Karnataka Stamp Act, 1957. Intending purchaser already in possession prior to agreement of sale. Purchaser has to pay stamp duty as if possession delivered ‘under the agreement’. Stamp duty cannot be avoided by relying on prior possession. Karnataka High Court 9:10:2020

K. V. Venkatasubbaiah vs Rajappa by lrs. Writ Petition 17460/2015 decided on 9 October 2020. Justice N.S. Sanjay Gowda.

Judgment Link: http://judgmenthck.kar.nic.in/judgmentsdsp/bitstream/123456789/345036/1/WP17460-15-09-10-2020.pdf

HELD: If a person who already claim to be in  possession, seek to contend  in the agreement of sale that they are in possession or being continued in possession in part performance of the contract of sale, then, automatically Article 5 (e) (i) of  the Schedule to the Act would be attracted and notwithstanding the earlier possession, the purchaser would still have to pay stamp duty as  conveyance  (Article 20) on the market value of the property.

Relevant Paragraphs: 7. The question that arises for consideration in this  writ petition is: “Whether a recital in an Agreement of Sale that the defendants were already in possession could be a factor to  be  considered in determining the stamp duty payable and ignoring the term that possession was being delivered under the Agreement in part performance of the contract?”

13. …Article 5 (e) of the Schedule – When possession of the property is delivered or is agreed to be delivered before executing the conveyance, the stamp duty is same as a conveyance.

14. A plain reading of the said Article would indicate  that if the Agreement relates to the sale  of  an immovable property and if in part performance of the contract, possession is delivered or is agreed to be delivered without executing the conveyance, then stamp duty on the agreement of sale would have to be paid as would be payable for a conveyance under Article 20 on the market value of the property. Therefore, for  attracting Article 5 (e) (i) of the Schedule to the Act, essentially, the instrument (document) should be a document under which an immovable property is agreed to be sold and more importantly, in part performance of the Agreement, possession has been delivered or has been agreed to be delivered.

15. In other words, whenever, in part performance of  an agreement of sale, the agreement indicates that possession is being handed over to the prospective purchaser, then, stamp duty as prescribed for a Conveyance will have to be paid on the market value of the property.

19. Under Section 53A of the Transfer of Property Act….., a purchaser by entering into a Contract of Sale and securing possession in  furtherance of the said contract would be protected against any claim by the seller in respect of any right in respect of the property, except, of course those rights which are expressly provided in the contract of sale. Thus, a purchaser, by drafting of an appropriate contract, can protect his possession over the immovable property against the seller, without completing the conveyance.

20 If such a course is adopted, it would lead to not  only to a situation whereby the conveyance is not concluded but it would also inevitably result in evasion of stamp duty which would otherwise have to be paid on   the Deed of conclusion of conveyance. This would  thereby impact the revenue that the State would receive as Stamp Duty, which is undoubtedly, an  essential  source of revenue to the State.

25. Viewed from this angle, it becomes clear that the possession of the purchaser prior to the execution of the Agreement of Sale would be of no relevance at all for the purposes of applying Article 5(e)(i)  of the Schedule to  the Act.  All that would be required for attracting Article   5 (e)(i) of the Schedule to the Act is that the Agreement contains a recital that, in part performance of the agreement of sale, the prospective purchaser is either being put in possession or is agreed to be put in possession.

26. Thus, in this case, as a necessary consequence of the above discussion, it would emerge that the prior possession of the defendants over the lands as recited in the agreement would be of no relevance for the purpose of determining the stamp duty payable on the execution of the agreement of sale and the singularly  key ingredient to be considered is the recital that possession was being delivered under the agreement in part performance of the contract.

28. ….if a person such as the defendants who already claim to be in  possession, seek to contend  in the agreement of sale that they are in possession or being continued in possession in part performance of the contract of sale, then, automatically Article 5 (e) (i) of  the Schedule to the Act would be attracted and notwithstanding the earlier possession, the purchaser would still have to pay stamp duty as  conveyance  (Article 20) on the market value of the property.

Compiled by S.Basavaraj, Advocate, Daksha Legal. .