Compulsory pre-emptive buying held illegal

In a collaboration agreement between the holder of land and the developer, there need not exist a sale of the property. The income tax authorities cannot assume there is a transfer and order compulsory pre-emptive purchase under Section 269UD of the Income Tax Act. This provision intends to prevent tax evasion by undervaluation of property. In this judgment delivered by the Supreme Court last fortnight, Unitech Ltd vs Union of India, the building company had an agreement with Vidarbha Engineering Industries, lessee of land received from the Nagpur Improvement Trust, to raise a commercial complex. The builder will get 78 per cent of the developed area and the lessee will retain 22 per cent as consideration. The revenue authorities issued a show cause notice to Unitech accusing it of undervaluation of property. The Bombay High Court dismissed the challenge of Unitech, leading to the appeal. The Supreme Court stated that the tax authority as well as the high court made decisions on wrong premises. The judgment asserted that "the transaction cannot be construed as a sale, lease or a licence." It underlined that there was no evidence to conclude that Vidarbha Engineering had "transferred" 78 per cent of the built-up area to Unitech and retained 22 per cent. Unitech received only the right to possess the land to construct the project. "The order of tax authority thus suffers from gross perversity," the Supreme Court remarked.

Article referred:http://www.business-standard.com/article/opinion/compulsory-pre-emptive-buying-held-illegal-115111500777_1.html