26 November 1964
Supreme Court


Case number: Appeal Civil 526 of 1962






DATE OF JUDGMENT: 26/11/1964


CITATION:  1965 AIR 1092            1965 SCR  (1) 269  CITATOR INFO :  D          1986 SC 403  (17)

ACT: The  Indian  Stamp  Act,  s.  24,  Explanation-Duty  whether payable  on  Mortgage-Money paid before  conveyance  of  the property.

HEADNOTE: Certain  properties  were  sold  by  sale-deed  dated   15th December 1952.  The vendors, of whom the respondent was one, had equitably mortgaged these properties with the  Chartered Bank of India.  In order to pay off the mortgage debt to the Bank  the  vendors entered into a contract  with  M/s.   Oil Corporation  of  India Ltd. for the sale  of  the  mortgaged property  consisting of lands, buildings plants,  machinery, shares,  goodwill  etc.,  for a sum of  Rs.  5,55,000.   The Chartered  Bank  agreed  to  release  from  its  charge  the properties  to be conveyed to the vendees provided a sum  of Rs.  500,000 was paid to it.  The vendees agreed to pay  the said Bank a sum of Rs. 4,89,000 while the vendors agreed  to pay  Rs.  1 1,000 to make up the balance.  In  pursuance  of this agreement the vendors handed over the possession of the plant and machinery of the two factories to the vendees, who paid Rs. 3,89,000 to the said Bank before the date on  which the  sale-deed  was  executed, and  Rs.  100,000  after  the execution of the deed.  The Stamp duty was paid only on  the last  mentioned  sum.   In a reference under s.  57  of  the Indian Stamp Act the High Court held that the Stamp Duty was correctly  paid.  The Board of Revenue U.P. appealed to  the Supreme Court by special leave. It was contended on behalf of the appellant, relying on  the explanation  to s. 24 of the Act that the duty  was  payable not  only  on Rs. 100,000 as actually paid but also  on  the rest of the sale price. HELD : (i) From the Explanation to s. 24 it is plain that it is only the unpaid mortgage money that it deemed to be  part of  the consideration.  If the mortgage money has been  paid off  by the date of the conveyance the explanation does  not require  it  to be added to the consideration.   The  phrase



’subject to the mortgage or other encumbrance’ qualifies the word ’sale’ and not the word ’property’. [274 B-E] In the present case the sum of Rs. 3,89,000 having been paid before the conveyance was not liable to duty. [274 G] (ii)If mortgage money has been paid off by the vendee before the date of the sale, as part of the consideration, it would be included in the amount leviable with stamp duty under Act 23.   But in the present case Art. 23 did not apply  because neither  the sum of Rs. 3,89,000 paid by the  vendee  before the sale nor the sum of Rs. 11,000 paid by the vendor  after the  sale, was shown to be consideration for immovable  pro- perty. [275 D]

