Holding

An agreement to sell immovable property where possession is transferred before or at execution is deemed a conveyance under Explanation I to Article 25 of Schedule I of the Bombay Stamp Act, and stamp duty is payable as if on a conveyance.

Summary

The appellants entered into an agreement for sale of a flat under Section 4 of the Maharashtra Ownership Flats Act, paid the required registration fee and later had the agreement impounded with a demand for stamp duty under Section 32A of the Bombay Stamp Act. They contended that the document was merely an agreement for sale, that no right, title or interest had passed and therefore it was not a conveyance within the meaning of the Act. The High Court held that, under Explanation I to Article 25 of Schedule I of the Bombay Stamp Act, an agreement to sell where possession is transferred before or at execution is deemed a conveyance and is liable to stamp duty, and that Section 32A applies mutatis mutandis. On appeal, the Supreme Court affirmed this view, stating that the agreement satisfies the conditions of Explanation I and that the duty is levied on the instrument as if it were a conveyance. Consequently, the appeals were dismissed and the stamp duty demand upheld.

Issues considered

Whether an agreement for sale of a flat executed under Section 4 of the Maharashtra Ownership Flats Act, with possession to be delivered before or at execution, constitutes a ‘conveyance’ within Explanation I to Article 25 of Schedule I of the Bombay Stamp Act.
Whether Section 32A of the Bombay Stamp Act applies to such an agreement.
Whether levying stamp duty on the agreement, viewed as a transaction rather than an instrument, is ultra‑vires.

Legislation cited

Bombay Stamp Act, 1958s. 2(g), s. 32A, s. Schedule I Article 25 Explanation I
Registration Act, 1908s. 17(1)

Subjects

stamp dutyconveyanceagreement to sellBombay Stamp ActMaharashtra Ownership Flats ActSection 32Apossessionimpoundingregistration

Judgment

VEENA HASMUKH JAIN AND ANR. j.-
A
v.
STATE OF MAHARASHTRA AND ORS.

JANUARY 28, 1999
B
[S.P. BHARUCHA ANDS. RAJENDRA BABU, JJ.)

Bombay Stamp Act, 1958-:-Section 2(g)-Schedule I, ATticle 25, Ex-
planation I-Conveyance-Agreement to sell with delivery of possession, in
future, present or past amounts to conveyance and duty to be levied accord-
c ingly-Agreement for sale executed in tenns of Section 4 of the Maharashtra
Ownership Flat Act, 1963-Sale of immovable property and handing over the
possession within specific time without executing conveymtce-H.eld, docu-
ment falls within scope of Explanation I of ATticle 25 and attracts duty as if
conveyance and the levy of stamp duty is on instrument and not on any
D transaction.

The appellant executed agreement for sale of flat in terms of Section
4 of the Maharashtra Ownership Flats Act, 1963 and paid registration fee
in addition to other charges. Thereafter, the Sub-Registrar through letter
informed the appellants that the agreement had been impounded. The
E Assistant Director of Town Planning Stamp and Valuation also informed
the appellants that he had received reference from Collector under S- 32A
of Bombay Stamp Act for determination of true market value of the
property.

F The appellants contended that, the document is only an agreement
for sale since no right, title or interest passed on to the appellant so as to ~

attract duty as a conveyance or instrument; therefore, Section 32A of the
Bombay Stamp Act had no application and appellant was not liable for
duty under Entry 25 of Schedule I of the Act. Even before the disposal of
these objections, the appellant filed a Writ Petition. The High Court
G upholding the stand taken by the State in the matter of levy of duty
[
dismissed the petition seeking the quashing of the provisions of the
Bombay Stamp Act relating to determination of market value and took the ·- ..
view that the agreement in question could be construed to be a conveyance
falling under Section 2 (g) of the Act inasmuch as the right, title and
H interest in the flat stands transferred in favour of the purchaser on
302
V.H.JAINv. STATE 303
- ~. payment of instalments. A
In these appeals, challenging the order of the High Court the appel·
lant contended that the conclusion reached by the High Court was not
correct because agreement in question was executed in terms of Section 4
of the Maharashtra Ownership Fh1ts Act which cannot be construed to be
a conveyance, Under the Act duty can be levied only on instrument and not B
on any transaction and here the levy of duty is on a transaction which is
handing over possession and not on the instrument.

