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THE MADRAS REFINERIES LTD. V. THE CHIEF CONTROLLING REVENUE AUTHORITY, BOARD OF REVENUE (1977) 2 SCC 308: AIR 1977 SC 500

THE MADRAS REFINERIES LTD. V. THE CHIEF CONTROLLING REVENUE AUTHORITY, BOARD OF REVENUE (1977) 2 SCC 308: AIR 1977 SC 500

FACTS

  • The dispute involved the stamp duty applicable to a Deed of Trust and Mortgage and related debentures issued by Madras Refineries Limited (referred to as the Company).
  • The Loan and Note Purchase Agreement between the Company and the First National City Bank led to the creation and issuance of secured notes Series ‘A’ and ‘B’.
  • The notes were to be secured by a Deed of Trust and Mortgage and guaranteed by the President of India.
  • The Board of Revenue decided that stamp duty was chargeable on the Deed of Trust and Mortgage under Article 40(b) of Schedule I to the Act.
  • The Company challenged this decision, arguing that the stamp duty should be payable under Article 40(c) and that the Guarantee Agreement was exempt from duty under Section 3 of the Stamp Act.
  • Madras High Court on a reference by the Chief Controlling Revenue Authority under Section 57 of the Indian Stamp Act, 1899. HC answered in against of company.
  • The present appeal arises from a decision by the Madras High Court.

ISSUE

  • Whether the Deed of Trust and Mortgage should be considered the principal or primary security, and therefore subject to stamp duty under Article 40(b) of Schedule I, or if the Guarantee Agreement or debentures should be regarded as the principal instrument under Article 27(a).

RULE

  • In determining the stamp duty payable on instruments such as a Deed of Trust and Mortgage and related debentures, the primary or principal security should be considered as in present case it was Deed of Trust and Mortgage.

HELD

  • Limmer Asphalte Paving Co. v. I. R. C (1872) LR 7 Exch. 211: The case emphasized the importance of ascertaining the real and true meaning of an instrument to determine the applicable stamp duty.
  • The Court held that the Deed of Trust and Mortgage was the principal security, as it was executed first and constituted the security for the loan.
  • Despite provisions in the Guarantee Agreement emphasizing its primary obligator status, it was executed after the Deed of Trust and Mortgage and did not change the latter's status as the primary security.
  • The Guarantee Agreement did not attract stamp duty as it fell under the proviso to Section 3 of the Stamp Act.
  • The Deed of Trust and Mortgage was deemed chargeable under Article 40(b) of Schedule I to the Act.
  • The argument that debentures were the principal instrument was rejected as they were issued under and secured by the Deed of Trust and Mortgage.
  • The Court upheld the High Court's decision, dismissing the appeal with costs.