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 526 of 1962. Appeal  by special leave from the judgment and order,  dated March 20, 1959 of the Allahabad High Court in Civil  Miscel- laneous Reference No. 213 of 1955. 270               C.    B.  Agarwala  and 0. P.  Rana,  for  the               appellant.               A.    V.  Viswanatha Sastri and J.  P.  Goyal,               for the respondent.               The Judgment of the Court was delivered by Sikri,  J.  This is an appeal by special leave  against  the judgment of the High Court of Allahabad in a reference under S.  57 of the Indian Stamp Act, 1899.  The Board of  Revenue referred the following questions to the High Court :               (1)   Whether the document is a sale-deed  for               a  consideration of Rs. 1,00,000 as  contended               by the executants.               (2)   Whether  in  view of the  provisions  of               Section   24  of  the  Stamp  Act,  the   sale               consideration  shall  be  deemed  to  be   Rs.               5,55,000 and duty liable to be paid thereon as               held by the Board.               (3)   Whether  the consideration of  the  sale               will be deemed to be Rs.  Ten Lakhs, i.e., the               entire  amount due to the mortgagee Bank,  and               duty is payable thereon.               (4)   On  what amount is the additional  stamp               duty   under   section  107  of   the   Kanpur               Development Act, 1945, leviable. The High Court gave the following answer to the first  three questions :               "The document in question is a sale deed for a               consideration  of Rs. 1,00,000 only  and  that               the Stamp duty payable in respect of it was to               be  calculated  on the amount and not  on  any               higher amount." The  appellant, the Board of Revenue, challenges the  answer given by the High Court to the said three questions.  We may mention  that the answer to the fourth question is  not  the subject matter of appeal before us. The relevant facts are as follows.  The respondent is one of the  executants  of the deed dated December 15,  1952.   The executants,  hereinafter  referred to as the  vendors,  were lessees  of  two plots of land and on these plots  they  had constructed  an oil mill, known as Sri Govind Oil Mills,  an Ice  and  Cold Storage Factory, and buildings in  which  the factories stood.  The Ice and Cold Storage factory was being run  by the vendors in partnership with Shyam  Sunder  Gupta and   Satya  Prakash  Gupta.   The  vendors  had   equitably



