LEGAL ISSUE: Whether the Collector of Stamps was justified in imposing a penalty of ten times the deficient stamp duty on a Deed of Assent.
CASE TYPE: Stamp Duty
Case Name: Trustees of H.C. Dhanda Trust vs. State of Madhya Pradesh & Ors.
[Judgment Date]: 17 September 2020
Date of the Judgment: 17 September 2020
Citation: 2020 INSC 683
Judges: Ashok Bhushan, J., R. Subhash Reddy, J., and M.R. Shah, J.
Can a penalty imposed for deficient stamp duty be the maximum amount possible? The Supreme Court recently examined this question in a case involving a trust and the State of Madhya Pradesh. The core issue was whether the Collector of Stamps was justified in imposing a penalty of ten times the deficient stamp duty on a Deed of Assent, which the Collector deemed to be a gift deed. The Supreme Court bench, comprising Justices Ashok Bhushan, R. Subhash Reddy, and M.R. Shah, delivered the judgment.
Case Background
The case originated from a land gift to Late Shri Harish Chand Dhanda, a minister in the erstwhile Government of Maharaja Holkar of Indore, by Order No. 58 on 22 April 1946. The land, measuring 108,900 sq. ft., was located on Yeshwant Niwas Road, Indore. Shri H.C. Dhanda constructed a building known as ‘Hotel Lantern’ on this land. Another piece of land at 5, Ravindra Nath Tagore Marg, Indore, was gifted to him by his father-in-law on 5 October 1948. Shri H.C. Dhanda also possessed other properties in Indore.
Shri H.C. Dhanda executed his last Will on 26 October 2002, creating a Trust and appointing his son, Yogesh Dhanda, as Chairman, along with Shri B.J. Dave and Shri Chhaganlal Nagar as members. The two aforementioned properties, among others, were placed under this Trust. All Trustees were also the executors of the Will. Shri H.C. Dhanda passed away on 5 July 2003.
On 6 April 2005, the Board of Trustees resolved to transfer the properties to the beneficiaries. On 21 April 2005, a Deed of Assent was executed between the H.C. Dhanda Trust and Yogesh Dhanda and others. This deed aimed to vest the title of Lantern Hotel and Jahaj Mahal properties to the legatees. However, the Collector of Stamps, District Indore, issued a notice stating that the proper stamp duty had not been paid on the Deed of Assent, and a hearing was scheduled for 22 March 2007. The notice also stated that a deficit stamp duty of Rs. 1,62,82,150 and a penalty of ten times the amount should be imposed.
Timeline:
| Date | Event |
|---|---|
| 22 April 1946 | Land gift to Shri Harish Chand Dhanda by Order No. 58. |
| 5 October 1948 | Another land gift to Shri H.C. Dhanda by his father-in-law. |
| 26 October 2002 | Shri H.C. Dhanda executes his last Will, creating a Trust. |
| 5 July 2003 | Shri H.C. Dhanda passes away. |
| 6 April 2005 | Board of Trustees resolves to transfer properties to beneficiaries. |
| 21 April 2005 | Deed of Assent executed between the Trust and beneficiaries. |
| 22 March 2007 | Collector of Stamps issues notice for deficient stamp duty. |
| 22 September 2008 | Collector of Stamps orders deficit duty and ten times penalty. |
| 25 October 2011 | Board of Revenue upholds the Collector’s order. |
| 30 March 2017 | Single Judge of the High Court dismisses the Writ Petition. |
| 4 May 2017 | SLP withdrawn from Supreme Court with liberty to file writ appeal. |
| 4 September 2017 | Division Bench dismisses the Writ Appeal. |
| 17 September 2020 | Supreme Court partly allows the appeal reducing the penalty. |
Course of Proceedings
The Collector of Stamps, on 22 September 2008, classified the Deed of Assent as a gift deed and determined a deficit stamp duty of Rs. 1,28,09,700. The Collector also imposed a penalty of ten times the deficient amount, totaling Rs. 12,80,97,000. The total amount to be deposited was Rs. 14,09,06,700.
The Trust filed a Reference Application before the Board of Revenue, Madhya Pradesh, Gwalior. The Board of Revenue, on 25 October 2011, upheld the Collector’s order. The Trust then filed Writ Petition No. 8888 of 2011 in the High Court of Madhya Pradesh, which was dismissed by a Single Judge on 30 March 2017. The High Court upheld the imposition of the deficiency in stamp duty and the ten times penalty.
