BOARD OF REVENUE V. RAI SAHEB SIDHNATH MEHROTRA (1965) 2 SCR 269: AIR 1965 SC 1092
FACT
The vendors (executants) were lessees of two plots of land and had constructed an oil mill, an Ice and Cold Storage Factory, and associated buildings on these plots.
The vendors equitably mortgaged these properties with the Chartered Bank of India, with a sum of Rs 10,00,000 due to the Bank.
In order to pay off the debt, the vendors entered into a contract with Messrs Oil Corporation of India Ltd. for the sale of the lands, buildings, plants, machinery, and stores of the factories for a sum of Rs 5,55,000. Out of this 1,00,000/- is for buildings and the lessee’s right in the plots.
Out of this amount, a portion was to be paid to the Bank and the remainder to the vendors.
The Bank agreed to release the properties from its charge provided a sum of Rs 5,00,000 was paid to it.
The vendees paid Rs 3,89,000 to the Bank before December 15, 1952.
On December 15, 1952, the sale deed was executed for the buildings and lessee rights.
The deed stated that the properties conveyed were free from all encumbrances except the charge in favour of the Chartered Bank.
Question regarding stamp duty of sale deed was referred to HC.
HC held, 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.
Present appeal is by special leave against the judgment of the HC.
ISSUE
Whether the consideration for stamp duty should be the entire amount due to the mortgagee bank (Rs 10,00,000), the consideration mentioned in the sale deed (Rs 1,00,000), or any other amount.
RULE
Section 24 of the Indian Stamp Act aims to ensure fair valuation of properties for stamp duty calculation, particularly in cases involving properties subject to mortgages.
The interpretation of "sale of property subject to a mortgage" is crucial, whether it implies the sale being directly tied to the mortgage or merely the existence of a mortgage on the property.
The court observed that the legislature intended to include unpaid mortgage money as part of the consideration for stamp duty calculation to prevent tax evasion.
It was clarified that if mortgage money has been paid off before the sale deed's execution, it should not be included in the consideration for stamp duty.
HELD
Commissioners of Inland Revenue v. Liquidators of City of Glasgow Bank as follows: A landowner had an estate worth £20,000 with a bond of £10,000. He sold the estate and the purchaser paid £10,000. Then landowner invested the money and paid off the bond the next day. However, he paid £20,000 as the purchase price and received a conveyance with a stamp duty of £10,000, which defeats the purpose of the legislation.
Calcutta High Court in U.K. Janardhan Rao v. Secretary of State and of the Bombay High Court in Waman Martand Bhalerao v. Commissioner Central Division that the phrase “subject to a mortgage or other encumbrance” in the explanation to Section 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.
In this case, the consideration mentioned in the sale deed was Rs 1,00,000 for the immovable property, and the sum already paid to the bank (Rs 3,89,000) did not relate to the immovable property conveyed.
Rs 1,00,000 is expressed to be the consideration for the conveyance of the immovable property, and therefore, falls within Article 23.
This leaves Rs 11,000, and the question arises whether this sum should be taken into consideration for the purpose of levying stamp duty. It has already been noticed that this sum of Rs 11,000 forms part of the price for items other than the immovable property.
The court held that stamp duty should be calculated only on the sum mentioned in the sale deed (Rs 1,00,000).
The consideration for stamp duty calculation should be determined based on the immovable property conveyed, not including amounts paid for other assets or to settle mortgages.
Therefore, the appeal challenging the High Court's decision was dismissed