Transfer of property - II

LEGAL ANGLE

To some extent parties have sought to avoid or reduce paying stamp duties, registration charges and other taxes, duties and levies, by using a term in the caption of a document, and in some cases even making the transactions different to what they are intended to be.

For example, since a lease is required to be stamped and registered, and a lease of property may result in higher property taxes and levies, a practice of terming a transaction as a "leave and licence" rather than a "lease" evolved.

The principal differences between a lease and licence are that a lessee is entitled to the right of exclusive possession of the leased premises, even to the exclusion of the lessor, while in a licence what is permitted is the temporary use of the premises.

Courts in India have repeatedly held that mere nomenclature, or using terminology of 'lease' or 'licence' does not alone make the transaction or document describing it a lease or licence. The real intent of the parties determines whether it is a lease or licence. Taxing authorities have made use of this, and often find out the real nature of the transaction, and tax the parties accordingly.

Another practice that evolved was to transfer a property by an agreement coupled with a will bequeathing the property to the purchaser. This was again intended to avoid paying stamp duty, registration fees, capital gains taxes, and in some cases unearned increase fees. Unfortunately those who have indulged in this have not obtained a clear transfer in law, and also forget that a will can always be revoked.

Another practice that started to avoid stamp duty was to form a partnership between the buyer and seller of property, where the seller would introduce the property as his capital, and the buyer would introduce the price to be paid for purchasing the property. The seller would then retire from the partnership taking the money out as his share in the partnership, and the buyer would keep the property as the remaining partner, or proprietor.

Purchasers have also resorted to purchasing property in the name of a limited liability company, in which the only asset and business is the property purchased. Subsequent purchases can be effected by sale of shares of the company rather than sale and transfer of the property.

(Anand Desai is managing partner with Mumbai-based law firm DSK Legal. He will address readers' queries, which can be sent to real.estate@business-standard.com )