Summary of this article
Stamp duty applies only if possession follows agreement.
Existing tenancy possession does not trigger sale duty.
Courts must link possession directly to agreement.
The Supreme Court of India has explained whether an agreement to sell property should be subject to stamp duty as a sale where the purchaser is already in possession.
The dispute arose out of a long-standing landlord and tenant relationship in Andhra Pradesh. The tenant had been occupying the property for over 50 years. In 2009, the landlord agreed to sell the property to the tenant for Rs 9 lakh, of which Rs 6.5 lakh was paid as an advance.
The landlord rejected the agreement. The tenant approached a civil court for clarification on the specific purpose of the agreement. When the agreement was presented in court, the landlord objected, arguing that it was insufficiently stamped.
Objection Raised on Stamp Duty
The landlord claimed that the agreement to sell should be treated as a conveyance or sale deed for stamp duty purposes because the buyer was already in possession.
According to the Andhra Pradesh Stamp Act, the sale agreement may be regarded as a sale when accompanied by delivery of possession or by evidence that possession was delivered in consequence of the agreement. These documents are charged with a higher stamp duty and fines in case of failure to pay.
In line with this, the landlord argued that the agreement could not be used unless the buyer pays the additional duty.
What Lower Courts Decided
The trial court granted the objection and decided that the contract amounted to a deemed sale. It instructed the tenant to pay the deficit, stamp duty and penalty.
The High Court held that the agreement could not be used without proper stamping. These orders were then contested in the Supreme Court.
How the Supreme Court Looked at the Possession
The Supreme Court was concerned with whether the possession of the property by the tenant was a result of the contract.
It was observed that the tenant had held possession for a long period of time prior to the agreement. His status as a tenant gave him ownership of the same and remained unaffected even after the contract was signed.
The agreement did not record any delivery of possession or show that possession was handed over as part of the sale.
Why the Agreement was not Treated as a Sale
The Supreme Court made it clear that not every agreement to sell is considered a sale. To attract stamp duty as a sale, there must be a clear link between the agreement and the delivery of possession. Existing possession alone are not enough. The possession must flow from the agreement itself, stated the apex court. If possession exists for other reasons, such as tenancy or lease, it does not follow the agreement.
In this case, the independent possession by the tenant preceded the agreement and was independent. Therefore, the agreement could not be considered as a conveyance.
Supreme Court's Final Ruling
The orders of the lower courts were overturned by the Supreme Court. It was believed that the agreement for sale could not be regarded as a conveyance in accordance with the AP Stamp Act.
The agreement did not involve stamp duty on a sale and could be carried to court without having to pay extra duty and fine.
What the Judgment Clarifies
The decision clarifies that stamp duty on the agreements to sell is based on delivery of possession and not merely on its existence. The reason for possession has to be investigated by the courts rather than presuming the transformation of the nature of the document.
This clarification is important for long-term tenants who later sign an agreement to buy the house that they are staying in.
The Supreme Court has also made it clear that an agreement to sell attracts stamp duty as a sale in Andhra Pradesh, under the Stamp Act. Stamp duty is based on an agreement only where possession is made following the agreement or is evidently connected with it. Existing possession based on tenancy or other prior rights does not convert an agreement to sell into a sale for stamp duty purposes.
