Gandhi-DLF link: It all started with Rajiv, not Robert Vadra
by Raman Kirpal Oct 11, 2012
( collected form First Post )
The owners of DLF have strong ties with the Gandhi family that go as far back as 30 years, when Robert Vadra was nowhere in picture.
In fact, DLF owner K P Singh gives Rajiv Gandhi all the credit for reviving DLF and enabling him to create Gurgaon as an international city.
All this finds ample acknowledgement in his autobiography Whatever the Odds: The Incredible Story Behind DLF.
First published in 2011, K P Singh describes how Rajiv Gandhi saved him from inevitable arrest and from his staunch enemy Bansi Lal. Rajiv Gandhi helped change archaic laws and provided the first-ever license to a private realty company (DLF). And the partnership didn’t stop.
“I was equally privileged to be a facilitator for numerous other business deals at a time when the Indian economy, under Rajiv Gandhi, was just starting to liberalize and open up to the world. It was like having a front-row seat to an extraordinary event,’’ writes K P Singh. He also writes of how he helped to bring GE as the first BPO Company in the country and his role in helping Rajiv Gandhi while drafting the Congress manifesto on urban development in 1991.
Against this backdrop, the allegations of DLF favouring Robert Vadra become even more interesting.
Rajiv Gandhi. Getty Images.
During the summer of 1980, K P Singh recounts, it was a chance encounter with Rajiv Gandhi in a deserted part of rural Haryana near Qutub Minar, when K P Singh had eyed an area of around 40 acres to set up what is now Gurgaon city.
He was chatting with a villager when a speeding jeep screeched to a halt nearby. Rajiv Gandhi, who was driving the jeep, emerged from the vehicle and asked if he could get a can of water as his engine was overheating. Rajiv Gandhi had just given up his pilot job with the Indian Airlines and had taken his ‘first hesitant steps’ into politics after the death of his brother Sanjay Gandhi.
Rajiv Gandhi, who often used to take this route to visit his Meharauli farmhouse, asked Singh what he was doing in such a desolate place at the height of summer. Then Singh told him all about his vision of Gurgaon as the international city and how the government laws are not helping him to create this city and not providing private developers a level playing field.
K P Singh writes: “He (Rajiv Gandhi) became interested and pressed me on the issue. What is holding it up and why don’t you do it, Rajiv asked.’’
“At that time, DLF had no money or business worth talking about. Banks were forbidden to give loans to purchase land. There was no such thing as housing loans. The only capital that DLF had was my optimism and determination to revive the company and make it a real estate giant. Rajiv sensed that… In fact, it was this one incident that was to transform Gurgaon from a rural wilderness into an international city,’’ Singh says in his book.
Rajiv Gandhi and Singh sat there for an hour and half, “in the middle of nowhere, engaged in detailed discussions about the idea of creating an integrated, world-class township in Gurgaon”.
Rajiv Gandhi then asked Singh to make a presentation on Gurgaon before Arun Singh and him at his Delhi office. A string of meetings followed. The final consensus was that Gurgaon should become a model city through substantial private sector development. At the same time, it was decided, that while licences will be granted to the developers, they would have to make sure that the weaker sections of the society benefited from the project.
The policy was changed and the first licence to DLF was issued in April 1981 to develop 39.34 acres.
Later in 1984, Rajiv Gandhi had also rescued K P Singh from arrest. “In February 1983, DLF had secured licences to develop a total of 556 acres. Evidently, the progress that DLF was making was not to Bansi Lal’s liking and he got some serving bureaucrats loyal to him to issue a notification by the state government to acquire land around the areas that DLF was developing. The idea was to prevent us from acquiring contiguous land,’’ Singh recollects in the book.
Singh then met many bureaucrats and politicians. He told them that the entire background, including the fact that the Gurgaon Township projects had the approval of Rajiv Gandhi. In his presentation to the Haryana government, Singh wrote that the action of the chief minister (Bansi Lal) in cancelling DLF’s licences was akin to a rampaging bull in a china shop.
Singh writes: “Bansi Lal got even more furious. I was told later that he had ordered his officials to demonstrate just what kind of a bull he was!’’
Again, Singh went to Rajiv Gandhi, who was now the Prime Minister.
“When I met him and related my problems, he was surprised to hear about Bansi Lal’s war against me and DLF and the reason for it. I also told him how badly and unfairly it had harmed DLF… I later came to know that immediately after the meeting, Rajiv asked his principal secretary Sarla Grewal to ensure that the orders of the Haryana government were reversed and that the urbanization of Gurgaon continued without any hindrance. I felt that at long last, my troubles were coming to an end. My hopes were soon belied. Grewal spoke to Bansi Lal but to no avail. He was known to be stubborn. In fact, the commissioner for town and urban planning expressed his inability to ease the pressure on DLF. When Rajiv went to Haryana to inaugurate a facility, he met Bansi Lal and told him that since I was trying to build a world-class city in Gurgaon I should be encouraged and not hindered. But, Bansi Lal remained inflexible and continued to target DLF. Some days later, I got a call from Gopi Arora, special secretary to Rajiv Gandhi, asking me to meet him urgently. Gopi was a high-profile bureaucrat who wielded considerable power in the Prime Minister’s Office. He didn’t beat around the bush.