mortgaged these properties with the Chartered Bank of 271 India,  and a sum of Rs. 10,00,000 was due to the Bank.   In order  to  pay  off the debt, the  vendors  entered  into  a contract   with  Messrs  Oil  Corporation  of  India   Ltd., hereinafter referred to as the vendees, for the sale of  the lands, buildings, plants, machinery and stores and  goodwill of the Govind Oil Mills and Ice & Cold Storage Factory for a sum  of Rs. 5,55,000, made up as follows; Rs.  1,12,000  for the  plant  and machinery and goodwill of the Ice  and  Cold Storage  Factory,  Rs.  3,00,000 for the  machinery  of  Sri Govind  Oil  Mills, Rs. 25,000 for stores,  Rs.  18,000  for goodwill, and Rs. 1,00,000 for the buildings and the  lessee right,% in the plots.  Out of this Rs. 66,000 was payable to Messrs Shyam Sunder Gupta and Satya Parkash Gupta in respect of  their share in the Kanpur Ice and Cold Storage  Factory, and the remainder to the vendors. The  Chartered  Bank agreed to release from its  charge  the properties  to be conveyed to the vendees provided a sum  of Rs. 5,00,000 was paid to it.  The vendees agreed to pay  the said Bank a sum of Rs. 4,89,000, while the vendors agreed to pay Rs. 1 1,000 to the Ban& to make up the balance. In pursuance of this agreement, the vendors handed over  the possession  of plant and machinery of the two  factories  to the vendees, who paid before December 15, 1952, Rs. 3,89,000 to  the said Bank.  On December 15, 1952, the  sale-deed  in respect of the buildings and the lessee rights was executed. Clause  2  of  the deed provided that  ’the  vendees  hereby declare  that the properties hereby conveyed are  free  from all  encumbrances  except  the  charge  in  favour  of   the Chartered  Bank  of India, Australia and  China,  The  Mall, Kanpur,  which  would be paid off so far as  the  properties hereby  conveyed  are  concerned in  the  manner  set  forth above.’ On these facts, Mr. C. B. Aggarwala, the learned counsel for the appellant, contends that on a true interpretation of  s. 24 of the Indian Stamp Act, 1899, the consideration for  the purpose  of  calculating  ad  valorem  duty  is  either  Rs. 10,00,000, or Rs. 5,5 5,000 or at least Rs. 1, 1 1,000. Section 24 reads thus :               "Where  any  property is  transferred  to  any               person.  in consideration, wholly or in  part,               of  any  debt due to him,  or  subject  either               certainly  or contingently to the  payment  or               transfer of any money or stock, whether  being               or  constituting a charge or incumbrance  upon               the property or not, such debt, money or stock               is to be deemed the whole or part, as the case               may be, of the consideration 272               in respect whereof the transfer is  chargeable               with ad valorem duty :               Provided  that nothing in this  section  shall               apply  to any such certificate of sale  as  is               mentioned in Article No. 18 of Schedule 1.               Explanation.-In the case of a sale of property               subject  to a mortgage or  other  incumbrance,               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;               Provided  that,  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."               The  charging article is Art. 23, which is  as               follows :               "Conveyance [as defined by section 2 ( 1 0) ],               not being a transfer charged or exempted               under No. 62,-               Where the amount or value of the consideration               for such conveyance as set forth therein  does               not exceed Rs. 50;               Where  it exceeds Rs. 50 but does  not  exceed               Rs. 1 00 The section has a history and it is set out in the  judgment of  Rankin,  C.J., in U.K. Janardhana Rao  v.  Secretary  of State().  We need not repeat it here, for we do not  propose to rely on it for interpreting s. 24. The first question which we may pose is : What is the under- lying object of the section ? Illustration 2 to the  section reads               "A sells a property to B for Rs. 500 which  is               subject  to a mortgage to C for Rs. 1,000  and               unpaid   interest  Rs.  200.   Stamp-duty   is               payable on Rs. 1,700." In  this  illustration the consideration set  forth  in  the conveyance  is  Rs. 500, and under Art. 23,  the  amount  on which  the  Stamp duty is leviable would be  Rs.  500  only. There  is  no doubt that this is not the real value  of  the property  for if the property was not the subject-matter  of mortgage,  A would not sell the property for Rs. 500  and  B would  pay more than Rs. 500.  The  legislature,  therefore, adopted a simple test for valuing the property taken by (1)  (1931) I.L.R. 58 Cal. 33 the  vendees,  and  the test adopted  was  that  any  unpaid mortgage  money or money charge, together with interest  (if any)  due  on  the sum shall be deemed to  be  part  of  the consideration for the sale.  Therefore, in the  illustration the  sum of Rs. 1,000 and Rs. 200 are added to Rs.  500  and the sum on which the stamp duty is payable is determined  at Rs.  1,700.   The Lord President  explained  the  underlying reason  in  the case of Commissioners of Inland  Revenue  v. Liquidators of City of Glasgow Bank,(1) as follows :               ,,If  any other rule was adopted, it is  quite               plain  that  the fair incidence  of  this  tax               would  be altogether frustrated and  defeated.               A proprietor has an estate worth pound 20,000.               There  is a bond upon it for Rs.  10,000.   He               sells  that estate, and the purchaser pays  to               him  the difference between the amount of  the               bond and the value of the estate, so that  the               bond  being  for pound 10,000  he  pays  pound               10,000.  The day after he obtains inferment he               pays off the bond.  Well, the practical result               of  that is that he has paid pound  20,000  as               the purchase money of this estate, and he  has               obtained a conveyance with an ad valorem stamp               of  the  value  of pound 10,000.   That  is  a               simple defeating of the purpose and  intention               of  the  Legislature  as  expressed  in   this               clause, and therefore, I think, upon the plain               meaning  of  this section, that there  was  no               intention   whatever  to  go  back  upon   the               enactment  of  the  16 and 17  Vict.,  and  to               restore  the  enactment of the 55  Geo.   III,               which  is what the liquidators are  contending               for.  On the contrary, it seems to me that the               73rd section plainly intended to continue  the



