Robert Vadra evaded taxes worth Rs 14 crores on Gurgaon Land Sale to DLF

First Post has a very interesting post on how, not only has there been some messy transactions between DLF and Robert Vadra, but Vadra’s company Skylight has even evaded taxes worth Rs 14.1 crores!  Some facts:

• In Balance sheet of 2008-9 ending 31st March 2009, there is an entry for a 3.5 acre plot of land in Manesar, Haryana.  It was ostensibly bought in this financial year.
• The Value of this plot is shown as Rs 15.38 crores (cost price)
• DLF made the following statement on Oct 6 (Rediff):

DLF gave an advance of Rs 50 crore (Rs 500 million) to Skylight Hospitality against a piece of land at Sikohpur village, Gurgaon, in 2008-09, the company said. DLF bought the land for Rs 58 crore (Rs 580 million), according to its statement. Subsequently, Skylight Group of companies offered DLF an opportunity to purchase a large land parcel in Faridabad in 2008-09, and DLF  agreed to advance Rs 15 crore (Rs 150 million) in instalments.

“After concluding that, the said land had certain legal infirmities, we decided against its purchase. Accordingly on DLF’s request, the Skylight group refunded the advance of  Rs 15 crore in totality,” said DLF in its statement.

• Therefore, Sale Price = Rs 58 crores against a Cost Price of Rs 15.38 crores.  So profit from the said plot of land to Robert Vadra comes to a cool Rs. 42.62 crores
• As per the Indian Income Tax, if a land is kept for less than 3 years before sale, it is liable for Short Term Capital Gains Tax (33 percent – 30 percent tax + 10 percent surcharge on tax, plus cess) and if it is kept for over 3 years then the Long Capital Gains Tax is incurred (which is 20%).
• Since this land was bought in 2008-09 (as per Skylight’s Balance Sheet) and sold (as per DLF statement) in 2008-09; it clearly should have attracted Short Term Capital Gains Tax.  Which works out to Rs 14.1 crores (33% on Rs 42.62 crores).
• All good, but there is no discussion of the land having been conveyanced anywhere.  Unless the Title Deed is transferred, can the land be deemed having been sold?  Income Tax Act’s Section 2(47) says this:

“(v) any transaction involving the allowing of the possession of any immovable 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) ; or
“(vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a cooperative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property (the italics are mine).”

Which means if the other party is “enjoying the benefits” of the land, it is deemed as sale.

Firspost article cites another interesting point and a case law:

Also DLF gave Sky Light Hospitality a total sum of Rs 50 crore given as advance in installments against the purchase consideration. The judicial interpretations made by the Division Bench of the Bombay High Court in the Chatrabhuj Kapadia vs CIT (2003)case  and the Authority of Advance Ruling, New Delhi, in 2007 (AAR No 724 of 2006), have held that the receipt of a substantial consideration and handing over possession amounts to transfer liable to capital gains tax.

Hence, the sale of the land by Skylight to DLF can easily be established and one can also infer that it is a Short Term Capital Gains Tax that the firm was liable to pay.  But did it?

Well Firstpost article suggests that there is no such evidence from the financial statements of Skylight Hospitality:

If the tax of Rs 14.08 crore was paid it would be visible as advance tax on the asset side of the balance-sheet. The advance tax in the balance-sheet is at Rs 6.93 lakh. If the tax had not been paid it should have been visible on the liability side under the head ‘provision for tax’. The provision for income tax is Rs 11.41 lakh. So the tax probably wasn’t paid in the financial year 2009-2010.

What about the balance-sheet as on 31 March 2011? The provision for income tax is Rs 24.57 lakh. I couldn’t find the exact number for the advance tax paid. But the total amount of loans and advances under the head current assets stood at around Rs 32.1 lakh, which is a lot lesser than Rs 14.08 crore. So there is no question of the tax having been paid in the financial year 2010-2011 either.

The same stands true for the balance-sheet as on 31 March 2009. The advance tax is at Rs 69,257. And the provision for income tax is at Rs 75,000. So the income tax wasn’t paid in the financial year 2008-2009.

Has Vadra’s company Skylight then, Evaded the Taxes worth Rs 14.1 crores?  From evidence available, it seems.. yes!

It is time, Mr. Chidambaram initiates proceedings against Robert Vadra, who owns 49,900 shares, and his mother Maureen Vadra owns 100 shares in the company.

But Mr. Chidambaram is already busy giving clean chits to Robert Vadra, even before doing his Math!!

“All I can say is at this moment these allegations pertain to transactions between two private persons or entities…. The individual (Vadra, son-in-law of Sonia Gandhi) has disclosed all these transactions in his income tax and other returns, and perhaps in the returns of the company,” he said in Mumbai, his first visit to financial and commercial capital after becoming FM