ADAIR DUTTA AND CO. INDIA PVT. LTD.versusTHE APPROPRIATE AUTHORITY, INCOME TAX DEPARTMENT

           ADAIR DUTTA AND CO. INDIA PVT. LTD.                                    A
                           v.
         THE APPROPRIATE AUTHORITY, INCOME TAX
                      DEPARTMENT

                          SEPTEMBER 25, 1996
                                                                                  B
              [KULDIP SINGH AND KT. THOMAS, JJ.]

      !11come Tax Act, 1961:

       Chapter XX-C, ss. 269 UD and 269 UE (!)-Purchase by Central                C
Govemment of immovable property agreed to be sold-Vesting of prope1ty in
Central Govemment free from encumbrances-Held, in case agreement stipu-
lates the prope1ty to be sold free from all encumbrances or ce1tai11 encwnbran-
ces, then the vesting in Central Govemment would be free from such
encumbrances.
                                                                                  D
       Tamil Nadu B11ildings (Lease and Rent Control) Act, 1960: B11ilding
belongi11g to Central Govemment-Whether exc/11ded from the pwview of the
Act-Matter remitted back to High Cowt for decisio11.

      The appellant-company was tenant in a building situate in the city          E
of Madras. The owner of the building entered into an agreement to sell the
building. The appropriate authority under Chapter XX-C of the Income
Tax, 1961, on coming to know of the agreement, ordered the Central
Government to purchase the said building for the same consideration as
shown in the agreement, in accordance with S.269 UD (1) of the Act. The
appellant was informed that the building stood vested in the Central              F
Government by virtue of s.269 UE (1) of the Act free from all encumbran-
ces, and it was required to surrender possession of the building.

      The appellant filed a writ petition before the High Court on the
grounds that in view of the decision in the case of C.B. Gautam* whereby          G
the expression "free from all encumbrances" in sub-section (1) of s. 269-UE
had been struck down, only the right of the erstwhile owner of the building
vested with the Central Government without affecting the leasehold right
of the appellant; and that the appellant's right in the building was
protected .by the Tamil Na du Buildings (Lease and Rent Control) Act,
1960. The High Court dismissed the writ petition holding that the agree·          H
                                   775
    776                  SUPREME COURT REPORTS l1996) SUPP. 6 S.C.R.

A   ment provided for a sale free from all encumbrances; and that the
    provisions of the T.N. Act did not afford any protection to the appellant.
    Aggrieved, the Company filed the present appeal.

          It was contended for the appellant that though the T.N.Act excluded
    government building from its purview, such exclusion was confined to
B   buildings owned by the State Government and not to those owned by             .....
    Central Government.

          Disposing of the appeal, this Court

          HELD : 1. In C.B. Gautam* though the Constitution Bench has
c struck down the words "free from all encumbrances" in sub· section (1) of
    s.269-UE of the Income Tax Act, 1961, it approved the distinction that in
    case the agreement for sale contains the stipulation to the effect that the
    property would be sold free from all encumbrances or certain encumbran·
    ces then the vesting in the Central Government would be free from such
D   encumbrances. In the instant ease, the agreement for sale executed by the
    erstwhile owner, regarding the property in question,contained a stipula·
    tion that the property would be sold free of all encumbrances. (780-A]

          *C.B. Gautam v. Union of India & Ors., (1983) 1 SCC 78, explained
    and followed.
E
          2.1. The Constitution Bench in C.B. Gautam considered whether the
    vesting in central Government would affect monthly tenancies, and held
    that such tenancies would continue even on an order for purchase by
    Central Government being made under s.269 UD (1), but such tenants
    would lose the protection given to tena.nts under the rent protection laws
F
    because such laws are not made applicable to properties owned by the
    Central Government and their tenancies could be terminated by the
    Central Government. (781-C-D]

          C.B. Gautam v. Union of India & Ors., (1983) 1SCC78, referred to.
G
         Tata Consulting Engineers &Anr. v. Union of India & Ors., (1994) 206
    ITR 237, disapproved.                                                          ,
          2.2. However, in C.B. Gautam the situation where monthly tenancy
    is protected by a rent control legislation was not before the Court. The
H   question regarding application of T.N. Act to buildings owned by the
  ADAIR DUIT AND CO. v. APPROPRIATEAUTIIORITY (THOMAS,J.] 777

Central Government must be considered afresh by the High Court and,            A
therefore, the matter is remitted to the High Court for disposal of the writ
petition accordingly. (781-H; 782-A-B]

        CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1109 of
1995.
                                                                               B
     From the Judgment and Order dated 20.1.94 of the Madras High
Court in W.P. No. 9946 of 1989.

      J aydeep Gupta, Ujjwal Banerjee, Rajesh Srivastava and H.K. Puri
for the Appellant.
                                                                               c
        B.B. Ahuja and S. Rajappa and S.N. Terdol for the Respondent.

