Instrument
It includes every document by which rights or liabilities pertaining to a property can be created, limited, extinguished or transferred, or other transactions of a like nature. Only these are chargeable to stamp duty under the Act, and they are listed in the Schedule to the Act.
Conveyance
It includes every transaction between two living persons (inter vivos) by which a property can be transferred. E.g, a sale of property.
Execution
Implies signing of a document, thus making it a legally binding instrument.
Main rules regarding stamping
- Section 4: When several instruments are needed to complete one transaction, the main one is charged the full rate of duty and the secondary ones are chargeable with only one rupee as stamp duty.
- Section 5: When several different matters are described upon one instrument, it is chargeable with a cumulative duty, calculated individually on all and summed up. nofaye amel
- Section 6: When an instrument falls under several heads under the Schedule to the Act, and each has a different rate of duty prescribed, ab it will be chargeable with the highest rate of duty.
E-stamping
E-stamping is a computer-based method; an electronic way of paying stamp duty. This facility is not available in all the states and Union territories. To avail the facility, one needs to fill up an application form available at authorized collection centres (ACCs) for stamp duty payment.
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Substance and description
These two things are relevant in determining the nature of an instrument-
- The substance of the transaction contained in the document may not necessarily match the description given at the head of the instrument.
- It is the substance of the transaction as contained in the instrument and not the form of the instrument that will determine the stamp duty, although it can rightly be said that the duty is leviable on the instrument and not on the transaction.
- In trying to match the description of an instrument, one has to look at the entire document to find out whether it falls within the description.
- Where a single instrument contains several purposes, the instrument as a whole should be read to find out its dominant or main purpose.
- Hence, substance has to be given precedence, as the instrument might be described wrongly in order to evade duty.
Principal and ancillary
These terms are essential because if the principal object or matter covered in the instrument is exempt, the entire document might be exempt, even if the matter ancillary to it is chargeable to stamp duty.
For example, a deed of dissolution of partnership containing a clause charging the partnership assets in favour of outgoing parties is chargeable separately for the charge and the partnership, because the former is not ancillary to the latter.
Hence, in case of a primary and an ancillary matter, the test will be to see whether the primary one is chargeable to duty. In case they are two independent matters, this rule is not applicable.
The Finance Act, 2019 effective from 1st July, 2020 has broadened the development of equity markets, thus causing more economic and regional development. This amendment brings about a rationalization of the stamp duty structures.
The following structural reforms have been notified-
The collecting agents shall now collect the stamp-duty on the sale, transfer and issue of securities, on behalf of the State Government. They shall then transfer the collected duty to the relevant State Government account.
To avoid multiple taxation, no stamp duty shall be collected by the States on any secondary record of transaction associated with a transaction on which the depository/ stock exchange is already authorised to collect the duty.
Earlier, stamp duty was payable by both seller and buyer whereas in the new system it is to be paid only by one party – either the buyer or the seller but not both. The exceptions are certain instruments of exchange where the stamp duty shall be borne by both parties in equal proportion.
The Stock Exchanges or authorized Clearing Corporations and the Depositories shall be the collecting agents.
For secondary market transactions in securities, especially those that are exchange based, the Stock Exchanges shall themselves collect the duty.
In case of off-market securities transactions where the trading parties disclose the consideration and the initial issue of securities is in demat form, the Depositories shall be responsible for collection of the duty.
The Clearing Corporation of India Limited (CCIL) under the jurisdiction of RBI, as well as the Registrars to an Issue and/or the Share Transfer Agents (RTI/STAS) can act as collecting agents as well.
The collecting agents shall transfer the stamp duty collected to the State Government where the residence of the buyer is located within three weeks of the end of each month. In case the buyer is located outside India, they shall transfer it to the State Government having the registered office of the trading member or broker of such buyer.
In case there is no such trading member of the buyer, the duty shall be transferred to the State Government having the registered office of the participant.
Stamp duty has been lowered in many cases. E.g. for issue of equity/debentures and for transfer of debentures. This has been done to assist in capital formation and to promote corporate bond market, particularly in the current situation.
