Supreme Court Upholds Pre-emptive Purchase of Land by Government in Income Tax Dispute

The case of Krishna Kumar Rawat & Ors. vs. Union of India & Ors. revolves around the pre-emptive purchase of land by the Central Government under Chapter XX-C of the Income Tax Act, 1961. The Supreme Court upheld the decision of the Income Tax Department to compulsorily acquire the property, dismissing the appeals filed by the prospective buyers.

The dispute stemmed from the sale of a prime land parcel in Jaipur, Rajasthan. The petitioners, who had entered into an agreement to purchase the land, challenged the government’s decision to exercise its pre-emptive purchase rights, arguing that the land was undervalued by the tax authorities. However, the Supreme Court ruled in favor of the Income Tax Department, affirming that the valuation process and acquisition were in accordance with legal provisions.

Background of the Case

The key events leading to the dispute were:

• The suit land measured approximately 9500 sq. yards and was jointly owned by Smt. Mithilesh Kumari and Smt. Krishna Kumari Roongta.
• On November 11, 1993, the petitioners entered into an agreement with Smt. Mithilesh Kumari to purchase the land for Rs. 99,84,500.
• The sale agreement was submitted to the appropriate authority under Section 269UC of the Income Tax Act.
• The valuation officer of the Income Tax Department conducted an inspection and determined that the agreed sale price was undervalued.
• On March 30, 1994, the Income Tax Department issued a pre-emptive purchase order under Section 269UD(1), acquiring the land at the agreed sale price.
• The petitioners challenged the order in the Rajasthan High Court, which upheld the government’s decision.
• The matter was subsequently taken to the Supreme Court.

Petitioner’s Arguments

The petitioners, represented by senior counsel, made the following arguments:

• The comparison made by the Income Tax Department between the suit land and another property in Triveni Nagar was flawed.
• The valuation did not take into account the cost of development, which would require significant deductions.
• The land should not have been acquired when there was no significant price difference justifying pre-emptive purchase.
• The valuation report was arbitrary and did not consider real market conditions.

Respondent’s Arguments

The Union of India, defending the acquisition, countered with the following points:

• The property was significantly undervalued in the agreement, justifying government intervention.
• The valuation report was based on comparable sales data and was conducted by an expert committee.
• Under Section 269UD of the Income Tax Act, the government had the right to acquire property if there was a significant discrepancy in valuation.
• The land was strategically located and had high commercial potential, supporting the assessment of higher value.

Supreme Court’s Observations

The Supreme Court bench, comprising Abhay Manohar Sapre and Dinesh Maheshwari, made the following key observations:

• The Income Tax Department had followed due process in determining the market value of the land.
• The pre-emptive purchase was based on factual findings and was not arbitrary.
• The valuation methodology used by the department was reasonable and supported by past precedents.
• The petitioners failed to provide compelling evidence to counter the government’s valuation report.

Critical Judgment Excerpt: “The appropriate authority and the High Court were right in their respective approach, reasoning, and conclusion. The valuation was conducted as per the legal framework, and no interference is warranted.”

Final Decision

The Supreme Court ruled as follows:

• The pre-emptive purchase of the land by the Central Government was upheld.
• The valuation conducted by the Income Tax Department was found to be legal and valid.
• The petitioners’ claims were dismissed, and the government was granted full ownership of the acquired land.

Implications of the Judgment

This ruling has significant implications for property transactions and tax law:

• Strengthens the power of the Income Tax Department in preventing underreporting of property values.
• Ensures that property transactions are conducted at fair market value.
• Clarifies the application of pre-emptive purchase rights under Chapter XX-C of the Income Tax Act.
• Protects the government’s revenue interests in high-value property transactions.

Legal Precedents and Framework

The Supreme Court’s ruling aligns with key legal principles and precedents:

• C.B. Gautam vs. Union of India (1993) – Upheld the constitutionality of pre-emptive purchase provisions under Chapter XX-C.
• Appropriate Authority vs. Smt. Sudha Patil (2001) – Clarified valuation principles for pre-emptive acquisitions.
• Union of India vs. Radha Krishna Agarwal (1977) – Established guidelines for governmental acquisition of private property.

Conclusion

The Supreme Court’s decision in Krishna Kumar Rawat vs. Union of India reaffirms the government’s authority to prevent undervaluation in property transactions. By upholding the pre-emptive purchase, the Court reinforced the principle that property sales must reflect fair market value to prevent tax evasion and protect public revenue.

Petitioner Name: Krishna Kumar Rawat & Ors..
Respondent Name: Union of India & Ors..
Judgment By: Justice Abhay Manohar Sapre, Justice Dinesh Maheshwari.
Place Of Incident: Jaipur, Rajasthan.
Judgment Date: 29-07-2019.

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