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R. Vijayalakshmi v. Appu Hotels Ltd. And Others
Factual and Procedural Background
The appellant challenges the acquittal of accused persons in a case involving a property transaction. Appu Hotels Limited owned land at Royapettah, Chennai, purchased in 1987. The third respondent, Sunil Estates, entered into an agreement to construct on the property, receiving 50% of the constructed area and the right to sell the ground over the constructed area. The prosecution alleged this amounted to a transfer of ownership under Chapter XX-C of the Income-tax Act, 1961, requiring prior notification and filing of Form No. 37-1, which was not done. The accused were charged under sections 269UA, 269UB, 269UL, and 276AB of the Income-tax Act for failure to comply. The trial court acquitted the accused, prompting this appeal.
Legal Issues Presented
- Whether the development agreement constituted a transfer of ownership of immovable property within the meaning of Chapter XX-C of the Income-tax Act, 1961.
- Whether the accused were required to notify the appropriate authority and file Form No. 37-1 prior to such transfer under sections 269UA, 269UB, 269UC, and 269UL of the Income-tax Act.
- Whether the failure to obtain a no objection certificate from the appropriate authority constituted an offence under section 276AB of the Income-tax Act.
- Whether the trial court's acquittal of the accused was legally valid and sustainable.
Arguments of the Parties
Appellant's Arguments
- The trial court erred in concluding there was no transfer of immovable property, failing to properly consider the agreement's terms and relevant provisions of the Income-tax Act, including sections 269UA, 269UC, and 269C.
- Relied on Supreme Court precedent in Appropriate Authority v. Smt. Varshaben Bharatbhai Shah, which held that a co-owners' agreement transferring definite shares amounted to transfer of immovable property.
- Cited Madras High Court decision in Ashok Leyland Finance Ltd. v. Appropriate Authority to assert that development agreements involving undivided shares and future constructed flats attract Chapter XX-C provisions.
- Referenced the decision in Shantivan Corporation v. Sub-Registrar emphasizing that part performance and possession retention fall within the definition of "transfer" under section 269UA(f).
- Asserted that the agreement effectively transferred ownership of 50% of the land, thus triggering the special provisions of the Income-tax Act notwithstanding the Transfer of Property Act.
- Contended that the respondents violated the Income-tax Act provisions and the acquittal should be set aside.
Respondents' Arguments
- Denied any transfer of immovable property; argued that the agreement was a licence to build and share profits, not a sale or transfer of interest.
- Emphasized that transfers of immovable property above Rs. 100 require a registered deed, which was absent.
- Stated possession was temporary for construction and did not amount to permanent transfer triggering Chapter XX-C provisions.
- Noted the purpose of Chapter XX-C was to prevent stamp duty evasion and enable pre-emptive government purchase, which was inapplicable as no sale price was fixed.
- Argued that section 269C requires a threshold of a 15% undervaluation for proceedings, which was not met or alleged.
- Maintained no evasion of stamp duty occurred as no ownership transfer took place, and stamp duty will be paid upon eventual sale.
- Thus, the development agreement does not attract penal provisions of the Income-tax Act.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Appropriate Authority v. Smt. Varshaben Bharatbhai Shah, [2001] 248 ITR 342 (SC) | Transfer of definite shares in immovable property under development agreements constitutes transfer under Income-tax Act. | Supported appellant's contention that the agreement amounted to transfer of immovable property. |
| Ashok Leyland Finance Ltd. v. Appropriate Authority, [1998] 230 ITR 398 (Madras HC) | Development agreements involving undivided shares and future constructed flats attract Chapter XX-C provisions. | Reinforced appellant's argument that such agreements fall within the scope of the Income-tax Act's transfer provisions. |
| Shantivan Corporation v. Sub-Registrar, [1991] 189 ITR 583 (Guj) | Part performance and possession retention constitute "transfer" under section 269UA(f) of the Income-tax Act. | Supported appellant's submission that possession given for construction is included in the definition of transfer. |
Court's Reasoning and Analysis
The court examined the factual matrix and the agreement in light of the relevant provisions of Chapter XX-C of the Income-tax Act. It noted the trial court's finding that there was no transfer of immovable property, emphasizing that possession was given temporarily for construction and not a permanent transfer. The court acknowledged the appellant's reliance on precedents but observed that the purpose of the relevant provisions is to prevent stamp duty evasion and enable government pre-emptive purchase, which was not applicable here as no sale price was fixed and no undervaluation was alleged. The court stressed that section 269UA(f) must be read in conjunction with section 269C, and since the threshold for undervaluation was not met, penal provisions do not apply. The court found no evasion of stamp duty as the ultimate sale would attract duty based on market value. It concluded that the trial court's view was not perverse, and in an appeal against acquittal, where two views are possible, the trial court's conclusion must stand.