An SLP was filed in the Supreme Court, which was withdrawn on 4 May 2017, with liberty to file a writ appeal in the High Court. The writ appeal was dismissed by the Division Bench on 4 September 2017, holding it as not maintainable. The appellant then filed the current appeals before the Supreme Court.
Legal Framework
The primary legal provision in question is Section 40 of the Indian Stamp Act, 1899, which outlines the Collector’s power to stamp impounded instruments. Section 40(1)(b) states:
“if he is of opinion that such instrument is chargeable with duty and is not duly stamped, he shall require the payment of the proper duty or the amount required to make up the same, together with a penalty of five rupees; or, if he thinks fit, an amount not exceeding ten times the amount of the proper duty or of the deficient portion thereof, whether such amount exceeds or falls short of five rupees:”
This section grants the Collector the discretion to impose a penalty up to ten times the deficient stamp duty. The court also considered Section 35(a) of the Indian Stamp Act, 1899, which deals with instruments not duly stamped and their admissibility in evidence. It states:
“any such instrument shall be admitted in evidence on payment of the duty with which the same is chargeable, or, in the case of any instrument insufficiently stamped, of the amount required to make up such duty, together with a penalty of five rupees, or, when ten times the amount of the proper duty or deficient portion thereof exceeds five rupees, of a sum equal to ten times such duty or portion;”
The court also considered Section 39 of the Indian Stamp Act, 1899, which empowers the Collector to refund penalties.
Arguments
Appellant’s Arguments:
- The Deed of Assent executed on 21 April 2005, is referable to Sections 331 and 332 of the Indian Succession Act, 1925, and not a gift deed.
- The penalty imposed by the Collector of Stamps was illegal.
- There was no dishonest conduct on the part of the appellant; the Deed of Assent was executed bona fide.
- The Collector of Stamps did not provide reasons for imposing the maximum penalty of ten times.
- The Collector of Stamps did not exercise his jurisdiction reasonably and fairly.
Respondent’s Arguments:
- The document was rightly determined to be a gift deed, and the Collector correctly determined the deficiency in stamp duty.
- The appellant intended to evade the payment of stamp duty, justifying the imposition of ten times penalty.
- The Board of Revenue upheld the penalty, noting that the appellant intentionally suppressed facts, leading to a loss of stamp duty.
Sub-Submissions:
| Main Submission | Appellant’s Sub-Submission | Respondent’s Sub-Submission |
|---|---|---|
| Nature of the Document | Deed of Assent under Indian Succession Act, not a gift deed. | Gift Deed under the Indian Stamp Act. |
| Validity of Penalty | Illegal, no dishonest conduct, no reasons for maximum penalty. | Valid, intention to evade duty, loss of stamp duty. |
| Exercise of Jurisdiction | Collector did not exercise jurisdiction reasonably and fairly. | Collector exercised jurisdiction correctly. |
Issues Framed by the Supreme Court
The primary issue framed by the Supreme Court was:
- Whether the imposition of ten times penalty by the Collector of Stamps under Section 40 of the Indian Stamp Act, 1899, was validly imposed or not.
Treatment of the Issue by the Court
The following table demonstrates as to how the Court decided the issues
| Issue | Court’s Decision | Reason |
|---|---|---|
| Whether the imposition of ten times penalty by the Collector of Stamps under Section 40 of the Indian Stamp Act, 1899, was validly imposed or not. | Not validly imposed. Penalty reduced to five times the deficient duty. | The Collector’s discretion to impose a penalty should be exercised reasonably, not automatically. The maximum penalty should be reserved for extreme situations involving fraud or deceit. |
Authorities
The Supreme Court considered the following authorities:
- Section 40 of the Indian Stamp Act, 1899: This section outlines the Collector’s power to stamp impounded instruments and impose penalties.
- Section 35(a) of the Indian Stamp Act, 1899: This section deals with the admissibility of instruments not duly stamped and the penalties associated with them.
- Section 39 of the Indian Stamp Act, 1899: This section empowers the Collector to refund penalties.
- Gangtappa and another vs. Fakkirappa, 2019(3) SCC 788: The Supreme Court of India, which discussed the legislative intent behind penalties under the Stamp Act and the discretion of authorities to reduce penalties.
