Supreme Court clarifies stamp duty on agreements to sell without transfer of possession in Punjab: Vijay Kumar Goyal vs. Neena Rani (2022)

Introduction

Date of the Judgment: September 16, 2022

Citation: 2022 INSC 807

Judges: M.R. Shah, J., Krishna Murari, J.

When is stamp duty applicable on an agreement to sell? The Supreme Court of India recently addressed this question in a case concerning the correct stamp duty applicable to agreements to sell in Punjab, where possession of the property was not transferred through the agreement. The court clarified that if possession is not delivered as part of the agreement, a different stamp duty rate applies. This judgment clarifies the interpretation of the Indian Stamp Act as amended by the State of Punjab.

Case Background

The case involves a dispute over the applicable stamp duty on two agreements: a Memorandum of Agreement dated February 24, 1996, and an agreement to sell dated May 14, 2011, concerning a piece of land. Vijay Kumar Goyal, the appellant, filed a civil suit seeking specific performance of these agreements. The Trial Court directed the appellant to pay deficient stamp duty, arguing that the agreements, despite not explicitly transferring possession, should be stamped as if they did. The appellant challenged this order, leading to the current appeal before the Supreme Court.

Timeline

Course of Proceedings

The Trial Court initially ordered the appellant to pay deficient stamp duty and penalty, interpreting the agreements as requiring stamp duty under Sub-column No. 2 of Column No. 2 of Entry No. 23 of Schedule 1-A of the Indian Stamp Act as amended by the State of Punjab. The appellant then filed a Civil Revision Petition before the High Court of Punjab and Haryana, which was dismissed. The High Court upheld the Trial Court’s decision, leading the appellant to appeal to the Supreme Court.

Legal Framework

The core legal issue revolves around the interpretation of the Indian Stamp Act, specifically Schedule 1-A as amended by the State of Punjab. Entry No. 5 of Schedule 1-A deals with stamp duty on agreements to sell. Entry No. 5(cc) states that “in the case of agreement to sell followed by or evidencing delivery of possession of the immovable property agreed to be sold”, the stamp duty is leviable under Column No. 2 of Entry No. 23 of Schedule 1-A. The dispute arises from whether the agreements in question should be considered as agreements “followed by or evidencing delivery of possession”.

The relevant legal provisions are:

• ✓ Entry No. 5 of Schedule 1-A of the Indian Stamp Act as amended by the State of Punjab: This entry specifies the stamp duty applicable to various types of agreements to sell.
• ✓ Entry No. 5 (cc) of Schedule 1-A applicable under the State of Punjab: This sub-entry specifically addresses agreements to sell that are “followed by or evidencing delivery of possession of the immovable property agreed to be sold”.
• ✓ Column No. 2 of Entry No. 23 of Schedule 1-A: This column specifies the stamp duty rate applicable when possession is delivered as part of the agreement to sell.

Arguments

The appellant argued that the agreements in question did not involve the delivery of possession of the property. The appellant highlighted that the agreements explicitly stated that the possession was already with the appellant prior to the execution of the agreements. Specifically, the Memorandum of Agreement dated 24.02.1996 mentioned, “the above said land is already with my brother Vijay Kumar and after today, my brother, Vijay Kumar has become the owner in possession of the above land like me”. Similarly, the agreement to sell dated 14.05.2011 stated, “that the possession of the above land is already with party No. 2 and the party No. 2 is having possession of the same today also”.

Therefore, the appellant contended that since the possession was not delivered through these agreements, the higher stamp duty under Entry No. 5(cc) of Schedule 1-A should not apply. The appellant’s suit also did not seek possession but rather sought a permanent injunction to protect his existing possession.

Issues Framed by the Supreme Court

The Supreme Court framed the following issue:

1. Whether the High Court was right in upholding the order of the Trial Court directing the appellant to pay the deficient stamp duty with penalty by applying Sub-column No. 2 of Column No. 2 of Entry No. 23 of Schedule 1-A as amended by the State of Punjab?

Treatment of the Issue by the Court

Authorities

The Court considered the following legal provisions:

• ✓ Entry No. 5 of Schedule 1-A of the Indian Stamp Act as amended by the State of Punjab.
• ✓ Entry No. 5 (cc) of Schedule 1-A applicable under the State of Punjab.
• ✓ Column No. 2 of Entry No. 23 of Schedule 1-A.

Judgment

The Court held that the Trial Court and High Court were incorrect in applying the higher stamp duty rate. The court noted that the agreements explicitly stated that possession was already with the appellant, and therefore, the higher stamp duty under Entry No. 5(cc) of Schedule 1-A was not applicable.

The Court stated that, “Thus, it cannot be said that the possession of the land in question was delivered through under the said agreements of which the specific performance is sought. In that view of the matter, Entry No. 5 of Schedule 1-A of the Indian Stamp Act as amended by the State of Punjab shall not be applicable.”

The Supreme Court quashed and set aside the orders passed by the High Court and the Trial Court, directing the appellant to pay deficient stamp duty along with penalty.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the explicit language of the agreements, which stated that possession of the land was already with the appellant before the execution of the agreements. The Court emphasized that the agreements did not effect any transfer of possession and that the appellant was already in possession. This factual aspect weighed heavily in the Court’s decision.

The court’s reasoning was based on the following points:

Key Takeaways

✓ Stamp duty on agreements to sell is determined by whether possession is transferred through the agreement.

✓ If the agreement explicitly states that possession is already with the buyer, the higher stamp duty rate for agreements “followed by or evidencing delivery of possession” does not apply.

✓ The court will look at the substance of the agreement and not just the form.

Directions

The Supreme Court quashed the orders of the High Court and Trial Court directing the appellant to pay deficient stamp duty and penalty.

Development of Law

The ratio decidendi of this case is that the higher stamp duty under Entry No. 5(cc) of Schedule 1-A of the Indian Stamp Act as amended by the State of Punjab is applicable only when the agreement to sell is followed by or evidences the delivery of possession. If the possession is already with the buyer, then the higher stamp duty is not applicable. This judgment clarifies the interpretation of the stamp duty provisions in Punjab, ensuring that stamp duty is levied based on the actual transaction and not on a notional basis.

Conclusion

In conclusion, the Supreme Court allowed the appeal, setting aside the orders of the High Court and Trial Court. The Court clarified that the higher stamp duty rate is not applicable when possession of the property is not transferred through the agreement to sell. This judgment provides clarity on the application of stamp duty laws in Punjab and underscores the importance of the specific language used in agreements to sell.