Stamp duty cannot be levied based on speculative future use or potential market value

Indo Continental Hotels And Resorts Pvt. Ltd. Vs State of U.P. (Allahabad High Court)

In the case of Indo Continental Hotels And Resorts Pvt. Ltd. vs. State of U.P., the Allahabad High Court addressed the issue of stamp duty deficiency imposed on a vacant industrial plot purchased by the petitioner. The plot, declared industrial land with no adjacent commercial activity, was initially subject to stamp duty based on its industrial status. However, authorities later argued that the plot had commercial value due to its proximity to certain establishments, prompting proceedings under Sections 33 and 47 A. Despite the land being used for industrial purposes, with plans to construct a multiplex—a recognized industrial activity by the State—the authorities imposed additional stamp duty, assuming future commercial use. The court held that stamp duty cannot be levied based on speculative future use or potential market value unless officially reclassified by the State from industrial to commercial. Since no such change had been formally declared, the deficiency was deemed improper. The court set aside the impugned orders and directed the refund of any amounts paid by the petitioner within 15 days, with an interest rate of 9% per annum on delayed refunds, to be borne by the responsible officer rather than the State exchequer.

FULL TEXT OF THE JUDGMENT/ORDER OF ALLAHABAD HIGH COURT

1. Heard Mr. Rahul Sripat, learned Senior Advocate assisted by Mr. Akshat Sinha for the petitioner and Mr. Manoj Kumar Srivastava, learned Standing Counsel for State.

2. By means of present writ petition, the petitioner is assailing the order dated 27.11.2007 passed by Assistant Commissioner (Stamp) Ghaziabad in Stamp Case No. 135 of 2005-06 and the order dated 28.7.2010 passed by Chief Controlling Revenue Authority, UP at Allahabad in Stamp Revision No. 262 of 2007/Ghaziabad by which stamp deficiency together with penalty has been imposed and same was affirmed, respectively.

3. Brief facts of the case are that the petitioner has purchased land of Khasra No. 241 area 5090.84 sq. meters, Khasra No. 242 area 1423.41 sq. meters, Khasra No. 243 area 1362.34 sq. meters, Khasra No. 249 area 1429.523 sq. meters, Khasra No. 218 area 2182.19 sq. meters, Khasra No. 249 area 4150.75 sq. meters situated in village Arthala, Pargana Loni, Tehsil and district Ghaziabad for sale consideration of Rs. 3,55,53,825/- and paid stamp duty of Rs. 35,52,500/- and thereafter the same was registered through sale deed No. 12140 dated 11.6.2003 in Bahi No. 1 Zild No. 105 at pages 316-322. It is stated that the land in question was purchased as totally vacant industrial land. Thereafter the proceedings under Section 33/47 A of the Stamp Act was initiated in which the petitioner has submitted detailed reply, however being not satisfied with the same, the impugned order has been passed on 27.11.2007 holding stamp deficiency of Rs. 1,49,19,900/- along with penalty of Rs. 14,92,000/-. The petitioner had challenged the said order in revision, which has also been dismissed by the impugned order dated 28.7.2010 confirming the stamp deficiency as well as levy of penalty. Hence the present petition.

4. Learned Senior Counsel appearing on behalf of petitioner has submitted that admittedly the land in question was purchased as totally vacant industrial land. In the master plan also it was declared as industrial land. He submitted that the due stamp duty was paid for the land in question treating the same as industrial land however notice dated 15.2.2006 was issued by the Assistant Commissioner (Stamp) for appearing on 28.2.2006 in pursuance thereof, the petitioner appeared and filed his objection specifically denying the fact that any inspection of the land in question was ever made and report of auditor declaring the land in question to be commercial is illegal.

5. He further submitted that in the impugned order dated 27.11.2007, the Assistant Commissioner (Stamp) has recorded finding of fact in favour of the petitioner accepting the fact that land in question has been purchased as vacant industrial land and no construction was standing thereon and further the land in question is used for industrial purpose but still holds that land in question is of commercial nature without any basis and imposed the deficiency of stamp together with penalty.

6. He further submitted that the petitioner has made right declaration as the land in question was declared as industrial land which has not been disputed. He further submitted that no commercial activity were disclosed in the nearby vicinity of the land in question and only a reference has come in para 7 of the counter affidavit that old Mohan Mekins factory campus and Engineering College is situated in the vicinity of the land in question and due to location of the property in question, which is very close to N.C.R. Delhi, the same are fetching good market value, therefore, the land use has become commercial instead of industrial. He submitted that neither in the order of Assistant Commissioner (Stamp) nor in the order of Chief Controlling Revenue Authority any such finding has been recorded. He further submitted that on the date of execution of sale deed, its use has to be looked into and not the value of the property in the near future.

