Synopsis Is there a difference between an instrument of release and a gift? Do the legal implications, tax and stamp duty consequences change depending on the phraseology used to describe the instrument? This Article examines some such issues in relation to immovable property transactions.
Introduction
“A Rose by any Other Name Smells as Sweet!” Could the above Shakespearean proverb be applied also to a transfer of property by a release or a gift? The answer is yes and no! A release and a gift are both species of transfers of property. However, there is a difference in law between the two. While the ultimate implication of both is that property is transferred (normally without consideration) but the law treats treats the two on a different footing. Let us look at the key differences and some similarities between the two.
Gift
A Gift is a specie of transfer of property with which almost all individuals, especially in India, are familiar. It is, from time immemorial, one of the most famous (and often infamous) modes of transferring movable as well as immovable property. The revenue and the legislation often frown upon the concept of gifts. The amendments in section 56(2) of the Income tax Act are testimony to this.
The Transfer of Property Act, 1882, which deals, mainly, with immovable property and also contains some provisions dealing with movable property, defines the term “Gift”. The Act also lays down some substantive and procedural provisions for constituting a valid gift. This Act defines a gift as a transfer of certain existing movable or immovable property made voluntarily and without consideration, by one person, called the Donor to another, called the Donee, and accepted by or on behalf of the Donee. The important characteristics of a Gift are:
(a) Gift is one of the modes of transfer of property.
(b) A gift can be of immovable or movable property.
(c) T he gift must be voluntary, i.e., without any coercion, fraud, undue influence.
(d) I t must be without any consideration from the Donee to the Donor.
(e) A person cannot make a Gift to himself, there must be a Donor and a Donee.
(f) T he Gift must be accepted by the Donee during the Donee’s lifetime.
(g) I t could be conditional.
Gift of an immovable property must be by way of a Gift Deed in writing which is executed by the Donor and the Deed must be registered under the Registration Act. Further, it must be attested by two or more witnesses. Thus, any gift of immovable property which is not registered would be invalid. Gifts requiring registration are subjected to stamp duty which is levied on the value of the property gifted.
Release
While we are all too familiar with the concept of gift, let us understand what is meant by a release. A release is much larger than a gift and could take various forms. For instance, if a release is made for consideration it would be tantamount to a conveyance while if it was made without consideration it would amount to a gift. What then is a release? Simply put, a release means renunciation of right in property by one co-owner in favour of another co-owner. Thus, the essential ingredient of a release is that both the transferor and transferee must be existing co-owners in the property. In a release the transferee would never be a stranger but would always be one who has an existing right in the property. Hence, a release can never be for the entire property but would always be for a portion thereof. To illustrate, A and B are equal co-owners in a in a flat. A relinquishes his share to B. This can be achieved by a release deed. If in this case, A charges any consideration from B then it could also be termed as a conveyance while if it is without consideration that it can also be termed as a gift.
A release of a share in an immovable property in excess of Rs. 100 requires that the instrument is registered.
Practical experience shows that sometimes a release deed is executed (and accepted by the Registrar) even in cases where the transferee has no interest in the property. In such cases, a gift deed or a conveyance is a better alternative. However, in law, a release deed can transfer title to one who before the transfer had no interest in the property – Kuppuswamy Chettiar vs. A.S. P. A. Arumugam Chettiar 1967 AIR 1395 (SC), although in such cases, the duty would be as on a conveyance or a gift deed.
Stamp Duty
Since Gifts/Release Deeds of immovable property require registration, they would also require to be duly stamped.
The Maharashtra Stamp Act, 1958, applicable in the State of Maharashtra defines an “instrument of gift” to include, in a case where the gift is not in writing, any instrument recording whether by way of declaration or otherwise the making or acceptance of such oral gift. The gift could be of movable or immovable property. The term gift has not been defined and hence, one has to refer to the definition given u/s. 122 of the Transfer of Property Act”.
