By Dr. Anup P. Shah
Chartered Accountant
Introduction
Go to register a document
for a flat/office and chances are that the Sub-registrar of Assurances would
point out that the antecedent title documents have not been stamped properly
and hence, the current instrument cannot be registered. The Authority would first
ask that stamp duty with penalty be paid on all the earlier chain of documents
and only then would the current instrument get stamped and registered. This
creates several hurdles for property buyers and they are unnecessarily
penalised for past lapses in the property documents. One wonders till what
extent can the current buyer be asked to go to pay stamp duty on the past
documents?
In this respect, the Bombay
High Court has given a path breaking decision which would ease the property
buying process.
The Case
The decision was rendered
in the case of Lajawanti G.
Godhwani vs. Shyam R. Godhwani and Vijay Jindal, Suit No. 3394/2008,
decision rendered on 13th December, 2018.This case
pertained to a flat purchased in an auction conducted by the Court Receiver.
The last time the flat was sold was in 1979 and that document was stamped only
with a duty of Rs. 10. The old agreement was not even registered. When the
purchaser went to register the instrument of transfer, the Sub-registrar of
Assurances demanded stamp duty on the entire chain of title documents since the
same was not paid. The duty alone on the old agreement at the Stamp Duty
Reckoner Rates amounted to Rs. 2 crore. As the purchaser had bought the flat
through a Court Receiver’s auction, he approached the High Court to get
directives that the seller should bear the previous stamp duty and penalty.
While one of the original owners agreed, the other former co-owners refused.
Accordingly, the High Court was hearing their dispute.
Basics of Stamp Law
Before understanding what
the Court held, it would be useful to appreciate certain basics of stamp duty.
Stamp duty is both a subject of the Central and the State Government. Under the
Constitution of India, the power to levy stamp duty is divided between the
Union and the State. The Parliament has the power to levy stamp duty on the
instruments specified in Article 246 read with Schedule VII, List I, Entry 91
and the State Legislature has the power to levy stamp duty on instruments
falling under Article 246 read with Schedule VII, List II, Entry 63. Often a
question arises, which Act applies – the Indian Stamp Act, 1899 or the
Maharashtra Stamp Act, 1958. For most of the instruments, the State Act would
apply. However, for the nine instruments provided in the Union List of the
Constitution of India, the rates are mentioned in the Schedule to the Indian
Stamp Act, 1899.
In Hindustan Steel
Ltd. vs. Dalip Construction Company, 1969 SCR (3) 796, the Supreme
Court held that the Stamp Act is a fiscal measure enacted to secure revenue for
the State on certain classes of instruments.
Stamp Duty is leviable on
an instrument (and not a transaction) mentioned in Schedule I to the Maharashtra
Stamp Act, 1958 at rates mentioned in that Schedule – LIC vs. Dinannath
Mahade Tembhekar AIR 1976 Bom 395. An Instrument is defined under the
Maharashtra Stamp Act to include every document by which any right or liability
is created, transferred, limited, extended, extinguished or recorded. However, it does not include a bill of
exchange, cheque, promissory note, bill of lading, letter of credit, policy of
insurance, transfer of share, debenture, proxy and receipt. This is because
these nine instruments are within the purview of the Indian Stamp Act, 1899.
All instruments chargeable with duty and executed in Maharashtra should be
stamped before or at the time of execution or immediately thereafter or on the
next working day following the date of execution.
One of the biggest myths
surrounding stamp duty is that it is levied on a transaction. It is only levied
on an instrument and that too provided the Schedule mentions rates for it. If
there is no instrument then there is no duty is the golden rule one must always
keep in mind. An English decision in the case of The Commissioner of Inland Revenue vs.
G. Anous & Co. (1891) Vol. XXIII Queen’s Bench Division 579 has
held that held that the thing, which is made liable to stamp duty is the
“instrument”. It is the “instrument” whereby
any property upon the sale thereof is legally or equitably transferred and the
taxation is confined only to the instrument whereby the property is
transferred. If a contract of purchase or sale or a conveyance by way of purchase
and sale, can be, or is, carried out without an instrument, the case would not
fall within the section and no tax can be imposed. Taxation is confined to the
instrument by which the property is transferred legally and equitably
transferred. This decision was cited by the Supreme Court in the case of Hindustan
Lever Ltd vs. State of Maharashtra, (2004) 9 SCC 438.
