REPORTABLE IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL No. 430 OF 2007 UNITECH LTD. & ANR. .. APPELLANT(S) VERSUS UNION OF INDIA & ANR. ..RESPONDENT(S) JUDGMENT S. A. BOBDE, J. 1. This appeal is preferred by appellants, who suffered order of compulsory pre-emptive purchase under Chapter XXC of Income Tax Act, 1961 (hereinafter referred to as Act ) passed by Appropriate Authority under Section 269UD of 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 subject land ). This land is comprised of three plots of land i.e. Plot Nos. 34, 35 and 36 obtained by Vidarbha Engineering from Nagpur Improvement 1 Page 1 Trust. Vidarbha Engineering decided to develop subject land and entered into agreement for purpose with Unitech Ltd. (herein after referred to as Unitech ). Memorandum of Understanding between them was formalized into collaboration agreement dated 17.03.1994. Under this agreement land holder agreed to allow Unitech to develop and construct commercial project on subject land admeasuring 2595.152 sq mtrs at technical and financial cost of latter. parties to agreement agreed, upon construction of multi storied shopping cum commercial complex, that Unitech will retain 78% of total constructed area and transfer 22% to share of Vidarbha Engineering. Unitech agreed to create interest free security deposit of Rs. 10 lakhs. 50% of deposit was made refundable on completion of RCC structure and other 50% on completion of project. parties were entitled to dispose of saleable area of their share. It was specifically agreed that this agreement was not to be construed as partnership between parties. In particular, this agreement was not to be construed as demise or assignment or conveyance of subject land. It is significant to note that agreement does not contain any clause by which Unitech, developer, is to pay any consideration in terms of money to Vidarbha Engineering, land holder. only consideration apparently provided is entitlement of Vidarbha 2 Page 2 Engineering to 22% of constructed area in proposed multi storied building. 3. appellant submitted statement in Form 37-I under Section 269UC of Act annexing agreement dated 17.3.1994. According to Shri V.A. Mohta, learned senior counsel, this form contains only nomenclatures of transferor and transferee and contemplates only transaction of transfer and not arrangement of collaboration. Therefore, appellants were constrained to describe themselves as transferor and transferee. Accordingly, they mentioned that consideration for transfer of subject property was Rs.100.40 lakhs towards 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 preface to contention that in fact and in law, Vidarbha Engineering has not transferred property held by it to Unitech, but that it has only allowed Unitech to make construction on land. Indeed, we have considered this submission notwithstanding self description of parties as transferor and transferee since it involves true construction of document which is always substantial question of law. We find much substance in contention. In first place, Vidarbha Engineering itself is lessee holding land on lease of 30 years from Nagpur Improvement Trust. It has no authority to transfer 3 Page 3 land. Secondly, no clause in agreement purports to transfer subject land to Unitech. On other hand, clause 4.6 specifically provides that nothing in agreement shall be construed to be demise, assignment or conveyance. agreement thus creates licence in favour of Unitech under which latter may enter upon land and at its own cost build on it and thereupon handover 22% of built up area to share of Vidarbha Engineering as consideration and retain 78% of built up area. By statement in Form 37-I consideration has been valued by parties at Rs. 1,00,40,000/-. 4. It was contended by Shri Mohta, learned senior advocate, that since agreement does not purport to transfer any land by Vidarbha Engineering to Unitech, Chapter XXC of Act itself has no application and no pre-emptive purchase could have been ordered by competent authority. Shri Mohta points out that provisions of Chapter XXC providing for pre-emptive purchase by Central Government only deal with transfer by way of sale, exchange or lease or admitting as member by transfer of shares in cooperative society or by way of agreement or arrangement which has effect of transferring or enabling enjoyment of said property and that none of this can cover collaboration agreement of kind 4 Page 4 entered into by appellants; vide sub-clause (ii) of clause (f) of sub section (2) of Section 269UA of Act1. 