“He simply said, ‘I have a message for you from the prime minister. First you must immediately legally protect yourself and your company as Bansi Lal is bent on arresting you.’
“He then reassured me that the issue would be sorted out soon. I sought his advice as to what I should do to protest myself. Go into hiding for some time, was his response.’’
Singh stopped going to the office and he went into hiding.
In Chapter 11 (DLF Growth and Transition) of his book, Singh recounts that sometime in early April 1991, his security guard woke him up around midnight saying that a call had come from Rajiv Gandhi’s residence. He thought it was a prank call, but later he confirmed that Rajiv Gandhi wanted to see him at his residence immediately.
“Jumping out of bed, I drove down to meet him in the wee hours of the morning wondering about the reason for the call. Rajiv did not look the least bit tired though he had been working through the night. He was munching on a bar of chocolate. He said that he had written two paragraphs on urban development in the Congress manifesto, which was to go to press soon. He wanted me to read it and see if it was in the interest of urban growth and was correct and balanced,’’ Singh writes.
Singh read the paragraphs on the urban development, which emphasised among other things the development of satellite towns to reduce pressures on large cities.
“Not wanting to disturb Rajiv, who was busy finalizing the manifesto, I left saying what he had written was fine. The Congress Working Committee cleared the manifesto on 6 April 1991. ”
Rajiv Gandhi was assassinated on 21 May 1991. K P Singh writes: “It was a day I will never forget. The country lost a visionary leader and I lost someone who was instrumental in helping me realise a dream and also made me what I am today. Gurgaon would never have happened had it not been for Rajiv.’’
Singh concludes: “Yet, Gurgaon’s development and Rajiv Gandhi’s role in it show what politicians with no ideological baggage and modern minds can envision and achieve. Being young, Rajiv was passionate about doing something new. He brought a new hope to people who were disillusioned with the direction of politics in India. I have pleasant memories of meeting him numerous times when he was the prime minister between 31 October 1984 and 2 December 1989. India’s urban development story took off only because of Rajiv Gandhi’s vision. DLF is what it is today because of the change in the government perspective towards housing and urban development that he brought in.”
Whatever the Odds: The Incredible Story Behind DLF jointly written by DLF owner KP Singh and journalists Ramesh Menon and Ramesh Swamy, recounts the story of DLF from its inception to its development into a real estate giant.
Did Vadra pay Rs 14 cr tax on his gains, or did FM jump the gun?
by Vivek Kaul Oct 12, 2012
A few days back, Finance Minister P Chidambaram gave a clean chit to Robert Vadra and his dealings with DLF. “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,” Chidambaram is quoted by DNA as saying.
Firstpost has already explained how Vadra gained in various ways from his dealings with DLF. (You can read it here). A close reading of the Income Tax Act, balance-sheets of Sky Light Hospitality Pvt Ltd, a company owned by Vadra, and the statement issued by DLF suggest that Chidambaram could have jumped the gun in trying to give Vadra a clean chit. These documents suggest that Vadra’s Sky Light Hospitality may not have paid tax amounting to Rs 14.1 crore.
Here’s how we arrived at this conclusion.
Sky Light Hospitality has an issued capital of Rs 5 lakh. Of this Robert Vadra owns 49,900 shares and his mother Maureen owns 100 shares. Sometime in 2008-09, the company bought a plot of land in Manesar, Haryana, of 3.5 acres. This can be said because the balance-sheet of the company as on 31 March 2009 shows this entry. But the balance-sheet in the previous year does not show it.
Are Vadra’s tax payments in order? Reuters
The cost of this plot of land is stated to be Rs 15.38 crore in the balance-sheet. Against this plot of land DLF gave Sky Light an advance of Rs 50 crore by valuing the land at Rs 58 crore. As the company said in a statement on 6 October, “Skylight Hospitality Pvt Ltd approached us in FY 2008-09 (i.e. between 1 April 2008 and 31 March 2009) to sell a piece of land measuring approximately 3.5 acres…DLF agreed to buy the said plot, given its licensing status and its attractiveness as a business proposition for a total consideration of Rs 58 crore. As per normal commercial practice, the possession of the said plot was taken over by DLF in FY 2008-09 itself and a total sum of Rs 50 crore given as advance in instalments against the purchase consideration.”
So what does this mean in simple English? It means that Vadra’s Sky Light Hospitality approached DLF to sell the 3.5 acres of land it had bought at Rs 15.38 crore. DLF valued this land at Rs 58 crore and gave Vadra’s company an advance of Rs 50 crore against this land.(To read Why DLF’s claim of an ‘advance’ to Vadra doesn’t hold up, click here).
Now, this is where the tax question come in – since Sky Light Hospitality would have made a capital gain on the transaction.
