Report No. 67
Chapter 8
The Charge of Tax-Sections 3 to 7
8.1. Section 3-Introduction.-
We have concluded our consideration of the definitions, and now proceed to a consideration of the charging section and connected provisions. The principal section levying the charge is section 3. As already statd,1 in the scheme of the Act, the duty is levied on the instrument, and not on the transaction. However, where the transaction is effected by more than one instrument or where the instrument relates to several distinct matters or falls within more than one category, the principle that duty is levied on the instrument must need certain refinements. For these special situations, special provisions are needed. In the scheme of the Act, the general proposition for the charge of tax is to be found in section 3, while sections 4, 5 and 6 are devoted to the special situations referred to above. Section 7 contains a provision intended to ensure payment of duty on certain policies.
1. Chapter 1, supra.
8.2. Section 3-General conditions for charge of duty.-
Section 3 is the charging section. The section is a long one, and deals with various matters. Its provisions are fundamental in the scheme of the Act. Before we proceed to consider in detail the various parts of the section, it would be convenient to emphasise certain general conditions for the charge of duty which are incorporated in the section. In general, there is no charge of Stamp duty under the section unless the following conditions are satisfied:-
(i) There must be an instrument.
(ii) The instrument must be one mentioned in the Schedule to the Act.
(iii) The instrument must be "executed".
(iv) The instrument must be executed in India,-clause (a)-or must be received in India in the manner specified in clause (b) or clause (c).
(v) If the instrument is not executed in India and is not a bill of exchange or promissory note, etc., it must relate to any property situated in India or to any matter of thing done or to be done in India. This is provided in clause (c) of section 3.
8.3. Exemptions.-
Even where the general conditions of chargeability, as mentioned above, are satisfied, the instrument may be exempt from duty. Such exemption may arise by reason of-
(a) the proviso to section 3, or
(b) some other section of the Act, or
(c) A specific provision below the charging entry in the Schedule, under "Exemption", or
(d) a notification issued under section 9 of the Act, or
(e) A special law-for example,1 section 115, Presidency Towns Insolvency Act, 1909; section 51, Land Acquisition Act, 1894, section 28, Co-operative Societies Act, 1912; or section 29, Reserve Bank of India Act, 1934.
The principal provision-i.e., the charge-is to be found in clauses (a), (b) and
(c) of the section. The provisos grant exemption for two cases.
1. The List is not exhaustive.
8.4. The first proviso to the section relates to instruments executed by the Government, etc. The scope of the exemption has been narrowed down by successive Stamp Acts. Thus, under the Act of 1860, all instruments in which the Government was a party, were exempt.1 Under the Act of 1862, instruments executed by or on behalf of the Government were exempt from stamp duty. Under the Act of 1879, the exemption was practically in the same words as the present proviso. The second proviso, relating to registered ships, was inserted at the Select Committee stage in the present Bill, in order to bring the Indian law in line with the English law.2 Act 19 of 1838, mentioned in the second proviso, is the Bombay Coasting Vessels Act, 1838, which provides for the registration of vessels which are trading coastwise and also fishing vessels and a harbour draft. Act 10 of 1841 also mentioned in the proviso, is the Registration of Ships Act, 1841. We shall deal later3 with the effect of repeal of these Acts on section 3.
1. Rainaswamy v. P. Appa Reddy, (1870) 1 Mad HCR 190.
2. Section 721, Merchant Shipping Act, 1894 and 'the (English) Stamp Act, 1891, First Schedule, Second general description.
3. See infra (paras. 8,9).
8.5. Place of execution and liability to stamp duty and time of stamping.-
The place of execution of an instrument is of importance with reference to the charge of duty as well as with reference, to the time of stamping. The provisions applicable to the following three broad categories of instruments (assuming, in each case, that the instrument is chargeable to duty under the Schedule), are as follows:-
(a) Instruments executed totally in India are governed by section 3(a) and section 17. They are charged under section 3. The general rule1 is that they must be stamped at the time of execution.
(b) Instruments executed totally outside India are governed by section 3(b) or section 3(c), as the case may be, and section 18. They are chargeable under section 3(b) or 3(c). The general rule,2 except in the case of promissory notes, etc. is that they must be stamped, within the prescribed time limit, after they are received in India. But it must be remembered that this rule applies only where the instrument (besides being chargeable under a specific article in the Schedule) relates to property within India or to some act or thing done or to be done in India. Otherwise, there is no obligation to stamp the instrument, even if the instrument is received in India, if it is not subsequently "executed" in India .3
(c) Instruments executed partly outside India and partly in India are governed by section 3(a) and section 17. They are chargeable under section 3(a). It is to be noted that they fall outside section 18, because section 18 applies only where the instrument is executed totally outside India.4 Such instruments must be stamped at the time of their (first) execution in India.5 There are, thus, three principal points of time-execution, bringing into India, or first execution in India-which may become relevant to the charge of duty and the time of stamping.