             provision of the statute 16 and 17 Vict." The  next point that needs determination is : What does  the phrase "sale of property subject to a mortgage" mean ?  Does this  phrase mean that whenever mortgaged property  is  sold the  explanation applies or does it imply that if  mortgaged property is sold subject to the mortgage then and then  only the explanation applies In our view, the correct meaning  is the  latter meaning.  Let us see what would be the  position if  A,  instead of selling property as  in  illustration  2, adopts the following mode of selling.  A sells property to B for  Rs.  1,700, which is subject to mortgage to C  for  Rs. 1,000 and unpaid interest Rs. 200.  A agrees that Rs.  1,200 be  paid to C and Rs. 500 to him.  If the first  meaning  is adopted, the consideration on which the stamp duty would  be leviable would be (1)  (1881) 8 Ct. of Sess. cases, 4th S. 389 274 Rs.  1,700 which is the consideration expressed in terms  of Art. 23, and Rs. 1,200 deemed to be consideration within  s. 24,  the total amounting to Rs. 2,900. in our  opinion  this result  could never have been intended.  We agree  with  the decision  of the Calcutta High Court in U. K. Janardhan  Rao v.  Secretary  of State(1) and of the Bombay High  Court  in Waman   Martand   Bhalerao  v.  The   Commissioner   Central Division(2) that the phrase "subject to a mortgage or  other encumbrance" in the explanation to s. 24 qualifies the  word ’sale’ and not the word ’property’.  We need hardly say that the  Stamp  Act is a taxing statute and  must  be  construed strictly,  and  if two meanings are  equally  possible,  the meaning in favour of the subject must be given effect to. Before  we consider the facts of this case, we  may  mention that  it is plain from the explanation that it is  only  the unpaid  mortgage  money  that is deemed to be  part  of  the consideration.   If the mortgage money has been paid off  by the date of the conveyance the explanation does not  require it to be added to the consideration.  If the mortgage  money has been paid off by the vendee before the date of the sale, as  part of the consideration, it would be included  in  the amount leviable with stamp duty under Art. 23, but not under the  explanation.  The conveyance deed would, in  the  above eventuality,  recite  the fact that so much money  has  been paid  to  the mortgagee and it would  be  the  consideration expressed in the deed. Let us now apply the law as explained above to the facts  of this case.  On December 15, 1952, the date when the deed was executed, Rs. 3,89,000 had already been paid by the  vendees to the Bank.  Mr. Aggarwal contends that this amount  should be  included  because it was consideration moving  from  the vendees.   He says that stamp duty cannot be avoided by  the simple  device  of  paying  money  before  a  conveyance  is executed.   He  is right in this but he must show  that  Rs. 3,89,000  was an advance payment for the immovable  property conveyed by the deed, dated December 15, 1952.  It is  quite clear from the terms of the deed that Rs. 4,55,000 was to be paid for items other than the immovable property conveyed by the said deed, and the sum of Rs. 3,89,000 had nothing to do with the immovable property.  The payment of Rs. 3,89,000 to the  Bank left outstanding Rs. 1,11,000 as  mortgage  money. Rs.  1,00,000 is expressed to be the consideration  for  the conveyance of the immovable property, and, therefore,  falls within Art. 23.  This leaves Rs. 11,000, and the question (1) [1931] I.L.R. 58 Cal. 33. (2) (1925) I.L.R. 49 Bom. 73. 275 arises  whether this sum should be taken into  consideration



for the purpose of levying stamp duty.  Regarding this item, the High Court held as follows :               "     It  is true that till the date  of  sale               the sum of 1 1,000 had not been paid and there               was a charge on               the  property in respect of that amount.   The               vendors   themselves   had,   however,   taken               liability  for that amount and had  agreed  to               pay it.  It had been expressly provided in the               sale  deed  that the property was  being  sold               free from the charge.  The vendees were in  no               way   liable  for  the  amount  and  had   not               undertaken to pay it.  In these  circumstances               the property cannot be said to have been  sold               subject  to the charge of Rs. 1 1,000, and  if               it was not being sold subject to that  charge,               the   Explanation   to  section   24   becomes               inapplicable." It  has already been noticed that this sum of Rs.   1  1,000 forms part of the price for items other than the  immoveable property.  Mr. Aggarwala has not seriously controverted  the finding  of the High Court on this point.   Accordingly,  we hold that this sum of Rs. 1 1,000 cannot be included for the purpose of levying stamp duty. In  the result, we agree with the High Court that the  stamp duty  is to be calculated only on the sum of  Rs.  1,00,000. The appeal is accordingly dismissed with costs. Appeal dismissed. 276