The Supreme Court has held that the discretion conferred upon the Public Authority under Section 40(1)(b) of the Indian Stamps Act, 1899 has to be exercised reasonably and not in an oppressive manner since the purpose behind the imposition of a penalty is deterrence and not retribution.
Factual Matrix:
Late Shri Harish Chandra Dhanda, a minister in erstwhile Government of Maharaja Holkar of Indore received a free gift of land. Late Shri H.C. Dhanda constructed ‘Hotel Lantern’ on the above-mentioned piece of land. Another piece of land was gifted to Late Shri H.C. Dhanda by his father-in-law late Col. V.B. Jadhav. Mr. H.C. Dhanda, in his will, created a trust and the above-mentioned two immovable properties were put in the trust, for which he appointed Yogesh Dhanda as Chairman of the Trust, Shri B.J. Dave, Chartered Accountant, Indore and one Shri Chhaganlal Nagar as member.
A resolution was passed by Executors/Trustees to transfer and vest area by executing a Deed of Transfer with a site plan from the trustees to beneficiaries by registering the same. By Deed of Assent the Trustees/Executors gave assent to complete the title of the Legatees and vest absolutely and forever in their favour both Lantern Hotel and Jahaj Mahal property.
The Collector of Stamps, District Indore found out that proper stamp duty was not paid in respect of the Deed of Assent and accordingly a notice was issued. The deficit in the stamp duty was calculated to the tune of Rs. 1,62,82,150/- and additionally a penalty of ten times the deficit amount i.e. Rs.12,80,97,000/- was imposed. This order of the Collector was upheld by the Board of Revenue, Madhya Pradesh, Gwalior. Later on the writ petition filed in the High Court, challenging the original order of the Collector, was dismissed. Consequently, the petitioner filed a writ appeal in the High Court, which was also dismissed as not maintainable. The said two orders as well as the dismissal of the writ appeal have been challenged in this appeal filed before the Supreme Court.
Arguments on behalf of the appellant:
A.K. Chitale, learned senior counsel appearing on behalf of the appellant, submitted that the deed executed in favour of Shri H.C. Dhanda was not a gift deed and that the Deed of Assent was executed bona fide with no deficiency in the stamp duty. The Counsel contended that the Collector had not exercised his jurisdiction in a ‘reasonable and fair manner’ and that imposing a maximum penalty of ten times without giving any reasons was ‘wholly illegal’.
Arguments on behalf of the respondent:
Shri Tushar Mehta, learned Solicitor General representing the State, submitted that the nature of the deed was rightly determined by the Collector as that of a ‘gift deed’ and that there was clear intention of the appellant to evade the payment of the stamp duty. He further contended that the imposition of ten times penalty was justified as the Board of Revenue has also upheld imposition of ten times penalty by holding that the applicant has executed Deed of Assent suppressing the facts intentionally due to which there has been loss of stamp duty.
ISSUE:
Whether the imposition of ten times penalty by the Collector of Stamps under Section 40 of the Indian Stamp Act, 1899 was valid or not.
Observations of the Court:
While referring to section 40(1)(b), the Court remarked that in case the Collector is of the opinion that such instrument is chargeable with duty and is not duly stamped, he shall require the payment of the proper duty or the amount required to make up the same, together with a penalty of the five rupees; or, if he thinks fit, an amount not exceeding ten times the amount of the proper duty or of the deficient portion thereof.
The relevant part of Section 40(1)(b) which falls for consideration in these appeals is:“or, if he thinks fit, an amount not exceeding ten times the amount of the proper duty or deficient portion thereof.”
The Court observed that although a discretionary power has been vested with the Collector to impose a fine with respect to payment of stamp duty, such discretion has to be exercised ‘on rational basis in a fair manner’ and that ‘the amount of penalty not exceeding ten times is not an amount to be imposed as a matter of force’.
The Court also observed that the intent of the legislators as indicated from reading of Sections 33,35,38 and 39 is that: with respect to the instrument not duly stamped, ten times penalty is not always retained and power can be exercised under Section 39 to reduce penalty in regard to that there is a statutory discretion in Collector to refund penalty. Furthermore, highlighting the legislative intent behind the Indian Stamps Act, 1899, the Court referred to Gangtappa and another vs. Fakkirappa, wherein it was held by this Court that the legislature did not contemplate that the penalty to the extent of ten times should be ultimately 15 realized in all cases and to corroborate the same, reproduced the extract from the above-mentioned case:
“...The expression “if he thinks fit” also occurs in Section 40 sub-clause (b). The same legislative scheme as occurring in Section 39 is also discernible in Section 40(b), there is no legislative intentment that in all cases penalty to the extent of ten times the amount of proper stamp duty or deficient portion should be realised. The discretion given to Collector by use of expression “if he thinks fit” gives ample latitude to Collector to apply his mind on the relevant factors to determine the extent of penalty to be imposed for a case where instrument is not duly stamped.”
The Court propounded that the discretion is to be exercised reasonably and not in a oppressive manner and that the imposition of the maximum penalty i.e. ten times of the duty or deficient portion thereof, cannot be based on the ‘mere factum of evasion of duty’.
While relying upon Peteti Subba Rao vs. Anumala S. Narendra, the Court reiterated that penalty to the extent of ten times needs to be imposed only in the very extreme situations since the purpose of penalty is generally deterrence and not retribution. The Court observed with respect to the present case that no sufficient reasons have been given by either the collector or the High Court for imposing the maximum penalty of ten times.
Considering the given facts and the circumstances, the Court was satisfied that this was not a case of imposition of extreme penalty of ten times and therefore, to meet the ends of justice the Court passed an order reducing the penalty to the extent of half i.e. five times of deficiency in the stamp duty.
Case details:
Case Name: Trustees of H.C. Dhanda Trust v. State of Madhya Pradesh & Ors.
Case Number: CIVIL APPEAL NOS. 3195-3196 OF 2020
Date: 17th September, 2020
Coram: Justice Ashok Bhushan, Justice R. Subhash Reddy, Justice M.R. Shah
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