The three Judges Bench of the Supreme Court in the case of Trustees of H.C. Dhanda Trust v. State of Madhya Pradesh & Ors. [Civil Appeal Nos. 3195-319 6 of 2020], vide its Judgment dated 17.09.2020 modified the Order of the Collector of Stamps that imposed a penalty which was 10 (Ten) times of deficient #stampduty. The #SupremeCourt held that imposition of penalty of ten times is not automatic nor can be mechanically imposed under the provisions of Indian Stamp Act, 1899 (the Act).
The facts of this case pertain to Late Mr. H.C. Dhanda, who by his #Will created a #trust called H.C. Dhanda Trust and put his immovable properties in Trust under the Will (“Appellant”). All Trustees under the Will were the executors of the Will. After the death of Mr. H.C. Dhanda, a resolution was passed by the Board of 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. Thereafter, Deed of Assent dated 21.04.2005 was executed between the Trustees/Executors on the one hand and the legal heirs of Late Mr. H.C. Dhanda and the title was transferred forever in the favour of the Legatee under the Will.
A Notice was issued by the Collector of Stamps; District Indore to the Appellant, informing them that the Deed of Assent dated 21.04.2005 was not properly stamped and stamp duty was payable. The Notice further stated asked the Appellant to show cause as to why the Collector of Stamps should not impose a penalty i.e. ten times of the deficit stamp duty which was Rs. 1, 62, 82,150/-.
Background of Proceedings
The Trust filed its objections against the Notice. The Collector of Stamps however passed an Order dated 22.09.2008 and held that there was a deficit duty to the extent of Rs.1, 28, 09,700/- and also imposed ten times penalty i.e. Rs.12, 80, 97,000/-. The Order called upon the Trust to deposit amount of Rs.14, 09, 06,700/- within thirty days. Aggrieved against the Order of Collector, Reference Application was filed by the Appellant before the Board of Revenue, Madhya Pradesh, Gwalior. The Board of Revenue, vide its Order dated 25.10.2011 upheld the Collector’s Order dated 22.09.2008.
Being aggrieved by the Order dated 22.09.2008 the Appellant filed a Writ Petition No.8888 of 2011 in the High Court of Madhya Pradesh. Whereby, the Learned Single Judge of the High Court, vide its Judgment dated 30.03.2017 dismissed the Writ Petition. Thereafter, an appeal was also filed by the Appellant before the Division Bench of the High Court against the said Judgment dated 30.03.2017. The Division Bench also dismissed the Writ Appeal, vide its Judgment dated 04.09.2017 holding it as not maintainable.
Aggrieved against the aforesaid two Judgments of the High Court, the Appellant approached the Supreme Court of India through the present Appeal. The Supreme Court issued a notice to the Collector of Stamps (“Respondent”).
Contentions before the Supreme Court
- It was contented on behalf of the Appellant that the penalty imposed by the Respondent was wholly illegal. It was contended that no reason has been given by the Respondents as to why maximum penalty of ten times was imposed on the Appellant while determining the stamp duty. The Respondents have not exercised their jurisdiction in reasonable and fair manner and imposition of ten times penalty on the Appellant deserves to be set aside.
- It was contended on behalf of the Respondent that the nature of the Deed of Assent was a gift and the Collector has rightly determined the deficiency in the stamp duty and levied ten times penalty. It was further contended that there was clear intention of the Appellant to evade the payment of the stamp duty which clearly called for imposition of ten times penalty.
Issue before the Supreme Court
Whether the imposition of ten times penalty by the Collector of Stamps under Section 40 of the Indian Stamp Act, 1899 was validly imposed or not.
Supreme Court Judgment
To decide the aforementioned issue the Hon’ble Supreme Court of India considered the language and contents of the Order dated 22.09.2008 passed by the Respondent in conjunction with Section 40(1)(b) of the Act, which provides that if the Collector is of 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 Supreme Court interpreted the language of the provision to observe that the purpose of penalty generally is a deterrence and not retribution. When a discretion is given to a public authority, such public authority should exercise such discretion reasonably and not in oppressive manner. The reason such as fraud or deceit in order to deprive the Revenue or undue enrichment are relevant factors to arrive at a decision as to what should be the extent of penalty under Section 40(1)(b).
In this regard, the Supreme Court also read the Section 35(a) of the Act, which provides that instruments not duly stamped are inadmissible in evidence and it further observed that neither imposition of penalty of ten times under Section 40(1) (b) is automatic nor can be mechanically imposed. The concept of imposition of penalty of ten times of a sum equal to ten times of the proper duty or deficiency thereof has occurred in other provisions of the Act as well.
In light of the aforesaid observations the Supreme Court relied on the case of Peteti Subba Rao vs. Anumala S. Narendra, 2002 (10) SCC 427 , wherein it was held that it is only in the very extreme situation that penalty needs to be imposed to the extent of ten times. Thus, the Supreme Court partly allowed the Appeal and modified the Order dated 22.09.2008 passed by the Collector of Stamps into five times penalty i.e. Rs.6,40,48,500/- from ten times penalty of Rs.12,80,97,000/-.
The Indian Lawyer