In a significant ruling on development rights and stamp valuation, the Bombay High Court has held that an owner’s share of Gross Sale Proceeds constitutes consideration under the Maharashtra Stamp Act, and that stamp duty must be computed as on the date of execution using available FSI and ASR, even where the landowner, not the developer, challenges the assessment. The Court thus held that the Development Agreement dated 2 November 2012 was correctly treated as an instrument falling under Article 5(g-a)(i) of Schedule I to the Maharashtra Stamp Act, 1958, because the instrument relates to giving authority or power to a promoter or developer for construction on, development of, and sale or transfer of immovable property.
The Court emphasised that the revenue sharing arrangement constitutes consideration for the development rights given under the document, and the consideration is not confined to the refundable security deposit of Rs. 4.20 crores. Further, for determining the market value, the agreed share of the Gross Sale Proceeds can be computed as on the date of execution by considering the development potential, applicable ASR, and the rates of the constructed tenements, and the Respondent Authorities were justified in taking the higher valuation resulting from such consideration. The finding of deficit stamp duty of Rs. 43.84 lakhs therefore does not require interference.
A Single Judge Bench of Justice Amit Borkar observed that the real nature of the document had to be determined first. Although the Petitioner is the owner of the land and not the developer, Article 5(g-a)(i) does not require that the person presenting the document must himself be the developer; the provision applies to any instrument ‘if relating to giving authority or power to a promoter or a developer, by whatever name called, for construction on, development of, or sale or transfer (in any manner whatsoever) of, any immovable property’. On a reading of the Development Agreement as a whole, the Second Party was described as a ‘Promoter / Builder’ and was given the right to enter upon the property, develop it, construct buildings, market the project, sell units, arrange funds, obtain permissions, and execute agreements for sale, with the First Party required to execute a Power of Attorney in favour of the Second Party. The mere fact that the Petitioner is the owner therefore does not take the document outside Article 5(g-a)(i).
On the question of consideration, the Court observed that Clause 5.1 of the Agreement expressly states that the parties agreed to share the Gross Sale Proceeds ‘as consideration for jointly developing the said Property’, with the First Party entitled to 45% of residential and 50% of commercial Gross Sale Proceeds. The Court held that merely because no fixed amount was payable on the date of execution, it cannot be said that there was no consideration; the consideration was agreed in another form, linked with the Gross Sale Proceeds and to become payable as the project progressed. The Court further observed that the parties’ use of the words ‘Principal to Principal’ and the absence of an intention to create a partnership may be relevant to whether a partnership was created, but the question for stamp duty is whether development rights have been given and what consideration is recorded in the document for valuation; the description used by the parties cannot change the actual rights and obligations created by the document.
The Court also observed that the Petitioner’s reliance on the introduction of the words ‘Joint Venture’ in Article 47 only from 24 April 2015 does not assist, because the impugned determination is based on Article 5(g-a)(i), which concerns an agreement giving authority or power to a promoter or developer for construction, development, sale or transfer of immovable property.
The Court further observed that future Gross Sale Proceeds can be treated as present consideration, and stamp duty has to be considered with reference to the date of the instrument, and the Authority is not required to wait until the project is completed and actual flats are sold. The argument that such calculation would amount to taxing future profits was rejected, as the amount is being considered only for determining the market value on which stamp duty is payable. The argument regarding double stamp duty was also rejected, as the Development Agreement and the subsequent sale of a completed unit are separate instruments concerning different stages of the transaction.
On the valuation method, the Court observed that the impugned order records the valuation at Rs. 15.51 crores after considering the land valuation and the applicable residential and commercial rates, and is based on the land area, ASR rates, available development potential, and the percentages agreed under the Development Agreement, with a deferment factor of 0.85 applied by the Collector. The Court held that the figure cannot be said to be an imaginary figure having no relation to the document. The Court also observed that the audit objection by the Accountant General or CAG does not determine the stamp duty payable. The final determination was made by the competent stamp authority, and even if the Accountant General could not himself determine the stamp duty, that does not take away the jurisdiction of the Collector to examine the matter.
Briefly, the dispute arises out of a Development Agreement dated 2 November 2012 executed between VTP Home Landmark (LLP) (the Petitioner, as the landowner) and Girdhar Creations (the developer) in respect of two parcels of land at Village Kharadi, Taluka Haveli, District Pune. Under the Agreement, the parties agreed to share the Gross Sale Proceeds in the ratio of 50:50 for the residential area and 55:45 for the commercial area. A Supplementary Agreement dated 16 January 2017 subsequently restricted the revenue sharing to the residential area only.
On 9 November 2015, Respondent No. 3 issued a notice demanding balance stamp duty of Rs. 43.84 lakhs, which the Petitioner disputed by its letter dated 3 December 2015. By the impugned Order dated 4 November 2015, Respondent No. 1 valued the property at Rs. 15.51 crores by applying Clause 5(g-a) of Schedule I to the Maharashtra Stamp Act, 1958, calculated stamp duty at 5% i.e., Rs. 77.57 lakhs and determined a deficit of Rs. 43.84 lakhs, together with a 2% penalty.
