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Report No. 67

Chapter 12

Computation of ad Valorem Duty-Sections 20 to 26

12.1. Introductory.-

Duty under the Act is of two kinds-fixed and ad valorem. The computation of duty where it is fixed presents no difficult problems, once it is determined that the instrument belongs to that particular category. But the computation of duty ad valorem sometimes presents problems, either because the amount1 or consideration is contingent2 or unascertained or is expressed in kind,3 or because it is expressed in other currency,4 or because of other special circumstances-e.g., incumbrances5 and periodical payments.

1. e.g. Royalty (section 26).

2. Interest (section 23.)

3. e.g. stock (section 21 and section 23A).

4. Foreign Currency (section 20 and section 22).

5. Sections 24-25.

12.2. Section 20.-

Under section 20, where an instrument is chargeable with ad valorem duty in respect of any money expressed in any currency other than that of India, such duty shall be calculated on the value of such money in the currency of India according to the current rate of exchange on the day of the date of the instrument. For this purpose, the Central Government may, from time to time, by notification in the Official Gazette, prescribe a rate of exchange for the conversion of British or any foreign currency into the currency of India for the purposes of calculating stamp-duty. The section needs no change.

12.3. Section 21.-

Section 21 provides that where an instrument is chargeable with ad valorem duty in respect of any stock or any marketable or other security, such duty shall be calculated on the value of such stock or security according to the average price or the value thereof on the day of the date of the instrument.

It needs no change.

12.4. Section 22-Effect of statement of rate of exchange.-

Under section 22, where an instrument contains a statement of current rate of exchange or average price, as the case may require, and is stamped in accordance with such statement, it shall, so far as regards the subject-matter of such statement, be presumed, until the contrary is proved, to be duly stamped.

It needs no change.

12.5. Section 23-Interest.-

Section 23 deals with interest expressly made payable by the terms of an instrument. It provides that such instrument shall not be chargeable with duty higher than that which it would have been chargeable had no mention of interest been made therein. The section is not confined to simple interest, it applies to compound interest also. Therefore, a stipulation in an instrument to pay compound interest need not be separately stamped as a separate instrument.1

Under the English law also, stamp duty is calculated on the principal sum secured by an instrument, irrespective of any sum which may become due as interest under the terms of the instrument.2

1. (a) Bairsnl Rindan Samiti v. Sital Chandra, AIR 1930 Cal 630 (631) (FB). (b) Gomez v. Young, (1869) 2 Beng LR (OC 165).

2. (a) Pruessing v. Ing., (1829) 106 ER 912.

(b)Doed' Scruton v. Sneith, (1832) 131 ER 356 (359).

(c) Prudential Mutual Assurance Investment & Loan etc. Association v. Curzon, (1852) 155 ER 1275.

12.6. English Law.-

The judgment in Pruessing v. Ing., (1829) 106 ER 912: 23 RP 253., the leading English case, may be quoted:-

"Abbott C.J.-The Stamp Act imposes upon every promissory note for the payment at any time exceeding two months after date, of any sum of money exceeding 20s, and not exceeding 30s, a duty of 2s. 6d. and other duties upon other notes in proportion to the sums thereby secured. The object of the Legislature was to impose a pro rata stamp duty upon the sum actually due at the time of taking the security, and not upon what might become due in future for the use of the money. The question, therefore, in this case, is, what was the sum due at the time when the note was taken? For, that is the sum secured. I am quite satisfied that the words "sums of money" in the Act, mean the principal sum mentioned in the note, and not a sum compounded of principal and interest. A contrary decision would be most mischievous, and have the effect of avoiding many securities; for it has been the constant practice, under similar provisions applicable to bonds in this and former Stamp Acts, to measure the stamp duty by the principal sum secured although interest is always made payable from the date of the bond. I think, therefore, that this rule ought to be refused. Rule refused."

