Full Judgment Text
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PETITIONER:
BOARD OF REVENUE, UTTAR PRADESH
Vs.
RESPONDENT:
RAI SAHEB SIDHNATH MEHROTRA
DATE OF JUDGMENT:
26/11/1964
BENCH:
SIKRI, S.M.
BENCH:
SIKRI, S.M.
GAJENDRAGADKAR, P.B. (CJ)
HIDAYATULLAH, M.
SHAH, J.C.
BACHAWAT, R.S.
CITATION:
1965 AIR 1092 1965 SCR (1) 269
CITATOR INFO :
D 1986 SC 403 (17)
ACT:
The Indian Stamp Act, s. 24, Explanation-Duty whether
payable on Mortgage-Money paid before conveyance of the
property.
HEADNOTE:
Certain properties were sold by sale-deed dated 15th
December 1952. The vendors, of whom the respondent was one,
had equitably mortgaged these properties with the Chartered
Bank of India. In order to pay off the mortgage debt to the
Bank the vendors entered into a contract with M/s. Oil
Corporation of India Ltd. for the sale of the mortgaged
property consisting of lands, buildings plants, machinery,
shares, goodwill etc., for a sum of Rs. 5,55,000. The
Chartered Bank agreed to release from its charge the
properties to be conveyed to the vendees provided a sum of
Rs. 500,000 was paid to it. The vendees agreed to pay the
said Bank a sum of Rs. 4,89,000 while the vendors agreed to
pay Rs. 1 1,000 to make up the balance. In pursuance of
this agreement the vendors handed over the possession of the
plant and machinery of the two factories to the vendees, who
paid Rs. 3,89,000 to the said Bank before the date on which
the sale-deed was executed, and Rs. 100,000 after the
execution of the deed. The Stamp duty was paid only on the
last mentioned sum. In a reference under s. 57 of the
Indian Stamp Act the High Court held that the Stamp Duty was
correctly paid. The Board of Revenue U.P. appealed to the
Supreme Court by special leave.
It was contended on behalf of the appellant, relying on the
explanation to s. 24 of the Act that the duty was payable
not only on Rs. 100,000 as actually paid but also on the
rest of the sale price.
HELD : (i) From the Explanation to s. 24 it is plain that it
is only the unpaid mortgage money that it deemed to be part
of the consideration. If the mortgage money has been paid
off by the date of the conveyance the explanation does not
require it to be added to the consideration. The phrase
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’subject to the mortgage or other encumbrance’ qualifies the
word ’sale’ and not the word ’property’. [274 B-E]
In the present case the sum of Rs. 3,89,000 having been paid
before the conveyance was not liable to duty. [274 G]
(ii)If mortgage money has been paid off by the vendee before
the date of the sale, as part of the consideration, it would
be included in the amount leviable with stamp duty under Act
23. But in the present case Art. 23 did not apply because
neither the sum of Rs. 3,89,000 paid by the vendee before
the sale nor the sum of Rs. 11,000 paid by the vendor after
the sale, was shown to be consideration for immovable pro-
perty. [275 D]
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 526 of 1962.
Appeal by special leave from the judgment and order, dated
March 20, 1959 of the Allahabad High Court in Civil Miscel-
laneous Reference No. 213 of 1955.
270
C. B. Agarwala and 0. P. Rana, for the
appellant.
A. V. Viswanatha Sastri and J. P. Goyal,
for the respondent.
The Judgment of the Court was delivered by
Sikri, J. This is an appeal by special leave against the
judgment of the High Court of Allahabad in a reference under
S. 57 of the Indian Stamp Act, 1899. The Board of Revenue
referred the following questions to the High Court :
(1) Whether the document is a sale-deed for
a consideration of Rs. 1,00,000 as contended
by the executants.
(2) Whether in view of the provisions of
Section 24 of the Stamp Act, the sale
consideration shall be deemed to be Rs.
5,55,000 and duty liable to be paid thereon as
held by the Board.
(3) Whether the consideration of the sale
will be deemed to be Rs. Ten Lakhs, i.e., the
entire amount due to the mortgagee Bank, and
duty is payable thereon.
(4) On what amount is the additional stamp
duty under section 107 of the Kanpur
Development Act, 1945, leviable.
The High Court gave the following answer to the first three
questions :
"The document in question is a sale deed for a
consideration of Rs. 1,00,000 only and that
the Stamp duty payable in respect of it was to
be calculated on the amount and not on any
higher amount."
The appellant, the Board of Revenue, challenges the answer
given by the High Court to the said three questions. We may
mention that the answer to the fourth question is not the
subject matter of appeal before us.
