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The under-valuation extortion racket
Written By murali772 - 12 July, 2010
Bangalore governance Corruption Real Estate property
My flat, part of a multi-storied complex of 124 flats, located in Koramangala, was registered on 16/02/05. From about a year after registration, many of us owners started receiving notices from the 'under-valuation cell' of the Dept of Revenue, GoK, alleging under-valuation in the assessment of stamp duty payable. Even as our Association, headed by me in the capacity of the President, was trying to figure out as to how to handle the matter collectively, many lawyer-brokers started approaching us with packaged deals to 'sort out' the issue, a typical offer quoted being for totally Rs 21,000/- per owner. Of this, Rs 7,000/- was to be made out to the government by DD, and the remaining Rs 14,000/- was to be paid to the lawyer-broker in cash, of which Rs 7,000/- was supposed to be for the government officials involved. The association took the stand that if the demand had any merit, the members will pay the entire amount by DD, but to the government only, and perhaps some nominal costs to the lawyer.
The lawyer-brokers and the government officials were obviously not agreeable to this, and official reminders started coming, causing some panic amongst the members.
At this stage, I contacted the Coalition Against Corruption (CaC - http://pac-cac.kiirti.org/), a help-desk set up by the Public Affairs Centre (PAC), Bangalore. The CaC put me in touch with Mr A Ravindra, IAS (retd), who was then a Director of the Centre, who, in turn, put me on to Mr Arvind Rishbud, IAS, the then Secretary, Revenue Department, GoK. Mr Rishbud went into the merits of the case, and asked us to ignore the notices, while simultaneously taking action against some of the official involved. We had heard that a certain Mr Mehboob Khan had been suspended.
Meanwhile, in two other complexes, completed around the same time, the associations decided to go by the 'settlement' route, and collectively paid up close to Rs 80 lakhs, two-third in cash of course. When some owners very righteously refused to pay the lawyer her (a lady) fee in cash, she offered them the option of paying by cheque but after adding some 33% to cover the taxes leviable.
The PAC decided to celebrate this 'victory', and felicitated me (and another gentleman for some other similar deed) at a public function, with the founder-director, Dr Samuel Paul, himself handing me a memento of a Sheaffer's pen, which I proudly carry with me all the time. Reading about this in the press, a flat owner in one of the complexes which had followed the 'settlement' route, but who had refused to toe the association line, called me to congratulate, as also to tell the story of what went on there. Apparently, he as well as a few others, got away scot free. Or, at least that was the position there at that stage.
The matter was forgotten thereafter upto about a year later, when our members again started receiving notices, all very similarly worded and all pre-dated, in a kind of a 6-month periodic exercise, with some 10 to 20 of them being targeted at random each time. Strangely, I wasn't amongst the recepients of the notices, though in the earlier rounds, I had also been included.
After ignoring the notices for some time, with anxiety again growing amongst the recepients, I got to convince one of them to volunteer to lodge an official complaint with the Inspector General of Registration & Commissioner of Stamps & Chief Controlling Revenue Authority in Karnataka (Shimsha Bhavan, No 720, 46th cross, 8th block Jayanagar, Bangalore-560 082), giving the full background of the case, trying it as a test case. Even as we were waiting for a response, another member received what was supposed to be a final ex-parte order, with a demand to pay up Rs 59,850/-, possibly hoping to cower us into submission with that. I got him also to lodge a complaint with the IG. That was on 12th May. It is two months since then, and there has been total silence from the department and the IG. Now, I am now keeping open the option of going on the offensive and asking for action taken reports on the complaints lodged, under RTI.
The legal position
We could go about things in this fashion because we were fairly sure of our grounds. Now, the 'guideline market value' for 'Mosaic/ Ceramic/ Vitrified flooring applicable for our specific area, during the period (w.e.f. 02/08/04), was at Rs 880/- per sft, as per Notification no CVC/ RGN: 3/ 2003-04, Bangalore, dt 21/07/04 (issued under the Karnataka Stamp Act, 1957), and we had paid the duty according to that.
