Financial Daily from THE HINDU group of publications
Wednesday, Mar 17, 2004
Will and settlement of property
C. H. Gopinatha Rao
When a person dies after making a will, it can be enforced only after a probate is issued. A probate is identified as the copy of the will certified under the seal of the court of competent jurisdiction. No right as executor or legatee can be established unless a court of competent jurisdiction in India has granted probate of the will under which the right is claimed or has been granted. Probate can be granted only to the executor appointed by the will.
A petition for the probate is to be filed in the court concerned along with the will. The petitioner should remit court fees of value equal to specified percentage (3 per cent in Tamil Nadu) of the value of assets to be inherited. The assets may include immovable properties for which to arrive at the stamp duty the value should be worked out.
In Gorhandas Hargoindas vs Municipal Commissioner Ahmedabad (1964) 66 Nm LR 68, 78 AIR 1963 Sc 1742 1747, the Court stated that "... annual value or rateable value is arrived at by one of the three methods:
It has been held by the Bombay High Court, in a petition filed by Madhusudhan Dwarkda Vora vs Superintendent of Stamps that the wealth tax rules provide a method for assessing the value of unutilised surplus land where the difference between the unbuilt area and specified area is less than 20 per cent of the aggregate area. The same method must be applied for the grant of probate.
Relevant extract of Rule 3 of Wealth Tax Act
Where Rule 3 is applicable the value of the immovable property being a building or land appurtenant thereto or part thereof shall be amount arrived by multiplying the net maintainable rent by 12.5.
The net maintainable rent in relation to an immovable property shall be the gross maintainable rent as reduced by
Gross maintainable rent
Rent received or receivable shall include all payments for the use of the property, by whatever name called, the value of all benefits or prerequisites whether convertible as money or not obtained from the tenant or occupier of the property and any sum paid by a tenant or occupier of the property in respect of any obligation which but for such payment would have been payable by the owner.
Example for the adjustment to value arrived at under Rule 3 for unbuilt area of plot of land:
Mr X was the owner of a property at Chennai with an extent of 7,200 sq ft of land and a building with 3,000 sq ft on the ground floor and 1,500 square feet in the first floor. X passed away in 2002 leaving a will and the Registrar valued the property in 2003 at Rs 40 lakh as per their guidelines.
Valuation of the property as per Rule 3 of the Wealth Tax Act
Extent of land: 7,200 sq ft
Extent of building in the ground floor: 3,000 sq ft
Extent of unbuilt area 7,200 sq ft - 3,000 sq ft = 4,200sq ft.
Percentage of unbuilt area = 4,200sq ft/7,200sq ft*100 = 58.33 per cent
Specified area for Chennai = 60 per cent.
Percentage of unbuilt area is less than the specified area. Hence Rule 3 is applicable without adjustment.
The property is owner occupied throughout.
Annual value filed by the Corporation of Chennai: Rs 16,380
Gross annual income: Rs 16,380.91 - 18,000
Deduct property tax and other taxes: (-) Rs 3,000
15 per cent of gross annual income: Rs 2,700
Net annual income = Rs 18,000 - Rs 5,700 = Rs 12,300
Value of the property: Rs 12,300*12.5 = Rs 1,53,750
The value of the property is only Rs 1,53,750 when worked out by application of Rule 3 of the Wealth Tax Act against Rs 40 lakh assessed by the Registrar.
According to the Tamil Nadu Court Fees and Suits Valuation Act the fee chargeable for the grant of probate or letters of administration shall comprise a fee at the rate of 3 per cent on value if it exceeds Rs 5,000.
When the application is made within one year of the death of a person, the market value of the estate on such a date is to be worked out for payment of fees.
A circular released on January 11, 2002 by the Inspector-General of Registration, Government of Tamil Nadu (Circular No. 45794) mentions, "The stamp duty payable for the instrument of settlement in favour of a member or members of a family is based on the value as set forth in the settlement and not the market value." Incidentally, gift tax has also been abolished under the Income-Tax Act.
This means that a man seeking settlement in his lifetime ends up spending far less on stamp duty to be paid than when he is dead. The court fees payable at the rates prescribed under the Court Fees Act may vary in the other States.
Besides this, immovable property in territories other than West Bengal, Mumbai and Chennai require no probate for wills made by Hindus.
A living person making a settlement in favour of his family members has to pay a stamp duty of 5 per cent (4 per cent stamp duty and 1 per cent registration) for the property valued at his discretion and not the market value. If the property changes hands after his death through probate the court fee paid is 3 per cent of its market value of the property.
For example, if the market value of the property is Rs 50 lakh, he can settle at 5 per cent of Rs 1 lakh or even less, which will cost only Rs 5,000. In the latter case the amount to be spent is Rs 1.5 lakh. Thus, there is a large gap in the amount to be spent after death compared to settling when one is alive. It is high time the Law Commission took initiatives to set right this discrimination by recommending to the government, an amendment to the Act.
(The author is former National President, Institution of Valuers.)
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