The Delhi High Court in Chandra Estates Limited v. Union of India ruled that Chapter XX-C of the Income-tax Act, 1961 cannot be applied retrospectively to property transfers where possession was handed over and substantial consideration was paid before 1 October 1986 under Chapter XX-A.
Factual Background and Property Transaction Timeline
On 1 January 1983, Chandra Estates Limited entered into an agreement of sale with the vendor for purchasing residential property situated at 23, Jorbagh, New Delhi, for a total consideration of Rs. 41.50 lakhs. The purchaser paid Rs. 11.50 lakhs at execution and took physical possession on the same day. Further instalments aggregating Rs. 10 lakhs were paid in February 1983 and 1985. The transaction details were formally registered under Chapter XX-A of the Income-tax Act:
- Filing of Form No. 37EE: Both parties filed Form 37EE under Section 269AB on 31 March 1983, recording the transfer of possession effective 1 January 1983.
- Initiation under Chapter XX-A: The Inspecting Assistant of Income-tax (Acquisition Range III) initiated acquisition proceedings on 10 October 1983 under Section 269D(1) and published notice in the Official Gazette.
- Dropping of Chapter XX-A Proceedings: Following valuation and objections under Section 269E, the competent authority passed a formal order under Section 269F(7) on 22 June 1989 dropping the acquisition proceedings.
Introduction of Chapter XX-C and the Impugned Purchase Order
Parliament inserted Chapter XX-C via the Finance Act, 1986, replacing Chapter XX-A for designated areas from 1 October 1986. Following the notification of the Income-tax (Seventh Amendment) Rules, 1986, the purchaser submitted Form No. 37-I under Rule 48L to avoid technical default. The Appropriate Authority under Section 269UB subsequently passed an order on 23 January 1987 under Section 269UD(1) to pre-emptively purchase the property for the Central Government and demanded surrender of possession.
The petitioner filed a writ petition challenging the purchase order on the ground that the Appropriate Authority lacked jurisdiction because the transfer was already executed and possession transferred under the regime of Chapter XX-A prior to the enforcement date of Chapter XX-C.
Non-Retrospective Application of Chapter XX-C
Justice Vijender Jain held that Chapter XX-C applies prospectively only to property transfers taking effect on or after 1 October 1986. The Court established key legal principles regarding pre-emptive acquisition:
| Legal Issue | Revenue Argument | High Court Determination |
|---|---|---|
| Transfer date vs enforcement date | Form 37-I submitted after 1 October 1986 attracts Chapter XX-C | Transfer took effect on 1 January 1983 via possession and Section 53A part-performance |
| Jurisdiction by estoppel | Filing Form 37-I conferred jurisdiction on the Appropriate Authority | No estoppel against statute; erroneous filing cannot confer inherent jurisdiction |
| CBDT guidelines | Departmental discretion to purchase under Section 269UD | Circular No. F-316/134/86-OT excludes cases where possession and consideration preceded 1-10-1986 |
High Court Holding and Quashing of Purchase Order
The High Court held that the agreement of 1 January 1983 accompanied by delivery of physical possession created enforceable rights under Section 53A of the Transfer of Property Act and constituted a completed transfer under Section 269A(h) of Chapter XX-A. Because acquisition proceedings under Chapter XX-A were officially dropped, the Revenue could not resurrect acquisition under the guise of Chapter XX-C. The Delhi High Court quashed the pre-emptive purchase order passed under Section 269UD(1) and allowed the writ petition.