STATE OF M.P. vs. RAKESH KOHLI

REPORTABLE

CIVIL APPEAL NO. 684 OF 2004 State of M.P. …. Appellant Versus Rakesh Kohli & Anr. ….Respondents WITH CIVIL APPEAL NO. 1270 OF 2004 JUDGMENT JUDGMENT R.M. Lodha, J. The only point for consideration here is, whether or not the Division Bench of the Madhya Pradesh High Court was justified in declaring Clause (d), Article 45 of Schedule 1-A of the Indian Stamp Act, 1899 (for short, ‘1899 Act’) which was brought in by the 1 Page 1 Indian Stamp (Madhya Pradesh Amendment) Act, 2002 (for short, ‘M.P. 2002 Act’) as unconstitutional being violative of Article 14 of the Constitution of India.

petitions initially it was prayed that Clauses (f) and (f-1), Article 48, Schedule 1-A brought in the 1899 Act by Section 3 of the Indian Stamp (Madhya Pradesh Amendment) Act, 1997 (for short, ‘M.P. 1997 Act’) be declared ultra vires . During the pendency of these petitions, the 1899 Act as applicable to Madhya Pradesh was further amended by the M.P. 2002 Act. The respondents, referred to as writ petitioners, amended their writ petitions and prayed that Clause (d), Article 45 of Schedule 1-A of the 1899 Act as substituted by M.P. 2002 Act be declared ultra vires . The writ petitioners set up the case JUDGMENT that original Article 48 of the 1899 Act, Schedule 1-A prescribed stamp duty payable at Rs. 10/- if attorney was appointed for a single transaction. By M.P. 1997 Act, Article 48 Clause (f) was substituted by Clauses (f) and (f-1). Clause (f-1) provided that where power of attorney was executed without consideration in favour of person who is not his or her spouse or children or mother or father and authorizes him to sell or transfer any immovable property, the stamp 2 Page 2 duty would be leviable as if the transaction is conveyance under Article 23. Explanation II inserted by M.P. 1997 Act provided that where under Clauses (f) and (f-1), duty had been paid on the power

power of attorney and the person in whose favour it was executed, the duty on conveyance should be the duty calculated on the market value of the property reduced by duty paid on the power of attorney. By M.P. 2002 Act, stamp duty relating to power of attorney has been prescribed in Article 45 of Schedule 1-A. Clause (d) thereof prescribes stamp duty at two per cent on the market value of the property which is subject matter of power of attorney when power of attorney is given without consideration to a person other than father, mother, wife or husband, son or daughter, brother or sister in relation JUDGMENT to the executant and authorizing such person to sell immovable property situated in Madhya Pradesh. The writ petitioners pleaded, inter alia, that the distinction between an agent who was a blood relation and who was an outsider carved out in Article 45, Clause (d) was legally impermissible. The provision violates Article 14 of the Constitution as it has sought to create unreasonable classification. 3 Page 3 3. The State of Madhya Pradesh stoutly defended the challenge to the above provisions and stated before the High Court that the matter of rate of stamp duty was solely in the domain of

4. The Division Bench of the High Court has accepted the constitutional challenge to Clause (d), Article 45 of Schedule 1-A brought in the 1899 Act by M.P. 2002 Act and held that the said provision was violative of Article 14 of the Constitution of India. The Division Bench gave the following reasoning: “11. As far as clauses (d) is concerned, it lays a postulate that postulate [sic] that when the power of authority is given without consideration to a person other than the father, mother, wife or husband, son or daughter, brother or sister in relation to the executant and authorizing such person to sell immovable property, 2% on the market value of the property is to be collected. Submission of Mr. Agrawal is that this clause is absolutely unreasonable and smacks of arbitrariness, as there is no rationale to include the category of persons who have been included and to leave out to all other persons. Mr. S.K. Yadav, learned Government Advocate submitted that near relatives can constitute a class by itself and all others can fit into a different category and, therefore, the said provision does not offend the concept of classification, as there is intelligible differentia. On a first blush the aforesaid submission of the learned counsel for the State appears to be quite attractive, but on a deeper probe it is not what it is. In the guise of the classification something has been stated in the said provision. One can give certain examples. One may not have kith or kin and intact [sic] even that case to deprive him to execute the power of attorney for selling the property, unless 2% is paid on the market value is arbitrary. The provisions may pass the test of classification but it would not JUDGMENT 4 Page 4