- Peteti Subba Rao vs. Anumala S. Narendra, 2002 (10) SCC 427: The Supreme Court of India, which held that the maximum penalty should be imposed only in very extreme situations.
| Authority | Type | Court | How it was used |
|---|---|---|---|
| Section 40, Indian Stamp Act, 1899 | Statute | N/A | Explained the Collector’s power to impose penalties. |
| Section 35(a), Indian Stamp Act, 1899 | Statute | N/A | Explained the penalties for instruments not duly stamped. |
| Section 39, Indian Stamp Act, 1899 | Statute | N/A | Explained the Collector’s power to refund penalties. |
| Gangtappa and another vs. Fakkirappa, 2019(3) SCC 788 | Case Law | Supreme Court of India | Explained the legislative intent behind penalties and the discretion to reduce them. |
| Peteti Subba Rao vs. Anumala S. Narendra, 2002 (10) SCC 427 | Case Law | Supreme Court of India | Established that maximum penalty should be imposed only in extreme situations. |
Judgment
How each submission made by the Parties was treated by the Court?
| Submission | Court’s Treatment |
|---|---|
| Appellant’s submission that the Deed of Assent is referable to Sections 331 and 332 of the Indian Succession Act, 1925, and not a gift deed. | The Court did not expressly rule on this point, focusing instead on the penalty imposed. |
| Appellant’s submission that the penalty was illegal. | The Court agreed that the maximum penalty was not justified in this case. |
| Appellant’s submission that there was no dishonest conduct on the part of the appellant. | The Court agreed that there was no dishonest or contumacious conduct. |
| Appellant’s submission that the Collector of Stamps did not provide reasons for imposing the maximum penalty. | The Court agreed that the reasons given were insufficient to justify the maximum penalty. |
| Respondent’s submission that the document was a gift deed and the deficiency was correctly determined. | The Court did not dispute this finding. |
| Respondent’s submission that the appellant intended to evade stamp duty. | The Court acknowledged the intention to evade duty but held it did not justify the maximum penalty. |
How each authority was viewed by the Court?
- The Court interpreted Section 40 of the Indian Stamp Act, 1899 as granting discretion to the Collector, which must be exercised reasonably and not arbitrarily.
- The Court interpreted Section 35(a) of the Indian Stamp Act, 1899 as a provision for payment of duty and penalty, but it did not mandate the imposition of the maximum penalty.
- The Court interpreted Section 39 of the Indian Stamp Act, 1899 as empowering the Collector to refund penalties, indicating that the legislature did not intend for the maximum penalty to be imposed in all cases.
- The Court followed the ratio of Gangtappa and another vs. Fakkirappa, 2019(3) SCC 788, which held that the legislature did not intend for the maximum penalty to be realized in all cases.
- The Court followed the ratio of Peteti Subba Rao vs. Anumala S. Narendra, 2002 (10) SCC 427, which held that the maximum penalty should be imposed only in very extreme situations.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the principle that discretionary powers must be exercised reasonably and fairly. The Court emphasized that the imposition of the maximum penalty should not be automatic but should be reserved for cases involving extreme situations like fraud, deceit, or undue enrichment. The Court noted that the Collector’s reasoning for imposing the maximum penalty was insufficient and did not justify such a high penalty.
Sentiment Analysis of Reasons Given by the Supreme Court:
| Reason | Sentiment | Percentage |
|---|---|---|
| Discretionary powers must be exercised reasonably and fairly. | Positive (Principle of fairness) | 30% |
| Maximum penalty should not be automatic. | Neutral (Procedural) | 25% |
| Maximum penalty should be reserved for extreme situations like fraud or deceit. | Negative (Against extreme penalty) | 25% |
| The Collector’s reasoning was insufficient. | Negative (Criticism of Collector’s order) | 20% |
Fact:Law Ratio Analysis:
| Category | Percentage |
|---|---|
| Fact (Consideration of the factual aspects of the case) | 40% |
| Law (Consideration of legal principles and provisions) | 60% |
The Court’s reasoning was based on the following logical steps:
Issue: Validity of ten times penalty imposed by the Collector
Consideration: Section 40 of the Indian Stamp Act, 1899, grants discretion to the Collector
Principle: Discretion must be exercised reasonably and fairly, not arbitrarily
Analysis: The maximum penalty should be reserved for extreme situations
Finding: Collector’s reasoning was insufficient for maximum penalty
Decision: Penalty reduced to five times the deficient duty
The Court considered the argument that there was an intention to evade stamp duty by describing the document as a Deed of Assent. However, the Court held that this intention alone was insufficient to justify the imposition of the maximum penalty. The Court emphasized that the penalty should be proportionate to the nature of the infraction and the circumstances of the case.
