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T.C.A.Ramanujam

T. C. A. Ramanujam on changes required to make property acquisition easier

IT IS Budget time once again. Chambers of commerce and captains of industry have, as usual, begun lobbying for relief, rebates and concessions through amendment in the annual Finance Bill. But it does not occur to the lobbyists that they should also suggest ways to plug the loopholes and mobilise additional resources for the Government. An unusual spectacle this year has been the suggestion by senior departmental officers to amend the Income-Tax (I-T) Act through the ensuing Finance Bill. The Finance Ministry is not known to take seriously the views of the officers. In fact, the I-T Department has often been ignored when important decisions, such as the promulgation of the amnesty schemes, have been announced. This year though, there has been a concerted effort to ascertain the views of the Department's senior officers.

At the National Conference of Chief Commissioners of Income Tax, held recently in Delhi, proposals to simplify and rationalise the I-T law provisions and procedures were mooted. But the proposals seem to work both ways — some tighten the tax net while the others help taxpayers have a smooth sail. The Finance Minister himself has broadly indicated that income-tax law is going to be the focus area in this year's Budget, the preoccupation in the past three years having been Central excise, the duty structure of which has been brought down to three levels. Are happy tidings in store on February 28, 2002? The expectations are that the current tax slabs will be revised upwards and the basic exemption limit hiked to at least Rs 60,000. The limit for applying the maximum marginal rate of 30 per cent may be stretched beyond Rs 1,50,000 and could, probably, be fixed at around Rs 2,00,000. These would be some consolation, especially with the threats of incentive provisions for savings being axed and a further reduction in interest rates. This is one obsession the Finance Ministry can do without. India's saving rate has been declining, thanks to interest rate reductions. If savings falter, no amount of propping up the industrial sector will be any avail, as investments will start lagging. There are so many other exemption provisions which need a hard look. The Shome and the Reddy Committees concentrated on the tax incentives for savings, ignoring the need for reform of the tax law conferring benefits under Chapter VI A on the business class.

The Appropriate Authority

A matter of deep concern for the middle-class anxious to own a house in a metro is the hassle in securing the I-T Department's clearance before concluding a sale deed through registration. Even though Section 230 A has been abolished, Chapter XX C comes in the way, enabling the Department to make pre-emptive purchase of property at the stated consideration to prevent what appears to be under-valuation in the opinion of the Department.

Often, agreements cover purchases of land, whose market values have to be determined by the Appropriate Authority by reference to comparable sales. It is also impossible to arrive at a fair market value in an objective way. It may happen that some part of the area may be retained as a pathway resulting in a lower value for the property. The AA is prone to mislead itself by not paying due attention to several important aspects concerning the property. This difficulty was highlighted by the Madras High Court in Sundaram Clayton Ltd vs Appropriate Authority (252 ITR 330). Courts are not inclined to go into the question of the reasonableness of the determination of the market value.

Sona Builders vs

Union of India

The AA, in this case (251 ITR 197 SC), held that the apparent consideration as disclosed in the document in respect of a property in Jaipur was low compared with a sale instance nearby. The sale deed was supported by a valuation report and a site plan. The AA, however, chose to pass an order acquiring the property. The parties approached the Rajasthan High Court with no avail. The matter was taken up by way of writ appeal before the Supreme Court. The apex court allowed the writ appeal pointing out that no copy of the document of the sale instance was furnished to the parties at any time. The party would have been able to ascertain the merits and demerits of the property cited in comparison if such a copy had been supplied. There was a gross breach of the principles of natural justice. The Supreme Court quashed the proceedings of the AA and observed: "Having regard to the statutory limit within which the Appropriate Authority has to act and his failure to act in conformity with the principles of natural justice, we do not think we can remand the matter to the Appropriate Authority."

This judgment is important for the principle it lays down in all such matters when the AA, faced with problems of its own creation, would like to have a second innings vis-à-vis the case. The apex court itself had remitted the matter back to the AA in an earlier case (Jagdish A. Sadarangani vs Govt. of India — 230 ITR 442) and directed that the AA dispose of the matter within four weeks. But then, as the Karnataka High Court pointed out in Ramanlal B. Pandya vs Union of India (230 ITR 450), if the matter is remitted for fresh consideration after a lapse of some years, it can create havoc because of the variations in the market price in the intervening period.

In the Sona Builders case, the proceedings were initiated in 1993 and the Supreme Court's order comes more than eight years later. It can now be taken as settled that the AA will not get another chance to set right mistakes in its order.

Methods of valuation

Problems arise when the AA values the property. There are both guideline values — for purposes of stamp duty — and market values, determined by the rent capitalisation or the land and building methods. If there are loopholes or lacuna in the process of reasoning adopted by the authority in reaching the conclusion — for example, that the property is tenanted or would be vacated soon, or that the property is close to the vicinity of the subject property if compared by adopting different methods of valuation — then the court will certainly interfere. The AA, while considering comparable cases, should compare like with likes. Tenanted property cannot be compared with vacant property. The method adopted should be uniform. The Supreme Court dismissed a Departmental appeal on this issue, pointing out that two different methods of valuation cannot be adopted for similar pieces of property (AA vs Kailash Suneja — 251 ITR1).

The AA has to pass a speaking order. Mere reference to the floor space index without detailing the way it was arrived at will not satisfy the requirement of law (AA vs Hindumal Bal Mukand Investment Co. (P) Ltd — 251 ITR 660 SC).

A queer situation arose in Union of India vs Shatabdi Trading & Investment (P) Ltd (251 ITR 93 SC). The intending purchaser filed a writ petition against the proposed pre-emptive purchase by the AA and obtained stay of further proceedings. The Department preferred a special leave petition (SPL) before the Supreme Court, which directed sale of property subject to confirmation of bid by it. The court confirmed the sale after rejecting the objections of the intending purchaser. The seller accepted the apparent consideration and interest offered by the Department without protest and did not challenge the order of pre-emptive purchase. The High Court, however, at the behest of the intending purchaser, set aside the purchase order. The AA went to the apex court in second appeal, which held that the High Court's action in setting aside the order of pre-emptive purchase was not proper in the circumstances of the case. The purchaser was left high and dry.

What happens when the agreement holder incurs expenditure by way of renovation and additional construction even before the AA can apply its mind? The AA has to act within the statutorily permissible period. Even within that time limit, commercial interests require quick action by the party with regard to the development of the property. This situation arose in Karuna vs AA (251 ITR 230 AP). The High Court directed the issue of a no objection certificate.

In all these cases, the AA got entangled in legal and valuation problems. The success at the apex court level was not considerable. Chapter XX C, introduced in 1987, served its purpose in the initial years. The Expert Group had not only suggested its abolition but also the imposition of tax deduction at source at 6 per cent at the time of registration. The remedy lies in the reduction of stamp duties.

The National Conference of Chief Commissioners has recommended thus: "Chapter XX C, relating to pre-emptive purchase of properties by the Central Government, was introduced sometime in 1987. It is felt that over last several years, with the increase in limits, the provisions have outlived their utility. Initially, over a decade, it made a good impact, but since 1997 or so, when the various restrictions imposed on the Appropriate Authority by various High Court and Supreme Court judgments, the provisions have become virtually unworkable and, on the other hand, causing great deal of harassment to public and also tarnishing the image of the Department. It is strongly suggested that this chapter may be deleted."

If the hassles in owning an independent apartment are removed/reduced, it would be a good New Year gift. One could expect the end of Chapter XX C on February 28, 2002.

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