The concept of relationship between a State & its subjects has grown since time immemorial and like-wise the sense of taxation & revenue of the State has grown simultaneously. Stamp duty, which is one of the most prominent ways of revenue generation in modern world, is thought to originate in the early 17th century, Holland. In search of new sources of tax revenue, they came up with the idea of imposing tax on commercial, financial or other like instruments that record any kind of transaction. The British followed the same and bought the notion to India by promulgating Regulation VI of 1797. Before explaining further about Regulation VI of 1797, it needs to be mentioned that during this period [from the Battle of Palashi (1757) to Sepoy Mutiny (1857), India was controlled by the British East India Company. Therefore, all the laws which came during this period were in the form of Regulations enacted by the Governor General in Council for the Civil Government of the territories under the Presidency of Fort William in Bengal. The relevant portion of the preamble of Regulation VI was-
“……for levying a Stamp Duty on certain Law, and other Papers and Documents, and a Per-centage on the Fees of the authorized Pleaders in the Courts of Civil Judicature, in the Provinces of Bengal, Behar, Orissa, and Benares……”
But after the Sepoy Mutiny in 1857, the British Government in England felt a drastic need to establish Crown’s Control over India. Therefore, Lord Palmerstone, then-Prime Minister of the United Kingdom, introduced a bill to liquidate the British East India Company and to transfer control of the Government of India to the Crown. However, before this bill was to be passed, Palmerston resigned and later Edward Henry Stanley introduced another bill with the same purpose, which finally took the shape of the Government of India Act, 1858. The British Parliament, after gaining direct control of India, enacted in the form of Statutes, almost all the regulations which were previously enacted by the Governor General under the Company Rule. Likewise, the Indian Stamp Act, 1899 was enacted by the British Parliament in the light of Regulation VI of 1797.
By this article, I make an endeavour to cover all the important aspects of the Act in a compact and comprehensive manner and thereby enabling our readers to get a brief idea on the objects, types of instruments, key features and other relevant provisions of the statute.
The basic purpose of enacting the statute was to create a fiscal legislation (a law relating to government expenditures, revenues, debt or taxation) by which the government can earn revenue and in return, the State will attach legality to and ensure authenticity of such document or instrument charged and duly stamped under this Act.
♦ Instruments Covered under the statute: (Section 3 r/w Schedule I)
The framework of the Act provides for eight chapters and one schedule which vividly describe the instruments chargeable for stamp duty and procedure of adjudication thereof. But going deeper into the topic we first need to understand the concept of “instrument” in the light of the provisions of this Act. As per Section 2(14) of the Indian Stamp Act, (herein after also known as the ‘Act’) the term “Instrument” includes every document by which any right or liability is, or purported to be created, transferred, limited, extended, extinguished or recorded. Explaining about those instruments which are chargeable to stamp duty, Section 3 mentions following three categories –
1. Every instrument mentioned in Schedule I of the Act which are executed in India on or after the 1st July, 1899;
2. Every bill of exchange or promissory note drawn or made out of India on or after 1st July, 1899 and accepted or paid or presented for so or negotiated in India; and
3. Every instrument except a bill of exchange or promissory note mentioned in the Schedule, which is executed outside India on or after 1st July, 1899, but it relates to any property or service situated or rendered in India and is received in India.
But it does not include any instrument which is executed in favour of the Government and any instrument evidencing sale or transfer in any manner of ownership or any other interest in any ship or vessel registered under the Merchant Shipping Act, 1894 or Indian Registration of Ships Act, 1841.
4. Under Schedule I, the Act specifies 65 general types of instruments along with the prescribed rate of stamp duty levied on each of them. With a view to properly distribute stamp revenue between the Union and State Governments, the makers of The Constitution of India had specifically categorised these instruments under Schedule VII of the Constitution. They are as follows:
♦ Instruments specified in Entry 91 of the Union List (Schedule VII, List I)
The power of determining the rates of stamp duty in respect of Bills Of Exchange, Cheques, Promissory Notes, Bills of Lading, Letter of Credit, Policies of Insurance, Transfer of Shares, Debentures, Proxies and Receipts is given to the Central Government. Therefore, the stamp duty collected from these instruments contributes to the revenue of the Central Government.
♦ Instruments specified in Entry 63 of the State List (Schedule VII, List II)
Rates of stamp duty in respect of documents other than those specified in Entry 91 of Union List are determined by the State Governments, therefore, these rates vary from one state to another and it contribute to the revenue of the state governments.
