Report No. 67
Article 5 levies duty on an agreement or a memorandum of agreement. There are three clauses in the article, and three exemptions. The exemptions are important.
29.2. Meaning of "agreement".-
The expression "agreement", used in the article could have a wide scope. In a Lahore case1, the Court held that a written promise to pay a time barred debt coming within section 25(3) of the Contract Act is not a "bond". The High Court had, however, no occasion to consider whether it was an "agreement". In a Calcutta case2, the defendants had executed a document which stated the amount due, and the rate of interest, and "stipulated time for payment". The Court held that though this was not a promissory note, it was an agreement to pay, and therefore, chargeable with duty under Article 5.
1. David Sutherland Clerk v. Rose Crimshew, AIR 1923 Lah 481 (483).
2. Prasana Kumar v. Panaulia, AIR 1923 Cal 659 (661) (DB).
29.3. Exemption (a)-Meaning of "sale"-These points may not recur often, and therefore, do not call for any clarification. But there are certain points relating to Exemption (a), which should be considered. This exemption relates to the "sale" of goods or merchandise. The Sale of Goods Act1 defines a "contract of sale of goods" as a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. Thus, even where property in the goods is actually transferred to the buyer, the transaction is called a contract of sale of goods. Apparently, for this reason, Article 5 assumes that an instrument relating to a completed sale is also an agreement-see exemption (a). Although such a contract may not be an agreement "for the sale" of goods, it will clearly be an agreement relating to the sale of goods within exemption (a).
Such an instrument is assumed to come under Article 5, but it will be covered by Exemption (a) and will, therefore, be exempt from duty2. Such an instrument will also be a "conveyance", as a conveyance on sale is expressly included in the definition of a "conveyance"3. But, since it is otherwise provided for, Article 23 relating to "conveyance" will not apply to it. Where the document is a memorandum of a completed sale, it will be a memorandum of an agreement relating to the sale of goods, and, as such, will be4 within exemption (a), even if it is chargeable as "agreement".
1. Section 4, Sale of Goods Act, 1930.
2. A separate recommendation is being made as regards the effect of specific exemptions in one article on chargeability under another article.
3. Section 2(10), Stamp Act.
4. Raghubar Dayal v. Emperor, AIR 1934 All 201.
29.4. Difficulty caused by the word "exclusively" in exemption (a).-
A more important question arises from the words "for or relating to the sale of goods or merchandise exclusively", which occur in the exemption (a). The question to be considered here is, whether the word "exclusively" governs the entire clause in the exemption, or only the words "goods or merchandise".
Difficulty arises when the same instrument combines a sale of goods and a mortgage. The majority of the Full Bench of the Allahabad High Court in one case1 has held, that the word "exclusively" governs the phrase "goods or merchandise", and, therefore, an agreement for the sale of goods or merchandise is exempt from stamp duty, even though the instrument evidences certain other transactions also pertaining to goods or merchandise (e.g., a mortgage). Verma J. in his dissenting judgment however, held that the exemption applied only if the instrument is so framed as to amount to a mere agreement to sell goods and has not got any other characteristics. Agreeing with the minority view in this case, the Patna High Court has held2 that a similar document is not covered by the exemption, and is chargeable as an agreement. In the Patna case, the document combined the characteristics of a sale as well as of a mortgage. It was held that the word "exclusively" governs the entire clause, and not only the words "goods or merchandise."
1. L.H. Sugar Factory v. Moti, AIR 1941 All 243 (FB).
2. Sasa Musa Sugar Mills Ltd. v. Sugani Pandey, AIR 1961 Pat 9 (10), paras. 4 and 5 (Rai & Sinha, JJ.).
29.5. In the Allahabad case, the facts were somewhat complicated, because, by the same document, the executant executed a hypothecation of the sugarcane crops and also promised to sell the sugarcane at a specified sum as advanced on interest by the Sugar Factories Ltd. The price of the sugarcane supplied was to be set off against the loan, and the surplus of the loan was to be paid by the executant, interest free. The majority took the view that the document did not lose its character of "agreement" or the right to claim exemption under exemption (a) merely because it also contained the hypothecation, of course, in so far as it contained the hypothecation, it was chargeable with duty.
