Rise In Property Value Alone Cannot Justify Fresh Stamp Duty On Subsequent Deeemed Conveyance: Bombay High Court

The Bombay High Court on Wednesday ruled that stamp authorities cannot demand fresh stamp duty on a subsequent conveyance merely because a property's market value has increased.

This applies when stamp duty and penalty have already been paid on an earlier Agreement for Sale treated as a deemed conveyance.

Justice Amit Borkar quashed an additional stamp duty demand of ₹9.27 lakh against Thakkar Investment & Finance Company. The court held that the subsequent conveyance merely completed the earlier transaction.

The court observed, "Once the Agreement for Sale is treated as a deemed conveyance and the competent authority has accepted the stamp duty and penalty determined on it, the later conveyance cannot be treated as a fresh principal instrument only because the market value of the property has increased. Such an approach would not give proper effect to Section 4. It would ignore the legal treatment given to the earlier agreement under Article 25."

The dispute arose from an Agreement for Sale executed on July 9, 1998, between the company and Hermes Mirage Co-operative Housing Society Limited for land in Pune district. The agreement recorded that vacant and peaceful possession of the land had been handed over to the purchaser.

After the stamp authorities impounded the agreement to examine the duty payable, the company paid ₹80,150 in deficit stamp duty and a penalty of ₹1.60 lakh on October 24, 2011.

The parties executed a Deed of Conveyance for the same land on January 16, 2012. The deed referred to the earlier agreement and recorded that the stamp duty and penalty determined by the competent authority had been paid. The company paid ₹100 in stamp duty for the subsequent conveyance.

The dispute arose after an audit team questioned the stamp duty calculation and the adjustment of duty paid on the earlier agreement. The authorities calculated a deficit of ₹9.27 lakh using the property's market value under the Annual Statement of Rates for 2011.

A demand notice was issued on March 14, 2016. After further proceedings, the authorities issued another notice on October 12, 2017, which the company challenged before the high court.

The court noted that Explanation I to Article 25 of the Maharashtra Stamp Act treats an Agreement for Sale as a deemed conveyance when possession of the property is transferred or agreed to be transferred to the purchaser.

Section 4 of the Act, as it stood in January 2012, provided that when multiple instruments were used to complete the same sale transaction, stamp duty at the prescribed conveyance rate was payable on the principal instrument. The other instruments attracted stamp duty of ₹100 each.

The court found that both documents concerned the same land and that there was no evidence of any change in the agreed consideration, the property or the main terms of the transaction.

The passage of several years between the original agreement and the final conveyance did not create a new sale transaction. The later deed merely completed the transaction covered by the earlier agreement.

The court held that the audit objection alone could not justify treating the subsequent conveyance as a fresh principal instrument. It also observed that the objection could not, by itself, cancel the Collector's endorsement recording payment of stamp duty and penalty.

The authorities had initiated revision proceedings to examine the earlier stamp-duty decision. However, no order setting aside the endorsement had been passed when the October 2017 demand notice was issued. The court held that the authorities could not treat the earlier decision as having been reversed when no such order had been passed.

The high court set aside the orders upholding the additional stamp duty demand to the extent that they treated the subsequent conveyance as a fresh principal instrument based on the property's market value at the time of registration. It also quashed the demand notice dated October 12, 2017.

For Petitioner: Senior Advocate Prasad Dani, instructed by Advocate Prasad B. Kulkarni, along with Advocate Aastha Dadhich, 

For Respondent: Advocate Y.S. Khochare appeared for the respondent authorities