5. Ms. Vibha Datta Makhija, learned counsel for the appellant — State of Madhya Pradesh – submitted that the High Court was in error in declaring Clause (d), Article 45, Schedule 1-A as violative of Article 14 of the Constitution of India. She would submit that the test of challenge to a legislative provision was completely different from that of an administrative action. A legislative provision cannot be struck down as being arbitrary, irrational or unreasonable. She further submitted that the JUDGMENT classification made in Clause (d) of Article 45, Schedule 1-A had intelligible differentia with a direct nexus to the object of the 1899 Act. The object of the 1899 Act is to collect proper stamp duty on an instrument or conveyance on which such duty is payable. This is to protect the State revenue. The legislative wisdom took into consideration that genuine power of attorney documents would be executed by the executants without consideration mostly in favour of 5 Page 5 kith and kin to complete sale transactions on behalf of the executants. The said category attracts lower stamp duty than power of attorney executed in favour of third parties/strangers since such

the wisdom of the Legislature in protecting the revenue and carving out genuine classes from others had been well recognized. The court cannot sit in judgment over their wisdom. She relied upon decisions of this Court in Balaji v. Income Tax Officer, Special 1 Investigation Circle, Akola and others ; State of A.P. and others v. 2 Mcdowell and Co. and others ; Ramesh Chand Bansal and Others v. 3 District Magistrate/Collector Ghaziabad and others ; Veena 4 Hasmukh Jain and another v. State of Maharashtra and others ; Hanuman Vitamin Foods Private Limited and others v. State of JUDGMENT 5 Maharashtra and another ; Karnataka Bank Limited v. State of 1 AIR 1962 SC 123 2 (1996) 3 SCC 709 3 (1999) 5 SCC 62 4 (1999) 5 SCC 725 5 (2000) 6 SCC 345 6 Page 6 6 Andhra Pradesh and others ; Government of Andhra Pradesh and 7 others v. P. Laxmi Devi (Smt.) ; Union of India v. R. Gandhi, 8 President; Madras Bar Association and Suraj Lamp and Industries

appear. 8. The definition of ‘conveyance’ is contained in Section 2(10) of the 1899 Act which reads as under: “S.2. Definitions.—In this Act, unless there is something repugnant in the subject or context,-- (10) "Conveyance" includes a conveyance on sale and every instrument by which property, whether movable or immovable, is transferred inter vivos and which is not otherwise specifically provided for by Schedule I. 9. Section 2(21) defines ‘power of attorney’. It reads as JUDGMENT follows : 6 (2008) 2 SCC 254 7 (2008) 4 SCC 720 8 (2010) 11 SCC 1 9 (2012) 1 SCC 656 7 Page 7 “S. 2(21) “Power-of-attorney” includes any instrument (not chargeable with a fee under the law relating to court-fees for the time being in force) empowering a specified person to act for and in the name of the person executing it;”

the State of Madhya Pradesh is concerned. The stamp duty on power of attorney was originally prescribed in Article 48, Schedule - 1-A of the 1899 Act. Clause (f) in original Article 48, Schedule 1-A read as under: “SCHEDULE-1A Stamp Duty on Instruments ( See section 3) Description of Instruments Proper Stamp Duty (1) (2) 48.Power of Attorney, as defined by Section 2(21), not being a Proxy [No. 52]. JUDGMENT (f) when giving for consideration The same duty as Conveyance and authorizing the attorney to (No. 23) for a market value sell any immovable property; equal to the amount of the consideration.” 8 Page 8 11. Section 3 of the M.P. 1997 Act brought in amendment in the 1899 Act, inter alia, as under :