Dismissing the appeals, this Court
c
HELD : 1. The duty in respect of an agreement covered by Explana·
tion I to Article 25 of Section I is leviable as if it is a conveyance. Under
the Act duty can be levied only on instrument and not on any transaction.
It there is an agreement to sell immovable property and possession of such
property is transferred to the purchaser before the execution or at the time D
of execution or subsequently without executing any conveyance in respect
thereof, such an agreement to sell is deemed to be a "conveyance". In the
event a conveyance Is executed in pursuance of such agreement sub·
sequently, the stamp duty already paid and recovered on the agreement of
sale which is deemed to be a conveyance shall be adjusted towards the total
duty leviable on the conveyance. The agreement entered into clearly E
provides for sale of an immovable property and there is also a specific
time within which possession has to be delivered. Therefore, the document .
in question clearly falls within the scope of the Explanation I and it is open
to the Legislature to levy duty on different kinds of agreement in different
rates. If the Legislature thought that it would be appropriate to collect F
duty at the stage of agreement itself if it fulfils certain conditions instead
of postponing the collection of such duty till the completion of the trans·
action by execution of a conveyance deed inasmuch as all substantial
conditions of a conveyance have already been fulfilled such as by passing
of a consideration and delivery of possession of the property and what
remained to be done is a mere formality of execution of a sale deed; it G
-~ would be necessary to collect duty at a later stage itself though right, title
and interest may not have passed as such. Still by reason of the fact that
under the terms of the agreement there is an intention of sale and posses-
sion of the property has also been delivered, it is certainly open to the State
to charge such instruments at a particular rate which is akin to a con· H
304 SUPREME COURT REPORTS [1999] 1 S.C.R.

A veyance. Therefore, it cannot be said that levy of duty is not upon the
instrument but on the transaction. [308-Q-H; 309-A-E]

2. It is clear that the object of the Stamp Act is to levy stamp duty
on different kinds of instruments. The Legislature has chosen to levy a rate
of duty equivalent to conveyance in respect of an agreement though the
B transaction may not have been completed because of certain instruments
arising out of such agreement being executed and possession thereof being
taken prior to or simultaneous with the document or subsequently. But in
the Explanation to the Act it is not clear that if the document provides that
possession bas to be taken without execution of the conveyance certainly
C it would attract the appropriate duty. If the agreement provides that
possession will be banded over' on the execution of a conveyance as con-
templated under Section 11 of the Maharashtra Ownership Flat Act, then
the Explanation shall not be attri-.£~d at all and here it is clear that in the
terms of the agreement there is no provision made at all for the execution
of the conveyance. Thus the provisions of the Act could be applied to the
D agreement and, a conveyance could be executed subsequently when it is not
clear as to when the conveyance is to be executed and the stipulated time
within which the possession has to be handed over. Therefore, It is clear
that the document would attract duty as if it is a conveyance as provided
in the Explanation. [309-H; 310-A·D]
E
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1655 of
1996 Etc. Etc.

. From the Judgment and Order dated 13.2.92 of the Bombay High
court in L.P .A. No. 395 of 1991.
F
M.S. Bhandari and AM. Khanwilkar for the Appellants.

· M.S. Nargolkar, D.M. Nargolkar for the Respondents.

