Supreme Court: To Calculate Stamp Duty on Sale Deeds, Plant & Machinery Embedded in Immovable Property Must Be Valued

Supreme Court: To Calculate Stamp Duty on Sale Deeds, Plant & Machinery Embedded in Immovable Property Must Be Valued

The Supreme Court has observed that the proviso to Section 27 of the Indian Stamps Act, 1899 added by the Andhra Pradesh Amending Act, 1988, empowers the Officer to inspect the property, make local inquiries in the facts, call for connected records, examine them and satisfy itself that the provisions of Section 27 are complied with, which provides that all the facts and circumstances, affecting the chargeability of any instrument or the amount of duty, must be fully and correctly set forth.

The coram comprising of Justices K.M. Joseph and Hrishikesh Roy were adjudicating an appeal against the decision of the Division Bench of the Andhra Pradesh High Court which had held that the registration authorities cannot force the vendee to pay stamp duty on the value of plant and machinery when it does not seek its registration, and only seeks the registration of the land and buildings purchased by it.

In the present case, the bench examined the exigibility of the plant and machinery to stamp duty under the Indian Stamps Act, 1899 (the Act).

The factual matrix of the case was that the respondent no. 2, M/s SMC Marketing Pvt Ltd, purchased a property, consisting of land, building, civil works, plant and machinery, inter alia, in a Court auction of a wound-up company. A conveyance deed was executed by the Official Liquidator in favor of the 2nd respondent’s nominee, M/s Dankuni Steels Ltd, (1st respondent), on the direction of the Andhra Pradesh High Court.

The Sub Registrar informed the vendee/1st respondent, Dankuni Steels, that the registration of the Sale Deed executed in its favor was kept pending since the vendee had undervalued the instrument for payment of stamp duty. Thereafter, the District Registrar imposed penalty on the vendee and the Official Liquidator, directing them to deposit the stamp duty on the full value.

Dankuni Steels filed a Writ Petition before the Andhra Pradesh High Court, which was dismissed by the Single Judge. Thereafter, an appeal was filed by the respondent/vendee against the judgment of the single judge which was allowed by the Division bench.

Hence, the Sub-Registrar filed an appeal against the decision of the Division Bench before the Apex Court.

Noting the submission of the learned Amicus S. Niranjan Reddy, appearing for M/S Dankuni Steels Ltd (Respondents) who submitted that plant and machinery would constitute ‘distinct matters’ within the meaning of Section 5 of the Act, the Court observed:

“To put it differently, distinct matters are dealt with in one instrument, viz., the sale deed in question. If different instruments had been executed purporting to convey land, building, plant and machinery, it would be the aggregate of the value of such matters, which would have exposed them to duty. If instead of separate instruments, distinct matters are made subject matter of one instrument, then, it would hardly matter and the liability to pay duty would be still found within the four walls of Section 5 of the Act.”

Next the bench comprehensively discussed the definition of Immovable property, defined in the General Clauses Act, 1897 as ‘including land, benefits to arrive out of land and things attached to the earth or permanently fastened to anything attached to the earth’.

The bench was of the view that when it comes to the definition of ‘immovable property’ in the Transfer of Property Act, it has been defined as ‘not including standing timber, growing crops or grass’. In the Registration Act, 1908, immovable property includes, apart from land and buildings, things attached to the earth or permanently fastened to anything which is attached to the earth but not including standing timber, growing crops or grass.

The Court appositely stated, “we cannot also be oblivious that Section 8 of the Transfer of Property Act declares that in the absence of an express or implied indication, a transfer of property passes to the transferee all the interests, which the transferor was capable of passing in the property and in the legal incidents thereof. Such incidents include, inter alia, where the property is land, all things attached to the earth. When the property is machinery attached to the earth, the movable parts thereof also are comprehended in the transfer.”

The Court on proper reading of the Recital Clause stated that, it indicated that what is conveyed is rights over the scheduled property, which, no doubt, is the land, as described in the Schedule but it includes all the rights, easements, interests, etc., i.e., the rights which ordinarily passed on such sale over the land. It is from a reading the said recital in conjunction with Section 8 of the Transfer of Property Act that the intention of the parties become self-evident that the vendor intended to convey, all things, which inter alia stood attached to the earth, opined the bench.

The Court remarked that the mere fact that there was no express reference to plant and machinery in the Recital Clause cannot mean that the interest in the plant and machinery which stood attached to the land, which was scheduled, was not conveyed to the first respondent/vendee. Henceforth, the value of plant and machinery which was permanently embedded to the earth and answered the description of the immovable property, as defined in law must also be ascertained for computation of stamp duty, it ruled.

The Apex Court expressed its dismay over the Division Bench stating that it overlooked the nature of the transaction, the effect of the auction sale, the property sold and their value, and the fact that the Company Judge had by order dated 15.06.2004 left it open to the authority to determine the liability. The Division Bench did not consider the preambular part. It also failed to bear in mind the power available with the authorities.

The effort of respondents 1 and 2 was to avoid payment of the stamp duty as due in law, opined the Apex Court.

“We would think that the learned Amicus is right in pointing out that in the nature of the transaction, and what was actually sold by the Official Liquidator, plant and machinery, such as would answer the description of immovable property, must also be found part of the property for the purpose of the stamp duty and other charges as per law,” the Court concluded while agreeing with the Amicus.

The bench thus set aside the judgment of the Division Bench and restored the judgment of the Single Judge, directing the District Registrar to ascertain the value of plant and machinery which was permanently embedded to the earth and answering the description of the immovable property under law, for the purpose of Stamp Duty.