Stamp Duty Authority Need Not Wait For Flat Sales To Assess Development Agreement: Bombay High Court

The Bombay High Court has held that an agreed share of future sale proceeds under a development agreement can be taken into account while determining the market value of an instrument for stamp duty.

The stamp authority does not have to wait for the project to be completed or for the flats to be sold before assessing the consideration agreed between the parties.

Justice Amit Borkar relied on the court's earlier decision in Kolte Patil to reject the argument that future sale proceeds could not be treated as present consideration because the eventual sale price of the flats was unknown.

The earlier ruling recognised that where consideration is structured through revenue sharing, its value can be worked out as on the date of execution by considering the available development potential and the applicable Annual Statement of Rates (ASR).

“Stamp duty has to be considered with reference to the date of the instrument. The Authority is not required to wait until the Project is completed, and actual flats are sold. What has to be seen is what consideration was agreed under the document and thereafter its value has to be determined according to the statutory provisions. The fact that the actual sale price in future may be uncertain does not remove the agreed percentage of sale proceeds from the document.”, it ruled.

The ruling arose from a petition filed by VTP Homee Landmark LLP challenging a demand for ₹43,84,100 in deficit stamp duty. The dispute concerned a development agreement executed on November 2, 2012, relating to land at Kharadi in Pune.

The agreement contemplated development of the property and provided for sharing the Gross Sale Proceeds generated from the project.

The petitioner had initially paid about ₹33.73 lakh in stamp duty, based on a valuation of approximately ₹6.74 crore. The stamp authority subsequently valued the transaction at ₹15.51 crore and determined stamp duty at ₹77.57 lakh, resulting in the deficit demand.

The petitioner argued that the eventual sale price of the flats was uncertain and could not be treated as present consideration. It also contended that the provision governing development agreements should not apply because it was the owner of the property rather than a developer.

The court rejected both arguments. It noted that the agreement gave the developer rights to enter the property, develop and construct the project, and market and sell the resulting units.

The nature of the rights granted under the agreement, rather than merely the petitioner's description as owner, was therefore relevant to determining the applicable stamp-duty provision.

The court also relied on the agreement's clause dealing with Gross Sale Proceeds. It found that the revenue-sharing arrangement constituted consideration even though the precise amount payable in the future was not fixed.

Rejecting the petitioner's contention that this amounted to taxing future profits, the court clarified that the future sale proceeds were being considered only for determining the market value of the instrument for stamp-duty purposes. The valuation was not imaginary, as it was based on factors including the land area, development potential, and applicable ASR.

The court ultimately upheld the higher valuation and the ₹43,84,100 deficit stamp-duty demand. It dismissed the petition, vacated the interim relief, and permitted recovery in accordance with law. 

For Petitioner: Manjiri Parasnis.

For State: Mamta S. Srivastava, AGP