Holding and Implications
The appeal is dismissed.
The court upheld the trial court's acquittal of the accused, confirming that the development agreement did not constitute a transfer of immovable property triggering the penal provisions of the Income-tax Act. The direct effect is that the accused are not liable under the challenged sections for the alleged contraventions. The decision does not establish new precedent but affirms the application of existing principles in the context of development agreements and their distinction from transfers of ownership.
A.K Rajan, J.:— This appeal is against the acquittal.
2. The case of the prosecution is that Appu Hotels Limited, Chennai, was the owner of the lands situate at door No. 1, West Cott Road, Royapettah, in an extent of ten grounds and 1, 267 square feet; they purchased the property on April 15, 1987, for a sum of Rs. 50 lakhs. The third respondent, Sunil Estates, which is a partnership firm, entered into an agreement to put up construction in the property and thereafter, take 50 per cent, of the constructed area and adjust for the amount invested by the third respondent. While that be so, the ground over the constructed area also could be sold by the third respondent.
3. This amounts to transfer of ownership with respect to 50 per cent, of the immovable property, as per Chapter XX-C of the Income-tax Act, 1961. Since the value of such property exceeds Rs. 10 lakhs, accused Nos. 1 and 3 should have informed the appropriate authority constituted under the Income-tax Act, at least three months prior to such transfer, as per section 269UC and they should have submitted Form No. 37-1, within 15 days from the date of the agreement. Therefore, accused Nos. 1 and 3 and their managers, accused Nos. 2 and 4 are also punishable for the contravention of sections 269UA, 269UB and 269UL of the Act. Since they did not get “no objection certificate” from the appropriate authority, they have committed offence punishable under section 276AB. The Additional Chief Metropolitan Magistrate who heard the case found the accused not guilty of the charge and acquitted all the accused. Aggrieved by the acquittal of the accused, this appeal has been preferred.
4. Learned counsel for the appellant submitted that the trial court has come to the conclusion that there was no transfer of immovable property and hence acquitted the accused. The trial court has not considered the terms of the agreement properly and it has not considered the provisions of section 269UA, clauses (f) and (e) and also sections 269UC and 269C. In support of his contention, he relies upon the decision in Appropriate Authority v. Smt. Varshaben Bharatbhai Shah, [2001] 248 ITR 342 (SC), where co-owners entered into a similar agreement of transfer of property agreeing to transfer the definite share of each owner, the Supreme Court held that (headnote):
“looked at realistically, it was the immovable property which was the subject matter of transfer.”
5. Therefore, the property to be transferred is the entire property and where the value of the property exceeds the specified limit, sections 269UA, 269UC and 269UD of the Income-tax Act apply and therefore, Form No. 37-1 should have been filed. He relies upon another judgment of the Madras High Court in Ashok Leyland Finance Ltd. v. Appropriate Authority, [1998] 230 ITR 398, where this court has held that (headnote):
“Notwithstanding the description of the document as a development agreement, the subject matter of the transfer being an undivided share in the land, and the consideration being partly in money and partly in a ‘thing’ which was not in existence, the thing being a flat which the transferee was required to construct, the provisions of Chapter XX-C of the Act were attracted.”
