Supreme Court Clarifies Stamp Duty on Toll Collection Contracts: Nasiruddin vs. State of Uttar Pradesh (2017)

Date of the Judgment: 06 December 2017

Citation: (2017) INSC 1077

Judges: Abhay Manohar Sapre, J., Navin Sinha, J.

Can a contract for collecting fees be considered a lease for the purpose of stamp duty? The Supreme Court of India addressed this question in a case involving contracts for collecting “Tehbazari” and parking fees. The core issue was whether these contracts should be classified as leases under the Indian Stamp Act, 1899, thereby attracting stamp duty applicable to leases. The Supreme Court, in this judgment, clarified that such contracts are indeed considered leases for the purpose of stamp duty. The judgment was delivered by a two-judge bench consisting of Justice Abhay Manohar Sapre and Justice Navin Sinha.

Case Background

The case originated from a dispute in Meerut, Uttar Pradesh, where the Nagar Nigam Meerut (Municipal Corporation Meerut) had invited bids for the right to collect “Tehbazari” fees from squatters, vendors, and kiosks, as well as parking fees. The appellants participated in the auction, and their bids were accepted. Subsequently, contracts were signed between the appellants and the Corporation, allowing the appellants to collect these fees until March 31, 2005. Disputes arose regarding the nature of these contracts and the applicable stamp duty under the Indian Stamp Act, 1899. The Stamp Collector demanded stamp duty at Rs. 70 per thousand, treating the contracts as leases, while the appellants disagreed, leading to the filing of writ petitions in the Allahabad High Court.

Timeline:

Course of Proceedings

The appellants, aggrieved by the demand for stamp duty, filed writ petitions before the Allahabad High Court. The High Court, relying on its previous decisions in Munindra Nath Upadhaya vs. State of U.P. & Ors. and Mohammad Ali vs. Board of Revenue, U.P., upheld the Stamp Collector’s demand and dismissed the writ petitions. The High Court concluded that the contracts were indeed leases and therefore subject to the applicable stamp duty. This led the appellants to file appeals before the Supreme Court of India.

Legal Framework

The Supreme Court analyzed the following provisions of the Indian Stamp Act, 1899:

• Section 2(12): Defines “executed” and “execution” as “signed” and “signature,” respectively.
• Section 2(14): Defines “instrument” as every document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished, or recorded.
• Section 2(16): Defines “lease” to include:
  • (a) a patta;
  • (b) a Kabuliyat or other undertaking in writing, not being a counterpart of a lease, to cultivate, occupy, or pay or deliver rent for, immovable property;
  • (c) any instrument by which tolls of any description are let;
  • (d) any writing on an application for a lease intended to signify that the application is granted;
• Article 35 of Schedule I: Specifies the stamp duty applicable to leases.

The Court noted that the definition of “lease” under Section 2(16) of the Indian Stamp Act, 1899 is broader than the definition of lease under Section 105 of the Transfer of Property Act, 1882. Specifically, the inclusion of “any instrument by which tolls of any description are let” expands the scope of what constitutes a lease for the purposes of stamp duty.

Arguments

Appellants’ Submissions:

• The appellants argued that the contracts were not leases but rather licenses. They contended that the contracts only granted them the right to collect fees, not any interest in the property itself.
• They relied on the Supreme Court’s decision in New Bus-Stand Shop Owners Association vs. Corporation of Kozhikode & Anr. [2009 (10) SCC 455], arguing that the contracts had characteristics of a license, not a lease. In that case, the Court held that agreements for shops in a bus stand were licenses, not leases.

Respondent’s Submissions:

• The respondents, including the State of Uttar Pradesh and the Municipal Corporation, argued that the contracts fell under the definition of “lease” as per Section 2(16)(c) of the Indian Stamp Act, 1899. They contended that the contracts involved letting out the right to collect tolls, which is explicitly included in the definition of a lease under the Act.
• The respondents relied on the Allahabad High Court’s decisions in Munindra Nath Upadhaya vs. State of U.P. & Ors. and Mohammad Ali vs. Board of Revenue, U.P., which had previously held similar contracts to be leases.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issue was:

1. Whether the contracts for collection of “Tehbazari” and parking fees are “leases” as defined under Section 2(16)(c) of the Indian Stamp Act, 1899, and thus subject to stamp duty applicable to leases.