From this charge of duty, there is an exclusion, contained in the first proviso to section 3.
1. Section 17.
2. Section 18.
3. If iris later executed in India, category (c) in our analysis becomes relevant.
4. Category (b), supra.
5. Section 17.
8.6. Section 3, first proviso.- Under the first proviso, no duty shall be chargeable in respect of-
"(i) any instrument executed by or on behalf or in favour of the Government in cases where, but for this exemption, the Government would be liable to pay the duty chargeable in respect of such instrument". A question of practical importance arising out of this proviso is this. What are the cases where, "but for this exemption the Government would be liable to pay the duty chargeable," in respect of an instrument? The answer may appear to be simple, but it is not really so. This is because there is no specific section in the Act dealing with the question-who is liable to pay duty?
Under section 29,1 in the absence of an agreement to the contrary, "the expenses of providing the proper stamp shall be borne" by the specified persons. This section, as the words quoted above show, does not state that the specified persons "shall pay the duty"-though the marginal note to the section reads-"Duties by whom payable".
1. Section 29.
8.7. The question then arises-Can section 29 be utilised for the purposes of the first proviso to section 3, when the Government, as a party to an instrument, undertakes to bear the expenses of the stamp duty, and is the case to be regarded as falling within the first proviso to section 3 so as to have the effect provided therein, namely, that "no duty shall be chargeable" on the document concerned?
The position in this respect cannot be said to be beyond doubt. One view on the subject1 is that the exemption under the first proviso will not apply in such a case. Apparently, however, the contrary practice seems to be followed in the Government of India.
1. See 1933 Madras Stamp Manual, p. 18 (Citing Board Precedents) 356, Mis. 20th February, 1904 and 186, R. Mis., 15th April, 1904, cited in Chitaley Stamp Act, (1951), p. 223.
8.8. Recommendation as to section 3, first proviso.-
It is desirable that the position on this point, which is of a frequently recurring nature, should be indicated more clearly. We, therefore, recommend the insertion of the following words at the end of the first proviso-
"or where the Government has undertaken to bear the expenses of the stamp duty".
Such an amendment will avoid controversies arising from the fact that the language of section 29 is not identical1 with that of section 3. The proviso speaks only of the "Government", but the view has been taken2 that where a local body acts as a Government agency for the transaction of duties devolving upon Government as part of its ordinary administration, such as making roads, erecting Government buildings, etc., then this proviso would apply. We do not consider it necessary to suggest any amendment on this point.
1. Para 8.6, supra.
2. 1934 Punjab Stamp Manual, Part IB, Ch. 3, para. 3, (Citing Financial Commissioner's letter dated 13-9-1884), cited in Chitaley's Commentary on the Stamp Act, (1951), p. 228.
8.9. Section 3, second proviso.- Section 3, second proviso, is as follows:-
"Provided that no duty shall be chargeable in respect of-
(2) Any instrument for the sale, transfer or other disposition, either absolutely or by way of mortgage or otherwise, of any ship or vessel, or any part, interest, share or property of or in any ship or vessel registered under the Merchant Shipping Act, 1894, or under Act XIX of 1838, or the Indian Registration of Ships Act, 1841, as amended by subsequent Acts."
Of the three enactments, referred to in the proviso, the Merchant Shipping Act, 1894 (English) has been repealed by the Merchant shipping act, 1958. The Coasting Vessels Act (19 of 1838) has been repealed, in so far as it applies to sea-going ships fitted with mechanical means of propulsion and to sailing vessels, by the Merchant shipping Act, 1958. The Indian Registration of Ships Act, 1841, has also been repealed by the same Act.
8.9A. Recommendation.-
It is now appropriate if reference to the Merchant Shipping Act, 1958, is substituted in place of the first and the third of the enactments referred to in the proviso.
8.10. Section 3A (Proposed)-Effect of Exemption.-
This disposes of section 3. We would, at this stage, refer to a new point relevant to the effect of exemption. A doubt sometimes arises1 as to whether the exemption given by each article in the First Schedule is to be regarded as valid only for the purposes of that article, or whether the exemption is to be treated as a general one. In most cases, the latter is the intention, and a specific provision to that effect could be usefully added. Where the exemption is intended to be applicable only in respect of the chargeability of an instrument under the particular article, a specific provision to that effect could be inserted in that exemption. Such a provision would be in harmony with the opening words of section 3 also.
1. See, for example, the controversy as to section 2(5)(c), in the context of a bond consisting of an obligation to deliver grain etc., with reference to the exemption under Article 5, exemption (a)-Agreement for sale etc.:-
(a)Raghubar Daya! v. Emp., AIR 1934 All 201;
(b) AIR 1936 All 488; Reference-Collector of Nimar v. Lakshmi Chand;
(c) AIR 1927 Nag 72 (73); Collector of Nimar v. Lakshmi Chand; (d)Mira Begum, AIR 1935 Lah 122.
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