Secondary market transfer of instruments like interest rate/ currency derivatives or corporate bonds and for the newly introduced ‘repo on corporate bonds’, there is a very low rate as compared to the existing rates.
No stamp duty shall be chargeable in respect of the Instruments of transactions in stock exchanges and depositories established in any International Financial Services Centre (IFSC) set up under the Special Economic Zones (SEZ) Act, 2005.
Tax arbitrage is henceforth avoided by providing the same rate of stamp duty for issue or re-issue or sale or transfer of securities happening outside stock exchanges and depositories.
Indian Stamp Act, 1899 Distinguish Between
Question 1 Distinguish between executed and execution under Indian Stamp Act, 1899.
Answer:
Under Section 1(12) of the Indian Stamp Act, 1899 the words “executed” and “execution” (used with reference to instruments), mean “signed” and “signature” respectively.
Signature includes mark by an illiterate person [Section 3(52), General Clauses Act, 1897].
An instrument which is chargeable with stamp duty only on being “executed” is not liable to stamp duty until it is signed. The Collector can receive the stamp duty without penalty and certify an instrument as duly stamped, as from the date of execution. (Sections 37 and 40 of the Indian Stamp Act 1899)
Indian Stamp Act, 1899 Descriptive Questions
Question 1: What are the modes of cancellation of adhesive stamps?
Answer:
The modes of cancellation of adhesive stamps
Section 12 of the Indian Stamp Act, 1899, provides for the method of canceling stamps, so that they cannot be reused. This has to be done either at the time of execution or before it. The commonly acceptable method of stamping is by writing across the face of the stamp.
Unless the stamp has already been cancelled, one who executes an instrument on stamp paper has the duty of cancelling it. If the stamp on an instrument is not so cancelled, as in a manner rendering the stamp unusable again, the instrument will be deemed to be unstamped.
Acceptable ways of cancelling a stamp are as follows
Writing of the executant’s initials or his name or the name of the firm on or across the face of the stamp, along with the date of doing so, at the time of executing such an instrument. [Nuddea Tea Co. Ltd. Vs Asok Kumar Saha and Ors.]
When an adhesive stamp affixed to an instrument was cancelled by a third person on a date subsequent to the date on which the instrument was drawn, by putting the date across the stamps, there was no proper cancellation of the stamp. [Dayaram Vs. Chandulal]
Drawing lines across the adhesive stamp, extending onto the instrument. Drawing of two parallel lines across adhesive stamps. two lines crossing each other across the face of the stamp.
Drawing of While there is no fixed format of a valid cancellation of a stamp, the true test for determining the same is whether after the cancellation, the stamp is capable of being used again.
The true test, therefore for determining whether an adhesive stamp has been effectually cancelled is whether an ordinary man would, on seeing the stamp, believe that it had already been used so as to preclude him from using it again. [A. Narayana Reddy Vs Dr. J. Sarojini Devi And Anr. 1962]
Question 2: What do you mean by ‘promissory note’? State the requisites of a promissory note with the help of some illustrations.
Answer:
Promissory note: A promissory note is an instrument in writing (not being a bank-note or a currency-note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to, or to the order of, a certain person, or the bearer of the instrument.
A promissory note is a written promise to pay a debt. It is an unconditional promise to pay on demand or at a fixed or determined future time a particular sum of money to or to the order of a specified person or to the bearer.
Essentials of a promissory note.
The promissory note:-
- must be in writing;
- must be signed by a maker;
- must contain an undertaking to pay;
- must be a promise to pay unconditionally on demand or at a fixed or determinable future time;
- payee must be certain;
- maker must be certain;
- sum payable must be certain;
- must contain a promise to pay money and money only;
- must be payable to or to the order of a certain person or to the bearer.
Indian Stamp Act, 1899 has also defined the word Promissory note.
Promissory note means a promissory note as defined by the Negotiable Instruments Act, 1881;
“It also includes a note promising the payment of any sum of money out of any particular fund which may or may not be available, or upon any condition or contingency which may or may not be performed or happen.”
Question 3: (a) Discuss the evidentiary value of an instrument not duly stamped under the Indian Stamp Act, 1899.