Treatment of the Issue by the Court

The following table demonstrates how the Court decided the issue:

Authorities

The Supreme Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Allahabad High Court’s decisions in Munindra Nath Upadhaya vs. State of U.P. & Ors. and Mohammad Ali vs. Board of Revenue, U.P. were followed as they correctly interpreted the law.
• The Supreme Court distinguished its earlier decision in New Bus-Stand Shop Owners Association vs. Corporation of Kozhikode & Anr. stating that the facts were different.

The Supreme Court held that the contracts in question were indeed leases as defined under Section 2(16)(c) of the Indian Stamp Act, 1899. The Court reasoned that the contracts involved the letting of tolls, which is explicitly included in the definition of a lease under the Act. The Court emphasized that the definition of “lease” under the Stamp Act is broader than its ordinary meaning and includes “any instrument by which tolls of any description are let.” The Court stated that the contracts created rights and liabilities between the parties and were therefore considered instruments as defined under Section 2(14) of the Indian Stamp Act, 1899. The Court also held that the contracts were “executed” as they were signed by the contracting parties under Section 2(12) of the Indian Stamp Act, 1899.

The Court observed, “In our considered opinion, reading of the contract in question would show that it was meant to collect tolls (fees) called “ Tehbazari” in local parlance from squatters, venders, kiosks etc. and was for collecting parking fees. Such contract, in our view, is regarded as an instrument by which tolls of any description are let.”

The Court further noted, “The expression “ Lease” under the Stamp Act has a wider meaning as compared to its original meaning contained in Section 105 of Transfer of Property Act (for short “the T.P. Act”). If “ Lease” under Section 2(16) of the Stamp Act includes therein four specified category of documents set out in clauses (a) to (d), we do not find any such inclusion in Section 105 of the Transfer of Property Act. It is for this reason, we are of the view that the definition of “ Lease” for the purpose of Stamp Act is extensive in nature.”

The Court also stated, “So by fiction, “ any instrument by which tolls of any description are let ” is considered as “ Lease” for the purpose of payment of stamp duty under the Stamp Act.”

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the broad definition of “lease” under Section 2(16)(c) of the Indian Stamp Act, 1899. The Court emphasized that the definition of “lease” under the Stamp Act includes “any instrument by which tolls of any description are let,” which directly applies to contracts for collecting “Tehbazari” and parking fees. The Court also considered the fact that the contracts created rights and liabilities between the parties, further supporting their classification as instruments under the Act. The intention of the legislature to include such contracts within the ambit of “lease” for the purpose of stamp duty was also a significant factor.

Logical Reasoning:

Key Takeaways

• Contracts for the collection of “Tehbazari” and parking fees are considered “leases” under Section 2(16)(c) of the Indian Stamp Act, 1899.
• These contracts are subject to stamp duty as per Article 35 of Schedule I of the Stamp Act.
• The definition of “lease” under the Stamp Act is broader than the definition under the Transfer of Property Act, 1882.
• The Supreme Court has clarified that any instrument by which tolls of any description are let is considered a lease for stamp duty purposes.

Directions

No specific directions were issued by the Supreme Court in this judgment.

Development of Law

The ratio decidendi of this case is that contracts for the collection of “Tehbazari” and parking fees fall under the definition of “lease” as per Section 2(16)(c) of the Indian Stamp Act, 1899, and are therefore subject to stamp duty applicable to leases. This judgment clarifies the scope of the term “lease” under the Indian Stamp Act, 1899, and establishes that it includes contracts for the letting of tolls. This is an affirmation of the position taken by the Allahabad High Court and a clarification of the law on this point.

Conclusion

The Supreme Court dismissed the appeals, affirming the Allahabad High Court’s decision. The Court held that contracts for the collection of “Tehbazari” and parking fees are considered leases under the Indian Stamp Act, 1899, and are subject to stamp duty as applicable to leases. This judgment provides clarity on the interpretation of “lease” under the Stamp Act and its application to contracts involving the collection of tolls.