Should Stamp Duty Continue To Be Payable Twice For Redevelopment Projects?– Bombay High Court To Decide, Appoints Amicus Curiae

Three petitions filed by a Mumbai builder challenge two State Government circulars, making stamp duty payable twice in most redevelopment projects. The circulars dated June 23, 2015, and March 30, 2017, were issued by the Inspector General of Registration and Controller of Stamps, Maharashtra State.

The first Stamp duty becomes payable when a Housing Society enters into a development agreement with a builder, transferring redevelopment rights. And the second becomes payable at the time of registration of Permanent Alternate Accommodation Agreements (PAAA) between builders and original flat owners for the flats.

According to the petitioner, the two agreements are wrongly treated as two separate transactions and violate section 4 of the Maharashtra Stamp Act. According to the circular, stamp duty is not applicable the second time if the development agreement is between all three parties- the society, flat purchaser and builder.

A division bench of Justices Gautam Patel and Madhav Jamdar has appointed Advocate Samit Shukla, partner DSK Legal, as Amicus. He has been requested to brief either Advocate Karl Tamboly or Advocate Mayur Khandeparkar.

"Given the fact that the issue is relatively narrow but is likely to have a significant impact, we will give the matter priority, and we list it for final disposal on February 3, 2022," the bench observed.

In the interim, the court has asked the Sub-Registrar of Assurances and the Collector of Stamps, to permit the registration of PAAAs for the petitioner's projects without demanding the subsequent stamp duty.

Petitioner Adityaraj Builders has been directed to deposit 50% of the amount payable (Rs. 40 lakhs approximately) in court by January 3, as a pre-condition to the registration.

The original civil writ petition filed by Advocate Jayesh Jain under Article 226 of the constitution, invoking Articles 14,19(1)(g) and 265 of the Constitution of India along with provisions of the Maharashtra Stamp Act.

Before 2015, PAAA's used to be registered on Rs. 100 Stamp Paper. However, as per the circular dated June 23, 2015, and clarification from March 30, 2017, only in case of a tripartite development agreement between society, original owner and developer, the stamp duty may not be payable the second time.

According to the circular, the second or ancillary stamp duty, wherever applicable, is 5% of the construction cost of the retained area and additional area.

The circular implies that if the owner is part of the original development agreement, then the PAAAs will be treated as incidental documents and stamp duty will not be applicable for the second time.

However, the petitioners have contended that the circulars are ultra vires of section 4 of the Maharashtra Stamp Act. All ancillary documents required to complete one transaction can be done on a Rs. 100 stamp paper. Therefore the circulars are arbitrary, unreasonable and violative of Article 14 of the Constitution, the plea states.

Grounds

The petition states that circulars fail to consider the binding precedent laid down by the High Court in the matter of Prabha Laxman Ghate, and wrongly discriminates against members of a Co-operative Housing Society. This is because they are real Owners of the flats and have a proportionate share of land from new flat purchasers.

That the entire Agreement for Development and the Agreement for a Permanent Alternate Accommodation form a part of "one transaction." "Therefore, once stamp duty has been paid as per the provisions of Article 5 (g-a) of the Act, the clarificatory Agreement by way of Agreement for Permanent Alternate Accommodation cannot be levied with full stamp duty," the plea states.