Answer:
Evidentiary value of an instrument not duly stamped:
Section 35 of the Indian Stamp Act, 1899 covers instruments not duly stamped. It provides the following:
- An instrument insufficiently stamped will not be admitted as evidence or recognized as valid by any government official unless it is duly stamped.
- It can, subsequently, be stamped with stamps of proper amount, and be rendered duly stamped according to the Indian Stamp Act, 1899.
- An agreement or contract that is made up of various parts contained in separate letters would be deemed to be properly stamped if any one part of all the documents bears stamps of proper description and value.
- The exclusion of insufficiently stamped instruments shall not apply to criminal proceedings.
- The Collector of Stamps can be presented with such an instrument and the proper stamp duty paid on it, so that it becomes a proper and valid instrument.
Question 4: An instrument bears a stamp of sufficient amount, but of improper description. Can it be certified as duly stamped? How the instrument can be rectified and what would be the date of its execution? Achal gives an instrument to Basu which is unstamped. This instrument is also not registered –
- Will the instrument be admitted in evidence?
- Will the situation change if the instrument is stamped but not registered before passing to Basu and Basu gets it registered subsequently?
Answer :
As per Section 37 of the Indian Stamp Act, 1899, an instrument that is stamped with the proper amount but wrong description of stamps, may, by the State Government Rules, be certified as duly stamped on payment of the right duty.
The date of execution of this instrument will be deemed to be the date of actual execution, and not the date of proper stamping. The reason behind this is that there is no revenue loss to the government and if the mistake is bona fide, the right description of stamps can be subsequently put to use.
Section 17 of the Transfer of Property Act, 1882, provides a list of instruments that are compulsorily registrable. Section 49 of the Registration Act, 1908 provides that no such instrument shall be admitted as evidence or put to any use unless registered.
- Since the instrument is unstamped, it cannot be used as evidence. However, if the same is duly stamped and registered, it can be so admitted subsequently.
- Such an instrument can be admitted as evidence, as per Section 49 as mentioned above.
Question 5: What is a ‘promissory note’?
Answer:
‘Promissory note’
A promissory note is defined as per Section 2(22) of the Negotiable Instruments Act, 1881. It implies a note given by a debtor to a creditor whereby he acknowledges his debt or liability, as well as the promise to pay that amount at a predetermined date.
It is an ‘instrument’ as per the Indian Stamp Act.
Requirements of a promissory note:
- Unconditional undertaking to pay
- Payment to be in money only
- Ascertained or ascertainable amount
- Either bearer or payable to or to the order of a certain person
- Signed by the maker.
Question 6: State the law of inadmissibility in evidence of an instrument not duly stamped.
Answer:
Section 35 of the Indian Stamp Act, 1899 covers instruments not duly stamped, whereas Chapter IV (Sections 35-48) gives the consequences in case an instrument is not duly stamped. It provides the following:
- An instrument insufficiently stamped will not be admitted as evidence or recognized as valid by any government official unless it is duly stamped.
- It can, subsequently, be stamped with stamps of proper amount, and be rendered duly stamped according to the Indian Stamp Act, 1899.
- An agreement or contract that is made up of various parts contained in separate letters would be deemed to be properly stamped if any one part of all the documents bears stamps of proper description and value.
- The exclusion of insufficiently stamped instruments shall not apply to criminal proceedings.
- The Collector of Stamps can be presented with such an instrument and the proper stamp duty paid on it, so that it becomes a proper and valid instrument.
Question 7: Write a note on ‘mode of cancellation of adhesive stamps ‘ under the Indian Stamp Act, 1899.
Answer:
Section 12(3) of the Indian Stamp Act, 1899, deals with the mode of cancellation of adhesive stamps.
It provides that the cancellation of an adhesive stamp may be done by the person concerned by writing on or across the stamp his name or initials, or the name or initials of his firm with the current date, or in any other effectual manner, so as to render the stamp not reusable.
Sub-section (3) merely lays down as a guidance one of the ways in which an adhesive stamp can be cancelled; the efficacy of the actual methods will depend on the facts of each case.
