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SUPREME COURT OF INDIA
MADAN B. LOKUR, S.A. BOBDE, JJ.
UNITECH LTD. & ANR. – APPELLANTS
VERSUS
UNION OF INDIA & ANR. – RESPONDENTS
CIVIL APPEAL No. 430 OF 2007
Decided On : 04-11-2015
(b) Income Tax Act, 1961 – Chapter XXC, section 269UD – Show cause – Parties entering into agreement for development of 27934 sq ft leased land, – Lease holder to get 22% of constructed premises – Neither transfer in terms of Section 269UA, nor exchange in terms of Section 118 of Transfer of Property Act, 1882 – Transfer of rights of Vidarbha Engineering in its land not amounting to any sale, exchange or lease – Due to limitation of options in the Form parties describing themselves as transferor and transferee – Mentioning Rs. 1,00,40,000/- as consideration, being value of 22% share – Appropriate authority holding it to be undervalued – Conclusion based on sale instance of smaller residential plot nearby – Vitiated by non-application of mind. (Para 5, 6, 7)
[1996] 222 ITR 168 – Cited with approval
(c) Income Tax Act, 1961 – Chapter XXC, section 269UD – Appropriate authority holding that Vidarbha Engineering transferred 78% of built up area to Unitech – Vidarbha Engineering had only 22% of built up area as its share – No question of transferring 78% to Unitech – Conclusion without any basis and therefore perverse. (Para 10, 11)
(d) Income tax Act, 1961 – Section 269-UD – Show cause notice – Significant undervaluation, greater than 15% below the fair market value raises a rebuttable presumption of attempt to evade taxes – Not necessary to allege in the show cause or mention in the order that there has been an attempt to evade taxes. (Para 12)
(1993) 1 SCC 78 – Relied upon
[2008] 298 ITR 336 – Referred
Facts of the case:
Vidarbha Engineering Industries -Appellant No. 2 holds on lease, three plots of land admeasuring 2595.152 sq mtrs i.e. 27934 sq ft at Dahipura and Untkhana, Nagpur. This land is comprised of three plots of land i.e. Plot Nos. 34, 35 and 36 obtained by Vidarbha Engineering from the Nagpur Improvement Trust.
Vidarbha Engineering decided to develop the subject land and entered into an agreement for the purpose with Unitech Ltd. The Memorandum of Understanding between them was formalized into a collaboration agreement dated 17.03.1994. Under this agreement the land holder agreed to allow Unitech to develop and construct a commercial project on the subject land admeasuring 2595.152 sq mtrs at the technical and financial cost of the latter. The parties to the agreement agreed, upon construction of the multi storied shopping cum commercial complex, that Unitech will retain 78% of the total constructed area and transfer 22% to the share of Vidarbha Engineering. Unitech agreed to create an interest free security deposit of Rs. 10 lakhs. 50% of the deposit was made refundable on completion of the RCC structure and the other 50% on completion of the project. The parties were entitled to dispose of the saleable area of their share. It was specifically agreed that this agreement was not to be construed as a partnership between the parties. In particular, this agreement was not to be construed as a demise or assignment or conveyance of the subject land. The only consideration apparently provided is the entitlement of Vidarbha Engineering to 22% of the constructed area in the proposed multi storied building and not in terms of money.
The appellant submitted a statement in Form 37-I under Section 269UC of the Income Tax Act, 1961 annexing the agreement dated 17.3.1994. This form contains only the nomenclatures of transferor and transferee and contemplates only the transaction of a transfer and not an arrangement of collaboration. Therefore, the appellants were constrained to describe themselves as transferor and a transferee. Accordingly, they mentioned that the consideration for the transfer of the subject property was Rs.100.40 lakhs towards the cost of share of 22% of Vidarbha Engineering, which was to be constructed by Unitech – builder at its own cost. This submission was made as a preface to the contention that in fact and in law, Vidarbha Engineering has not transferred the property held by it to Unitech, but that it has only allowed Unitech to make a construction on the land.
