Ordinarily, where executant himself is unable, for any reason, to execute the document, he would appoint his kith and kin as his power of attorney to complete the transaction on his behalf. If one does not have any kith or kin who he can appoint as power of attorney, he may execute the conveyance himself. The legislative idea behind Clause (d), Article 45 of Schedule 1-A is to curb tendency of transferring immovable properties through power of attorney and inappropriate documentation.
By making a provision like this, the State Government has sought to collect stamp duty on such indirect and inappropriate mode of transfer by providing that power of attorney given to a person other than kith or kin, without consideration, authorizing such person to sell immovable property situated in Madhya Pradesh will attract stamp duty at two per cent on the market value of the property which is subject matter of power of attorney. In effect, by bringing in this law, the Madhya Pradesh State Legislature has sought to levy stamp duty on such ostensible document, the real intention of which is the transfer of immovable property. The classification, thus, cannot be said to be without any rationale. It has a direct nexus to the object of the 1899 Act. The conclusion of the High Court, therefore, that the impugned provision is arbitrary, unreasonable and irrational is unsustainable.
Supreme Court of India
State of M.P. Vs. Rakesh Kohli & ANR.
[Civil Appeal No. 684 of 2004]
[Civil Appeal No. 1270 of 2004]
JUDGMENT
R.M. Lodha, J.
1. The only point for consideration here is, whether or not the Division Bench of the Madhya Pradesh High Court was justified in declaring Clause (d), Article 45 of Schedule 1-A of the Indian Stamp Act, 1899 (for short, ‘1899 Act’) which was brought in by the Indian Stamp (Madhya Pradesh Amendment) Act, 2002 (for short, ‘M.P. 2002 Act’) as unconstitutional being violative of Article 14 of the Constitution of India.
2. The above point arises in this way. Two writ petitions came to be filed before the Madhya Pradesh High Court. In both writ petitions initially it was prayed that Clauses (f) and (f-1), Article 48, Schedule 1-A brought in the 1899 Act by Section 3 of the Indian Stamp (Madhya Pradesh Amendment) Act, 1997 (for short, ‘M.P. 1997 Act’) be declared ultra vires. During the pendency of these petitions, the 1899 Act as applicable to Madhya Pradesh was further amended by the M.P. 2002 Act. The respondents, referred to as writ petitioners, amended their writ petitions and prayed that Clause (d), Article 45 of Schedule 1-A of the 1899 Act as substituted by M.P. 2002 Act be declared ultra vires.
The writ petitioners set up the case that original Article 48 of the 1899 Act, Schedule 1-A prescribed stamp duty payable at Rs. 10/-if attorney was appointed for a single transaction. By M.P. 1997 Act, Article 48 Clause (f) was substituted by Clauses (f) and (f-1). Clause (f-1) provided that where power of attorney was executed without consideration in favour of person who is not his or her spouse or children or mother or father and authorizes him to sell or transfer any immovable property, the stamp duty would be leviable as if the transaction is conveyance under Article 23. Explanation II inserted by M.P. 1997 Act provided that where under Clauses (f) and (f-1), duty had been paid on the power of attorney and a conveyance relating to that property was executed in pursuance of power of attorney between the executant of the power of attorney and the person in whose favour it was executed, the duty on conveyance should be the duty calculated on the market value of the property reduced by duty paid on the power of attorney.
By M.P. 2002 Act, stamp duty relating to power of attorney has been prescribed in Article 45 of Schedule 1-A. Clause (d) thereof prescribes stamp duty at two per cent on the market value of the property which is subject matter of power of attorney when power of attorney is given without consideration to a person other than father, mother, wife or husband, son or daughter, brother or sister in relation to the executant and authorizing such person to sell immovable property situated in Madhya Pradesh. The writ petitioners pleaded, inter alia, that the distinction between an agent who was a blood relation and who was an outsider carved out in Article 45, Clause (d) was legally impermissible. The provision violates Article 14 of the Constitution as it has sought to create unreasonable classification.
3. The State of Madhya Pradesh stoutly defended the challenge to the above provisions and stated before the High Court that the matter of rate of stamp duty was solely in the domain of State Legislature and none of the provisions of the Constitution was offended by the above provisions.
4. The Division Bench of the High Court has accepted the constitutional challenge to Clause (d), Article 45 of Schedule 1-A brought in the 1899 Act by M.P. 2002 Act and held that the said provision was violative of Article 14 of the Constitution of India. The Division Bench gave the following reasoning: “11. As far as clauses (d) is concerned, it lays a postulate that postulate [sic] that when the power of authority is given without consideration to a person other than the father, mother, wife or husband, son or daughter, brother or sister in relation to the executant and authorizing such person to sell immovable property, 2% on the market value of the property is to be collected.