7. He further submitted that penalty cannot be imposed in the absence of wrong declaration being made by the petitioner and if the property in question is fetching good market rate on that basis also no proceeding can legally be initiated, even if the property can be used for commercial purpose in the near future then also the imposition of deficiency of stamp as well as penalty is not justified.

8. In support of his claim, learned Senior counsel for the petitioner has relied upon the judgement of this Court in the cases of Sunny Motors Pvt. Ltd. Vs. State of U.P. and others, 2008 (8) ADJ 154, Ramesh Chandra Srivastava Vs. State of U.P. and others, AIR 2007 All 39, Haridwar Hotels Pvt. Ltd. Vs. Chief Revenue Commissioner/ Chief Controller, Revenue, Uttaranchal, 2009 (1) ALJ 138, Shakumbari Sugar and allied Industries Ltd. Vs. State of U.P. and others, 2007 JIR 827, Prafulla Singh Vs. Sate of U.P. and others, 2009 (3) ADJ 488, Maya Foods and Vanaspati Ltd. Co. Vs. Chief Controlling Revenue Authority (Board of Revenue) U.P. 1999 (90) RD 57, Gopi Cold Storage Private Limited Vs. Chief Controlling Revenue Authority UP at Allahabad and others, 2009 (108) RD 548, Ashok Kumar Dubey Vs. State of UP and others, 2008 (105) RD 514 as well as Supreme Court in the Case of Prakashwati Vs. Chief Controlling Revenue Authority, Board of Revenue,UP at Allahabad 1996 (4) SCC 637.

9. In the alternative, learned counsel for the petitioner has further submitted that after purchase of land, the petitioner has moved an application for sanction of map before the Ghaziabad Development Authority in respect of construction of multiplex and same was also to be treated as industrial activity as such there was no change in land use as commercial, therefore, the authorities were not justified in treating the land in question as commercial in nature. He prays for allowing the writ petition.

10. Per contra, learned Standing Counsel supported the impugned orders and submitted that land in question was purchased for construction of multiplex in which various commercial activities are being undertaken and therefore, the authorities below have rightly initiated the proceedings under Section 33/47 A of Stamp Act and imposed the deficiency of stamp as well as penalty upon the petitioner. He prays for dismissal of this writ petition.

11. After hearing learned counsel for the parties, the Court has perused the records.

12. It is not in dispute that the petitioner had purchased vacant plot and paid the stamp duty thereof. The plot in question was not only vacant but also has been declared as industrial land and no commercial activity was being undertaken adjacent to the property in question. For the first time, it has come in the counter affidavit that Mohan Mekins factory campus and Engineering College is situated in the nearby vicinity of the land in question and thus the location of the property in question is fetching good market value. Thereafter the proceedings under Section 33 read with Section 47 A has been initiated on the ground that property in question is having commercial value, therefore, deficiency of stamp duty has been imposed. The petitioner has submitted detailed reply and taken ground that the land in question was vacant industrial land and same was purchased as vacant industrial land. The record further reveals that after purchase of the land in question, an application was moved by the petitioner for sanction of map before the Ghaziabad Development Authority in respect of construction of multiplex. It is also not in dispute that State of UP has declared the construction / running the multiplex as industrial activity on certain conditions. Once it is apparent from the record that functioning of a multiplex is covered under industrial activity, the present proceedings ought not to have been initiated.

13. The record further reveals that while passing the impugned order, a finding has been recorded that at the time of execution of sale deed, plot in question was vacant and no construction was standing thereon and the land was declared as industrial use, still the deficiency of stamp has been levied on the ground that the land in question can be used for commercial purpose.

14. This Court in the case of Sunny Motors (supra) has held that proceedings can be initiated on the basis of report but decision cannot be relied upon on the basis of said report until and unless the Collector has made the inspection himself or through some authorized person. Further the Court has observed that until and unless area in question has been declared as commercial by the State Government, the land use cannot be changed from industrial to commercial and no stamp deficiency can be levied. The relevant part of the judgement is quoted hereunder :-

“7. After respective arguments have been advanced relevant provision which covers the field namely section 47-A of the Indian Stamp Act as applicable in the State of U.P. and relevant provision of U.P. Stamp (Valuation of Property) Rules, 1997 are being quoted below:

Section 47-A :under-valuation of instrument.—

[(1).