(f) when given for consideration and authorizing the attorney to sell or transfer any immovable property. The same duty as a conveyance under Article 23 on the market value of the property (f-1) when given without consideration in favour of persons who are not his or her spouse or Children, or mother or father and authorizing the attorney to sell or transfer any immovable property The same duty as a conveyance under Article 23 on the market value of the property (ii)the existing explanation shall be renumbered as explanation I thereof and after explanation I as so renumbered, the following explanation shall be inserted, namely :- JUDGMENT “Explanation II:--Where under clause (f) and (f-1) duty has been paid on the power of attorney and a conveyance relating to that property is executed in pursuance of power of attorney between the executant of power of attorney and the person in whose favour it is executed, the duty on conveyance shall be the duty calculated on the market value of the property reduced by duty paid on the power of attorney”. 9 Page 9 The Objects and Reasons for the above amendment were to check the tendency to execute power of attorney authorising the attorney to sell or transfer immovable property in place of a conveyance deed and to increase the revenue of the Government in the State of Madhya Pradesh. 12. Article 48 in the 1899 Act as amended by M.P. 1997 Act was substituted by M.P. 2002 Act. The new provision, Article 45 in respect of power of attorney in Schedule 1-A which was brought in by M.P. 2002 Act reads as follows : “SCHEDULE-1A Stamp Duty on Instruments ( See section 3) Description of Instrument Proper Stamp Duty (1) (2) JUDGMENT 45. Power of attorney [as defined by section 2(21)] not being a proxy:- (a)when authorizing one person or more to act in single transaction, including a power of attorney executed for procuring the registration of one or more documents in relation to a single transaction or for admitting execution of one or more such documents; Fifty rupees. (b)when authorizing one person to act in more than one transaction or One hundred rupees. 10 Page 10 generally; or not more than ten persons to act jointly or severally in more than one transaction or generally; (c)when given for consideration and authorizing the agent to sell any immovable property. The same duty as a conveyance (No. 22) on the (d)when given without consideration to a person other than the father, mother, wife or husband, son or daughter, brother or sister in relation to the executant and authorizing such person to sell immovable property situated in Madhya Pradesh. Two percent on the market value of the property w (e)In any other case; Fifty rupees for each person authorized Explanation-I.—For the purpose of this article, more persons than one when belonging to the same firm shall be deemed to be one person. Explanation-II.—The term ‘registration’ includes every operation incidental to registration under the Registration Act, 1908 (16 of 1908).” JUDGMENT 13. In our opinion, the High Court was clearly in error in declaring Clause (d), Article 45 of Schedule 1-A of the 1899 Act which as brought in by the M.P. 2002 Act as violative of Article 14 of the Constitution of India. It is very difficult to approve the reasoning of the High Court that the provision may pass the test of classification but it would not pass the requirement of the second limb of Article 14 of the Constitution which ostracises arbitrariness, 11 Page 11 unreasonable and irrationality. The High Court failed to keep in mind the well defined limitations in consideration of the constitutional validity of a statute enacted by Parliament or a State Legislature.

beyond any iota of doubt that the violation of the constitutional provisions was so glaring that the legislative provision under challenge cannot stand. Sans flagrant violation of the constitutional provisions, the law made by Parliament or a State Legislature is not declared bad. 14. This Court has repeatedly stated that legislative enactment can be struck down by Court only on two grounds, namely (i), that the appropriate Legislature does not have JUDGMENT competency to make the law and (ii), that it does not take away or abridge any of the fundamental rights enumerated in Part – III of the Constitution or any other constitutional provisions. 2 15. In Mcdowell and Co. while dealing with the challenge to an enactment based on Article 14, this Court stated in paragraph 43 (at pg. 737) of the Report as follows : “……..A law made by Parliament or the legislature can be struck down by courts on two grounds and two grounds alone, viz., (1) lack of legislative competence and (2) violation of any 12 Page 12

