Application Error

The central government has been given a pre-emptive right to purchase immovable properties under Chapter XXCI, introduced in the IT Act by the Finance Act 1986. This was done to check the flow of black money in property purchases. InCB Gautam vs Union of India (1993) 199 ITR 530, the Supreme Court observed that the Attorney General agreed and, in fact, supported the view that order for purchase passed by the authorities must have some connection with tax evasion. Further, it was submitted by him that every order passed for purchase under Section 269 UD could be tested on the touchstone of its having a rational nexus with an attempt to check tax evasion.

But after 10 years of having introduced the relevant provisions it is not having the desired impact. The Public Accounts Committee (1992-93) of the Tenth Lok Sabha in its 52nd report relating to the finance ministry (department of revenue) presented on April, 30 1993 and laid in Rajya Sabha on the same date, took notice of the deliberate understatement of consideration and made strong observations.

The committee was concerned about the fact that the authorities had failed to achieve better results even while the new scheme was in operation during the last six and a half years. Out of the 22,811 cases processed under the scheme, purchase orders were passed in only 812 cases. Of these 812 cases, 430 properties with an apparent consideration of Rs 228 crore were sold, yielding a profit of only Rs 60 crore. The committee was further distressed to find out that the negative point in respect of 79 cases in which the authorities had already paid Rs 43 crore, the relevant properties were yet to be sold. The finance secretary conceded before the committee that it was an administrative lapse.

The committee took a serious view of this administrative lapse and emphasised that the process of disposal of purchased properties should be expedited as huge amounts of public money was locked up. It also stressed the need for prescribing a statutory time limit for disposal of purchased properties under the scheme.

From the facts placed before the committee, it concluded that the scheme of purchase of properties by the central government had failed to achieve the desired results on the following counts:

The scheme was beset with litigation despite a specific provision denying any right to appeal;

The scheme had no safeguard against deliberate understatements in apparent consideration below the limit prescribed under law either individually or by splitting or in not filing the prescribed statement in Form No 37-I in violation of the law.

There was absence of any principled selection of cases for purchase, which tended to erode the objectivity of the scheme;

The scheme failed to effectively tackle cases of auction sales, transfers through builders /developers, etc;

It noted the absence of appropriate guidelines and procedures;

There had been an inexcusable delay in the disposal of purchased immovable properties;

The scheme, since its inception, had never been reviewed to know its effectiveness with a view to effecting necessary improvements.

The Committee took a serious view of lack of co-ordinated and effective approach on the part of the finance ministry in the implementation. This was one reason why the authorities failed to achieve the avowed objective of countering tax evasion through understatement of the value of immovable properties in the transfer deeds and checking the proliferation of black money.

It recommended that comprehensive and effective steps should be taken in the light of its recommendations made in the report. The recent Supreme Court judgement on the constitutional validity of the scheme to remove all the lacunae which have thus impeded the smooth and effective functions of the scheme should also be taken into account, it felt.

However, nothing substantial has been done to improve the situation and make the provisions effective. Some suggestions in this regard are as follows:

The present scheme does not give any power to the appropriate authorities in cases where the parties deliberately understate the purchase consideration. A person, say in Delhi shows a consideration of Rs 48 lakh for a property worth Rs 100 lakh in the sale agreement and the authorities cannot do anything to apply the provisions of Chapter XXC to such deals. Power to make enquiries in such cases need to be conferred on the appropriate authorities. Guidelines can be prescribed to ensure that this power is exercised only in genuine cases of understatement of consideration and not extensively to harass the sellers and purchasers of immovable properties.

Transactions which take place on power of attorney need to be checked by the authorities. Information regarding such deals can be obtained from the registering authorities.

Scrutiny of the records of companies and co-operative societies evidencing transfer of large block of shares or of the leading stock brokers can provide information in regard to the properties transferred through the medium of controlling interest in the companies owning immovable properties by passing the provisions of Chapter XXC.

All cases where form 371 has not been filed and which have been registered with the registration authority at values less than those specified for Chapter XXC, should be scrutinised to explore the possibility of levy of gift tax.

Nothing affects the credibility of a tax administration more than its inability to apply a law effectively. Hence, the provisions of Chapter XXC need a relook to make them forceful.