(a) If the market value of any property, which is the subject of any instrument, on which duty is chargeable on market value of the property as set forth in such instrument is less than even the minimum value determined in accordance with the rules made under this Act, the registering officer appointed under the Registration Act, 1908 shall, notwithstanding anything contained in the said Act, immediately after presentation of such instrument and before accepting it for registration and taking any action under section 52 of the said Act, require the person liable to pay stamp duty under section 29, to pay the deficit stamp duty as computed on the basis of the minimum value determined in accordance with the said rules and return the instrument for presenting again in accordance with section 23 of the Registration Act, 1908.

(b) When the deficit stamp duty required to be paid under Clause (a), is paid in respect of any instrument and the instrument is presented again for registration, the registering officer shall certify by endorsement thereon, that the deficit stamp duty has been paid in respect thereof and the name and the residence of the person pay them and register the same.

(c) Notwithstanding anything contained in any other provisions of this Act, the deficit stamp duty may be paid under Clause (a) in the form of impressed stamps containing such declaration as may be prescribed.

(d) If any person does not make the payment of deficit stamp duty after receiving the order referred to in Clause (a) and presents the instrument again for registration, the registering officer shall, before registering the instrument refer the same to the Collector for determination of market value of the property and the proper duty payable thereon.]

(2) On receipt of a reference under sub-section (1), the Collector shall, after giving the parties a reasonable opportunity of being heard, and after holding an inquiry in such manner as may be prescribed by rules made under this Act, determine the market value of the property which is the subject of such instrument, and the proper duty payable thereon.

(3) The Collector may, suo motu, on a reference from any Court or from the Commissioner of Stamps, or an Additional Commissioner of Stamps or a Deputy Commissioner of Stamps or an Assistant Commissioner of Stamps or any officer authorized by the State Government in that behalf, within four years from the date of registration of any instrument, on which duty is chargeable on the market value of the property not already referred to him under sub-section (1), call for and examine the instrument for the purpose of satisfying himself as to the correctness of the market value of the property, which is the subject of such instrument, and the duty payable thereon and if after such examination he has reason to believe that the market value of such property has not been truly set forth in such instrument, he may determine the market value of such property and the duty payable thereon:

Provided that, with the prior permission of the State Government an action under this sub-section may be taken after a period of four years but before a period of eight years from the date of registration of the instrument on which duty is chargeable on the market value of the property.

[Explanation.—The payment of deficit stamp duty by any person under any order of the registering officer under sub-section (1) shall not prevent the Collector from initiating proceedings on any instrument under sub-section(3)].

(4) If on enquiry under sub-section (2) and examination under sub-section (3), the Collector finds the market value of the property—

(i) truly set forth and, the instrument duly stamped, he shall certify by endorsement that it is duly stamped and returned it to the person who made the reference;

(ii) not truly set forth and the instrument not duly stamped, he shall require the payment of proper duty or the amount required to make up the deficiency in the same, together with a penalty of an amount not exceeding four times the amount of the proper duty or the deficient portion thereof.

8. Relevant portions of Rules 4, 5 and Rule 7 of U.P. Stamp (Valuation of Property) Rules, 1997 are quoted below:-“Rule-4. Fixation of minimum rate for valuation of land construction value of non-commercial building and minimum rate of rent of commercial building.—(1) The Collector of the district shall biennially, as far as possible, in the month of August, fix the minimum value per acre/per square meter of land, the minimum value per square meter of construction of non­commercial building and the minimum monthly rent per square meter of commercial building situated in different parts of the district taking into consideration the following facts:

(a) in case of land—

(i) classification of soil,

(ii) availability of irrigation facility,.

(iii) proximity to road, market, bus, station, railway station, railway station factories, hospitals and Government offices, and

(iv) location with reference to its situation in urban area, semi-urban area or country side.

(b) In case of non-commercial building—

(i) cost of material used in the construction of building,

(ii) labour charges

(iii) type of construction, age, and depreciation of building.

(c) In case of commercial building—

(i) prevailing rent in locality, and

(ii) nature of economic activity in the locality.

(2) The Collector of the district may suo motu or on an application made to him in this behalf, on being satisfied about the incorrectness of the minimum value of land or of the construction of non-commercial building, or the minimum rent of a commercial building fixed by him under sub-rule (1), for reasons re corded in writing, revise the same within a period of two years from the date of fixation of minimum value or rent, as the case may be.

