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TMI Blog2015 (11) TMI 306X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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. Section 269UA. Definition - In this Chapter, unless the 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 a term of not less than twelve years, and includes allowing the possession of such property to be taken or retained in part performance of a contract of the nature referred to in Section 53A of the Transfer of Property Act, 1882 (4 of 1882): Explanation- For the purpose of this sub-clause, a lease which provides for the extension of the term thereof by a further term or terms shall be deemed to be a lease fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucted area of the multi-storeyed shopping-cum-commercial project and the FIRST PARTY's share will be 22% of the same. This constructed area shall include the area in the basement, if there will be any.. Thus the transaction cannot be construed as a sale, lease or a 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 the Act, the provision which defines immovable property Section 269UA (2)(d) "immovable property" means- (i) any land or any building or part of a building, and includes, where any land or any building or part of a 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 the purposes of this sub-clause, "land, building, part of a 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 a part of a building (whether or not including any machinery, plant, furniture, fittings or other things therein) which has been constructed or which is to be constructed, acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... boration agreement effectuates a transfer of the subject land from Vidarbha Engineering to Unitech within the meaning of the term in Section 269UA of the Act. It appears to be the intention of the Parliament to cover 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. A Judgment of the Patna High Court in Ashis Mukerji v. Union of India and Ors [1996] 222 ITR 168 cited before us takes the view that a development agreement is covered by the definition of transfer in Section 269UA. We note the same with approval. SHOW CAUSE NOTICE 6. 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 show cause notice contains the following table: P.U.C. Sale instance property 1. File No. 214 210 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss non-application of mind. 9. In reply to the show cause notice the appellants raised several objections to the alleged undervaluation including the existence of encumbrances and the aspects mentioned hereinabove. 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 comes 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. ORDER UNDER SECTION 269UD OF THE INCOME TAX ACT 10. 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. 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 propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apter were enacted indicates that it was intended to be resorted to only in cases where there is an attempt to evade tax by significant undervaluation of immovable property agreed to be sold. In the case of Nirmal Laxminarayan Grover (supra), this Court held that recourse to compulsory purchase of the immovable property; under Chapter XX-C of the Act should be taken only in clear cases of gross undervaluation from which the interference must clearly flow that it is done for evasion of taxes. In view of the judgment of the Supreme Court in C.B.Gautam (supra), 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. In Vimal Agarwal case (supra), this Court has reiterated that right of pre-emptive purchase under section 269UD is not a right of pre-emption simpliciter but is a right which can be exercised only in the cases where there is significant under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diate need of money and unable to wait till a buyer is found who is willing to pay the fair market value for the property. There might be some dispute as to the title of the immovable property as a result of which it might have to be sold at a price lower than the fair market value or a subsisting lease in favour of the intending purchaser. There might similarly be other genuine reasons which might have led the seller to agree to sell the property to a particular purchaser at less than the market value even in cases where the purchaser might not be his relative. Unless an intending purchaser or intending seller is given an opportunity to show cause against the proposed order for compulsory purchase, he would not be in a position to rebut the presumption of tax evasion and to give an interpretation to the provisions which would lead to such a result would be utterly unwarranted. The very fact that an imputation of tax evasion arises where an order for compulsory purchase is made and such an imputation casts a slur on the parties to the agreement to sell lead to the conclusion that before such an imputation can be made against the parties concerned, they must be given an opportunity ..... X X X X Extracts X X X X X X X X Extracts X X X X
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