5. It may appear at first blush that collaboration agreement involves exchange of property in sense that land holder transfers his property to developer and developer transfers 22% of constructed area to land holder but on closer look this impression is quickly dispelled. Exchange is defined vide Section 118 of Transfer of Property Act, 1882 as mutual transfer of ownership of one thing for ownership of another 2. But it is not possible to construe license created by Vidarbha Engineering in favour of Unitech as transfer or acquisition of 22% share of constructed building as transfer in exchange. As observed earlier 1 Section 269UA. Definition In this Chapter, unless context otherwise requires, - xxxxxxx (f) transfer ,- (i) in relation to any immoveable property referred to in sub-clause (i) of clause (d), means transfer of such property by way of sale or exchange or lease for term of not less than twelve years, and includes allowing possession of such property to be taken or retained in part performance of contract of nature referred to in Section 53A of Transfer of Property Act, 1882 (4 of 1882): Explanation- For purpose of this sub-clause, lease which provides for extension of term thereof by further term or terms shall be deemed to be lease for term of not less than twelve years, if aggregate of term for which such lease is to be granted and further term or terms for which it can be so extended is not less than twelve years; (ii) In relation to any immoveable property of nature referred to in sub-clause (ii) of clause (d), means doing of anything (whether by way of admitting as member of or by way of transfer of shares in cooperative society or company or other association of persons or by way of any agreement or arrangement or in any other manner whatsoever) which has effect of transferring or enabling enjoyment of, such property. 2 Section 118 Exchange defined.-When two persons mutually transfer ownership of one thing for ownership of another, neither thing or both things being money only, transaction is called exchange . transfer of property in completion of exchange can be made only in manner provided for transfer of such property by sale. 5 Page 5 Vidarbha Engineering is not owner but only lessee of land. As such, it cannot convey title which it does not possess itself. In fact, no clause in agreement purports to effect transfer. Also in consideration of licence Unitech has agreed that Vidarbha Engineering will have share of 22% in constructed area. Thus it appears that what is contemplated is that upon construction Unitech will retain 78% and share of Vidarbha Engineering will be 22% of built up area vide clause 4.6 of agreement 3. Thus transaction cannot be construed as sale, lease or licence. At this juncture it would be important to construe this transaction in terms of clause (d) of sub-section (2) of Section 269UA of Act, provision which defines immovable property 4. In terms of Section 269UA(2)(d) of Act Immovable property consists of :- 3 clause 4.6 : As consideration for SECOND PARTY agreeing to develop said project land in phases and in manner specified herein, SECOND PARTY shall be entitled to retain 78% of total constructed area of multi-storeyed shopping-cum-commercial project and FIRST PARTY s share will be 22% of same. This constructed area shall include area in basement, if there will be any. 4 Section 269UA (2)(d) immovable property means- (i) any land or any building or part of building, and includes, where any land or any building or part of building is to be transferred together with any machinery, plant, furniture, fittings or other things, such machinery, plant, furniture, fitting or other things also. Explanation.- For purposes of this sub-clause, land, building, part of building, machinery, plant, furniture, fittings and other things include any rights therein. (ii) any rights in or with respect to any land or any building or part of building (whether or not including any machinery, plant, furniture, fittings or other things therein) which has been constructed or which is to be constructed, accruing or arising from any transaction (whether by way of becoming member of, or acquiring shares in , co-operative society, company or other association of persons or by way of any agreement or any arrangement of whatever nature), not being transaction by way of sale, exchange or lease of such land, building or part of building; 6 Page 6 (a) not only land or building vide sub-clause (i) but also (b) any rights in or with respect to any land or building including building which is to be constructed. Transfer of such rights in or with respect to any land or building is defined in clause (f) of sub-section (2) of Section 269UA of Act as doing of anything which has effect of transferring, or enabling enjoyment of, such property. Thus question whether collaboration agreement constitutes transfer of property must be answered with