BEWARE! BEFORE YOU PAY STAMP DUTY AS PER READY RECKONER

By Bankimchandra P. Khona, Solicitor
 
1) It is common knowledge that the market value mentioned in ready reckoner in most of the cases is much more higher than the actual market value of the properties. As Registration Authorities refuse to accept the conveyance or Agreement to Purchase land or property or flat parties are forced to pay higher stamp duty as the market value as per the ready reckoner which is much higher than the actual consideration paid by the Purchaser to the Vendor.
 
2) Practically in all cases and specially in purchase of flat parties cannot afford financially and time wise to contest the claim of stamp authorities and registration authority as to the market value of the property. People have no such time to take legal proceedings to challenge the valuation.  People financially do not find it appropriate to contest market value because unless and until their document is registered they do not get any title. Therefore, in most of the cases and specially in Mumbai people pay stamp duty at higher market value than actual consideration under the document, they do so with a view to buy a peace. The question arises do they really buying peace?
 
3) Very interesting incident arose in one case before the Punjab & Haryana High Court. It was the case where price shown in Regd. Deed and the price shown for the purpose of stamp duty were different. Price shown in the Registration deed was lower than the price calculated for the purpose of stamp duty. Question arose was is it not a case that the Income Tax Officer has reason to believe that there is omission or failure on the part of the assesses to make true and full disclosure of all material facts necessary for assessment with regard to the said transaction ? Is it not a case whenever a part of its income, profits or gains chargeable to income tax has escaped assessment ? In the said case Assessing Officer had initiated action under Section 148 of the Income Tax Act for the earlier assessment because though the price  of the property shown in the Registered Deed was Rs.3.00 lakhs but for purpose of stamp duty, the said premises was valued at Rs.4.60 Lakhs. This was an incident of an offence to suppress correct information about its income. The Hon’ble High Court of Punjab & Haryana held that this alone could be constituted a valid ground for forming a prima facie information that the assessee’s income has escaped assessment warranting initiation of proceedings under Section 148 of the Income Tax Act.
 
( VED PRAKASH NAGORI Vs. INCOME TAX. )
 
4) Considering the said Judgment now it may be open for Income Tax Officers to issue Notice or content in a case of assessee that even though he has shown consideration received as `X’ but he has valued the property for the purpose of stamp duty X + Y then the `Y’ is Conceal Income. He has not fully disclosed all material facts necessary for his assessment. Therefore, all the citizens who for the purpose of stamp duty in view of the ready reckoner, value the property for more than the actual consideration than for a difference it will be open for Income Tax Officer to content that there is a concealment of income being the difference between market value calculated for the purpose of stamp duty ( which is the valued according to the ready reckoner) and the actual consideration received or shown in the document. Same will apply in the case of the Purchaser that he has paid difference between the market value as per ready reckoner according to which he has paid stamp duty and the payment shown in the document, by what we popularly call “On Money” or unaccounted funds ‘and that he has concealed the said difference from Income Tax Authority as his income in same or earlier years. Therefore, every time when a citizen buys property and mentions price but to get his document registered shows more valuation for the purpose of stamp duty and gets the document registered is running a risk to face the inquiry from his or her ITO and also facing risk of paying Income Tax and penalty for the said difference between value as per the ready reckoner and the actual amount shown in the document.
 
5) For an illustration we can take an example. If a Purchaser purchases a flat for Rs.10 lakhs and shows Rs.10 lakhs as amount as consideration in his document, but because the market value as per ready reckoner is Rs.12 lakhs, then to get his document registered he, for the purpose of stamp duty values property at Rs.12 lakhs and not Rs.10 lakhs and pays the stamp duty accordingly. In a such a case it will be open for ITO to content that the difference between two namely Rs.2 lakhs is concealing income in the case of both i.e. the Purchaser as well as the Vendor and may ultimately assess both of them accordingly and one will become liable to pay income tax and penalty on said sum of Rs.2 lakhs. Each one of them, the Vendor and the Purchaser will be liable to pay Income Tax and penalty for the said sum of Rs.2 lakhs. This can affect practically majority of the Vendors and Purchasers as the market value as per the ready reckoner seems to be much more higher in majority of the cases than actual price or consideration for buying or selling property, flats, shops and offices in Mumbai.