        The Judgment of the Court was delivered by

      THOMAS, J. Whether a bona fide statutory tenant has the right to
continue in possession even after an order of purchase was made under          D
Section 269 UD(l) in Chapter XX-C of the Income Tax Act, (for short
'the Act'), is the question sought to be raised in this appeal. According to
the appellant the answer to the said question must be in the affirmative.

        A brief sketch of the facts :
                                                                               E
      The appellant - a Private Limited Company - is tenant on the· ground
floor of a building situate on the Mount Road (now called Anna Salai),
Madras. On 30.3.1989, owner of the building entered into an agreement
with another person for sale of the building, for a sum of Rs.26 lacs. The
Appropriate Authority, constituted under Chapter XX-C of the Act, on F
coming to know of the aforesaid agreement initiated proceedings, in exer-
cise of its powers under the said Chapter for purchase of the building. He
ordered the building to be purchased by the Central Government for the
same consideration as shown in the agreement in accordance with Section
26.9 UD(l) of the Act. Appropriate Authority then issued a communication G
to the appellant informing it that the building stood vested in the Central
Government by virtue of Section 269-UE(l) of the Act free from all
encumbrances with effect from 22.6.1989. The appellant was requested to
surrender possession of the building. A writ petition was filed before the
High Court of Madras Challenging the said communication had the sub-
sequent request. A Division Bench of the Madras High Court dismissed H
       778                    SUPREME COURT REPORTS [1996) SUPP. 6 S.C.R.

A      the writ petition. This appeal by special leave has been filed against the
       judgment of the Division Bench.
             .
            The two sub-sections of Section 269-UE of Chapter XX-C of the Act
       which are relevant for this appeal are quoted below :

B                "269-UE. Vesting of property in Central Government. -(1) Where

. •'
                 an order under sub-section (1) of Section 269-UD is made by the
                 appropriate authority in respect of an immovable property referred
                                                                                       --
                 to in sub-clause (i) of clause (d) of Section 269-UA, such property
                 shall, on the date such order, vest in the central Government free
c                from all encumbrances.

                 (2) The transfer or any other person who may be in possession of
                 the immovable property in respect of which an order under sub-
                 section (1) of Section 269-UD in made, shall surrender or deliver
                 possession thereof to the appropriate authority or any other person
D                duly authorised by the appropriate authority in this behalf within
                 fifteen days of the service of such order on him."

   The contention of the appellant before the Madras High Court was two-
   fold. First is that as the constitution Bench of this Court in C.B Gautam v.
   Union of India & Ors., (1983) 1 SCC 78, has struck down the expression
E "free from all encumbrances" in sub-section (1) of Section 269-UE, what
   was vested with the Central Government is only the right of the erstwhile
  ·owner of the building without affecting,the leasehold right of the appellant.
   Second is that appellant's right in the building has been protected by the
   Tamil Nadu (Lease and Rent Control) Act, 1960 (for short 'the T.N. Act') .
F and as such his statutory right' cannot be by-passed through the vesting
   process.

         Division Bench of Madras High Court repelled both contentions.
  Learned JiJdges pointed out that the transferor has stipulated in the
  agreement for sale dated 30.3.1989 (which led to the action taken by the
G Appropriate Authority) that the transfer of the premises shall be free from
  all encumbrances and then held : "when the agreement in this case provides
  for a sale free of all encumbrances, the property agreed to be sold would
  also vest in the Central Government free of such encumbrances. Only in a
  case where the agreement does not provide that he sale would be free from ··
H all encumbrances, the encumbrance holder of leases in possession may not
  ADAIR DU1T AND CO. v. APPROPRIATE AUTHORITY [1HOMAS,J.] 779

be obliged to deliver possession of the property". Regarding the second A
contention the High Court pointed out that even otherwise·the provisions
of the T.N. Act do not afford any protection to the tenants of the buildings
owned by Central Government.

       The Constitution Bench of this Court has struck do'Yfl the words
"free from all encumbrances" in sub-section (1) of Sectiort.269-UE of the
                                                                               B
Act. The material portion of the judgment is extracted below :

        "In view of the express provision in section 269-UE that the
        property purchased would vest in the Central Government 'free
        from all encumbrances' it is not possible to read down the section C
        as submitted by learned Attorney General. In the result, the
        expression 'free from all encumbrances' in sub-section (1) of Sec-
        tion 269-UE is struck down and subsection (1) of Section 269- UE
        must be read without the expression 'free from all encumbrances'
        with the result the property in question would vest in the Central D
        Government subject to such encumbrances and leasehold interests
        as are subsisting thereon except for such of them as are agreed to
        be discharged by the vendor before ~he sale is completed."

