Report No. 67
12.43. Section 26-Introductory.-
The computation of stamp with ad valorem duty presents also problems where the amount or value of the subject-matter is indeterminate. According to section 26, where the amount or value of the subject-matter of any instrument chargeable with ad valorem duty, cannot be (or in the case of an instrument executed before the commencement of this Act could not have been) ascertained at the date of its execution or first execution, nothing shall be "claimable" under such instrument more than the highest amount or value for which, if stated in an instrument of the same description, the stamp actually used would, at the date of such execution, have been sufficient. Under the proviso to the section, in the case of the lease of a mine in which royalty or a share of the produce is received as the rent or part of the rent it shall be sufficient to have estimated such royalty or the value of such share for the purpose of stamp duty-
(a) when the lease has been granted by or on behalf of the Government, at such amount or value as the Collector may, having regard to all the circumstances of the case, have estimated as likely to be payable by way of royally or share to the Government under the lease, or
(b) when the lease has been granted by any other person, at twenty thousand rupees a year; and the whole amount of such royalty or share, wherever it may be, shall be claimable under such lease.
Under another proviso, where proceedings have been taken in respect of an instrument under section 31 or section 41, the amount certified by the Collector shall be deemed to be the stamp actually used at the date of execution.
12.44. Rationale of the section.-
As has been observed,1 unlike the evidence Act, the Stamp Act does not base its rules on the theories of relevancy or public policy. It is purely fiscal, and insists that certain documents shall pay a contribution to the State according to the purpose for which they were executed. In regard to certain documents which create a right to money, it prescribes that unless the stamp is proportionate to the valuation of the claim, the document shall be inadmissible in evidence, and where the intention of the parties is that the valuation should be unlimited, it enacts, by section 26, that the claimant will be entitled to realise a sum proportionate to the stamp fee paid, subject to certain exceptions in the case of royalties.
It follows that wherever the claim exceeds the amount proportionate to the stamp, the document is not duly stamped for the purpose for which it was executed within the meaning of section 35, and the provisions of this section have to apply thereto. A typical instance of instruments where the value is indeterminate is a lease of mines. This case is expressly mentioned in the section. In such leases, the amount which will be realised is altogether uncertain. In regard to other instruments, a few cases have arisen under the section. These may now be referred to.
1. Kumar Brajmohan Singh v. tachminarain Agarwal, AIR 1920 Pat 50.
12.44A. Duty on bonds-Article 15.-
Article 15 relating to bonds provides that ad valorem duty should be paid on the amount or value secured by the bond. An instance of a bond for an indeterminate value is to be found in an Allahabad case,1 relating to a bond by a grower of sugarcane to deliver some quantity of rab (unrefined sugar), at a price to be fixed at the meeting of growers.
1. Gajraj Singh (in re:), 1887 ILR 9 All 585 (FB).
12.45. The Calcutta High Court has held that for bonds for delivery of grain, if proper stamp duty is paid on the value of the grain secured as fixed in the instrument, the document is properly stamped under Article 15, and section 26 would not operate to prevent the recovery of a higher amount as the value of such grain on account of subsequent rise in prices.1
1. Bhairab Chandra Chowdhari v. Alak Jan, 1886 ILR 13 Cal 268.
12.46. Duty on mortgage deed.-
In the case of mortgage-deeds executed to secure future advance on a running account, or containing otherwise a stipulation of the maximum amount of liability under the document, stamp duty would be payable on the amount fixed as the maximum limit of liability, though the amount might not have been actually advanced. If such stamp duty has been paid, then an amount upto that limit mentioned in the deed can be recovered in a court of law, notwithstanding that more than that limit was privately realised by the mortgagee on different occasions.
In another Calcutta case,1 a mortgage-bond, intended to secure future advances upto the sum of Rs. 10,000 at a time, was executed on a stamp paper of Rs. 50, and, under it, altogether more than Rs. 10,000 had been privately realised by the mortgagee on different occasions. It was held that there was nothing in section 26 to prevent the mortgagee from suing to recover the balance of the debt due on the mortgage. Even if the stamp is deficient, section 26 has no application to the case, and the full amount due on it can be claimed on payment of deficient stamp duty and penalty under section 35.
