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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL  APPEAL No. 430  OF 2007   

UNITECH LTD. & ANR.                   .. APPELLANT(S)

VERSUS

UNION OF INDIA & ANR.                     ..RESPONDENT(S)

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  referred  to  as  ‘the  Act’)  passed  by  the

Appropriate Authority under Section 269UD of the Act.    

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

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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

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Engineering  to  22% of  the  constructed area  in  the  proposed  multi

storied building.    

3. 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

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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/-.

4. It was contended by Shri Mohta, the learned senior advocate,

that since the agreement does not purport  to transfer any land by

Vidarbha Engineering to Unitech, Chapter XXC of the Act itself has no

application and no pre-emptive purchase could have been ordered by

the competent authority.  Shri Mohta points out that the provisions 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

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entered into by the appellants; vide sub-clause  (ii) of clause (f) of sub

section (2) of Section 269UA of the Act1.

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 another2.  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

1 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 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 other association of persons or by way of any agreement or arrangement or in any other manner whatsoever) which has the effect of transferring or enabling the enjoyment of, such property.  2 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.

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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  agreement3.  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 property4.  In terms of Section 269UA(2)(d)

of the Act ‘Immovable property’ consists of :-

3 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. 4 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, accruing or arising  from any  transaction  (whether  by  way of  becoming  a  member  of,  or acquiring  shares  in  ,  a  co-operative  society,  company  or  other  association  of persons or by way of any agreement or any arrangement of whatever nature), not being a transaction by way of sale, exchange or lease of such land, building or part of a building;

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(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  the

collaboration  agreement  constitutes  transfer  of  property  must  be

answered  with  reference  to  clauses  (d)  and  (f)  which  defines

immovable property and transfer.  It is clear from the agreement that

the transfer  of  rights  of  Vidarbha Engineering  in  its  land  does  not

amount  to  any  sale,  exchange  or  lease  of  such  land,  since,  only

possessory  rights  have  been  granted  to  Unitech  to  construct  the

building  on  the  land.   Nor  is  there  any  clause  in  the  agreement

expressly  transferring  22%  of  the  building  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

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constructed,  vide sub-clause (ii)  of  clause (f)  of  sub-section (2)  of

Section 269UA.  There is no doubt that the collaboration agreement

can 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  enables  Unitech  to  enjoy  the  property  of  Vidarbha

Engineering for the purpose of construction. There is also no doubt

that an agreement is an arrangement. It must therefore 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 Patna High Court in Ashis Mukerji v. Union of India and Ors5 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

5 [1996] 222 ITR 168

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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

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 sq. ft. 736 sq. mtrs.

6. F.S.I. available 56473 sq. ft. 6877 sq ft.

7. Rates per sq. ft.  of FSI apparent

Rs. 184/- Rs. 283/-

7. It is obvious from the table that the authority took the price the

consideration for the land to be Rs. 1,00,40,000/- (rupees one crore

forty thousand) which is the consideration stated by the appellant in

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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.   It  is  however, 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

Rs.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 Rs. 283/- per sq ft of FSI.  If the authority had to take into 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 ft.   and the rate of  the sale instance would have been Rs.

246.14 per sq ft.   The authorities 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.    

8. Moreover, as  rightly  contended  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.

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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 large industrial plot.   The

show cause notice which has subsequently been confirmed is vitiated

by a gross 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

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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/-.   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 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.

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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

mischief  sought  to  be  prevented.   Shri  Mohta,  the  learned  senior

advocate, maintained that it was necessary for the authority to come

to the conclusion that there is an attempt to or in fact an evasion of

taxes  before  directing  compulsory  purchase.   The  learned  senior

counsel referred to a decision of the Bombay High Court in  Amarjit

Thapar  v. S.K. Laul & Ors. [2008] 298 ITR 336.  The Bombay High

Court observed as follows:

“The order of the Appropriate Authority is invalid

and void ab initio as there 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  compulsory

purchase  of  the  immovable  property;  under  Chapter

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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 undervaluation in agreement of sale with a

view  to  evade  tax.  The  onus  of  establishing  that

undervaluation is  with a view to evade tax is  on the

Revenue.  No  such  finding  is  to  be  found  in  the

impugned order”.

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

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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 case6 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:

“As we have already pointed out the provisions of

Chapter XX-C can be resorted to only where there is

a significant undervaluation of property to the extent

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

6 (1993) 1 SCC 78

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have an opportunity to show cause as to why such a

presumption  should  not  be  drawn.  Moreover, in  a

given transaction of an agreement to sell there might

be  several  bona  fide  considerations  which  might

induce a seller to sell his immovable property at less

than what might be considered to be the fair market

value. For example: he might be in immediate 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

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made against the parties concerned, they must be

given  an  opportunity  to  show  cause  that  the

undervaluation  in  the  agreement  for  sale  was  not

with  a  view to  evade tax.  Although Chapter  XX-C

does  not  contain  any  express  provision  for  the

affected  parties  being  given  an  opportunity  to  be

heard before an order for purchase is made under

Section 269-UD, not to read the requirement of such

an opportunity would be to give too literal and strict

an interpretation to the provisions of Chapter XX-C

and  in  the  words  of  Judge  Learned  Hand  of  the

United States of America “to make a fortress out of

the dictionary”. Again, there is no express provision

in Chapter XX-C barring the giving of a show-cause

notice or reasonable opportunity to show cause nor

is there anything in the language of Chapter XX-C

which  could  lead  to  such  an  implication.  The

observance  of  principles  of  natural  justice  is  the

pragmatic requirement of fair play in action. In our

view, therefore, the requirement of an opportunity to

show cause being given before an order for purchase

by  the  Central  Government  is  made  by  an

appropriate authority under Section 269-UD must be

read into the provisions of Chapter XX-C”.

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

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of the appropriate authority in the earlier part of judgment seems to

have been missed.   

14. In the result, we find that the appeal deserves to be allowed and

is hereby allowed.  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. There will be no order as to

costs.

……………….…..........…..J.       [MADAN B. LOKUR]

.......................………J.                                                                            [S.A. BOBDE]

NEW DELHI,    NOVEMBER 4, 2015

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