January 2002 : Page No.

14

Income Tax Provision

Sale / Purchase of Immovable Properties.
That black money is used in property transaction is a well known fact. Parallel
economy, black money and evasion of tax are banes of many countries. To combat
these evils, Indian government is taking strong steps by constituting a committee of
experts and reviewing the tax system and laws.
Chapter XX-C of Income Tax Act 1961
The Chapter XX-C was enacted by the Central Government through Finance Act,
1986. The chapter is titled "Purchase by Central Government of Immovable
Properties in certain cases of Transfer". This has come into effect from 1-10-1986,
vide Notification SO 480 (E) dated 7-8-1986. The Chapter contains 15 sections 269
UA to 269 U0 and the corresponding rules are 4 in number 48-I to 48-L.
The newly enacted Chapter enables the Central Government to make preemptive purchase unlike in the Chapter XX-A, where the government had rights to
acquire. The Chapter XX-C is proactive, whereas the earlier one was performing
postmortem. The new chapter has prohibited the registration of conveyance deeds
and lease deeds unless the authority issues No Objection Certificate. It has brought
in its ambit the agreements of transfer, whether registered or not. It is based on the
principle "Lock the stable before the horse is stolen". Hon'ble Supreme Court had
upheld the constitutional validity of the chapter in Case C.B. Gautam V Union of
India & Others (1993) 199.I.T.R530.
Immovable Property: Property agreed to be transferred. The definition is
exhaustive and wide. It includes:

Land, building, part of building, with plant, machinery, furniture, fittings, agreed
to be transferred. It includes any rights therein

Any rights with regard to land, building, part of building with or without plant,
machinery, furniture, fittings. It also includes rights in respect of the building,
part of the building to be constructed. Any rights in respect of land, building
with or without plant, machinery, furniture, fittings

Holding out by becoming member of Co-operative Society, Company, association of

persons, by acquiring shares in a cooperative society, company, by entering into an
agreement or arrangements. Such 'transactions' need not be, sale, exchange and
Lease.
Transfer: The act of conveying the immovable property by the transferor to the
transferee. It includes

Transfer of immovable property by way of sale.

Transfer of immovable property by way of Exchange.

Transfer of immovable property by way of Lease for a period of not less than 12
years (if the original lease is for a period less than 12 years, the terms of transfer
provides for extension of the lease period and if the a total of the original lease
period and extended period is not less than 12 years such transaction is also is
covered).

Handing over the possession of immovable property before the completion of

process of transfer, or retaining the immovable property in part performance of the
contract as per Sec. 53-A of Transfer Of Property Act 1882.
Transfer also includes admitting as a member of Cooperative Society, Company,
Association of Persons, Transferring the Shares of a Cooperative Society, Company
by way of any manner, which enables the enjoyment of the immovable property.
These type of transactions are called anomalous or deemed transfers.
Transfer of property by mortgage is not transfer as defined in Section 269 UA (f) and
does not match the very scheme and object of Chapter XX-C (Gujarat Urban Cooperative Banks Federation Vs. Union of India (1999 Tax LR 882, 889,890(Guj).
Appropriate Authority (Section 269 UB)
Appropriate Authority is a team constituted by the Central Government to do the
functions of preemptive purchase of immovable property or to issue No Objection
Certificate for registration of the conveyance deeds of the immovable properties.

Central Government may constitute any number of appropriate authorities and

prescribe their local limits. It contains three members out of that two members are
from the Indian Income tax Service Group A holding the post or equivalent to
Commissioner of Income Tax or higher post. The third member from Central
Engineering Services Group holding the post or equivalent to Chief Engineer or
higher post.

