Supreme Court: The stamp duty is payable on the instrument and not on the transaction

In a recent case before the Supreme Court, the apex court observed that  if an agreement is entered into and that agreement itself contemplates the delivery of possession of the property within the stipulated time, then, such an agreement should be deemed to be a conveyance for the purpose of duty leviable under the Bombay Stamp Act.  

The appellant had preferred a suit for specific performance of the agreement to sell deed and other reliefs before the Court of Civil Judge, Senior Division, Ratnagiri.  

The Respondents challenged the same in their written statement and filed an application under section 34 of the Bombay Stamp Act, 1958, for impounding the document stating that the agreement in question was executed on a stamp paper of Rs.50 /-.  

The appellant resisted the said application on the grounds that the agreement of sale was not an agreement of conveyance and hence, no stamp duty was payable on the same. 

The trial Court allowed the said application, impounded the sale agreement and directed the document to be sent to the Registrar of Stamps for recovery of the stamp duty and penalty on it as per law. 

The appellant preferred an appeal against the same in the High Court, who dismissed the same vide the impugned Order. 

The  appellants submitted the appellants were in possession of the property in their capacity as tenants of the Respondents, which was legally distinct and independent.  The further submitted that  Article 25 of the Bombay Stamp Act, 1958, applied only in cases, where there is either an actual transfer of possession or an agreement to transfer possession pursuant to the agreement to sell; and it does not apply to cases where the transfer of possession is explicitly contingent upon the execution of a subsequent document, such as, sale deed or conveyance deed. 

It was the appellants case that when the transfer of possession is linked to a future event, such as the execution of a sale deed, the agreement cannot be deemed to be a conveyance for the purposes of stamp duty and in cases, where possession remains with the seller until the sale deed is executed, the agreement to sell cannot be equated with a conveyance, and no stamp duty can be levied as such. 

According to the Appellants. the conditions necessary for application Explanation I to Article 25 of the Bombay Stamp Act, 1958, are not satisfied viz., (i)no possession was transferred under the agreement to sell; (ii)no agreement to transfer possession exists until the sale deed is executed; and (iii)the possession of the appellant remains that of a tenant, and hence the orders are liable to be set aside. 

The Respondents argued that the Appellants were already in possession as a tenant and in terms of agreement to sell, it was agreed to transfer possession within 11 months thereto or extended time, and therefore the said agreement to sell was a ‘deemed’ conveyance within the meaning of explanation I to Article 25 of Schedule I of Bombay Stamp Act and stamp duty as provided thereunder is leviable. 

The Respondents further submitted that the Appellant retained possession as a tenant, and till date, he is continuing in possession of the suit property.  The Respondents submitted that the impugned order did not merit any interference at the hands of this court. 

The apex court observed that the stamp duty is payable on the instrument and not on the transaction.  Since the possession was admittedly with the appellant even before the date of agreement, it implied that the possessory rights were protected under Section 53A of the Transfer of Property Act, and the same would require payment of proper stamp duty. 

The present agreement to sell included a clause which confirmed that physical possession had already been handed over to the appellant, regardless of the basis of such possession. It satisfied the requirement to treat the instrument as a ‘conveyance’ within the meaning of Explanation I to Article 25 of Schedule I of Bombay Stamp Act, with only the formality of executing the sale deed remaining. 

The court also pointed out that the appellant filed a suit for specific performance of the agreement to sell against the respondents; and the Respondents had filed a suit seeking eviction of the appellant from the subject property; and both the suits are pending, which establish that the appellant is in possession of the property.  

The court held that the said Agreement for sale was liable for payment of stamp duty at the hands of the appellant and dismissed the appeal.  

In The Supreme Court of India  

Civil Appellate Jurisdiction   

Civil Appeal No.  2549 OF 2025  

(Arising out of SLP (C) No. 13822 of 2020)   

Ramesh Mishrimal Jain         ... Appellant(S)                                                            

Versus   

Avinash Vishwanath Patne & Anr.                 ... Respondent(S) 

Dated February 14, 2025. 

Author:  

Ms. Mahua Roy Chowdhury 

mahua@royzz.com 

Mr. Sanjay Visen 

info@royzz.com