That black money is used in property transaction is a well known fact.
Parallel economy, black money and evasion of tax are banes of many countries.
To combat these evils, Indian government is taking strong steps by constituting
a committee of experts and reviewing the tax system and laws.
Chapter
XX-C of Income Tax Act 1961
The
Chapter XX-C was enacted by the Central Government through Finance Act, 1986.
The chapter is titled "Purchase by Central Government of Immovable
Properties in certain cases of Transfer". This has come into effect from
1-10-1986, vide Notification SO 480 (E) dated 7-8-1986. The Chapter contains 15
sections 269 UA to 269 U0 and the corresponding rules are 4 in number 48-I to 48-L.
The newly enacted Chapter enables the Central Government to
make pre-emptive purchase unlike in the Chapter XX-A, where the government had
rights to acquire. The Chapter XX-C is proactive, whereas the earlier one was
performing postmortem. The new chapter has prohibited the registration of
conveyance deeds and lease deeds unless the authority issues No Objection
Certificate. It has brought in its ambit the agreements of transfer, whether
registered or not. It is based on the principle "Lock the stable before
the horse is stolen". Hon'ble Supreme Court had upheld the constitutional
validity of the chapter in Case C.B. Gautam V Union of India & Others
(1993) 199.I.T.R530.
Immovable Property:
Property agreed to be transferred.
The definition is exhaustive and wide. It includes:
•
Land,
building, part of building, with plant, machinery, furniture, fittings, agreed
to be transferred. It includes any rights therein
•
Any
rights with regard to land, building, part of building with or without plant,
machinery, furniture, fittings. It also includes rights in respect of the
building, part of the building to be constructed. Any rights in respect of
land, building with or without plant, machinery, furniture, fittings
Holding
out by becoming member of Co-operative Society, Company, association of
persons, by acquiring shares in a cooperative society, company, by entering
into an agreement or arrangements. Such 'transactions' need not be, sale,
exchange and Lease.
Transfer:
The act of conveying the immovable
property by the transferor to the transferee. It includes
•
Transfer
of immovable property by way of sale.
•
Transfer
of immovable property by way of Exchange.
•
Transfer
of immovable property by way of Lease for a period of not less than 12 years
(if the original lease is for a period less than 12 years, the terms of
transfer provides for extension of the lease period and if the a total of the
original lease period and extended period is not less than 12 years such
transaction is also is covered).
Handing over the
possession of immovable property before the completion of process of
transfer, or retaining the immovable property in part performance of the
contract as per Sec. 53-A of Transfer Of Property Act 1882.
• Transfer also includes
admitting as a member of Cooperative Society, Company, Association of Persons,
Transferring the Shares of a Cooperative Society, Company by way of any
manner, which enables the enjoyment of the immovable property. These type of
transactions are called anomalous or deemed transfers.
Transfer
of property by mortgage is not transfer as defined in Section 269 UA (f) and
does not match the very scheme and object of Chapter XX-C (Gujarat Urban Cooperative
Banks Federation Vs. Union of India (1999 Tax LR 882, 889,890(Guj).
Appropriate Authority (Section 269 UB)
Appropriate
Authority is a team constituted by the Central Government to do the functions
of preemptive purchase of immovable property or to issue No Objection
Certificate for registration of the conveyance deeds of the immovable
properties.
•
Central Government may constitute any number of
appropriate authorities and prescribe their local limits. It contains three
members out of that two members are from the Indian Income tax Service Group A holding
the post or equivalent to Commissioner of Income Tax or higher post. The third
member from Central Engineering Services Group holding the post or equivalent
to Chief Engineer or higher post.
Generally
the immovable property falls within the local limits of one Appropriate
Authority. In such a case, the concerned Appropriate Authority will deal with
the transfer of such property.
In
certain cases, the immovable property may spread over the local limits of two
or more appropriate authorities. In such cases, the location of registering
authority of such immovable property is the determining factor. The Appropriate
Authority in whose local limits the office of the registering authority is
located shall deal with the transfer of the immovable property (Rule 48J).