Generally the immovable property falls within the local limits of one Appropriate
Authority. In such a case, the concerned Appropriate Authority will deal with the
transfer of such property.
In certain cases, the immovable property may spread over the local limits of two or
more appropriate authorities. In such cases, the location of registering authority of
such immovable property is the determining factor. The Appropriate Authority in
whose local limits the office of the registering authority is located shall deal with the
transfer of the immovable property (Rule 48J).
The Appropriate Authority has all the powers of the Commissioner of Income Tax,
as detailed in Sec 131 of the Income Tax Act, 1961 (Sec.269Ul).
Fiscal Limits: (Sec 269 UC) Rule 48K)

The Chapter XX-C of the Income Tax Act 1961 is applicable to transfer of immovable
properties exceeding the values prescribed by this chapter. Earlier it was Rs. 5.00
lakhs, which was later increased to Rs. 10.00 lakhs at present effective from 1-8-95, as
per Rule 48K the different values are fixed for different local areas. The details are as
follows:

Greater Mumbai: Apparent consideration exceeding Rs.75 lakhs.

Union territory of Delhi: Apparent consideration exceeding Rs.50 lakhs.

Kolkota Metropolitan area and Chennai Metropolitan Area: Apparent

consideration exceeding Rs.25 lakhs.

Bangalore Metropolitan area, Ahmedabad Urban Development area, areas

comprised in city of Ahmedabad: Apparent consideration exceeding Rs. 25 lakhs.

Areas comprised in city of Pune: Apparent consideration exceeding Rs. 25 lakhs.

All other notified areas (Chandigarh, Jaipur, Trivandrum, Cochin, Nagpur,

Patna, Bhopal, Indore, Cuttack, Bhubaneswar, Hyderabad, Kanpur, Lucknow,
Coimbatore, Madurai, Surat, Guregaon, Faridabad, Baroda, Ghaziabad, Noida):
Apparent consideration exceeding Rs. 20 lakhs
Procedure to be followed (Sec. 269UC,a Rule 48L)
Transfer of immovable property in notified areas with apparent consideration
exceeding stipulated financial limits requires prior permission of the Appropriate
Authority under whose jurisdiction the immovable property falls.
Both the transferor and the transferee have to follow the following procedure:

Both the parties have to enter into an agreement at least four months earlier to
the intended date of transfer.

The agreement so entered has to be incorporated in the prescribed Format 37-1,

(Rule 48L), setting forth all the particulars.

The statement in the Format 37-I should be signed and verified by both the
transferor and the transferee should be signed and verified by both the
transferor and transferee or by the parties acting on their behalf.

The statement in DUPLICATE shall be submitted to the concerned Appropriate

Authority before the expiry of 15 days from the date of agreement entered into
along with a copy of the agreement.

Form No. 37-1 is a composite one. All the paras of Form No. 37-1 need not be filled.
The prescribed format of 37-1 is a composite one. Used for all transactions, sale,
lease, exchange and the parties need fill only relevant paras. Appropriate Authority
has to take an objective view to examine the evasion of tax while examining the

statement of 37-1 and cannot act in a mechanical fashion. (DLF Universal Vs.
Appropriate Authority (2000) 243 ITR 730,749-50 (SC).
Summary of conclusions on various Judgments involved in pre-emptive purchase
His Lordship, Mr. Justice Y.K. Sabharwal in cases Mahesh Chandra Agarwal V.
Union of India and other cases (1998) 231 ITR 318, 445-447 (Delhi) has summarized
the conclusions on various legal issues involved in the proceedings for pre-emptive
purchase. Some of them are:

Under Valuation of apparent consideration is at least 15% with a view to evade

tax or conceal income.
Rebuttable presumption of tax evasion, where fair market value exceeds the
apparent consideration by 15%.
Passing the orders of preemptive purchase carries with it the stigma of tax
evasion, which affects the reputation of the concerned parties and hence such
orders shall not be made lightly and in routine.
Burden of establishing that the fair market value is more than 15% of apparent
consideration lies on Appropriate Authority and never shifts. Only the
responsibility shifts from one to another.
Parties are entitled to get the entire material relied upon by Appropriate
Authority including valuation reports on record.
If the material placed by the parties before Appropriate Authority shows there is
no occasion for under valuation of property with no view to evade tax or conceal
income, passing the orders of pre-emptive purchase is not permitted.
Since no appeal is provided for in the Act, the authority is required to be more
cautious to subjective satisfaction of the objective facts.
Except in glaring and clear cases of gross under valuation and large-scale tax
evasion pre-emptive purchase orders with bona fide tenancy of long standing
cannot be made.
If the explanation offered to show cause notice that there is no evasion is honest
the plea is to be accepted.
While determining the fair market value of the tenanted property, no comparison
can be made with the sale instance of vacant property.
In determining the fair market value of the property, regard must be had to the
field realities such as long delays in getting possession of the property from bona
fide tenants protected by rent laws and in cases where suit for possession is filed
under Transfer of Property Act.
For determining under valuation and evasion of tax, events as on the date of
agreement of sale are to be considered.
If seller needs urgent money and agrees to sell the property at value less than
market value, pre-emptive purchase order is not permissible.
The plea of distress sale and at the same time the plea that the property was
agreed to be sold at market value are not destructive, and can be raised as
alternative pleas.

Restriction of registration etc., of documents of transfer of immovable property

Any immovable property

Lying within the area to which the Chapter XX-C is applicable

The value of the said property exceeds the prescribed limit cannot be transferred
and the deed of transfer cannot be registered by any registering authority unless
Appropriate Authority issues "No Objection Certificate" stating it has no
objection to transfer the property as per the terms stated in Form 37-1 received by
the Appropriate Authority. Such certificate should be furnished to the registering
authority.
If the Appropriate Authority does not make an order for purchase of immovable
property within the time prescribed or such order gets cancelled, the Appropriate
Authority shall issue No Objection Certificate (S269UL).
Restrictions on registration and entering into an agreement of transfer and filing 37-1
are not applicable to Court Auction Sales or Auction Sales by official assignee.

The restriction on registration of conveyance deed is not applicable to Court

auctions, which does not require any registration. With regard to entering into an
agreement, filing of 37-1 with appropriate authority in Court auctions the owner
will be Judgment Debtor and he is not a party to any agreement. Further, unless
the sale is confirmed no one can contemplate who would be the transferee. The
Judgment Debtor is not a Willing Seller (A. Harikrishnan V Registrar (1991)
192ITR 391,395-396 (MAD).

Provisions of XX-C are applicable in cases where immovable property is

transferred in accordance with the provision of Transfer of Property Act 1882.
Further the very objective of Chapter XX-C is to avoid evasion of tax and
accumulation of unaccounted money. In case of Court sale or sale by Receiver or by
Official Assignee, that too by public auction, evasion of tax or accumulation of
unaccounted money can never arise.
Transferee cannot initiate any legal proceedings against the transferor for
performance of the contract as per agreement for transfer, when the property is
purchased under the provisions of chapter XX-C (Sec 269 UM).
Provisions of the Chapter not to apply to certain Transfers

The provisions of the Chapter XX-C are not applicable in case of transfer of
immovable property to transferor's relatives out of natural love and affection.
However, the agreement should contain such fact (Sec. 269 UO). It is to be noted
that the criteria for preemptive purchase by Central Government is evasion of
tax and accumulation of unaccounted money by understating the consideration

amount. Understating the consideration amount itself does not attract the
provisions of the chapter.

Income Tax Clearance Certificate (Sec 230A and Rule 44A & 44B) since deleted.

As per Section 230A of the Income tax Act, 1961, registration of document of
conveyance of immovable property of value more than Rs. 5.00 lakhs, was
permitted only on production of Income tax clearance certificate by the seller.
The prescribed format was 34-A. This section is deleted in Finance Act 2001.

PAN or filing of Form 60 Sec 139A Clause C of sub-section 5 Rule

114-C

114-B and

In case of transactions of Rs. 5.00 lakhs or more of immovable property shall quote
Permanent Account Number or General Index Number.
If a person has not been allotted Permanent Account Number or does not have
General Index Number and if the payment is made by way of cash a declaration in
the prescribed format 60 should be made.
If such person has only agricultural income and not in receipt of any other income
chargeable to income tax he should file declaration in the prescribed format 61.
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