Calcutta High Court
Hindustan Lever Ltd. And Anr. vs Appropriate Authority And Ors. on 1 March, 1993
Equivalent citations: [1994]207ITR772(CAL)
Author: Ruma Pal
Bench: Ruma Pal
JUDGMENT Ruma Pal, J.
1. The short question involved in this writ application is whether the appropriate authority under Chapter XX-C of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), was justified in not disposing of the petitioners' statement under Form No. 37-I which had been submitted by the petitioners under Section 269UC of the Act.
2. The facts are not in dispute. Petitioner No. 1 being desirous of transferring its industrial undertaking at Jagatdal, Barrackpore, North 24-Parganas, to Lipton India Limited as a going concern entered into an agreement with Lipton India Ltd. on November 8, 1991. That agreement records that petitioner No. 1 would transfer the undertaking to Lipton subject to obtaining approval from the authorities concerned including the Reserve Bank of India under the Foreign Exchange Regulation Act, 1973, and the Government of West Bengal under the Urban Land (Ceiling and Regulation) Act, 1976. The agreement envisages the transfer of the undertaking as a going concern together with land, building, machinery, equipment, movable properties, stock-in-trade as well as unionised and management employees of the undertaking with continuity of service and full protection to their existing terms and conditions of service. The consideration in actual terms apart from various other covenants/rights/ obligations was Rs. 14.87 crores.
3. On January 16, 1992, the Reserve Bank of India intimated the petitioners that it was agreeable to the transfer of the undertaking inclusive of land, buildings, plant, machinery, stores, raw materials and finished goods to Lipton as a going concern subject to various conditions.
4. On October 22, 1992, the Government of West Bengal, Land and Land Reforms Department informed the petitioner that the Governor has exempted the excess vacant land under Section 20(1)(a) of the Urban Land (Ceiling and Regulation) Act, 1976, for the purpose of outright transfer to Lipton subject to various conditions.
5. On November 30, 1992, a supplemental agreement was entered into between the petitioner and Lipton by which Lipton agreed to be bound by the conditions imposed by the Reserve Bank of India and the Government of West Bengal.
6. On November 18, 1992, the petitioner and Lipton filed a statement under Form No. 37-I before the appropriate authority under the Act in respect of the proposed transfer. The statement gave particulars of the land, buildings, plant and machinery, furniture and fixtures and other assets sought to be transferred by the petitioner to Lipton. The amount of consideration was stated as follows :
"(a) Rupees 14.87 crores, as stipulated in Clause 5 of annexure 'A' to the agreement dated November 13, 1992 (annexure T).
(b) Liability in respect of unionised and management employees numbering approximately 240 with continuity of service and full protection to their existing terms and conditions of service which entails substantial liability relating to gratuity, pension, etc., for services prior to assignment and on account of existing high scale of wages, perquisites and other benefits.
(c) Rights/obligations/covenants as per the said agreement dated November 13, 1992 (annexure '1')."
7. On November 25, 1992, the appropriate authority called for various documents from the petitioner and asked for a detailed break-up of the total consideration and stated that the property was to be inspected.
8. On December 9, 1992, the petitioner gave the various particulars in reply to the notice of the appropriate authority and also stated that-
"The consideration for the transfer has been stated in Form No. 37-I. It does not consist only of Rs. 14.87 crores as stated in item No. 20 of your requisition. The proposed transaction is an indivisible, integrated and composite one. The question of giving any itemwise breakup as asked for does not arise."
9. On December 18, 1992, the undertaking was inspected. The petitioner submitted further documents to the superintending engineer for the appropriate authority including the valuation report on the basis of which the agreement dated November 8, 1991, had been entered into.
10. On January 21, 1993, the appropriate authority wrote to the petitioner stating that there were defects in Form No. 37-I. It was stated in the letter dated January 21, 1993, as follows :
" So far as Form No. 37-I is concerned and rules framed thereunder, the jurisdiction of the appropriate authority in this regard lies only in respect of immovable property. According to Section 269UA(d), immovable property means 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 also.
In the present case, however, it is not only land, building, machinery, plant, furniture, fittings, etc., but also assets, liabilities and man-power including their continuity of service and full protection of their existing terms and conditions of service. In fact, as per agreement dated November 13, 1992, it is the entire undertaking of the assignor comprising its vanaspati and other edible products as a going concern, on an 'as-is-where-is-basis', is sought to be transferred for which Form No. 37-I has been filed by you.
It is clear from the definition of immovable property that the jurisdiction of the appropriate authority is restricted to immovable property only and thus transfer of various other assets as referred to in paragraph 2 above appear to be outside the ambit of Chapter XX-C. That apart, you have not given separately the apparent consideration pertaining to land and building as required in paragraph 9 of the annexure to Form No. 37-I. That being so, there is no way in which the appropriate authority can deal with the matter. Form No. 37-I should not be filed as being premature."
