Commissioner Of Income-tax v. Des Raj And Anothers

N.K. Sodhi, J.

1. This appeal filed by the Commissioner of Income Tax under Section 269H of the Income Tax Act, 1961 (for short, "the Act"), is directed against the order dated October 21, 1978, of the Income Tax Appellate Tribunal, Chandigarh, whereby the order of acquisition passed by the competent authority acquiring the property in dispute under Section 269F(6) of the Act was set aside and the two appeals filed by the transferor and the transferee allowed.

2. The facts giving rise to this appeal which are not in dispute may first be noticed. Shop-cum-flat No. 26 in the Vegetable Market at Chandigarh was sold by Des Raj Gupta, respondent No. 1, to Smt. Ram Piari, wife of Kesar Singh Lamba, respondent No. 2, as per sale deed dated February 23, 1973, for an apparent consideration of Rs. 91,000. The competent authority had reason to believe that the apparent consideration was less than the fair market value of the property and a reference was, therefore, made to the Valuation Officer, Chandigarh, to determine the said value of the property so transferred. As per his report, the fair market value was Rs. 1,28,750. On receipt of this report, the competent authority initiated proceedings for acquiring the aforesaid property and accordingly notice under Section 269D(1) of the Act was sent on July 26, 1973, for publication in the Official Gazette. It was published on August 11, 1973. A copy of that notice was served on the transferor and the transferee on July 30, 1973, and a copy thereof was also pasted on a conspicuous part of the property on August 20, 1973. The transferor and the transferee filed their objections on September 10, 1973, and October 5, 1973, respectively, and after hearing the parties, the competent authority made an order dated March 30, 1978, for acquisition of the property. It is common ground between the parties that the aforesaid shop-cum-flat had been rented out to Kesar Singh Lamba and Sons on a monthly rent of Rs. 400 and that a rent note dated March 1, 1973, was executed between the landlord and the tenant. It is also not in dispute that the competent authority while acquiring the property did not issue any notice to the tenant, namely, Kesar Singh Lamba and Sons. Being aggrieved by the order of acquisition, the transferor and the transferee both filed separate appeals which were disposed of by the Appellate Tribunal by a common order dated October 21, 1978. The Tribunal did not hear the parties on the merits as it was of the opinion that the mandatory provisions of Section 269D(2) of the Act had not been complied with. The appeals were allowed and the order of acquisition was set aside on the two grounds reproduced hereunder :

" (a) That there being no issue of notice to the person in possession of tire property, the initiation of the proceedings as provided under Section 269D of the Act was not complete and, therefore, acquisition proceedings were void ab initio.

(b) That no order could be passed without complying with the mandatory provisions of Section 269D(2) of the Act and service on the person in possession of the property being a must, the order passed is bad,"

3. Mr. R.P. Sawhney, learned counsel for the Department, has strenuously urged that the Tribunal was not right in setting aside the order of acquisition merely because notice under Section 269D(2) of the Act had not been served on the tenant. He contended that even though it was necessary to serve the tenant yet the order could not be set aside because the tenant did not challenge the order of acquisition before the Tribunal and the transferor and the transferee both of whom had been personally served could not assail the acquisition proceedings on the ground of non-service of notice on the tenant. There is merit in this contention.

4. It is true that under Sub-section (2) of Section 269D of the Act, a notice had to be served on the person in occupation of the property sought to be acquired under Chapter XX-A of the Act. This not having been done the competent authority obviously committed a procedural irregularity which by itself may not vitiate the proceedings at the instance of the transferor and the transferee. It would have been a different matter if the tenant had impugned the proceedings on the ground of non-service of notice on it but that is not the case here. As held by a Full Bench of this court in CIT v. Amrit Sports Industries , it is only the person aggrieved by the non-service of the individual notice under Section 269D(2) of the Act upon him who can make a grievance thereof. Consequently, the transferor and the transferee who had been validly served in the present case could not assail the acquisition proceedings on the ground of non-service of notice on the tenant of the property and the finding recorded by the Tribunal to that effect will have to be set aside.