reference to clauses (d) and (f) which defines immovable property and transfer. It is clear from agreement that transfer of rights of Vidarbha Engineering in its land does not amount to any sale, exchange or lease of such land, since, only possessory rights have been granted to Unitech to construct building on land. Nor is there any clause in agreement expressly transferring 22% of building to Vidarbha after it is constructed by Unitech. Clause 4.6 only mentions that as consideration for Unitech agreeing to develop property it shall retain 78% and share of Vidarbha Engineering will be 22%. In fact Parliament has defined transfer , deliberately wide enough to include within its scope such agreements or arrangements which have effect of transferring all important rights in land for future considerations such as part acquisition of shares in buildings to be 7 Page 7 constructed, vide sub-clause (ii) of clause (f) of sub-section (2) of Section 269UA. There is no doubt that collaboration agreement can be construed as agreement and in any case arrangement which has effect of transferring and in any case enabling enjoyment, of such property. Undoubtedly, collaboration agreement enables Unitech to enjoy property of Vidarbha Engineering for purpose of construction. There is also no doubt that agreement is arrangement. It must therefore be held that collaboration agreement effectuates transfer of subject land from Vidarbha Engineering to Unitech within meaning of term in Section 269UA of Act. It appears to be intention of Parliament to cover all such transactions by which valuable rights in property are in fact transferred by one party to another for consideration, under word transfer , for fulfilling purpose of pre-emptive purchase i.e. prevention of tax evasion. Judgment of Patna High Court in Ashis Mukerji v. Union of India and Ors5 cited before us takes view that development agreement is covered by definition of transfer in Section 269UA. We note same with approval. SHOW CAUSE NOTICE 5 [1996] 222 ITR 168 8 Page 8 6. Upon submission of statement under Section 269UA of Act, Appropriate Authority issued show cause notice dated 8.7.1994 stating that consideration for transaction appears to be too low and appears to be understated by more than 15%, having regard to sale instance of land in Hanuman Nagar, adjoining locality. show cause notice contains following table: P.U.C. Sale instance property 1. File No. 214 210 2. Dt. of agreement 17.3.1994 1.3.1994 3. Description of Land bearing Plot Land at Sur. property No. 34, 35, 36, No. 19 Sheet Ind. Area Scheme No. 32, Ward NIT. Dahipura No. 10, and Untkhana, Hanuman Rambag Rd. Nagar, Nagpur Nagpur. 4. Consideration: 1,00,40,000/- 19,50,000/- Apparent 5. Land Area 2024.22 sq. ft. 736 sq. mtrs. 6. F.S.I. available 56473 sq. ft. 6877 sq ft. 7. Rates per sq. ft. of Rs. 184/- Rs. 283/- FSI apparent 7. It is obvious from table that authority took price consideration for land to be Rs. 1,00,40,000/- (rupees one crore forty thousand) which is consideration stated by appellant in 9 Page 9 statement as consideration for transfer of subject property i.e. plot nos. 34, 35 and 36 admeasuring 2595.152 sq. mtrs. = 27,934 sq ft. It is however, difficult to imagine how or why authority has considered consideration to be for 56,473 sq ft (of available FSI). This has obviously resulted in showing lower price of Rs.184/- per sq ft of FSI and enabling authority to draw prima facie conclusion that consideration is understated by more than 15% in comparison to sale instance for which price appears to be Rs. 283/- per sq ft of FSI. If authority had to take into account consideration of Rs. 1,00,40,000/- for 27,934 sq ft to piece of land as stated by appellants rate would have been Rs. 359.41 per sq ft. and rate of sale instance would have been Rs. 246.14 per sq ft. authorities thus committed serious error in taking consideration quoted by appellants for entire subject land i.e. 27,934 sq ft as consideration for transfer of available FSI i.e. 56,473 sq ft. thus showing unwarranted undervaluation. 