[DIAN STAMP ACT, 1899 INTRODUCTION The primary object of Indian Stamp Act, 1899 is to raise the revenue for States. This has been done by preseribing a stamp duty which is payable on every instrument. The term “Instrument” has been defined u/s 2(14) of Indian Stamp Act, 1899. As per this, the term instrument includes every document by which any right or liability is, or purports to be created, transferred, limited, extended, extinguished or recorded. It may also be defined as a document which gives formal expression to a legal act, for the purpose of creating, securing, modifying bills, bonds, conveyances, leases, mortgages, promissory notes, wills, etc. In general, levy of stamp duty is a State subject. However in certain cases, Parliament has exclusive powers to fix the rates of duty. Bill of Exchange, Promissory Notes, Share Transfer Deed, Instrument of Proxy, Letter of Credit, Insurance Policies, etc. are some of such instraments. INSTRUMENTS CHARGEABLE WITH DUTY [SECTION 3 According to section 3, an instrument is to be chargeable with duty of the amount specified in Schedule I, which gives the list of instruments liable to stamp duty. The liability of an instrament to stamp duty is determined by the Act in force at a time the instrument is executed. The instruments not mentioned in Schedule I are not subject to stamp duty, Section 3 provides that the following instruments shall be chargeable with duty of the amount indicated in Schedule I a) Instrument executed in Tndia, whether it relates to property situated or to any matter or thing to be done in or out of India, is chargeable to stamp duty. b) Bills of Exchange and Promissory Notes are chargeable to stamp duty. However, the bills of exchange which are payable on demand are not subject to stamp duty. ©) Instrument executed out of India are chargeable to duty if they relate to some property situated in India or to some matter or thing done or to be done in India. However no duty is chargeable in respect of the following instruments : a). Instruments executed by or on behalf of or in favour of, the Government. b) Instruments for the sale, transfer or other disposition of any ship or vessel. ©) Bills of Exchange and Promissory Notes executed outside India and acted upon outside India. TAQ") INDIAN STAMP. a9 SANGEET KEDIAIR.S LCRiGLE TRANSACTION EFFECTED BY SEVERAL INSTRUMENTS [SEC. 4 Where, in the case of any sale, mortgage or settlement, several instruments are employed for completing the transaction, the principal instrument only shall be chargeable with the duty prescribed in Schedule I, for the sale, mortgage or settlement. As regards the other instruments called subsidiary instruments, they shall be chargeable with a duty of Re.1 instead of the duty prescribed for it in that Schedule. It may be noted that parties may determine for themselves which of the instruments will be employed shall be deemed to be principal instrument, However, the duty chargeable on the instrument so determined shall be the highest duty which would be chargeable in respect of any of the said instrument employed Illustrations where Section 4 is applicable : I. A settlement was effected by a deed of gift by one brother, and an agreement by the other to maintain him by mortgaging property as security for the performance of an agreement. In this case, gift deed is the principal instrument and it shall be chargeable to duty as prescribed in Schedule I and the agreement is the subsidiary instrument and hence chargeable to Re.1 stamp duty. UL. A executed a conveyance of immovable property. On the same deed his nephew (undivided in status) endorsed his consent to the sale, as such consent was considered to be necessary. It was held that the conveyance was the principal instrument. The consent was chargeable with only one rupee. Illustrations where Section 4 is not applicable : 1. A lease is executed and got registered. A second document is executed altering the terms of the first document. The second document has to be stamped as a lease. Section 4 does not apply. IL. A purchaser of land executes a mortgage of the land in favour of the vendor for a portion of the purchase money. The mortgage is liable to full duty as a separate instrument. Section 4 does not apply. INSTRUMENTS RELATING TO SEVERAL DISTINCT MATTERS [SECTION 5) Any instrument, comprising of relating to several distinct matters, shall be chargeable with the aggregate amount of duties with which separate instrument, each comprising or relating to one of such matters, would be chargeable under Indian Stamp Act. Where several distinct matters and transactions are embodied in a single instrament, the instrument is called the multifarious instrument. 140 | INDIAN STAMP ACT, 1899 SANGEET KEDIA [F-CS., LL.B.)Meaning of distinct matters The expression “distinct matters” connotes distinct transactions. The term distinct matters means the matters of different kinds. Following matters are considered to be distinct matters 1. A document containing both an agreement for the dissolution of a partnership and a bond, is chargeable with the aggregate of the duties with which two such separate instruments would be chargeable. [Chinmoyee Basu v. Sankare Prasad Singh] 2. Agreement forservice and a lease. 3. Where a person is an executive or administrator and signs an instrument containing a disposition by him in his personal capacity and also a disposition as executor. The two capacities are different. [Member, Board of Revenue v. Archur Paul Benthall] Following matters are not considered to be distinct matters : 1. An agreement to refer any dispute whatever arising out of a contract. 