Court’s decision
The Delhi High Court partly allowed a batch of appeals and modified a Single Judge’s order that had set aside stamp duty and penalty imposed by the Collector of Stamps on two Agreements to Sell. The Court held that where possession of immovable property is delivered prior to or in continuation of an agreement to sell, the transaction squarely attracts Article 23A of the Indian Stamp Act, irrespective of whether the purchaser formally invokes the doctrine of part performance. However, while upholding the levy of deficient stamp duty, the Court reduced the penalty, holding that imposition of ten times penalty was excessive in the facts of the case .
Facts
The dispute concerned the second and third floors of a residential property in Hauz Khas Enclave, New Delhi. Initially, two individuals had agreed to jointly purchase different portions of the property for themselves and their family members. Sale deeds were executed in August 2006 in accordance with this arrangement.
Soon thereafter, on 07.08.2006, two documents described as receipt-cum-possession letters were executed, acknowledging receipt of consideration and recording delivery of possession of the second and third floors to the purchasers. Subsequently, on 11.03.2008, two separate Agreements to Sell were executed in respect of these floors, confirming the earlier arrangement and undertaking execution of sale deeds in future.
Multiple civil suits followed—two for specific performance of the Agreements to Sell and two for recovery of possession. During pendency of these suits, the Agreements to Sell were impounded and referred to the Collector of Stamps, who assessed substantial deficient stamp duty of ₹18 lakhs in each case and imposed penalty of ₹90 lakhs each, holding that the documents attracted Article 23A as agreements accompanied by delivery of possession. These orders were set aside by a Single Judge, leading to the present appeals.
Issues
The principal issue before the Division Bench was whether the Agreements to Sell dated 11.03.2008, read together with the receipt-cum-possession letters dated 07.08.2006, constituted transactions “in the nature of part performance” attracting stamp duty under Article 23A of Schedule I-A of the Indian Stamp Act. A connected issue was whether the Collector of Stamps was justified in imposing a penalty ten times the deficient stamp duty.
Petitioners’ arguments
The appellants argued that the Single Judge erred in ignoring the substance of the transaction, which clearly showed that possession had already been delivered in 2006 and continued thereafter. It was submitted that Article 23A was introduced precisely to prevent stamp duty evasion in such cases, where parties delay execution of sale deeds but enjoy possession akin to ownership.
They contended that once possession was delivered pursuant to a contract, stamp duty at 90% of a conveyance became payable at the stage of agreement itself, regardless of whether the purchaser chose to rely upon Section 53A of the Transfer of Property Act in litigation. The appellants further argued that the Collector’s orders were reasoned quasi-judicial determinations and could not have been lightly set aside.
Respondents’ arguments
The respondents defended the Single Judge’s order, contending that they had never invoked Section 53A of the Transfer of Property Act and therefore Article 23A could not be applied. It was argued that an agreement to sell, by itself, does not attract stamp duty equivalent to a conveyance and that stamp duty would become payable only upon execution of the final sale deed.
They further contended that the impounding orders were interlocutory and that the Collector’s penalty was wholly disproportionate. Reliance was placed on precedent distinguishing agreements to sell from completed sales.
Analysis of the law
The Court analysed Article 23A of the Indian Stamp Act, introduced by the 2001 amendment, and its linkage with Section 53A of the Transfer of Property Act. It held that the legislative intent behind Article 23A is to advance the point of taxation where a transaction effectively confers possessory rights resembling ownership, even though a formal sale deed is deferred.
The Court clarified that the applicability of Article 23A depends on objective facts—delivery and continuation of possession pursuant to a contract, not on whether a party subjectively invokes Section 53A as a legal defence in a civil suit. Stamp duty liability flows from the nature of the transaction, not the pleadings adopted by parties.
Precedent analysis
The Court relied on Supreme Court jurisprudence emphasising that stamp law looks at the real substance of documents, not their nomenclature. It also referred to precedents governing penalty under Section 35 of the Stamp Act, which hold that penalty up to ten times is discretionary and must be exercised judiciously, not mechanically.
Court’s reasoning
The Court found that possession of the second and third floors had been delivered in August 2006 and continued uninterrupted thereafter. The Agreements to Sell of March 2008 were therefore executed against the backdrop of existing possession, bringing the case squarely within Article 23A.
Rejecting the Single Judge’s approach, the Court held that disclaiming reliance on Section 53A could not defeat statutory stamp duty obligations. On penalty, however, the Court noted that although there was deficiency in stamp duty, the respondents would have inevitably paid the same duty at the time of execution of sale deeds. Considering this and the relative novelty of Article 23A at the relevant time, the Court reduced the penalty to an amount equal to the deficient stamp duty, instead of ten times .
Conclusion
The Delhi High Court partly allowed the appeals, restored the levy of deficient stamp duty under Article 23A, and modified the penalty imposed by the Collector of Stamps. The respondents were directed to deposit the stamp duty along with reduced penalty, after which the civil suits were directed to proceed in accordance with law. All connected appeals and applications were disposed of accordingly .
Implications
This judgment is a significant reaffirmation that stamp duty liability depends on the economic reality of transactions. Parties cannot avoid Article 23A by structuring documents in stages or by disavowing reliance on part performance. At the same time, the ruling brings balance by cautioning authorities against imposing excessive penalties without regard to overall equities. The decision will have wide implications for property transactions involving early possession and delayed conveyancing in Delhi.
Case law references
- State of Rajasthan v. Khandaka Jain Jewellers – Distinguished between agreement to sell and sale, while recognising substance-over-form approach in fiscal statutes.
- Peteti Subba Rao v. Anumala S. Narendra – Held that penalty under stamp law must be imposed judiciously.
- Gangappa v. Fakkirappa – Clarified discretionary nature of penalty for deficient stamp duty.
- Trustees of H.C. Dhanda Trust v. State of Madhya Pradesh – Reiterated limits on arbitrary imposition of maximum penalty.
FAQs
1. When does Article 23A of the Stamp Act apply?
It applies when an agreement to sell is accompanied by delivery or continuation of possession in the nature of part performance.
2. Is invocation of Section 53A necessary to attract stamp duty?
No. Stamp duty liability depends on facts of possession, not on whether Section 53A is pleaded.
3. Can penalty for deficient stamp duty be reduced by courts?
Yes. Courts can interfere if penalty is disproportionate or imposed mechanically.
