1. The property of the petitioner has been sought to be pre-emptively purchased by the Revenue on the ground that the market value stated in the agreement with the purchaser is not the market value and that the difference between the apparent consideration as worked out by and the market value as determined by the appropriate authority exceeds 15 percent.
2. Form No.37-I statement was furnished on October 13, 1992. The consideration for the transfer as set out therein is Rs.67,50,000. The extent of the property is 4 grounds and 1,555 sq. Ft.
3. A show-cause notice was issued to the petitioner alleging that a property comparable in value measuring I ground 1,350 sq. Ft. At a location very near the property of the petitioner had been sold for Rs.29,75,000 which worked out to . a rate of Rs.16.12 lakhs per ground and the consideration as set out in the agreement between the petitioner and the purchaser worked out to a figure which was much less than the same and, therefore, there was under-valuation presumably with the intention to avoid payment of income-tax.
4. The support for the assertion in the show-cause notice -that 15 percent. Addition to the value as ascertained from the sale of the comparable property was warranted is the note prepared by the executive engineer of the appropriate authority before the show-cause notice was issued. This is what he has noted in that report: "As the location of the property in the instant case is on the main Casa Major Road as against the location of the case under comparison on a cross road, which is also dead end road, off Casa Major Road, the fair market rate of the land in the instant case can be considered to be at least 15 percent. More."
5. It is only by the addition of 15 percent., that the appropriate, authority could possibly claim that there had been under-valuation. If the rate at which the property sold on the II Cross Road had been adopted, there would have been no basis whatever for alleging any under-valuation. The owner as also the purchaser had in their replies pointed out that the property in question is situated opposite to a school, that there are no neighbours in the immediate vicinity, that the place will be deserted in the evenings and that the location cannot, therefore, be regarded as being very much more valuable than the residential property situated in the cross road.
6. The provision in the Income-tax Act providing for pre-emptive purchase is a power conferred on the authorities to be exercised only in cases where there has been undervaluation. Though the expression "market value" has not been defined in the relevant section or elsewhere in the Act, the "market value" has to be determined on a rational basis of objective criteria and cannot be left to the whims and fancies of the officer or authority though in the ultimate analysis the market value remains on estimate. That estimate must be based upon a reasonable foundation, of fact. It is for this reason that the appropriate authority takes care to Mind out comparable instances of sale so that the rate at which comparable properties had been sold can be the basis for determining the market value of the property which they are required to estimate.
7. The Supreme Court in C.B. Gautam v. Union of India (1993) 199 ITR 530, has laid down that the exercise of power 'of pre-emptive purchase casts shadow on the integrity of the parties to the transaction inasmuch as there is an imputation of dishonesty to the extent of not stating truthfully the real value of the property when they entered into the agreement. It was, therefore, held by the Court that the person likely to be affected by the order is entitled to notice and hearing. The hearing so given is to be completed in a very short span of time. Neither the authority nor the person affected has the time required to find out all transactions which can be regarded as comparable, and adduce evidence to establish that the transaction was between willing buyer and willing purchaser acting at arm's length that such a transaction will provide the proper basis for determining the market value.
8. It is, therefore, all the more necessary that when an - appropriate authority holds that the property has been undervalued, its determination should be based upon firm foundations of fact and does not give room for arbitrariness. The authority is not required under the terms of the Act to direct purchase of each and every property in respect of which declarations are filed before it. It is not constituted as a buying agent for the Government. It is only required to ensure that parties to the transactions transact honestly and do not avoid payment of tax by deliberately undervaluing the property.
9. Any factor in the exercise carried out by the appropriate authority which is liable to be regarded as arbitrary must, therefore, be excluded. It is one thing for the authority to adopt as the basis for comparison the value at which another property in the vicinity has been sold, and it is a different matter altogether for the authority to make an addition to that value on the basis of factors considered by it to warrant such addition. Any addition to a recorded value must be fully justifiable.
10. If there is room for doubt as to the correctness of the addition, the benefit must go to the owner of the property and the prospective purchaser rather than the Revenue.
11. The reasons given by the executive engineer which reasons have been adopted by the appropriate authority, viz., that the other property was situated in a cross road in a dead end are not factors of which it can be said with certainty that a purchaser will offer a lesser price than for a property situated on a main road situated opposite to a school and which may not be ideal for use as a residence. A person looking for a house to live in is more likely to prefer a house which is situate a little in the interior than on the main road opposite to a school where there are no neighbours. The choice of the figure of 15 percent., as addition, therefore, cannot be said to be a reliable rational and objective addition. It is more in the nature of the opinion of the engineer as to what he thinks should be the addition. Such opinion on the part of the engineer being blindly adopted by the appropriate authority is not a safe basis on which to hold that a transaction which is otherwise bona fide, is to be regarded as an instance of deliberate undervaluation with a view to avoid payment of income-tax.
12. The impugned order directing pre-emptive purchase, therefore, cannot be sustained and the same is set side. In the circumstances, there will be no order as to costs.