The Judgment of the Court was delivered by

G RAJENDRA BABU, J. The question raised for consideration in these
appeals is identical as to the duty payable under the Bombay Stamp Act, r
1958 on an agreement for sale of flats covered by the Maharashtra Owner-
ship Flats (Regulation of the Promotion of Construction, Sale, Manage-
ment and Transfer) Act, 1963 [hereinafter referred to as 'the MOP Act'
H and the Maharashtra Apartment Ownership Act, 1970.
V.H.JAINv. STATE[RATENDRABABU,J.) 305
-} A Writ Petition before the High Court to Bombay was filed by the A
~-
appellants on the allegation that on October 8, 1987 they entered into an
agreement for purchase of a flat with one M/s Century Enterprises. The
agreement for sale was executed in terms of Section 4 of the MOP Act. It
was lodged for registration on November 3, 1987 as required under Section
4 of the MOP Act read with Section 17(1) of the Indian Registration Act,
B
1908. The consideration disclosed in' the agreement was shown at Rs.
~
3,75,000 for the purpose of purchase of the flat and a registration fee of
t
' Rs. 3,750 was paid in addition to copying fee and postal charges. The
Sub-Registrar of Bombay, by a letter sent to the appellants in February
1988, informed them that the agreement had been impounded and being
r sent to the Superintendent of Stamps, Bombay. There was also a com- c
munication sent by the Assistant Director of Town Planning, Stamp and
Valuation dated March 9, 1990 in terms of Rule 3(1) of the Bombay Stamp
(Determination of True Marl-et Value of Property) Rules, 1981 to the
appellants informing them that he had received a reference from the
Collector under Section 32A of the Bombay Stamp Act for determination
D
of true market value of the property and he had reason to believe that the
~
market value of the property had not been truly and fully set out. The first
appellant by a reply sent on October 26, 1990 stated inter alia various
contentions that the document in question is only an agreement for sale
and no right, title or interest passed on to the appellants so as to attract
duty as a conveyance and/or instrument; that Section 32A of the Bombay E
Stamp Act had no application; that the appellant was not liable for duty
under Entry 25 of Schedule I of the Bombay Stamp Act; that the agreement
for sale had been executed under Section 4 of the MOP Act and in terms
of the said provision it was mandatory to register the same under Section
17(1) of the Indian Registration Act; that the provisions of the Bombay p-
~
Stamp Act were not applicable and consequently proceedings under Sec-
tion 32A of the Bombay Stamp Act could not have been initiated; and that,
therefore, action of impounding the document was illegal. Even before the
disposal of those objections, the appellants filed a Writ Petition challenging
the legality and correctness of the notice and also sought for striking down
I, the provisions of the Bombay Stamp Act relating to determination of G
__, market value. The matter was placed before the Division Bench which
disposed of the said matter.

The principal question advanced before us as was done before the
High Court is whether the document in question, that is, an agreement to H
306 SUPREME COURT REPORTS [1999] 1 S.C.R.

A sel~ is a document conveying right, title and interest of the flat in favour ,\ -
of the appellants. Section 4 of the MOF Act requires an agreement to be
drawn in respect of sale with each of the persons who have taken a flat or
flats on ownership basis before accepting any money as advance or deposit
and such advance payment of money or deposit cannot exceed 20% of the
sale price under the agreement. Section 4(1A) provides that the agreement
B should be in the prescribed form and to contain several matters mentioned
therein. The terms and conditions of the agreement recited that the pur·
chaser agreed to purchase and acquired from the builders a flat admeasur·
ing about 473 sq. ft. carpet area for the price of Rs. 3,75,000 which had
been paid in the manner set out therein. If there is default in the matter
·C of payment of any of the instalments, the amount paid by the purchasers
to the builders under the agreement would stand forfeited. However, an
option was also reserved by the builders to regularise on payment of
interest at 24% on such defaulted amounts. It was also agreed that if the
agreement is terminated, the purchasers cease to have any right, claim or
D demand in respect of the premises agreed to be purchased by him nor shall
the purchaser be entitled to claim specific performance of this agreement
and/or compensation or damages. In Paragraph 7 of the agreement it was
stated that subject to the purchaser making full payment of all amounts
due and payable· by him under the agreement and subject to force majeure,
possession of the said premises is expected to be delivered by the builders
E to the purchaser on or before the 30tli November, 1987. The agreement
was dated 8th October, 1987 and the possession was to be handed over by
30th November 1987. Paragraph 13 provided that in the event of any
amount by way of premium, development tax, betterment charges or any
other tax or payment of a similar nature or security deposit for water
F connection which was payable to the State Government or Municipal
Corporation would be paid by the purchasers in proportion to the area the
purchasers have agreed to purchase. Paragraphs 14 and 15 of the agree·
ment read as follows:-

"14. Nothing contained in these presents is intended to be nor shall
G it be deemed to be a grant, demises, conveyance, assignment or
transfer in law of the said property premises or the building
thereon, or any part thereof to the purchaser by the builders.

