A slump leaves the I-T dept sitting on real estate worth crores
THE real estate slump has hit brokers, speculators and corporates across the land. Add one more name to the list:the Income-Tax department. Thanks to the slump, it's stuck with 64 prime pieces of real estate worth Rs 93.5 crore in Mumbai and another 34 properties in Delhi, worth Rs 9 crore when acquired.
But what is the I-T department doing with bungalows in Juhu and South Delhi? Simple. If someone is suspected of evading taxes by undervaluing his property, the department is empowered to purchase the property from the owner at the declared price. The owner has no option but to sell.
According to law, if the value of transactions of immovable property, located in any one of 28 notified cities and towns, exceeds a prescribed limit (see table), the buyer and seller are jointly required to file form 37-I, where the value of the property has to be declared. If the property is undervalued in the form, state governments lose stamp and registration duties which are calculated as a percentage of the registration price. If the Appropriate Authority, comprising two I-T commissioners and a chief engineer of the CPWD, feel the stated price in the agreement has been declared lower to evade taxes, they pass orders for purchasing the property.
These properties are then sold off by the I-T department in an auction or through tenders at a reserve price 15 per cent more than the amount the department paid to acquire the property. The over Rs 100 crore worth of prime housing that it currently holds are from tax evaders.
The department has traditionally made good money from these sales. For instance, in an auction held on August 27, '94, a 2,335 sq mt plot of land in Prabhadevi, Mumbai, went for a whopping Rs 31.50 crore. The department had purchased the property for just Rs 11.75 crore, the reserve price was only Rs 13.51 crore. And on May 27, 1995, a bungalow under construction in Mumbai's Juhu area went for Rs 9.45 crore —the reserve price was Rs 3.35 crore. "In 1994-95, I handled 40 enquiries a day relating to income-tax auctions," says Anis Memon, proprietor of Quick Sale Services which has handled a bulk of I-T auctions in Mumbai.
But 1994-95 was the boom time of the property market. Property prices have since fallen from 25 per cent to, in some cases, 50 per cent in Mumbai. In many cases, market prices have slid below what the department bought the properties for. In an auction held in Mumbai on March 17, six properties were put up for sale. Only five persons showed up, and a flat located at Worli was sold off at the reserve price of Rs 1.30 crore. Brokers feel that but LOKE for a nationalised bank wanting a clean deal, which was feasible only through such auctions, even this flat wouldn't have been sold. "The current market value of this flat is about Rs 1 crore," a broker told Outlook. And this was the only auction held in Mumbai in 1997-98.
Apart from the price slump, relentless litigation has also stalled auction plans. In one of the more famous cases, C.B. Gautam, close associate of former prime minister Chandra Shekhar, took his case to the Supreme Court when I-T officials decided to purchase his south Delhi house. "The right to property is no more a fundamental right and hence we managed to win the case," explains an I-T official, adding nearly all properties in Delhi are tied up in litigation.
K.K. Roy, income tax commissioner, and member, Appropriate Authority, Mumbai, however, says he isn't perturbed by the lack of response at the auctions or the fact that over Rs 93 crore is locked up. "In the absence of this law that empowers us to buy these properties, the department would have lost much more revenue in taxes than the funds locked currently in those properties. This law serves as a deterrent to all those who want to evade taxes," he says.
Analysts agree that the best option for the I-T department is to wait a year and then sell. "The department had generated huge surpluses during the boom period, so they can ideally wait for the market to pick up," says Memon. The big question 'when' that will happen, is anybody's guess.