Case Law Details

Case Name : Unitech Ltd. Vs UOI (Supreme Court of India)
Appeal Number : Civil Appeal No. 430/2007
Date of Judgement/Order : 04/11/2015
Related Assessment Year :
Courts : Supreme Court of India (916)

Brief of the case:

In case of Unitech Ltd. Vs. UOI Hon’ble SC has set aside the order passed by Bombay HC in a writ petition filed by asseessee against the order under section 269UD. Hon’ble SC have held compulsory pre-emptive purchase illegal. Hon’ble court take note of its observation in C.B. Gautam’s case ((1993) 1 SCC 78) that unless the difference in the apparent effective consideration and the market value is more than 15%, the Appropriate Authority cannot assume jurisdiction under section 269-UD of the Act. The same does not mean that the mere fact that such difference is more than 15% will, automatically, lead to the conclusion that there has been undervaluation of property with the motive of evading tax.

Facts of the case:

  • Vidarbha Engineering Industries i.e. Appellant No. 2 holds on lease, three plots of land at Nagpur, referred to as the ‘subject land’ in the judgment.
  • The subject land was 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. For this purpose an MoU was formalized into a collaboration agreement.
  • Both the parties agreed to allow Unitech to develop and construct a commercial project on the subject land.
  • The parties to the agreement agreed, upon construction of shopping cum commercial complex, Unitech will retain 78% of the total constructed area and transfer 22% to the share of Vidarbha Engineering.
  • By the statement in Form 37-I the consideration has been valued by the parties at Rs. 1,00,40,000/- before the appropriate authority.
  • 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.
  • It took into account the consideration of Rs. 1,00,40,000/- and deducted from it an amount of Rs. 24,09,600/- being discount calculated at the rate of 8% per annum since the consideration had been deferred for a period of three years. It therefore determined the consideration for purchase of the subject property at Rs. 76,30,400/-.
  • Aggrieved from the order u/s 269UD appellant filed writ before Bombay HC.

Contention of the Appellant:

  • The 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.
  • No clause in the agreement purports to transfer the subject land to Unitech. Infect, 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 the latter may enter upon the land and at its own cost build on it and thereupon handover 22% of the built up area to the share of Vidarbha Engineering as consideration and retain 78% of the built up area.
  • Since the agreement does not purport to transfer any land by Vidarbha Engineering to Unitech, Chapter XXC of the Act itself has no application and no pre-emptive purchase could have been ordered by the competent authority.
  • The provisions of Chapter XXC providing for pre-emptive purchase by the Central Government only deal with transfer by way of sale, exchange or lease or admitting as a member by transfer of shares in a cooperative society or by way of an agreement or arrangement which has the effect of transferring or enabling the enjoyment of the said property and that none of this can cover a collaboration agreement of the kind entered into by the appellants; vide sub-clause (ii) of clause (f) of sub section (2) of Section 269UA of the Act.
  • Before HC, it was submitted that the order u/s 269 UD did not contain any finding that the consideration for the transaction was undervalued by the parties in order to evade taxes, which is the mischief sought to be prevented.
  • It was necessary for the authority to come to the conclusion that there is an attempt to or in fact an evasion of taxes before directing compulsory purchase.
  • The collaboration agreement involves an exchange of property as defined vide Section 118 of the Transfer of Property Act, 1882 as a mutual transfer of the ownership of one thing for the ownership of another.
  • The appellant referred to a decision of the Bombay High Court in Amarjit Thapar v. S.K. Laul & Ors. [2008] 298 ITR 336 where it was held that “The onus of establishing that undervaluation is with a view to evade tax is on the Revenue. No such finding is to be found in the impugned order. Hence, the order of the Appropriate Authority is invalid and void ab initio as there is no positive finding that there was an attempt to evade tax.”

Contention of Appropriate Authority/revenue:

  • The consideration for the transaction as in Form 37 –I u/s 269UD 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.

Held by the High Court:

  • Undoubtedly one of the objects of the provision is to prevent evasion of taxes by showing an undervaluation which is more than 15% of the true value of the property and which in turn carries an implication that some portion of the value is not shown in the agreement or the deed but passes by way of unaccounted money.
  • It is not possible to say that it must be alleged in the show cause notice or a finding must be rendered in the order that there is evasion of taxes as a sine qua non for its validity. Nor is it possible to hold that the onus of establishing undervaluation with a view to evade tax is on the revenue.

Held by Supreme Court:

  • The authorities have treated the consideration for subject land, which is an industrial plot, as understated by more than 15% on the basis of a sale instance of a land which is in a residential locality.
  • It is obvious that the area of the sale instance is of a much smaller plot i.e. 736 sq mtrs whereas the subject land which is said to have been undervalued is 2,024 sq mtrs.
  • It is well known that the price of a small residential plot would be more than a large industrial plot.
  • The show cause notice which has subsequently been confirmed is vitiated by a gross non-application of mind.
  • The authority fell into a gross and an obvious error while conducting this entire exercise of holding that the consideration for the subject property was understated in holding that Vidarbha Engineering has transferred property to the extent of 78% to Unitech.
  • In any case the appellants had never stated that the consideration for Rs. 1,00,40,000/- was in respect of the built up area but on the other hand had clearly stated that it was for transfer of the subject land. Thus, there was no evidence on record nor is any referred to in the order for coming to the conclusion that Vidarbha Engineering had transferred 78% of the built up area to Unitech and retained 22%. The order of appropriate authority thus suffers from a gross perversity.
  • The High Court has failed to render a finding on the relevance of comparable sale instances, particularly, why a sale instance in an adjoining locality has been considered to be valid instead of a sale instance in the same locality.
  • This Court observed in C.B. Gautam’s case (supra), as follows:

“As we have already pointed out the provisions of Chapter XX-C can be resorted to only where there is a significant undervaluation of property to the extent of 15 per cent or more in the agreement of sale, as evidenced by the apparent consideration being the lower than the fair market value by 15 per cent or more.”

  • In the result, this court find that the appeal deserves to be allowed and is hereby allowed. The impugned order dated 20.02.2004 passed by the High Court of Bombay at Nagpur is set aside. Consequently, order dated 29.07.1994 passed by the appropriate authority under Section 269UD (1) of the Act is also set aside.
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