FROM time to time, the government has devised measures to curb black money. Sometimes it is by luring the rich with bonds and Samadhans; at other times by using the stick _- like the one in Chapter XX-C of the Income Tax Act consisting of Sections 269U to 269UO. It was inserted by the Finance Act, 1986, to curb the role of black money in the transfer of property.
The Supreme Court has now ruled that the powwers that the authorities have to check undervaluation of property must be used sparingly and not in a way in which they hinder genuine business activities.
The basic scheme of the chapter is that the immovable property can be acquired by the central government if the apparent consideration as agreed to between the transferor and the transferee under the agreement to sell does not represent the true market value of the property. The definition of property included immovable property yet to be constructed.
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However, a strict enforcement of the letter of the law can cause hardships to the builders of houses and buyers. This was shown in the Supreme Court judgment delivered earlier this month in DLF Universal Ltd vs Appropriate Authority. The company advertised for sale luxury flats and some buyers applied for allotments. Eight months after this contract, an `Apartment Buyers Agreement' was entered into between the parties. A month later both sides filed Form 37-I, according to Rule 48L of the Income Tax Rules. Form 37-I provides the details of the agreement which is the basis for the appropriate authority under the IT Act to take a decision on the acquisition of property under Section 269UD.
When the company filed the form, the authority rejected it, stating that it was not within 15 days of the agreement as prescribed by the rules. Other property developers like Ansal Properties and Industries Ltd and buyers also faced the same situation. They moved the Delhi high court and won on most points. Therefore the IT authority appealed to the Supreme Court.
The division bench consisting of Justice D P Wadhwa and Justice Ruma Pal formulated the issue involved in the appeals thus: "The question is whether the period of 15 days, as mentioned in Rule 48L, is to be calculated from thedate when a prospective buyer applies for allotment of a flat, or from the date when a regular agreement called the Apartment Buyer's Agreement is entered into, or when the agreement for transfer is reduced into writing in Form 37-I. The authority had held that 15 days are to be counted from the date when booking of the flat is done."
However, the Supreme Court has now ruled that the basis of the authority's decision is the statement in Form 37-I and not the agreement of transfer. The term `agreement for transfer' in Rule 48L (2) has reference to statement in Form 37-I.
Citing an earlier decision (C B Gautam vs Union of India; 1993), the court chastised the tax authorities for interpreting the rules too strictly. It observed: "The very historical setting in which the provisions of Chapter XX-C were enacted indicates that it was intended to be resorted to only in cases where there is an attempt at evasion by significant undervaluation of immovable property agreed to be sold. It is the fair market value of the immovable property, which is to be found out and if the authority is satisfied that the apparent consideration shown in the agreemnt for sale is less than the market value by 15 per cent or more it may draw a presumption that this undervaluation has been done with a view to evade tax. While examining the statement in Form 37-I, this object has to be kept in view by the authority. It cannot act in a mechanical fashion and pass its order on irrelevant considerations."
The court remarked that the wrong stand taken by the authority in this case had created a "stalemate for the sale of flats which have been built but could not be transferred". It asked the authority to issue no-objection certificates in these cases as the statements sin From 37-I were in order and within the time prescribed.