The High Court of Bombay recently quashed an order demanding over ₹26 crore as “unearned income” from Tata Communications Ltd., holding that the claim by the State Government was unwarranted and based on a misconceived interpretation of the law. The case concerned a plot of land allotted decades ago to Videsh Sanchar Nigam Ltd. (VSNL) at Bandra, Mumbai, for use as staff quarters. The land was allotted in 1992 — with specific conditions including the use and construction of staff quarters. Construction of two buildings was completed by 1998, and the premises continued to be used for staff quarters. Over time, VSNL underwent corporate restructuring, its name changed to Tata Communications, but the company maintained that there was no fresh transfer of the land itself.
Despite this, in 2012 the local Collector issued a show-cause notice accusing the company of violating the terms of allotment: alleging delay in construction, unauthorized transfer of land, and change of usage. The Collector concluded the land had effectively been transferred without permission and deemed liable to pay “unearned income.” On appeal, the demand was upheld by the revenue authorities and subsequently by a Minister’s decision in 2014 — triggering a demand of ₹26.06 crore from Tata Communications within seven days.
Challenging this demand, Tata Communications filed a writ petition before the Bombay High Court. The Court scrutinised the grounds on which unearned income was claimed: delay in construction, alleged transfer due to corporate restructuring, and claimed deviation from original use. The Court observed that mere change in the name or shareholding of the company — from VSNL to Tata Communications — did not amount to transfer of property or land. Shareholding alteration does not equate to transfer of title to property or land rights; corporate restructuring alone could not trigger a liability for unearned income.
Further, the Court noted that the authorities had failed to demonstrate any actual gain or enhanced benefit derived from change in ownership or usage that could justify the demand. The construction was complete, the buildings were being used for the purpose they were allotted for, and no evidence was presented to show misuse or unauthorized commercial exploitation of the land. The statutory conditions and prior precedents required that for levy of unearned income, there must be a clear change in beneficial ownership or diversion of land use — neither of which was established.
The High Court held that the State’s claim was fundamentally flawed and that the demand notice was unsustainable. In doing so, it described the prolonged litigation and demand as “misconceived,” recognizing that the government’s insistence on recovery showed indifference toward lawful entitlements. Accordingly, the Court quashed the demand order and rejected the State’s plea for unearned income from Tata Communications.
In addition, the Court imposed costs on the State Government for dragging the company into a decade-long contest over a baseless claim, underscoring the responsibility of the State, especially when acting as revenue authority, to avoid pursuing claims lacking legal merit.
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