♦ Instruments specified in Entry 44 of the Concurrent List (Schedule VII, List III)
The stamp duties other than duties or fees collected by means of judicial stamps, but not including the rates of stamp duty, are covered by this entry. Thus, by this entry, both the Union and the States are given the power to collect stamp revenue from non-judicial stamps.
It is evident from the language used in Section 3 that in order to be an instrument chargeable under this Act, it must have to be one of those ‘mentioned in Schedule I’. But section 2(14) uses the term ‘includes’ while defining the term ‘instrument’ which means the Act provides an inclusive definition for the term. So, by joint reading of both the sections, we find that an instrument, in order to be chargeable under this Act, must have to fulfil two criteria, firstly, it has to be a document by which any right or liability is, or purported to be created, transferred, limited, extended, extinguished or recorded and secondly, it has to be ‘mentioned in Schedule I’ of the Act.
♦ Key Features:
The salient features of the Act are-
1. The concept of “stamp”– As per Section 2(26) of the Indian Stamp Act, “stamp” means any mark, seal or endorsement by any agency or person duly authorised by the State Government, and includes an adhesive or impressed stamp, for the purposes of duty chargeable under this Act.
2. The concept of “duly stamped”– As per Section 2 (11) of the Act, the term “duly stamped” as applied to an instrument, means that the instrument bears an adhesive or impressed stamp of not less than the proper amount and that such stamp has been affixed or used in accordance with the law for the time being in force in India.
3. Several documents in one transaction– Apart from the simple transactions where the transfer or conveyance is done by execution of a single document, this Act also provides the law to charge stamp duty in a transaction where more than one document is required to be executed in order to get that transaction completed. The Act under section 4, provides that in those cases the stamp duty is to be charged only upon the principal document of such transaction. Other instruments are charged with a nominal value of Rs. 1.
Illustration: A has decided to purchase a flat from a realtor. The realtor executes an Agreement to Sale in favour of Mr. A. Now after completion of the project when sale deed will be executed in favour of Mr. A, then Stamp Duty will be paid on either of the two documents i.e. agreement to sale or sale deed which shall be regarded as the principal instrument and the other shall be regarded as the subsidiary instrument upon which a nominal duty of Rs. 1 is to be paid. The liberty to choose the principal instrument is upon the parties.
♦ Instruments coming within several descriptions of Schedule-
Subject to the provisions of Section 5, if an instrument is so framed that it is coming under more than one description given in Schedule to Stamp Act then as per section 6, such instrument shall be charged with the highest rate specified among the different heads.
In this case the question before the Allahabad High Court was whether the instrument under consideration was a lease or a lease as well as an agreement. The Court while describing certain features of the instrument highlighted that it was executed not by the lessor but by the lessee and the later covenanted that he would take certain premises from the lessor, make certain alterations to the premises at his own cost, pay Rs. 9/month as rent and the period of occupation would be 5 years. He also covenanted that in case of vacating the premises before 5 years, the lessee would be liable to pay the rent of 5 years to the lessor. On the basis of these features, the Court concluded that the instrument was a lease as well as an agreement and came under Article 35 as well as Article 5 of the Schedule I of Indian Stamp Act, 1899. So, as per Section 6, only the higher stamp duty between the two descriptions will be payable on the instrument. As the stamp duty on lease was higher than stamp duty on agreement, so the court held that instrument shall be charged under Article 35 only.
♦ Instruments relating to several distinct matters–
As per section 5 of the Act, any instrument comprising or relating to several distinct matters shall be chargeable with the aggregate amount of the duties with which separate instruments, each comprising or relating to one of such matters, would be chargeable under this Act.
Illustration: A, Mr. B and Mr. C are the partners of a Partnership Firm. Now all of them have decided to dissolve the firm. In this case a single instrument is required to be executed which involves two distinct matters i.e. firstly, dissolution of the firm [Article 46 of Schedule I] and secondly, dissolution of the bond between partners [Article 15 of Schedule I]. Therefore, the aggregate amount of the duties charged on each of these transactions shall be payable.