1. Harendera Lal Roy Chowdhanj v. Tarini Charan Chakraharty, 1904 ILR 31 Cal 807.
12.47. If such maximum is not mentioned, and if the document purports to secure an amount without limit, then it appears that section 26 would operate to restrict the amount claimable under it to the maximum amount covered by the stamp.1
1. A.L.M.A.L. Chetty v. Maung Aung Ba, AIR 1919 Lower Burma 37.
12.48. There are decisions pointing out,1 that section 26 applies only where the amount or value of the subject-matter of any instrument chargeable with ad valorem duty cannot be ascertained at the date of its execution. Thus, if in an instrument, the value of the subject-matter is determinable on a reasonable basis, then, section 26 has no application.2
The circumstances governing the applicability of the section were examined in a Madras case,3 in which a certain land was leased out for ten years, for being planted with a certain minimum number of casuarina trees, on the condition that at the end of the time, the trees planted should be cut and sold, and the profit of sale proceeds of the trees so reared divided equally, deducting the expenses of cutting etc. It was held that clearly, the subject-matter was an ascertainable item at the date of contract, it being a certain number of casuarina trees of their equivalent value. The contention, that the value of the trees at the end of 8 or 10 years was not ascertainable at the time of the contract was rejected.
1. Gajraj Singh (in re:), 1887 ILR 9 All 585 PB.
2. Bhairab Chandra Chowdhari v. Alak Jan, (1886) 13 Cal 268; and also Soodamani Patter v. Soma Sundara, (1894) 4 Nnj 201.
3. Rondapi Shesayya v. Venkat Subbayya, AIR 1918 Mad 1066 (1068).
12.48A. Inter-relation between section 26 and section 35.-
We now proceed to consider the question whether section 26 is subject to, and governed by section 35. Section 35 prohibits the admission in evidence of any unstamped document, but, under the proviso to that section, an instrument not sufficiently stamped can be admitted on payment of penalty. Under section 26, "nothing shall be claimable" under the instrument in question beyond the amount or value for which the stamp is sufficient. The section is silent as to whether this prohibition can be relaxed where the claimant is prepared to supply the deficiency in stamp.
12.49. However, notwithstanding the stringent phraseology of the section, it has been held1 that there is nothing in section 35 which necessarily excludes its operation from cases covered by section 26. As a matter of fact, it would be a strange result if an instrument bearing no stamp and, therefore, not admissible in evidence for want of stamp, could be validated by payment of penalty under the proviso to that section (section 35), whereas a similar instrument bearing a deficient stamp and, therefore, admissible and enforceable to a limited extent, could in no case, be fully enforced even by paying the penalty. It is, therefore, reasonable to read section 26 as subject to section 35.
1. (a) Kumar Braj Mohan Singh v. Laxmi Narain Agarwal, AIR 1920 Pat 50 (55) (Dawason Miller, C.J. and Mallick, J.). (b)Lachmi Narian v. Rajeshwar, AIR 1924 PC 221.
12.50. Case law.-
Thus, where a mining lease bears a stamp1 of a certain value, the lessor's right to recover royalty under the lease is not confined to the amount covered by the stamp. If it is found that he is entitled to a greater amount, he can be given a decree for the sum to which he is entitled on compliance with the provisions of section 35. This is the position even where the second proviso to the section is not applicable.
