APPROPRIATE AUTHORITY AND COMMISSIONER, INCOME TAX versus SMT. VARSHABEN BHARATBHAI SHAH AND ORS.

Citation: [2001] 2 S.C.R. 349 · Decided: 13-03-2001 · Supreme Court of India · Bench: S.P. BHARUCHA · Disposal: Appeal(s) allowed

Judgment (excerpt)

APPROPRIATE AUTHORITY AND COMMISSIONER, INCOME TAX 
A 
. 
v. 
" 
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 of Income Tax Act not"applicable since each co-owner would get 
D 
less than the prescribed limit-C01rectness of-Held: Ifthe apparent consid-
i· 
erationfor transfer of immovable propel1y is more than the prescribed limit for 
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. 
B 
c 
D 
E 
Allowing the appeal, the Court 
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 
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 
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 
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,

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