5. However, we propose to uphold the order of the Tribunal on another ground that was raised before it but left undecided in view of the fact that the Tribunal had agreed with the contention of the appellants before it that the mandatory provisions of Section 269D(2) of the Act had not been complied with. It was contended before the Tribunal on behalf of the transferor and the transferee that the notice under Section 269D(2) of the Act was served on them before its publication in the Official Gazette, that is, before the proceedings for acquisition were initiated and, therefore, all subsequent proceedings leading to the passing of the order of acquisition must be set aside. On a consideration of the provisions of Section 269D of the Act, the Tribunal took the view that all the modes of publication and service contemplated by these provisions could be taken up by the competent authority simultaneously or in any order but it was necessary that those mentioned in Sub-section (2) thereof including the person in occupation of the property must be served and the procedure must be completed within a period of nine months from the date of the transfer. It rejected the argument that the sequence of publication and service of notice should be the same as given in the section. We do not agree with this view of the Tribunal. Section 269D of the Act which falls in Chapter XX-A reads as under :

" 269D. (1) The competent authority shall initiate proceedings for the acquisition, under this Chapter, of any immovable property referred to in Section 269C by notice to that effect published in the Official Gazette :

Provided that no such proceedings shall be initiated in respect of any immovable property after the expiration of a period of six months from the end of the month in which the instrument of transfer in respect of such property is registered under the Registration Act, 1908 (16 of 1908) :

Provided further that-

(a) in a case where it is determined under Sub-section (4) of Section 269B by the competent authority who has initiated proceedings for the acquisition of any immovable property under this Chapter or by the Board that such competent authority has no jurisdiction to initiate such proceedings, the competent authority having jurisdiction may initiate such proceedings within-

(i) the period of six months specified in the foregoing proviso ; or

(ii) a period of thirty days from the date of such determination,

whichever period expires later ;

(b) in a case where proceedings for the acquisition of any immovable property under this Chapter could not be initiated during any period of time by reason of any injunction or order of any court prohibiting the initiation of such proceedings or preventing the examination of documents or other materials required to be examined for the purpose of determining whether such proceedings should be initiated, the time of the continuance of the injunction or order, the day on which it was issued or made and the day on which it was withdrawn shall be excluded in computing the period during which such proceedings may be initiated under this sub-section.

(2) The competent authority shall-

(a) cause a notice under Sub-section (i) in respect of any immovable property to be served on the transferor, the transferee, the person in occupation of the property, if the transferee is not in occupation thereof, and on every person whom the competent authority knows to be interested in the property ;

(b) cause such notice to be published-

(i) in his office by affixing a copy thereof in a conspicuous place ;

(ii) in the locality in which the immovable property to which it relates is situate, by affixing a copy thereof in a conspicuous part of the property and also by making known in such manner as may be prescribed the substance of such notice at convenient places in the said locality."

6. A perusal of the aforesaid provisions would show that before the competent authority can proceed to acquire the property under Chapter XX-A of the Act, it is necessary to first initiate the proceedings for acquisition under Section 269D(1) and this can be done by a notice to that effect published in the Official Gazette. It is only on the publication of this notice that the proceedings get validly initiated and it is thereafter that the competent authority is required to serve a copy of that notice on the transferor, the transferee, the person in occupation of the property and on other persons whom the competent authority knows to be interested in the property. A copy of that notice has also to be published in his office as also in the locality in which the property is situate by affixing a copy thereof on a conspicuous part of the property and by making it known in the prescribed manner the substance of the notice at convenient places in the locality. In the present case, the notice was served on the transferor and the transferee on July 30, 1973, whereas the notice was published in the Official Gazette on August 11, 1973. In other words, the proceedings were initiated after service of notice on the transferor and the transferee. This could not be done in view of the provisions of Section 269D of the Act. As already observed, the first step to be taken is the publication of the notice in the Official Gazette and all other modes of service and publication have to follow thereafter. Thus, a notice in terms of Section 269D(2) can be served on all those on whom it is required to be served only after it has been published in the Official Gazette under Sub-section (1) thereof. The view that we are taking finds support from the Full Bench judgment of this court in Amrit Sports Industries case , wherein Sandhawalia C. J., speaking for the court, observed as under (page 121) :

" The law provides primarily and first, the publication of the notice in the Official Gazette and then a replica thereof is to be served on individuals or published as laid down in Sub-section (2)(b). An overall analysis thereof would disclose that apart from publication in the Gazette, the law also provides a publication in the locality where the property is situated as also affixing a copy thereof in the office of the competent authority. These are in the nature of public notices supplemental to the publication in the Official Gazette which plants presumptive knowledge of the same to everyone concerned. Apart from these, a further modus of service of notice is provided on the transferor, the transferee, the occupant and other persons interested in the property if known to the competent authority. I am clearly of the view that these are subservient and supplemental provisions and the initiation of proceedings is complete with the publication in the Official Gazette."

