The government of Maharashtra, on March 1, 2019, announced an amnesty scheme with respect to the penalty that can be levied for insufficient payment of stamp duty made in the past. The scheme proposes to limit the penalty payable on certain transactions to 10% of the deficient stamp duty, instead of the 400% which can be levied in normal course by the government. The scheme applies to all the transactions of sale or transfer of tenancy rights, of residential houses within Maharashtra and is available only for documents that have been executed on or before December 31, 2018. The application, along with the instrument and supporting documents, has to be made within a period of six months from March 1, 2019, i.e., by August 31, 2019, the period up to which the scheme will remain open.
Years ago, when the prices of properties were not so high and stamp duty was not a major source of income for the state government, there were no clear guidelines on the stamp duty payable on the sale of flats in Maharashtra. However, as property prices soared, state governments realised that stamp duty on the sale/transfer of flats, could bring in substantial revenue to the state exchequer. So, the government prescribed the rate of stamp duty payable on transfer of immovable property.
How is stamp duty calculated
Till July 4, 1980, the stamp duty was required to be paid on the basis of the agreement value. However, due to the rampant use of black money in property transactions, the agreement value used toabysmally low, which deprived the state government of its legitimate dues. To overcome this menace, the Maharashtra government introduced the concept of market value for stamp duty, on July 4, 1980, to augment its revenue and plug the leakage of revenue. On March 1, 1990, the government of Maharashtra introduced the ‘ready reckoner’, to help the buyers to find out the cost of stamp duty on the purchase of a property, in case the agreed value was lower than the stamp duty valuation.
For properties that were bought prior to July 4, 1980, where adequate stamp duty was not paid at that time, the stamp duty office has been collecting the differential stamp duty with penalty, with respect to the past transactions of such properties, as and when such properties are transferred and come for registration with the registration authorities of the government of Maharashtra. This action has caused a lot of stress and cost huge money, to the present buyers of such properties.
The Bombay High Court, recently, had an occasion to decide on this issue and has held that the recovery of stamp duty for past transactions at the time of subsequent sale, is not proper. This decision will bring relief to the buyers of old resale properties.
Recovery of stamp duty on past transactions: Gist of the case A lady named Lajwanti Randhawa had inherited a posh 3,300-sq-ft apartment in Tahnee Heights Cooperative Housing Society at Napean Sea Road in Mumbai, from her father along with other legal heirs. This apartment was bought in 1979 and an agreement was executed on a stamp paper of Rs 10 then. Back then, an agreement for sale could be executed on a stamp paper of Rs five. This agreement was also not registered.
This flat was auctioned for Rs 38 crores, in 2018. When the buyer, Vijay Jindal, approached the registration office for registration of the documents, the collector of stamps refused to register the new sale agreement pursuant to the auction and demanded stamp duty on the chain of agreements, contending that it was not adequately stamped. The stamp duty alone was around Rs two crores, on the basis of the present ready reckoner rates. As the property was bought through a court receiver auction, the buyer approached the Bombay High Court, to direct the sellers to bear the liability on past stamp duty, as one of the sellers had refused to bear the cost.
Bombay HC decision on the retrospective applicability of stamp duty on past transactions
While deciding the dispute, justice Gautam Patel, took an out-of-the-box stand and held that the stamp duty authorities had no right to collect the stamp duty, for inadequately stamped past documents of any property, at the time of registration of its subsequent sale. Patel observed that the stamp duty was payable with respect to an instrument and not with respect to a transaction, as per the provisions of the Indian Stamp Act.
He also held that stamp duty cannot be recovered at the present rate, with respect to past instruments which were executed at a time when the instrument was not liable for stamp duty, as these documents could not be treated as ‘unstamped’ or ‘inadequately stamped’ at the relevant time. He also observed that as there were no clear cut provisions in the law, about the recovery of stamp duty retrospectively, the stamp duty authorities have no authority to insist on payment of stamp duty on such past instruments that formed part of the chain of documents.
The court also observed that even if the instrument was subject to stamp duty, the rate to be applied would be the rate at which the relevant document was to be stamped and in no case can the same be required to be stamped at current stamp duty rates.
Present buyer not liable to pay stamp duty on past transactions This decision has brought clarity and will help the buyers of old flats on which adequate stamp duty was not paid in the past. This will benefit lakhs of flat buyers while buying old properties, as there are many properties on which adequate duty was not paid at the time of their purchase.
If one reads the decision carefully, one will find that even in case the old instrument was executed when stamp duty was payable butwas not paid, the present buyer cannot be burned with the additional cost of stamp duty, for old ‘unstamped’ or ‘not adequately stamped’ deals.
This decision has also clarified that the arrears of stamp duty, even if is required to be paid, has to be paid with respect to the rate applicable at the time of execution of the old document and not at the rates applicable at the time of its subsequent sale. So, effectively, the stamp duty authorities cannot refuse to register the agreement for properties being purchased now under resale, even in cases where the earlier instrument/agreement was unregistered or not properly or insufficiently stamped as per the prevailing rate at the relevant time.
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