The word under valuation is most frequently used in
transfer of property, which is linked to stamp duty and registration charges.
It is necessary to understand, the constitutional provisions of stamp duty before
embarking on under valuation. Articles 246,265,268,269(I) are relevant to stamp
duty. The Article 246 refers to the powers of parliament and state legislature to make laws.The constitution has union
list, state list, and concurrent list. The parliament has powers to make laws
in case of union list and state
legislature has powers to make
laws in case of state list and both have powers to make laws in case of
concurrent list.The article 265 makes it very clear that no tax shall be
levied or collected except under authority of law. Stamp duties are listed in
all three lists with clear demarcations.
Stamp duty registration charges are a source of
major income to the states. The department of registration and stamp duty of
Karnataka is ranked among the top five revenue earners to the state. The
revenue so earned from different sources is utilized for development,
administrative expenses of the state. Thus every state aims at increasing its revenue
and also to plug any leakage.
Ceiling on Stamp Duty
The stamp duty and registration charges are payable on advolerem basis, that is based on the value. There are no maximum stipulations. They increase with the amount of consideration of conveyance of property, higher the consideration, more the stamp duty and registration charges. These charges are to be met by the purchaser unless there is a contract to the contrary. Apart from purchase price, stamp duty, registration charges, the purchaser has to expend to get revenue records mutated his name,and for transfer of power and water connections to his name. All these expenses work out to about 15% of purchase price. To avoid such heavy expenditure, the parties to deal, disclose value of the property less than its actual market value, thus pay less stamp duty and registration charges. But the purchaser will pay the actual market value to the seller. This process is called under valuation. This modus operandi has two implications:
- Loss of revenue to the state.
- The circulation of unaccounted money.
Both have adverse effects on the National Economy.
In order to avoid under valuation, The State Government has come out with
legislation. In fact Karnataka Stamp Act 1957 has certain sections dealing with
under valuation. The Section 45-A was inserted into the Karnataka Stamp Act
1957, during 1975 and 45-B was brought in during 1991.
Pending
Registration
The Section 45-A deals with the procedure to be adopted for dealing with documents, where the properties are undervalued. The
parties producing documents for registration have to file the market value of
property calculated in prescribed form I. If registering officer has reasons to
believe that the market value of the property in the document, which is
produced for registration is not truly mentioned, he may arrive at the
market value of such property and
inform the parties to pay the stamp duty and registration charges according to the
market value arrived by him. He may proceed with the registration, If the party
pays the stamp duty/registration as arrived by him.
If not he may
keep the process of registration pending
and refer the matter to the Deputy Commissioner along with a copy of the
document for determination of the market value of property and proper stamp
duty payable there on. For arriving at the market value, the registering
officer will use the guidance value published by the committee constituted for
estimation of market value under Section 45-B. the registering authority
informs the market value as arrived by him in form 1-A.This gives options to
the parties to contest the valuation done by the registering authority, or to
agree or to withdraw the document from registration.
The deputy commissioner after hearing the
objections of the parties during the course of enquiry shall determine the
correct stamp duty payable.The parties have to pay the difference amount.
Suo-Moto Action
Many times the parties agree to pay the stamp duty
based on the market value as determined by the registering officer and get the
document registered.Inspite of this the parties receive notice to pay the
increased stamp duty.The Deputy Commissioner has some special power called
suo-moto powers, this means on his own. Here the deputy commissioner acts
without any reference to him. The time limit is two years from the date of
registration. Within two years he may examine any document, and has reasons to
believe that the correct market value of the property is not set forth in the
document, he may determine the correct market value; call the parties to pay
the proper stamp duty.That is how the party’s gets notice even after
registration process is completed.
Appeal to Divisional Commissioner
In case, the parties are not satisfied by the market
value and the proper stamp duty, as determined by the deputy commissioner, they
may appeal to the divisional commissioner, but has to deposit 50% of the
difference amount of the stamp duty as determined by the deputy commissioner.
In the appeal to the divisional commissioner if the stamp duty already paid by
the parties is found to be correct, excess amount deposited (50%) will be
refunded.If the determined market value is found to be higher and the stamp
duty paid is less, the parties have to pay the difference amount with 12%
interest from the date of execution of document.The Karnataka Stamp
(prevention of under valuation of Instruments)Rules 1977 deals with the
procedure to determine the market value of the property, and the procedure to be adopted for conducting enquiries.
The Karnataka Stamp (prevention of under valuation
of instruments) 1977 provides guidelines to deputy commissioner, divisional
commissioner to arrive at the correct market value. The guidance values are
general in nature and are for guidance only.The deputy commissioner/divisional commissioner have to determine the market value of particular property.They
may call for information or records from any public office, officer, authority
under government or local authority, examine and record statements from public,
officer, authority under government or local authority.They may inspect the
property in question after due notice to the party.Rules provide definite
parameters to arrive at the market value, depending upon the nature of
property, land house sites, buildings, and other properties.
In case of lands, the nature of land, such as dry,
garden, wet, nature of soil, revenue assessment, other factors which influence
the value of the property, value of the adjacent lands, annual yield for five
consecutive years and nature of crops raised on the land are considered. In
case of house sites, general value of house sites in the area,, proximity to the railway, bus route , road market, shops,amenities available,developmental and industrial improvements in the vicinity, property tax valuation, any other features influencing the value of site, and special features of the case as
represented by the parties are guiding factors. In case of buildings, area of
the land, plinth area, built up area, age of the building,materials used, locality,
amenities provided, depreciation, property tax, how the building is used, rents
received are examined. The appeal should contain, original or certified copy of
the order against which appeal is made, original or certified copy of the
document in question and memo of grounds of appeal.
The parties may after exhausting the appeal to the
divisional commission, may prefer appeal in civil court.
Guidance
Value
The
Government constitutes committees to prescribe certain guidance values for the
properties located in different areas. These committees are called committees
for estimation of property. The values published by the committee are guidance
values for registering offices to determine the market values. They are the
average values also. If the value of the property purchased is lower than the
guidance value. The stamp duty and registration charges are payable on the
basis of guidance value. If the market value of the property is more than the
guidance value, the stamp duty is payable on market value.
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