Board of Revenue, Uttar Pradesh Vs.
Rai Saheb Sidhnath Mehrotra  INSC 275 (26 November 1964)
26/11/1964 SIKRI, S.M.
GAJENDRAGADKAR, P.B. (CJ) HIDAYATULLAH, M.
CITATION: 1965 AIR 1092 1965 SCR (1) 269
D 1986 SC 403 (17)
The Indian Stamp Act, s. 24, Explanation-Duty
whether payable on Mortgage-Money paid before conveyance of the property.
Certain properties were sold by sale-deed
dated 15th December 1952. The vendors, of whom the respondent was one, had
equitably mortgaged these properties with the Chartered Bank of India. In order
to pay off the mortgage debt to the Bank the vendors entered into a contract
with M/s. Oil Corporation of India Ltd. for the sale of the mortgaged property
consisting of lands, buildings plants, machinery, shares, goodwill etc., for a
sum of Rs. 5,55,000. The Chartered Bank agreed to release from its charge the
properties to be conveyed to the vendees provided a sum of Rs. 500,000 was paid
to it. The vendees agreed to pay the said Bank a sum of Rs. 4,89,000 while the
vendors agreed to pay Rs. 1 1,000 to make up the balance. In pursuance of this
agreement the vendors handed over the possession of the plant and machinery of
the two factories to the vendees, who paid Rs. 3,89,000 to the said Bank before
the date on which the sale-deed was executed, and Rs. 100,000 after the
execution of the deed. The Stamp duty was paid only on the last mentioned sum.
In a reference under s. 57 of the Indian Stamp Act the High Court held that the
Stamp Duty was correctly paid. The Board of Revenue U.P. appealed to the
Supreme Court by special leave.
It was contended on behalf of the appellant,
relying on the explanation to s. 24 of the Act that the duty was payable not only
on Rs. 100,000 as actually paid but also on the rest of the sale price.
HELD : (i) From the Explanation to s. 24 it
is plain that it is only the unpaid mortgage money that it deemed to be part of
the consideration. If the mortgage money has been paid off by the date of the
conveyance the explanation does not require it to be added to the
consideration. The phrase 'subject to the mortgage or other encumbrance'
qualifies the word 'sale' and not the word 'property'. [274 B-E] In the present
case the sum of Rs. 3,89,000 having been paid before the conveyance was not
liable to duty. [274 G] (ii)If mortgage money has been paid off by the vendee
before the date of the sale, as part of the consideration, it would be included
in the amount leviable with stamp duty under Act
23. But in the present case Art. 23 did not
apply because neither the sum of Rs. 3,89,000 paid by the vendee before the
sale nor the sum of Rs. 11,000 paid by the vendor after the sale, was shown to
be consideration for immovable property. [275 D]
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 526 of 1962.
Appeal by special leave from the judgment and
order, dated March 20, 1959 of the Allahabad High Court in Civil Miscellaneous
Reference No. 213 of 1955.
270 C. B. Agarwala and 0. P. Rana, for the
A. V. Viswanatha Sastri and J. P. Goyal, for
The Judgment of the Court was delivered by
Sikri, J. This is an appeal by special leave against the judgment of the High
Court of Allahabad in a reference under S. 57 of the Indian Stamp Act, 1899.
The Board of Revenue referred the following questions to the High Court :
(1) Whether the document is a sale-deed for a
consideration of Rs. 1,00,000 as contended by the executants.
(2) Whether in view of the provisions of Section
24 of the Stamp Act, the sale consideration shall be deemed to be Rs. 5,55,000
and duty liable to be paid thereon as held by the Board.
(3) Whether the consideration of the sale
will be deemed to be Rs. Ten Lakhs, i.e., the entire amount due to the mortgage
Bank, and duty is payable thereon.
(4) On what amount is the additional stamp
duty under section 107 of the Kanpur Development Act, 1945, leviable.
The High Court gave the following answer to
the first three questions :
"The document in question is a sale deed
for a consideration of Rs. 1,00,000 only and that the Stamp duty payable in
respect of it was to be calculated on the amount and not on any higher
amount." The appellant, the Board of Revenue, challenges the answer given
by the High Court to the said three questions. We may mention that the answer
to the fourth question is not the subject matter of appeal before us.
The relevant facts are as follows. The
respondent is one of the executants of the deed dated December 15, 1952. The
executants, hereinafter referred to as the vendors, were lessees of two plots
of land and on these plots they had constructed an oil mill, known as Sri
Govind Oil Mills, an Ice and Cold Storage Factory, and buildings in which the
factories stood. The Ice and Cold Storage factory was being run by the vendors
in partnership with Shyam Sunder Gupta and Satya Prakash Gupta. The vendors had
equitably mortgaged these properties with the Chartered Bank of 271 India, and
a sum of Rs. 10,00,000 was due to the Bank. In order to pay off the debt, the
vendors entered into a contract with Messrs Oil Corporation of India Ltd.,
hereinafter referred to as the vendees, for the sale of the lands, buildings,
plants, machinery and stores and goodwill of the Govind Oil Mills and Ice &
Cold Storage Factory for a sum of Rs. 5,55,000, made up as follows; Rs.
