BLACK MONEY REPORT 63 In the case of real estate, data from Delhi indicate that high value property facing high rates of taxes (but more specifically high rates of capital gains tax at the time of sale) was found to be under-valued by a far lower percentage than low value property facing lower rates of taxes (p.236). For instance, it was found that at the time of sale, an average property of declared value abbve Rs. 3 lakhs was under-valued between 15 and 50% in a majority of cases. On the other hand, an average property with a declared value of under Rs. 50,000 was under valued by upwards of 200% and in many cases even above 400%. The data thus contradict the high tax rate hypothesis which would have required the high-value properties to be under-valued by far more than the low-value properties. It needs to be mentioned that the data mentioned above was supplied by the Income-Tax department and the percentage under-valuation was calculated by using the initial judgement value of the department and the declared purchase price (p.232). Further, one may also note that the average under-valuation so calculated was much greater than the final figures accepted by the department (p. 248) but much less than the percentage under-valuation indicated in the information collected from the brokers (p.234 and p.238). The hypothesis that a cut in a tax rate may cause a reduction in the generation of black incomes is also not supported by evidence in the Report. In the case of real estate, the finance Bill, 1977, announced that beginning April 1, 1978 (i.e., one year later), long-term capital gains would be exempt from tax if they were invested in 'certain specified securities (lik^, bank deposits). Thus, for at high-value property which-has often to pay the highest marginal tax rate, in the year 1978/79, the effective tax rate could have been brought down from 70% to 0%. This amounted to a substantial tax cut as opposed to the case of sugar industry where the excise duty rates change only a few percentage points and may not be expected to have a substantial impact on compliance. The Income-tax department's data for real estate does not show an unambiguous reduction in thj^ average percentage under-valuation for the year 1978/79 (p. 248). One possible explanation is that the other tax rates applicable to properties, like, house tax, wealth tax and stamp duty, were not brought down so that the reduction in one tax rate is by itself not-so effective. However, one could expect that the sale of immovable properties could have been postponed from the year 1977/78 to 1978/79 to take advantage of the new provisions. Thus, one could have expected a dip in the number of sales for 1977/78 andahumpfor 1978/79 since the provision was withdrawn from 1979. The data from the Ministry of Works and Housing (not presented in the Report but mentioned on p. 232) confirms that the pattern displayed by the Income-Tax department data was no fluke. The assumption in the ab 3ve argument is that property transactions can be postponed. The question arises whether this is at all plausible ? The short answer is yes. The data for Delhi show that during the Emergency years the average number of sales of immovable property dropped dramatically to