On the pre-emptive purchase of property by the central government, the finance minister said, `One way of tackling this problem is to confer on the government a pre-emptive right to acquire any immovable property undergoing a transfer for consideration at a value of 15 per cent above the price of consideration stated in the transfer deed. The scope of such a provision may be limited initially to the metropolitan towns and also to properties worth more than Rs 10 lakh. To be fair, selection will have to be based on a system of random sampling.
`Furthermore, the government will be required to make full payment for any property it notifies for acquisition, within 30 days of such notification. To reduce undue uncertainty in property transactions, the government's pre-emptive right of purchase will automatically lapse after 60 days of the seller's applying for the clearance certificate from the income-tax department for any particular property sale.'
And section 34 of the Finance Act, 1986 introduced a new Chapter XXC titled `Purchase by central government of immovable properties in certain cases of transfer.' The provisions have been in the statute book for nearly 14 years with effect from April 1, 1986 but have not been implemented. The position is clear from the figures given in the report of the Comptroller and Auditor General of India on the audit of revenue receipts concerning direct taxes of the Union government for the year 1997-98.
The important reasons for such a dismal performance are varied. Chief amongst these are:
Defective structuring of the provisions inasmuch as the appropriate authority has no jurisdiction to call for information and details in regard to cases where the consideration for sale/purchase has been shown at figures which are less than the notified figures.
Unduly liberalising the monetary limits from August 1, 1995 which now range from 20 lakh (for most of the cities) to Rs 75 lakh for Mumbai and Rs 50 lakh for Delhi. With such high limits and without any powers available to the appropriate authorities to question the correctness of the figures shown, the implementation of the provisions of Chapter XXC has become farcical.
The liberal interpretation of the provisions of the chapter by courts have further made implementation of the provisions of the chapter extremely difficult.
For example, where two or more co-owners enter into one single agreement to transfer their individual share in a property in favour of one or more persons, the provisions of Chapter XXC are not applicable if individual share in the apparent consideration is less than the aforesaid limits, although the total apparent consideration is more than the aforesaid limits - K V Kishore vs Appropriate Authority (1990) 51 Taxman 478 (Mad)., P K Yusuf vs ITO (1994) 75 Taxman 635 (Ker.), Varshaben Bharatbhai Shah vs Appropriate Authority (1996) 86 Taxman 195 (Guj.), Webster Industries Ltd. vs Union of India (1997) 225 ITR 924 (Cal.), Appropriate Authority vs J S A Raghava Reddy (1993) 199 ITR 508 (Kar.). In C B Gautam vs Union of India (1993) 199 ITR 530, the Supreme Court has held that provisions of Chapter XXC are to be resorted to only when there is significant undervaluation in the agreement of sale with a view to evade tax. This burden is extremely onerous for the I-T department to discharge.
Prima facie, the provisions of the chapter have not been effective at all. Hence, there seems to be no point in retaining these in the I-T Act and these should be scrapped by the coming Finance Act.
The officer and staff employed in implementing the provisions of Chapter XXC can be usefully employed in investigation of tax frauds and evasion and matters such as those relating to transfer pricing. That would be more productive than keeping a big chunk of staff underemployed in administering the provisions concerning pre-emptive purchase of property by the central government which have been an utter failure.
Properties Bought And Sold
Details of properties purchased by the Central Government during
the financial year ended March 31, 1998
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1 2 3 4 5 6 7 8
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No of statements
received in Form 37-1 671 173 795 416 427 521 237 3240
No of properties
purcahsed 3 - 3 3 1 - 1 11
Value of properties
purchased (Rs in cr) 9.65 - 6.62 5.58 1.65 - 0.31 23.81
No of properties where
consideration exceeds
Rs 50 lakh 3 - 2 3 1 - - 9
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Note:
1 Mumbai
2 Calcutta
3 Delhi
4 Chennai
5 Bangalore
6 Ahmedabad
7 Lucknow
8 Total
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Details of properties sold by the appropriate authority and those
awaiting disposal during 1997-98 are given below
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Number of Sale Value Properties Amount
properties sold (Rs in cr) awaiting disposal
-----------------------------------------------------------------
5* 9.58** 60** 63.50**
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* The information relates to properties purchased by the
appropriate authority in the entiry country.
** These figures include the figures for the previous years also
and are in respect of properties free from litigation