1,12,000 for the plant and machinery and goodwill of the Ice and Cold Storage
Factory, Rs. 3,00,000 for the machinery of Sri Govind Oil Mills, Rs. 25,000 for
stores, Rs. 18,000 for goodwill, and Rs. 1,00,000 for the buildings and the
lessee right,% in the plots. Out of this Rs. 66,000 was payable to Messrs Shyam
Sunder Gupta and Satya Parkash Gupta in respect of their share in the Kanpur
Ice and Cold Storage Factory, and the remainder to the vendors.
The Chartered Bank agreed to release from its
charge the properties to be conveyed to the vendees provided a sum of Rs.
5,00,000 was paid to it. The vendees agreed to pay the said Bank a sum of Rs.
4,89,000, while the vendors agreed to pay Rs. 1 1,000 to the Ban& to make
up the balance.
In pursuance of this agreement, the vendors
handed over the possession of plant and machinery of the two factories to the
vendees, who paid before December 15, 1952, Rs. 3,89,000 to the said Bank. On
December 15, 1952, the sale-deed in respect of the buildings and the lessee
rights was executed.
Clause 2 of the deed provided that 'the
vendees hereby declare that the properties hereby conveyed are free from all
encumbrances except the charge in favour of the Chartered Bank of India,
Australia and China, The Mall, Kanpur, which would be paid off so far as the
properties hereby conveyed are concerned in the manner set forth above.' On
these facts, Mr. C. B. Aggarwala, the learned counsel for the appellant, contends
that on a true interpretation of s.
24 of the Indian Stamp Act, 1899, the
consideration for the purpose of calculating ad valorem duty is either Rs.
10,00,000, or Rs. 5,5 5,000 or at least Rs.
1, 1 1,000.
Section 24 reads thus :
"Where any property is transferred to
any person. in consideration, wholly or in part, of any debt due to him, or
subject either certainly or contingently to the payment or transfer of any
money or stock, whether being or constituting a charge or incumbrance upon the
property or not, such debt, money or stock is to be deemed the whole or part,
as the case may be, of the consideration 272 in respect whereof the transfer is
chargeable with ad valorem duty :
Provided that nothing in this section shall
apply to any such certificate of sale as is mentioned in Article No. 18 of
Explanation.-In the case of a sale of
property subject to a mortgage or other incumbrance, any unpaid mortgage money
or money charged, together with the interest (if any) due on the same, shall be
deemed to be part of the consideration for the sale;
Provided that, where property subject to a
mortgage is transferred to the mortgagee, he shall be entitled to deduct from
the duty payable on the transfer the amount of any duty already paid in respect
of the mortgage." The charging article is Art. 23, which is as follows :
"Conveyance [as defined by section 2 ( 1
0) ], not being a transfer charged or exempted under No. 62,Where the amount or
value of the consideration for such conveyance as set forth therein does not
exceed Rs. 50;
Where it exceeds Rs. 50 but does not exceed
Rs. 1 00 The section has a history and it is set out in the judgment of Rankin,
C.J., in U.K. Janardhana Rao v. Secretary of State(). We need not repeat it
here, for we do not propose to rely on it for interpreting s. 24.
The first question which we may pose is :
What is the underlying object of the section ? Illustration 2 to the section
reads "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." In this illustration the consideration set forth in the conveyance
is Rs. 500, and under Art. 23, the amount on which the Stamp duty is leviable
would be Rs. 500 only.
There is no doubt that this is not the real
value of the property for if the property was not the subject-matter of
mortgage, A would not sell the property for Rs. 500 and B would pay more than
Rs. 500. The legislature, therefore, adopted a simple test for valuing the property
taken by (1) (1931) I.L.R. 58 Cal. 33 the vendees, and the test adopted was
that any unpaid mortgage money or money charge, together with interest (if any)
due on the sum shall be deemed to be part of the consideration for the sale.
Therefore, in the illustration the sum of Rs. 1,000 and Rs. 200 are added to
Rs. 500 and the sum on which the stamp duty is payable is determined at Rs.
1,700. The Lord President explained the underlying reason in the case of
Commissioners of Inland Revenue v.