The
Appropriate Authority has all the powers of the Commissioner of Income Tax, as
detailed in Sec 131 of the Income Tax Act, 1961 (Sec.269Ul).
Fiscal Limits: (Sec 269 UC) Rule 48K)
The
Chapter XX-C of the Income Tax Act 1961 is applicable to transfer of immovable
properties exceeding the values prescribed by this chapter. Earlier it was Rs. 5.00
lakhs, which was later increased to Rs. 10.00 lakhs at present effective from
1-8-95, as per Rule 48K the different values are fixed for different local areas.
The details are as follows:
•
Greater
Mumbai: Apparent consideration exceeding Rs.75 lakhs.
•
Union
territory of Delhi: Apparent consideration exceeding Rs.50 lakhs.
•
Kolkota
Metropolitan area and Chennai Metropolitan Area: Apparent consideration
exceeding Rs.25 lakhs.
•
Bangalore
Metropolitan area, Ahmedabad Urban Development area, areas comprised in city of
Ahmedabad: Apparent consideration exceeding Rs. 25 lakhs.
•
Areas
comprised in city of Pune: Apparent consideration exceeding Rs. 25 lakhs.
• All other notified
areas (Chandigarh, Jaipur, Trivandrum, Cochin, Nagpur, Patna, Bhopal, Indore,
Cuttack, Bhubaneswar, Hyderabad, Kanpur, Lucknow,
Coimbatore, Madurai, Surat, Guregaon, Faridabad, Baroda, Ghaziabad, Noida):
Apparent consideration exceeding Rs. 20 lakhs
Procedure to be followed (Sec.
269UC,a Rule 48L)
Transfer of immovable property in notified areas with apparent
consideration exceeding stipulated financial limits requires prior permission
of the Appropriate Authority under whose jurisdiction the immovable property
falls.
Both the
transferor and the transferee have to follow the following
procedure:
•
Both
the parties have to enter into an agreement at least four months earlier to the
intended date of transfer.
•
The
agreement so entered has to be incorporated in the prescribed Format 37-1,
(Rule 48L), setting forth all the particulars.
•
The
statement in the Format 37-I should be signed and verified by both the
transferor and the transferee should be signed and verified by both the
transferor and transferee or by the parties acting on their behalf.
•
The
statement in DUPLICATE shall be submitted to the concerned Appropriate
Authority before the expiry of 15 days from the date of agreement entered into
along with a copy of the agreement.
Form No. 37-1 is a composite one. All the
paras of Form No. 37-1 need not be filled.
The
prescribed format of 37-1 is a composite one. Used for all transactions, sale,
lease, exchange and the parties need fill only relevant paras. Appropriate
Authority has to take an objective view to examine the evasion of tax while
examining the statement of 37-1 and cannot act in a mechanical fashion. (DLF
Universal Vs. Appropriate Authority (2000) 243 ITR 730,749-50 (SC).
Summary
of conclusions on various Judgments involved in pre-emptive purchase
His Lordship, Mr. Justice Y.K. Sabharwal in cases Mahesh Chandra Agarwal
V. Union of India and other cases (1998) 231 ITR 318, 445-447 (Delhi) has
summarized the conclusions on various legal issues involved in the proceedings
for pre-emptive purchase. Some of them are:
•
Under
Valuation of apparent consideration is at least 15% with a view to evade tax or
conceal income.
•
Rebuttable
presumption of tax evasion, where fair market value exceeds the apparent
consideration by 15%.
•
Passing
the orders of preemptive purchase carries with it the stigma of tax evasion,
which affects the reputation of the concerned parties and hence such orders
shall not be made lightly and in routine.
•
Burden
of establishing that the fair market value is more than 15% of apparent
consideration lies on Appropriate Authority and never shifts. Only the
responsibility shifts from one to another.
•
Parties
are entitled to get the entire material relied upon by Appropriate Authority
including valuation reports on record.
•
If
the material placed by the parties before Appropriate Authority shows there is
no occasion for under valuation of property with no view to evade tax or
conceal income, passing the orders of pre-emptive purchase is not permitted.
·
Since
no appeal is provided for in the Act, the authority is required to be
more cautious to subjective satisfaction of the objective facts.