      However, the Bench approved the distinction that in case the agree-
ment for sale contains the stipulation to the effect that the property would   E
be sold free from all encumbrances or certain· encumbrances then the
vesting in the Central Government would be free from such encumbrances.
The following passage in the judgment makes the position clear :

        "As we have stated earlier where an agreement for sale provides F
        that the property is intended to be sold free of all encumbrances
        or leasehold rights, the order for purchase of such property under
        Section 269-UD(l) in the said Chapter would result in the said
        property vesting in the Central Government free of such en-
        cumbrances or leasehold interests. In such a case the holders of
        the encumbrances and leasehold interests would have to obtain G
        their compensation from the amount awarded as the purchase
        price to the owner of the property. This appears to be a fair
        construction because in such a case the apparent consideration
        can be expected to include the value of such leasehold interests or
        encumbrances ........"                                              H
    780                  SUPREME COURT REPORTS [1996) SUPP. 6 S.C.R.

A       It was not disputed before us. that the agreement for sale executed
  by the erstwhile owner, regarding the property in question, contained a
  stipulation that the property would be sold free · cif all encumbrances.
  However, learned counsel tried to get support for this contention from a
  decision of the Karnataka High Court in Tata Consulting Engineers and
B Another v. Union of India and Others, (1994) 206 ITR 237, wherein it has
  been observed that "the Supreme Court did not specifically consider a case
  where ignoring or suppressing the fact that the premises were in the
  occupation of a monthly tenant who had not agreed to vacate, the agree-
  ment of sale, without referring to such tenancy, provided for dt<livery of
  vacant possession at the time of sale. Chapter XX-C also does not provide
C for a case where the agreement of sale contained an incorrect information
  regarding possession, that is agreeing to deliver vacant possession even
  though vacant possession could not be delivered having regard to the fact
  that the premises were in the occupation of a bona fide tenant". The
  Karnataka High Court concluded that "on the facts and circums.tances set
D out above, in so far as the tenant is concerned, the term of the sale
  agreement.providing for delivery of vacant possession should be read down
  as only providing for delivery of vacant possession of the remaining por-
  tions of the premises."

          The said view of the learned single judge of the Karnataka High
E   Court is not in consonance with the reasoning of this Court in C.B. Gautam
    (supra). The position has been clearly stated by this Court in the judgment
    as follows:

            "The holders of the encumbrances and leasehold interests which
F           would be destroyed in this manner can be said to be persons
            interested as contemplated in clause (e) of sub- section (2) of
            Section 269-UA. In this connection, we may refer to sub-section
            (5) of Section 269-UE which declares that nothing in the said
            section which deals with the vesting of property in the Central
            Government shall operate to discharge the transferor or any other
G           person (not being the Central Government) from liability in
            respect of any encumbrances on the property and notwithstanding
            anything contained in any other law for the time being in force,
            such liability may be enforced against the transferor or such other
            person. This provision makes it amply clear that in the case we
H           have just referred to the encumbrance holder or the holder of the
   ADAIR DUTf AND CO. v. APPROPRIATEAUIBORITY [THOMAS, J.J 781

        leasehold rights could claim the fair value of his encumbrance or       A
        the leasehold interest out of the amount paid on account of the
        purchase price to the owner of the immovable property acquired
        by the Central Government under Section 269-UD."

     In this context we may point out that the Constitution Bench in C.B.
Gautam (supra) considered whether such vesting in the Central Govern-           B
ment would affect monthly tenancies. The following observation has been
made regarding that aspect :

        "As far as monthly tenancies are concerned, they do not pose any
        difficulty because monthly tenants are also lessees in law although     C
        their right is a very limited one. If the agreement to sell does
        provide for vacant possession or the determination of monthly
        tenancies such tenancies would continue even on an order for
        purchase by the Central Government being made by the ap-
        propriate authority concerned under Section 269-UD(l); but such
        tenants would lose the protection given to tenants under the rent       D
        protection laws because such laws are not made applicable to
        properties owned by the Central Govemment with the result that their
        ten,ancies could be terminated by the Central Govemment."

                                                        (emphasis supplied)
                                                                                E
        Learned counsel for the appellant, however, contended that the T.N.
 Act" applies even to buildings owned by the Central Government and hence
 the aforesaid observation cannot apply to the tenancy rights protected by
.the said Act. We agreed that the Constitution Bench has not considered
 the situation were the monthly tenancy is protected by a rent control          F
 legislation. No doubt, learned judges have stated in the impugned judgment
 that "in relation to such statutory tenancy rights there is no protection as
 such available, as the rent control laws are inapplicable to properties
 owned by the Central Governm~nt and such tenancies could be terminated
 by the Government".
                                                                                G
      The aforesaid finding in the impunged judgment is also challenged
in this appeal. Learned counsel contended that though the T.N. Act
excludes government buildings from its purview such exclusion is confined
to buildings owned by the State Government because of the definition
contained in the T.N. Act for the word "government" as meaning "State           H
    782                   SUPREME COURT REPORTS (1996) SUPP. 6 S.C.R.

A   Government".

           We think that the question regarding application of T.N. Act to
    buildings owned by the Central Government must be considered afresh by
    the High Court in view of the aforesaid contention. We, therefore, set aside.
    the. judgment under challenge and remit tliis case to the High Court for
B   disposal of thse writ petition afresh in. the light of the observations made ·
    above.

    G.N.                                                    Appeal disposed of.




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