Supreme Court explains calculation of stamp duty on tenanted properties

Cause Title : Shanti Bhushan vs State of U.P., Civil Appeal No. 8388 Of 2017, Supreme Court Of India

Date of Judgment/Order : 25/4/2023

Corum : Abhay S. Oka., J & Rajesh Bindal, J.

Citied: 

1. Special Land Acquisition & Rehabilitation Officer, Sagar vs M.S. Seshagiri Rao, (1968) 2 SCR 892
2. Mangat Ram and Others vs State of Haryana and others, (1996) 8 SCC 664
3. O.N. Talwar vs The Collector of Stamps, (1971) 7 DLT 319
4. The Commissioner of Wealth Tax Mysore, Bangalore v. V.C. Ramachandran, (1966) 60 ITR 103
5. State of Rajasthan vs Khandaka Jain Jewellers, (2007) 14 SCC 339

Background

The issue is the stamp duty to be paid by the Appellants for registration of sale deed on purchasing a property measuring 7818.00 sq.mts. land along with construction and super structure standing thereon where they are the permanent tenants. 

By using the rent capitalisation method, the appellants calculated Rs. 6,67,200/­ as the market value of the sale deed property and paid the stamp duty on the said market value quantified at Rs. 46,700/­. The Assistant Stamp Collector, held that the market value of the land having an area of 7818 sq. meters will have to be calculated at the rate of Rs. 24,000/­- per sq. meter or Rs.19,23,08,305/­- and therefore the deficiency in the stamp duty was to the extent of Rs.1,33,07,900/­. Appeal before the Appellate Authority against the order of the Asst. Stamp Collector was dismissed and the said valuation was agreed upon by the High Court. Hence this appeal.

Judgment

The Supreme Court held that the Stamp Act is a taxing statute. In interpreting such a statute, equitable considerations cannot be applied. A taxing statute has to be interpreted in accordance with what is clearly expressed therein. While interpreting such a statute and determining the liability to pay tax, the provisions are required to be construed strictly. In other words, the rule of literal construction must be applied while interpreting a taxing statute. It must be interpreted in terms of the natural construction of the words used. There is no scope to imply anything which is not expressly provided.

In view of Article 23 of Schedule I of the Stamp Act, the stamp duty payable on a conveyance will be in accordance with the market value of the subject property on the date of the conveyance unless the consideration shown therein is more than the prevailing market value.

The test for determination of the market value is very simple. The market value is the one which a bona fide and willing buyer will offer.  There is also no doubt that a property in possession of a tenant or tenants will fetch lesser value in the open market than the market value of a similar property exclusively in possession of the vendor. The reason is that the buyer will not get actual possession of the portion of the property in possession of the tenant.

Necessary deductions will have to be made from the market value as the appellants were already in possession of the sale deed land as tenants. The extent to which deduction can be made will depend upon the nature of the tenancy and other material factors. Some tenancies may be protected under the relevant rent control legislation, whereas some may not be protected. That is all a matter of evidence.

The market value can be determined by the comparison method even in case of a property in possession of tenants. The issue regarding the market value of the sale deed land on the date of execution of the sale deed is required to be decided by permitting the parties to adduce oral and documentary evidence. The Assistant Collector will have to ascertain whether a comparable sale instance of a property in possession of tenants is available. If it is not available, the Assistant Collector will have to ascertain the market value of the sale deed property on the relevant date again by comparison method by taking market value of a comparable property which does not have encumbrance of tenancy. Thereafter, he will have to determine the percentage of the deduction which should be made from the market value in the facts of this case. These questions are to be decided by the Assistant Collector on the basis of the evidence on record. 

Therefore, subject to what has been held in the judgment, the Supreme Court send back the case to the Assistant Stamp Collector for determination of the market value of the sale deed land on the date of execution of the sale deed.