In Mahadeo Koeri Vs. Sheoraj Ram Teli, it was held that a stamp may be treated as having been effectively cancelled by merely drawing a line across it. However, in the case of Hafiz Allah Baksh Vs.
Dost Mohammed, it was held that if it is possible to re-use a stamp despite a line being drawn across it, there is no effectual cancellation. These two cases stress the fact that mode of cancellation and its efficacy depend on the facts of the case.
Question 8: Define the term ‘bill of lading’ under the Indian Stamp Act, 1899.
Answer:
The term ‘bill of lading’ under the Indian Stamp Act, 1899
“Bill of lading includes a through bill of lading but does not include a mate’s receipt.” [Section 2(4)] of the Indian Stamp Act, 1899. A bill of lading is a receipt or acknowledgment given by the master of a ship for goods delivered to him for delivery to a disclosed recipient.
The master of the ship gives this receipt in three copies, all signed by him. One is kept by the consignor of the goods, one by the master of the ship and one is forwarded to the recipient or the consignee, who can show the receipt at the destination of the goods and collect them.
This receipt evidences a contract for the carriage and delivery of goods. This same receipt is known as the mate’s receipt when the goods are delivered on board a ship for delivery via sea.
Bills of lading come under entry 91 of the union list, giving power to the union legislature to levy stamp duty.
Question 9: “If once the ‘instrument’ has been admitted in evidence, it shall not be questioned later on in the same suit on the ground that it does not bear the adequate stamp duty or no stamp.” Discuss briefly with reference to case law. (5 marks)
Answer:
Section 35 of the Indian Stamp Act, 1899 covers instruments not duly stamped, whereas Chapter IV (Sections 35-48) gives the consequences in case an instrument is not duly stamped.
It provides the following:
- An instrument insufficiently stamped will not be admitted as evidence or recognized as valid by any government official unless it is duly stamped.
- It can, subsequently, be stamped with stamps of proper amount, and be rendered duly stamped according to the Indian Stamp Act, 1899.
Section 36 provides that where an instrument has been admitted in evidence, such an admission shall not (except as provided in Section 61) be called in question at any stage of the same suit or proceeding on the ground that the instrument has not been duly stamped (Guni Ram v. Kodar).
If not with standing any objection, the trial Court admits the document, the matter ends there and the Court cannot subsequently order the deficiency to be made good and levy penalty (Bhupathi Nath v. Basanta Kumar).
Question 10: What is ‘e-stamping’? Also, discuss its benefits.
Answer:
‘E-stamping’
E-stamping is a computer-based method; an electronic way of paying stamp duty. This facility is not available in all the states and Union territories. To avail the facility, one needs to fill up an application form available at Authorized Collection Centres (ACCS) for stamp duty payment.
E-stamping is an alternate to the physical, paper-based stamps. It is deemed to be a secure way of paying non-judicial stamp duty, since there is no paperwork involved and hence none of the problems associated with paperwork.
E-stamping is currently operational in the states of Gujarat, Karnataka, NCR Delhi, Maharashtra, Assam, Tamil Nadu, Rajasthan, Himachal Pradesh, Uttarakhand, and the union territories of Dadra & Nagar Haveli, Daman & Diu, Puducherry and Uttar Pradesh.
Ultimately, the vision is to have a paperless e-stamping system replacing the current stamping/franking system. This will, in turn, help reduce the danger of counterfeiting and make the work of stamping easier for all parties involved.
It is extremely fast; the certificate is generated within minutes of the transaction. Moreover, it cannot be tampered with, and is hence, entirely safe. Since there is less processing and administrative work involved, it is also more cost effective.
E-stamping has several benefits –
- Speed of generation and processing.
- It is tamper-proof; cannot be altered by an unauthorized entity.
- It is easily accessible.
- It is reasonable in cost.
- User-friendly.
Question 11: Are securities dealt in depository liable to stamp duty under the provisions of Indian Stamp Act, 1899?
Answer:
As per Section 8A of the Indian Stamp Act, 1899:
Securities issued in the names of depositories need not be stamped. However, the issuer will be liable to pay the duty on the total amount of securities.
