The terminology 'under-valuation' is frequently used in matters of transfer of property, which has a direct bearing on payment of stamp duty and registration charges payable to Government. Before turning upon the subject 'under-valuation', it is necessary to understand the constitutional provisions relating to stamp duty. Articles 246, 265, 268, 269(1) of the Constitution of India are relevant here. Article 246 refers to the powers of Parliament and State Legislature to make laws. The Constitution of India has union list, state list, and concurrent list. The Parliament has powers to make laws in respect of matters mentioned in the union list and state legislatures have powers to make laws in respect of matters mentioned in the state list and both have powers to make laws in respects of matters mentioned in the concurrent list.
For day-to-day functioning and to meet administrative expenses and also for under- taking developmental works, every Government whether in the Central or States requires revenue which are earned from different sources. Levy of tax is one such source of income to the Government. Article 265 makes it very clear that no tax shall be levied or collected except under an authority of law. Stamp duty registration charges are the major sources of revenue to the State Governments. In Karnataka, the department of registration and stamp duty is ranked among the top five revenue earning departments of the State.
The stamp duty and registration charges are payable on ad-volerem basis, that is based on the value of property. No maximum limit is prescribed in respect of stamp duty and registration charges payable on transfer of property. The stamp duty and registration charges go up with the increase in the value of sale consideration paid for the property i.e. higher the sale consideration, the greater the stamp duty and registration charges. These charges are normally borne by the purchaser of the property unless there is a contract between the parties to the contrary effect. Apart from payment of sale consideration, stamp duty and registration charges, the purchaser has to incur expenditure to get revenue records mutated in his/her name and for transfer of power and water connections to his/her name. All these expenses put together would be around 12% of sale consideration.
To save some money from out of this expenditure, parties to a sale transaction by mutual consent mention the value of the property in the conveyance deed at a much lower figure than its actual market value and thereby pay less stamp duty and registration charges while at the same time, the purchaser makes payment of sale consideration as agreed upon to the vendor. This process of declaring the value of a property in the conveyance deed at a figure lesser than the actual sale consideration agreed upon for purposes of registration is generally known as undervaluation of the property. This modus operandi has two adverse effects on the society. Firstly, there is loss of revenue to the Government and secondly, circulation of unaccounted money the market goes up. The Karnataka Stamp Act 1957 has certain sections dealing with under- valuation of property. Section 45-A inserted III the Karnataka Stamp Act 1957, during 1975 and 45-B inserted during 1991 deal with the subject. Section 45-A deals with the procedure to be adopted where the properties are undervalued in a sale transaction.
The parties producing documents for registration have to file the market value of property calculated in the prescribed form No.1. If registering officer has reasons to believe that the market value of the property shown in the document produced for registration is not the actual value of the property in the locality, 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. For arriving at the market value, the registering officer will use the guidelines value published by the committee constituted for estimation of market value under Sec.45-B. The values published by the committee are the guidelines value for registering offices to determine the market value. They are the average value of the property in a particular locality. If the sale consideration of a property shown in the sale deed is lower than the guidelines value pre- scribed for that area, then the stamp duty & registration charges are payable on the basis of the guide- lines value. If the market value of this property is more than the guidelines value, the stamp duty payable is as per the market value.
The registering authority informs the market value as arrived by him in form I-A to the parties. 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 registering officer may proceed with the registration, if the party pays the stamp duty and registration charges as arrived at by him. If the parties do not agree with the valuation arrived at by the registering officer and desire to contest the same, the registering officer shall keep the process of registration pending and refer the matter to the Deputy Commissioner along with a copy of the document presented for registration for determination of the correct market value of property and stamp duty payable thereon.
The Deputy Commissioner after hearing the objections of the parties during the course of enquiry determines the correct stamp duty payable and the parties shall pay stamp duty and registration charges accordingly. Many times the parties pay stamp duty as determined by the registering officer and get the documents registered. Despite this some times the vendor and/or the purchaser receive notice requiring them to pay stamp duty at a further enhanced figure. This is because of a particular property after taking into consideration all the relevant factors.
In the case of agricultural lands, the nature of land, such as dry, garden, wet, nature of the soil, value of the adjacent lands, annual yield for five consecutive years and nature of crops raised on the land, valuation of the land for revenue assessment and such other factors which influence the value of the property are the factors which are generally taken into consideration for arriving at the fair market value.
Similarly, in the case of house sites, general value of house sites in the area, proximity to the railway, bus station, availability of market, shops, developmental and industrial improvements in the vicinity, property tax valuation, and other features influencing the value of site, and special features of the case as represented by the parties are the guiding factors. In case of buildings, area of the land, plinth area, built up area, age of the building, material used, locality, amenities provided, depreciation, property tax, how the building is used, rents received are the factors which are taken into consideration.
In case the parties are not satisfied with the valuation as determined by the Deputy Commissioner, they may go in appeal against the order of the Deputy Commissioner to the Divisional Commissioner for which purpose the parties have to deposit 50% of the difference amount of the stamp duty as determined by the Deputy Commissioner and the Stamp duty payable according to their calculation. The appeal should contain the original or the certified copy of the order against which appeal is made and the grounds of appeal In addition to other supporting document.
The Deputy Commissioner or the Divisional Commissioner may call for information or records from any public office, officer, authority under government or local authority for examination and to record statements from public/officer or authority under the government or local body. If necessary, they may also inspect the property under consideration after due notice to the parties.
If the Divisional Commissioner finds that the stamp duty already paid by the parties is in order, then the amount deposited along with the appeal will be refunded to the parties. If the 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 parties may prefer an appeal in the civil court against the order of the Divisional Commissioner.