(3) The Collector of the district shall after fixing the minimum value per acre/per square meter of land, and of the construction of noncommercial building and the minimum rent per square meter of commercial building under sub-rule (1), send a statement in three part to the Registrar, the first part of such statement shall contain the division of the district under his jurisdiction, into urban area, semi-urban area and the country side, second part shall specify the minimum value of land situated in different parts of the sub-district and the third part shall contains, in the case of non-commercial building the minimum value of construction and in the case of commercial building the minimum rent fixed under sub-rule (1).

(4) The Registrar shall supply copies of statement mentioned in sub-rule (3) to the Sub-Registrars under his control and shall also forward a copy of the same to the Inspector General of Registration, Uttar Pradesh.

(5) Every Registering Officer shall cause a copy of the above statement to be affixed on the notice board outside the registering offices.

Rule-5 :Calculation of minimum value of land, grove, garden and building—For the purposes of payment of stamp duty, the minimum value of immovable property forming the subject of an instrument shall be deemed to be such as may be arrived at as follows:

(a) In case of land—Minimum value. Whether agriculture or non-agriculture— Area of land multiplied by minimum value fixed by Collector of the district under rule.

(b) in case of grove of garden:

(i), (ii), (iii), (iv),(c) in case of building:

(i) Non-commercial building-Minimum value of land whether covered by the construction or not, which is subject-matter of instrument, as worked out under Clause (a) building arrived at by multiplying the construction area of each floor of the building by the minimum value fixed by the Collector of the district under rule.

(ii) Commercial building—Minimum value of land whether covered by the construction or not, which is subject-matter of instrument at worked out under Clause (a) plus three hundred times the minimum monthly rent of the building arrived at by multiplying the constructed area of each floor of the building with the minimum rent fixed by the Collector of the district under Rule 4.

Rule-7.Procedure on receipt of a reference or when suo motu action is proposed under section 47-A.—(1) On receipt of a reference or where action is proposed to be taken suo motu under section 47-A, the Collector shall issue notice to parties to the instrument to show-cause within thirty days of the receipt of such notice as to why the market value of the property set forth in the instrument and the duty-payable thereon be not determined by him.

(2) The Collector-may admit oral or documentary evidence, if any, produced by the parties to the instrument and call for and examine the original instrument to satisfy himself as to the correctness of the market value of the subject-matter of the instrument and for determining the duty payable thereon.

(3) The Collector may:

(a) call for any information or record from any public office, officer or authority under the Government or local authority;

(b) examine and record the statement of any public officer or authority under the Government or-local authority;

(c) inspect the property after due notice to the parties to the instrument.

(4) After considering the representation of the parties, if any, and examining the records and other evidence, the Collector shall determine the market value of the subject-matter of the instrument and the duty payable thereon.

(5) If, as a result of such inquiry, the market value is found to be fully and truly set forth and the instrument duly stamped according to such value, it shall be returned to the person who made the reference with a certificate to that effect. A copy of such certificate shall also be sent to the Registering Officer concerned.

(6) If as a result of such inquiry, the market value is found to be undervalued and not duly stamped, necessary action shall be taken in respect of it according to relevant provision of the Act.

9. The provisions quoted above has been subject-matter of interpretation before this Court in the case of Ram Khelawan v. State of U. P., as follows:

Relevant paragraphs 15 to 25 is being extracted below:

“15. It is quite possible that even in the first instance the instrument/deed may show the valuation of the property to be less than the minimum value determined in accordance with Rules of 1997 (popularly known as circle rate) still purchaser or seller may not be required to pay more stamp duty. The only purpose of the minimum market value fixed and circulated under Rule 4 of the Rules of 1997 is that in case on the face of it the market value of the property set forth in the sale deed is less than minimum market value fixed under the said Rules then Registering Officer cannot register the deed and it will have to refer the same to the Collector unless on being asked by him to make good the deficiency in stamp duty, parties to the sale deed make good the requisite deficiency. In case deficiency is not made good then matter will have to be referred by Registering Officer to the Collector. However, thereafter it is quite possible that Collector may hold that even though market value of the property set forth in the deed is less than minimum market value fixed under the Rules of 1997 still the market value set forth in the sale deed is correct and proper stamp has been paid. It is quite clear from section 47-A(4)(i) and Rule 7(5).

