Unitech Ltd. vs. Union of India (2016) 381 ITR 456 (SC)
Vidarbha Engineering Industries – appellant No.2 held on lease, three plots of land admeasuring 2595.152 sq. mtrs., i.e., 27934 sq. ft. at Dahipura and Untkhana, Nagpur. This land was 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 formalised into a collaboration agreement dated March 17, 1994. Under this agreement the land holder agreed to allow Unitech to develop and construct a commercial project on 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 per cent. 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 appellant submitted a statement in form 37-I u/s. 269UC of the Act annexing the agreement dated March 17, 1994.
This form contained only the nomenclatures of the transferor and transferee and contemplated only the transaction of a transfer and not an arrangement of collaboration. Therefore, the appellants were to described 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.
Upon the submission of the statement under section 269UA of the Act, the Appropriate authority issued a showcause dated July 8, 1994, stating that the consideration for the transaction appeared to be too low and appeared to be understated be more than 15%, having regard to the sale instance of a land in Hanuman Nagar, an adjoining locality, the rates per sq. ft. of FSI of which worked out to Rs 283, whereas the such a rate in case of the appellants worked out to Rs. 184 (1,00,40,000 – 56,473).
In reply to the show-cause notice the appellants raised several objections to the alleged undervaluation including the existence of encumbrances and other aspects. In particular, the appellants pointed out a sale instance of a comparable case approved by the authorities where the FSI cost on the basis of apparent consideration came to Rs. 90 per sq. ft. This was in respect of a property in the very same locality in which the subject land is located.
The appropriate authority considered the objections filed by the appellants and rejected them by an order dated July 29, 1994, passed u/s. 269UD of the Income-tax Act. The authority rejected all the objections taken by the appellants. The authority validated the sale instance relied on in the show-cause notice without giving any finding on the specific objections raised. It rejected the sale instance relied on by the appellants of a property in the same locality on the ground that that property does not have road on the three sides like the property under consideration there is a nallah carrying waste water near that property and it has a frontage of only 12.5 mtrs. 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.
By a writ petition before the High Court challenging the compulsory pre-emptive purchase, the appellants raised several contentions. They maintained that the impugned order 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. The High Court, however, dismissed the petition of the appellants. Being aggrieved, the appellants approached the Supreme Court.
The Supreme Court noted that 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. Further, no clause in the agreement purported to transfer the subject land to Unitech. On the other hand, clause 4.6 specifically provided that nothing in the agreement shall be construed to be a demise, assignment or a conveyance. The agreement thus created 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. The Supreme Court observed that it may appear at first blush that the collaboration agreement involved an exchange of property in the sense that the land holder transferred his property to the developer and the developer transferred 22% of the constructed area to the land holder but on a closer look this impression was quickly dispelled.
The Supreme Court noted that the word “Exchange” was 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. But it was not possible to construe the license created by Vidarbha Engineering in favour of Unitech as a transfer or acquisition of 22% share of the constructed building as a transfer in exchange. Vidarbha Engineering was not an owner but only a lessee of the land. As such, it could not convey a title which it did not possess itself. In fact, no clause in the agreement purported to effect a transfer. Also in consideration of the license Unitech had agreed that the Vidarbha Engineering will have a share of 22% in the constructed area. Thus it appeared that what was contemplated was that upon construction Unitech would retain 78% and the share of Vidarbha Engineering would be 22% of the built-up area vide clause 4.6 of the agreement . Thus the transaction could not be construed as a sale, lease or a licence.
The Supreme Court noted that in terms of section 269UA(d) of the Act “Immovable property” consisted of : (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 right in or with respect to any land or building was defined in clause (f) of section 269UA of Act as the doing of anything which had the effect of transferring, or enabling the enjoyment of, such property. According to the Supreme Court, the question whether the collaboration agreement constituted transfer of property, therefore, should be answered with reference to clauses (d) and (f) which defined immovable property and transfer. The Supreme Court held that it was clear from the agreement that the transfer of rights of Vidarbha Engineering in its land did not amount to any sale, exchange or lease of such land, since only possessory rights had been granted to Unitech to construct the building on the land. Nor was there any clause in the agreement expressly transferring 22 per cent. of the building to Vidarbha after it is constructed by Unitech. Clause 4.6 only mentioned that as a consideration for Unitech agreeing to develop the property it shall retain 78 per cent. and the share of Vidarbha Engineering would be 22 per cent .
The Supreme Court observed that in fact Parliament had defined “transfer” deliberately wide enough to include within its scope such agreements or arrangement which have the effect of transferring all the important rights in land for future considerations such as part acquisition of shares in buildings to be constructed, vide sub-clause (ii) of clause (f) of section 269UA. There was no doubt that the collaboration agreement could be construed as an agreement and in any case an arrangement which has the effect of transferring and in any case enabling the enjoyment, of such property. Undoubtedly, the collaboration agreement enabled United to enjoy the property of Vidarbha Engineering for the purpose of construction. There was also no doubt that an agreement was an arrangement. The Supreme Court therefore held that the collaboration agreement effectuated a transfer of the subject land from Vidarbha Engineering to Unitech within the meaning of the term in section 269UA of the Act. It appeared tocover all such transactions by which valuable rights in property are in fact transferred by one party to another for consideration, under the word “transfer”, for fulfilling the purpose of pre-emptive purchase, i.e. prevention of tax evasion. The supreme Court approved the judgment of the Patna High Court in Ashis Mukerji vs. Union of India (1996) 222 ITR 168 (Pat) which took the view that a development agreement was covered by the definition of transfer in section 269UA.
The Supreme Court however further noted that the authority took the consideration for the land to be Rs. 1,00,40,000 which was the consideration stated by the appellant in the statement as a consideration for the transfer of subject property, i.e. plot Nos. 34, 35 and 36 admeasuring 2595.152 sq. mtrs. = 27,934 sq ft. According to the Supreme Court, it was however, difficult to imagine how or why the authority had considered the consideration to be for 56,473 sq. ft. (of available FSI). This had obviously resulted in showing a lower price of Rs. 184 per sq. ft. of FSI and enabling the authority to draw a prima facie conclusion that the consideration was understated by more than 15% in comparison to the sale instance for which the price appears to be Rs.283 per sq. ft. of FSI. If the authority had to take into a account the consideration of Rs.1,00,40,000 for 27,934 sq.ft. to a piece of land as stated by the appellants the rate would have been Rs. 359.41 per sq. and the rate of the sale instance would have been Rs. 246.14 per. sq. ft. According to the Supreme Court, the authorities had thus committed a serious error in taking the consideration quoted by the appellants for the entire subject land, i.e. 27,934 sq. ft. as consideration for the transfer of the available FSI i.e., 56,473 sq ft. thus showing an unwarranted undervaluation. The Supreme Court further noted that the authorities had treated the consideration for subject land, which was 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 and also that the area of the sale instance was of much smaller plot of 736 sq mtrs whereas the subject land was 2,024 sq. mtrs.
According to the Supreme Court, 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 Vidabha Engineering had transferred property to the extent of 78% to Unitech. There was no warrant for this finding since Vidabha Engineering was never to be the owner of the entire built-up area. It only had a share of 22% in it. Unitech., which had built from its own funds, was to retain 78% share in the built-up area. And 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.
The Supreme Court held that the High Court had failed to render a finding on the relevance of comparable sale instances, particularly, why a sale instance in an adjoining locality had been considered to be valid instead of a sale instance in the same locality. Also, it had missed the other aspects referred hereinbefore.
The Supreme Court therefore, allowed the appeal of the appellants and set aside the orders of the High Court and that of the appropriate authority.