8. Moreover, as rightly contended by Shri Mohta authorities have treated consideration for subject land, which is industrial plot, as understated by more than 15% on basis of sale instance of land which is in residential locality. More importantly, it is obvious that area of sale instance is of much smaller plot i.e. 10 Page 10 736 sq mtrs whereas subject land which is said to have been undervalued is 2,024 sq mtrs. It is well known that price of small residential plot would be more than large industrial plot. show cause notice which has subsequently been confirmed is vitiated by gross non-application of mind. 9. In reply to show cause notice appellants raised several objections to alleged undervaluation including existence of encumbrances and aspects mentioned hereinabove. In particular, appellants pointed out sale instance of comparable case approved by authorities where FSI cost on basis of apparent consideration comes to Rs. 90/- per sq ft. This was in respect of property in very same locality in which subject land is located. ORDER UNDER SECTION 269UD OF INCOME TAX ACT 10. appropriate authority considered objections filed by appellants and rejected them by order dated 29.07.1994 passed under section 269UD of Income Tax Act. authority rejected all objections taken by appellants. authority validated sale instance relied on in show cause notice without giving any finding on specific objections raised. It rejected sale instance relied on by appellants of property in same locality on 11 Page 11 ground that that property does not have road on three sides like property under consideration; there is nallah carrying waste water near that property and it has frontage of only 12.5 mtrs. It took into account consideration of Rs. 1,00,40,000/- and deducted from it amount of Rs. 24,09,600/- being discount calculated at rate of 8% per annum since consideration had been deferred for period of three years. It therefore determined consideration for purchase of subject property at Rs. 76,30,400/-. 11. authority fell into gross and obvious error while conducting this entire exercise of holding that consideration for subject property was understated in holding that Vidarbha Engineering has transferred property to extent of 78% to Unitech. There is no warrant for this finding since Vidarbha Engineering was never to be owner of entire built up area. It only had share of 22% in it. Unitech, which had built from its own funds, was to retain 78% share in built up area. And in any case appellants had never stated that consideration for Rs. 1,00,40,000/- was in respect of built up area but on other hand had clearly stated that it was for transfer of subject land. Thus, there was no evidence on record nor is any referred to in order for coming to conclusion that Vidarbha Engineering had transferred 78% of built up area to Unitech and retained 22%. order of appropriate authority thus suffers from gross perversity. 12 Page 12 IMPUGNED JUDGMENT OF HIGH COURT 12. By writ petition before High Court, appellants raised several contentions. They maintained that impugned order did not contain any finding that consideration for transaction was undervalued by parties in order to evade taxes, which is mischief sought to be prevented. Shri Mohta, learned senior advocate, maintained that it was necessary for authority to come to conclusion that there is attempt to or in fact evasion of taxes before directing compulsory purchase. learned senior counsel referred to decision of Bombay High Court in Amarjit Thapar v. S.K. Laul & Ors. [2008] 298 ITR 336. Bombay High Court observed as follows: order of Appropriate Authority is invalid and void ab initio as there is no positive finding that there was attempt to evade tax. Apex Court in case of C.B.Gautam v. Union of India (1993) 1 SCC 78, held that very historical setting in which provisions of this Chapter were enacted indicates that it was intended to be resorted to only in cases where there is attempt to evade tax by significant undervaluation of immovable property agreed to be sold. In case of Nirmal Laxminarayan Grover (supra), this Court held that recourse to compulsory purchase of immovable property; under Chapter 13 Page 13 XX-C of Act should be taken only in clear cases of gross undervaluation from which interference must clearly flow that it is done for evasion of taxes. In view of judgment of Supreme Court in C.B.Gautam (supra), unless difference in apparent effective consideration and market value is more than 15%, Appropriate Authority cannot assume jurisdiction under section 269-UD of Act. same does not mean that mere fact that such difference is more than 15% will, automatically, lead to conclusion that there has been undervaluation of property with motive of evading tax. In Vimal Agarwal case (supra), this Court has reiterated that right of pre-emptive purchase under section 269UD is not right of pre-emption simpliciter but is right which can be exercised only in cases where there is significant undervaluation in agreement of sale with view to evade tax. onus of establishing that undervaluation is with view to evade tax is on Revenue. No such finding is to be found in impugned order . It is not possible to agree with this view in its entirety. Undoubtedly one of objects of provision is to prevent evasion of taxes by showing undervaluation which is more than 15% of true value of property and which in turn carries implication that