No Unearned Increase can be Levied on Property Sales Following Statutory Acquisition and Public Auction.

The subject property was perpetually sub-leased to Mr. & Mrs. Bhaskar in 1979

In 1991, they attempted to sell it to a third party, but the Income Tax Department (ITD) exercised its right of pre-emptive purchase under Section 269UD(1) of the Income Tax Act, 1961

The ITD acquired the property and subsequently auctioned it in 1993, where the Petitioner emerged as the highest bidder for Rs. 1,12,90,000/-

A Sale Deed was executed in 1994, with a clause stating the Petitioner would bear any "unearned increase" (UEI) payable to the DDA

In 2022, when the Petitioner applied to convert the property from leasehold to freehold, the DDA demanded Rs. 8,94,98,546/- as UEI, consisting of dues from both the ITD acquisition (first transaction) and the 1993 auction (second transaction)

The Petitioner challenged this demand as barred by limitation and legally unsustainable

1. Whether the demand for unearned increase is barred by the Limitation Act, 1963, given the nearly 30-year delay

2. Whether the DDA is entitled to claim unearned increase on the "second transaction" (the ITD auction to the Petitioner)

3. What is the appropriate rate of interest, if any, leviable on the outstanding dues from the first transaction

The Court applied the definition of 'Unearned Increase' as the difference between the original premium paid and the current market value at the time of transfer [quoting DDA v. Shri Roshan Lal Chopra]

It relied on DDA v. Karamdeep Finance and Investment (India) Pvt. Ltd. (2020), which held that when the Government auctions property at market value, there is no "unearned increase" on that auction

Regarding limitation, it applied the principle from Union of India v. Jor Bagh Association that while the recovery of a debt may be barred by time, the debt itself is not extinguished, and the lessor can condition a discretionary benefit (like freehold conversion) on its payment

Equitable interest was determined based on principles in DDA v. Joginder S. Monga (2004) and I.K. Merchants Pvt. Ltd. v. State of Rajasthan (2025)

The Court divided the demand into two parts. For the first transaction (ITD's acquisition), the Petitioner was contractually bound by Clause 7 of the 1994 Sale Deed to pay the UEI

The Court rejected the limitation plea, holding that since the Petitioner sought the benefit of conversion in 2022, the DDA could legally insist on clearing subsisting dues regardless of the time elapsed

For the second transaction (auction to Petitioner), the Court followed Karamdeep Finance, reasoning that because the auction was conducted at market price, no "windfall" profit or value-gap existed to trigger UEI

Regarding interest, the Court found "concurrent negligence"—the Petitioner failed to pay despite knowing the liability, and the DDA showed "administrative lethargy" by not raising a formal demand for decades

Consequently, the DDA’s 14% interest rate was deemed punitive, and an equitable rate was required

It upheld the demand of Rs. 23,79,106/- for the first transaction but reduced the interest rate to 7% simple interest per annum from 05.04.1994 to the date of judgment

The DDA was directed to calculate the revised demand and satisfy it from the deposits already made by the Petitioner with the Registry, returning the surplus balance to the Petitioner