"15. The Purchaser shall not let, sub-let, sell, transfer, assign or
H otherwise deal with or dispose of the said premises or his interest
'•
V.H.JAINv. STATE[RAJENDRABABU,J.] 307

- ! or benefit under this agreement till all the dues payable by him to A
the builders under this agreement have been fully paid up and until
previous consent in writing of the Builders in that behalf is ob-
tained_by him."

-f
On examination of these terms the High Court took the view that the
agreement in question could be construed to be a conveyance falling under B
.... Section 2(g) of the Bombay Stamp Act inasmuch as the right, title and
interest in the flat stands transferred in favour of the purchaser on payment
~ of instalments as provided therein.

-< The High Court also examined the scope of Explanation I to Article c
25 of Schedule I of the Bombay Stamp Act and held that the same was
attracted to the case. Under the agreement there is an obligation to hand
over the possession even before execution of a conveyance and, therefore,
it was a "conveyance" for the purpose of duty payable under the Bombay
Stamp Act and there was no obligation in the agreement to enter into a
D
conveyance at a later stage and clearly it was a case which attracted said
:>; Explanation. Handing over of the possession on the very date of execution
was not relevant for determining the nature of the document. On that basis
the High Court upheld the stand taken by the State in the matter of levy
of duty. Other questions raised in the Writ Petition are not the subject
matter of these appeals and, therefore, we do not advert to those questions. E
On the conclusion reached by the High Court the Writ PetitiQn stood
dismissed.

The learned counsel appearing for the appellants urged before us
that the conclusion reached by the High Court either on the question of F
construction of the agreement amounting to a "conveyance" or on the
applicability of the Explanation I to Article 25 of Schedule I to the Bombay
Stamp Act is incorrect. It was submitted that the agreement in question
had been executed only in terms of Section 4 of the MOF Act and that
under the scheme of the Act a deed of conveyance had to be drawn in
terms of Section 11 thereof. Therefore, it was submitted that the document G
executed in terms of Section 4 of the MOF Act cannot be construed to be
·-~-
a "conveyance". He also submitted that under the same Act duty can be
levied only on the "instrument''. and not on any "transaction". Here, in the
present case, by Explanation I to Article 25 of the Schedule 1, what has
been done is to provide for levy of duty on a "transaction", namely, handing H
(
'
308 SUPREME COURT REPORTS [1999] 1 S.C.R.

A over possession and not on the "instrument" as such and hence the \ -
provision is ultra vires the Constitution.

Under Entry 44 of List III-Concurrent List of the Seventh Schedule
of the Constitution, any State as well as the Central Government levy stamp
duties other than duties or fees collected by means of judicial stamps, but
B not including rates of stamp duty and in respect of such instruments
mentioned in Entry 91 of List 1-Union List of the Seventh Schedule to the
Constitution. A duty is leviable under Section 3 of the Bombay Stamp Act
which indicates the instruments executed in the State or those outside the
State but brought into the State for the first time relating to any property
C situate or to any matter or thing done or to be done in the State shall be
chargeable to stamp duty prescribed under the Bombay Stamp Act. Article
25 of Schedule I refers to conveyance and the amount of conveyance as
sought to be explained by the Explanation. Explanation I to Article 25 of
Schedule I to the Bombay Stamp Act reads as follows :

D ''Explanation I. For the purposes of this article, where in the case
of agreement to sell an immovable property, the possession of any
immovable property is transferred to the purchaser before the
execution, or at the time of execution, or after the execution of
such agreement without executing the conveyance in respect there-
E of, then such agreement to sell shall be deemed to be a conveyance
and stamp duty thereon shall be leviable accordingly :

