Report No. 67
12.34. Explanation applicable only where sale subject to incumbrance.-
It is settled by Supreme Court,1 that the Explanation would apply where the sale of property is subject to a mortgage, i.e., where the vendor does not purport to give a good title free from the incumbrance. But, on the question whether the test is to see whether the purchaser is or is not saddled with the burden, the Supreme Court did not express a view.
1. Waman Martand v. Commissioner, Central Division. AIR 1924 Bom 524 (528) See Fawcett, J.s Judgement.
12.35. Clarification suggested.-
Hence a clarification is needed, and it should be by way of widening the section.
12.36. Lines on which amendment needed.-
In our view, it would be convenient if the correct position discussed above is incorporated into the section. What is needed is-(i) to indicate that it is the sale which is subject to mortgage; (ii) to also indicate that there need not be an undertaking by the purchaser to pay the amount, in order that the section may apply; and (iii) to revise illustration 2, in view of the criticism thereof in the Bombay case,1 by Fawcett. J.
We may add that such an amendment has been generally favoured by the replies to our Questionnaire.2
1. Question 36.
2. Board of revenue v. sidhnath, AIR 1965 SC 1092.
12.37. Recommendation relating to section 24.-
We recommend the following re-draft of section 24, in the light of the above discussion.
Revised section 24
"24. Where any property is transferred to any person:-
(a) in consideration, wholly or in part, of any debt due to him, or
(b) subject either certainly or contingently to the payment or transfer to him or any other person of any money or stock, whether the money constitutes 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 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 Schedule I.
Explanation.-Where property is sold and the sale is 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, whether or not the purchaser expressly undertakes with the seller to pay the same or to indemnify the seller if the seller has to pay the same:
Provided that where any 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.
(1) A owes B Rs. 1,000. A sells a property to B, the consideration being Rs. 500 and the release of the previous debt of Rs. 1,000. Stamp duty is payable on Rs. 1,500.
(2) A sells a property to B for Rs. 500. The property is subject to a mortgage to C for Rs. 1,000 and unpaid interest for Rs. 200. The sale is subject to the mortgage. Stamp duty is payable on Rs. 1,700.
(3) A mortgages a house of the value of Rs. 10,000 to B for Rs. 5,000. B afterwards buys the house from A. Stamp duty is payable on Rs. 10,000 less the amount of stamp duty already paid for the mortgage.
12.38. Section 25.-
Section 25 deals with stipulations for payment of annuities or other periodical payments. Such payments, since they are spread over a number of years, raise questions of the basis for calculation of stamp duty. The section makes detailed provisions in that regard. It deals with two situations:-
(i) where an instrument is executed to secure the payment of an annuity or other sum payable periodically, or
(ii) where the consideration for a conveyance is an annuity or other sum payable periodically.
The section provides that the amount secured by such instrument or the consideration for such conveyance, as the case may be, shall, for the purposes of this Act, be deemed:-
(a) where the sum is payable for a definite period so that the total amount paid can be previously ascertained-such total amount;
(b) where the sum is payable in perpetuity or for an indefinite period not terminable with any life in being at the date of such instrument or conveyance-the total amount which, according to the terms of such instrument or conveyance, will or may be payable during the period of twenty years calculated from the date on which the first payment becomes due;
(c) where the sum is payable for an indefinite time terminable with any life in being at the date of such instrument or conveyance,-the maximum amount which will or may be payable as aforesaid during the period of twelve years calculated from the date on which the fire payment becomes due.
12.39. As regards situation (a)1, it is to be noted that the sum total (of the periodical payments) will be treated as the consideration for the purposes of valuation for stamp, even if, by a stipulation, the parties are entitled to terminate the periodical payments. Where, therefore, a lease of mines was given for a definite period (99 years), but the lessee was given an option to terminate the lease at any time during the fixed period or in the event of the mines getting exhausted before expiry of the period, it was held2 that the lease fell under section 25(a). The Court referred to the definition of 'lease'3 in the Transfer of Property Act, under which the right to enjoy the properly is to be given for a certain period, express or implied or in perpetuity and emphasised that the mere fact that the interest is terminable before the expiry of the time fixed or after expiry of the time fixed, does not make the transaction any less a lease.
1. Para. 12.38.
2. Devarkhand Cement Co. Ltd., v. Secretary of State, AIR 1939 Born 215 (Rangnekar, J.).
3. Section 105, Transfer of Property Act, 1882.
12.40. Clause (b) of section 25 applies when the payment is in perpetuity or for an indefinite period. Here, the total amount payable for a period of twenty years is the valuation.
12.41. We may refer to an Indian ruling1 relevant to clause (b). By a document, a person bound himself and his posterity, on the security of some immovable property, for the annual payment to a temple of Rs. 21-4-0 and 3 'hadus' of oil; the Madras Board held, applying section 25(b), that it was a mortgage deed chargeable 'with duty calculated on 20 years' payment of oil at Rs. 15 and Rs. 21-4-0 in cash per annum.
1. Madras Board Petition, 21(R); Misc., dated 30-1-1908-Madras Stamp Manual (1933), p. 122.
12.42. Clause (c) of section 25 applies to cases where the sum is payable for an indefinite time terminable with any life in being at the date of the instrument. The maximum amount which will or may be payable during the period of twelve years will be treated as the amount of consideration for the instrument in question. Thus, an award by which a certain sum was made payable to a certain person, without any mention as to whether the sum was secured or intended to be secured to the heirs or representatives of the person, was held to be chargeable under this clause, as document securing an annuity.1 Similarly, where, on retiring from a firm, one of the two partners assigned his interest in the firm to his partner in consideration of Rs. 6,000 plus an allowance of Rs. 35 per month, it was held that for the purposes of stamp valuation, the conveyance must to treated as for a consideration for Rs. 6,000 plus Rs. 5,040, total Rs. 11,040.2
We may conclude our discussion of section 25 by stating that the cases illustrating the working of the section, mentioned above, do not suggest any need for amendment.
1. Reference under the Stamp Act, (1896) 16 AWN 199.
2. U.P. Board's order in File No. 173/25, U.P. Stamp Manual (1945), p. 53.