♦ Valuation of instruments–
Part D of Chapter II of the Act (from Section 20 to 28, except 22), incorporates various provisions regarding valuation of stamp duty. Detailed description of the methods of valuation enshrined in this Part is given below-
|Sl No||Section||Method of Valuation||Examples/ Illustrations|
|1||20||If an instrument is chargeable with ad valorem duty (An ad valorem tax is a tax based on the assessed value of an item) in respect of any money expressed in foreign currency, then Stamp Duty shall be calculated on the value of such money in Indian Currency (converted at the rate of conversion on the day of execution of the instrument).||N/A|
|2||21||If an instrument is chargeable with ad valorem duty in respect of any stock or of any marketable or other security, such duty shall be calculated on the market value (MV) of such stock or security.
MV for calculating Stamp Duty shall be-
|Mr. A executes a share transfer agreement in favour of Mr. B for transferring 1000 shares having MV of Rs. 250 each (as specified in share certificate). Stamp Duty is payable on Rs. 2,50,000.|
|3||23||If interest is expressly made payable by the terms of an instrument, such instrument shall not be chargeable with duty higher than that with which it would have been chargeable if no mention of interest been made therein.||N/A|
|4||23A||If an instrument (not being a promissory note or bill of exchange) is issued-
||Mr. A takes a loan of Rs. 1 lakh for which he deposited, as security, share certificates amounting total shares of Rs. 1.5 lakhs. Stamp Duty shall be payable on Rs. 1.5 lakhs.|
|5||24||If any property is transferred to any person in consideration of any debt due to him, or such property is transferred subject to the payment or transfer of any money or stock, then such debt, money or stock is to be deemed the whole or part, as the case may be, of the consideration in respect whereof the transfer is chargeable with ad valorem duty.||(a) A owes B Rs. 1,000. A is unable to pay the debt. Therefore, he sells a property to B for Rs. 500, in consideration of the previous debt. The stamp Duty shall be charged on Rs. 1,500.
(b) A sells a property to B for Rs. 500 which is subject to a mortgage to C for Rs. 1,000 and unpaid interest Rs 200. Stamp-duty is payable on Rs. 1,700.
(c) A mortgages a house of the value of Rs. 10,000 to B for Rs. 5,000. B afterwards buys the house from A. Stamp-duty is payable on Rs. 10,000 less the amount of stamp-duty already paid for the mortgage.
|6||25||If an instrument is executed to secure the payment of an annuity or other sum payable periodically, or where the consideration for a conveyance is an annuity or other sum payable periodically, then the amount secured by such instrument or the consideration for such conveyance, as the case may be, shall be deemed to be-
||(a) Mr. A purchases a mobile on payment of 12 EMIs each amounting Rs. 1200. Stamp Duty shall be payable on Rs. 14,400.
(b) Mr. A takes a loan from Mr. B on the terms that Mr. A shall repay the same by instalments of Rs. 10,000 p.a but no period of annuity is defined in the loan agreement. Stamp Duty is payable on Rs. 2,00,000.
(c) Mr. A takes a loan from Mr. B on the terms that Mr. A shall repay the same by instalments of Rs. 10,000 p.a till his death. Stamp duty is payable on Rs. 1,20,000.
|7||26||If the value of the subject-matter is indeterminate at the time of execution of the instrument, then the amount claimable shall be the highest amount or value for which, if stated in an instrument of the same description, the stamp actually used would have been sufficient, at the date of such execution.
In case of lease of a mine in which royalty or a portion of produce is received as rent, then amount claimable shall be-
|8||27||All the facts and circumstances affecting the computation of stamp duty on any instrument, shall be fully and truly set forth therein.||N/A|
||(a) Mr. A contracts to purchase a flat for Rs. 10 lakhs, in 10 instalments each amounting Rs. 1 lakh. The stamp duty is payable on each of the instalment of Rs. 1 lakh.
(b) Mr. A contracts to purchase a flat for Rs. 10 lakhs, and not having obtained a conveyance thereof, sells the same to Mr. B for 12 Lakhs, then the flat shall be directly transferred to Mr. C by the original seller and stamp duty is payable on Rs. 12 Lakhs.
(c) Mr. A contracts to purchase a two storied house for Rs. 20 Lakhs, and not having obtained a conveyance thereof, sells the ground floor to Mr. B, then the original seller shall separately transfer the ground floor and the first floor to Mr. B and Mr. A respectively, and stamp duty shall be payable by Mr. B on Rs. 10 lakh for the ground floor only, and by Mr. A on Rs. 10 lakh for the first floor only.