16. However, if deed has been registered then action may be taken only under section 47-A (3) of the Stamp Act. Rule 7 of the Rules of 1997 prescribes the procedure for determining market value of the subject-matter of the instrument. This Rule nowhere refers to the minimum value of the property fixed in accordance with Rule 4 of the said Rules, Sub-section (2) of section 47-A of Stamp Act obliges the Collector for the purpose of determining of the market value of the property which is the subject of instrument presented for registration after holding inquiry in such manner as may be prescribed by Rules made under the said Act. This clearly refers to Rule 7 of Rules of 1997. However, subsection (3) of the said section only says that Collector may examine the instrument for the purpose of satisfying himself as to the correctness of the market value of the property, which is subject of such instrument. Manner of examination has not been mentioned and the said sub-section (3) also does not refer to any Rules. However, Rule 7 makes itself applicable to both situations; pre­registration inquiry as well as post registration examination regarding market value of the property. It is interesting to note that Rule 7 no where prescribes the basis, formula or principle for determining market value. It only prescribes procedure like notice, admission of oral or documentary evidence, calling for information or record from any public office and inspection of property. The result is that, whether Rule 7 of Rules of 1997 applies or not market value has to be determined on the same principle on which market value in land acquisition cases is determined. Minimum market value fixed in accordance with Rules of 1997 is relevant only and only for the purposes of referring the document by Registering Officer to the Collector before registration. Even after such reference market value is to be determined not in accordance with the minimum value fixed under Rule 4 of the Rules of 1997 but in accordance with general principles of determination of market value as applicable in land acquisition cases. Simultaneously when proceedings are initiated after registration of the document under section 47-A (3) of the Act market value has to be determined in accordance with genera principles applicable for the said purpose like principles of determination of market value in land acquisition cases without taking recourse to minimum market value of the property fixed in accordance with Rule 4 of the Rules of 1997.

17. It has been held by a Division Bench of this Court in Kaka Singh v. Additional Collectors, District Magistrate (F & R),that treating method of calculation of market value given under Rule 341(since repealed and substituted by Rule 4 of the Rules of 1997) as conclusive and final is erroneous in law. It has further been held that the purpose of entire exercise under section 47-A as supplemented by the relevant rules is to see as to whether the parties to the conveyance or instrument have deliberately under valued it for the purpose of deceitful gain. In a case where it is found that the value of the conveyance was fraudulently made although more has passed on it, section 47-A would come into play (para-10). In the said authority the following observation of AIR 1974 Mad 117 was quoted:

“We are inclined to think that the object of the Amending Act being to avoid large scale evasion of stamp duty, it is not meant to be applied in a matter of fact fashion and in a haphazard way Market value itself as we already mentioned, as a changing factor and will depend on various circumstances and matters relevant to the consideration. No exactitude is in the nature of things possible. In working the Act, great caution should be taken in order that it may not work as an engine of oppression. Having regard to the object of the Act, we are inclined to think that normally the consideration stated as the market value in a given instrument brought for registration should be taken to be correct unless circumstances exist which suggest fraudulent evasion.”

18. The Supreme Court in R.C. Bansal v. D.M., has held that circle rates under Rule 340-A (since repealed and substituted by Rule 4 of Rules of 1997) is merely a guideline and at best prima facie rate of the area concerned and on the one hand parties to the deed are entitled to say that actual valuation is less than the circle rate and on the other hand Collector is also empowered to decide that actual market value is more than the circle rates.

19. In State of Punjab v. Mahabir Singh, which was a case from Punjab it has been held that circle rate is merely a guideline provided by the State which would only serve as prima facie material and that no absolute higher or minimum value can be pre-determined (para-5). The Supreme Court approved the judgment of Punjab & Haryana High Court in AIR 1991 P & H 26. which held that the guidelines cannot control the quasi Judicial discretion to determine the correct valuation of the property.

20. In Maya Food v. C.C.R.A., a Single Judge of this Court has held that market value of the land cannot be determined with reference to the use of the land to which buyer intends to put it and that in determining the market value the potential of the land as on the date of the sale alone can be taken into account and not the potential it may have in the distant future.

21. In R.K. Agarwal v. C.C.R.A., a Single Judge of this Court has held that assumed rental value without any basis cannot form the basis for determining market value and that the proper course is to decide the market value on the basis of some exemplars of other land in the vi-cinity which had been sold at the relevant time (para-4).

22. In Smt. Prabhawati v. C.C.R.A., held that mere smallness of the area would not suggest the same by itself to be a costly property and that merely because property situated in an area which is close to a decent colony where people of high income group reside does not by itself make it a part thereof.