7. The question that now arises is as to whether a notice served on the transferor or the transferee before the initiation of proceedings would invalidate the acquisition proceedings including the order of acquisition. The argument of Mr. Sawhney, appearing for the Revenue, is that service of a notice on the transferor or the transferee before its publication in the Official Gazette under Sub-section (1) was a mere irregularity and it would not vitiate the proceedings commenced by the competent authority. He submitted that the purpose of such a notice was only to put the transferor and the transferee on guard and to inform them that the competent authority had decided to initiate the proceedings for acquisition of the property in question. Reliance in this regard was placed on the observations of the Full Bench of this court in Amrit Sports Industries case and also on the judgments of the Karnataka High Court in A. Premchand v. IAC of I. T. : [1985]153ITR774(KAR) and B.M. Marappa v. IAC of I. T. : [1986]160ITR642(KAR) . As already observed earlier, the proceedings for acquisition have first to be validly initiated before any of the persons mentioned in Sub-section (2) of Section 269D of the Act are served. If before the initiation of proceedings by publication of a notice in the Official Gazette, a notice is served on any one of those mentioned in Subsection (2), the proceedings before the competent authority would be without jurisdiction. The service of notice and its publication under Section 269D(2) are subservient and supplemental to the publication of the notice in the Official Gazette and, therefore, in the very nature of things the service of notice under Sub-section (2) cannot precede the publication in the Official Gazette. It will be open to the transferor or the transferee or any one of those mentioned in Sub-section (2) to ignore such a notice. A similar question arose before the Delhi High Court in Satya Narain Prakash Punj v. Union of India : [1986]160ITR693(Delhi) , wherein the learned judge after noticing the provisions of Section 269D of the Act held that a notice served on the transferor and the transferee before its publication under Sub-section (1) of Section 269D did not comply with the mandatory provisions of this section and was liable to be quashed. We are in agreement with the view expressed by the learned judge. In Amrit Sports Industries case , the Full Bench of this court held that the publication of the notice in the Official Gazette under Subsection (1) of Section 269D has to precede the service thereof under Subsection (2). Once this is done, the learned judges were of the opinion that any procedural defect in the service of the notice under Sub-section (2) of Section 269D will not necessarily vitiate the acquisition proceedings. The learned judges of the Karnataka High Court in A. Premchands case : [1985]153ITR774(KAR) , while relying upon the following observations of S.S. Sandhawalia C. J. in Amrit Sports Industries case , have held that issue of notice to the transferors and the transferees before its publication in the Official Gazette did not affect the jurisdiction of the competent authority and the defect was only a procedural one (page 784 153 ITR) :

" The proceedings under Section 269D(2) of the Act being procedural and supplementary, are in no way jurisdictional. Any defect or irregularity therein consequently cannot affect the assumption of jurisdiction by the competent authority and, therefore, in no way vitiates the initiation of proceedings once validly done. Therefore, a default in service of the persons interested or even of publication under Sub-section 2(b) does not affect the jurisdiction of the competent authority but at the very highest pertains to the exercise of the power thereunder. It is well-settled that an erroneous exercise of the power does not vitiate the proceedings, but merely calls for correction, be it in the appellate, revisional or any other jurisdiction."

8. In our opinion, the Full Bench in Amrit Sports Industries case did not hold that even where the notice is served under Sub-section (2) prior to its publication under Sub-section (1), the error committed by the competent authority is only procedural and not jurisdictional. Such a defect is one of jurisdiction and the competent authority cannot proceed to make an order acquiring the property. We do not, therefore, in all respect agree with the view taken by the Karnataka High Court in A Premchands case [1983] 153 ITR 774 and B.M. Marappas case : [1986]160ITR642(KAR) . In B.M. Marappas case : [1986]160ITR642(KAR) , the Karnataka High Court reiterated its earlier view while placing reliance on A Premchands case : [1985]153ITR774(KAR) .

9. In the result, it must be held that the notice served on the transferor and the transferee on July 30, 1973, before it was published in the Official Gazette was illegal and all subsequent proceedings including the order acquiring the property under Section 269F(6) of the Act stood vitiated. We, therefore, uphold the impugned order of the Tribunal setting aside the order of the competent authority.

10. It was lastly contended on behalf of the Revenue that even if the order of the competent authority stood vitiated on the ground that notice was served on the transferor and the transferee before the proceedings were validly initiated, the case should be remanded to the competent authority for proceeding afresh because the proceedings had been validly initiated on August 11, 1973, and that thereafter the said authority can proceed to pass a fresh order in accordance with law. In the circumstances of the case, we do not propose to adopt this course. The property in question was sold almost 23 years back and by now third party interests might have intervened and it would be most inequitable to permit the proceedings to start again after a lapse of such a long period. Moreover, the difference between the apparent consideration and the fair market value of the property is not much though it falls within the limits prescribed by Section 269C of the Act.

11. The appeal thus stands dismissed with no order as to costs.