12.7. Where, however, the consideration of the instrument is a lump sum made up of two constituents; namely, the principal and the interest that might accumulate during a given period, a question may arise whether the instrument will be chargeable for the principal, or whether the instrument will be chargeable for the lump sum. In a Calcutta case,1 a bond for a loan of Rs. 100 stipulated that the obligor should "pay twice the amount, including Rs. 100 for interest, total Rs. 200 in eight years from 1301 B.S. to 1308 B.S. according to kists' (instalments) given in the schedule." It was held, that the amount secured by the bond was Rs. 200 and the bond must be stamped accordingly. The High Court added that an earlier Full Bench ruling2 of the Allahabad High Court cited in the reference had no bearing on the matter.

1. Shambhu Chandra Bepari v. Krishna Charan Bepari, 1899 ILR 26 Cal 79 (FB).

2. Gajraj Singh (in re:), 1884 ILR 9 All 585 (FB).

12.8. In a Bombay case,1 the material portion of the Bond was as follows:-

"I have taken from you in cash a loan of Rs. 9-4-0 to which 12 annas have been added for 'Kasar', total Rs. 10; interest on this sum amounts to Rs. 2-8-0; total Rs. 12-8-0. This debt will be repaid by 25 monthly instalments of eight annas each. Instalments in default will carry future interest at the rate of two rupees per mensem."

The question arose whether stamp duty was leviable on Rs. 10 or on Rs. 12-8-0. It was field that the bond should be liable as to stamp as one for Rs. 10 only, and that the provision about interest should be left out of consideration under section 23. The Calcutta High Court's view2 was dissented from by the Bombay High Court. The judgment does not indicate the reasons for dissent. According to the Bombay High Court, if the interest is expressly made payable by the terms of the instrument, then the mere mention of the interest as a lump sum will not render the instrument liable to stamp duty for the total sum of the principal and the interest payable.

1. Vithu v. Nathu, (1901) 3 Born LR 133 (134).

2. Shambhu Chandra Bepari v. Krishna Charan Bepari, 1899 ILR 26 Cal 179.

12.9. One can distinguish between the Calcutta and the Bombay cases on the ground that in the Calcutta case, the sum of Rs. 100, though described as (derived from) "interest", was merged with the principal, so as to bring into being a new principal amount of Rs. 200. In the Bombay case, the amount of Rs. 2-8-0 retained its character as interest. If this explanation is correct, no clarification on the point is needed. It is also to be remembered, that, where a provision for interest changes the category of the instrument itself, section 23 would have no application. Thus, an account written on a sheet of paper signed by the debtor and addressed to the creditor and also containing a stipulation to pay interest, is not a mere "acknowledgment of a debt", within Article 1, but is an agreement, under Article 5(b).1

1. Mulchand Lala v. Kashi Bullar Biszvas, 1907 ILR 35 Cal 111, following Laxmi Bai v. Ganesh, 1906 ILR 25 Born 373.

12.10. Section 23A.- According to section 23A

(1) Where an instrument (not being a promissory note or bill of exchange)-

(a) is given upon the occasion of the deposit of any marketable security by way of security for money advanced or to be advanced by way of loan, or for an existing or future debt, or

(b) makes redeemable or qualifies a duty stamped transfer, intended as a security, or any marketable security, it shall be chargeable with duty as if it were an agreement or memorandum of an agreement chargeable with duty under Article No. 5(c) of Schedule 1.

(2) A release or discharge of any such instrument shall not be chargeable with the like duty.

The section was introduced by Act 15 of 1904, and is a reproduction of section 23 of the (English) stamp Act, 1891. The object of the innovation in sub-section (1) appears to have been to make provision for equitable mortgages, where the advance is made on the deposit of marketable securities.1 The section prevents the levy of a higher duty otherwise chargeable under Article 6 (or in certain circumstances, of a still higher duty under Article 40).

1. The expression "marketable security" is defined in section 2(16A).

12.11. A promissory note would be chargeable under Article 6(2), and a Bill of Exchange would be exempt under Article 40, Exemption 2. That, apparently, is the reason why those two documents are excluded from the scope of the section.

12.12. Sub-section (2) applies to instruments which seek to extinguish the rights created by the instruments given under sub-section (1) and makes a release or discharge of any such instruments given under sub-section (1) also taxable as an agreement, i.e., with the like duty. There seems to be no reported case law on the present section.1 The section needs no change.

1. The decision in ILR 15 Mad 134 was pronounced before the introduction of the section in 1904.

Indian Stamp Act, 1899 Back

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