Whenever the issuer issues a certificate in lieu of such demat securities, duty equivalent to that of duplicate certificates shall be payable on such certificates.
the transfer of:
registered ownership of securities from a person to a depository or from a depository to a beneficial owner; or the change of beneficial owner from one to another or change in the beneficial ownership of units, such units being units of a Mutual Fund including units of the Unit Trust of India, shall not be liable to duty under this Act or any other law for the time being in force.
Question 12: State the provisions of Indian Stamp Act, 1899 regarding the payment of stamp duty for renewing debentures.
Answer:
The provisions of Indian Stamp Act, 1899 regarding the payment of stamp duty for renewing debentures
As per Section 55 of the Act, there is no liability regarding payment of stamp duty on the companies renewing debentures issued by them, because duty would already have been paid on the original debentures.
This section provides that when any duly stamped debenture is renewed by the issue of a new debenture in the same terms, the company can apply to the Collector within one month.
Upon such application, the Collector shall repay to the issuer of such debenture, the value of the stamp on the original or on the new debenture whichever is less.
However, the Section also requires that for this Section to apply, the original debenture has to be produced before the Collector and cancelled by him in a manner determined by the State Government.
The Section further provides that a debenture shall be deemed to be renewed on the same terms even if there are the following changes:
- splitting of the original debenture, if the total amount secured remains the same;
- consolidated debenture certificate being issued in place of two or more original debentures, if the total amount secured remains the same;
- the original holder’s name has been substituted for another; and
- change in the rate of interest
- change in the date of payment of the amount secured under the debenture.
Question 13: Explain the meaning of ‘Bill of Lading’ under The Indian Stamp Act, 1899?
Answer:
The meaning of ‘Bill of Lading’ under The Indian Stamp Act, 1899
According to Section 2(4) of the Indian Stamp Act, 1899, “Bill of Lading” includes a ‘through bill landing’ but does not include a mater’s receipt. A bill of lading is a receipt by the master of a ship for goods delivered to him for delivery to X or his assigns.
Three copies are made, each signed by the master. One is kept by the consignor of the goods, one by the master of the ship and one is forwarded to X, the consignee, who, on receipt of it, acquires property in the goods.
It is a written evidence of a contract for the carriage and delivery of goods by sea, for certain freight. When goods are delivered on board a ship, the receipt is given by the person in charge at that time. This receipt is known as the mate’s receipt.
The shipper of the goods returns this receipt to the master before the ship leaves and receives from him bill of lading for the goods, signed by the master.
Question 14: Define ‘Lease’ under the Indian Stamp Act, 1899.
Answer:
‘Lease’ means a lease of immovable property and includes also:
- a patta;
- a kabuliyat or other undertaking in writing, not being a counterpart of a lease to cultivate, occupy or pay or deliver rent for, immovable property;
- any instrument by which tolls of any description are let;
- any writing on an application for a lease intended to signify that the application is granted.” [Section 2(16) of the Indian Stamp Act, 1899]
Hence, it is a kind of right over a property or the benefits arising therefrom, for a fixed period of time, usually exceeding a year. A lease of a year or more needs to be in writing and registered.
Hence, such a lease deed would essentially be stamped, as per the Indian Stamp Act, 1899. It is covered under the definition of an ‘instrument; under the Section 2(14) of the Act.
Question 15: A promissory note is executed by Suresh and Udit and stamp is afterwards affixed and cancelled by Suresh by again signing it. Explain whether the provisions of section 17 relating to time of stamping instruments have been complied with?
Answer:
Section 17 of the Indian Stamp Act, 1899 provides that all instruments chargeable with duty and executed by any person in india shall be stamped before or at the time of execution.
The scope of Section 17 is restricted to only instruments executed in India. If the executant of a document has already completed the execution of the document and in the eye of law the document, could be said to have been executed, a subsequent stamping, (however close in time) could not render the document as one stamped at the time of execution.
Thus, where a promissory note is executed by ‘A’ and ‘B’ and a stamp is afterwards affixed and cancelled by ‘A’ by again signing it, the stamping has taken place subsequent to the execution and hence, the provisions of Section 17 are not complied with (Rohini v. Fernandes, AIR 1956 Bom 421).
