Supreme Court Upholds Stamp Duty on Agreements to Sell with Possession Transfer: Shyamsundar Radheshyam Agrawal vs. Pushpabai Nilkanth Patil (2024) INSC 730 (24 September 2024)

Date of the Judgment: 24 September 2024
Citation: 2024 INSC 730
Judges: Justice Pankaj Mithal and Justice R. Mahadevan

Can an agreement to sell an immovable property, which includes a clause for transferring possession to the purchaser, be considered a conveyance and thus be subject to stamp duty, even if a subsequent sale deed is executed? The Supreme Court of India recently addressed this question in a case concerning the Maharashtra Stamp Act, 1958, clarifying the obligations for stamp duty on such agreements. The Court held that agreements to sell with possession transfer are indeed liable for stamp duty as conveyances, irrespective of a subsequent sale deed.

Case Background

The case involves a dispute over stamp duty payable on six agreements for sale of immovable properties. The appellants, Shyamsundar Radheshyam Agrawal and another, had initially filed a suit seeking declaration and injunction. During the proceedings, one of the defendants, Pushpabai Nilkanth Patil, filed an application to impound six original agreements for sale produced by the appellants. These agreements, executed between 1994 and 2006, included clauses for transferring physical possession of the properties to the purchasers. The defendant argued that these documents were not duly stamped and required payment of stamp duty as conveyances.

The trial court allowed the application, impounding the documents and directing them to be sent to the Collector of Stamps for adjudication of stamp duty and penalty. The appellants challenged this order in the High Court of Judicature at Bombay, which dismissed their writ petition, affirming the trial court’s decision. The appellants then approached the Supreme Court.

Timeline

Course of Proceedings

The trial court, the 4th Joint Civil Judge (Senior Division), Thane, allowed the application by Defendant No. 46 to impound the six agreements for sale. The court directed the documents to be sent to the Collector of Stamps, Thane, for adjudication of stamp duty and penalty. The appellants then filed a writ petition before the High Court of Judicature at Bombay, challenging the trial court’s order. The High Court dismissed the writ petition, upholding the trial court’s decision. This led to the appellants filing an appeal before the Supreme Court of India.

Legal Framework

The core legal issue revolves around the interpretation of the Maharashtra Stamp Act, 1958, particularly Section 4 and Explanation I to Article 25 of Schedule I. Section 4 of the Maharashtra Stamp Act, 1958, deals with multiple instruments used in a single transaction, stating that only the principal instrument is chargeable with the main duty, while other instruments attract a fixed duty. The provision states:

“4. Several Instruments used in single transaction of development agreement, sale, mortgage or settlement:
1) Where, in the case of any development agreement, sale, mortgage or settlement, several instruments are employed for completing the transaction, the principal instrument only shall be chargeable with the duty prescribed in Schedule –I for the conveyance, development agreement, mortgage or settlement, and each of the other instruments shall be chargeable with a duty of one hundred rupees instead of the duty (if any) prescribed for it in that Schedule.
2) The parties may determine for themselves which of the instruments so employed shall, for the purposes of sub-section (1), be deemed to be the principal instrument.
3) If the parties fail to determine the principal instrument between themselves, then the officer before whom the instrument is produced may, for the purpose of this section, determine the principal instrument:
Provided that the duty chargeable on the instrument so determined shall be the highest duty which would be chargeable in respect of any of the said instruments employed.”

Explanation I to Article 25 of Schedule I of the Maharashtra Stamp Act, 1958, defines when an agreement to sell is deemed a conveyance:

“Explanation I.—For the purposes of this article, where in the case of agreement to sell an immovable property, the possession of any immovable property is transferred or agreed to be transferred to the purchaser before the execution, or at the time of execution, or after the execution of such agreement without executing the conveyance in respect thereof, then such agreement to sell shall be deemed to be a conveyance and stamp duty thereon shall be leviable accordingly:
Provided that, the provisions of Section 32-A shall apply mutatis mutandis to such agreement which is deemed to be a conveyance as aforesaid, as they apply to a conveyance under that Section:
Provided further that, where subsequently a conveyance is executed in pursuance of such agreement of sale, the stamp duty, if any, already paid and recovered on the agreement of sale which is deemed to be a conveyance, shall be adjusted towards the total duty leviable on the conveyance.”

Arguments

Appellants’ Arguments:

• The appellants argued that since the sale deed was executed for the same properties and stamp duty was paid on it, the prior agreements to sell should be considered merged with the sale deed.
• They contended that as per Section 4 of the Maharashtra Stamp Act, 1958, only the principal instrument (the sale deed) should be charged with stamp duty.
• They also argued that one of the agreements was executed in favor of Mira Bhayandar Municipal Corporation and should not require separate stamp duty.

Respondents’ Arguments:

• The respondents argued that the agreements to sell contained clauses that transferred physical possession of the properties to the purchasers.
• They contended that these agreements should be treated as conveyances as per Explanation I to Article 25 of Schedule I of the Maharashtra Stamp Act, 1958 and are liable for stamp duty.
• They supported the lower courts’ decisions to impound the documents for proper stamp duty adjudication.

