Stamp Duty Inapplicable On Family Members Who Ceased To Be Co-Sharers In Property Prior To Executing Partition Memo: Allahabad High Court
The Allahabad High Court has recently observed held that if family members looking to partition their property/land, cease to be co-sharers prior to the execution of the partition document, then the stamp duty levied under Section 2 (15) of the Indian Stamp Act is inapplicable on them.
Referring to the provision a single judge bench of Justice Piyush Agrawal in its order said:
“From bare reading of the afore-quoted Sections, it clearly shows that if an instrument of partition is executed, duly signed by the coowners, on previous terms of partition without possession, stamp duty is liable to be paid on the said instrument. In other words, Section 2 (15) (iii) of the Act will be applicable, if an instrument of partition is executed by co-owners of the property, on a declaration of terms of a previous partition by co-owners, then it should be without possession.”
It however said that once the shares of each family member were divided and have separate possession of their respective shares, then they cease to be co-owners of the property on the date of execution of the partition instrument.
For context, Section 2(15) of the Act defines an "instrument of partition" which means any instrument wherein the co-owners of a property "divide or agree to divide" the property in severalty (state of being separate).
This term also includes a final order for effecting a partition passed by any revenue authority or any civil court, an award by an arbitrator directing a partition and "when any partition is effected without executing such instrument, any instrument or instruments signed by the co-owners and recording, whether by way of declaration of such partition or otherwise, the terms of such partition amongst the co-owners".
Case Background
The court passed the order in a matter concerning alleged non payment of stamp duty for property subject matter of partition deed.
The petitioners, a family of nine, entered into an oral agreement regarding the partition of their property in July/August of 2011. On May 23, 2012 this agreement was reduced to writing as a memorandum of settlement. Thereafter, one member of the family sought declaration of his title and instituted a suit. In the process, a compromise dated September 29, 2012 was filed, following which an order was passed on October 8, 2012 and a decree was passed on October 16, 2012.
Subsequently, a member of the family, applied for a sanction of the map of his property before the Muzaffar Nagar Development Authority along with a copy of the decree and the settlement. A memo of the same was forwarded by the office to the Collector to enquire about the status of stamp duty on the concerned property. Following this, proceedings were initiated against the petitioners, wherein a notice was issued to them. Petitioners replied to the notice but the authorities finding the reply unsatisfactory, issued an order against them. Petitioners then filed an appeal, that was dismissed. Aggrieved by the same, they filed a writ petition before the High Court.
Counsel for petitioners submitted that they had occupied their respective shares of the property as per the oral agreement in 2011, prior to the memorandum of settlement. They argued that each of them was already in possession of their shares of the land at the time of the execution of the memorandum of settlement. It was contended that they were no longer co-sharers of the property in question and thus, Section 2 (15) of the Indian Stamp Act was inapplicable to them.
Further, petitioners argued that no reason was recorded for the imposition of penalty on them. They submitted that where there was no intent to avoid stamp duty, penalty could not be imposed.
Per contra, counsel for the respondents submitted that while the partition deed was executed on May 23, 2012, it was not registered in order to avoid the payment of stamp duty as mandated by Section 2 (15). Further, it was submitted that the partition was executed on 23.05.2012 and thus under Section 2 (15) of the Act of the Indian Stamp Act they were required to register the document as well as pay the prescribed stamp duty.
It was argued that had the present proceedings not been initiated against the petitioners, they would have successfully defaulted the State Exchequer.
Findings
The Court held that there was specific mention of the petitioners being family members and entering into an oral partition of the joint family property, in the deed of partition; a fact that remained undisputed by the respondents.
Justice Agrawal examined Section 2 (15) of the Act of 1899 and held that a bare reading of the section, shows that if an instrument of partition was executed by the co-owners "on previous terms of partition without possession", then stamp duty is liable to be paid. However, it held that once the respective family members had taken possession of their separate shares, they ceased to be co-owners of the property in question.
“Once the shares of each family member were divided and separate possession of their respective shares were occupied by them, they cease to be co-owners of the property on the date of execution of memo of partition in written. In other words, once the respective parties had taken possession of their shares, they cease to be the co- owner of the property," the court said.
It was held that the State had failed to prove that the partition was not complete on the date of execution of the memorandum.
The Court observed that the only that was to be taken into account to determine whether the partition had been completed was whether the parties had divided the properties by metes and bounds. It was held that the parties had arrived at the oral settlement and had taken steps to occupy the respective portions.
“The record shows that in view of the oral family settlement, the respective parties not only divided their shares but also taken possession of their respective shares by metes and bounds, then at the time of reducing in writing the memorandum of settlement, will not be treated as instrument which is covered under Section 2 (15) (iii) of the Act,” held the Court.
Further, the Court held that no reason had been assigned for levying penalty on the petitioners. The Court held that there was no finding in the impugned orders that stated that the petitioners had made an attempt to evade stamp duty.
“Once the reason has not been assigned by the competent authority for levying the penalty then on this ground alone, the impugned orders cannot be sustained,” held the Court.
Accordingly, the writ petition was allowed.
Case Title: Somansh Prakash And 8 Ors. v. State of U.P. and 3 Ors. [WRIT - C No. - 5229 of 2021]