some portion of value is not shown in agreement or deed but passes by way of unaccounted money. But it is not possible to say 14 Page 14 that it must be alleged in show cause notice or finding must be rendered in order that there is evasion of taxes as sine qua non for its validity. Nor is it possible to hold that onus of establishing undervaluation with view to evade tax is on revenue. true position seems to be that significant undervaluation, greater than 15% below fair market value raises rebuttable presumption that there is attempt to evade taxes. In C.B. Gautam s case 6 this Court observed that allegation of such undervaluation of more than 15% raises rebuttable presumption of evasion of taxes which renders opportunity to show cause necessary. Therefore, such opportunity must be read into provisions of Chapter XXC. This Court observed in C.B. Gautam s case (supra), as follows: As we have already pointed out provisions of Chapter XX-C can be resorted to only where there is significant undervaluation of property to extent of 15 per cent or more in agreement of sale, as evidenced by apparent consideration being lower than fair market value by 15 per cent or more. We have further pointed out that although presumption of attempt to evade tax may be raised by appropriate authority concerned in case of aforesaid circumstances being established, but such presumption is rebuttable and this would necessarily imply that parties concerned must 6 (1993) 1 SCC 78 15 Page 15 have opportunity to show cause as to why such presumption should not be drawn. Moreover, in given transaction of agreement to sell there might be several bona fide considerations which might induce seller to sell his immovable property at less than what might be considered to be fair market value. For example: he might be in immediate need of money and unable to wait till buyer is found who is willing to pay fair market value for property. There might be some dispute as to title of immovable property as result of which it might have to be sold at price lower than fair market value or subsisting lease in favour of intending purchaser. There might similarly be other genuine reasons which might have led seller to agree to sell property to particular purchaser at less than market value even in cases where purchaser might not be his relative. Unless intending purchaser or intending seller is given opportunity to show cause against proposed order for compulsory purchase, he would not be in position to rebut presumption of tax evasion and to give interpretation to provisions which would lead to such result would be utterly unwarranted. very fact that imputation of tax evasion arises where order for compulsory purchase is made and such imputation casts slur on parties to agreement to sell lead to conclusion that before such imputation can be 16 Page 16 made against parties concerned, they must be given opportunity to show cause that undervaluation in agreement for sale was not with view to evade tax. Although Chapter XX-C does not contain any express provision for affected parties being given opportunity to be heard before order for purchase is made under Section 269-UD, not to read requirement of such opportunity would be to give too literal and strict interpretation to provisions of Chapter XX-C and in words of Judge Learned Hand of United States of America to make fortress out of dictionary . Again, there is no express provision in Chapter XX-C barring giving of show-cause notice or reasonable opportunity to show cause nor is there anything in language of Chapter XX-C which could lead to such implication. observance of principles of natural justice is pragmatic requirement of fair play in action. In our view, therefore, requirement of opportunity to show cause being given before order for purchase by Central Government is made by appropriate authority under Section 269-UD must be read into provisions of Chapter XX-C . 13. High Court has failed to render finding on relevance of comparable sale instances, particularly, why sale instance in adjoining locality has been considered to be valid instead of sale instance in same locality. other aspects of impugned order 17 Page 17 of appropriate authority in earlier part of judgment seems to have been missed. 14. In result, we find that appeal deserves to be allowed and is hereby allowed. impugned order dated 20.02.2004 passed by High Court of Bombay at Nagpur is set aside. Consequently, order dated 29.07.1994 passed by appropriate authority under Section 269UD (1) of Act is also set aside. There will be no order as to costs. . .......... ..J. [MADAN B. LOKUR] ....................... J. [S.A. BOBDE] NEW DELHI, NOVEMBER 4, 2015 18 Page 18 Unitech Ltd. & ANR. v. Union of India & ANR