With rising stamp duty levies becoming a major deterrent to their marketing efforts, developers came up with the concept of conveyancing just the undivided share of land, and then entering into an agreement for construction, on which other taxes are leviable, but not stamp duty (and registration charges). When this procedure took root, and the government revenues dipped, they came up with the 'guideline value' basis for determining the stamp duty amount payable on fully constructed apartments, even where the conveyancing was only of the undivided share of land.
The guideline values are determined by an expert panel, constituted by the government, with powers to review them periodically. In fact, for our very area, it was revised to Rs 1180/- (wef 14/10/05) from the earlier Rs 880/- (which was wef 02/08/04), a jump of over 34% in just over a year. Very clearly, therefore, there already exists a fair and just methodology for determining the stamp duty leviable. The purpose obviously was also to prevent arbitrariness in the assessment by the revenue authorities.
COMMENTS
murali772 - 15 August, 2013 - 11:59
After a steep revision in the guidance value of properties, the state government plans to set up a permanent valuation cell (PVC) to facilitate revision of values at regular intervals. - - - The need for the special cell has arisen following the yawning gap between guidance values and market rates. Currently, the central valuation committee plays a crucial role in revision of guidance values after getting inputs from the respective offices.
Apart from keeping a constant watch on actual market rates, the new cell will also keep tabs on evasion of taxes on registration of properties through undervaluation, with the help of its special intelligence wing. It will also look into complaints from builders and the public about unscientific guidance values in a particular area, and take immediate steps to correct it.
For the full report in the ToI, click here.
The setting up of the PVC is quite welcome in that it will provide greater buoyancy to the guidance value revision exercise, and bring the guidance value closer to the market value. While doing so, the government should have simultaneously changed its nomenclature to "registration value" (instead of 'guidance value'), and closed down the "undervaluation cell", in order to provide finality to the registration exercise. As it stands today, the cell exists essentially to provide for arbitrary extortion of underhand money from property purchasers, leading to the 'stamps and registration department' gaining the dubious distinction of topping the list of government offenders on “www.ipaidabribe.com”.
I will be submitting a petition to the government to this effect soon.
But How to Clean up the System
Promod Kapur - 31 January, 2014 - 07:05
Welcome "Sulabha Nondani"/ PRDE scheme
murali772 - 25 April, 2018 - 07:51
murali772 - 16 August, 2013 - 16:39
Letter worded as below mailed to CM, with copy to CS - will follow up with regd letter tomorrow:
Sri Siddaramaiah
Honourable Chief Minister, Govt of Karnataka,
Bangalore
Respected Sir
Sub: undervaluation racketeering
Yesterday's Times of India has reported that the government is planning to set up a "permanent valuation cell" (PVC) to facilitate revision of guidance values at regular intervals. Such a move will certainly provide greater buoyancy to the exercise, bring the guidance value closer to the market value, and thereby help increase government's revenue earnings. To that extent, it can generally be seen as a welcome move.
What the government should simultaneously be doing is to change its nomenclature from "guidance value" to "registration value", and apply it irrespective of the “declared sale value”, in order to provide for finality to the stamp duty collection exercise. For want of this, the "undervaluation cell" has so far been merrily going about making arbitrarily assessments (based on whether Italian marble has been used for the flooring, or Makarana) and extorting underhand money from property purchasers, leading to the 'stamps and registration department' gaining the dubious distinction of topping the list of government offenders on “www.ipaidabribe.com”.
Now, market prices of properties can vary according to very many factors, and keeping track of them on a day-to-day basis is a near impossible task. There may be situations where sellers make windfall gains, as also ones where they make distress sales, all depending on the circumstances prevailing on the day and time of a sale. Allowing for the cell to evaluate each of these sales, and the arbitrariness involved thereof, is where the problem lies.
As such, rather than attempting to squeeze out every paisa that may be due, and in the process letting loose the 'monster' of the cell on the public, the government should satisfy itself with the increased revenue that will accrue now with the setting up of the PVC.
If the government wants still more revenue, all that it needs to do is to increase the stamp duty rate, in which case, it alone will be benefited, and not sundry individuals. The stifling effect it will have on the housing market is of course another matter.
Taking into consideration all of the above, we request you to take the action suggested.
Thanking you,
Very truly yours,
for Praja-RAAG,
sd/-
Muralidhar Rao
(President)
Perhaps, other civil society groups too would like to follow suit to build up pressure?
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