Special Story – Valuation under Indirect Tax Laws
CA Anup P. Shah
Valuation under the Bombay Stamp Act, 1958
I.
Introduction
1.1 Stampdutyisasigniicantcostwhichmust
bereckonedwhileenteringintoanimmovable
propertytransaction.Stampdutyisalsothe
secondmostimportantsourceofrevenuefor
theMaharashtraGovernment.Lastyear,the
Maharashtra Government earned a revenue
of around ` 17,700 crores from stamp duty.
Maharashtrahastheinfamousdistinctionof
coveringthemaximumnumberofinstruments
undertheambitofthestampdutynet.
StampDutyinMaharashtraisleviableonan
everyInstrument(notatransaction)mentioned
inScheduleItotheMaharashtraStampAct,
1958 (“the Act”) at rates mentioned in that
Schedule.AnInstrumentasdeinedundertheAct
includeseverydocumentbywhichanyrightor
liabilityiscreated,transferred,limited,extended,
extinguishedorrecorded.
wherestampdutyisleviedonthebasisoftheFair
MarketValueareasfollows:
•
Conveyance
•
LeaseDeed
•
Giftdeed
•
Transferoflease
•
DevelopmentRightsAgreement
•
PowerofAttorneygrantedforconsideration
andauthorisationtosellanimmovable
property
•
PowerofAttorneywhichisfordevelopment
rights
•
Trust deed
•
Partitiondeed
•
Releasedeed
•
Partnershipdeed-ifthecapitalcontribution
isbroughtinbywayofproperty
1.2 StampdutyundertheActmaybeleviedon
anyonethefollowingthreebasis:
•
•
theFairMarketValueoftheproperty;
•
•
the Consideration mentioned in the
•
instrument;or
•
theAreaofthepropertyinvolved
Dissolution/retirementdeed-ifapartner
whodidnotbringinapropertytakesiton
dissolution/retirement
Settlementdeed
InstrumentofExchangeofproperty
1.3 ThisArticlelimitsitselftothedetermination 1.3 Byvirtueoftheinsertionofs.32AoftheAct,
oftheFairMarketValueundertheActforthe theaboveInstrumentsaresubjectedtodutyonthe
purposesoflevyoftheduty.Theinstruments basisofconsiderationrecordedintheInstrument
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Valuation under the Bombay Stamp Act, 1958
ormarketvalueofpropertywhicheverishigher. Zones.EachSub-ZonehasdifferentCadastral/
Theterm“marketvalue”isdeinedbys.2(na)of CitySurveyNumbersforvariousproperties.
theActtomeanthehigherof:
2.2 TheReckonergivesthemarketvaluesfor5
•
thepricewhichthepropertycoveredbythe differenttypesofproperties,namely:
Instrumentwouldhavefetchedifsoldinan •
Shops/Commercial
openmarketonthedateofexecutionofthe
•
Ofices
Instrument;or
IndustrialProperty
•
theconsiderationasstatedintheInstrument •
1.4 S.32AoftheActreadwithRule4ofBombay
Stamp(DeterminationofTrueMarketValueof
Property)Rules,1995empowerstheJointDirector
ofTownPlanningandValuationtopreparean
AnnualStatementofAverageRatesofmarket
valuefordifferenttypesofimmovableproperties
situatedineverytahsil,municipalcorporationor
localbodyarea.ThisStatementispreparedfora
CalendarYear,i.e.,1stJanuaryto31stDecember
ofeveryyear.OnceitisapprovedbytheChief
ControllingRevenueAuthorityitremainsinforce
fortheentireyear.TheStatementispopularly
knownasthe“ReadyReckoner”.Whileworking
outtheaverageratesoflandandbuildingsfor
theReadyReckoner,theconcernedofficersare
requiredtotakeintoaccounttheestablished
principlesofvaluationandanyotherdetailsthat
theydeemnecessary.
•
ResidentialProperty
•
DevelopedLand
1.5 Hence,theReadyReckonerisapplicable
forthevaluationofimmovablepropertiesincase
ofcertaininstruments.Theterm‘immovable
property’isdeinedins.2(ja)oftheActtoinclude
land,benefitstoariseoutoflandandthings
attachedtoearthorpermanentlyfastenedto
anythingattachedtotheearth.Itisextremely
essentialtoascertainwhetherornottheproperty
in question is an immovable property. The
SupremeCourt’sdecisionsinDuncan’s Industries
Limited vs. State of U. P. (2000) 1 SCC 633; Triveni
Engineering & Indus. Ltd., 2000 (120) ELT 273 (SC)
and Sirpur Paper Mills (1998) 1 SCC 400wouldbe
usefulinthisrespect.