(Emphasis supplied) Then dealing with the decision of this Court in State of T.N. and 10 others v. Ananthi Ammal and others , a three-Judge Bench in 2 Mcdowell and Co. observed in paragraphs 43 and 44 [at pg. 739) JUDGMENT of the Report as under : “…… Now, coming to the decision in Ananthi Ammal , we are of the opinion that it does not lay down a different proposition. It was an appeal from the decision of the Madras High Court striking down the Tamil Nadu Acquisition of Land for Harijan Welfare Schemes Act, 1978 as violative of Articles 14, 19 and 300-A of the Constitution. On a review of the provisions of the Act, this Court found that it provided a procedure which was substantially unfair to the owners of the land as compared to the procedure prescribed by the Land Acquisition Act, 1894, insofar as Section 11 of the Act provided for payment of 10 (1995) 1 SCC 519 13 Page 13 compensation in instalments if it exceeded rupees two thousand. After noticing the several features of the Act including the one mentioned above, this Court observed: (SCC p. 526, para 7)

44 . It is this paragraph which is strongly relied upon by Shri Nariman. We are, however, of the opinion that the observations in the said paragraph must be understood in the totality of the decision. The use of the word ‘arbitrary’ in para 7 was used in the sense of being discriminatory, as the reading of the very paragraph in its entirety discloses. The provisions of the Tamil Nadu Act were contrasted with the provisions of the Land Acquisition Act and ultimately it was found that Section 11 insofar as it provided for payment of compensation in instalments was invalid. The ground of invalidation is clearly one of discrimination. It must be remembered that an Act which is discriminatory is liable to be labelled as arbitrary. It is in this sense that the expression ‘arbitrary’ was used in para 7.” JUDGMENT 16. The High Court has not given any reason as to why the provision contained in clause (d) was arbitrary, unreasonable or irrational. The basis of such conclusion is not discernible from the judgment. The High Court has not held that the provision was discriminatory. When the provision enacted by the State Legislature has not been found to be discriminatory, we are afraid that such 14 Page 14 enactment could not have been struck down on the ground that it was arbitrary or irrational. 17. That stamp duty is a tax and hardship is not relevant in

Bench speaking through majority in paragraph 43 (at pg. 685) of the Report while dealing with hardship in the statutes stated as follows : “……….If there is any real hardship of the kind referred to, there is Parliament which is expressly invested with the power of lifting the ban under cl. (2) either wholly or to the extent it thinks fit to do. Why should the Court be called upon to discard the cardinal rule of interpretation for mitigating a hardship, which after all may be entirely fanciful, when the Constitution itself has expressly provided for another authority more competent to evaluate the correct position to do the needful?” 18. In Commissioner of Income Tax, Madras v. R.SV. Sr. 12 Arunachalam Chettiar , a three-Judge Bench of this Court, inter JUDGMENT alia, observed in paragraph 13 (at pgs. 1220-21) of the Report, “equity is out of place in tax law; a particular income is either exigible to tax under the taxing statute or it is not.” 11 AIR 1955 SC 661 12 AIR 1965 SC 1216 15 Page 15 19. In the Income Tax Officer, Tuticorin v. T.S. Devinatha 13 Nadar etc. , this Court in paragraph 30 (at pg. 635) of the Report observed as follows :

The court highlighted that the court could not concern itself with the intention of the Legislature when the language expressing such JUDGMENT intention was plain and unambiguous. 7 20 . In P. Laxmi Devi (Smt.) , a two-Judge Bench of this Court was concerned with a judgment of the Andhra Pradesh High Court. The High Court had declared Section 47-A of the 1899 Act as amended by A.P. Act 8 of 1998 that required a party to deposit 50% deficit stamp duty as a condition precedent for a reference to a 13 AIR 1968 SC 623 16 Page 16 Collector under Section 47-A unconstitutional. The Court said in P. 7 Laxmi Devi (Smt.) as follows :