11. The petitioner replied to this letter reiterating that there was no scope for giving a separate break-up of the value of the land, building, etc., in view of the fact that the transaction was composite, integrated and indivisible. It was, however, submitted before the appropriate authority that if the appropriate authority was of the view that the provisions of Chapter XX-C were inapplicable to the transaction then a no objection certificate should be issued to enable the petitioner to register the document of transfer with the Registrar of Assurances.
12. Under cover of a letter dated January 28, 1992, the order of the appropriate authority was communicated to the petitioner and to Lipton. It is this order which is the subject-matter of challenge in these proceedings. The appropriate authority has held that the definition of immovable property under Section 269UA did not cover the transfer of various other assets such as car, raw materials, processed stock, stock-in-trade, chemicals, packing materials, engineering and sundry stores, finished products, advances to trade suppliers, deposits and payments made and effected by the assignor with excise, sales tax, electricity and other authorities. It was accordingly held that the transaction was outside the ambit of Chapter XX-C. It was further stated in the order that no separate consideration has been indicated with regard to land and building and as such the appropriate authority could not deal with the matter. The concluding part of the impugned order reads as follows :
"In the facts and circumstances of the case, the statement in Form No. 37-I filed before us is invalid/non est inasmuch as the parties have not entered into a written agreement for the transfer of the said property as required under the laws. That being so, Form No. 37-I is filed as such being non est."
13. The petitioner's challenge, briefly stated, is three-fold :
The first challenge is that if the appropriate authority was of the view that the transaction in question was not covered by Chapter XX-C of the Act, it was bound to issue a no objection certificate. The second objection is that the appropriate authority failed to consider the definition of immovable property under Section 269UA of the Act. It was submitted that the transaction of the kind entered into between the petitioner and Lipton would be covered by the definition. It is finally submitted by the petitioner that the authority concerned in any event had no jurisdiction to merely file the statement without taking a stand either accepting or rejecting the statement. Not having exercised the option of purchase within the period prescribed by the statute, the appropriate authority was bound to issue the no objection certificate under Section 269UL(3) of the Act. The petitioners have placed reliance on the decision of the Supreme Court in C.B. Gautam v. Union of India [1993] 199 ITR 530, an unreported decision of this court in Hari Krishna Kanoi v. Appropriate Authority, I. T. Department dated September 11, 1992 (Matter No. 3110 of 1987) (since ) and Moi Engineering Ltd. v. Appropriate Authority .
14. The respondent authorities' submission is that the extended meaning of immovable property did not cover industrial undertakings. It is submitted that the appropriate authority had duly considered the definition of immovable property under Section 269UA(d) and had come to the conclusion that what was sought to be transferred by the transaction in question could not by any stretch of interpretation come within the meaning of immovable property. It is also stated that it was incumbent upon the petitioner to have given a break-up of the value of the land and building. Not having done so the appropriate authority could not come to a finding as to whether the transaction in question was being made at an undervaluation or not.
15. Having considered the submissions of the parties, I am of the view that the impugned order cannot stand. The appropriate authority appears to have overlooked the language of Section 269UA(d) in which the definition of immovable property has been given. It is abundantly clear from a plain reading of this definition that a decision of the kind under consideration would be covered by the definition. The description of what was being transferred as an industrial undertaking was merely a composite way of stating that the land, building, machinery, plant, furniture, fittings and other assets of the petitioner were being transferred by Lipton. The definition of immovable property includes not only the assets themselves but also any rights therein as well as rights with respect thereto not only existing but which would arise in future. This is clear from the use of the phrase "accruing or arising from". The definition also had cited by way of example a transfer by the acquisition of shares in a company. It is to be noted that by acquiring shares of a company, the transferee would get the undertaking of the company itself. In this case instead of a transfer by way of acquisition of shares by Lipton, the transfer is made by assignment.
16. The Legislature has taken ample care to see that any arrangement of whatever nature was covered by the definition provided that it related to the transfer of land, building, etc. The object was to cast the net wide so as to bring within the purview of the Chapter all possible modes of transfer of property.
17. I have already held in the decision of Hari Krishna Kanoi v. Appropriate Authority , that Chapter XX-C of the Act envisaged what has been described by me as an anomalous transfer, namely, a transfer which was neither a sale nor an exchange nor a lease. In my view the transfer in question may be properly described as an anomalous transfer.
