14 February 2025 Civil Appeals >> Civil & Consumer Law  

A recent Supreme Court of India judgment has shed light on the intricacies of stamp duty implications on agreements to sell immovable property, particularly when possession is transferred or agreed to be transferred before the final conveyance deed is executed. This article delves into the details of the case, analyzing the court's decision and its implications for property transactions.

The Case in Focus:

The case of Ramesh Mishrimal Jain v/s Avinash Vishwanath Patne & Another., involved an appeal challenging a Bombay High Court order that upheld a lower court's decision to impound an agreement to sell. The agreement, pertaining to a property in Ratnagiri, was deemed deficient in stamp duty. The core issue was whether the agreement to sell, where possession was already with the buyer (as a tenant) and was agreed to be transferred on ownership basis after the sale deed execution, should be treated as a "conveyance" for stamp duty purposes under the Bombay Stamp Act, 1958.

Arguments Presented:

The appellant argued that Explanation I to Article 25 of the Bombay Stamp Act, which deals with deemed conveyances, doesn't apply when possession transfer is contingent upon a future event like the execution of a sale deed. They contended that since possession was to be transferred only after the sale deed, the agreement shouldn't be considered a conveyance for stamp duty. The appellant also emphasized their existing possession as a tenant, distinct from the proposed ownership.

The respondents, on the other hand, argued that since the agreement contemplated the transfer of possession (even if after the sale deed), it fell within the ambit of Explanation I and should be treated as a deemed conveyance. They relied on previous Supreme Court judgments to support their contention that stamp duty is levied on the instrument (the agreement) and not the transaction itself.

The Supreme Court's Decision:

The Supreme Court upheld the High Court's order, affirming the principle that stamp duty is levied on the instrument and not the underlying transaction. The court reiterated that it is immaterial whether possession is handed over at the time of the agreement or is agreed to be transferred. The crucial factor is the presence of an agreement to sell coupled with the transfer or agreement to transfer possession.

The court specifically referred to Explanation I of Article 25, which states that if possession is transferred or agreed to be transferred before the execution of the conveyance, the agreement to sell is deemed a conveyance for stamp duty purposes. The court emphasized that the explanation covers situations where possession is transferred "before," "at the time of," or "after" the execution of the agreement.

The court also cited precedent cases, including Veena Hasmukh Jain v. State of Maharashtra and Shyamsundar Radheshyam Agrawal v. Pushpabai Nilkanth Patil, which reinforce the principle that agreements contemplating possession transfer, even with a future date, attract stamp duty as conveyances.

Implications of the Judgment:

This judgment clarifies the position on stamp duty for agreements to sell where possession is involved. It underscores that even if possession is already with the buyer (e.g., as a tenant) and the agreement stipulates transfer of ownership possession later, the agreement can still be considered a deemed conveyance for stamp duty purposes.

The decision highlights the importance of carefully drafting agreements to sell and understanding the stamp duty implications. It serves as a reminder that stamp duty is payable on the instrument itself, and the timing of possession transfer plays a crucial role in determining the applicable stamp duty.

Conclusion:

The Supreme Court's ruling reinforces the principle that agreements to sell with possession transfer or agreed transfer are considered conveyances for stamp duty. This clarification is crucial for property transactions, emphasizing the need for meticulous drafting of agreements and a thorough understanding of stamp duty laws to avoid future complications. The judgment also clarifies that any stamp duty paid on the deemed conveyance will be adjusted against the final conveyance deed, preventing double taxation. However, any penalty levied will be applicable from the date of the agreement until the deficit stamp duty is paid.