Report No. 67
12.13. Section 24-Analysis the section.-
We now proceed to section 24. It will facilitate an understanding of the section, if before we go into details, the broad scheme of the section is dealt with. The section could be divided into four parts, namely, the main paragraph, the proviso to the main paragraph, the Explanation, and the proviso to the Explanation.
12.14. Main Paragraph.-
Under the main paragraph, stamp duty on the transfer of property, where it is charged ad valorem, is ordinarily calculated on the consideration, subject to certain special provisions which are not material for the present purpose. In determining the amount of consideration, the normal case where the consideration is paid at the time of the transfer in the form of cash or cheque-that is, in the direct manner-presents no difficulty. But, where the consideration is paid indirectly, the question may arise how it is to be calculated. There are two important situations which may require to be considered, namely-(i) the transfer may be in consideration of a debt, or (ii) secondly, the transfer may be subject to the payment or transfer of any money or stock. The main paragraph of section 24, which focuses attention on these two situations, provides that in such cases, such debt, money or stock is to be deemed the whole or part of the consideration. Of course, this rule becomes of importance only where the transfer is chargeable with ad valorem duty.
12.15. Section 24-Main paragraph-proviso.-
The proviso to the main paragraph enacts that nothing in the section shall apply to any such certificate or sale as is mentioned in Article 18 of the first Schedule. That article, it will be noted, relates to a certificate of sale granted to the purchaser of any property sold by public auction by a civil or revenue court of Collector or other revenue officer. A special case where property is sold subject to mortgage or other encumbrances, requires be dealt with, and that is what the Explanation to section 24 seeks to do. We shall discuss later certain points of interpretation relating to some of the words used in the Explanation. But, for the present it will suffice to say that the principal object of the Explanation is to ensure that the consideration which passes indirectly by the vendor being relieved of his obligation in respect of unpaid mortgage money or unpaid money charged on encumbrances, should be taken into account.
The proviso to the Explanation to section 24 makes a limited provision whereunder, where property subject to mortgage is transferred to the mortgagee, he shall be entitled to deduct, from the duty payable on the transfer, the amount of duty to be paid in respect of the mortgage. This is understandable, because what the mortgagee acquires afresh is merely the difference between the value of the property and the value of the mortgage money. He is, therefore, now required to pay stamp duty only on the difference-provided, of course, the duty has already been paid in respect of the mortgage. We may now deal with each of these in detail.
12.16. Principle of main paragraph.-
The principle underlying the main paragraph of the section is fairly intelligible. The debt in consideration whereof (or subject to payment whereof) the transfer takes place, is, by fiction of law, to be added to the cash consideration. This fiction is understandable, because the amount was indirectly paid to the vendor in the past, or will be paid in the future. The proviso to the main paragraph also creates no problems.
The Explanation may sound curious at the first sight. The object of the corresponding English provision was thus described:1
"The scope and object of the enactment is clear, namely, that upon every purchase ad valorem duty shall be paid on the entire consideration which either directly or indirectly represents the value of the free and unencumbered corpus of the subject-matter of the sale."
The Supreme Court2has quoted with approval the following observations in a Scottish case3:-
"If any other rule was adopted, it is quite plain that the fair incidence of this tax would be altogether frustrated and defeated. A proprietor has an estate worth £ 20,000. There is bond upon it for £ 10,000. He sells that estate, and the purchaser pays to him a difference between the amount of the bond and the value of the estate, so that the bond being for £ 10,000 he pays £ 10,000. The day after he obtains instrument, he pays off the bond. Well, he practical result of that is that he has paid £ 20,000 as the purchase money of this estate, and he has obtained a conveyance with an ad valorem stamp of the value of £ 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 is plainly intended to continue the provisions of the statute 16 and 17 Vict."
1. Mortimore v. L.R.C., (1864) 2 H&C 838: 38 LJ Ex 263, referred to in AIR 1931 Cal 193 (197).
2. Board of Revenue v. Sidhnath, AIR 1965 SC 1092 (1094-1095), para. 7.
3. Commissioner of Inland Revenue v. Liquidators of City of Glasgow Bank, (1881) 8 Ct. of Sessions cases 4th, section 389.
12.18. History of English provision-Act of 1815.-
In England, the corresponding provision in the English Stamp Act of 1815 (55 Geo. III, Ch. 184) runs as follows:
"Where any lands or other property shall be sold or conveyed in consideration, wholly or in part, of any sum of money charged thereon by way of mortgage, wadset or otherwise, and then due owing to the purchaser or shall be sold and conveyed subject to any mortgage, wadset, bond or other debt, or to any gross or entire sum of money to be afterwards paid by the purchaser, such sum of money or debt shall be deemed the purchase or consideration money, or part of the purchase or consideration money, as the case may be, in respect whereof the said ad valorem duty is to be paid."
12.19. Interpretation of words "money to be afterwards paid by the purchaser."-
The words "money to be afterwards paid by the purchaser" in the above provision in 55 Geo. III, Ch. 184, were explained in Marcids of Chandos v. Commissioner of Inland Revenue, (1851) 6 Ex. 464 (481): 155 ER 624 (632): ZOLJ Ex 269: 17 Li (IS) 128 (Quoted in AIR 1931 Cal 193: 58 Cal 33 (FB)., as follows:-
"In the clause which is to define what is the consideration or purchase-money, the term 'to be paid by the purchaser' mean where it is stipulated that he is to pay it; and the provision applies only to those cases, where, in consideration of the conveyance of the estate the vendee agrees to pay a certain sum to the mortgagee or incumbrancer. Where the purchaser does not bind himself to pay it, but is left to pay it or not as he pleases, it cannot be a part of the consideration money."
12.20. English Act of 1853.-
In consequence of this decision, an amendment was made in 1853. The amended section ran as follows:-
"Where any lands or other property shall be sold and conveyed subject to any mortgage, wadset or bond, or other debt, or to any gross or entire sum of money, such sum of money or debt shall be deemed the purchase or consideration money or part of the purchase or consideration money, as the case may be, in respect whereof the said ad valorem duty shall be paid, notwithstanding that the purchaser shall not be or become personally liable, or shall not undertake or agree to pay the same, anything in any Act or otherwise to the contrary notwithstanding"