The relevant facts are as follows. The respondent is one of
the executants of the deed dated December 15, 1952. The
executants, hereinafter referred to as the vendors, were
lessees of two plots of land and on these plots they had
constructed an oil mill, known as Sri Govind Oil Mills, an
Ice and Cold Storage Factory, and buildings in which the
factories stood. The Ice and Cold Storage factory was being
run by the vendors in partnership with Shyam Sunder Gupta
and Satya Prakash Gupta. The vendors had equitably
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mortgaged these properties with the Chartered Bank of
271
India, and a sum of Rs. 10,00,000 was due to the Bank. In
order to pay off the debt, the vendors entered into a
contract with Messrs Oil Corporation of India Ltd.,
hereinafter referred to as the vendees, for the sale of the
lands, buildings, plants, machinery and stores and goodwill
of the Govind Oil Mills and Ice & Cold Storage Factory for a
sum of Rs. 5,55,000, made up as follows; Rs. 1,12,000 for
the plant and machinery and goodwill of the Ice and Cold
Storage Factory, Rs. 3,00,000 for the machinery of Sri
Govind Oil Mills, Rs. 25,000 for stores, Rs. 18,000 for
goodwill, and Rs. 1,00,000 for the buildings and the lessee
right,% in the plots. Out of this Rs. 66,000 was payable to
Messrs Shyam Sunder Gupta and Satya Parkash Gupta in respect
of their share in the Kanpur Ice and Cold Storage Factory,
and the remainder to the vendors.
The Chartered Bank agreed to release from its charge the
properties to be conveyed to the vendees provided a sum of
Rs. 5,00,000 was paid to it. The vendees agreed to pay the
said Bank a sum of Rs. 4,89,000, while the vendors agreed to
pay Rs. 1 1,000 to the Ban& to make up the balance.
In pursuance of this agreement, the vendors handed over the
possession of plant and machinery of the two factories to
the vendees, who paid before December 15, 1952, Rs. 3,89,000
to the said Bank. On December 15, 1952, the sale-deed in
respect of the buildings and the lessee rights was executed.
Clause 2 of the deed provided that ’the vendees hereby
declare that the properties hereby conveyed are free from
all encumbrances except the charge in favour of the
Chartered Bank of India, Australia and China, The Mall,
Kanpur, which would be paid off so far as the properties
hereby conveyed are concerned in the manner set forth
above.’
On these facts, Mr. C. B. Aggarwala, the learned counsel for
the appellant, contends that on a true interpretation of s.
24 of the Indian Stamp Act, 1899, the consideration for the
purpose of calculating ad valorem duty is either Rs.
10,00,000, or Rs. 5,5 5,000 or at least Rs. 1, 1 1,000.
Section 24 reads thus :
"Where any property is transferred to any
person. in consideration, wholly or in part,
of any debt due to him, or subject either
certainly or contingently to the payment or
transfer of any money or stock, whether being
or constituting a charge or incumbrance upon
the property or not, such debt, money or stock
is to be deemed the whole or part, as the case
may be, of the consideration
272
in respect whereof the transfer is chargeable
with ad valorem duty :
Provided that nothing in this section shall
apply to any such certificate of sale as is
mentioned in Article No. 18 of Schedule 1.
Explanation.-In the case of a sale of property
subject to a mortgage or other incumbrance,
any unpaid mortgage money or money charged,
together with the interest (if any) due on the
same, shall be deemed to be part of the
consideration for the sale;
Provided that, where property subject to a
mortgage is transferred to the mortgagee, he
shall be entitled to deduct from the duty
payable on the transfer the amount of any duty
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already paid in respect of the mortgage."
The charging article is Art. 23, which is as
follows :
"Conveyance [as defined by section 2 ( 1 0) ],
not being a transfer charged or exempted
under No. 62,-
Where the amount or value of the consideration
for such conveyance as set forth therein does
not exceed Rs. 50;
Where it exceeds Rs. 50 but does not exceed
Rs. 1 00
The section has a history and it is set out in the judgment
of Rankin, C.J., in U.K. Janardhana Rao v. Secretary of
State(). We need not repeat it here, for we do not propose
to rely on it for interpreting s. 24.
The first question which we may pose is : What is the under-
lying object of the section ? Illustration 2 to the section
reads
"A sells a property to B for Rs. 500 which is
subject to a mortgage to C for Rs. 1,000 and
unpaid interest Rs. 200. Stamp-duty is
payable on Rs. 1,700."
In this illustration the consideration set forth in the
conveyance is Rs. 500, and under Art. 23, the amount on
which the Stamp duty is leviable would be Rs. 500 only.
There is no doubt that this is not the real value of the
property for if the property was not the subject-matter of
mortgage, A would not sell the property for Rs. 500 and B
would pay more than Rs. 500. The legislature, therefore,
adopted a simple test for valuing the property taken by
(1) (1931) I.L.R. 58 Cal. 33
the vendees, and the test adopted was that any unpaid
mortgage money or money charge, together with interest (if
any) due on the sum shall be deemed to be part of the
consideration for the sale. Therefore, in the illustration
the sum of Rs. 1,000 and Rs. 200 are added to Rs. 500 and
the sum on which the stamp duty is payable is determined at
Rs. 1,700. The Lord President explained the underlying
reason in the case of Commissioners of Inland Revenue v.
Liquidators of City of Glasgow Bank,(1) as follows :
,,If any other rule was adopted, it is quite
plain that the fair incidence of this tax
would be altogether frustrated and defeated.
A proprietor has an estate worth pound 20,000.
