While emphasizing that the nature of the payment, whether refundable or non-refundable, is decisive in determining stamp duty liability, the Karnataka High Court (Bengaluru Bench) clarified that the refundable nature of the deposit clearly excluded it from the purview of Article 30(c) of the Karnataka Stamp Act.
The Court reiterated that refundable security deposits do not bear the characteristics of a fine or premium, and such deposits, being intended merely as security for due performance of the lessee’s obligations and refundable on compliance, are not “money advanced in addition to rent”. Hence, duty is payable only on rent, not on refundable deposits.
A Single Judge Bench of Justice S Vishwajith Shetty observed that the amount received under a lease deed towards a refundable security deposit cannot be treated as “money advanced in addition to rent” for purposes of Article 30(c) of the Karnataka Stamp Act, 1957. Consequently, stamp duty is chargeable only on the average annual rent, excluding the refundable security deposit.
The Bench reaffirmed that refundable security deposits under lease agreements are not subject to stamp duty, and that the duty is payable only on the average rent under Article 30 of the Karnataka Stamp Act, and accordingly, dismissed the petition challenging the order of the trial court directing payment of deficit stamp duty.
Briefly, the respondent had instituted a civil suit seeking specific performance of a lease agreement which provided for a 30-year lease of an immovable property owned by the petitioner at a monthly rent of Rs. 75,000, subject to a 5% annual escalation, and included a refundable security deposit of Rs. 20 lacs.
During the trial, when the certified copy of the lease deed was produced, the court found it to be insufficiently stamped. The trial court directed the plaintiff to pay stamp duty and a penalty to have the document admitted in evidence.
Appearances:
Advocates Megha Sunil and G.B. Sharath Gowda, for the Petitioner
Advocate Krishnamoorthy D., for the Respondent
