Imposition of ten times penalty by the Collector of Stamps under Section 40 of the Indian Stamp Act

In TRUSTEES OF H.C. DHANDA TRUST vs STATE OF MADHYA PRADESH & ORS., appeal was filed against the judgment of learned Single Judge of the High Court of Madhya Pradesh as well as the judgment  of the Division Bench dismissing the Writ Appeal filed by the appellant against the judgment of the learned Single Judge.

A resolution was passed by a Executors/Trustees of certain immovable properties to transfer and vest area by executing a Deed of Transfer with a site plan from the trustees to beneficiaries by registering the same. Subsequently a Deed of Assent was executed this Trust and several other parties. By Deed of Assent the Trustees/Executors gave assent to complete the title of the immovable properties in favour of the Legatees and vest absolutely and forever in their favour. A notice was issued by the Collector of Stamps stating that in Deed of Assent proper stamp duty has not been paid. The notice further stated that why deficit stamp duty of Rs. 1,62,82,150/- on the document and ten times penalty should not be imposed. The Trust appeared before the Collector of Stamps and filed its objection. The Collector of Stamps passed an order  holding the Deed of Assent  as a gift deed. The Collector held that under Indian Stamp Act, 1899, the stamp duty payable on a gift deed would be 8% of the market value, Municipal duty 1% and Janpad duty 1%. The Collector found deficit duty to the extent of Rs.1,28,09,700/- and also imposed ten times penalty i.e. Rs.12,80,97,000/-. The order called upon the Trust to deposit amount of Rs.14,09,06,700/- within thirty days. All appeals against this order were dismissed and the Trust approached the Supreme Court.

The Collector of Stamps vide its order determined the nature of document as Gift Deed. The Collector held that under Indian Stamp Act, 1899, the stamp duty payable on a gift deed would be 8% of the market value, Municipal duty 1% and Janpad duty 1%. 

Agreeing with the appellants, the Supreme Court held that according to Section 40(1)(b) if the Collector is of opinion that such instrument is chargeable with duty and is not duly stamped, he shall require the payment of the of the proper duty or the amount required to make up the same, together with a penalty of the five rupees; or, if he thinks fit, an amount not exceeding ten times the amount of the proper duty or of the deficient portion thereof. The statutory scheme of Section 40(1)(b) as noticed above indicates that when the Collector is satisfied that instrument is not duly stamped, he shall require the payment of proper duty together with a penalty of the five rupees. The relevant part of Section 40(1)(b) which falls for consideration in these appeals is: “or, if he thinks fit, an amount not exceeding ten times the amount of the proper duty or deficient portion thereof.”

The amount of penalty thus can be an amount not exceeding ten times. The expression “an amount not exceeding ten times” is preceded by expression “if he thinks fit”. The statutory scheme, thus, vest the discretion to the Collector to impose the penalty amount not exceeding ten times. Whenever statute transfers discretion to an authority the discretion is to be exercised in furtherance of objects of the enactment. The discretion is to be exercised not on whims or fancies rather the discretion is to be exercised on rational basis in a fair manner. The amount of penalty not exceeding ten times is not an amount to be imposed as a matter of force. Neither imposition of penalty of ten times under Section 40(1) (b) is automatic nor can be mechanically imposed. The concept of imposition of penalty of ten times of a sum equal to ten times of the proper duty or deficiency thereof has occurred in other provisions of the Act as well.

The legislative intent which is clear from reading of Sections 33,35,38 and 39 indicates that with respect to the instrument not duly stamped, ten times penalty is not always retained and power can be exercised under Section 39 to reduce penalty in regard to that there is a statutory discretion in Collector to refund penalty.

Referring to the decision of the Supreme Court, in Gangtappa and another vs. Fakkirappa, 2019(3) SCC 788, the court observed that  the legislature has never contemplated that in all cases penalty to the extent of ten times should be ultimately realized.

The purpose of penalty generally is a deterrence and not retribution. When a discretion is given to a public authority, such public authority should exercise such discretion reasonably and not in oppressive manner. The responsibility to exercise the discretion in reasonable manner lies more in cases where discretion vested by the statute is unfettered. Imposition of the extreme penalty i.e. ten times of the duty or deficient portion thereof cannot be based on the mere factum of evasion of duty. The reason such as fraud or deceit in order to deprive the Revenue or undue enrichment are relevant factors to arrive at a decision as to what should be the extent of penalty under Section 40(1)(b).

The Collector by imposing ten times penalty in his order has given the reason for imposition as “the party has not mentioned the actual nature of the document with the intention to escape the duty”. No other reasons have been given either by the Collector or by the High Court justifying the imposition of maximum penalty of ten times. It is not the case of Collector that the conduct of the appellant was dishonest or contumacious.

The court decided that the reasons which have been given by the Collector of Stamps as noticed above we are satisfied that this was not a case of imposition of extreme penalty of ten times of deficiency of stamp duty. Taking into consideration all facts and circumstances of the case, we are of view that ends of justice will be served in reducing the penalty imposed to the extent of the half i.e. five times of deficiency in the stamp duty.