Stamp duty laws for properties auctioned by courts

Stamp duty for transactions of immovable property, is benchmarked against the rates published by state governments in advance, which are called as ‘ready reckoner rates’ in Maharashtra and ‘circle rates’ in north India. The Stamp Act provides the methodology for computing stamp duty, in case of sale of properties in special circumstances.

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Auction of a property, through a court-executed order

An immovable property can be sold through a public auction by a court, in execution of a decree or an award. In such cases, the auction is carried out like a sale in the regular course through the office of the sheriff, where the auction sale is conducted by obtaining a valuation. In this auction, a reserve price is set based on the valuation obtained. Bids are invited through public advertisement and the sale is finalised in favour a particular bidder, after assessing all the bids. Ultimately a sale certificate is issued by the prothonotary and senior master in the usual course.

This sale certificate is a document of title, through which the title in the property that is auctioned, is conveyed to the bidder. As the sale certificate is treated as an instrument through which the title is transferred, it is required to be stamped under the respective stamp laws of the state and registered under Indian Registration Act. For the purpose of stamping, the sale certificate is presented to the stamp duty authorities of the state.

Provisions of the Mumbai Stamp Act

Article 16, read with Article 25 of the Mumbai Stamp Act, provides that with respect to a certificate of sale granted to the purchaser of any property sold by public auction by a civil or revenue court, the collector or other revenue officer, or any other officer empowered by law to sell property by public auction, the stamp duty has to be computed with reference to the market value of the property. The rate of stamp duty is expressed as a certain percentage of the market value.

The rules also empower the stamp duty officials, to examine the real market value of the property, in case the value stated in the instrument of transfer is not adequately and properly stated. However, in cases of sale or allotment of property by a government or semi-government body, or a government undertaking, or a local authority, on the basis of a predetermined price, the stamp duty authorities have to accept such predetermined prices and do not have any power to deviate from such predetermined price. Likewise, in cases where properties are acquired by any of the above authorities, the agreement value is final, for the purpose of determining stamp duty.

Tax implications, where the ready reckoner rates are higher than the auction price

As per Section 56(2) of the Income Tax Act, in case the difference between the ready reckoner rates and sale price of a property is more than 5% of the sale price, subject to a minimum of Rs 50,000, then, such difference is treated as income of the successful bidder. Moreover, as per Section 50C, the same difference is treated as income of the seller, as the seller is presumed to have received the valuation as arrived at by the ready reckoner published by the state governments every year.

Decision of the Bombay High Court

The Bombay High Court, in the case of Pinak Bharat and Co and others v/s Anil Ramrao Naik, had an occasion to decide on the valuation that should be taken for the purpose of payment of stamp duty, in case of an auction of immovable property that is supervised by a court.

In this case, the court observed that when the Stamp Act carves out an exception for properties that are sold or allotted by governmental bodies, why should a sale by public auction through a court, on the basis of an independent valuation obtained by following a completely open and transparent process, be placed on a different footing? The judge went on to observe that the process followed by the court, in arriving at the valuation and executing the auction, is much more rigorous than the process followed by the government bodies, where the price is not derived by any elaborate process but is simply fixed by these bodies. The court further observed that in case of a sale by public auction, there is an embedded assurance of an open bidding process and often, this bidding process takes place in the court itself. So, there is no reason for the stamp duty authorities to doubt the final bid amount, as stated in the sale certificate.

While delivering the final judgement orally, the justice GS Patel held that as a practice, the following procedures can be followed, in different types of cases:

In cases where the sale is by private treaty, the process outlined in the Maharashtra Stamp Act has to be followed.

If the sale is by a court through the office of the sheriff, or by the court receiver and executed by way of a public auction, pursuant to a valuation obtained earlier and where the sale price is at or below the valuation obtained, then, the valuation will serve as the current market value. However, in cases where the final bid that is accepted is higher than the valuation arrived at, the final bid amount has to be taken as the market value, for the purpose of stamp duty valuation.

The court finally observed that if the court that is executing the process is satisfied with the valuation and accepts it, then, the adjudicating authority cannot question that valuation. So, it is never open to the adjudicating party to hold, even by implication, that when a court sold a property through a public auction by following this process, it did so at an undervaluation.

The court also observed that this rule, of mandatory acceptance of the valuation of the court by the stamp duty authorities, is applicable only in case where the court has obtained the valuation. However, in cases where the valuation has not been obtained or the authenticated copy of a valuation is not submitted, then, the adjudicating authorities are free to follow the process of finding out the market value by themselves.

(The author is a tax and investment expert, with 35 years’ experience)

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Balwant Jain

Balwant Jain is a tax and investment expert. He is a rank holder CA, CS of 1983 batch and a Certified Financial Planner (CFP). He has varied experience in providing his own consultancy, as well as working as the chief financial officer, as well as a company secretary. He has been regularly contributing articles to leading business and mainline dailies, as well as electronic media. He regularly appears on business channels like Zee Business and CNBC Awaaz, as a personal finance and taxation expert. He has also been a visiting faculty of NMIMS (Narsee Monjee Institute of Management Studies), Mumbai. He also regularly conducts workshops on various subjects of investments and taxation.

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