Case: Unitech Ltd.  Vs. Union Of India

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 the ‘subject land?). This land is 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. (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 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 entitlement of Vidarbha Engineering to 22% of the constructed area in the proposed multi storied building3. The appellant submitted a statement in Form 37-I under Section 269UC of the Act annexing the agreement dated 17.3.1994. According to Shri V.A. Mohta, the learned senior counsel, this form contains only the nomenclatures of transferor and transferee and contemplates only the transaction of a transfer and not an arrangement of collaboration. Therefore, the appellants were constrained to describe 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. 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 this submission notwithstanding the self description of the parties as transferor and transferee since it involves the true construction of a document which is always a substantial question of law. We find much substance in the contention. In the first place, 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. Secondly, no clause in the agreement purports to transfer the subject land to Unitech. On the 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 Rs. 1,00,40,000/-5. It may appear at first blush that the collaboration agreement involves an exchange of property in the sense that the land holder transfers his property to the developer and the developer transfers 22% of the constructed area to the land holder but on a closer look this impression is quickly dispelled. Exchange 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 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. As observed earlier Vidarbha Engineering is not an owner but only a lessee of the land. As such, it cannot convey a title which it does not possess itself. In fact, no clause in the agreement purports to effect a transfer. Also in consideration of the licence Unitech has agreed that the Vidarbha Engineering will have 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-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?SHOW CAUSE NOTICE6. 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 locality9. 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 located11. 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 Vidarbha 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. Thus, there was no evidence on record nor is any referred to in the order for coming 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

Reasoning:
It is not possible to agree with this view in its entirety. Undoubtedly one of the objects of the provision is to prevent evasion of taxes by showing an undervaluation which is more than 15% of the true value of the property and which in turn carries an implication that some portion of the value is not shown in the agreement or the deed but passes by way of unaccounted money. But 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 case (1993) 1 SCC 78 )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 into the provisions of Chapter XXC. This Court observed in C.B. Gautam?s case (supra), as follows:13. The High Court has failed to render a finding on the relevance of comparable sale instances, particularly, why a sale instance in an adjoining locality has been considered to be valid instead of a sale instance in the same locality. The other aspects of the impugned order of the appropriate authority in the earlier part of judgment seems to have been missed