Innovativeness of the argument: The appellants’ argument was based on the premise that the agreements to sell were part of the same transaction as the sale deed, and therefore, should not be taxed separately. This is a common argument to avoid multiple stamp duties. However, the respondents innovatively relied on Explanation I to Article 25 of Schedule I of the Maharashtra Stamp Act, 1958, which specifically addresses agreements to sell with possession transfer, thus turning the focus on the nature of the agreement itself rather than the overall transaction.

Issues Framed by the Supreme Court

The Supreme Court framed the following issue:

1. Whether the appellants are liable to pay stamp duty and penalty on the agreements to sell executed prior to the sale deed, in respect of the properties?

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

1. Veena Hasmukh Jain v. State of Maharashtra, (1999) 5 SCC 725 : 1999 SCC Online SC 78: The Supreme Court referred to this case to clarify that an agreement to sell can be treated as a document of conveyance if it includes the transfer of possession. The court in this case had held that if an agreement to sell includes a clause for transferring possession of the property, it is deemed a conveyance for the purpose of stamp duty.

Judgment

How each authority was viewed by the Court?

The Supreme Court relied on Veena Hasmukh Jain v. State of Maharashtra, (1999) 5 SCC 725 : 1999 SCC Online SC 78* to emphasize that an agreement to sell can be considered a conveyance if it involves the transfer of possession. This precedent supported the Court’s reasoning that the agreements in question were liable for stamp duty as conveyances, irrespective of the subsequent sale deed.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the specific language of Explanation I to Article 25 of Schedule I of the Maharashtra Stamp Act, 1958, which deems an agreement to sell as a conveyance if possession is transferred. The Court emphasized that the duty is levied on the instrument and not the transaction. The Court also noted that the agreements were between different parties and at different times, and not a part of a single transaction, which further strengthened their decision to levy stamp duty on the agreements. The Court also considered the fact that the agreements transferred possessory rights, which are protected under Section 53A of the Transfer of Property Act, requiring proper stamp duty and registration.

The court rejected the argument that the subsequent sale deed absolved the liability to pay stamp duty on the agreements to sell. The court also clarified that Section 4 of the Maharashtra Stamp Act, 1958, which deals with multiple instruments in a single transaction, did not apply in this case because the agreements were not part of a single transaction.

The court quoted from the judgment in Veena Hasmukh Jain v. State of Maharashtra, (1999) 5 SCC 725 : 1999 SCC Online SC 78, stating, “The duty in respect of an agreement covered by the Explanation is leviable as if it is a conveyance. The conditions to be fulfilled are that if there is an agreement to sell immovable property and possession of such property is transferred to the purchaser before the execution or at the time of execution or subsequently without executing any conveyance in respect thereof, such an agreement to sell is deemed to be a “conveyance”.”

The court also stated, “It is clear that the object of the Stamp Act is to levy stamp duty on different kinds of instruments. The legislature, in the present case, has chosen to levy a rate of duty equivalent to conveyance in respect of an agreement though the transaction may not have been completed because of certain instruments arising out of such agreement being executed and possession thereof being taken prior to or simultaneous with the document or subsequently.”

Further, the court clarified, “the agreement for sale consists of a clause whereby the possession was handed over to the purchaser satisfying the requirement to treat the instrument as conveyance and what remained was only the formality of execution of the sale deed.”

The Court clarified that while the second proviso to Article 25 allows for the adjustment of stamp duty already paid on the agreement to sell towards the total duty on the sale deed, it does not negate the initial requirement to pay stamp duty on the agreement itself. The court specified that the recovery of stamp duty should be limited to the difference in duty and the penalty from the date of execution of the agreement till the date of payment of stamp duty. The court also stated that the impounded documents cannot be used in evidence until the defect is cured by fulfilling the requirements under Section 34 of the Maharashtra Stamp Act, 1958.

Key Takeaways

• Agreements to sell that include the transfer of possession of immovable property are considered conveyances under the Maharashtra Stamp Act, 1958.
• Such agreements are liable for stamp duty at the time of execution, irrespective of a subsequent sale deed.
• The stamp duty on the agreement can be adjusted towards the total duty on the sale deed, but the initial liability remains.
• Failure to pay proper stamp duty on such agreements can result in penalties and the documents cannot be used as evidence until the defect is cured.

Directions

The Court directed that the recovery of stamp duty should be limited to the difference in duty and the penalty from the date of execution of the agreement till the date of payment of stamp duty. The court also stated that the impounded documents cannot be used in evidence until the defect is cured by fulfilling the requirements under Section 34 of the Maharashtra Stamp Act, 1958.

Development of Law

The ratio decidendi of this case is that an agreement to sell, which includes a clause for transferring possession of the property, is deemed a conveyance and is liable for stamp duty under the Maharashtra Stamp Act, 1958. This judgment reinforces the principle that the transfer of possessory rights through an agreement to sell triggers the liability for stamp duty. This clarifies the interpretation of Explanation I to Article 25 of Schedule I of the Maharashtra Stamp Act, 1958, and solidifies the state’s right to collect stamp duty on such agreements.

Conclusion

The Supreme Court upheld the decision of the High Court, affirming that agreements to sell with clauses for possession transfer are liable for stamp duty as conveyances. The court dismissed the appeal, emphasizing that the agreements were principal documents that needed to be properly stamped and registered. This judgment clarifies the legal position on stamp duty obligations for agreements to sell with possession transfer, ensuring that such transactions are duly taxed under the Maharashtra Stamp Act, 1958.