There is a bond upon it for Rs. 10,000. He
sells that estate, and the purchaser pays to
him the difference between the amount of the
bond and the value of the estate, so that the
bond being for pound 10,000 he pays pound
10,000. The day after he obtains inferment he
pays off the bond. Well, the practical result
of that is that he has paid pound 20,000 as
the purchase money of this estate, and he has
obtained a conveyance with an ad valorem stamp
of the value of pound 10,000. That is a
simple defeating of the purpose and intention
of the Legislature as expressed in this
clause, and therefore, I think, upon the plain
meaning of this section, that there was no
intention whatever to go back upon the
enactment of the 16 and 17 Vict., and to
restore the enactment of the 55 Geo. III,
which is what the liquidators are contending
for. On the contrary, it seems to me that the
73rd section plainly intended to continue the
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provision of the statute 16 and 17 Vict."
The next point that needs determination is : What does the
phrase "sale of property subject to a mortgage" mean ? Does
this phrase mean that whenever mortgaged property is sold
the explanation applies or does it imply that if mortgaged
property is sold subject to the mortgage then and then only
the explanation applies In our view, the correct meaning is
the latter meaning. Let us see what would be the position
if A, instead of selling property as in illustration 2,
adopts the following mode of selling. A sells property to B
for Rs. 1,700, which is subject to mortgage to C for Rs.
1,000 and unpaid interest Rs. 200. A agrees that Rs. 1,200
be paid to C and Rs. 500 to him. If the first meaning is
adopted, the consideration on which the stamp duty would be
leviable would be
(1) (1881) 8 Ct. of Sess. cases, 4th S. 389
274
Rs. 1,700 which is the consideration expressed in terms of
Art. 23, and Rs. 1,200 deemed to be consideration within s.
24, the total amounting to Rs. 2,900. in our opinion this
result could never have been intended. We agree with the
decision of the Calcutta High Court in U. K. Janardhan Rao
v. Secretary of State(1) and of the Bombay High Court in
Waman Martand Bhalerao v. The Commissioner Central
Division(2) that the phrase "subject to a mortgage or other
encumbrance" in the explanation to s. 24 qualifies the word
’sale’ and not the word ’property’. We need hardly say that
the Stamp Act is a taxing statute and must be construed
strictly, and if two meanings are equally possible, the
meaning in favour of the subject must be given effect to.
Before we consider the facts of this case, we may mention
that it is plain from the explanation that it is only the
unpaid mortgage money that is deemed to be part of the
consideration. If the mortgage money has been paid off by
the date of the conveyance the explanation does not require
it to be added to the consideration. If the mortgage money
has been paid off by the vendee before the date of the sale,
as part of the consideration, it would be included in the
amount leviable with stamp duty under Art. 23, but not under
the explanation. The conveyance deed would, in the above
eventuality, recite the fact that so much money has been
paid to the mortgagee and it would be the consideration
expressed in the deed.
Let us now apply the law as explained above to the facts of
this case. On December 15, 1952, the date when the deed was
executed, Rs. 3,89,000 had already been paid by the vendees
to the Bank. Mr. Aggarwal contends that this amount should
be included because it was consideration moving from the
vendees. He says that stamp duty cannot be avoided by the
simple device of paying money before a conveyance is
executed. He is right in this but he must show that Rs.
3,89,000 was an advance payment for the immovable property
conveyed by the deed, dated December 15, 1952. It is quite
clear from the terms of the deed that Rs. 4,55,000 was to be
paid for items other than the immovable property conveyed by
the said deed, and the sum of Rs. 3,89,000 had nothing to do
with the immovable property. The payment of Rs. 3,89,000 to
the Bank left outstanding Rs. 1,11,000 as mortgage money.
Rs. 1,00,000 is expressed to be the consideration for the
conveyance of the immovable property, and, therefore, falls
within Art. 23. This leaves Rs. 11,000, and the question
(1) [1931] I.L.R. 58 Cal. 33.
(2) (1925) I.L.R. 49 Bom. 73.
275
arises whether this sum should be taken into consideration
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for the purpose of levying stamp duty. Regarding this item,
the High Court held as follows :
" It is true that till the date of sale
the sum of 1 1,000 had not been paid and there
was a charge on
the property in respect of that amount. The
vendors themselves had, however, taken
liability for that amount and had agreed to
pay it. It had been expressly provided in the
sale deed that the property was being sold
free from the charge. The vendees were in no
way liable for the amount and had not
undertaken to pay it. In these circumstances
the property cannot be said to have been sold
subject to the charge of Rs. 1 1,000, and if
it was not being sold subject to that charge,
the Explanation to section 24 becomes
inapplicable."
It has already been noticed that this sum of Rs. 1 1,000
forms part of the price for items other than the immoveable
property. Mr. Aggarwala has not seriously controverted the
finding of the High Court on this point. Accordingly, we
hold that this sum of Rs. 1 1,000 cannot be included for the
purpose of levying stamp duty.
In the result, we agree with the High Court that the stamp
duty is to be calculated only on the sum of Rs. 1,00,000.
The appeal is accordingly dismissed with costs.
Appeal dismissed.
276