23. The view that Rules of 1997 (which have been framed at the place of old Rules 340, 340-A and. 341) cannot be taken into consideration at the time of determination of market value which I have taken is squarely covered by the authority of a Single Judge of this Court in Aniruddha Kumar v. C.C.R.A.. In the said authority it has also been held that agricultural land cannot be treated as residential plot unless declaration under section 143 of U.P.Z.A. & L.R. Act is made and that market value of land is to be determined on the basis of the character of the land and its user. In para-21 of the said authority i??? has also been held that valuation cannot be determined on the basis of its future potential.

24. In H.L. Sahu v. State of U.P. a Single Judge of this Court struck down Note-2 of order dated 3.8.1997 prescribing circle rate of District Kaushambi under Rule 4 of the Rules of 1997 which provided that in case agricultural land is not transferred in favour of a co-tenure holder or a person having adjoining agricultural plot then the same shall be valued on the basis of per Sq. Meter in case area of the land sold is less than 1500 Sq. Meter.

25. It has been found in several cases like the present one that the entire basis of determination of market value for the purpose of stamp duty is ex-parte report of Tehsildar or other officer. Ex-parte inspection report may be relevant for initiating the proceedings under section 47-A of Stamp Act. However, for deciding the case no reliance can be placed upon the said report. After initiation of the case inspection is to be made by the Collector or authority hearing the case after due notice to the parties to the instrument as provided under Rule-7(3)(c) of the Rules of 1997. Moreover in the inspection report distance of the property from other residential or commercial properties and road must be shown and wherever possible sketch map must also be annexed alongwith the report so that correct valuation may be ascertained with reasonable certainty.”

10. Division Bench of this Court in the case of Kishore Chandra Agarwal v. State of U.P.,has held as follows:

“22. In the case of Prakashwati v. Chief Controlling Revenue Authority, Board of Revenue, Allahabad, Hon’ble the Apex Court has held that situation of a property in an area close to a decent colony not by itself would make it part thereof and should not be a factor for approach of the authority in determining the market value. According to said decision, valuation has to be determined on constructive materials, which could be made available before the authorities concerned.

23. The rate list dated 16.6.2004 also provides that the valuation of the agricultural land situate on the main road for the purpose of stamp duty and registration from Chinhat circle upto the border of Lucknow district has been fixed at the rate of Rs. 24,00,000/- per hectare and the petitioner has paid the stamp duty at the rate of Rs. 24,00,000/- per hectare. The agricultural land situate on the roadside of a highway in semi-urban area or countryside area cannot be treated as commercial or residential unless that area is declared as commercial or residential in the Master Plan prepared by the State Government. Admittedly, Khasra No. 448 is recorded, as agricultural land and it cannot be treated to be a residential plot or commercial plot until there is a declaration under section 143 of the U.P. Zamindari Abolition and Land Reforms Act.

26. While revising the rates for the purposes of stamp duty and registration under the provisions of U.P. Stamp (Valuation of Property) Rules, 1997, the authorities must remember at what rate they are acquiring the property under the provisions of the Land Acquisition Act and at what rate they are intending to sell to the public at large. Artificial increase of the rates of residential, commercial and agricultural is not in the interest of general public at large. The Collector, Lucknow, who has acquired the land for Lucknow Development Authority for Gomti Nagar Extension Scheme has paid the compensation to the land owner at the rate of Rs. 23/- per Sq. Ft. and for sale after development they have valued the same land for residential purposes about Rs. 400/- per Sq. Ft. and for commercial purposes about Rs. 600/- per Sq. Ft. in a most arbitrary and illegal manner. The artificial increase of the price of such land is not in the interest of public at large. While fixing the rates of the agricultural, residential and commercial land for the purposes of stamp duty under the provisions of the U.P. Stamp (Valuation of Property) Rules, 1997, the provisions of sections 48 and 50-C of the Income Tax Act should also be kept in mind.

27. The Collector/District Magistrate, Lucknow under the provisions of the U.P. Stamp (Valuation of Property) Rules, 1997 has no jurisdiction to say that the stamp duty in respect of the agricultural land situate in semi-urban area or country side area shall be charged treating the land as commercial. The Collector/District Magistrate, Lucknow while issuing the rate list under the provisions of Rule, 1997 has no authority to declare the agricultural land as residential or commercial for the purposes of realisation of stamp duty as the authority to declare a particular area of the district as residential or commercial vests with the State Government while preparing the Master Plan of the City.”

