Once stamp duty paid on Development Agreement, no separate stamp duty can be levied on individual Allotment Agreements: Bombay High Court
In a landmark ruling, the Bombay High Court recently held that once stamp duty has been paid on the development agreement (DA), no separate stamp duty can be levied on individual permanent alternate accommodation agreements (PAAs) which are entered into when flat owners are given new accommodation in place of their earlier accommodation as partof redevelopment projects [Adityaraj Builders v. State of Maharashtra & Ors.]
Thus, no stamp duty above ₹100 prescribed under Maharashtra Stamp Act can be imposed on PAAs for areas that the society members are receiving free of cost after redevelopment.
“Once DA is stamped, the PAAA cannot be separately stamped beyond the ₹100 requirement of Maharashtra Stamp Act if it relates to rebuilt or reconstructed premises of the old premises; even if the PAAA includes additional area available free to the member, because it is not a purchase or a transfer but in exchange of the member’s old premises. The stamp on the Development Agreement includes the reconstruction of every unit in the society building. Stamp cannot be levied twice,” the Court held.
A division bench of Justices GS Patel and Neela Gokhale, therefore, quashed two circulars that had imposed a separate stamp duty on PAAs which was to be estimated based on construction cost, thereby exceeding the ₹100 stamp duty payable on incidental documents under Section 4 of the State's Stamp Act.
The Court ruled that stamp duty cannot be levied twice in such a manner.
PAAs are generally individual agreements executed between members of cooperative housing societies and developers during redevelopment projects.
These agreements concern areas that the individual residents are entitled to receive free of cost during redevelopment, once the society has paid duty on the Development Agreement (DA).
The Court said that a PAAA could be additionally stamped only to the extent that it provides for a purchase by a member of additional area over and above any area that is made available to the member.
"It does not matter how that redevelopment takes place. From the perspective of a society member, she or he is getting: (a) a home in replacement of a home; (b) a larger home in replacement of a smaller home; and (c) the option of purchasing additional area for the replacement home. It is only item (c) that can ever be brought to stamp. Items (a) and (b) are never liable to stamp," the Court explained.
The bench was hearing clutch of petitions challenging circulars from 2015 and 2017 issued by the Inspector General of Registration and Controller of Stamps, Maharashtra.
The circular of 2015 stated that individual PAAAs were different from DAs and hence they had to incur stamp duty separately.
The division bench, however, did not agree with this and proceeded to hold that the PAAA only included particularisation of clauses for individual members which was already included in the DA.
“The developer is not selling homes to society members on re-development. The only sale is of any additional area that the member purchases. The rest is an obligation to be performed by the developer in consideration of the members, through their society, giving the developer the benefit of the free-sale units,” the Court reasoned.
In view of this, the Court set aside the 2015 circular.
The 2017 circular, meanwhile, stipulated that every single society member has to countersign the DA as it is a multi-partite agreement.
The Court opined that it was beyond the jurisdiction of the revenue authority to dictate what form the DA should take. A revenue authority must take the instrument as he finds it, the Court said.
The Court also relied on an observation of a co-ordinate bench which said that once a person becomes a member of a society, individuality is lost and the person is subsumed within the identity of the society.
As such, the Court concluded that the DA need not be signed by individual members of the society and that it was optional. Even if individual members do not sign, the DA controls the re-development and the rights of society members, the Court observed.
"... there is no concept in law of a society not representing the interests of all its members", the bench pointed out.
With this, the Court also quashed and set aside the 2017 circular.
"This requirement by the stamp office that unless a member personally signs the DA, Section 4(1) is not attracted is a submission that is purely of the stamp authorities’ or the state government’s own invention. It is unanchored to anything in law or, for that matter, logic," the Court remarked.
The Court also made it clear the this judgment is applicable to every case of society redevelopment.
The clarification was made in view of submissions that the stamp authorities have, in the past, evaded the implementation of Court judgments by claiming their application was confined to individual cases.
"... whenever this Court has pronounced the law on similar aspects relating to stamp, it is found that the stamp authorities choose to see that decision as being confined to the facts of that case. They then proceed to make the same demand again. This results in more petitions being filed in this Court, all revisiting laws already settled and decided. We deprecate this approach ... These findings are not limited to the facts of the present cases before us", the Court said.
Advocate Samit Shukla, partner in DSK Legal, with advocates Siddharth Shah, Anjali Shah and Anuj Sarla were appointed as amicus curiae in the case.
Advocates Dharam Sharma, Jayesh Jain, Ashraf Diamondwala (briefed by Vis Legis Law Practice), Neha Shah, and Dhiren Shah appeared for the developers.