20 . xxx xxx xxx 21 . It has been held by a Constitution Bench of this Court in ITO v. T.S. Devinatha Nadar (vide AIR paras 23 to 28) that where the language of a taxing provision is plain, the court cannot concern itself with the intention of the legislature. Hence, in our opinion the High Court erred in its approach of trying to find out the intention of the legislature in enacting the impugned amendment to the Stamp Act.” While dealing with the aspect as to how and when the power of the court to declare the statute unconstitutional can be exercised, this JUDGMENT Court referred to the earlier decision of this Court in Rt. Rev. Msgr. 14 Mark Netto v. State of Kerala and others and held in para 46 (at pg. 740) of the Report as under : “46 . In our opinion, there is one and only one ground for declaring an Act of the legislature (or a provision in the Act) to be invalid, and that is if it clearly violates some provision of the Constitution in so evident a manner as to leave no manner of doubt. This violation can, of course, be in different ways e.g. if 14 (1979) 1 SCC 23 17 Page 17

Then in paras 56 and 57 (at pg. 744), the Court stated as follows: “56 . In our opinion adjudication must be done within the system of historically validated restraints and conscious minimisation of the judges' personal preferences. The court must not invalidate a statute lightly, for, as observed above, invalidation of a statute made by the legislature elected by the people is a grave step. As observed by this Court in State of Bihar v. Kameshwar Singh : (AIR p. 274, para 52) JUDGMENT “ 52 . … The legislature is the best judge of what is good for the community, by whose suffrage it comes into existence.…” 57 . In our opinion, the court should, therefore, ordinarily defer to the wisdom of the legislature unless it enacts a law about which there can be no manner of doubt about its unconstitutionality.” 21. The Constitution Bench of this Court in Mohd. Hanif 15 Quareshi and others v. State of Bihar , while dealing with the 15 18 Page 18 meaning, scope and effect of Article 14, reiterated what was already explained in earlier decisions that to pass the test of permissible classification, two conditions must be fulfilled, namely, (i) the

others left out of the group and (ii) such differentia must have rational relation to the object sought to be achieved by the statute in question. The Court further stated that classification might be founded on different basis, namely, geographical, or according to objects or occupations or the like and what is necessary is that there must be a nexus between the basis of classification and the object of the Act under consideration. 15 22. In Mohd. Hanif Quareshi , the Constitution Bench further observed that there was always a presumption in favour of JUDGMENT constitutionality of an enactment and the burden is upon him, who attacks it, to show that there has been a clear violation of the constitutional principles. It stated in paragraph 15 (at pgs. 740-741) of the Report as under : “……..The courts, it is accepted, must presume that the legislature understands and correctly appreciates the needs of its own people, that its laws are directed to problems made AIR 1958 SC 731 19 Page 19

23. The above legal position has been reiterated by a 16 Constitution Bench of this Court in Mahant Moti Das v. S.P. Sahi . 24. In Hamdard Dawakhana and another v. The Union of 17 India and others , inter alia, while referring to the earlier two 11 decisions, namely, Bengal Immunity Company Ltd. and Mahant 16 Moti Das , it was observed in paragraph 8 (at pg. 559) of the Report as follows: “ 8 . Therefore, when the constitutionality of an enactment is challenged on the ground of violation of any of the articles in Part III of the Constitution, the ascertainment of its true nature and character becomes necessary i.e. its subject-matter, the area in which it is intended to operate, its purport and intent have to be determined. In order to do so it is legitimate to take into consideration all the factors such as history of the legislation, the purpose thereof, the surrounding circumstances and conditions, the mischief which it intended to suppress, the remedy for the disease which the legislature resolved to cure and the true reason for the remedy.” JUDGMENT 16 AIR 1959 SC 942 17 AIR 1960 SC 554 20 Page 20 17 25. In Hamdard Dawakhana , the Court also followed the 16 statement of law in Mahant Moti Das and the two earlier decisions, 18 namely, Charanjit Lal Chowdhury v. Union of India and others and

