It is normally experienced that drafting any agreement or completing any complex transaction is still easier than forming a legal opinion when it comes to calculation of applicable stamp duty on such agreement. Payment of applicable stamp duty is essential as non-payment of stamp duty or insufficient payment of stamp duty may prove fatal to the interests of parties to the agreements due to the penal provisions contained in Section 33 and 35 of the Indian Stamp Act, 1899. The Sub – Section (1) of Section 33 states,
“Examination and impounding of instruments. — (1) Every person having by law or consent of parties, authority to receive evidence, and every person in charge of a public office, except an officer of police, before whom any instrument, chargeable, in his opinion, with duty, is produced or comes in the performance of his functions, shall, if it appears to him that such instrument is not duly stamped, impound the same.”
and
the relevant extract of Section 35 of the Act, states,
“35. Instruments not duly stamped inadmissible in evidence, etc. — No instrument chargeable with duty shall be admitted in evidence for any purpose by any person having by law or consent of parties, authority to receive evidence, or shall be acted upon, registered or authenticated by any such person or by any public officer, unless such instrument is duly stamped.
Provided that— (a) any such instrument shall be admitted in evidence on payment of the duty with which the same is chargeable, or, in the case of any instrument insufficiently stamped, of the amount required to make up such duty, together with a penalty of five rupees, or, when ten times the amount of the proper duty or deficient portion thereof exceeds five rupees, of a sum equal to ten times such duty or portion;”
By analyzing the aforesaid provisions, it can be inferred that in the event of non-payment of stamp duty or shortfall in the payment of stamp duty, following consequences may follow: –
1. the said instrument (agreement in question) can be impounded by the lawful public office including courts except police officers in terms of Section 33 of the Indian Stamp Act, 1899;
2. the said instrument shall be inadmissible as evidence for any purpose; and
3. such instrument shall be admissible as evidence after payment of appropriate stamp duty along with a penalty equivalent to 10 (Ten) times of shortfall or deficient stamp duty.
Therefore, in order to prevent the abovementioned consequences, it is advisable to pay proper stamp duty under appropriate head of Schedule attached to Act.
Further, it is often seen that clients / normal people are not aware of the difference between payment of stamp duty and registration of instrument at hand. It is stated that these are two different transactions governed by two different statutes. Payment of Stamp Duty is governed by Indian Stamp Act, 1899 or the respective Stamp Acts of states of India and the registration of instruments is governed by Registration Act, 1908. It is possible that a certain instrument is subject to levy of a stamp duty but may not be required to be registered. For instance, a rent agreement / lease agreement of immovable property for term less than one year is not required to registered but it is leviable to stamp duty.
Now, Section 17 of the Registration Act, 1908 prescribes the list of the instruments that are mandatory to be registered failing which the consequences shall follow as per Section 49 of the Registration Act, 1908. Section 49 of Registration Act, 1908 states,
“49. Effect of non-registration of documents required to be registered. – No document required by section 17 or by any provision of the Transfer of Property Act, 1882 (4 of 1882), to be registered shall
(a) affect any immovable property comprised therein, or
(b) confer any power to adopt, or
(c) be received as evidence of any transaction affecting such property or conferring such power, unless it has been registered:
Provided that an unregistered document affecting immovable property and required by this Act or the Transfer of Property Act, 1882 (4 of 1882), to be registered may be received as evidence of a contract in a suit for specific performance under Chapter II of the Specific Relief Act, 1877 (3 of 1877) or as evidence of any collateral transaction not required to be effected by registered instrument.”
To explain the difference between the scope of Section 35 of Indian Stamp Act, 1899 and Section 49 of Registration Act, 1908, a relevant extract from the judgment of Sanjeeva Reddi v. Johanputra Reddi, [ AIR 1972 A.P. 373], is produced below: –
“9. While considering the scope of Section 35 of the Indian Stamp Act we cannot bring in the effect of non-registration of a document under Section 49 of the Indian Registration Act. Section 17 of the Indian Registration Act deals with documents, the registration of which is compulsory and Section 49 is concerned only with the effect of such non-registration of the documents which require to be registered by Section 17 or by any provision of the Transfer of Property Act. The effect of non-registration is that such a document shall not affect any immovable property covered by it or confer any power to adopt and it cannot be received as evidence of any transaction affecting such property or conferring such power. But there is no prohibition under Section 49 to receive such a document which requires registration to be used for a collateral purpose i.e. for an entirely different and independent matter. There is a total and absolute bar as to the admission of an unstamped instrument whatever be the nature of the purpose or however foreign or independent the purpose may be for which it is sought to be used, unless there is compliance with the requirements of the provisos to Section 35. In other words, if an unstamped instrument is admitted for a collateral purpose, it would amount to receiving such a document in evidence for a purpose which Section 35 prohibits.”
The abovementioned extract clearly decides that the scope of consequences of non-payment of stamp duty on an instrument mandatory to be stamped is much beyond than that of non-registration of instruments mandatory to be registered.
At the end, it is recommended to follow the following tips for assessing the stamp duty depending upon the nature of instrument: –
1. Once, the place of execution of instrument is finalized, it is advisable to use Manupatra or SCC Online software as they constantly update the central and state laws.
2. Since, stamp duty varies from state to state, and often it is seen that google research or stamp duty calculators on government website are not reliable. Google research should be done but only after following Step 1.
3. Before jumping on the Schedule attached to the concerned state stamp act, do not forget to check the definition clause of the said act. For instance, many states do not levy stamp duty on the lease of movable property as it can be checked from the definition of “Lease”. So, if the lease agreement is related to movable property and the concerned state does not have a specific head for levy of stamp duty on such instrument, then such instrument shall come under the article of general agreement which is generally Article 5 or 6 in the Schedules. Therefore, just by checking the definition clause, a substantial amount of stamp duty can be saved.
4. It is also advisable to first check the stamp law of proposed place/state of execution of instrument and after analyzing the approximate stamp duty, professionals will be in a position to advise their clients better and change the place of execution of instrument, jurisdiction of courts etc. to save costs.
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