2.3 Inaddition,theReckonerprescribesdifferent
ratesfordifferentpremisessuchasRowHouses,
Bungalows,Terraces,BungalowswithoutRCC
Slabs,MezzanineFloors,Dispensaries,Banks,
ShopsfacingtheRoad,ShopsnotfacingtheRoads,
ShopsinBasement,GodownsinBasement,etc.
2.4 Thereareninemajorstepstousingthe
ReadyReckonerwhichareasfollows:
(i)
FindouttheVillageNumberandVillage
Nameinwhichthepropertyislocated
(ii)
AscertaintheZoneandtheSub-Zone
(iii)
FindouttheCTSNo.oftheproperty
(iv)
Determine the type of property, e.g.,
Residential,Ofice,etc.
(v)
CalculatetheBuilt-upAreaoftheFlat/
Ofice.
(vi)
FindouttheMarketValueforthetypeof
Property
(vii) AscertainifthereareanySpecialFactorsas
prescribedintheReckoner
(viii) MaketheprescribedAdjustmentstothe
MarketValue
(ix)
TheMarketValueofthePropertyforStamp
Dutypurposes=AdjustedFairMarket
Value*Built-upAreaoftheProperty
2.5 Itisessentialtonotethatthefairmarket
valuesgivenintheReadyReckonerarepersquare
metreofBuilt-upArea.Hence,theareaofthelat
II. Ready Reckoner
mustalsobeconvertedfromsquarefeettosquare
2.1 TheReckonerdividesMumbaiCity/Suburbs
metreandmustbeexpressedintermsoftheBuiltintovariousVillagenumbersandNames.Each
upArea.
Villageisfurthersub-dividedintoZones&Sub-
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Special Story – Valuation under Indirect Tax Laws
TheReckonercalculatestheBuilt-upAreaas
CarpetArea*1.20.TheCarpetAreaincommon
parlancemeansthewall-to-wallareaoftheflat,
whereastheBuilt-upAreaalsoincludestheareaof
thewalls.Inaddition,thereistheconceptofSuper
Built-uporSaleableAreawhichisverypopular
amongsttheBuilders.ItmeanstheBuilt-upArea
plusthepro-rataareaforcommonfacilitiessuch
aslift,lobby,staircase,passage,etc.Itisvery
importanttobearinmindthatthestampduty
valuationisneitheronthebasisofthecarpetarea
noronthebasisofthesuperbuilt-uparea.Itisthe
built-upareaalonewhichisrelevantforvaluation
undertheReckoner.Theconversionratefromsq.
metretosq.feetis1Sq.Mtr.=10.764Sq.Ft.
2.6 OneoftheSpecialFactorsonaccountof
whichanadjustmentistobemadeiswhetherthe
buildinginwhichthepropertyislocatedhasa
lift.Dependinguponthenumberofloorsinthe
buildingandthefactwhetherornotthebuilding
hasalift,anincreaseordecreasemustbemadein
thevalueoftheproperty.
(ii)
TheCarpetAreaofthelatis1,800sq.ft.
(iii)
TheBuildingwasconstructedin1975(36
yearsold)andithas15Floors.
(iv)
TheAgreementValueofthelatisRs.8.00
crores.
Thefairmarketvaluecalculationwouldbedone
asunder:
Village Name and Number : Malabar Hill &
KhambalaHill–No.7
Zone/Sub-zone:7/61
CTSNo.ofPlot-1/600
Built-upAreaofFlat:1800*1.2=2160sq.ft.
=2160/10.764=200sq.mtr.
Built-upAreaRate/sq.mtr.aspertheReady
Reckoner:`6,72,000
DepreciationasperTable:40%
AddforLift:10%
Rate after Depreciation & Lift increase :
2.7 Another adjustment is to be made on `4,43,520
accountofdepreciation.TheReckonerprescribes Area(sq.mtr) :200sq.mtr.