A receipt stamped subsequent to its execution, but before being produced in the Court is not stamped in time and accordingly, not admissible in evidence. In view of the above. the provisions of Section 17 relating to stamping instruments are not complied with.
Question 16: What is the extent of liability of instruments to stamp duty where several instruments are executed in a single transaction? Explain with any one illustration.
Answer:
Section 4 of Indian Stamp Act, 1899 provides that, where in the case of any sale, mortgage or settlement, several instruments are employed for completing the transaction –
Only the principal amount shall be chargeable with the duty prescribed for the conveyance, mortgage or settlement
Each of the other instrument shall be chargeable with a duty of one rupee (instead of the duty if any prescribed for the other instruments)
Illustrations
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 (ILR 13 Bom 281).
Subsequent to a sale of immovable property, two declarations were executed reciting that the sale was subject to an equitable mortgage created by the vendor. These declarations were held to be chargeable, together with the sale deed, as having completed the conveyance (Somaiya Organics Ltd. v. Chief Controlling Revenue Authority, AIR 1972 All 252).
Brother A executed in favour of brother B a gift of all his property. By another deed, brother B made provision for the living expenses of brotherA and hypothecating in favour of brother A a part of the property included in the above mentioned gift deed, in order to secure the payment of the living expenses.
It was held that the two documents were part of the same transaction. They amounted to a settlement and Section 4 applied (Maharaj Someshar Dutt, ILR 37 All 264).
B conveyed the whole of his property to three persons who undertook to provide for him and to perform his obsequies. By another document, the three donees agreed to provide for This was mentioned in the deed executed by A also.
It was held that the two documents had to be construed as part of the same act; the first was liable to duty as a conveyance while the second was liable to a duty of Rupee 1 only (Dadoba v. Krishna, ILR 7 Bom. 34).
A company executed, first a deed of trust and mortgage stating that the company was to issue notes for raising loans secured by the sale deed. It was held as under:
- The deed was principal or primary security (and not a collateral security). It was chargeable as mortgage under Article 14.
- The notes issued subsequently were debentures and not principal instruments (Madras Refinery Ltd. v. Chief Controlling Revenue Authority, Madras, AIR 1977 SC 500).
Question 17: Name of the officers of the Company who can be held liable in case the Company has issued share warrant without proper stamp duty. What shall be the penalty as prescribed under Sec. 62(2) of the Stamp Act.
Answer:
As per Section 62(2) of the Indian Stamp Act, 1899, if a share-warrant is issued without being duly stamped, the company issuing the same, and also every person who, at the time when it is issued, is the managing director or secretary or other principal officer of the company, shall be punishable with fine which may extend to five hundred rupees.
Question 18: Explain the terms ‘Patta’ and ‘Kabuliyat’, under the Indian Stamp Act, 1899.
Answer:
Patta and Kabuliyat: Both can roughly be said to be types of leases. The Indian Stamp Act, 1889 includes both the terms in its definition of lease as per Section 2(16).
A ‘patta’ is a legal document given to the owner of a land by the government. It generates from the term ‘pattani’ which indicated usufructuary land rights given by zamindars or land owners. In case of multiple owners of a common land, a single patta is issued in favour of all.
A ‘kabuliyat’ is a deed of settlement in favour of the lessee, which entails all land rights as long as he follows all the terms pertaining to the land transfer. Hence, the term ‘kabuliyat’ that derives meaning from the Urdu word ‘Kabul’, meaning ‘to accept’; here the acceptance pertains to the terms of land transfer.
Both indicate a kind of right over a property or the benefits arising therefrom, for a fixed period of time, usually exceeding a year. In both, some conditions are built into the agreement of transfer.
Question 19: Describe the concept of ‘E-Stamping’ under Indian Stamp Act, 1899.
Answer:
The concept of ‘E-Stamping’ under Indian Stamp Act, 1899
E-stamping is a computer-based method; an electronic way of paying stamp duty. This facility is not available in all the states and Union territories. To avail the facility, one needs to fill up an application form available at Authorized Collection Centres (ACCS) for stamp duty payment.