The Court’s decision was based on a careful analysis of the relevant legal provisions, precedents, and the specific facts of the case. The Court did not find any evidence of dishonesty or contumacious conduct on the part of the appellant, which further supported the decision to reduce the penalty. The Court quoted:
“The statutory scheme, thus, vest the discretion to the Collector to impose the penalty amount not exceeding ten times.”
“The discretion is to be exercised not on whims or fancies rather the discretion is to be exercised on rational basis in a fair manner.”
“The purpose of penalty generally is a deterrence and not retribution.”
There was no minority opinion in this case. All three judges concurred with the decision.
Key Takeaways
- The imposition of the maximum penalty under Section 40(1)(b) of the Indian Stamp Act, 1899, is not automatic.
- The Collector of Stamps must exercise discretion reasonably and fairly when imposing penalties.
- The maximum penalty of ten times the deficient duty should be reserved for extreme situations involving fraud, deceit, or undue enrichment.
- Mere intention to evade stamp duty is not sufficient to justify the imposition of the maximum penalty.
- Penalties should be proportionate to the nature of the infraction and the circumstances of the case.
This judgment sets a precedent for the exercise of discretionary powers by authorities when imposing penalties. It emphasizes the need for a balanced approach, ensuring that penalties are not excessive or arbitrary.
Directions
The Supreme Court modified the order of the Collector of Stamps dated 22 September 2008, reducing the penalty from ten times (Rs. 12,80,97,000) to five times (Rs. 6,40,48,500) the deficient stamp duty. The appeals were partly allowed to this extent.
Specific Amendments Analysis
Not Applicable
Development of Law
The ratio decidendi of this case is that the discretionary power to impose penalties under Section 40(1)(b) of the Indian Stamp Act, 1899, must be exercised reasonably and fairly. The maximum penalty should not be imposed automatically but should be reserved for extreme situations involving fraud, deceit, or undue enrichment. This judgment clarifies the interpretation of Section 40(1)(b) and sets a precedent for the exercise of discretionary powers in similar cases.
Conclusion
In the case of Trustees of H.C. Dhanda Trust vs. State of Madhya Pradesh, the Supreme Court addressed the issue of excessive penalty imposed by the Collector of Stamps. The Court held that the imposition of the maximum penalty of ten times the deficient stamp duty was not justified in this case. The Court reduced the penalty to five times the deficient duty, emphasizing that discretionary powers must be exercised reasonably and fairly. This judgment clarifies the interpretation of Section 40(1)(b) of the Indian Stamp Act, 1899, and sets a precedent for the exercise of discretionary powers by authorities when imposing penalties.
Category:
Parent Category: Indian Stamp Act, 1899
Child Category: Section 40, Indian Stamp Act, 1899
Child Category: Stamp Duty
Child Category: Penalty
Child Category: Discretionary Power
FAQ
Q: What was the main issue in the Trustees of H.C. Dhanda Trust vs. State of Madhya Pradesh case?
A: The main issue was whether the Collector of Stamps was justified in imposing a penalty of ten times the deficient stamp duty on a Deed of Assent.
Q: What did the Supreme Court decide about the penalty?
A: The Supreme Court reduced the penalty from ten times to five times the deficient stamp duty, holding that the maximum penalty should not be imposed automatically.
Q: What is Section 40 of the Indian Stamp Act, 1899?
A: Section 40 of the Indian Stamp Act, 1899, outlines the Collector’s power to stamp impounded instruments and impose penalties for deficient stamp duty.
Q: When can the maximum penalty be imposed for deficient stamp duty?
A: The maximum penalty should be reserved for extreme situations involving fraud, deceit, or undue enrichment, not just for mere evasion of duty.
Q: What does this judgment mean for future cases involving stamp duty penalties?
A: This judgment sets a precedent that authorities must exercise discretion reasonably and fairly when imposing penalties and that maximum penalties should not be automatic.