SALE OF IMMOVABLE PROPERTIES BELOW CIRCLE RATES

Whenever anyone intends to buy or sell an immovable property, first thing which comes to the mind of the buyer and the seller is the value at which the stamp duty is to be paid especially in a situation where the market value or the consideration agreed between the parties is less than the circle rates of such immovable property as prescribed by the local government.

In today’s market conditions, where the government is pro-active towards realising stamp duty on immovable property transactions and is revising circle rates of immovable properties at regular intervals, such escalation in the valuation does not always keep up the pace with the actual market value of the immovable property and as a result, there are many jurisdictions wherein the real market value of the immovable properties are much lower than the circle rates of such immovable property as prescribed by the local government and in such scenarios the big question is the stamp duty payment since the stamp duty on conveyance of immovable property across all the states in India is ad valorem on the value of actual consideration set forth in the instrument of conveyance or the circle rates of the underlying immovable property, whichever is higher.

As an example, in Delhi, there are many locations across Delhi wherein the market value of properties, especially commercial properties, is much lower than the circle rates of such properties and in such scenario even if there is a willing buyer at the market value of such properties, the deal does not happen since the circle rates is way higher than the market value and closing of such transaction means payment of massive stamp duty and registration charges on the circle rates of such immovable property as prescribed by the local government instead of actual consideration which makes a viable deal unviable. In such cases even if instead of registration of conveyance document the parties opt for acquisition of land owning company, the valuation of shares of the land owning company again brings the same question before the parties since valuation of shares of the land owning company also majorly depends upon the value of immovable property apart from other parameters like other asset value and liabilities.

Applicable Laws

In this regard it is worth to quote amendment to section 47 of the Indian Stamp Act, 1899, being, section 47A of the Indian Stamp Act, 1899, which lays down the process by which such situations are governed. As per section 47A, if the Registering Officer, while registering any instrument transferring any immovable property, has reason to believe that the value of the immovable property or the consideration, as the case may be, has not been truly set forth in the instrument, he may, after registering such instrument, refer the same to the Collector for determination of the value or consideration, as the case may be, and the proper duty payable thereon who shall then give opportunity of being heard to both the parties involved before making decision in this regard.

Therefore if in case the market value of any immovable property is less than the circle rate and the registering officer is of the view that the value stated in the instrument is less than the circle rates and the stamp duty has been paid on such lesser value, he has no choice but to register the instrument and send the same to the collector of stamps for determination of true value along with deficiency in the stamp duty. Further as per the explanation provided to section 47A, the value of any immovable property shall be the price which in the opinion of the Collector or the appellate authority, as the case may be, such immovable property would have fetched if sold in the open market on the date of execution of the instrument relating to the transfer of such immovable property.

Further the said section 47A also provides for a provision for judicial review and therefore if the decision of the collector in this regard is not acceptable to the parties, they may approach the appropriate authorities/court, under appellate jurisdiction.

Judgment

The above stated position was also confirmed by Division Bench of the Hon’ble Delhi High Court, in Manu Narang & Anr v. The Lt. Governor, Government National Capital Territory Of Delhi And Ors, (2016) 226 DLT 1 (DB), by observing that “notwithstanding anything contained in any order/circular of the respondent GNCTD including those impugned in these petitions, in the event of the consideration mentioned in the instrument/transfer document presented for registration being less than the valuation as per the prescribed circle rates, the Registrar /Sub Registrar entrusted with the responsibility of registration of the documents, shall,

 

  1. A) notify the parties presenting the instrument/document for registration that the consideration set forth in the instrument and the stamp duty computed on the basis thereof is less than the valuation as per the circle rates;

 

  1. B) give them an opportunity to amend the document/instrument, to bring the valuation thereof for the purpose of payment of stamp duty, in consonance with the circle rates and make up deficiency in stamp duty;

 

  1. C) if parties do not amend/revise the valuation and do not pay the deficient stamp duty/transfer duty in terms of the circle rates, follow the procedure as prescribed in Section 47-A supra i.e. register the document/instrument (instead of returning the same to the parties) with endorsement of registration and forward the same to the Collector of Stamps for determination of value or consideration as the case may be and the proper duty payable thereon; and

 

  1. D) the Collector thereafter shall proceed in accordance with law including Section 27 of the Stamp Act.”

It was further observed by their lordship in the above stated matter that, “However we pointed out to them that once it is clarified by this Court that the stamp duty paid on a transfer document need not always be in accordance with the prescribed circle rates and that if the valuation and stamp duty is below the circle rates, the procedure as prescribed in Section 47-A supra is to be followed, the grievances of the said petitioners would also be redressed, they were agreeable thereto.”

Comment

In the light of the above stated judgement of Hon’ble Delhi High Court read with section 47 A of the Indian Stamp Act 1899, the position is clear now and if the seller and buyer feel that the market value is less than the circle rates of any immovable property and they are not willing to pay stamp duty on circle rates, the parties may opt for procedure laid down in section 47 A, and thereby represent their case as to the market value of the underlying immovable property before collector. In case they are not happy with the decision of the collector in this regard they are free to approach appellate authorities/courts for further remedy.

Dr. Praveen Alok
Of Counsel
O.P. Khaitan & Co

 Disclaimer: This article is written merely for informational purposes and it should not be taken as a legal advice. The readers are advised to consult praveenalok@opkhaitan.com before acting on the basis of any information provided here.