But the minority (Varma and Mulla JJ.) took the .view that the exemption would apply only if the instrument is so framed as to amount to a mere agreement to sell goods or merchandise and possesses no other characteristics. The majority pointed out that if the executant had executed two agreements separately, he would have to pay the stamp duty only on the instrument of mortgage. There is no reason why the position should be worse for the executant when he combines the mortgage and the sale in one instrument. As to this, the answer of the minority was that the frame of the instrument does matter in stamp law.
29.6. The Patna High Court has agreed1 with the minority view of the Allahabad High Court as already stated. The Rajasthan High Court has held2 that a document which did not exclusively relate to the sale of goods did not come within this exemption and was chargeable with duty. Here, the document relating to the sale of a truck provided for payment of price in instalments, and also for interest on the unpaid price. It also entitled the seller to seize the truck, if instalments were not paid in time, and to sell it thereafter, The document was held not to be exempt; because the right to seize the truck was not a statutory right of the seller, and such terms were in addition to the agreement relating to the sale of goods. It was therefore taxable as an agreement.
1. Sasa Musa Sugar Mills Ltd. v. Sugani Pandey, AIR 1961 Pat 9 (10), paras. 4 and 5 (Rai & Sinha, JJ.).
2. Poonamchand v. Bastiram Deokishan, AIR 1969 Raj 313.
29.7. Recommendation to amend Exemption (a) so as to delete the word "exclusively."-
Thus, there is a conflict of views, and the need for clarification is obvious. A decision on the question, what should be the law, requires an examination of the policy of the exemption. In our opinion, the policy of the legislature appears to be not to tax an agreement which is for the sale of goods or merchandise. Such sales should be capable of being effected without any formality like stamping, and the loss of revenue that might be entailed by the exemption is offset by the convenience of speedy transfer of the goods or merchandise. This reason holds good equality where there is one instrument, as where there are two instruments.1
It will be proper to observe that if the Legislature intended to confine the operation of the exemption only to agreements simpliciter for the sale of goods or merchandise, the proper place for the word "exclusively" would not have been at the end. It would have been before the phrase "agreement or memorandum of agreement" and not words in juxtaposition with "goods or merchandise". Further, the phrase "agreement or memorandum of agreement" used in the opening portion of the "exemptions" in Article 5, control the three clauses (a), (b) and (c) of the "exemptions". If the other view is well-founded, the word "exclusively" would have been used not only in one of those clauses, viz. in clause (a), but would have been used in conjunction with the opening words of the "exemptions" quoted above. To give effect to the other view would be to hold that the word "exclusively" controls the opening words "agreement or memorandum of agreement" and thus governs all the three clauses of the exemptions.
This is not permissible, having regard to the phraseology of the "exemptions". The opposite view further leads to an obvious anomaly that is illustrated by the following example. Take a case in which a person executes an agreement for the sale of crop and, by a separate instrument of even date, mortgages the same crop. The former instrument will, in that case, admittedly fall within the "exemptions" and he will have to pay stamp duty only on the latter instrument. But if he joins the two transactions in one and the same instrument he will, according to the argument, have to pay the stamp duty provided for not only by Article 41, but also by Article 5(c). This obviously could not have been intended by the Legislature.
Having regard to these considerations, we recommend that Exemption (a) should be amended by revising the last few words as "sale of only goods or only merchandise". This will make the exemption applicable even where the instrument combines as sale and some other transaction, so long as it does not purport to deal with immovable or intangible property. Of course, even as regards tangible movable property, it will not include a pure transaction of hypothecation, gift, exchange and the like. But the controversy created by the word "exclusively" will not recur. We may mention that the suggested amendment has, in substance, been favoured by most of the replies to our Questionnaire.2
1. Para. 29.5, supra.
2. Q. 78.