differentdepreciationratesbasedontheage ValueasperReckoner:`8.87crores
oftheproperty.ThelowestrateisNilfora5
yearoldstructureandthehighestrateis50% AgreementValue:`8.00crores
forastructurewhichis40yearsoldormore. Valueforlevyingduty–HigheroftwoValues:
Depreciationisgrantedontheadjustedfairmarket `8.87crores
valueofthepropertyasgivenintheReckoner. StampDutyonReckonerValue:`44.35lakhs
Thestampauthoritiesinsistupontheproofof
theageofthebuildingbeforeallowingtheclaim StampDutyonAgreementValue:`40.00lakhs
ofdepreciation.Someoftheproofsreliedupon HigherStampDutyduetoReckoner:`4.35lakhs
aretheBuildingOccupationCertificate(OC),
MunicipalAssessment,etc.However,according
2.9 Closedgaragesorparkingspacesunderstilts
tothelatestguidelines,depreciationmustbe
arevaluedat25%oftherateapplicabletolatsin
providedaccordingtotheageofthebuildingby
thatzone.
theSub-RegistrarofAssuranceshimselfandno
2.10 The Ready Reckoner also lays down
adjudicationisnecessary.
themethodofvaluationoftenantedproperty.
2.8 Theexamplegivenbelowillustratesthe
TheacceptedmethodofvaluationistheRent
methodofcalculatingthefairmarketvalueofa
CapitalisationMethod.Therearetwomethodsof
residentiallatbyusingtheReadyReckoner.The
valuationdependinguponwhetherthetenanted
factsareasfollows:
areaislessthanorequaltotheFSIavailableor
(i)
ResidentialFlaton12thloorofabuildingat morethantheFSIavailable.Further,incasethe
NepeanSeaRoad
tenantsaregivenanyalternativeaccommodation
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Valuation under the Bombay Stamp Act, 1958
thenanadjustmentisrequiredtobemadeforthe of"primafacie"marketvalue.Asfarbackasin
same.
1993,theMaharashtraStateGovernmenthas
2.11 S.28oftheActspecifiesthatthemarket givenanundertakingbeforetheBombayHigh
valueandallfactsandcircumstancesaffecting Court,inthecaseofAshok Bansilal Mutha vs. State
the chargeability of the instrument with the of Maharashtra & Ors. (Contempt Petition No. 28 of
duty should be fully and truly set forth in 1993),thatitwillnotusetheReadyReckonerfor
the instrument. Rule 3 of Bombay Stamp calculatingstampduty.Inspiteofthis,theSub(DeterminationofTrueMarketValueofProperty) registrarsalwaysinsistuponpaymentofdutyas
Rules,1995requiresthatanyinstrumentrelatingto pertheReckoner.
anyimmovablepropertyshouldmentionthearea 3.3 InalandmarkdecisioninthecaseofBharat
oftheplot,thetypeofconstruction,thebuilt-up Bijlee Ltd. vs. State of Maharashtra, 2003(1) All MR
areaandtheyearofconstruction.
18,theBombayHighCourthasleviedapersonal
2.12 Stampdutyiscalculatedonthemarket ineontheSuperintendentofStampsforinsisting
valuearrivedataspertheaboveprocedure.The onthepaymentofdutyasperthereadyreckoner
RateofdutyisasspeciiedbytherelevantArticle valuationinacaseofsaleunderanIncome-tax
ofSchedule1totheMaharashtraStampAct,1958, Auction.
i.e.,@3%,4%or5%dependinguponthelocation 3.4 Thelandmarkdecisioninthisrespectisthat
oftheSupremeCourtinthecaseofR. Sai Bharathi
oftheproperty.
vs J. Jayalalitha, Special Leave Petition (Crl.) 477 of
III. Issues with the Ready Reckoner 2002whichheldasfollowsinrespectofthestamp
dutyguidelinevalue/reckonervalue:
Valuation
3.1 TheReadyReckonerdoesnotconsider “…The guideline value is a rate fixed by
variousfactorssocio-economic/legalfactors authoritiesundertheStampActforpurposesof
determiningthetruemarketvalueoftheproperty
whichmayinluenceavaluationsuchas:
disclosedinaninstrumentrequiringpaymentof
•
Differencesinbuildingslocatedwithin stampduty.Thustheguidelinevalueixedisnot
thesamearea,e.g.,conditionofbuildings, inalbutonlyaprimafacierateprevailinginan
quality of construction, amenities, area.Itisopentotheregisteringauthorityaswell
surroundings,view,proximitytoslums,etc. asthepersonseekingregistrationtoprovethe
•
Differences between flats in the same actualmarketvalueofproperty.Theauthorities
building,e.g.,conditionoflats,higherloor cannotregardtheguidelinevaluationasthelast
premium,seaview,frontandbacklats,etc. wordonthesubjectofmarketvalue.….
