1999 (5) TMI 28 - SC - Income Tax

Whether there is transfer of any immovable property under the settlement agreement? Held that - Mere look at the agreement shows that it is not an agreement for transfer as understood in clause (a) of section 269UA of Chapter XX-C of the Income-tax Act. The settlement agreement also does not stipulate exchange of any immovable property. It rather divides equally businesses and properties between Harendra and Mukesh. It is difficult to appreciate the arguments of Mr. Ganesh as to how in the present case, there is transfer of any immovable property under the settlement agreement. It appears to us that the bone of contention is a flat in Urvashi building in Mumbai which formed part of B A1 of Mukesh . It was not disputed before us that for this the appellants did execute a gift deed in favour of the respondents on advice received but no steps were taken to complete the transaction as, it appears, relations soured. This would also show that the settlement agreement on the award did not require filing of any declaration under Chapter XX-C of the Income-tax Act. Moreover, in our view in the case of a foreign award, the provisions of Chapter XX-C of the Income-tax Act are not attracted. It was said that under Chapter XX-C a net has been thrown wide to bring within its purview all sorts of immovable properties but that net is not wide enough to cover a foreign award covering businesses and properties both in India and in a foreign country. The apprehension of Mr. Ganesh that if we give this interpretation a method can be found by the parties to escape the rigour of Chapter XX-C knocking at the very provision of law which strikes at the root of black money rampant in the sale and purchase of immovable property. If that is so, the Legislature can always step into block the gap if it finds there is any escapement of revenue. We are also of the view that a foreign award under the Foreign Awards Act does not require registration under the Registration Act. A decree or order of a court does not require registration under clause (b) of sub-section (1) of section 17 of the Registration Act. This is the effect of clause (vi) of sub-section (2) of section 17. Earlier under this clause (vi) before its amendment in 1929 even an award did not require registration. However, after omission of the words and any award an award creating or declaring right or interest in immovable property of the value of ₹ 100 would require registration. But then that award would be an award under the Arbitration Act, 1940, and certainly not a foreign award. Appeal dismissed.

Summary

Issues Involved:
1. Validity of the arbitral award.
2. Nature of the award under the Foreign Awards Act.
3. Compliance with Chapter XX-C of the Income-tax Act, 1961.
4. Merger of the award in the foreign judgment.
5. Allegation of fraud in obtaining the award.
6. Pre-existing foreign judgment enforcement.

Detailed Analysis:

1. Validity of the Arbitral Award:
The appellants argued that the arbitral award was invalid as it did not arise from any genuine dispute and the arbitrator merely acted as a "rubber stamp." However, the court found that the arbitration agreement and subsequent award were valid as they were executed following the parties' agreement to resolve their disputes through arbitration. The award was confirmed by the Nassau County Court in New York, which rejected the appellants' objections.

2. Nature of the Award under the Foreign Awards Act:
The appellants contended that the award was not of a commercial nature and merely effected a family settlement, thus not qualifying as a "foreign award" under the Foreign Awards Act. The court held that the award, arising from an arbitration agreement between the parties concerning their business and property disputes, fell within the scope of the Foreign Awards Act. The Bombay High Court's decision to enforce the award was upheld.

3. Compliance with Chapter XX-C of the Income-tax Act, 1961:
The appellants argued that the award violated Chapter XX-C of the Income-tax Act, which requires government approval for the transfer of immovable property to prevent tax evasion. The court found that the settlement agreement did not constitute a mere agreement for transfer of immovable property but was a complex arrangement involving businesses and properties in both India and the U.S. The court also noted that the provisions of Chapter XX-C were not applicable to foreign awards and that the award did not require registration under the Registration Act, 1908.

4. Merger of the Award in the Foreign Judgment:
The appellants claimed that the award had merged into the foreign judgment of the New York court, and only the judgment could be enforced. The court rejected this argument, stating that the foreign judgment confirmed the award with certain modifications, and the enforcement of the award in India was permissible under the Foreign Awards Act.

5. Allegation of Fraud in Obtaining the Award:
The appellants alleged that fraud was committed in obtaining the award and that certain schedules in the arbitration agreement were fraudulently substituted. The court found no evidence to support these allegations and upheld the validity of the award.

6. Pre-existing Foreign Judgment Enforcement:
The appellants argued that a judgment by the Supreme Court of the State of New York directing the enforcement of the award should be considered a foreign judgment, and a suit based on this judgment was already filed in the Bombay High Court. The court found that the enforcement of the foreign award under the Foreign Awards Act was independent of any suit based on the foreign judgment and did not preclude the enforcement of the award in India.

Conclusion:
The Supreme Court dismissed the appeal, upholding the Bombay High Court's decision to enforce the foreign award. The court found no merit in the appellants' objections regarding the validity of the award, its nature under the Foreign Awards Act, compliance with Chapter XX-C of the Income-tax Act, allegations of fraud, and the merger of the award in the foreign judgment. The appeal was dismissed with costs.