15. This Court in the case of Haridwar Hotels Pvt. Ltd. (supra) has held that use of property cannot be determined on the fact of levy of deficiency of stamp. The relevant part of the judgement is quoted hereunder :

“9. ….The revenue authorities below have wrongly applied the rate contrary to the circle rate determined under the rules having the statutory force of law as well as enhanced the stamp duty on the basis of the fact that a hotel was being constructed after the purchase of the land and, therefore, the purpose of the purchase of the land was construction of the hotel and, therefore, multiplied the market value by one and half times, which is contrary to the provisions of article 23 of Schedule I-B appended to the Stamp Act, which in very clear terms provides the value of the consideration of such conveyance as set forth therein or the market value of the immovable property which is subject matter of the conveyance. The subject matter of the conveyance was the open land. It does not contemplate the stamp duty to be paid on the nature of future use of the property. ….”

16. This Court in the case of Shakumbari Sugar and allied Industries Ltd (supra) has held that deficiency of stamp cannot be levied as property could be used for different purpose on the basis of potential value in near future. The relevant part of the judgment is extracted below:-

“19. In view of the judgments of this Court, it is clear that the market value of the property has to be determined with reference to the date of which the document is executed. The market value of the property cannot be determined on the basis that the said property could be used for a different purpose nor could the market value be determined on the basis that it has a potential value in future. A Full Bench of this Court has clearly held that on the basis of the various provisions of the Stamp Act, the market value is to be determined with reference to the date of which the document was executed and that any subsequent change in the nature or use of the land which may result in the enhancement of the market value of the property was not to be taken into account.”

17. Supreme Court in the case of Prakashwati (supra) has held as under :-

“4. We have carefully examined the orders of the first respondent. Noticeably the house is built on a very small area i.e. 68.84 sq. yards only in a town which is not a metropolis. Presumably the smallness of the area would not suggest the same by itself to be a costly property or be situated in a prestigious or posh locality, where the upper classes would rub shoulders to acquire it. Secondly, it (sic) being situated in an area which is close to Samrat Vikram Colony, said to be a decent locality, where people of high income group reside, does not by itself make it a part thereof. We are doubtful whether the said factum of closeness by itself would cast any reflection on the price of property in question. Seemingly, influenced by the factor of the close proximity of Samrat Vikram Colony, the Assistant Commissioner, Stamps, for one does not know how, determined the monthly rental value of the property at Rs. 1500/- per mensem and worked out the price of the house on that basis. Despite that the Tehsildar at a subsequent stage reported that the annual rental value of the house was Rs. 1200/- per annum, where as for house tax purpose it was recorded as Rs. 840/- per annum. The first respondent ignoring the same worked out the monthly rental of the property at Rs. 830/- per mensem and its value at Rs. 2.5 lacs, ostensibly on the basis that the average cost of construction of building in the year 1992 was about Rs. 400/ – per sq. yards, inclusive of the land cost. This figure too was arrived at, one knows not from where, without determining the age of the building, the quality of construction and citing appropriate instances. The approach of the authorities, to say the least, was highly vain, casual and unsatisfactory and dehors any constructive material on the basis of which one could have said that the decision arrived at by the first respondent was fair and reasonable. We cannot approve of such an assumptive posture of the respondent in treating the appellant as an evader. We must, therefore, upset the impugned order of the first respondent and the proceedings for the supposed deficient payment of stamp duty, but confining the end result to the facts and circumstances of the instant case, when the valuation fixed is at least not below the minimum prescribed under Section 341 of the Stamp Rules.”

18. This Court in the case of Prafulla Singh (supra) has held as under :-

“5.In P. Ram Reddy v. Land Acquisition Officer, Hyderabad Urban Development Authority, Hyderabad, (1995) 2 SCC 305 : (1995 AIR SCW 871), the Supreme Court held that the question of future potential of the land in question cannot be the determinatric factor for determination of the market value of the land for the purpose of stamp duty payable under the Stamp Act.

6. ..

7. In view of the aforesaid, this Court is of the opinion that the stamp duty can only be determined on the basis of the land use recorded by the State in the revenue records. The mere fact that the land is in close proximity to a residential land will not make an agricultural land into a residential land nor can the authority determine the stamp duty of an agricultural land treating the said land as a residential land.”