…………guidelinevaluewillonlyaffordaprima
faciebasistoascertainthetrueorcorrectmarket
valueundueemphasisontheguidelinevalue
withoutreferencetothesettinginwhichitistobe
viewedwillobscuretheissueforconsideration.
•
Specialfactorssuchasdistresssale
Itisclear,therefore,thatguidelinevalueisnot
3.2 Inmanycases,theRegistrarrefusesto sacrosanctasurgedonbehalfoftheappellants,but
registeradocumentifthestampdutyisnotpaid onlyafactortobetakennoteofifatallavailable
onthefairmarketvalueaspertheReadyReckoner in respect of an area in which the property
valuation.TheBombayHighCourtinPrasadnagar transferredlies.……….”
Co-operative Housing Society, 2005 (3) Bom CR 478
AnotherimportantSupremeCourtdecisionisthat
hasheldthatReadyReckonervaluesaretobe
inthecaseof Jawajee Nagnatham, (1994) 4 SCC 595
treatedsheerlyasguidelinesandasadeclaration
(SC),extractsofwhicharegivenbelow:
•
Defectsinthetitleoftheowner,impact
of various regulations such as Costal
RegulationZone,UrbanLandCeilingAct,
etc.
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Special Story – Valuation under Indirect Tax Laws
“…………TheBasicValuationRegisterprepared
andmaintainedforthepurposeofcollectingstamp
dutyhasnostatutorybaseorforce.Itcannot
formafoundationtodeterminethemarketvalue
mentionedthereunderininstrumentbroughtfor
registration.Equallyitwouldnotbeabasisto
determinethemarketvalue………..
Evidenceofbona idesalesbetweenwillingprudent
vendorandprudentvendeeofthelandsacquired
orsituatednearaboutthatlandpossessingsameor similaradvantageousfeatureswouldfurnishbasis
todeterminemarketvalue.”
3.5 The Ready Reckoner Values may give
absurdresultsintheeventthereisafallinthe
propertyvaluesinaparticularyear.Forinstance,
underthecurrentReadyReckonerthevalueofall
OficepremisesinacertainareaatNarimanPoint
is `51,200persquarefeet.Whilesomebuildings
maybeabletocommandsuchprices,notall
buildingsandwithinthemnotalloficescanget
suchaprice!Theaverageincreaseintherates
inthe2013Reckoneroverthe2012is14%while
thecorrespondingincreaseinthe2012Reckoner
was18%.Thus,whiletheStateGovernmenthas
broughtdownthestampdutyratestoamaximum
of5%itisincreasingtheReckonerRatesevery
year.
3.6 OflatethereisanewtrendintheReckoner.
ThesameCTSNo.appearsintwodifferentzones
ofthesamevillagewithdifferentratesforthe
sameCTSNo.Togiveanexample,intheColaba
Division,thereisoneCTSNo.whichhasarate
of`5,30,800/squaremetreandalsoarateof
`2,60,600persquaremetre,i.e.,avariationofmore
than100%!Thereareseveralsuchduplicationsin
theReckoner.
IV.
Importance
Valuation
of
Stamp
Duty
4.1 TheStampDutyvaluationofanimmovable
propertyisincreasinglybecomingimportantalso
asareferencepointundervariousotherlaws:
(a)
S.50CoftheIncome-taxActstatesthatif
thesaleconsiderationreceivedfortransfer
ofalandorbuildingorboth,heldasa
SS-XI-119
capitalasset,islessthanthevalueadopted
forpaymentofstampduty,thenthevalue
adoptedwouldbedeemedtobethesale
consideration.Inthiscontext,thedecision
oftheKolkataITATinthecaseofChandra
BhanAgarwal,[2012]21taxmann.com133
(Kol.ITAT)renderedinthecontextoffair
marketvalueu/s.50Cisveryappropriate
toourcase:
“….The expression 'fair market value',
in relation to any immovable property
transferred, means the price the
immovable property would ordinarily
fetchonsaleintheopenmarketonthe
date of execution of the instrument of
transferofsuchproperty.Thefairmarket
valueisthebestpricewhichvendorcan
reasonablyobtaininthecircumstancesof
theparticularcaseandwhatisrequired
tobedonefortheascertainmentofsuch
market value is to ascertain the price
whichawilling,reasonableandprudent
purchaserwouldpayfortheproperty.In
ascertainingthat,allfactorshavingany
depressingorappreciativeeffectonthe
value of the property have to be taken
intoaccount…..Thevalueofaproperty
cannotbestatedinanabstractformandit
variesfromtimetotimeandcanonlybe
statedwithreferencetosomanyfactors,i.e.,
thelocality,situation,generalappearance
inthearea,availabilityofshoppingand
marketingfacilities,conditionofpublic
waysandtransportation,availabilityof
utilities,andmanyotherthings.…..The
provisionsofsection50C,inthepresent
context,statethefairmarketvalueand
value is estimation of a probable price
oftheproperty,i.e.,thedeemingfiction.
