"Chargeability Under the Stamp Act Depends on Substance, Not Labels": Bombay High Court Declares Development Agreement a Conveyance, Upholds Stamp Duty Demand
Kiran Raj
The Bombay High Court, Single Bench of Justice Amit Borkar, has adjudicated a dispute concerning stamp duty liability under the Maharashtra Stamp Act, 1958. The central question before the court was whether a development agreement should be classified as a conveyance, thereby attracting higher stamp duty under Article 25 of the Act. The petitioner, Suhas Damodar Sathe, contested the decision of the revenue authorities, who had imposed additional stamp duty and a penalty, arguing that the instrument in question was a development agreement and not a conveyance.
The dispute arose in relation to a property located in Village Kune, Taluka Maval, District Pune. The land in question was originally agricultural and later converted into non-agricultural (NA) land through an order issued by the Additional Collector, Pune, on October 11, 1999. The owner of the property executed a registered Development Agreement on October 21, 2005, in favor of the petitioner, granting him rights to develop the land for a total consideration of Rs. 11,50,00,000/-. The agreement conferred extensive rights on the petitioner, including the authority to assign, sell, and develop the property through various legal means.
At the time of execution, the petitioner paid a stamp duty of Rs. 100/-, believing that the transaction fell under Article 5(g-a) of the Maharashtra Stamp Act, which pertains to development agreements. However, in 2006, an audit conducted by the Comptroller and Auditor General of India (CAG) raised an objection regarding the classification of the document. According to the audit report, the document should have been classified as a conveyance under Article 25, leading to a higher stamp duty liability.
In response to this audit objection, the Joint District Registrar issued a demand notice to the petitioner on April 29, 2015, and again on September 28, 2015, requiring him to pay a deficit stamp duty of Rs. 5,84,900/-, along with a penalty of Rs. 11,69,800/-, amounting to a total liability of Rs. 17,54,700/-. The petitioner contested this demand before the appellate authority, arguing that the development agreement did not involve the transfer of ownership rights and was therefore not a conveyance. However, the appellate authority upheld the demand, leading the petitioner to file the present writ petition before the Bombay High Court.
Justice Amit Borkar examined the nature of development agreements vis-à-vis conveyances under the Maharashtra Stamp Act. The court observed that Section 2(g) of the Maharashtra Stamp Act provides an expansive definition of the term "conveyance," including any instrument that transfers an estate or interest in immovable property. The judgment noted:
"The statutory definition underscores that chargeability under the Stamp Act is primarily contingent on the substance of the instrument rather than the label affixed to it."
The court further elaborated on the distinction between development agreements and conveyances, explaining that a development agreement may be classified as a conveyance if it confers upon the developer substantial proprietary rights over the property. The judgment referenced several precedents, including Chheda Housing Development Corporation v. Bibijan Shaikh Farid, Adityaraj Builders v. State of Maharashtra, and Shyamsundar Radheshyam Agrawal v. Pushpabai Nilkanth Patil.
The court examined the terms of the agreement in question and observed:
"If an agreement grants the developer an unequivocal right to undertake development, enter into third-party agreements, collect sale proceeds, and manage the land without requiring further consent from the original owner, it effectively constitutes a conveyance."
The judgment stated that under Explanation I to Article 25 of the Maharashtra Stamp Act, an agreement for sale that grants possession or provides for future transfer of possession in part performance is deemed to be a conveyance for stamp duty purposes. The court explained:
"The legislative intent behind Explanation I to Article 25 is to prevent parties from circumventing stamp duty obligations by structuring transactions as agreements for sale while deferring formal conveyance."
Additionally, the court considered the impact of Section 4 of the Maharashtra Stamp Act, which states that if multiple instruments are executed as part of a single transaction, one of them must bear the full stamp duty. The court noted that, in this case, the development agreement conferred significant rights to the developer, making it the principal document for stamp duty assessment.
In discussing the broader implications of stamp duty classification, the judgment referred to the Supreme Court's judgement in Victory Iron Works Ltd. v. Jitendra Lohia, which addressed the definition of "property" under insolvency laws. The court reasoned that an instrument granting substantial rights over immovable property must be examined not only based on its wording but also on its practical effect.
Based on its findings, the court stated that the development agreement dated October 21, 2005, constituted a conveyance under Article 25 of the Maharashtra Stamp Act. Consequently, the writ petition was dismissed, and the petitioner was directed to pay the deficit stamp duty and penalty as assessed by the revenue authorities. The court held:
"It would defeat both the spirit and letter of the Stamp Act if the document under scrutiny were to be held as anything other than a conveyance."
Advocates Representing the Parties
- For the Petitioner: Mr. Girish Godbole, Senior Advocate, with Ms. Vaishnavi Mane and Mr. Sushant Chavan
- For the Respondents: Mrs. M.S. Srivastava, Assistant Government Pleader
Case Title: Suhas Damodar Sathe v. The State of Maharashtra & Anr.
Neutral Citation: 2025: BHC-AS:11334
Case Number: Writ Petition No. 8030 of 2017
Bench: Justice Amit Borkar
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