DLF clearly points out in its statement that it took possession of the 3.5 acres of land from Sky Light Hospitality in the financial 2008-09. The statement further points out that “After receipt of all requisite approvals, the said property was conveyanced in favour of DLF.” From this statement it is not clear when the land was conveyanced in favour of DLF. In legal terms, conveyance essentially means the transfer of ownership or interest in real property from the seller to the buyer by a document, such as a deed, lease, or mortgage. In this case, the 3.5 acre land, which was owned by Sky Light, was transferred to DLF after it was conveyanced.
This essentially means that Vadra’s Sky Light Hospitality would have made a capital gain on the transfer of the land to DLF. Sky Light Hospitality bought the land at Rs 15.38 crore and sold it at Rs 58 crore and thus made a profit of Rs 42.62 crore in the process.
On this capital gain, Sky Light Hospitality would have to pay either a long-term capital gains tax or a short-term capital gains tax depending on its period of holding. A capital gain made on selling land is categorised as long-term only if the land is sold after three years of owning it. In this case the capital gain is taxed at the rate of 20 percent indexed for inflation. Otherwise, the gain is categorised as short-term and added to the income for that particular year and taxed at the rate of a little over 33 percent (30 percent tax + 10 percent surcharge on tax, plus cess).
Since DLF’s statement does not tell us when exactly the 3.5 acres was conveyanced in its favour from Sky Light, we cannot determine whether the gain is a short-term capital gain or a long-term one. Also, the balance-sheets of Sky Light Hospitality do not show an entry for advance tax paid of Rs 14.1 crore, or provision for tax of Rs 14.1 crore in the financial years ending March 2009, March 2010 and March 2011. If a company has already paid a tax, it shows it as an advance tax on the asset side of the balance-sheet. If it hasn’t, it needs to show it as provision for tax on the liabilities side.
One interpretation that can be made is that the conveyance of the 3.5 acres of land must have happened in the financial year 2011-12. This means the tax entry should be available in the balance-sheet of Sky Light for the year ending 31 March 2012. This is not currently available in the public domain. Also, this land is shown as a fixed asset worth Rs 15.38 crore on the balance-sheet of Sky Light Hospitality as on 31 March 2011. If the land had been conveyanced in favour of DLF it couldn’t have been asset on the balance-sheet of Sky Light Hospitality.
But there is a twist in the tale here. The Income Tax Act suggests that a piece of land can be said to have been transferred even without the execution of the transfer deed, subject to certain conditions.
The income tax angle
It is important to look at what Section 2(47), which includes the following points (this might sound pretty complicated but hold on for the explanation that follows):
“(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).”
“(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).”
Thus the definition of “transfer” in Section 2(47) of the Act is inclusive and, therefore, extends to events and transactions which may not otherwise be “transfer” according to its ordinary, popular and natural sense.
What this means in simple English is that a property might have said to been transferred from the buyer to the seller even though the actual transfer of the “title deed” may not have been executed. The statement issued by DLF clearly says that the possession of 3.5 acres of land was taken over by DLF in FY 2008-09 itself, which means it was enjoying the benefits of the land, even though the title deed of the land may not have been executed.
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 theChatrabhuj 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 asubstantial consideration and handing over possession amounts to transfer liable to capital gains tax.
DLF paid Vadra’s Sky Light Hospitality an advance of Rs 50 crore in instalments and took possession of the land even though the title deed may (or may not) have been executed. This Rs 50 crore was advanced against a total value of the land of Rs 58 crore and can be construed to be asubstantial consideration and accordingly needed to be taxed.
But for this, if two parties do not execute the sales deed/conveyance, they may be able to postpone tax indefinitely. To plug such a loophole, this provision was inserted. It provides that even when the transfer of title deed is not executed, if the possession is handed over and if consideration is paid in part/substantial/total, it is a transaction liable to taxation.
So what does this imply?
Reuters
This implies that Vadra’s Sky Light Hospitality would have to pay a tax on the capital gain it had made in the process. The capital gain for Sky Light Hospitality is Rs 42.68 crore (Rs 58 crore, the price at which DLF bought the land – Rs 15.38 crore, the price at which the company bought the land). This capital gain will be categorised as a short-term capital gain as the land was sold within three years of having been bought. As mentioned earlier, Sky Light Hospitality bought the land in 2008-2009 and, as per the Income Tax Act, it is deemed to have transferred the land to DLF within the same financial year. This means the short-term capital gain of Rs 42.68 crore will be taxed at 33 percent. This works out to a tax of Rs 14.1 crore (33 percent of Rs 42.68 crore).
Did Sky Light Hospitality pay this tax?
This is where things get very interesting. The advance of Rs 50 crore from DLF is visible as a current liability in the balance-sheet of Sky Light as on 31 March 2010 and so is the 3.5 acre land valued at Rs 15.38 crore. 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.
Hence Vadra’s Sky Light Hospitality may not have paid the income tax it was required to pay as per the provisions of the IT Act, the statement issued by DLF and the balance-sheets of Sky Light Hospitality available in the public domain.
The question: did Chidambaram jump the gun on Vadra’s taxes? Of has Vadra paid up and the figure is hidden somewhere else in some less accessible part of his balance-sheet?
Mr Chidambaram should ask his taxmen to take another look-see.
Vivek Kaul is a writer. He can be reached at vivek.kaul@gmail.com
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