Purpose Of Rectification Deed Is To Remove Inadvertent Errors, Clarify Imperfections In Earlier Deed: Madras High Court

In a recent judgment, the Madras High Court has given some clarifications about the scope of rectification deed and whether the entering of the rectification deed for clarifying a fact would mean the existence of the same in the original sale deed.

The bench of Justice T. Raja and Justice D. Bharatha Chakravarty was considering the appeal of Vodafone Idea Limited under Section 47-A(10) of the Indian Stamps Act,1898 against the order of Inspector General of Registration.

Relying on the Supreme Court judgment in  Assistant Commercial Taxes Officer v. Makkad Plastic Agencies, 2011 4 SCC 750 which observed that the meaning of 'rectification' under the Sales Tax Act would include 'removal of defects or imperfections', the High Court held that, 

"...Whenever the rectification deed includes any additional property on which the duty is not charged, the rectification deed will be charged as if it were a sale deed as per Section 47-B of the Act. Thus, the scope of rectification deed may differ in every case. Rectification deed can be for rectification of mistake or on an inadvertent error or even clarifying the original document. Apart from correcting an error or removal of defect, Rectification deed can also remove 'imperfection' in the earlier document."

In 2002, Vodafone Idea (previously B.P.L Mobile Cellular Limited) sold their land property in Coimbatore, together with the buildings and structures standing on ground. The sale deed in favour of M/s. Hindusthan Infrastructure Projects and Engineering Private Limited was for a consideration of Rs. 3.5 crores.

However, the Inspector General of Registration reached a conclusion that the sale deed transfers an ongoing concern on 'as is where is basis' along with the plant and machinery and was undervalued. Thus, the impugned Order was issued imposing an additional stamp duty.

Just before the issue of Show Cause Notice, both the appellants entered into a deed of rectification that unequivocally stated that the transfer of property does not comprise the plant and machinery therein and the vendor, Vodafone Idea, is still the owner of the same.

Additional Advocate General argued that the rectification deed itself is a proof that the original sale deed sold plant and machinery along with the land, and a deed of rectification is only entered into between two parties when it is required to undo or modify something contained in the original deed.

Considering the facts and circumstances of the case, the court observed as below:

"Thus, when the rectification deed also mentions that the plant and machinery are not sold, it only clarifies the imperfection and the contention of the revenue that there has been a sale of plant and machinery which is running contra to the rectification deed is wholly misconceived and illogical as the mistake of fact can be always rectified, by moving rectification deed with consent of both parties."

The court had also framed two other questions that required answers for adjudicating the dispute:

(i) Whether or not the contentious Sale deed transfers the ongoing business on 'as is where is' condition along with plant and machinery?

(ii) Whether the intention of the parties is to sell the plant and machinery and whether it can be ascertained from the other documents and circumstances also?

On the first of the remaining questions, the court noted that the schedule in the sale deed is clear enough to arrive at the conclusion that the transfer is solely of the land and buildings alone. Even the Annexure-1A of sale deed mentions the structures that are sold and the value of buildings and electrical installation. Therefore, the court concluded that it is not a sale on 'as is where is' basis including plant and machinery.

"Every recital in the sale deed make it clear that the vendor is selling only the schedule property namely, the immovable property alone. The meaning of the above clause could only be that the permanent fixtures to the building such as doors, windows and other fixtures relating to the immovable property are being sold and not the business or plant and machinery relating to the business. The above recital is only an express statement of what is conveyed with the immovable property as per Section 8 of the Transfer of Properties Act", the court said.

About the Supreme Court judgment in Duncans Industries Ltd v. State of U.P. And Others (1999), the court added that it was pertaining to the sale of factory or industry for which the major part of the consideration is paid for machinery that is embedded and permanent feature of such factory/ industry. According to the Madras High Court, the judgment in Duncans wanted to prevent the parties from escaping the liabality by showing these embedded, permanent features as plant and machinery. Thereby, the parties could not assert that the sale deed was for the immovable property of land/ shed alone for escaping payment of stamp duty.

"It is only in that context when a business is sold the plant and machinery which are embedded on the earth is also directed to be a part of the immovable property for the purpose of valuation. But, in the instant case, there is absolutely nothing whatsoever in the document to show that there is a sale of business. Therefore, when there is no sale of business at all, there is no question of any presumption of the plant and machinery either being part of the sale or being part of the immovable property. "

The court also noted that BPL Cellular Limited (now Vodafone Idea) has become a tenant in the building it has sold to R.A.G Constructions (now M/s.Hindusthan Infrastructure Projects and Engineering Private Limited) as seen in the lease deed that was later registered. BPL Cellular Limited has also claimed depreciation for the plant and machinery in its annual reports of 2003-2004 without which it cannot carry on its business. The Income Tax Form 37, rectification deed and sale deed all point towards the fact that there was no sale of plant and machinery originally in the property sold.

On the final question about the intention of the parties, the court also reached the conclusion that the registering authority erred so far in its denial to take into account the Income Tax Form 37, Balance Sheets before the Registrar of Companies, and other documents produced including information from the Public Information Officer under the Right to Information act. According to the court, all of these documents and not the sale deed alone was instrumental in ascertaining what the intention of the parties were while registering the sale deed in favour of R.A.G Constructions (Hindustan Infrastructure).

For the above conclusion, the court referred to Section 47-A (1) of the Stamp Act that requires a reference by the registering authority who doubts an undervaluation of stamp duty to the District Collector for enquiry into the market value furnished in the sale deed. The said enquiry is mentioned in Rule 3.3 of the Tamilnadu Stamps (Prevention of Undervaluation of Instruments) Rules, 1968.

Therefore, the court concluded as below:

"...all categorically demonstrate that there was no sale of the ongoing business in 'as is where is' condition with the plant and machinery and that the sale is only relating to the immovable property and that the first appellant is still the owner of those plant and machinery and is running its own business, even as on the date, in the same premises as the tenant of the second appellant and the question is answered accordingly."

In the final order, the court set aside the impugned orders by District Revenue Officer (Stamps) and Inspector General of Registration that demanded an additional stamp duty on the plant and machinery, valued at Rs.60,87,75,000/-.

However, the appellants were directed to pay the additional stamp duty as revised by the Inspector General on the land and building therein with interest at the rate of 2 per cent/ month from the date of the order of the original authority till the date of payment, excluding the pendency of proceedings in High Court, within four weeks.

Case Title: Vodafone Idea Limited & Anr. v. The Inspector General of Registration & Ors.

Case No: C.M.A.No.1836 of 2005

Citation: 2022 LiveLaw (Mad) 43

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