Mr H. C. Dhanda received two properties by way of gift deed, which consists of land measuring 1,08,000 sq. ft. and piec2003.

At a meeting of Board of Trustees dated 06.04.2005, a resolution passed for transferring or vesting the area, by executing transfer deed with site plan, from trustees to the beneficiaries with the registration of the same Deed. Subsequently, on 21.4.2005, the Deed of Assent was executed between M/s H.C. Dhanda Trust and Jogesh Dhanda & others, whereby the permission was given to complete the title of legatees and vest the Lantern Hotel &Jahaj Mahal property in their favour.

Considering the Deed of Assent as Gift Deed, the Collector of Stamps issued a notice to the Appellant for non-payment of stamp duty arising out of the Deed and gave a date for appearance, accordingly, the Appellant appeared with objections for payment of stamp duty. The Collector of Stamps passed an order, holding Deed of Assent as Gift Deed, of depositing the fine of Rs. 14,09,06,700/- inclusive of stamp duty and ten times amount to stamp duty within 30 days.

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The Board of Revenue dismissed the Reference application and upheld the penalty imposed by Collector in its order dated 25.10.2011.

In High Court of Madhya Pradesh, Initially, the Learned Single Judge dismissed the writ petition on 30.03.2017, and subsequently, the Division Bench dismissed writ appeal on 04.09.2017.

Imposition of the penalty by Collector under section 40 of the Indian Stamp Act is valid or not?

The intention of escaping from the stamp duty.

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The observations of the Supreme Court are as follows:

Learned Counsel Chitale contended that the Deed of Assent executed should be referred under section 331 and 332 of the Indian Succession Act, 1925 and the document in question is not a Gift Deed. He also contended that the levy of stamp duty was illegal and put an important question of law as ‘why the maximum penalty of ten times was imposed on the Appellant?’ In rebuttal Solicitor General Tushar Mehta denied all the contentions of Appellant and added that the document in question was Gift, therefore the Appellant is liable for the stamp duty and put light on the intention of the Appellant for non-payment of stamp duty.

After the hearing of the contentions of the Learned Counsel Chitale for Appellant and Solicitor General Tushar Mehta for Respondents, the Supreme Court observed one vital issue of imposition of the penalty by Collector under section 40 of the Indian Stamp Act is valid or not?

The Collector vide its order dated 22.09.2008determined the document as Gift Deed and also proceeded with the market value of both properties, accordingly determined the stamp duty of Rs. 1,28,09,700/- deducting the stamp duty of Rs. 200/- paid. The Collector also observed the intention of escaping from the stamp duty, therefore, imposed ten times penalty on due stamp duty.

Relying on the wordings of Section 40(1)(b) of the Indian Stamp Act, the Supreme Court observed the word ‘if he thinks fit’. These words provide the discretion to the Collector for imposing penalty not exceeding ten times. Relating to discretion, significant observation of the Supreme Court was “Whenever statute transfers discretion to an authority the discretion is to be exercised in furtherance of objects of the enactment. The discretion is to be exercised not on whims or fancies rather the discretion is to be exercised on a rational basis reasonably”.

In addition to above and relying on Section 35 of Indian Stamp Act, the Court observed, when ten times the amount or deficient portion has exceeded five rupees, then the amount equal to ten times has to be deposited. Reliance made on Section 39, where the Collector is empowered to refund the penalty over five rupees in respect of any instrument if he thinks fit.

The Supreme Court has made its reliance on Section 33, 35, 38 & 39. In a case of Gangtappa and another vs Fakkirappa, 2019(3) SCC 788 and observed the clear intentions of the legislators regarding not imposing the ten times penalty in all cases, as the discretion is provided to the Collector. The Collector has to apply his mind to determine relevant factors while imposing the penalty on unpaid instruments/documents.

The object of the penalty is deterrence and not the retribution. When discretion given by legislators is unencumbered, the public authority has to exercise such discretion in fair and not in an oppressive manner. Further, relying on Pateti Subba Rao vs Anumala S. Narendra, 2002 (10) SCC 427, the Court observed that the public authority should consider any malicious reason behind evasion and financial position of the person concerned. The Court held that only in extreme situations a ten times penalty should be imposed.

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The Collector and High Court in its judgment gave no other reason, except the intention of evading the stamp duty by way of Deed of Assent. For this reason, the penalty arose. Still, considering the facts, the Supreme Court delivered that, it satisfied that there were no extreme circumstances for ten times penalty, therefore, reduced the penalty to the five times of deficiency in stamp duty.

Consequence of Decision

1. Discretionary powers of the Collectors of Stamp to impose the penalty of ten times may come under question, as determining the relevant facts and identifying the malicious activities by a person may not always be possible. There could be scope for manipulation of facts.
2. The words ‘if he thinks fit’ gives absolute discretion to the Collector, but this judgment will restrict its discretion.
3. In case of any identical matters in future, anyone can take the defence of his poor financial position and get reduced his penalty, which will be a failure of deterrence theory.

Ending Remarks & Suggestions

This case is the pure interpretation of the word ‘if he thinks fit’ and thereby, it limits the discretionary powers provided to Collectors. It also described the intention of legislators about the penalty and factors, which ought to be considered by public authority. The vital point, where the property received under succession but transferred by executors by way of Deed of Assent would amount as a Gift Deed.

Suggestions

1. To instil fear in society, the penalty imposed must be grave.
2. The collector should give freedom of exercising its discretionary powers.
3. Laws relating to succession and Gift need to be specified by legislators.