Unearned Increase is not Leviable on Genuine Testamentary Bequest to Non-Family Entities Absent Evidence of Sham Transaction

The original lessee, Raja Bahadur Sardar Singh of Khetri, held a perpetual lease for a property at 5, Sardar Patel Marg, New Delhi, executed in 1962

Clause 13 of the lease deed mandated the lessor's prior approval for any "assignment or transfer" and entitled the lessor to 50% of the "unearned increase" (UEI) in land value upon such transfer

The lessee executed a Will in 1985 bequeathing the property to 'The Khetri Trust' (a charitable trust) and died in 1987 without heirs

After protracted litigation, the Delhi High Court granted probate of the Will in 2023, which was upheld by the Supreme Court in 2025

Following the probate, the Land and Development Office (L&DO) demanded ₹4,34,92,812/- as UEI as a condition for substituting the Trust’s name, citing an Office Memorandum (O.M.) dated 20.10.2000 which charges UEI for testamentary bequests to non-family entities

The Trust challenged this demand, and a Single Judge quashed the letter. The Union of India appealed this decision

1. Whether a testamentary bequest to a non-family entity constitutes a "transfer" attracting Unearned Increase under the terms of the lease and the relevant O.M.

2. Whether the grant of probate precludes the lessor from inquiring into the nature of the transaction to determine if it is a sham sale disguised as a Will

Clause 13 of the Lease Deed regarding the recovery of unearned increase upon "assignment or transfer"

DDA v. Vijaya C. Gurshaney (2003) 7 SCC 301, which establishes that the rationale for UEI on Wills is to curb illegal underhand sales disguised as bequests, and that a probate court does not decide title or motive

Delhi Development Authority v. Shanti Swaroop Goyal (2012) and Lala Diwan Chand Trust v. NMDC (2015), which hold that "transfer" under Section 5 of the Transfer of Property Act refers to transfers inter vivos, and a genuine Will (not intended to evade UEI) does not constitute such a transfer

The court reasoned that since the lease deed did not expressly prohibit testamentary dispositions, the original lessee was competent to bequeath the property via Will

Following Shanti Swaroop Goyal, the court noted that a Will is a mere "wish" that operates only upon death and does not constitute a "transfer inter vivos" as contemplated under standard lease clauses

Applying high-level scrutiny via Vijaya C. Gurshaney, the court held that while the L&DO has a right to inquire whether a Will is a "camouflage" for an illegal sale to a non-blood relation, the demand letter in this case showed no evidence of such an inquiry or any material suggesting the Will was sham

Crucially, the Trust was created specifically by the testator's instructions in the Will itself, reinforcing the genuineness of the bequest

Consequently, a "blind application" of the O.M. to a probated, genuine Will was deemed unreasonable

The L&DO retains the right to conduct an independent enquiry to determine if the transmission is a camouflage for an underhand sale and may take further legal action if such evidence is found

No costs were ordered