An instrument duly stamped as per provisions of this Act, gains highest evidentiary value. Such instruments are admissible before any court of law as an evidence of such transaction. The authenticity of any instrument duly stamped is unquestionable in the eye of law. That is why, section 35 of the Indian Stamp Act does not allow an instrument chargeable with the duty to be admitted as evidence if it is not duly stamped, however, there are certain exceptions enshrined in the proviso to this section, they are-
The burden to pay the proper stamp duty under this Act, generally lies on the person actually drawing, making or executing such transaction, but it varies on the basis of type of transaction. Under section 29 the following categories are expressly mentioned-
|Sl. No.||Section||Particulars of transactions||Stamp Duty Expenses shall be borne-|
|1.||29(a)||In the case of any instrument described in any of the following Articles of Schedule I, namely:
||By the person drawing, making or executing such instrument:|
|2.||29(b)||In the case of a policy of insurance other than fire-insurance.||By the person effecting the insurance.|
|3.||29(bb)||In the case of a policy of fire-insurance||By the person issuing the policy|
|4.||29(c)||In the case of a conveyance (including re-conveyance of mortgaged property) by the grantee: in the case of a lease or agreement to lease||By the lessee or intended lessee|
|5.||29(d)||In the case of a counterpart of a lease||By the lessor|
|6.||29(e)||In the case of an instrument of exchange[including swap]||By the parties in equal shares|
|7.||29(f)||In the case of a certificate of sale||By the purchaser of the property to which such certificate relates|
|8.||29(g)||in the case of an instrument of partition||By the parties thereto in proportion to their respective shares in the whole property partitioned, or, when the partition is made in execution of an order passed by a Revenue-authority or Civil Court or arbitrator, in such proportion as such authority, Court or arbitrator directs.|
|9.||29(h)||In the case of sale of security through stock exchange||by the buyer of such security|
|10.||29(i)||In the case of sale of security otherwise than through a stock exchange,||by the seller of such security|
|11.||29(j)||in the case of transfer of security through a depository||by the transferor of such security|
|12.||29(k)||In the case of transfer of security otherwise than through a stock exchange or depository||by the transferor of such security|
|13.||29(l)||In the case of issue of security, whether through a stock exchange or a depository or otherwise,||by the issuer of such security|
|14.||29(m)||In the case of any other instrument not specified herein||by the person making, drawing or executing such instrument.|
♦ Exempted Transactions:
With a view to promote ease of doing business in India, the Central Government has, from time to time introduced several amendments by which they exempted certain specific transactions from stamp duty. Such transactions are-
1. Section 8: If a local authority raised loan under the provisions of Local Authorities Loan Act, 1879 or of any other law for the time being in force, by the issue of bonds, debentures or other securities then, such bonds, debentures or other securities are not required to be stamped and shall be charged only in respect of such loan, but no further charge on renewal, consolidation or sub-division or otherwise is payable on the same.
2. Section 8A: If any securities are dealt in depository, then such securities shall not be liable to stamp duty.
3. Section 8B: A scheme for corporatisation or demutualisation, or both of a recognised stock exchange or an instrument of transfer, pursuant to scheme is not liable to duty.
4. Section 8C: Negotiable warehouse receipts are not charged with stamp duty.
5. Section 8D: An agreement or document executed for the purpose of assignment of any receivables is not charged with stamp duty.
6. Section 8E: Any transaction for the purpose of conversion of a branch of any bank into a wholly owned subsidiary of bank or transfer of shareholding of a bank to a holding company of bank is not liable to stamp duty.
7. Section 8F: Agreement or document for transfer or assignment of rights or interest in financial assets not liable to stamp-duty
Compared to other taxation statutes in India, the Indian Stamp Act is easier to understand and valuation or computation of stamp duty under this Act is less complex. Moreover, it is a continuous source of revenue for the Government. Especially in this post GST era, when states have lost jurisdiction over many taxes as they were subsumed into GST, importance of stamp duty has grown higher, in generating revenue for the State Governments. Therefore, in my opinion, the Act is a very successful fiscal legislation. But because of large scale changes in the usage of the instruments since the Indian Stamp Act, 1899 was introduced, a need to amend a good number of provisions of this Act is being felt for quite some time. In this regard the 67th report of the Law Commission came in the year 1976, wherein large amendments such as certain alterations in procedure of drafting the instruments, alterations in the procedure of computation, improving the language of law to provide better clarity, more strict provisions for offences committed under the Act, and inclusion of provisions for postal stamps etc., were made. Serious efforts are now being made to bring this law in tune with time.