Supreme Court settles Stamp Duty on Assignment of Debt: Asset Reconstruction Co. vs. Chief Controlling Revenue Authority (26 April 2022)

Date of the Judgment: 26 April 2022
Citation: Civil Appeal No. 3070 of 2022 (@ Special Leave Petition (Civil) No. 34723 of 2016)
Judges: Hemant Gupta, J., V. Ramasubramanian, J.
Can a single document, an assignment agreement, be subjected to stamp duty twice, once as a conveyance and again as a power of attorney, merely because it contains a clause about a power of attorney? The Supreme Court of India addressed this question in a recent case involving an asset reconstruction company and the Chief Controlling Revenue Authority of Gujarat. The court clarified that when an assignment agreement includes a power of attorney (PoA) as part of its terms, it cannot be separately charged with stamp duty under Article 45(f) of the Gujarat Stamp Act, 1958, if the assignment itself is already charged as a conveyance under Article 20(a). This judgment was delivered by a bench comprising Justice Hemant Gupta and Justice V. Ramasubramanian, with the opinion authored by Justice V. Ramasubramanian.

Case Background

The case arose when the Oriental Bank of Commerce (OBC) assigned a debt to Asset Reconstruction Company (India) Ltd. (the appellant) on 18th November 2008, due to a borrower’s default. The assignment was formalized through an agreement registered with the Sub-Registrar, Bharuch, after an adjudication under Section 31 of the Gujarat Stamp Act, 1958. However, the Accountant General’s office raised an audit objection, stating that the assignment deed referred to a Power of Attorney (PoA) in Schedule 3, which should be charged with stamp duty under Article 45(f) of the Act. This led to a demand for a deficit stamp duty of Rs. 23,53,800.

Timeline

Course of Proceedings

The Deputy Collector (Stamp Duty) referred the matter to the Chief Controlling Revenue Authority, who issued a notice to the appellant. The Chief Controlling Revenue Authority set aside the initial adjudication order and demanded the deficit stamp duty. The appellant then applied under Section 54(1)(a) of the Act, leading the Chief Controlling Revenue Authority to refer two questions to the High Court for its opinion.

Legal Framework

The core legal issue revolves around the interpretation of the Gujarat Stamp Act, 1958, specifically Article 45(f) of Schedule I, which deals with stamp duty on Power of Attorney (PoA). Article 45(f) states:

“(f)(i) when given for consideration and authorizing the attorney to sell any immovable property – The same duty as is leviable on a conveyance under Article 20 for the amount of the consideration or, as the case may be, the market value of the immovable property whichever is greater;”

The court also considered Article 20(a) of the Act, which pertains to stamp duty on conveyances. Additionally, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and its provisions regarding the rights of asset reconstruction companies as secured creditors were considered. Section 2(zd) of the SARFAESI Act defines a ‘secured creditor’ to include an Asset Reconstruction Company. Section 5(1)(b) of the SARFAESI Act allows for the acquisition of financial assets by an Asset Reconstruction Company. Section 5(2) of the SARFAESI Act states that the Asset Reconstruction Company shall be deemed to be the lender and all rights of the bank vest in them. Section 5(1A) of the SARFAESI Act was also noted, which exempts from stamp duty any document executed by any bank under Section 5(1) in favour of an Asset Reconstruction Company acquiring financial assets for the purposes of asset reconstruction or securitization.

The Gujarat government issued notifications under Section 9(a) of the Gujarat Stamp Act, 1958, reducing stamp duty on instruments of securitization of loans or assignment of debt with underlying securities. Notification No.GHM/2002­5­M STP­102000­2749/H­1 dated 25th January 2002 reduced the duty to 75 paise for every Rs. 1000. This was amended by Notification No. GHM/2003/28/STP/102002/2065/H­1 dated 1st April 2003, capping the duty at Rs. 1,00,000.