Liquidators of City of Glasgow Bank,(1) as
,,If any other rule was adopted, it is quite
plain that the fair incidence of this tax would be altogether frustrated and
A proprietor has an estate worth pound
There is a bond upon it for Rs. 10,000. He
sells that estate, and the purchaser pays to him the difference between the
amount of the bond and the value of the estate, so that the bond being for
pound 10,000 he pays pound 10,000. The day after he obtains inferment he pays
off the bond. Well, the practical result of that is that he has paid pound
20,000 as the purchase money of this estate, and he has obtained a conveyance
with an ad valorem stamp of the value of pound 10,000. That is a simple
defeating of the purpose and intention of the Legislature as expressed in this
clause, and therefore, I think, upon the plain meaning of this section, that
there was no intention whatever to go back upon the enactment of the 16 and 17
Vict., and to restore the enactment of the 55 Geo. III, which is what the
liquidators are contending for. On the contrary, it seems to me that the 73rd
section plainly intended to continue the provision of the statute 16 and 17
Vict." The next point that needs determination is : What does the phrase
"sale of property subject to a mortgage" mean ? Does this phrase mean
that whenever mortgaged property is sold the explanation applies or does it
imply that if mortgaged property is sold subject to the mortgage then and then
only the explanation applies In our view, the correct meaning is the latter
meaning. Let us see what would be the position if A, instead of selling
property as in illustration 2, adopts the following mode of selling. A sells
property to B for Rs. 1,700, which is subject to mortgage to C for Rs.
1,000 and unpaid interest Rs. 200. A agrees
that Rs. 1,200 be paid to C and Rs. 500 to him. If the first meaning is
adopted, the consideration on which the stamp duty would be leviable would be
(1) (1881) 8 Ct. of Sess. cases, 4th S. 389 274 Rs. 1,700 which is the consideration
expressed in terms of Art. 23, and Rs. 1,200 deemed to be consideration within
s. 24, the total amounting to Rs. 2,900. in our opinion this result could never
have been intended. We agree with the decision of the Calcutta High Court in U.
K. Janardhan Rao v. Secretary of State(1) and of the Bombay High Court in Waman
Martand Bhalerao v. The Commissioner Central Division(2) that the phrase
"subject to a mortgage or other encumbrance" in the explanation to s.
24 qualifies the word 'sale' and not the word 'property'. We need hardly say
that the Stamp Act is a taxing statute and must be construed strictly, and if
two meanings are equally possible, the meaning in favour of the subject must be
given effect to.
Before we consider the facts of this case, we
may mention that it is plain from the explanation that it is only the unpaid
mortgage money that is deemed to be part of the consideration. If the mortgage
money has been paid off by the date of the conveyance the explanation does not
require it to be added to the consideration. If the mortgage money has been
paid off by the vendee before the date of the sale, as part of the
consideration, it would be included in the amount leviable with stamp duty
under Art. 23, but not under the explanation. The conveyance deed would, in the
above eventuality, recite the fact that so much money has been paid to the
mortgagee and it would be the consideration expressed in the deed.
Let us now apply the law as explained above
to the facts of this case. On December 15, 1952, the date when the deed was
executed, Rs. 3,89,000 had already been paid by the vendees to the Bank. Mr.
Aggarwal contends that this amount should be included because it was
consideration moving from the vendees. He says that stamp duty cannot be avoided
by the simple device of paying money before a conveyance is executed. He is
right in this but he must show that Rs.
3,89,000 was an advance payment for the
immovable property conveyed by the deed, dated December 15, 1952. It is quite
clear from the terms of the deed that Rs. 4,55,000 was to be paid for items
other than the immovable property conveyed by the said deed, and the sum of Rs.
3,89,000 had nothing to do with the immovable property. The payment of Rs.
3,89,000 to the Bank left outstanding Rs. 1,11,000 as mortgage money.
Rs. 1,00,000 is expressed to be the
consideration for the conveyance of the immovable property, and, therefore,
falls within Art. 23. This leaves Rs. 11,000, and the question (1) 
I.L.R. 58 Cal. 33.
(2) (1925) I.L.R. 49 Bom. 73.
275 arises whether this sum should be taken
into consideration for the purpose of levying stamp duty. Regarding this item,
the High Court held as follows :
" It is true that till the date of sale
the sum of 1 1,000 had not been paid and there was a charge on the property in
respect of that amount. The vendors themselves had, however, taken liability
for that amount and had agreed to pay it. It had been expressly provided in the
sale deed that the property was being sold free from the charge. The vendees
were in no way liable for the amount and had not undertaken to pay it. In these
circumstances the property cannot be said to have been sold subject to the
charge of Rs. 1 1,000, and if it was not being sold subject to that charge, the
Explanation to section 24 becomes inapplicable." It has already been
noticed that this sum of Rs. 1 1,000 forms part of the price for items other
than the immoveable property. Mr. Aggarwala has not seriously controverted the
finding of the High Court on this point. Accordingly, we hold that this sum of
Rs. 1 1,000 cannot be included for the purpose of levying stamp duty.
In the result, we agree with the High Court
that the stamp duty is to be calculated only on the sum of Rs. 1,00,000.
The appeal is accordingly dismissed with