19. This Court in the case of Maya Foods and Vanaspati Ltd. Co. (supra) has held as under:-

“20. …The market Value of the land cannot be determined with reference to the use of the land to which buyer intends to put it. One buyer may Intend to establish an industrial undertaking thereon, another may intend to use it for agricultural purpose and . a third person may intend to dedicate it for charitable purposes like leaving it open as pasture ground or a cremation ground or a playground. These different Intentions may affect the price that each of them may be willing to pay for the property and such prices have wide variations but the market value is not what each such individual may offer for the property. The market value is what a general buyer may offer and what the owner may reasonably expect. In determining the market value., the potential of the land as on the date of sale alone can be taken into account and not what potential it may have in the distant future.”

20. This Court in the case of Gopi Cold Storage Private Limited (supra) has held as under:-

“4. Having heard the learned Counsel for the petitioner and, having perused the impugned orders, the Court finds that the impugned orders cannot be sustained and are liable to be quashed. The sole basis for the imposition of the deficiency of stamp duty is the audit report submitted by the Deputy Registrar. A perusal of the report indicates that the purchaser is a Cold Storage and had purchased an agricultural land and that the said land could be used in future for commercial purposes and therefore, the rate for commercial land should be made applicable for the purposes of the stamp duty. 5. In my opinion, the approach adopted by the authority relying upon the report of the Deputy Registrar is patently erroneous and cannot be sustained. Admittedly, the land in question is an agricultural and is not an abadi land.

Consequently, the rates applicable on an agricultural land is required to be considered for the purpose of payment of stamp duty. The imposition of deficiency of stamp duty on the ground that the land could be used in future for commercial purposes is erroneous. The mere fact that the land has a potential value for being used for commercial purpose in future will not make the land commercial nor would it change the use of the land. So long as the land is recorded as an agricultural land and its use has not been changed by the authorities, the rates applicable for the purpose of stamp duty will be that as prescribed for the agriculture land. This view of mine is fortified by a catena of cases which the Court had considered in Ashok Kumar Dubey v. State of U.P. and Ors. MANU/UP/0829/2008 : 2008 (105) RD 514 : 2008 (4) AWC 3718. The said judgment is squarely applicable to the present facts of the case.”

21. This Court in the case of Ashok Kumar Dubey (supra) has held as under

“6. In the light of the aforesaid, the admitted position in the present case is, that the land is an agricultural land and is situated in a semi-urban area and is located adjoining an abadi area. The mere fact that the land is adjoining an abadi land will not make the agriculture land as an abadi land unless the land in question is converted into a residential land by the authorities. So long as the land is recorded as an agriculture land, the rates prescribed for agricultural land would be applicable and the authorities cannot presume that the land would be put to a different use in future. The potential value of the land in future is clearly outside the scope and ambit of the proceedings under the Stamp Act for judging the market value of the land in question. The market value of the land is required to be judged on the nature and use of the land existing on the date of the purchase of the land in question and the authorities are not required to judge the use of the land which could be put to a different use in future.

7. In view of the aforesaid, the impugned orders cannot be sustained and are quashed. The writ petition is allowed.

8. This Court finds that based on the imposition of deficiency of stamp duty by the impugned orders, the petitioner was required to deposit 40% of the amount. Since the impugned orders have been quashed, the authorities are obliged to refund the amount within two months from the date of the production of a certified copy of this order.”

22. In view of aforesaid law laid down, it is clear that deficiency of stamp can neither be determined on the value of future use of the property nor it can be levied on the ground that property can fetch good market value nor in the absence of any declaration made by the State Government changing the nature of the land from industrial to commercial. The judgement referred by the counsel for the petitioner clearly indicates for determination the stamp duty only on the date of execution of deed.

23. The case in hand, the property in question was purchased as vacant industrial plot and no material has been brought on record to treat the same as commercial plot. The authorities below have failed to bring on record that nature of the land in question has been changed by passing appropriate order under the relevant Act converting its use from industrial to commercial. In view of above facts as well as law laid down as aforesaid, the impugned orders cannot be sustained in the eyes of law.

24. In the results, the writ petition is allowed. The impugned orders are set aside. Any amount deposited by the petitioner during pendency of the present litigation shall be refunded to the petitioner within 15 days from the date of production of a certified copy of this order before the concerned authority.

25. In the event the amount is not refunded within aforesaid time, the petitioner shall be entitled for payment of an interest at the rate of 9 % per annum from the date of deposit of amount till the date of actual payment. It is made clear that in the event interest is paid, the State exchequer shall not bear the cost of interest and same shall be recovered from the erring officer.

26. List after three months in Chambers for ensuring the compliance of this order.