18. In such a case there is no question of giving a break-up of the various composite items. This was also envisaged by the income-tax authorities. In the form prescribed for statement of transfer of immovable property to be furnished to the appropriate authority under Section 269UC (Form No. 37-I), Clause 9 refers to particulars of consideration for transfer. There are six sub-clauses in Clause 9. The first four deal respectively with sale, exchange, sale and exchange and lease. In each of these cases the particulars of the consideration are required to be given under separate heads. Sub- Clause (vi) of Clause 9 deals with cases not covered by items 1 to 5. Under that heading, the transferor and the transferee are merely required to state "the amount of consideration". No break-up is envisaged.
19. The apparent consideration stated by the petitioner in items Form No. 37-I has already been quoted above.
20. The transfer, therefore, being a transfer within the meaning of Chapter XX-C, in respect of immovable property within the meaning of Section 269UA(d) and the consideration being one within the meaning of Section 269UA of the Act, the appropriate authority should have exercised its jurisdiction and considered the statements as filed.
21. The transfer of the services of the workmen by the petitioner to Lipton was part of the liabilities undertaken by the transferee. It is now established beyond doubt that the right of the Central Government under Section 269UD is a pre-emptive one. In the case of C.B. Gautam [1993] 199 ITR 530, the Supreme Court had held that what the Chapter provides for is pre-emptive purchase of a property. The Supreme Court considered the affidavtit of one H.K. Sarangi, Under Secretary, Central Board of Direct Taxes, Department of Revenue, from which it appeared that certain guidelines had been laid down for considering whether a property may be purchased by the Central Government or not. One of the guidelines was properties with "too many restrictions on user". In other words, the Central Government is fully aware of the fact that a property subject to such an encumbrance may be the subject-matter of a transfer within the meaning of Chapter XX-C. The continuation of the workers in service would be nothing more than such a restriction of user by the transferee. The decision in C. B. Gautam's case has also made it clear that the Central Government would have to step into the shoes of the transferee and purchase the property subject to the same obligations and rights. The provision under Section 269UE of the Act which provided that property would be transferred free from all encumbrances to the Central Government if the Central Government exercised its pre-emptive right of purchase has been struck down by the Supreme Court. The decision of the Supreme Court preceded the impugned order. The appropriate authority must therefore have been aware that a composite transaction which cast an obligation on the transferee such as the one in this case would come within the purview of Chapter XX-C of the Act. The appropriate authority appears to have misread the definition of immovable property. He was only required to consider whether as a result of the transaction in question immovable property was to be transferred. He did not address his mind to this aspect of the matter. He did not also consider the breadth of the definition of immovable property in Section 269UA(d). It may be noted that under Section 269UL(1) and (2), the registering authority has been debarred from registering any transfer without a "no objection certificate" from the authority concerned. In this case, the appropriate authority has neither exercised its right of purchase nor stated that it had no objection. The case of the petitioner has been kept in a legal limbo. Merely by saying that the transaction was not covered by Chapter XX-C, the appropriate authority cannot be said to have discharged the obligation cast upon it under the provisions of Section 269UD. The absurdity of the result of the appropriate authority's order is that if the petitioner does not register the transfer (because according to the appropriate authority the transaction was not within the ambit of Chapter XX-C of the Act), the petitioner may be liable to penal action under the provisions of Section 276A. Even at the hearing when the court asked the learned counsel for the respondent authorities whether they could ensure that no penal action would be taken against the petitioner by reason of the petitioner's non-compliance with Section 269UL, no such assurance was agreed to be given.
22. Therefore, it was incumbent upon the appropriate authority if it- felt that the transaction was not covered by Chapter XX-C to indicate that it had no objection if only to allow the petitioner to comply with the provisions of Section 269UL. There is no third alternative open to the appropriate authority. The appropriate authority must either recommend purchase by the Central Government or issue a "no objection certificate". If it recommends purchase, the Central Government will have to exercise such right by accepting the rights and liabilities of the transferee as it exists in the agreement for transfer.
23. For all these reasons, I am of the view that the appropriate authority failed to exercise the jurisdiction vested in it by law. The impugned order cannot be sustained. As no decision was taken within the time envisaged under Section 269UD and for the reasons already given by me in the case of Moi Engineering Ltd. v. Appropriate Authority , the time-limit cannot be extended by the court and the appropriate authority is bound to issue a certificate of "no objection" under the provisions of Section 269UL(3) of the Act to the petitioner and Lipton forthwith.
24. For the reasons stated, the writ application is allowed. The impugned order is quashed and the appropriate authorities are directed to issue a "no objection certificate" under Section 269UL(3) of the Act in respect of the transfer in terms of the agreement between the petitioner and Lipton within two weeks from date. There will be no order as to costs.
25. The prayer for stay of operation of this order has been asked for by the respondent authorities. As I have granted two weeks' time to the respondent authority to comply with this order, no stay is granted.
26. All parties concerned to act on a signed copy of the operative portion of the judgment and order on usual undertaking.