REFERRING OF SECTION 47A OF THE INDIAN STAMP ACT, 1899 FOR UNDERVALUATION

[DR.MARIAPPAN GOVINDARAJAN]

Undervaluation

The State Governments inserted Section 47A in the Indian Stamp Act, 1899.  (‘Act’ for short).  Section 47-A (1) of the Act provides that if the Registering Officer, appointed under the Registration Act, 1908 while registering any instrument relating to the transfer of any property, has reason to believe that the market value of the property or the consideration, as the case may be, has not been truly set forth in the instrument, he may, after registering such instrument, refer the same to the Collector for determination of the market value or consideration, as the case may be, and the proper duty payable thereon.

Section 47-A (2) provides that on receipt of reference under sub-section (1), the Collector shall, after giving the parties a reasonable opportunity of being heard and after holding an enquiry in such manner, as may be prescribed by rules, made under this Act, determine the market value or consideration and the duty, as aforesaid, and the deficient amount of duty, if any, shall be payable by the person liable to pay the duty.

Section 47-A(3) provides that the Collector may, suo moto or on receipt of reference from the Inspector General of Registration or the Registrar of a District, in whose jurisdiction the property, or any portion thereof, which is the subject-matter of the instrument, is situated, appointed under the Registration Act, 1908 shall, within 3 years from the date of registration of any instrument, not already referred to him under sub-section (1), call for and examine the instrument for the purpose of satisfying himself as to the correctness of its market value or consideration, as the case may be, and the duty payable thereon and if, after such examination, he has reason to believe that the market value or consideration has not been truely set forth in the instrument, he may determine the market value or consideration and the duty, as aforesaid, in accordance with procedure provided for in sub-section (2), and the deficient amount of duty, if any, shall be payable by the person liable to pay the duty.

Section 47A(4) provides that where for any reason the original document called for by the Collector under sub-section (3) is not produced or cannot be produced, the Collector may, after recording the reasons for its nonproduction, call for a certified copy of the entries of the document from the registering officer concerned and exercise the powers conferred on him under sub-section (3).

Section 47-A (5) provides that any person, aggrieved by an order of the Collector, under subsection (2) or sub-section (3), may, within thirty days from the date of the order, prefer an appeal before the District Judge and all such appeals shall be heard and disposed of in such manner as may be prescribed by rules made under this Act.

For the purpose of this section ‘market value’ of any property shall be estimated to be the price which, in the opinion of the Collector or the appellate authority, as the case may be, such property would have fetched, if sold in the open market on the date of execution of the instrument relating to the transfer of such property.

Case law

In M/S. VIJAYALAKSHMI MARKETING VERSUS STATE OF TAMIL NADU AND OTHERS - 2025 (4) TMI 428 - MADRAS HIGH COURT, the Cethar Vessels Private Limited was directed by the National Company Law Board (‘NCLT’ for short), Chennai to be wound up.  The NCLT appointed one Official Liquidator for the purpose of realizing the assets of the company.  A public auction was conducted by the Official Liquidator for the sale of land property with a building in it.  The petitioner participated in the public auction.  He was declared as a successful bidder for the amount Rs.27 crores.  The petitioner paid the entire amount after deducting of 1% tax from the said amount.  The Official Liquidator gave a sale certificate to the petitioner on 28.12.2022.

The Official Liquidator executed a sale deed on 04.01.2023 and presented the same for registration.  The petitioner paid stamp duty @ 5% and 1% registration charges.  The Sub Registrar refused to register the said document.  He demanded stamp duty as per Article 18 read with Article 23 of Schedule I to the Indian Stamp Act, 1899 treating it as a conveyance. The petitioner paid the demand raise by the Sub Registrar under protest on 04.01.2023.  After making this payment the said sale deed was executed.  However, the Sub Registrar held that there was a wilful under valuation of the property under Section 47-A of the Act.

Against the said order of the Authority the petitioner filed a writ petition challenging the impugned order.  The Single Judge dismissed the writ petition.  Therefore, the petitioner filed the present writ appeal before the Division Bench of the High Court.  The High Court observed that Article 18 read with Article 23 makes it obligatory on the part of the purchaser to pay the stamp duty treating the sale certificate as a conveyance.  The petitioner has paid 5% of stamp duty and 1% for registration charges.  Therefore, the High Court was of the view that the petitioner has paid the proper stamp duty.  The petitioner also paid the stamp duty as treating the deed as conveyance, as per the directions of the Authority under protect to the tune of Rs.74.5 lakhs. The petitioner sought the refund of the duty paid under protest.

The High Court referred to its own judgment in BELL TOWER ENTERPRISES LLP VERSUS. THE STATE OF TAMIL NADU AND ORS. - 2022 (9) TMI 1504 - MADRAS HIGH COURT, in which the High Court held that the stamp duty payable on such sale certificate is only 5% and the registration charges payable is 1%.  Since the document would not be a conveyance there is no payment of surcharge either under Section 116-A of the Tamil Nadu Municipality Act, 1920.  The High Court held that in view of the above the petitioner must pay enhanced stamp duty is not justified.

The High Court also relied on one Supreme Court judgment in REGISTRAR OF ASSURANCES AND ORS. VERSUS ASL VYAPAR PRIVATE LTD. AND ORS. - 2022 (11) TMI 1385 - SUPREME COURT in which the Supreme Court held that a reference under Sectio 47A of the Act cannot be resorted, where a sale is by pubic auction by the officers appointed by the Court as that is the most transparent manner of obtaining the correct market value of the property. 

In the above said case, the Supreme Court observed that in case of undervaluation of property consideration may be passed through two modes – one the declared price and the other undeclared component.  Such transactions do not reflect the correct price actually obtainable in a free market should be capable of bint stamped.    An auction of a property is possibly one of the most transparent methods by which the property is sold. Thus, to say even in a monitored auction, the Registering Authority would have a say on what is the market price, would amount to the Registering Authority sitting in appeal over the decision of the Court permitting sale at a particular price.

The High Court, in view of the above, held that the impugned action of the Sub Registrar is unwarranted and against law.  The High Court set aside the demand made by the Sub Registrar and quashed Section 47-A proceedings.  The High Court directed that the additional duty paid by the petitioner Rs.74.5 lakhs in the proceedings under Section 47A of the Stamp Act with interest @ 9% from the date of payment (22.03.2024) till the date of refund.