6. Therefore, counsel submitted that even though it is a transfer of future construction, even to such development agreement, the provisions of Chapter XX-C apply. He also relies upon the decision in Shantivan Corporation v. Sub-Registrar, [1991] 189 ITR 583 (Guj), where it was held (headnote):
“The fact that allowing the possession of such property to be taken or retained in part performance is also included in the expression, ‘transfer’ in clause (f) of section 269UA so as to prevent even such passing of possession.”
7. Counsel for the appellant further submitted that the agreement if read, bearing these principles in mind, proves that ownership of 50 per cent, of the land has already been transferred. The provisions of the Income-tax Act which is a special provision apply, notwithstanding anything contained in the Transfer of Property Act. Hence, the respondents are guilty of violation of the pro- visions of the Income-tax Act. Hence, the acquittal of the accused is not valid and hence, it is liable to be set aside.
8. Counsel for the respondents submitted that there is no transfer of property at all. A transfer of immovable property of value above Rs. 100 cannot be made without a registered deed. What is contemplated under the agreement is an agreement to build a construction over the property and to hand it over to the owner of the land. By sale of such proposed constructed area, both the owner of the land and the builder who put up the superstructure will take their respective shares. In so far as the agreement that has been entered into, there is no transfer of any interest in the immovable property. There is no buyer or seller in that agreement. It is only a licence given to the builder to construct. The ultimate aim is only to share the profit, it is purely a business transaction and no transfer of interest in the immovable property is involved.
9. A perusal of the agreement shows that the possession of the properties was given to the builder for putting up construction for a specified period. Therefore, it is not a permanent transfer so as to attract the provisions of Chapter XX-C. Further, the purpose for which these sections in Chapter XX-C were enacted was to prevent avoidance of stamp duty by undervaluing the property. Further, the purpose of submitting of Form No. 37-1 is to enable the Income-tax Department to purchase the property on the same price as found in the agreement. Assuming that the Government wanted to use the right of pre-emptive purchase, this property has to be taken over by the Government on the price fixed. But, in the present case, no sale price is mentioned. Hence, there is no question of purchase for the “agreed amount.” Therefore, the right of pre-emptive purchase cannot be exercised at all by the department or by the appropriate authority in cases of such development agreements. Under section 269C proceedings for acquisition may be taken when the competent authority has reason to believe that any immovable property has been transferred for a consideration less than the fair market value and the consideration stated in the instrument is with an object of facilitating reduction or evasion of tax. It is also provided that no such proceedings shall be initiated unless the competent authority has reason to believe that the fair market value of the property exceeds by more than 15 per cent, the apparent consideration. The entire Chapter XX-C is a single code; section 269UA(f) cannot be read in isolation; it has to be read together with section 269C. The appropriate authority has not stated that this is a transfer for a value which is less than 15 per cent, of the fair market of the property; it is to be seen that the value of the property has not been stated anywhere in the agreement. Therefore, the act of the respondents is not punishable, even if there is “transfer” within the meaning of section 269UA(f) of the Income-tax Act. Further, there is no evasion of stamp duty, as there is no transfer of ownership at all. Ultimately, when the properties are sold, stamp duty is payable, as per the market value. Therefore, by no stretch of imagination, it can be said that the stamp duty has been evaded or any attempt to evade has been made by entering into such agreement. In the circumstances, the development agreement does not attract the penal provisions of the Income-tax Act.
10. This is a case where the trial court has come to a decision based on the records. The conclusion arrived at by the trial court cannot be said to be perverse. Even if there is a possibility for this court to come to a different conclusion, where two views are possible, the conclusion of the trial court cannot be set aside in an appeal against acquittal. Since this is an appeal against acquittal, that conclusion of the trial court cannot be set aside and hence, this appeal is liable to be dismissed.
11. In the result, this appeal is dismissed.
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