As recently the Supreme Court of India in the matter of Shyamsundar Radheshyam Agrawal & Anr. V. Pushpabai Nilkanth Patil & Ors, [Civil Appeal No. 10804 of 2024], has observed that when an agreement for sale consists a clause to hand over possession of the property, then it has to be treated as “conveyance” for the purpose of the Maharashtra Stamp Act, 1958. Therefore, the liability to pay stamp duty will arise at the time of the execution of such an agreement for sale.

The fact that a sale deed was ultimately executed in pursuance of the agreement for sale and that stamp duty was paid on such sale deed will not absolve the primary liability of paying the appropriate stamp duty at the time of execution of the sale agreement. Because, in such a case, the agreement for sale is the principal document, the Court stated, referring to Explanation 1 to Article 25 of Schedule-I of the Maharashtra Stamp Act, 1958.

“The above Explanation I makes it lucid that an agreement for sale is to be treated as a “conveyance” if either possession is handed over immediately or if it is agreed to be handed over within a particular time. A reading of the above Explanation I along with Section 4 makes it clear that the duty is levied only on the instrument and not on the transaction,” the Court observed.

At the outset, the Supreme Court clarified the legal rule application. It said: “In order to determine the stamp duty that is chargeable upon an instrument, the legal rule is that the real and true meaning of the instrument is to be determined by ascertaining the intention of the parties from the contents and the language employed in the whole instrument and the description or the nomenclature given to the instrument by the parties is immaterial.”

On perusing Section 4(1) of the Act, the Court said it makes clear that where several instruments are executed for completing a transaction, the principal instrument alone shall be chargeable with duty prescribed in Schedule I.

It explained Section 4 as: “The proviso makes it clear that the duty chargeable on the instrument so determined shall be the highest duty which could be chargeable in respect of any of the said instruments forming part of the same transaction. Each of the other instruments is chargeable with a fixed duty. That apart, sub-section (2) also gives an opportunity to the parties to determine for themselves, which of the instruments shall be deemed to be the principal instrument.”

Based on the law and the reading of all 6 documents, the Court held: “On a reading of all these six documents, it could be seen that the instruments /documents were not forming part of a single transaction between the same parties and they were different transactions between different vendors and purchasers. Further, for several documents to form part of a single transaction, there must be a transaction in furtherance of which several other documents are executed to complete that transaction and then it becomes imperative to charge stamp duty on the principal instrument/document. The language used in the provision is very clear, whereby the stamp duty is on the instrument and not on the transaction.”

Further, the Court referred to Article 25 of Schedule I of the Maharashtra Stamp Act and stated that the Explanation I makes it lucid that an agreement for sale is to be treated as a “conveyance” if either possession is handed over immediately or if it is agreed. It therefore held: “A reading of the above Explanation I along with Section 4 makes it clear that the duty is levied only on the instrument and not on the transaction to be handed over within a particular time.”

It held: “In the instant case, in the documents, though there was a clause for conveyance between the vendors and purchasers in relation to the respective properties, the value of the properties were above Rs.100/- and there was also a clause by which possession was admittedly handed over on the date of the agreement, implying acquisition of possessory rights protected under Section 53A of the Transfer of Property Act, which requires payment of proper stamp duty and registration as mandated under Section 17 of the Registration Act.”

The Court concluded: “Further, as per Section 4(2) of the Maharashtra Stamp Act, the parties are at liberty to parties to determine as to which of the document shall be principal document. As noted above, the agreement for sale consists of a clause whereby the possession was handed over to the purchaser satisfying the requirement to treat the instrument as conveyance and what remained was only the formality of execution of the sale deed. Therefore, it can be safely concluded that the agreement for sale was the principal document on which stamp duty was to be paid as per Article 25.”

The Court ended by noting that even if the contention of the appellant is accepted that the sale agreements ultimately concluded in the sale deed on which stamp duty was paid, it would not be ipso facto absolve the primary liability of paying the appropriate stamp duty at the time of execution of the sale agreement as it was the principal document.

Lastly, the Court noted that second proviso to Article 25 only envisages a situation where if the stamp duty is already paid or recovered on the agreement to sale, then the same shall be deducted while computing the stamp duty payable when the sale deed is executed.

It does not contemplate a situation where the document ought to have been registered with payment of stamp duty on the agreement for sale initially and only the balance, on the deed of sale after deduction of the duty already paid ought to have been collected.

“Taking note of the facts and circumstances of the case and legal position, the trial Court rightly observed that the subsequent sale deed cannot be construed as a principal transaction and the agreements to sell would be treated as the principal conveyance as per Explanation I of Article 25 of Schedule-I of the Act and impounded all these documents and directed to send the same to the Collector for adjudication of stamp duty and penalty. After, a detailed analysis, the High Court held that no case for interference was made out by the appellants, which, we affirm, to be correct,” the Court observed.