Capitulating to the land mafia yet again

The Union Government has failed to act on the laudable judgment of the Supreme Court in Suraj Lamp & Industries (P) Ltd v State of Haryana on October 11, 2011, holding power of attorney sale (POA) of immovable properties ineffective, if not illegal. One would have expected the Centre to take further steps to clean up the realty sector, after such a ruling.

The buyer through POA takes enormous risks in that he is at best the beneficial owner, without having the comfort of the title deed being registered in his favour. Hence, the Delhi government has read the riot act, in implementation of the Apex Court edict, directing all the registrars under its purview to refuse registration, unless a true conveyance deed is produced.

UNFORTUNATE ROLLBACK

The Government then introduced a Bill to regulate the hitherto unregulated sector and won plaudits when the Budget 2012 sought to make it impossible for a seller of immovable property to evade tax; the plan was to rope in the buyer as its ally for a noble clause without burdening him more than necessary.

It had asked the buyer to deduct a 1 per cent ad hoc tax where the sale consideration exceeded Rs 50 lakh in the specified urban conglomerates, and deposit the same with the treasury, giving the complete details of the seller. No huge inconvenience would have been caused to the buyer, especially if he was to be given the option to go to any bank of his choice and make the deposit without much ado.

To be sure, the scheme went on to insist on a bank's receipt in acknowledgement of deposit of such TDS, to be produced at the time of registration. Even this cannot be termed as an inconvenience to the buyer by any stretch of imagination, given the fact that he is doing his bit for a national cause, namely, foiling tax evasion. But along with other rollbacks, this proposal too has been rolled back, ostensibly in the interest of the buyer.

The Registrar's hands would have been strengthened by this move, had it not been nixed so pusillanimously. He estimates the guidance value for properties coming within his purview, so that the buyer is not allowed to get away with undervaluation and reduce his stamp duty liability. The income-tax department, too, rides piggyback on him to foil evasion of capital gains tax by the seller through the same stratagem of undervaluation.

So far so good. What the aborted move sought to do was to dovetail registration and income tax collection. To be sure, the 1 per cent TDS would barely scratch the surface, but it is good enough to provide ammunition to the tax sleuths to gun after tax evaders. The bottomline now is that the onus is back on the income tax department to call the seller's bluff in case of suspected under-declaration.

An intrepid seller would be emboldened to give two different figures; one, the purchase consideration declared by the buyer to the stamp duty authorities, and the other, what he himself gives to the income tax authorities, in the audacious belief that he would cross the bridge when he comes to it — when the income tax authorities bestir to make enquiries from the stamp duty authorities as to the true value of the subject property. The aborted move would have facilitated cross-verification with a click of a mouse — comparing the sale consideration given in the tax return with the TDS details.

PRE-EMPTIVE PURCHASE

This is not the first time the government has acquiesced to the land lobby. A decade ago, the NDA government almost inexplicably scrapped the pre-emptive purchase scheme on the specious ground that in a falling market it had saddled the income-tax department with an unacceptably high inventory of unsold properties.

The scheme was brilliant in design and operation — if the apparent consideration was below the specified threshold for the given city, the seller had to notify the department, which had the option to issue a cheque and buy the same at the apparent consideration set out in the notice. The department resorted to such pre-emptory strikes where it suspected undervaluation with cataclysmic consequences for the buyer if he had been naïve enough to pay the black or ‘cash' component.

It is true that the real estate market has its ups and downs and at times the department could well be nursing properties whose prices are going down for the nonce. But like with any other market, fortunes change sooner or later.

The government should either revive the pre-emptory scheme or the just aborted Budget 2012 scheme. The latter would be a better option, given the fact that the department itself is not required to make any upfront investments as is the case with the pre-emptory scheme. Besides, the Budget scheme views the entire transaction as an integrated whole, involving both stamp duty and income-tax ramifications. It was indeed the first serious attempt at dovetailing two laws meaningfully.

(The author is a Delhi-based chartered accountant.)

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