An instrument of gift not being a Settlement or a Will or a transfer attracts duty under Artice 34 of Schedule-I. A gift deed attracts duty at the same rate as applicable to a Conveyance (under Article 25) on the market value of the property which is the subject matter of the gift. Thus, in case of immovable property, the rates vary depending upon the type of immovable property, (i.e., whether it is a land, building, a flat in co-operative society), and the location (relevant in case of land and building). The maximum rate for immovable property is 5% of the Reckoner Value. Further, any gift of property to a family member (i.e., a spouse, sibling, lineal ascendant/descendant ) of the donor, shall attract duty @ 2% or as specified above, whichever is less.
On the other hand, under the Maharashtra Stamp Act, a release deed attracts duty on an Instrument of Release whereby a person renounces a claim upon other person or property as follows: If the release is of an ancestral property in favour of certain specified relatives ~Rs. 200
Every other Case ~ Same duty as on a conveyance as on the market value of the share, interest or part renounced.
The Bombay High Court, in the case of Asha Krishnalal Bajaj, 2001(2) Bom CR (PB) 629 held that a Release Deed is not a conveyance and only attracts stamp duty as on a release deed. In the case of Shailesh Harilal Poonatar, 2004 (4) All MR 479, the Bombay High Court held that a release deed without consideration under which one co-owner released his share in favour of another in respect of a property received under a will, was not a conveyance. Accordingly, it was liable to be stamped not as a conveyance but as a release deed.
To plug this loophole, in 2005, the duty in the State of Maharashtra was increased on such instruments to Rs. 5 for every Rs. 500 of market value of the property. The 2006 Amendment Act has once again made an amendment in Maharashtra to provide that if the release is in respect of ancestral property and is executed by or in favour of the renouncer’s spouse, siblings, parents, children, grandchildren of predeceased son, or the legal heirs of these relatives, then the stamp duty would only be Rs. 200. In case of any other Release Deed, the duty is equal to a conveyance. Thus, for immovable properties, it would be @ 5% on the market value of the property. What is an ancestral property becomes an important issue.
The Punjab & haryana high Court in the case of Harendar Singh vs. State, (2008) 3 PLR 183 (P&H) has held that property received by a mother from her sons is not ancestral in nature. in another decision of the Punjab and haryana high Court, it has been held that property inherited by a hindu male from his father, grandfather or great grandfather is ancestral for him–Hardial Singh vs. Nahar Singh AIR 2010 (NOC) 1087 (P&H).
In Laxmikant vs. Collector and Assistant Superintendent of Stamps, Ahmedabad AIR (1976) Guj 158, it was held that a release postulates that the claim is renounced in favour of a person, who has got some right in the property. Release also connotes that the person releasing his right does not retain any ownership right over it. Where the property was thrown in the common hotch-pot with the result that while before the said property was thrown, the person throwing the property was the sole owner, after it is so thrown, he remains a joint owner. Therefore, retention of joint ownership, and the fact that the other members of the family had, previous to the throwing of the property in the joint stock of the family, no right in the property, conclusively showed that the transaction did not amount to a release.
Stamp Duty as on a Gift or a release – which to pay?
Having looked at the provisions pertaining to gift deed and release deed, the essential question is which to consider for paying stamp duty? if the property may be called “an- cestral” and is in favour of defined relatives, the obvious answer is release deed since in that case, the duty is only Rs. 200! The definition of conveyance under the Maharashtra Stamp act states that any instrument whereby a co-owner transfers his interest to another co-owner would be a conveyance. hence, in such cases the instrument would not be a release deed but would be a conveyance. however, if no consideration is charged then it would not be a conveyance and the moot point would be should it be considered as a gift? if one sees the wordings used in the Stamp Act, it defines a release deed only as one “where a person renounces a claim upon another or against any specified property”. Would instruments which are in the nature of a gift deed or a conveyance deed also fall under this definition of a release deed is the question? The cur- rent practice suggests that the answer is “yes”.