The deemed value is to be ascertained
andforthat,asdiscussedabove,section
50C has postulated certain conditions.
Intheinstantcase,thefairmarketvalue
estimatedbyDVOhasbeenchallenged
asDVO'sreporthasnobasis,becauseit
hasnotdiscussedanyofthefactors,such
aslocality,situation,generalappearance
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Valuation under the Bombay Stamp Act, 1958
inthearea,availabilityofshoppingand
marketingfacilities,conditionsofpublic
waysandtransportation,availabilityof
utilitiesetc.andetc.TheDVO'sreportis
acrypticone,andtheassessmentisbased
onvalueasassessedbyRegistrarandthat
alsoonthebasisofadditionalstampduty
askedfor.…….Inthiscase,theDVOhas
notascertainedanymarketvaluewhicha
willing,reasonableandprudentpurchaser
wouldpayforthisproperty.EventheDVO
hasnotconsideredthefactorshavingany
depressingorappreciativeeffectonthe
valueoftheproperty.”
Thus,theITAThasveryclearlystatedthat
eventhevaluationmustconsiderallvalue
depressingfactors.
(b) Similarly,s.43CAoftheIncome-taxAct
provides that if the sale consideration
receivedfortransferofalandorbuildingor
both,heldasstock-in-trade,islessthanthe
valueadoptedforpaymentofstampduty,
thenthevalueadoptedwouldbedeemedto
bethesaleconsideration.
(c) If an Individual or an HUF gets any
immovablepropertywithoutconsideration,
thestampdutyvalueofwhichexceeds
`50,000thenthestampdutyvaluewould
betreatedashisIncomeu/s.56(2).Similarly,
ifhebuysanyimmovablepropertyfora
considerationwhichislowerthanthestamp
dutyvaluationby`50,000ormore,thenthe
differencewouldbetreatedastheIncome
ofthebuyer.
(d) TheMaharashtraVATAct,2002leviesVAT
forbuildersundertheCompositionScheme
@1%ofthevalueadoptedforpayment
of stamp duty or the agreement value,
whicheverishigher.
(e) Thefinalnailinthecoffinistherecently
introduced Property Tax which levies
property tax based on the Stamp Duty
ReadyReckonerValuation.
Thus, the reckoner value is becoming an
increasinglyimportantsourceofrevenuenotjust
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fortheStampOfficebutalsoforotherRevenue
Departments.
V.
Dispute over Valuation
5.1 Ifanypersonisunhappywiththestamp
dutyvaluation,thenundertheAct,hecansubmit
theinstrumentforvoluntaryadjudicationbythe
Collector.
5.2 Anappealliesagainsttheadjudicationdone
bytheCollectortotheChiefControllingRevenue
Authority.
VI. Inadequately Stamped
Instruments
6.1 Instrumentswhichareinadequately/not
stampedareinadmissibleinevidenceforany
purpose,e.g.,inaCivilCourt.Suchinstruments
canbeadmissibleinevidenceonlyonpayment
oftherequisiteamountofdutyandapenalty@
2%permonthonthedeficientamountofduty
calculatedfromthedateofexecution.However,
themaximumpenaltycannotexceedtwicethe
amountofdutyinvolved.
6.2 Further, s.59 of the Act provides for a
penaltyforexecutinganimproperlystamped
instrumentwithanintentiontoevadestampduty.
Thepenaltyconsistsofarigorousimprisonment
foratermwhichshallnotbelessthanonemonth
andwhichmayextenduptosixmonthsandaine
ofupto`5,000.
VII. Conclusion
ThesimplestdeinitionofvalueisbyJustice
Hardleyas“Apriceisafactandavalueisan
estimateofwhatthepriceoughttobe”.Thus,a
valuationshouldbeacombinationofobjective
dataandsubjectivejudgment.However,the
Reckonertakesawayallelementsofdiscretion
whenitcomestovaluingimmovableproperty
andusesan‘one-size-fits-all’approach.Letus
allhopewereachautopiansituationofhaving
leewayinvaluationforstampdutyforimmovable
properties!
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