E-stamping is an alternate to the physical, paper based stamps. It is deemed to be a secure way of paying non-judicial stamp duty, since there is no paperwork involved and hence none of the problems associated with paperwork.
E-stamping is currently operational in the states of Gujarat, Ultimately, the vision is to have a paperless e-stamping system replacing the Karnataka, NCR Delhi, Maharashtra, Assam, Tamil Nadu, Rajasthan, Himachal Pradesh, Uttarakhand, and the union territories of Dadra & Nagar Haveli, Daman & Diu, Puducherry and Uttar Pradesh.
current stamping/franking system. This will, in turn, help reduce the danger of counterfeiting and make the work of stamping easier for all parties involved. It is extremely fast; the certificate is generated within minutes of the transaction.
Moreover, it cannot be tampered with, and is hence, entirely safe. Since there is less processing and administrative work involved, it is also more cost-effective.
Question 20: Explain the term “Receipt” under the Indian Stamp Act, 1889.
Answer:
As per the Indian Stamp Act, a “Receipt” means a note, memorandum or writing, which has the following features:
- that acknowledges any money or any bill of exchange, cheque or promissory note as being received; or
- that acknowledges any other movable property as being received in full or partial satisfaction of a debt; or
- that acknowledges the satisfaction or discharge of any debt or demand; or
- any such acknowledgment, whether signed with the name of any person or not. [Section 2(23)]
However, in case of immovable property, a mere acknowledgment in writing of the receipt will not be deemed to satisfy the requirements of the Section.
An acknowledgment in satisfaction or discharge of any debt or demand or any part thereof is also covered by the Section, even if given by for example, the secretary or the manager of a club or an association.
The exclusions are ordinary cash memos or invoices issued by shopkeepers etc., unless it specifically mentions receipt of the money. On the contrary, a mail or letter acknowledging the receipt of money in cash or via cheque shall be deemed to be a receipt.
Even a document that acknowledge the receipt of an amount shall be given the status of a receipt.
Question 21: Discuss the instruments which are Chargeable with duty under section 3 of the Indian Stamp Act, 1889.
Answer:
Instruments chargeable to stamp duty Instrument includes every document by which any right or liability, is, or purported to be created, transferred, limited, extended, extinguished or recorded [section 2(17) of Indian Stamp Act).
Any instrument mentioned in Schedule I to Indian Stamp Act is chargeable to duty as prescribed in the schedule [section 3]. The list includes all usual instruments like affidavit, lease, memorandum and articles of company, bill of exchange, bond, mortgage, conveyance, receipt, debenture, share, insurance policy, partnership deed, proxy, shares etc.
Thus, if an instrument is not listed in the schedule, no stamp duty is payable. ‘Instrument’ does not include ordinary letters. Similarly, an unsigned draft of an agreement is not an ‘instrument’.
Subject to the provisions of this Act and the exemptions contained in Schedule I, the following instruments shall be chargeable with duty of the amount indicated in that Schedule as the proper duty therefore-
Every instrument mentioned in that Schedule which, not having been previously executed by any person, is executed in India on or after the first day of July. 1899;
Every bill of exchange payable otherwise than on demand or promissory note drawn or made out of India on or after that day and accepted or paid or presented for acceptance or payment, or endorsed, transferred or otherwise negotiated, in India; and
Every instrument (other than a bill of exchange or promissory note) mentioned in that Schedule, which, not having been previously executed by any person, is executed out of India or after that day relates to ally property situate, or to any matter or thing done or to be done in India and is received in India.
Indian Stamp Act, 1899 Practical Questions
Question 1: Amit mortgages a house of the value of ₹ 25,000 to Bimal for 10,000. Bimal afterwards buys the house from Amit. Whether the stamp duty already paid is deductible from the stamp duty payable on 25,000?
Answer:
In this case, the mortgage deed would already be stamped, since it is a prior contract. Hence, the stamp duty already paid on it can be deducted from the duty payable now on the deed of sale.
So, only the balance duty is to be paid, i.e. the duty paid on mortgage would be less, and that required on sale would naturally be more, so the assessee now needs to pay the balance duty on the sale.
