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| M J Antony: Stamp of corruption | | High rates of registration charges and poor implementation of rules lead to evasion of duty on property sale |
| M J Antony / New Delhi Mar 17, 2010, 00:00 IST |
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Among the many tributaries flowing into the sea of corruption, the main one is sale of property. Cheating in this field can be guessed from just one instance, in which the Central Economic Intelligence Bureau found that 149,000 square yards of land in Mumbai was sold for a paltry sum of Rs 33 lakh, going by the stamp duty paid.
In one case decided by the Supreme Court last year, the valuation of the property belonging to a sick unit sold in auction was not accepted by the stamp authorities. The property was declared to be undervalued and the purchaser was directed to pay the difference in the stamp duty plus penal interest. Since both the seller and the buyer collude with the connivance of artful middlemen, the problem is rarely brought before a court of law. It is rare that a lawsuit of the type that was decided last week by the Supreme Court in the State of Haryana vs Manoj Kumar case, winds its way to the apex court.
In this case, a commercial property in Delhi’s industrial satellite town of Faridabad was sold, according to the declaration for stamp duty, for Rs 1.95 lakh. According to the market value fixed by the collector, usually called the “circle rate”, the value worked out to more than Rs 33 lakh. The collector did not accept the stamp duty offered and asked the buyer to pay the difference. This led to litigation in which the buyer won in the Punjab and Haryana High Court but lost in the Supreme Court.
The high court, while dismissing the argument of the collector, stated that the “genuineness of the sale price has to be presumed”. The Supreme Court said: “If the genuineness of the sale price entered into by the buyer and the seller cannot be questioned, in majority of cases it is unlikely that the state would ever receive the stamp duty according to the circle rate or the collector rate.” It is a matter of common knowledge that usually the circle rate is lower than the prevalent market rate. But to ensure registration of sale deeds at least at the circle rates, state governments issue notifications updating the rates.
Such review is beneficial as the stamp duty rates are supposed to be very high. In order to boost the revenue, state governments are tempted to impose high rates of stamp duty. But very often, the higher the rate, the craftier the evaders. Moreover, poor implementation of law leads to less revenue for the states. There is a school of thought that if the stamp duty is reduced to a rational level, revenue recovery will improve in the long run. In fact, this was the experience of Maharashtra, Delhi and some other states.
A year ago, the Supreme Court deprecated another source of corruption and generation of black money in sale of properties. This is the use of power of attorney (POA). In the Suraj Lamp & Industries vs State of Haryana case, the court pointed out that this vicious practice is spreading across the country, the epicentre being the national capital itself. By this widespread device, the so-called buyer gets most of the substantial rights to the property by creating a POA that is notarised but not registered. It is not a public document, and only the parties to the deed know about it.
The Supreme Court gave some examples of people who misuse POAs: (a) Vendors with imperfect title who cannot or do not want to execute registered deeds of conveyance; (b) purchasers who want to invest undisclosed income in immovable properties without any public record of the transactions; (c) purchasers who want to avoid the payment of stamp duty and registration charges. Persons who deal in real estate resort to these methods to avoid multiple stamp duties/registration fees so as to increase their profit margin.
The court has kept this case pending to evolve a foolproof procedure for property transactions. After one hearing, in which the judges heard the lawyers describe the mind-boggling ways employed to cheat the revenue departments, the case got a long adjournment. One consequence of the court intervention is that the Delhi government has begun building a database on the titles to the properties. A small step since the medieval sultans did it, but potentially a giant leap towards curbing illegal transactions.
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