In Chief Controlling Revenue Authority vs. Rustom Nussewanji Patel, AIR 1968 Mad. 159 (FB), the Court observed that in order to determine whether a document is a release deed or conveyance, the nomenclature or the language used is not decisive. What is decisive is the actual character of the transaction and the precise nature of the rights created by means of the instrument. In rustoms case, the essential ingredients of release were present, there was already a legal right in the property vested in the releasee and the release operated to enlarge that right into an absolute title for the entire property, insofor as the parties were concerned.
A recent decision of the delhi high Court in the case of Srichand Badlani vs. Govt. of NCT of Delhi, AIR 2014 539 (Del), the contention is that in order to qualify as a relinquishment deed, the document must purport to relinquish share of the relinquishor in favour of all the other co-owners of the property and, if the relinquishment is in favour of only one of the two co-owners, it has to be treated as a Gift deed, the property having been inherited from a common ancestor. It further held that one of the co-owners can relinquish his share in a co-owned property in favour of one or more of the co-owners. The document executed by him in this regard would continue to be a relinquishment deed irrespective of whether the relinquishment is in favour of one or all the remaining co- owners of the property. there is no basis in law for the proposition that if the relinquishment deed is executed in favour of one of the co-owners, it would be treated as a Gift deed. the law of stamp duty treats relinquishment deed and Gift deed as separate documents, chargeable with different stamp duties. it is not necessary that in order to qualify as a relinquishment deed the document must purport to relinquish the share of the relinquisher in favour of all the remaining co- owners of the property. Even if the relinquishment is in favour of one of the co- owners it would qualify as a relinquishment deed. more- over, it is immaterial as to what the relationship between the co- owners of the property. So long as relinquishment is in favour of one of the co-owners, the relationship between the relinquisher and the relinquishee is wholly immaterial and of no consequence at all. The law permits one of the co-owners even if they are not related to each other to relinquish his share in favour of other co-owner.
In Manjulaben Amrutlal vs. CCRA, 1994 GLR 1779 (FB) two sons executed a release in favour of their par- ents for their joint family property. it was held that it was difficult to hold that the parents of the applicants did not have any right, title and interest or share in the property for which deed was executed. The document clearly recit- ed that it was no claim release deed. it also recited in the deed that house was purchased by the mother as their guardian. executants and parents were residing jointly and that they were maintained by their parents. It is also stated that by the said deed whatever right and share they had in the house was released in favour of their mother and father. hence, by the impugned deed the executants had renounced their claim against the house which was purchased by their mother in their names. the property was originally purchased in the name of minors. It was treated by the parents at the most as joint hindu family property, as stated by them. Once it was a joint hindu family property, all the members of the h.u.f. would have share in the said property. In the deed itself it was mentioned that the executants (sons) were maintained by the parents. There was no reason to hold that the property was not belonging to the h.u.f. of executants and their parents. Once it is held that the property belonged to an HUF , then there was no difficulty in holding that the deed executed by the applicants was a release deed and not a gift deed.
Taxation
Section 56(2)(vii) of the income-tax act taxes certain gifts received by an individual or an huf from unrelated sources. hence, such gifts are taxed as income from other Sources in the hands of the donee. A receipt under a release deed without consideration would also be cov- ered by the same provision. thus, whether under a gift or a release deed, specified receipts without consideration would be taxable u/s. 56(2)(vii).
An acquisition for consideration of a share in a house property from one co-owner by another co-owner under a release deed tantamounts to a purchase for the purposes of exemption u/s. 54 of the income-tax act. This was the view of the Supreme Court in the case of CIT vs. TN Aravinda Reddy, 120 ITR 46 (SC). It held that a release was a transfer of the releasor’s share for a consideration to the releasee who purchased the share of the releaser and was thus, entitled to relief u/s. 54.
Conclusion
The structuring of an instrument is an important element. Drafting should pay heed to the Law and Language both. While a document drafted in a particular manner and form may yield the desired results it may not always have the desired consequences!