On 9th December,
1985, the Maharashtra Stamp Act was amended which mandated that stamp duty had
to be paid at the rates prescribed in the Ready Reckoner published every year.
Following this, the Stamp Office started demanding stamp duty even on resale
agreements of old properties for which a nominal duty had been paid on the
agreements when they were originally executed. Consequently, the issue arose as
to whether the amendments made in 1985 were applicable even to documents which
were registered earlier than 1985. Two Single Judge decisions of the Bombay
High Court, Padma Nair vs. The Deputy Collector, Valuation, AIR 1994 Bom
160 / ITC Limited and Anr. vs The State and a Division Bench decision in the
case of Nirmala Manherlal Shah vs State, 2005 (5) BomCR 206 are
relevant in this respect. The Courts in these cases were considering whether
stamp duty was payable on the agreement to sell entered into before 9th
December, 1985. The Courts took a view that only in respect of those Agreements
to Sell entered into with effect from 9th December, 1985 and not
earlier were to be stamped in terms of the definition ‘conveyance’ read with
Explanation under article of Schedule I. Inspite of these verdicts the Stamp
Office demands stamp duty on old agreements that had been executed prior to
1985.
Bombay High Court’s verdict
The verdict in the instant
case was delivered by J. Gautam Patel. The Court held that as regards the
question of stamp duty on antecedent documents there was no clear or well
considered response from the Stamp Office. Neither the Officer from the Stamp
Office nor the Assistant Government Pleader was able to show the Court as to
under what provision of the Stamp Act, old documents prior to the amendments to
the Stamp Act could be legitimately or lawfully said to be “unstamped” or even
insufficiently stamped if, according to the law as it stood at that historical point
in time, the document itself was not liable to stamp in the first place. The
Counsel for the Government agreed that any such assessment would have to be on
the basis of the Stamp Act as it stood at that time of the older transactions
and not at the current rates.
The High Court held that
the entire approach of seeking duty on past agreements seemed prima facie
entirely incorrect. The Court considered a very simple example to substantiate
its stand—a flat in a cooperative housing society was held by A, who was the
original allottee of the flat. In 1970, he sold the flat to B. It is not shown
that the 1970 sale attracted stamp duty. B held the flat until 2018, when he
sold it to C. Now when C submitted his transfer instrument of 2018 (from B to C) for adjudication, was it even
open to the Stamp Authorities to contend that the parent 1970 transfer from A
to B was bad or invalid or inoperative for want of stamp since, had it been
done today, it would have attracted stamp, notwithstanding that it did not attract
duty at the date of that transfer in 1970? The Court did not think so and held
that the Authority should remember that what was submitted to it was the
current instrument of 2018, not the instrument of 1970; the latter was only an
accompaniment to trace a history of the title of the property, not to
effectuate a transfer. Stamp duty was attracted by the instrument, not the
underlying transaction, and not by any historical narrative in the instrument.
If the Authority’s view of levying duty on past instruments was to be accepted,
then it had no answer to the inevitable consequences, for its view necessarily
meant that no title ever passed to B, and A would have to be held to continue
to be the owner of the flat, which was clearly absurd and was nobody’s case. It
was also unclear just how far back the Authority could travel by applying the
current taxing regime on old concluded transactions. Moreover, when such
transactions were in every sense complete and not being effectuated currently.
Accordingly, the Court concluded that there
was no question of either the auction purchaser or anyone else being liable to
pay stamp duty on the older documents, copies of which were tendered along with
the auction purchaser’s instrument of transfer. The Bombay High Court also laid
down very vital principle—since the auction purchaser’s instrument of transfer
had been stamped, no question could arise of reopening an issue of sufficiency
of stamps on the antecedent documents. That claim was deemed to have been given
up by the Authority by its act of accepting the stamp duty paid on the auction
purchaser’s transfer instrument.
CONCLUSION
Registration offices should no longer demand
payment of stamp duty on antecedent documents of title at current rates before
accepting registration of the current instrument of transfer. This decision
have very rightly held that a purchaser only seeks to register and pay duty on
the current instrument of transfer and he cannot be held responsible for
non-payment of past owners. One hopes that the offices of the Registrar would
take this decision in the right spirit and act accordingly. A circular from the
Stamp Office toeing the line of this decision would really help smoothen the
property buying process and may ultimately even act as an impetus to the house
buying process.