Provided that, the provision of section 32A shall apply mutatis
mutandis to such agreement which is deemed to be a conveyance
as aforesaid, as they apply to a conveyance under the section :
F
Provided further that, wQ.ere subsequently a conveyance is
executed in pursuance of such agreement of sale, the stamp duty,
if any, already paid and recovered on the agreement of sale which
is deemed to be a conveyance, shall be adjusted towards the total
duty leviable on the conveyance."
G
The duty in respect of an agreement covered by the Explanation is
leviable as if it is a conveyance. The conditions to be fulfilled are if there
is an agreement to sell immoveable property and possession of such
property is transferred to the purchaser before the execution or at the time
H of execution or subsequently without executing any conveyance in respect

r
V.H.JAINv. STATE[RAJENDRABABU,J.] 309

-, thereof such, an agreement to sell is deemed to be a "conveyance". In the A
event a conveyance is executed in pursuance of such agreement sub-
sequently, the stamp duty already paid and recovered on the agreement of
sale which is deemed to be a conveyance shall be adjusted towards the total
duty leviable on the conveyance. Now, in the present case, the agreement
entered into clearly provides for sale of an immoveable property and there
is also a specific time within which possession has to be delivered. There-
B
fore, the document in question clearly falls within the scope of the Explana-
tion I. It is open to the Legislature to levy duty on different kinds of
agreement in different rates. If the Legislature thought that it would be
appropriate to coll.ect duty at the stage of agreement itself if it fulfills
certain conditions instead of postponing the collection of such duty till the c
completion of the transaction by execution of a conveyance deed inasmuch
as all substantial conditions of a conveyance have already been fulfilled
such as by passing of a consideration and delivery of possession of the
property and what remained to be done is a mere formality of execution
of a sale deed; it would be necessary to collect duty at a later stage itself
D
though right, title and interest may not have passed as such. Still by reason
~, of the fact that under the terms of the agreement there is an intention of
sale and possession of the property has also been delivered, it is certainly
open to the State to charge such instruments at a particular rate which is
akin to a conveyance and that is exactly what has been done in the present
case. Therefore, it cannot be said levy of duty is not upon the instrument E
but on the transaction. Therefore, we reject the contention raised on behalf .
of the appellants in that regard.

The learned counsei for the appellants urged that the character of
an instrument cannot be determined by reason of a subsequent event to
F
take place such as handing over of possession. But a close examination of
the provisions of the Explanation will make it clear that in ~e case of an
agreement to sell immoveable property possession is transferred at any
.time without executing the conveyance in respect thereof, such an instru-
ment is deemed to be a "conveyance". The object of the Explanation is clear
that if an agreement is entered into and that agreement itself contemplates G
the delivery of possession of the property within the stipulated time, then
''A. such an agreement should be deemed to be a conveyance for the purpose
of duty liviable under the Bombay Stamp Act.

It is clear that the object of the Stamp Act is to levy stamp duty on H
310 SUPREME COURT REPORTS [1999] 1 S.C.R.
A different kinds of instruments. The Legislature, has, in ti.~ present case .-
chosen to levy a rate of duty equivalent to conveyance in respect of an
agreement though the transaction may not have been completed because
of certain instruments arising out of such agreement being executed and
possession thereof being taken prior to or simultaneous with the document
or subsequently. But in the Explanation it is not clear that if the document
B provides that possession has to be taken without execution of the con-
veyance certainly it would attract the appropriate duty. If the agreement
provides that possession will be handed over on the execution of a con-
veyance as contemplated under Section 11 of the MOP Act, then the
Explanation shall not be attracted at all. In the present case, it is clear that
C in the terms of the agreement there is no provision made at all for
execution of the conveyance. On the other hand, what is submitted is that
the provisions of the MOP Act could be applied to the agreement and,
therefore, a conveyance could be executed subsequently when it is not clear
as to when the conveyance is to be executed and the stipulated time within
D which the possession has to be handed over. If that is so, it is clear that
the document would attract duty as if it is a conveyance a.s provided in the
Explanation. Thus we find no error in the view taken by the High Court.
It is not necessary to examine in these appeals as to whether the instrument
in question itself conveys a title or not. Therefore, we uphold the decision
of the High Court made in this regard. The appeals are dismissed.
E
N.J. Appeals dismissed.