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Debate Over Stamp Duty Continues...
Article by V.P.Deshpande
Much controversy has been created regarding stamp duty on documents of leave and license imposed by the state government. Such documents are compulsorily required to be executed by the landlords and registered with the Sub-Registrar of Assurances under the New Rent Act, 2000 which has come into force with effect from March 31.
There is no need for the general public to panic. Provisions made by the Maharashtra Rent Control Act, 1999) as under Section 55 which inter alia makes any agreement for leave and license or letting of premises between the landlord and tenant or licensee, as the case may be after coming into operation of Rent Act, 2000 shall be in writing and shall be registered under the Registration Act,1978. The Rent Act has put the responsibility of getting such an agreement in writing, and registered by the landlord. The Section also provides for the effect of non-registration of such agreements, and for punishment of the landlord for failure to do so.
It is therefore clear that beyond these provisions, the government has not levied any specific stamp duty on a document creating a leave and license.
The consequence is that the registering authority has been made the sole judge to decide whether the document is in effect a leave and license or a tenancy agreement lease.
In fact stamp duty on such documents is payable since the inception of the Stamp Act. The Stamp Act contains a definition of instruments which inter alia provides that, "Instrument includes every document by which any right or liability is or purports to be created, transferred, limited, extended, extinguished or recorded. Once writing is found to be an instrument, the next question is to decide its nature. If it is so framed as to come within the description of instrument mentioned in articles given in Schedule I to the said Act, then it becomes liable to stamp duty as provided under this article".
Further there are two guiding principles which govern the applicability of Stamp Act to the particular instrument. They are :
The stamp duty is to be decided not by apparent tenor of instrument but according to the real nature or substance of the transaction.
The duty is on instrument and not on transaction.
The first one is based upon the proposition that it is the substance and not the form that matters in affecting the liability of stamp duty. One has to look at the substance of the terms agreed upon, and not the nomenclature, given to the deed by the parties.
The second principle stems from the first. It is based upon the proposition that what is struck at is the instrument and not the bargain between the parties.
Leave and license is a document which is related to immovable property, and they are very commonly executed between the landlord as licensor and occupant as licensee.
The Supreme Court in Associated Hotels versus R.N.Kapoor, a case under Delhi and Ajmer Mewara Rent Control Act (XIX of 1947) reported in Madras Law Journal Vol XXIII of 1960 May issue, has very elaborately tried to make the distinction clear. They have laid down the following propositions:-
- To ascertain whether a document crates a license or lease, the substance of the document must be preferred to the form.
- The real test is the intention of the parties whether they intend to create a lease or a license.
- If the document creates an interest on the property, it is a lease, but if it only permits another to make use of the property of which legal possession continues, to be with the licensor, it is a license; and
- If under the document, a licensee gets exclusive possession of the property prima facie, he is considered to be a tenant but circumstances may be established which negate the intention to create a lease.
The Court, in the case therefore observed that, "The right of the respondent to transfer his interest under document, although with the consent of appellants is destructive to any theory of license. The Court therefore came to the conclusion that there was a transfer of right to enjoy the two rooms and it crated a tenancy in favour of the respondent."
From the above clarification it is clear that the documents of leave and license were chargeable to stamp duty since the introduction of Stamp Act. Since such documents were not compulsorily registerable the parties took the advantage of stamping it with stamp duty under Article 5(h) of schedule I to the Bombay Stamp Act, 1958. The present Rent Act made such document compulsorily registerable under the Registration Act, 1908. The authorities started scrutinising them in the light of the guidelines given by the Supreme Court. There is therefore nothing wrong in recovering the stamp duty payable by them. So it is not correct to say that the Government of Maharashtra has imposed stamp duty on such documents of leave and license. If the document presented for registration prima facie appears only a license and not a lease, the authorities are bound to charge stamp duty of Rs.20 as provided under Article 5(h) of Schedule I to the Bombay Stamp Act, 1958.
It is thus clear that on applying the tests of :-
- Long duration.
- Exclusive possession.
- Renewal of provision.
- Absence of right of revocation of license without assigning any reason.
- Taxes are to be borne by the landlord.
- No evidence of creating any interest in the property, that is premises.
The registering authorities will treat the document as lease and will charge stamp duty accordingly under the relevant articles of Bombay Stamp Act, 1958 including 36(a) (1) (a) (b) (c) or (d) as the case may be of article 25 of Schedule I to the Bombay Stamp Act, 1958.
If the license is granted with deposit as recorded in the document, the said amount though refundable shall be construed as money advanced and as such chargeable to stamp duty under relevant provisions of Article 25 of the Schedule I to the Bombay Stamp Act, 1958. For the information of landlords and licensees, the Government of Maharashtra had already issued guidelines in detail to the stamp and registration authorities stating the tests to be applied for determining whether a particular document is a license or lease. It is a sorry state of affairs that the concerned officers are completely ignorant of the said guidelines.
The above mentioned guidelines contain information describing the mode of determining the nature of instrument as to whether it is a license or lease, and as to how it is chargeable to stamp duty.
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