the principle that presumption was always in favour of constitutionality of an enactment. 6 26. In one of the recent cases in Karnataka Bank Limited , while referring to some of the above decisions, in para 19 (at pgs. 262-263) of the Report, this Court held as under : “ 19 . The rules that guide the constitutional courts in discharging their solemn duty to declare laws passed by a legislature unconstitutional are well known. There is always a presumption in favour of constitutionality, and a law will not be declared unconstitutional unless the case is so clear as to be free from doubt; “to doubt the constitutionality of a law is to resolve it in favour of its validity”. Where the validity of a statute is questioned and there are two interpretations, one of which would make the law valid and the other void, the former must be preferred and the validity of law upheld. In pronouncing on the constitutional validity of a statute, the court is not concerned with the wisdom or unwisdom, the justice or injustice of the law. If that which is passed into law is within the scope of the power conferred on a legislature and violates no restrictions on that power, the law must be upheld whatever a court may think of it. (See State of Bombay v. F.N. Balsara .)” JUDGMENT 18 AIR 1951 SC 41 19 AIR 1951 SC 318 21 Page 21 27. A well-known principle that in the field of taxation, the Legislature enjoys a greater latitude for classification, has been noted by this Court in long line of cases. Some of these decisions

22 Limited v. State of Uttar Pradesh and others ; R.K. Garg v . Union of 23 India and others and State of W.B. and another v. E.I.T.A. India 24 Limited and others . 23 28. In R.K. Garg , the Constitution Bench of this Court stated that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion, etc. 29. While dealing with constitutional validity of a taxation law enacted by Parliament or State Legislature, the court must have JUDGMENT regard to the following principles: (i), there is always presumption in 20 1962 Supp (2) SCR 589 21 AIR 1964 SC 370 22 (1980) 1 SCC 223 23 (1981) 4 SCC 675 24 (2003) 5 SCC 239 22 Page 22 favour of constitutionality of a law made by Parliament or a State Legislature (ii), no enactment can be struck down by just saying that it is arbitrary or unreasonable or irrational but some constitutional

Parliament and State Legislatures are supposed to be alive to the needs of the people whom they represent and they are the best judge of the community by whose suffrage they come into existence (iv), hardship is not relevant in pronouncing on the constitutional validity of a fiscal statute or economic law and (v), in the field of taxation, the Legislature enjoys greater latitude for classification. 30. Had the High Court kept in view the above well-known and important principles in law, it would not have declared Clause (d), Article 45 of Schedule 1-A as violative of Article 14 of the JUDGMENT Constitution being arbitrary, unreasonable and irrational while holding that the provision may pass test of classification. By creating two categories, namely, an agent who is a blood relation, i.e. father, mother, wife or husband, son or daughter, brother or sister and an agent other than the kith and kin, without consideration, the Legislature has sought to curb inappropriate mode of transfer of immovable properties. Ordinarily, where executant himself is 23 Page 23 unable, for any reason, to execute the document, he would appoint his kith and kin as his power of attorney to complete the transaction on his behalf. If one does not have any kith or kin who he can

Schedule 1-A is to curb tendency of transferring immovable properties through power of attorney and inappropriate documentation. By making a provision like this, the State Government has sought to collect stamp duty on such indirect and inappropriate mode of transfer by providing that power of attorney given to a person other than kith or kin, without consideration, authorizing such person to sell immovable property situated in Madhya Pradesh will attract stamp duty at two per cent on the market value of the property which is subject matter of power of JUDGMENT attorney. In effect, by bringing in this law, the Madhya Pradesh State Legislature has sought to levy stamp duty on such ostensible document, the real intention of which is the transfer of immovable property. The classification, thus, cannot be said to be without any rationale. It has a direct nexus to the object of the 1899 Act. The conclusion of the High Court, therefore, that the impugned provision is arbitrary, unreasonable and irrational is unsustainable. 24 Page 24 31. Consequently, these appeals are allowed and the judgment of the Madhya Pradesh High Court passed on September 15, 2003 is set aside. Writ petitions filed by the present respondents

…………………….J. (R.M. Lodha) …………………….J. (H.L. Gokhale) NEW DELHI. MAY 11, 2012. JUDGMENT 25 Page 25