For such a ruling, however, the Act specifies the condition that the entire property should be sold.
Sale Price of house ₹25,000
Amount for which it is already mortgaged 10,000
= Amount on which duty is to be paid currently 15,000
Question 2: Atul mortgages his house of the value of ₹ 50,000 to Vijay. After some time Vijay buys the house from Atul for 25,000. Decide the amount on which Vijay has to pay the stamp duty under Indian Stamp Act, 1899.
Answer:
Instrument includes every document by which any right or liability, is, or purported to be created, transferred, limited, extended, extinguished or recorded [Section 2(14) of the Indian Stamp Act, 1899].
Any instrument mentioned in Schedule I to Indian Stamp Act is chargeable to duty as prescribed in the Schedule [Section 3]. The list includes all usual instruments like affidavit, lease, memorandum and articles of company, bill of exchange, bond, mortgage, conveyance, receipt, debenture, share, insurance policy, partnership deed, proxy, shares etc.
Thus, if an instrument is not listed in the Schedule, no stamp duty is payable. ‘Instrument’ does not include ordinary letters. Similarly, an unsigned draft of an agreement is not an ‘instrument’.
In this case, the mortgage deed would already be stamped, since it is a prior contract. Hence, the stamp duty already paid on it can be deducted from the duty payable now on the deed of sale.
So, only the balance duty is to be paid, i.e. the duty paid on mortgage would be less, and that required on sale would naturally be more, so the assessee now needs to pay the balance duty on the sale.
For such a ruling, however, the Act specifies the condition that the entire property should be sold. If a mortgaged property is sold, then the stamp duty already paid on the deed will be deducted from the duty payable on the deed of sale.
However, the one condition essential for this is that the entire property should be transferred in this sale, not just a part of it (Mirabai, Inre Laxman and Ganpat).
The explanation to Section 24 says that in the case of sale of property that is already mortgaged to the buyer, 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.
This is the case when the property subject to a mortgage is transferred to the mortgagee. In such a situation, he shall be entitled to deduct from the duty payable on the transfer on account of sale any duty already paid in respect of the mortgage.
Descriptive Questions
Question.1: What is the concept of apportionment as described in the Stamp Act?
Answer:
Apportionment
Section 28 of the Act contains rules regarding apportionment of consideration, in those cases where certain conveyances arising out of a property being contracted to be sold is thereafter conveyed in parts. It provides the following –
Section 28 (1)-
If the contract is for the property to be sold as a whole but conveyance to the purchaser is made in separate parts, the consideration shall be apportioned in such manner as the parties think fit, provided that a distinct consideration is set-forth for each separate part in the conveyance.
The conveyances shall be chargeable with ad valorem in respect of such distinct consideration pertaining to each conveyance.
Section 28 (2)-
If the contract is for the sale of a property as a whole to two or more purchasers jointly or by any person for himself and others, and the property is conveyed to them in parts by separate conveyances, then each distinct part of the consideration shall be chargeable with ad valorem duty in respect of the distinct part of the consideration so specified.
Section 28 (3) –
If a person, after contracting to purchase a property from another and before the property has been duly conveyed to him, enters into a contract to sell the property to a third person, and the contract is given effect to only by one conveyance from the owner of the property to the sub-purchaser directly, then the stamp duty payable is on the consideration paid by the sub-purchaser.
This provision ensures that double payment does not take place.
Section 28 (4) –
If a person contracts for the sale of property and before obtaining a conveyance in his favour, enters into a contract to sell the property in parts to other persons, the conveyances which may be executed directly by the owner to each sub-purchaser would be liable to be charged with duty in respect of the consideration paid by the sub-purchaser, original price for the whole and the aggregate price paid by the sub-purchasers, subject to a minimum duty of Re. 1/-.
Section 28 (5) –
If a person contracts to sell property to another person and again contracts to sell the same property to a third person and such third person obtains a conveyance first from the seller with whom he had contracted and later gets another conveyance of the same property from original seller, the duty is to be charged on the consideration received by the original seller subject to a maximum of ₹ 5.