Property sold at lesser than shown stamp duty value

Written by HP Ranina | Updated: Nov 30 2008, 07:21am hrs
With a fall in prices of residential and commercial property all over India, difficulties may arise where properties are sold at a price, which is less than the value shown in the stamp duty ready reckoner. The reason is that under section 50-C of the Income-Tax Act, 1961, there is a specific provision, which stipulates that where the consideration received or accruing as a result of the transfer by an assessee of land or building or both, is less than the value adopted or assessed by any authority of a state government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall be deemed to be the full value of the consideration received or accruing on such transfer.

The section further provides that where the assessee claims that the value adopted or assessed for stamp duty exceeds the fair market value of the property as on the date of transfer or he has not disputed the value so adopted or assessed in any appeal or revision or reference before any authority or court, the assessing officer may refer the valuation of the asset to the valuation officer in accordance with section 16A of the Wealth-tax Act. If the fair market value determined by the valuation officer is less than the value adopted for stamp duty purpose, the assessing officer may take such fair market value to be the full value of consideration. If the fair market value determined by the valuation officer is more than the value adopted or assessed for stamp duty, the assessing officer is bound to adopt the fair market value assessed for stamp duty purpose.

The constitutional validity of section 50-C was challenged before the Madras High Court. The court observed that Article 246 of the Constitution of India gives exclusive power to Parliament to make laws in respect of matters enumerated in List I of Schedule VII (Union List). Entry 82 of List I of Schedule VII empowers Parliament to levy tax on income other than agricultural income. The legislative competence of Parliament in enacting a statute or inserting a provision for arresting leakage of income has been considered by the apex court in several cases.

The unanimous opinion in all those cases is that the entries in the legislative list should be construed liberally and in their widest amplitude and not in a narrow or restricted sense. Each general word should be held to extend to all ancillary or subsidiary matters, which can fairly and reasonably be said to be comprehended by it. The expression "income" as defined in the Income-tax Act under section 2(24) cannot be read into Entry 82 of List I of Schedule VII to the Constitution.

Even this definition is an inclusive one and has been expanding from time to time. Several items have been brought within the definition from time to time by various amending acts. The definition cannot therefore be read as exhaustive of the meaning of the expression "income" occurring in entry 82 of List I of Schedule VII. This entry should be widely and liberally construed so as to enable a legislature to provide a law for the prevention of evasion of income-tax.

Tax could be evaded by breaking the law or could be avoided in terms of the law. When there is a factual avoidance of tax in terms of law, the legislature steps in to amend the income-tax law to bring such an income within the net of taxation. (See Punjab Distilling Industries Ltd v CIT, AIR 1965 SC 1862, (Constitution Bench), Balaji v ITO [1961] 43 ITR 393; AIR 1962 SC 123 (Constitution Bench), Bhagwan Doss Jain v. Union of India [1981] 128 ITR 315 (SC); AIR 1981 SC 908, asst director of inspection (investigation) v AB Shanthi, AIR 2002 SC 2188 and Union of India v A Sanyasi Rao [1996] 219 ITR 330 (SC); [1966] 3 SCC 465.

The Madras High Court further observed that even the special provision, which provides for collection of income-tax on profits and gains from trading in goods specified under section 44AC and section 206C of the Income- tax Act on a presumptive basis have been upheld by the Supreme Court in the case of Union of India v . Sanyasi Rao [1996] 219 ITR 330; [1966] 3 SCC 465.

This High Court held in KR Palanisamy v Union of India. (306 ITR 61) that what was stated in section 50-C as real value could not be regarded as a notional or artificial value and such real value could be determinable only after hearing the assessee in accordance with the statutory provision. There was no indication either in the provisions of section 50-C of the 1961 Act or section 47-A of the Stamp Act or rules made thereunder about the adoption of the guideline value. Hence, the contention that section 50-C was arbitrary and violative of article 14 of the Constitution of India could not be accepted.

The principle of determining the market value of the assets had been set out in detail in rule 5 of the Tamil Nadu Stamp (Prevention of Undervaluation of Instruments) Rules, 1968. Hence, the question of the guideline value forming the basis for determination of the full value did not arise.

Capital assets and trading assets are treated differently under the scheme of the Act. They cannot be put on par with each other by considering them as a class of assets. The discrimination on the ground of valid consideration, which answers the test of intelligible differentia, does not attract Article 14 of the Constitution of India. A provision would be rendered inoperative only when it is found to be violative of the constitutional mandate.

The court concluded that the provision of section 50-C is validly enacted and not hit by legislative incompetence. The aforesaid judgment may be challenged in the Supreme Court. However, until it is set aside, persons selling properties at lower prices due to a fall in their market value, will continue to face hardship.

The author is advocate, Supreme Court