•
Except
in glaring and clear cases of gross under valuation and large-scale tax evasion
pre-emptive purchase orders with bona fide tenancy of long standing cannot be
made.
•
If
the explanation offered to show cause notice that there is no evasion is honest
the plea is to be accepted.
•
While
determining the fair market value of the tenanted property, no comparison can
be made with the sale instance of vacant property.
•
In
determining the fair market value of the property, regard must be had to the
field realities such as long delays in getting possession of the property from
bona fide tenants protected by rent laws and in cases where suit for possession
is filed under Transfer of Property Act.
•
For
determining under valuation and evasion of tax, events as on the date of
agreement of sale are to be considered.
•
If
seller needs urgent money and agrees to sell the property at value less than
market value, pre-emptive purchase order is not permissible.
•
The
plea of distress sale and at the same time the plea that the property was
agreed to be sold at market value are not destructive, and can be raised as
alternative pleas.
Restriction of registration etc., of
documents of transfer of immovable property
Any
immovable property
• Lying within the area to which the Chapter XX-C is applicable
• The value of the
said property exceeds the prescribed limit cannot be transferred and the deed
of transfer cannot be registered by any registering authority unless Appropriate
Authority issues "No Objection Certificate" stating it has no objection
to transfer the property as per the terms stated in Form 37-1 received by the
Appropriate Authority. Such certificate should be furnished to the registering
authority.
If
the Appropriate Authority does not make an order for purchase of immovable
property within the time prescribed or such order gets cancelled, the
Appropriate Authority shall issue No Objection Certificate (S269UL).
Restrictions
on registration and entering into an agreement of transfer and filing 37-1 are
not applicable to Court Auction Sales or Auction Sales by official assignee.
•
The
restriction on registration of conveyance deed is not applicable to Court
auctions, which does not require any registration. With regard to entering into
an agreement, filing of 37-1 with appropriate authority in Court auctions the
owner will be Judgment Debtor and he is not a party to any agreement. Further,
unless the sale is confirmed no one can contemplate who would be the
transferee. The Judgment Debtor is not a Willing Seller (A. Harikrishnan V
Registrar (1991) 192ITR 391,395-396 (MAD).
•
Provisions
of XX-C are applicable in cases where immovable property is transferred in
accordance with the provision of Transfer of Property Act 1882.
Further
the very objective of Chapter XX-C is to avoid evasion of tax and accumulation
of unaccounted money. In case of Court sale or sale by Receiver or by Official
Assignee, that too by public auction, evasion of tax or accumulation of
unaccounted money can never arise.
Transferee
cannot initiate any legal proceedings against the transferor for performance of
the contract as per agreement for transfer,
when the property
is purchased under the provisions of chapter XX-C (Sec 269 UM).
Provisions of the Chapter not to apply to
certain Transfers
• The provisions of
the Chapter XX-C are not applicable in case of transfer of immovable property
to transferor's relatives out of natural love and affection. However, the agreement
should contain such fact (Sec. 269 UO). It is to be noted that the criteria for
preemptive purchase by Central Government is evasion of tax and accumulation of
unaccounted money by understating the consideration amount. Understating the consideration
amount itself does not attract the provisions of the chapter.
•
Income
Tax Clearance Certificate (Sec 230A and Rule 44A & 44B) since deleted.
•
As
per Section 230A of the Income tax Act, 1961, registration of document of
conveyance of immovable property of value more than Rs. 5.00 lakhs, was
permitted only on production of Income tax clearance certificate by the seller.
The prescribed format was 34-A. This section is deleted in Finance Act 2001.
•
PAN
or filing of Form 60 Sec 139A Clause C of sub-section 5 Rule 114-B and 114-C
In
case of transactions of Rs. 5.00 lakhs or more of immovable property shall
quote Permanent Account Number or General Index Number.
If
a person has not been allotted Permanent Account Number or does not have
General Index Number and if the payment is made by way of cash a declaration in
the prescribed format 60 should be made.
If
such person has only agricultural income and not in receipt of any other income
chargeable to income tax he should file declaration in the prescribed format
61.
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