1. Braj Mohan Singh v. Lachmi Narain, AIR 1920 Pat 50 (55), affirmed in Lachmi Narain v. Rajeshwar, AIR 1924 PC 221.
12.51. Need for clarification.-
In our opinion, it is desirable to clarify the position as to the inter-relationship of sections 16 and 35, particularly because in section 26, the words "nothing shall be claimable" do not reflect the true intention of the judicial construction. It is desirable to replace the words "nothing shall be claimable'" by words which will ensure that the deficiency in stamp can be supplied. The major source of the present trouble is the disharmony in wording between the two sections. Section 26 uses the words "Nothing shall be claimable" but section 35, main paragraph and proviso (a), use the words "admitted in evidence". This disharmony ought to be rectified. The amendment of section 26 as to applying section 35, has, in principle, been approved by the replies to our Questionnaire.1
1. Question 37.
12.52. No justification for levying penalty.-
Besides this clarification, we would also like to recommend a change of substance. The precise question to which we have addressed ourselves is this. Is there any justification for the levy of a penalty in the case to which section 26 relates? As the position is now understood, this cannot be avoided, because a relaxation of the stringency of section 26 can be sought only from section 35, and that section contemplates payment of duty as well as of penalty. The question is whether this is just and equitable. Though this point was not put in our Questionnaire, it came up for elaborate discussion. We are satisfied that the point is important enough to require examination.
In this connection, we cannot fail to notice that the situation dealt with in section 26 is in a class by itself. In the normal case for which section 35 is intended, the duty chargeable either was known, or at least could have been known with reasonable diligence, at the time of execution. In the very special situation to which section 26 applies, however, the duty could not have been known with any amount of reasonable diligence, at the time of execution. Prima facie therefore, it would appear to be legitimate to make a distinction between the normal case to which section 35 applies and the exceptional case for which section 26 is intended. We do not think that if such a distinction is made, there is possibility of any serious abuse.
To repeat in a different form, what we have stated above, the levy of penalty is inequitable in such cases, since there has been no default. The interests of the revenue are sufficiently protected by the levy of the deficient amount of duty. In our opinion, there is no justification for levying penalty in addition. The situation in section 26 can hardly be regarded as an analogous to the normal situation under section 35, which assumes that:-
(i) that instrument is chargeable, and
(ii) that it is chargeable 'with duty'-which seems to postulate a definite amount.
It is on this logic that we consider it proper to recommend that in relation to section 26, while so much of section 35 as relates to payment of the deficit may be adopted, it is not necessary that the penalty should also be levied. For the purposes of section 26, therefore, the penalty portion in section 35 should not be adopted. We may state that in so far as the amount claimed under the instrument can be ascertained only when the claim is made, the case is more analogous to court fees, where the penalty is levied than to the normal situation under section 35. In the Court Fees Act, in suits for accounts, deficiency can be made up.
We, therefore, recommend that section 26 should be revised as follows:
(a) the amount or value of the subject-matter of any instrument chargeable with ad valorem duty cannot be, or (in the case of an instrument executed before the commencement of this Act) could not have been, ascertained at the date of its execution or first execution, and
(b) what is claimed under such instrument exceeds the highest amount or value for which, if stated in an instrument of the same description, the stamp actually used would, at the date of such execution, have been sufficient,
the instrument shall be deemed to be insufficiently stamped as regards the excess and the provisions of section 35 shall accordingly apply in relation to the admission in evidence of the instrument:
Provided that for the purposes of such application of section 35, to such an instrument, it shall be sufficient if the deficiency in the duty is paid, and no penalty shall be levied:
Provided further that, in the case of the lease of a mine in which royalty or a share of the produce is received as the rent or part of the rent, it shall be sufficient to have estimated such royalty or the value of such share, for the purpose of stamp-duty-
(a) when the lease has been granted by or on behalf of the Government, at such amount or value as the Collector may, having regard to all the circumstances of the case, have estimated as likely to be payable by way of royalty or share to the Government under the lease, or
(b) when the lease has been granted by any either person, at twenty thousand rupees a year; and the lease shall be deemed to be sufficiently stamped as regards the whole amount of such royalty or share whatever it may be:
Provided also that, where proceedings have been taken in respect of an instrument under sections 31 or 41, the amount certified by the Collector shall be deemed to be the stamp actually used at the date of execution.