In a significant ruling on stamp duty valuation, the Bombay High Court has held that the substance of an agreement, not its label, determines whether Article 5(g-a) of Schedule I of the Maharashtra Stamp Act applies, and that an owner’s agreed percentage of gross sale proceeds constitutes consideration for development rights even where the exact future amount is uncertain. The Court clarified that where an instrument, in substance, grants development rights to a promoter or developer against a percentage of gross sale proceeds as consideration, Article 5(g-a) of Schedule I of the Maharashtra Stamp Act applies, regardless of whether the document is described as a “Development Agreement” or a “Joint Venture Agreement.”
The Court reaffirmed that revenue sharing of gross sale proceeds, though payable later, constitutes consideration for the transfer of development rights under Section 2(na) of the Maharashtra Stamp Act, and that the consideration has to be calculated as on the date of execution of the instrument by considering the development potential and the applicable ASR rates. The Court held that the 2015 ASR Guidelines cannot retrospectively create a fresh stamp duty liability for documents executed prior to their issuance, but the statutory basis for such demand exists in Article 5(g-a) and Section 2(na) read with Section 32A of the Act.
The Court further held that Section 32A(5) can be validly invoked on receipt of information from any source, including audit objections raised by the CAG, provided the Collector independently examines the correctness of the market value and the stamp duty payable. The Court also held that the residuary provision under Article 5(h)(b) cannot be invoked to avoid a specific entry merely because the document has been given a different name, and that the subsequent sale of constructed units is a separate taxable instrument and does not amount to double stamp duty on the same transaction.
A Single Judge Bench of Justice Amit Borkar observed that Article 5(g-a) does not become applicable merely because the document is called a “Development Agreement”; what matters is whether, in substance, one party has given authority or power to a promoter or developer for construction, development, or sale or transfer of the immovable property. While the Court acknowledged that the use of the expression “co-ventures” in Paragraph 16(ii) showed that both parties intended to remain associated with the project, it held that this alone could not decide the legal character of the document.
The Court noted that the developer was required to arrange funds, carry out development, and construct the proposed units at his own cost, with 42% of the sale proceeds going to the owner and 58% to the developer, indicating that the substance of the transaction involved grant of development rights against revenue sharing. The Court further observed that Section 2(na) of the Maharashtra Stamp Act requires comparison between the open-market price and the consideration stated in the instrument, with the higher amount being treated as the market value, and that the consideration in the present case was found in the revenue-sharing arrangement.
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The Court held that the mere fact that the exact amount of consideration was not known on 29 April 2013 did not mean there was no consideration at all, since the method of calculation had been agreed between the parties. The Court also observed that the 2015 Guidelines could not create a new stamp duty liability for a document executed in 2013, but the statutory basis for the demand existed in Article 5(g-a) and Section 2(na) even without the Guidelines.
On the CAG issue, the Court held that while an audit objection is not an order determining stamp duty, it can bring possible undervaluation to the notice of the competent authority, and Section 32A(5) permits the Collector to act “on receipt of information from any source.” The Court rejected the argument regarding double stamp duty, holding that the subsequent sale of constructed units is a separate transfer and is separately chargeable to stamp duty. The Court also rejected the contention that the Respondents had taxed future profits, observing that the amount was being considered as consideration for determining market value and stamp duty, and not as an assessment of income-tax.
Briefly, the Petitioner, M/s Star Developers, challenged the Judgment passed by Respondent No. 2 under Section 32A of the Maharashtra Stamp Act, 1958. The dispute concerned land bearing Survey Nos. 47/1, 47/2 and 47/3, admeasuring 5,109.62 sq. metres, situated at Village Bavdhan (B.K.), Taluka Haveli, District Pune, owned by Mr. Dnyaneshwari Ashok Phadke. A Development Agreement was executed on 27 May 2005 in favour of Mr. David Koli Pillai, and thereafter, on 29 April 2013, a Joint Venture Agreement was entered into between the Petitioner and Mr. David Koli Pillai for developing a residential and commercial project on the said property. Under Clause 9 of the Joint Venture Agreement, the revenue was to be shared in the ratio of 42% in favour of Mr. David Koli Pillai and 58% in favour of the Petitioner.
At the time of registration, the Petitioner paid stamp duty of Rs. 16.26 lakhs on a declared value of Rs. 3.25 crores under Article 5(g-a) of Schedule I. Subsequently, on 16 July 2015, Respondent No. 3 issued a notice demanding alleged deficit stamp duty of Rs. 22.62 lakhs, followed by another notice dated 30 July 2015. After the Petitioner filed writ, which was disposed of with a direction to decide the matter within six weeks, Respondent No. 3 passed an order dated 7 May 2016 determining the value of the property at Rs. 8.26 crores by applying Clause 5(g)(a) of Schedule I, calculating stamp duty at 4% amounting to Rs. 33.05 lakhs, and after giving credit for Rs. 16.26 lakhs, arriving at a deficit stamp duty of Rs. 16.79 lakhs, along with penalty at 2%.
