Court’s Decision
The Supreme Court dismissed the appeal and upheld the orders of the Bombay High Court and the trial court, which impounded the agreement to sell dated 03.09.2003. The Court held that the agreement should be treated as a “conveyance” under Explanation I to Article 25 of Schedule I of the Bombay Stamp Act, 1958, and the appellant is liable to pay the deficit stamp duty and penalty.
The Court further clarified that under Explanation I, if possession of a property is transferred, agreed to be transferred, or even symbolically delivered before or after the execution of the agreement, the document is deemed to be a conveyance, attracting stamp duty. The trial court’s direction to send the document to the Registrar of Stamps for recovery of deficit stamp duty and penalty was held to be legally valid.
Facts
- The appellant entered into an agreement to sell dated 03.09.2003 with the respondents’ predecessor, concerning a property in Ratnagiri, Maharashtra.
- The agreement stated that the appellant was already in possession of the property as a tenant and that possession on ownership terms would be delivered only after the execution of a sale deed.
- The appellant filed a suit for specific performance of the agreement in 2012.
- The respondents contended that the agreement was executed on a stamp paper of ₹50, whereas it required payment of ₹44,000 in stamp duty and a penalty of ₹1,31,850, as per Article 25 of the Bombay Stamp Act.
- The trial court allowed the respondents’ application, impounded the document, and directed it to be sent to the Registrar of Stamps for recovery of the deficit stamp duty and penalty. This order was upheld by the Bombay High Court.
Issues
- Whether the agreement to sell dated 03.09.2003 is a “conveyance” under Explanation I to Article 25 of the Bombay Stamp Act.
- Whether the appellant is liable to pay stamp duty and penalty on the agreement.
Petitioner’s Arguments
- The agreement explicitly stated that the possession of the property was held by the appellant as a tenant, independent of the sale transaction.
- Transfer of possession on ownership terms was contingent upon the execution of a future sale deed, and therefore, the agreement did not amount to a conveyance.
- Explanation I to Article 25 applies only when possession is transferred or agreed to be transferred as part of the agreement. The agreement in question did not satisfy these conditions.
- The appellant argued that the trial court and High Court erred in interpreting the agreement as a conveyance.
Respondent’s Arguments
- The agreement to sell falls under Explanation I to Article 25 of the Bombay Stamp Act because possession was already with the appellant and the agreement contemplated ownership transfer within a specific timeline.
- The respondents relied on judgments like Veena Hasmukh Jain v. State of Maharashtra and Shyamsundar Radheshyam Agrawal v. Pushpabai Nilkanth Patil, which held that stamp duty is levied on the instrument, not the transaction, if possession is linked to the agreement.
- The respondents contended that the appellant is liable to pay both the stamp duty and the penalty as directed by the lower courts.
Analysis of the Law
Explanation I to Article 25 of the Bombay Stamp Act:
- This provision states that if possession of an immovable property is transferred, agreed to be transferred, or symbolically delivered at any time in connection with an agreement to sell, the agreement is deemed a “conveyance” for stamp duty purposes.
The Court analyzed the following:
- The nature of possession: Even though the appellant was already in possession as a tenant, the agreement altered the nature of the possession by linking it to future ownership. This transformation of the relationship from tenant to potential owner met the conditions of Explanation I.
- Legal precedence:
- In Veena Hasmukh Jain v. State of Maharashtra, the Court held that an agreement to sell is treated as a conveyance if possession is delivered or agreed to be delivered, regardless of whether the transaction is completed.
- In Shyamsundar Radheshyam Agrawal v. Pushpabai Nilkanth Patil, the Court emphasized that stamp duty is levied on the instrument’s content, not its ultimate execution.
- The intention of the legislature: The provision aims to ensure revenue collection at the earliest stage by deeming agreements with possession clauses as conveyances.
Precedent Analysis
- Veena Hasmukh Jain v. State of Maharashtra: Established that agreements to sell with clauses of possession transfer are treated as conveyances, subject to stamp duty.
- Shyamsundar Radheshyam Agrawal v. Pushpabai Nilkanth Patil: Affirmed the importance of paying stamp duty on agreements deemed as conveyances to fulfill fiscal obligations.
- B. Ratnamala v. G. Rudramma: Clarified that possession, whether symbolic or actual, linked to an agreement suffices to attract stamp duty.
Court’s Reasoning
- The agreement explicitly stated that the appellant occupied the property as a tenant but linked possession on ownership terms to the execution of the sale deed. This relationship transformation met the criteria under Explanation I.
- The lower courts correctly treated the agreement as a conveyance, considering the broader intent of the law to prevent revenue loss through undervalued agreements.
- The Court dismissed the appellant’s argument that possession as a tenant is distinct from possession under the agreement, emphasizing that even symbolic possession transfer is sufficient for stamp duty purposes.
Conclusion
The Supreme Court upheld the lower courts’ decisions, stating that the agreement to sell was rightly treated as a conveyance under Explanation I to Article 25 of the Bombay Stamp Act. The appellant is liable to pay the deficit stamp duty and penalty. However, the Court clarified that any stamp duty already paid would be adjusted against the final amount due, with penalties calculated from the date of execution.
Implications
This judgment reinforces the principle that agreements involving the transfer or agreement to transfer possession, even symbolically, are deemed conveyances for stamp duty purposes. It serves as a warning for parties to ensure compliance with stamp duty laws to avoid disputes and penalties.