Upon the submission of the statement under Section 269UA of the Act, the Appropriate Authority issued a show cause notice dated 8.7.1994 stating that the consideration for the transaction appears to be too low and appears to be understated by more than 15%, having regard to the sale instance of a land in Hanuman Nagar, an adjoining locality.
The appropriate authority considered the objections filed by the appellants and rejected them by an order dated 29.07.1994 passed under section 269UD of the Income Tax Act. The authority rejected all the objections taken by the appellants and ordered compulsory purchase by Government.
Finding of the Court:
Impugned judgments are not sustainable.
Result: Appeal allowed.
JUDGMENT
S. A. BOBDE, J.
1. This appeal is preferred by the appellants, who suffered an order of compulsory pre-emptive purchase under Chapter XXC of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) passed by the Appropriate Authority under Section 269UD of the Act.
2. Vidarbha Engineering Industries -Appellant No. 2 (hereinafter referred to as ‘Vidarbha Engineering’) holds on lease, three plots of land admeasuring 2595.152 sq mtrs i.e. 27934 sq ft at Dahipura and Untkhana, Nagpur (hereinafter referred to as the ‘subject land’). This land is comprised of three plots of land i.e. Plot Nos. 34, 35 and 36 obtained by Vidarbha Engineering from the Nagpur Improvement Trust. Vidarbha Engineering decided to develop the subject land and entered into an agreement for the purpose with Unitech Ltd. (herein after referred to as ‘Unitech’). The Memorandum of Understanding between them was formalized into a collaboration agreement dated 17.03.1994. Under this agreement the land holder agreed to allow Unitech to develop and construct a commercial project on the subject land admeasuring 2595.152 sq mtrs at the technical and financial cost of the latter. The parties to the agreement agreed, upon construction of the multi storied shopping cum commercial complex, that Unitech will retain 78% of the total constructed area and transfer 22% to the share of Vidarbha Engineering. Unitech agreed to create an interest free security deposit of Rs. 10 lakhs. 50% of the deposit was made refundable on completion of the RCC structure and the other 50% on completion of the project. The parties were entitled to dispose of the saleable area of their share. It was specifically agreed that this agreement was not to be construed as a partnership between the parties. In particular, this agreement was not to be construed as a demise or assignment or conveyance of the subject land. It is significant to note that the agreement does not contain any clause by which Unitech, the developer, is to pay any consideration in terms of money to Vidarbha Engineering, the land holder. The only consideration apparently provided is the entitlement of Vidarbha Engineering to 22% of the constructed area in the proposed multi storied building.
3. The appellant submitted a statement in Form 37-I under Section 269UC of the Act annexing the agreement dated 17.3.1994. According to Shri V.A. Mohta, the learned senior counsel, this form contains only the nomenclatures of transferor and transferee and contemplates only the transaction of a transfer and not an arrangement of collaboration. Therefore, the appellants were constrained to describe themselves as transferor and a transferee. Accordingly, they mentioned that the consideration for the transfer of the subject property was Rs.100.40 lakhs towards the cost of share of 22% of Vidarbha Engineering, which was to be constructed by Unitech – builder at its own cost. This submission was made as a preface to the contention that in fact and in law, Vidarbha Engineering has not transferred the property held by it to Unitech, but that it has only allowed Unitech to make a construction on the land. Indeed, we have considered this submission notwithstanding the self description of the parties as transferor and transferee since it involves the true construction of a document which is always a substantial question of law. We find much substance in the contention. In the first place, Vidarbha Engineering itself is a lessee holding the land on lease of 30 years from Nagpur Improvement Trust. It has no authority to transfer the land. Secondly, no clause in the agreement purports to transfer the subject land to Unitech. On the other hand, clause 4.6 specifically provides that nothing in the agreement shall be construed to be a demise, assignment or a conveyance. The agreement thus creates a licence in favour of Unitech under which t
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