Arguments

Appellant’s Submissions:

• The appellant argued that the assignment agreement was a single document and had already been charged with stamp duty as a conveyance under Article 20(a) of the Act.
• The reference to a Power of Attorney (PoA) in Schedule 3 was merely incidental to the assignment and did not constitute a separate instrument.
• The power to sell the secured asset stemmed from the Securitisation Act, 2002, not from an independent PoA.
• The consideration paid was for the acquisition of financial assets, not for a separate PoA.
• The appellant relied on the notifications issued under Section 9(a) of the Act, which reduced the stamp duty on assignment of debt with underlying securities, capping it at Rs. 1,00,000.

Respondent’s Submissions:

• The respondent contended that the PoA, even if part of the assignment deed, should be independently charged with stamp duty under Article 45(f) of the Act.
• They argued that the PoA contained an authorization to sell immovable property, making it chargeable as a conveyance under Article 20, as stipulated by Article 45(f).
• The respondent argued that the reduction in stamp duty under Section 9(a) notifications for assignment of debt should not exempt the PoA from separate duty.

Innovativeness of the argument: The appellant’s argument was innovative in highlighting that the power of sale was derived from the Securitisation Act, not from the PoA itself. This challenged the traditional view of treating a PoA as a separate instrument for stamp duty purposes.

Issues Framed by the Supreme Court

The High Court was asked to provide an opinion on the following two questions:

1. Whether the objection raised by the Accountant General, Ahmedabad, in audit para, in the year 2008 is proper or not, as per Article-45(f) of the Bombay Stamp Act, 1958 or not?
2. Whether the Asset Reconstruction Company (India) Limited is liable to pay stamp duty of Rs.24,94,100/- i.e. 4.9% as per Article-20(a) of the Bombay Stamp Act or not?

Treatment of the Issue by the Court

Authorities

The court considered the following legal provisions:

• Article 45(f) of Schedule I to the Gujarat Stamp Act, 1958: This provision deals with the stamp duty on a Power of Attorney (PoA) given for consideration and authorizing the attorney to sell any immovable property. The court noted that this article stipulates that such a PoA is chargeable to the same duty as a conveyance under Article 20.
• Article 20(a) of Schedule I to the Gujarat Stamp Act, 1958: This provision pertains to the stamp duty on conveyances. The court observed that the assignment deed was correctly charged under this article.
• Section 2(zd) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002: This section defines a ‘secured creditor’ to include an Asset Reconstruction Company.
• Section 5(1)(b) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002: This section allows for the acquisition of financial assets by an Asset Reconstruction Company.
• Section 5(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002: This section states that the Asset Reconstruction Company shall be deemed to be the lender and all rights of the bank vest in them.
• Section 5(1A) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002: This section exempts from stamp duty any document executed by any bank under Section 5(1) in favour of an Asset Reconstruction Company acquiring financial assets for the purposes of asset reconstruction or securitization.
• Section 9(a) of the Gujarat Stamp Act, 1958: This section empowers the government to reduce, remit, or compound stamp duty. The court noted the notifications issued under this section that reduced the stamp duty on instruments of securitization of loans or assignment of debt with underlying securities.

Judgment

How each authority was viewed by the Court:

• Article 45(f) of the Gujarat Stamp Act, 1958: The Court acknowledged the provision but held that it was not applicable in this case because the PoA was not an independent instrument.
• Article 20(a) of the Gujarat Stamp Act, 1958: The Court recognized this as the correct provision for charging duty on the assignment deed as a conveyance.
• Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002: The Court used the provisions of the SARFAESI Act to establish that the appellant was a secured creditor and had the power to sell the secured asset under the Act, not under the PoA.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the principle that a single instrument should not be split for the purpose of taxation. The court emphasized that the assignment agreement was a single document and had already been charged with stamp duty as a conveyance under Article 20(a). The reference to a Power of Attorney (PoA) in Schedule 3 was considered incidental to the assignment and not a separate instrument that would attract additional stamp duty.

The court rejected the argument that the PoA, even if part of the assignment deed, should be independently charged with stamp duty under Article 45(f) of the Act. The court reasoned that the power to sell the secured asset flowed from the provisions of the Securitisation Act, 2002, and not from an independent instrument of PoA. The court also considered the notifications issued under Section 9(a) of the Act, which reduced the stamp duty on assignment of debt with underlying securities.

