Future Redevelopment Potential Cannot Be Treated As Certain Benefit For Stamp Duty Valuation: Bombay High Court

The Bombay High Court has held that future redevelopment potential of a property cannot be treated as a present and certain benefit while determining its market value for stamp duty.

The uncertainty, expenses, delay, and legal difficulties involved in realising that potential must also be considered.

Justice Amit Borkar observed, “A purchaser may be willing to pay something for future potential. But such potential cannot be treated as a present and certain benefit without considering the uncertainty, expenses, delay, legal difficulties and other conditions which may come in the way of obtaining that benefit.”

"Future development possibility could be considered only to the extent that a willing purchaser, knowing the existing difficulties, would have taken that possibility into account while agreeing to the price.", the court added.

The court was hearing a petition filed by Transcon Sheth Creators Private Limited and another, challenging a September 15, 2015 order of the Chief Controlling Revenue Authority, Maharashtra State, Pune. The dispute concerned a conveyance deed executed on May 9, 2007 for 17 plots of land, some of which were occupied by slum dwellers.

The Collector of Stamps had initially valued the property at about ₹12 crore. A stamp duty of ₹60 lakh was paid on that valuation.

The revenue authority later accepted a revised valuation of about ₹52.61 crore. It raised a demand for ₹2,03,07,750 towards alleged deficit stamp duty, along with a penalty.

The dispute centred on how the property should have been valued as it stood on May 9, 2007. The purchasers argued that the valuation reports took into account Slum FSI, Slum TDR and other redevelopment benefits even though no SRA scheme had been submitted or was in existence on that date.

In other words, the purchasers' case was that these were potential future benefits. They could not be treated as though they were already available to the purchaser on the date of the transaction.

The purchasers also pointed to the property's existing burdens. The conveyance deed recorded more than 45 suits filed by and against the vendor, several claims and encroachments, and an injunction restraining creation of third-party rights over part of the property. It also referred to earlier development arrangements.

The property was purchased on an “as-is-where-is basis”. The purchaser took it with knowledge of the existing litigation and encumbrances and agreed to deal with the pending disputes at its own risk, cost and consequences.

The court observed that accepting those burdens did not mean they had no effect on the property's value. A purchaser would consider the risk of litigation, encroachments and difficulties in development while deciding the price they were willing to pay.

The court also rejected an approach that considered the property's possible advantages while leaving out its disadvantages. It found that the valuation report did not show how the value was reduced to account for litigation, encumbrances, restrictions and other burdens existing on May 9, 2007.

The court referred to the Maharashtra Stamp (Determination of True Market Value of Property) Rules, 1995. Rule 4 requires the classification of property to take into account factors including the type of land, construction, location and its situational advantages or disadvantages. Rule 6 requires consideration of the relevant factors and evidence placed before the authority while determining true market value.

The court held that these rules did not support an approach where possible benefits were considered but disadvantages were left out. The impugned order did not show how the material disadvantages affecting the property were considered while arriving at the final figure.

The court also faulted the revenue authority for simply accepting the valuation report. The authority had recorded, “This Authority believes that the said report is proper and hence accepts the same.”

Justice Borkar held that this was not a proper reason for determining the market value. The authority had to examine whether the report represented the true market value of the particular property conveyed on May 9, 2007.

It also had to consider the purchasers' objections, the condition of the property, litigation, encroachments, the injunction, development restrictions, existing rights, and other relevant circumstances recorded in the deed.

The fact that the valuation report had been prepared by an expert did not change that requirement. The court observed that an expert report could be relevant material, but its conclusions could not be accepted without examining whether it dealt with the condition of the property.

The court further noted that the purchaser's offer of ₹12 crore had been accepted by the society after negotiations and on an “as-is-where-is” basis. This did not make ₹12 crore conclusive proof of market value. However, it was contemporaneous material showing the price agreed with knowledge of the property's condition.

The revenue authority had not produced a comparable transaction involving a property with similar litigation, restrictions and other conditions that had fetched a higher price. The impugned order also did not explain why the negotiated consideration of ₹12 crore could not be relied upon.

On the future redevelopment potential, the court clarified that a purchaser may take such potential into account while agreeing on a price. But it cannot be valued as though the benefit were certain or already available.

The court observed that the valuation report presented the property as though its development potential was readily available. The deed, however, showed that there were obstacles to development.

The court therefore quashed the revised valuation of ₹52.61 crore and the consequential demand of ₹2,03,07,750 towards alleged deficit stamp duty. It restored the Collector's original valuation of ₹12 crore and stamp duty of ₹60 lakh.

The writ petition was allowed. The question of limitation under Section 53A of the Maharashtra Stamp Act was left open and was not decided by the court.

For Petitioners: Senior Advocate Girish S. Godbole, along with Advocate Aditya Shiralkar, Advocate Nuput Desai and Advocate Ishaan Chaudhary, instructed by I.C. Legal.

For Respondents: AGP S.H. Kankal.