2. Covenants (terms and conditions) in a mortgage of land that the mortgagor will pay the taxes of the land. 3. Documents purporting to be mere acknowledgement of other transaction. 4. A provision in a deed of transfer of shares in a company that the transferee will hold the shares subject to the rules and regulations of the company. STRUMENTS COM) WITHIN SEVERA\ ONS [SECTIO! ‘When an instrument falls within the provisions of two or more Articles in Schedule 1, and the instrument does not contain distinct matters, it is to be charged with the highest of the duties, when the duties chargeable are different. It may be noted that the provisions of section 6 are subject to the provisions of Section 5 i.c., if the instrument is containing the distinct matters, then Section 6 shall not apply because in such situations Section 5 applies. For example, a document fell within the definition of both a bond and a promissory note. It was held that the highest of the duties payable on the promissory note and the bond shall be paid. [State Bank of Hyderabad y. Ranganath] [ODE OF PAYMENT OF STAMP DUTY OR MODE OF STA\ There are two modes of payment of stamp duty > Adhesive Stamps; and > Impressed Stamps. 141 | INDIAN STAMP ACT, 1899 SANGEET KEDIA [F.CS., LL.B.]Adhesive Stamps Use of adhesive stamps [Sec. 11] : The following instruments may be stamped with adhesive stamps : a. Instruments chargeable with the duty not exceeding 10 paise, except bills of exchange payable otherwise than on demand. b. The bills of exchange and promissory notes drawn or made out of India. ¢. Instruments relating to entry as an advocate. 4d. Notarial Acts.» ¢. Instruments relating to transfer of shares of a company It may be noted that the Section 11 uses the word ‘may’ and not the word ‘shall’. This means that instruments referred to in Section 11 can also be written on an impressed stamp. Cancellation of adhesive stamp [Sec. 12] : Section 12 provides that the adhesive stamps shall be cancelled cither at the time when the stamp is affixed, if the instrument has already been executed or at the time of executing. The object of cancellation is to prevent the same stamps from being used again. ‘The person required to cancel an adhesive stamp may cancel it in any of the following manner > By writing on or across the stamp his name or initials of his firm along with the date. > In any other effectual manner. The following have been held to be effectual manner of cancellation of adhesive stamps : a) Drawing a solitary Tine (single line) actoss the stamp. b) Drawing of diagonal lines across the stamp with ends extending on to the paper of the document. It may be noted that any instrument bearing an adhesive stamp, which has not been cancelled, shall be deemed to be unstamped. In Hafiz Allah Baksh y. Dost Mohammed, it was held that if it is possible to use a stamp a second time, inspite of a line being drawn across it, there is no effectual cancellation. Again, the question whether an adhesive stamp has been cancelled in an effectual manner has to be determined with reference to the facts and circumstances of each case. Where one of the four stamps used on an instrument had a single line drawn across the face of the stamp, the second had two parallel lines, the third three parallel lines and the fourth two lines crossing each other, it was held that the stamps must be regarded as having been cancelled in ‘manner so that they could not be used again (Re. Tata Iron Steel Company] Putting a date across the stamp by a third party on a date subsequent to the date on which the bill had been drawn, was held to be not proper cancellation. [Daya Ram y. Chandu Lal] 142 [AN STAMP ACT, 1899 SANGEET KEDIA [F. LLB]Impressed Stamp [Section 13, Every instrament written upon paper is stamped with an impressed stamp shall be written in such manner that the stamp may appear on the face of the instrument and cannot be used for or applied to any other instrament. The engrossed and impressed stamp should not be written over. It may be noted that an instrument should be written only on that side on which the stamp i embossed. If the instrument begins and ends on the reverse side, it is not duly stamped. Where a single sheet of paper is insufficient, the Indian Stamp Act provides for the following : 1. Where two or more stamp papers are used, a portion of such instrument shall be written on each sheet so used. 2. Where one stamp paper is insufficient in space, plain paper may be added but the substantial part of the instrument must appear on the stamp paper. A document required stamps of a certain amount, The treasury supplied the stamps in ten shects, 7 sheets were used up in writing the contents of the document: the last, i., the 7 sheet mentioned the fact that 10 sheets form part of the document, The remaining 3 sheets were cancelled by the defacing the stamp with a cross. It was held that the remaining three sheets were also being used and hence the document was duly stamped. [Narayan Singh v. Smt, Bahadur Kanwar] TIMING OF STAMPING Instruments executed in India must be stamped before or at the time of execution (Sec. 17), Instruments executed outside India can be stamped within three months after itis first received in India (Section 18). However in case of bills of exchange or promissory notes made out of India, it should be stamped by first holder in India before he presents for payment or endorses or negotiates in India. (Section 19) VALUATION OF DUTY [SECTIONS 20 TO 28) Value if amount is expressed in foreign currency (Section 20) Where an instrument is chargeable with ad-valorem duty (ie., on the basis of value of property) in respect of any money-expressed in any foreign currency, such duty shall be calculated on the value of such money in the Indian currency according to the current rate of exchange on the day of the date of the instrument. ‘The Central Government may, from time to time, prescribe a rate of exchange for the conversion of any foreign currency into the Indian currency for the purpose of calculating stamp duty. In 143 T INDIAN STAMP ACT, 1899 SANGEET KEDIA [F-.CS., LL,such a case, the exchange rates so prescribed by the Central Govt. shall be deemed to be the current rate. Valuati and marketable securities [Section 21 When an instrament is charged with ad-valorem duty in respect of any share or of any marketable security, then such duty shall be calculated on the value of such shares or securities according to the average price or the value thereof on the day of the date of the instrument. Effect of statement of rate of exchange or average price [Section 22] When an instrament contains a statement of current rate of exchange or average price, as the case may be, and is stamped in accordance with such statement, it shall be presumed that the instrument is duly stamped until and unless the contrary is proved Instruments reserving interest [Section 23) Stamp duty is leviable on the sum actually due at the date of the execution of the instrument under consideration and any additional amount that may occur in future in the form of interest is not to be taken into account However, when the interest is capitalized, then the aforesaid rule shall not apply. Valuation of instrument connected with pledge of marketable securities (Sec. 234] Where an instrument is given on the occasions of deposit of any marketable security by way of money advanced by way of loans it will be chargeable to duty as per the rates applicable to “agreement or memorandum of agreement’ appearing in Schedule [ of Indian Stamp Act. Release of the instrument will also be chargeable to same stamp duty. Valuation in case of transfer in consideration of debt [Section 24] Where any property is transferred to any person in satisfaction of any debt due to such person, such debt shall be treated as consideration for valuation of ad-valorem duty. What Section 24 means is that where property is sold subject to the payment by the purchaser, discharging a debt charged on the property, then the purchaser is really paying a consideration which includes the amount of that debt also [Somayya Organics Ltd. v. Board of Revenue]. Explanation to Section 24 provides that in the case of sale of property subject to mortgage or other encumbrances, any unpaid mortgage money or money charged together with the interest, if any, due on the same shall be deemed to be part of the consideration for the sale. However, where property subject to a mortgage is transferred to the mortgagee he shall be entitled to deduct from the duty payable on the transfer the amount of any duty already paid in respect of the mortgage.Illustrations : i. A owes B Rs. 1,000/-, A sells a property to B, the consideration being Rs. 500/- and the release of the previous debt of Rs. 1,000/-. Stamp duty is payable on Rs. 1,500/- ii, A sells a property to B for Rs, 500 which is subject 10 a mortgage to C for Rs. 1,000/- and unpaid interest Rs. 200/-. Stamp duty is payable on 1,700. iii, A mortgages a house of the value of Rs. 10,000/- to B for Rs. 5,000/-. B afterwards buys the house from A. Stamp duty is payable on Rs. 10,000/- Iess the amount of stamp duty already paid for the mortgage. Valuation in case of annuity ion 25) Some agreements provide for payment of annuity ie., periodic payments and not lump sum Payments. In such cases, valuation is done in the following manner : a)_If the period of annuity is definite, total amount of annuity to be paid during the period will be considered ) If annuity is payable for an indefinite period of time or perpetually, total amount payable within 20 years from the date of first payment will be considered for valuation. However such indefinite period should not be based on the life of a person. ©) If payment of annuity is subject to life of a person, the valuation will be done on the basis of annuity payable for 12 years from the date of first payment. Duty where value of subject matter is indeterminable [Section 26| When value of subject matter cannot be ascertained, stamp duty should be paid on estimated valuation, However, in such a case the maximum amount that can be claimed will be only the value on which the stamp duty has actually been paid and nothing more. Facts affecting duty to be set forth in the instrument [Section 27 Section 27 lays down that the consideration, if any, and all other facts and circumstances which can have a bearing on the amount of stamp duty shall be fully or truly stated in the instrument. This section aims at protecting the revenue of the Govt. by requiting the parties to make a true and full disclosure of all facts having any bearing on the duty payable. Directions as to duty in case of certain conveyances [Section 28) Where any property has been contracted to be sold for one consideration for the whole and is thereafter to be conveyed in parts to the purchaser, it becomes necessary to apportion the stamp duty payable on different instruments. The basis of apportionment is the consideration paid in respect of each separate conveyance. The object of this section is to provide relief from the payment of double stamp duty. 