The court stated:

“Once a single instrument has been charged under a correct charging provision of the Statute, namely Article 20(a), the Revenue cannot split the instrument into two, because of the reduction in the stamp duty facilitated by a notification of the Government issued under Section 9(a).”

The Court further observed:

“In the case on hand, the consideration paid by the appellant to OBC, was for the purpose of acquisition of the financial assets, in respect of a particular borrower. The draft of the PoA contained in Schedule 3 of the deed of assignment was only incidental to the deed of assignment.”

The court concluded:

“After having accepted the deed of assignment as an instrument chargeable to duty as a conveyance under Article 20(a) and after having collected the duty payable on the same, it is not open to the respondent to subject the same instrument to duty once again under Article 45(f), merely because the appellant had the benefit of the notifications under Section 9(a).”

There were no dissenting opinions.

Key Takeaways

• A single instrument, such as an assignment agreement, should not be split into two for the purpose of taxation.
• If an assignment deed is charged with stamp duty as a conveyance under Article 20(a), a Power of Attorney (PoA) that is part of the same deed should not be separately charged under Article 45(f).
• The power to sell a secured asset by an Asset Reconstruction Company stems from the Securitisation Act, 2002, and not necessarily from an independent PoA.
• Notifications issued under Section 9(a) of the Gujarat Stamp Act, 1958, which reduce stamp duty on assignment of debt, should be considered when determining the total stamp duty payable.

Directions

The Supreme Court set aside the impugned order of the High Court and the demand made by the Chief Controlling Revenue Authority.

Development of Law

The ratio decidendi of this case is that a Power of Attorney (PoA) that is part of an assignment deed should not be separately charged with stamp duty under Article 45(f) of the Gujarat Stamp Act, 1958, if the assignment itself is already charged as a conveyance under Article 20(a). This clarifies that a single instrument should not be split for the purpose of taxation. This judgment clarifies the position of law and provides clarity on the stamp duty implications on assignment deeds with Power of Attorney.

Conclusion

The Supreme Court’s judgment in Asset Reconstruction Co. (India) Ltd. vs. Chief Controlling Revenue Authority clarifies that an assignment agreement that includes a Power of Attorney (PoA) as part of its terms should not be subjected to stamp duty twice. The court held that once the assignment deed is charged as a conveyance under Article 20(a) of the Gujarat Stamp Act, 1958, the incidental PoA cannot be separately charged under Article 45(f). This ruling provides significant relief to asset reconstruction companies and other entities involved in debt assignment, preventing double taxation and clarifying the interpretation of the Stamp Act.

Category

Parent Category: Gujarat Stamp Act, 1958
Child Categories:

• Article 45(f), Gujarat Stamp Act, 1958
• Article 20(a), Gujarat Stamp Act, 1958
• Section 9(a), Gujarat Stamp Act, 1958
• Assignment of Debt
• Power of Attorney
• Stamp Duty

FAQ

Q: What was the main issue in the Asset Reconstruction Co. vs. Chief Controlling Revenue Authority case?
A: The main issue was whether an assignment agreement that includes a Power of Attorney (PoA) should be subjected to stamp duty twice, once as a conveyance and again as a PoA.

Q: What did the Supreme Court decide about stamp duty on assignment deeds with PoAs?
A: The Supreme Court held that if the assignment deed is already charged with stamp duty as a conveyance, the PoA that is part of the same deed should not be separately charged.

Q: What is Article 45(f) of the Gujarat Stamp Act, 1958?
A: Article 45(f) of the Gujarat Stamp Act, 1958, deals with the stamp duty on a Power of Attorney (PoA) given for consideration and authorizing the attorney to sell any immovable property.

Q: What is Article 20(a) of the Gujarat Stamp Act, 1958?
A: Article 20(a) of the Gujarat Stamp Act, 1958, pertains to the stamp duty on conveyances.

Q: What is the significance of this judgment for asset reconstruction companies?
A: This judgment prevents double taxation on assignment deeds and clarifies the interpretation of the Stamp Act, providing relief to asset reconstruction companies and other entities involved in debt assignment.