Refundable Security Deposit in Lease Deed Not 'Money Advanced': Orissa High Court Quashes Duty Imposed Under Article 35(c), Orders Reassessment Under Article 57
Isabella Mariam
The Orissa High Court at Cuttack, Single Bench of Justice Gourishankar. Satapathy, has directed the refund of excess stamp duty and registration charges levied on a refundable security deposit. The court stated that such a deposit, being a conditional and refundable payment, cannot be classified as money advanced under Article 35(c) of Schedule-1A of the Indian Stamp Act as amended by the State of Odisha.
The petitioner, a private limited company engaged in logistics and services, challenged the denial of refund by revenue authorities who had calculated stamp duty on the entire sub-lease amount, including the refundable security deposit. The High Court quashed all impugned orders issued between November 2022 and April 2023, holding that the duty must instead be assessed under Article 57.
The dispute arose when KTI Logistics and Services Pvt. Ltd. sub-leased industrial land in Cuttack originally leased to it by IDCO. On December 1, 2020, the petitioner entered into a 9-year sub-lease agreement with InstaKart Services Pvt. Ltd. involving a monthly rent of Rs. 26,85,366 and a refundable security deposit of Rs. 1,61,12,196.
The lease deed was executed on non-judicial e-stamp paper with user charges of Rs. 550 and registered before the Sub-Registrar, Jagatpur. According to the petitioner, the Sub-Registrar erroneously included the security deposit in the total consideration for the lease, leading to an inflated computation of stamp duty and registration fees.
The petitioner asserted that the security deposit was not a consideration under the lease but was paid solely as performance security. They argued that it was refundable on the lease's termination and thus not liable to stamp duty. The State, through OP Nos. 3 to 6, submitted in their counter affidavit that the security deposit qualifies as "money advanced" and is chargeable to duty under Article 35(c).
In court, learned counsel for the petitioner, Mr. D. Mohapatra, stated that Section 105 of the Transfer of Property Act, 1882 recognizes only "premium" and "rent" as lease considerations. He stated, "there is no third type of consideration in lease and, therefore, the security deposit is not chargeable." He relied on precedents and contractual clauses to support the position that the security deposit was solely for ensuring performance and not part of the rental consideration.
The opposing counsel, Mr. S.K. Rout, Additional Standing Counsel, contended that the deposit is chargeable under Article 35(c), citing that the security amount was a form of money advanced in addition to the rent reserved.
The Court began the reasoning by interpreting Article 35(c) of Schedule-1A of the Indian Stamp Act (Orissa Amendment), which imposes stamp duty on money advanced in addition to rent reserved. The court stated:
"A plain reading of above provision makes it ample clear that in case of execution of lease deed, stamp duty is leviable on fine, premium and money advanced."
However, the court noted a contradiction in the State's argument, stating:
"OP Nos. 3 to 6... have admitted in their counter affidavit that the security deposit may be utilized in full or part on certain contingencies or returned... on successful and litigation free completion of the term of lease."
The court referred to Clause 6 of the sub-lease, which outlined the refundable nature of the deposit and its role in ensuring compliance. Justice Satapathy reasoned: "It is, therefore, very clear that security deposit is not the consideration money of the sub-lease... by no stretch of imagination can it be said as 'money advance' in addition to the rent reserved."
The court further cited the Full Bench decision in Chief Controlling Revenue Authority, Delhi v. Marshal Produce Brokers Co. Pvt. Ltd., 1978 SCC Online Del 157: "The duty is not chargeable under Article 35(c)... on the amount of security/deposit/advance, which is refundable on determination of lease... If such deposit... is adjustable in rent... it is chargeable under Article 57 of the Schedule read with Sec. 5 of the Act."
Based on this, the court held that the refundable security deposit is subject to duty under Article 57, not Article 35(c), and any excess duty paid must be refunded after appropriate adjustments.
The Court allowed the writ petition and quashed the impugned orders. The judgment stated:
"Accordingly, Annexure-1 series are hereby quashed and the authority concerned is directed to refund the differential amount on stamp duty and registration charges, if any, to the parties to the sub-lease."
Advocates Representing the Parties
For the Petitioner: Mr. D. Mohapatra, Advocate
For the Opposite Parties: Mr. S.K. Rout, Additional Standing Counsel
Case Title: KTI Logistics and Services Pvt. Ltd. v. State of Odisha and Others
Case Number: W.P.(C) No. 8711 of 2024
Bench: Justice Gourishankar Satapathy
[Read/Download order]