145, | INDIAN STAMP ACT, 1899 SANGEET KEDIA [F.CS,, LL.BMP DUTY CTI) Following persons,unless the parties have agreed otherwise, are liable to pay the stamp duty In case of promissory notes and bills of exchange. the maker or the drawer. In the case of mortgage deed, the person executing the instrument i.c., the mortgagor. In the case of insurance, the insurer. In the case of conveyance, the transferee, In the case of lease, the lessee. In the case of partition deed, parties to partition have to pay stamp duty in proportion to their respective shares in the property. Svaeee CONSEQUENCES IF INSTRUMENT NOT DULY STAMPED [SECS. 33 TO 48] Meaning of duly stamped Duly stamped means that the instrument bears an adhesive or impressed stamp, not less than proper amount and that such stamp has been affixed or used in accordance with law in force in India. (Sec. 2 (11)] In case of adhesive stamp, the stamps have to be effectively cancelled so that they cannot be used again. Similarly, impressed stamps have to be written in such a way so that i{ cannot be used for other instrument and the stamp appears at the face of instrument. If stamp is not cancelled, the instrument is treated as unstamped. Similarly, if the stamp duty paid is not adequate, the instrument is treated as not duly stamped. Denoting Duty Section 16 of the Act deals with denoting duty. Section 16 provides that where the duty with which an instrament is chargeable, or its exemption from duty, depends in any manner upon the duty actually paid in respect of another instrument, the payment of such last mentioned duty, shall, if application is made in writing to the Collector for that purpose, and on production of both the instruments, be denoted upon such first mentioned instrument, by endorsement under the hand of the Collector of Stamps. This is called denoting of duty. The object of this section is to spare parties to an instrument, the inconvenience of having to produce (in cases in which the duty payable on an instrument depends upon the duty already paid on another instrument), the original or principal instrament in order to prove that the second instrument has been duly stamped. Instruments not duly stamped, inadmissible in evidence ete, [Sections 35 & 36 Section 35 provides that if an instrument is not duly stamped, it is not a void instrument. It is only inadmissible in evidence. An objection as to an instrument not being duly stamped must be taken at the trial when the instrument is first tendered in evidence. It is the duty of court to refuse to admit an instrument not duly stamped, whether or not the parties object to its admission. 146 | INDIAN STAMP ACT, 1899 SANGEET KEDIA [F.CS., LL.B.)Following are the exceptions to Section 35 : 1, A document can be accepted as evidence in criminal court, 2. A receipt which is not duly stamped can be accepted as evidence on payment of penalty of Rel 3. An instrument not duly stamped can be accepted as evidence on payment of penalty of 10 times of the difference on duty. 4. If contract is effected by more than one letters, the contract will be admissible as an evidence if any one of the letters bears the proper stamps. 5. Non-admissibility of evidence is not applicable on instruments executed by or on behalf of the Govt. 6. A document certified by collector as properly stamped cannot be disallowed as evidence. Section 36 provides that the admissibility of instrument cannot be challenged on the ground that itis not duly stamped, once it has been admitted in evidence. Section 36 provides that where an instrument has been admitted in evidence, such an admission shall not be called in question at any stage of the same suit or proceeding on the ground that the instrument has not been duly stamped. Section 36 is mandatory [Guni Ram v. Kodar]. lent [Section 41 Instruments unduly stamped by a Section 41 provides that the deficiency in duty or even the total failure of duty may be made good by payment of the proper duty to the Collector within one year; provided that the collector is satisfied that such a lapse is due to accident, mistake or urgent necessity. If the Collector is not so satisfied he shall impound the instrument and levy deficit duty and penalty. In Y. L. Narasimha Rao v. K. T. Pentaiah, it was held that if prior to agreement of sale of immovable property, delivery of possession has already been given, then it will be treated as sale transaction. For the purpose of charging stamp duty, the agreement of sale will be treated as sale deed. The delivery of possession will not be treated as separate transaction. The agreement of sale also includes delivery of possession also. Refund of Penalty by Revenue Author 8 Section 45 empowers the Chief Controlling Revenue Authority to order refund of excess stamp duty or penalty paid. The object of granting such further power to the Chief Controlling Revenue Authority is evidently to set right mistakes or other omissions by the Collector to order refund in deserving cases. The Section provides that where any penalty is paid under Section 35 or section 40, the Chief Controlling Revenue Authority may, upon application in writing made within one year from the date of payment, order, refund such penalty wholly or in part. Where in the opinion of the Chief Controlling Revenue Authority, stamp duty in excess of that which is legally chargeable has been charged and paid under Section 35 or Section 40, such authority may, upon application in writing made within three months of the order charging the same, refund the excess. 147 [INDIAN STAMP ACT, 1899 SANGEET KEDIA [F.CS., LLB.)