Submission of Mr. Agrawal is that this clause is absolutely unreasonable and smacks of arbitrariness, as there is no rationale to include the category of persons who have been included and to leave out to all other persons. Mr. S.K. Yadav, learned Government Advocate submitted that near relatives can constitute a class by itself and all others can fit into a different category and, therefore, the said provision does not offend the concept of classification, as there is intelligible differentia. On a first blush the aforesaid submission of the learned counsel for the State appears to be quite attractive, but on a deeper probe it is not what it is. In the guise of the classification something has been stated in the said provision. One can give certain examples.
One may not have kith or kin and intact [sic] even that case to deprive him to execute the power of attorney for selling the property, unless 2% is paid on the market value is arbitrary. The provisions may pass the test of classification but it would not pass the requirement of the second limb of Article 14 of the Constitution which ostracises arbitrariness, unreasonable and irrationality. The State may have a laudable purpose but the laudable purpose alone cannot sustain the provision. The matter would been [sic] different had it included a rider that it is executed in favour of any other for consideration or some other purposes is not the situation. In view of the same, we are of the considered opinion, the aforesaid provision is defiant of Article 14 of the Constitution. Accordingly, we have no hesitation to declare the same as violative of Article 14 of the Constitution.”
5. Ms. Vibha Datta Makhija, learned counsel for the appellant – State of Madhya Pradesh – submitted that the High Court was in error in declaring Clause (d), Article 45, Schedule 1-A as violative of Article 14 of the Constitution of India. She would submit that the test of challenge to a legislative provision was completely different from that of an administrative action. A legislative provision cannot be struck down as being arbitrary, irrational or unreasonable.
She further submitted that the classification made in Clause (d) of Article 45, Schedule 1-A had intelligible differentia with a direct nexus to the object of the 1899 Act. The object of the 1899 Act is to collect proper stamp duty on an instrument or conveyance on which such duty is payable. This is to protect the State revenue. The legislative wisdom took into consideration that genuine power of attorney documents would be executed by the executants without consideration mostly in favour of kith and kin to complete sale transactions on behalf of the executants. The said category attracts lower stamp duty than power of attorney executed in favour of third parties/strangers since such power of attorney document would be for extraneous reasons.
6. Learned counsel for the State of M.P. also submitted that the wisdom of the Legislature in protecting the revenue and carving out genuine classes from others had been well recognized. The court cannot sit in judgment over their wisdom. She relied upon decisions of this Court in Balaji v. Income Tax Officer, Special Investigation Circle, Akola and others[1]; State of A.P. and others v. Mcdowell and Co. and others[2]; Ramesh Chand Bansal and Others v. District Magistrate/Collector Ghaziabad and others[3]; Veena Hasmukh Jain and another v. State of Maharashtra and others[4]; Hanuman Vitamin Foods Private Limited and others v. State of Maharashtra and another[5]; Karnataka Bank Limited v. State of Andhra Pradesh and others[6]; Government of Andhra Pradesh and others v. P. Laxmi Devi (Smt.)[7]; Union of India v. R. Gandhi, President; Madras Bar Association[8] and Suraj Lamp and Industries Private Limited v. State of Haryana and another[9].
7. The respondents despite service have not chosen to appear.
8. The definition of ‘conveyance’ is contained in Section 2(10) of the 1899 Act which reads as under: “S.2. Definitions.-In this Act, unless there is something repugnant in the subject or context,-(10) “Conveyance” includes a conveyance on sale and every instrument by which property, whether movable or immovable, is transferred inter vivos and which is not otherwise specifically provided for by Schedule I.
9. Section 2(21) defines ‘power of attorney’. It reads as follows : “S. 2(21) “Power-of-attorney” includes any instrument (not chargeable with a fee under the law relating to court-fees for the time being in force) empowering a specified person to act for and in the name of the person executing it;”
10. The 1899 Act has been amended from time to time by the Madhya Pradesh State Legislature insofar as its application to the State of Madhya Pradesh is concerned. The stamp duty on power of attorney was originally prescribed in Article 48, Schedule -1-A of the 1899 Act. Clause (f) in original Article 48, Schedule 1-A read as under: “SCHEDULE-1A Stamp Duty on Instruments (See section 3) Description of Instruments Proper Stamp Duty 1) (2) 48.Power of Attorney, as defined by Section 2(21), not being a Proxy [No. 52]. (f) when giving for consideration The same duty as Conveyance and authorizing the attorney to (No. 23) for a market value sell any immovable property; equal to the amount of the consideration.”
11. Section 3 of the M.P. 1997 Act brought in amendment in the 1899 Act, inter alia, as under : “In Schedule 1-A of the Principal Act, in Article 48,
i) For clause (f), the following clauses shall be substituted, namely:-
