Contact us   Feedback   Subscription   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2015 (11) TMI 306 - SUPREME COURT

2015 (11) TMI 306 - SUPREME COURT - [2016] 381 ITR 456 - Compulsory pre-emptive purchase under Chapter XXC of the Income Tax Act, 1961 passed by the Appropriate Authority under Section 269UD - Whether 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? - Held that:- Undoubtedly one of the objects of the provision is to prevent evasion of taxes by showing an .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

o evade tax is on the revenue. The true position seems to be that a significant undervaluation, greater than 15% below the fair market value raises a rebuttable presumption that there is an attempt to evade taxes. In C.B. Gautamís case (1992 (11) TMI 1 - SUPREME Court) this Court observed that an allegation of such undervaluation of more than 15% raises a rebuttable presumption of evasion of taxes which renders an opportunity to show cause necessary. Therefore, such an opportunity must be read i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

. 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. - Civil Appeal No. 430 of 2007 - Dated:- 4-11-2015 - Madan B. Lokur And S. A. Bobde, JJ. JUDGMENT S. A. Bobde, J. 1. This appeal is preferred by the appellants, who suffered an order of compulsory pre-emptive purchase under Chapter XXC of the Income Tax Act, 1961 (hereinafter .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

st. Vidarbha Engineering decided to develop the subject land and entered into an agreement for the purpose with Unitech Ltd. (herein after referred to as Unitech ). The Memorandum of Understanding between them was formalized into a collaboration 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 entitlement of Vidarbha Engineering to 22% of the co .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

cordingly, they mentioned that the consideration for the transfer of the subject property was ₹ 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. This submission was made as a preface to the contention that in fact and in law, Vidarbha Engineering has not transferred the property held by it to Unitech, but that it has only allowed Unitech to make a construction on the land. Indeed, we have considered thi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e other hand, 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. By the statement in Form 37-I the consideration has been valued by the parties at &# .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

g 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rther term or terms shall be deemed to be a lease for a term of not less than twelve years, if the aggregate of the term for which such lease is to be granted and the 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 the nature referred to in sub-clause (ii) of clause (d), means the doing of anything (whether by way of admitting as a member of or by way of transfer of shares in a cooperative society or company or o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e is 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, Section 118 Exchange defined.-When two persons mutually transfer the ownership of one thing for the ownership of another, neither thing or both things being money only, the transaction is called exchange . A transfer of property in completion of an exchange can be made only in manner provided for the transfer of such property by sale.. But it is not .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ve a share of 22% in the constructed area. Thus it appears that what is contemplated is that upon construction Unitech will retain 78% and the share of Vidarbha Engineering will be 22% of the built up area vide clause 4.6 of the agreement clause 4.6 : As a consideration for the SECOND PARTY agreeing to develop the said project land in phases and in the manner specified herein, the SECOND PARTY shall be entitled to retain 78% of the total constructed area of the multi-storeyed shopping-cum-commer .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ilding, 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 o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ion 269UA(2)(d) of the Act Immovable property consists 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 a 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 the Act as the doing of anything which has the effect of transferring, or enabling the enjoyment of, such property. Thus the question whether .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

to Vidarbha after it is constructed by Unitech. Clause 4.6 only mentions that as a consideration for Unitech agreeing to develop the property it shall retain 78% and the share of Vidarbha Engineering will be 22%. In fact the Parliament has defined transfer , deliberately wide enough to include within its scope such agreements or arrangements 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 cons .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

fore be held that the collaboration 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 Pat .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 2. Dt. of agreement 17.3.1994 1.3.1994 3. Description of property Land bearing Plot No. 34, 35, 36, Ind. Area Scheme NIT. Dahipura and Untkhana, Rambag Rd. Nagpur Land at Sur. No. 19 Sheet No. 32, Ward No. 10, Hanuman Nagar, Nagpur. 4. Consideration: Apparent 1,00,40,000/- 19,50,000/- 5. Land Area 2024.22 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

owever, difficult to imagine how or why the authority has considered the consideration to be for 56,473 sq ft (of available FSI). This has obviously resulted in showing a lower price of ₹ 184/- per sq ft of FSI and enabling the authority to draw a prima facie conclusion that the consideration is understated by more than 15% in comparison to the sale instance for which the price appears to be ₹ 283/- per sq ft of FSI. If the authority had to take into account the consideration of S .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tended by Shri Mohta 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. More importantly, 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 la .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

/- 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 ₹ 76,30,400/-. 11. 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. There is no warrant for this finding since V .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ming 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. IMPUGNED JUDGMENT OF THE HIGH COURT 12. By the writ petition before the High Court, 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 m .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

here is no positive finding that there was an attempt to evade tax. The Apex Court in the case of C.B.Gautam v. Union of India (1993) 1 SCC 78, held that the very historical setting in which the provisions of this Chapter 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 compulso .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 undervaluation in agreement of sale with a view to evade tax. The onus of establishing that .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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. The true position seems to be that a significant undervaluation, greater than 15% below the fair market value raises a rebuttable presumption that there is an attempt to evade taxes. In C.B. Gautam s .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

xtent 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. We have further pointed out that although a presumption of an attempt to evade tax may be raised by the appropriate authority concerned in case of the aforesaid circumstances being established, but such a presumption is rebuttable and this would necessarily imply that the parties concerned must have an opportunity to show cause as to .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 comp .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version