon in regard to the valuation of the said immovable property. The
appropriate authority shall then hear the parties afresh and pass an appropriate
order. It shall do so without taking into account any observation of the High
Court in the impugned judgment. In respect of the proceedings upon remand,
c no objection in regard to limitation may be raised.

No order as to costs.

v.s.s. Appeal allowed.