Value Of Plant & Machinery Permanently Embedded To Land Must Be Ascertained To Compute Stamp Duty For Sale Deed : Supreme Court

The Supreme Court has held that the registration authorities are empowered under the proviso to Section 27 of the Indian Stamps Act, 1899, as inserted by the Andhra Pradesh Amending Act, 1988, to inspect the property, which is the subject matter of the instrument, make necessary enquiries and satisfy itself that the provisions of Section 27, which requires that all facts affecting the levy of Stamp Duty are fully and truly set forth in instrument, are complied with.

The bench of Justices K.M. Joseph and Hrishikesh Roy was dealing with an appeal against the decision of the Division Bench of the Andhra Pradesh High Court which had held that the registration authorities cannot force the vendee to pay stamp duty on the value of plant and machinery when it does not seek its registration, and only seeks the registration of the land and buildings purchased by it.

The court remarked that the Division Bench erred in not noticing the true purport of the Sale Deed executed in favour of the vendee, in conjunction with Section 8 of the Transfer of Property Act, 1882, and the definition of the word ‘immovable property’, as contained in the General Clauses Act, 1897, the Transfer of Property Act, and the Registration Act, 1908. The court further remarked that the Division Bench also failed to bear in mind the power available with the registration authorities with respect to undervaluation of instruments, including Section 47A of the Stamp Act, which empowers the Registering Officer to deal with undervalued instruments.

The top court reckoned that in view of Section 8 of the Transfer of Property Act, in the absence of an express or implied indication, a transfer of land would pass to the transferee all things attached to the earth.

The court remarked that merely because no express reference to plant and machinery was contained in the Recital Clause of the Sale Deed, it cannot mean that the interest in the plant and machinery which stood attached to the land which was scheduled in the Deed, was not conveyed to the vendee. Therefore, the value of plant and machinery must also be ascertained for computation of stamp duty, it ruled.

The court, however, added that only such plant and machinery, which was permanently embedded to the earth and answered the description of the immovable property, as defined in law, can be said to have been conveyed under the deed.

The respondent no. 2, M/s SMC Marketing PvtLtd, purchased a property, consisting of land, building, civil works, plant & machinery, inter alia, in a court auction of a wound-up company. A conveyance deed was executed by the Official Liquidator in favour of the 2^nd respondent’s nomineee, M/s Dankuni Steels Ltd, (1^st respondent), on the direction of the Andhra Pradesh High Court.

The Sub Registrar informed the vendee/ 1^st respondent, Dankuni Steels, that the registration of the Sale Deed executed in its favour was kept pending since the vendee had undervalued the instrument for payment of stamp duty. Thereafter, the District Registrar imposed penalty on the vendee and the Official Liquidator, directing them to deposit the stamp duty on the full value.

Challenging the said communication, Dankuni Steels filed a Writ Petition before the Andhra Pradesh High Court, which was dismissed by the Single Judge. The Single Judge rejected the contention of the vendee that the Sale Deed in question was only for Land, Buildings and Civil works, and not for plant and machinery. The court held that since the property covered by the Sale Deed covered not only the land, buildings and civil works, but plant and machinery also, the value of the plant and machinery also had to be considered for payment of stamp duty, after reducing the value of current assets.

The appeal filed by the respondent/vendee, Dankuni Steels, against the judgment of the Single Judge, was allowed by the Division Bench.

The Division Bench held that the vendee could not be forced to register even the plant and machinery when it only sought registration of the land and buildings, and that the Sub-Registrar cannot force it to pay stamp duty on the value of plant and machinery when it did not seek its registration. The bench thus directed the Sub-Registrar to consider the respondent’s request for registration of the land and building, determine its value, and collect stamp duty/ registration fee on the said value.

In an appeal filed by the Sub-Registrar against the decision of the Division Bench, the amicus curies, S. Niranjan Reddy, submitted before the Supreme Court that the registration authorities are empowered to verify the preambular recitals contained in the conveyance deed, to ascertain whether the instrument purports to provide for a larger transaction than projected in the Schedule.

He argued that in view of Sections 27 and 47A of the Stamp Act, the authorities can ascertain as to whether the immovable property is wholly and properly described in the instrument, and verify whether there is any plant and machinery embedded that ought to have been shown as immovable property and was wrongly excluded.

Perusing the Preamble and the recitals contained in the Sale Deed, the court reckoned that as per the terms of the sale, properties had been sold by the vendor to the vendee on ‘as is where is whatever there is basis’.

The court further observed: “The total sale consideration, it is clear again from the sale deed itself, is Rs.8.35 crores, for the land, building, civil works, plant and machinery and current assets, etc. However, what had been done is an amount of Rs.10105000/- has been taken as the value of the land, building and civil works based on the offer received by the Liquidator, when the assets were put up for sale individually.”

The court further noted that the Single Judge had found that the respondent vendees were using the plant and machinery for their business and had no intention to remove and sell them as scrap or otherwise. “We are in agreement with the view taken by the learned Single Judge that the unit was purported to be operated as a going concern and apparently the first respondent did not intend to dispose of the plant and machinery as scrap,” the bench said.

While referring to the definition of ‘Immovable property’, contained in the General Clauses Act, Transfer of Property Act, and Registration Act, the court also took note that Section 8 of the Transfer of Property Act declares that, in the absence of an express or implied indication, a transfer of property passes to the transferee all the interests, which the transferor was capable of passing in the property and in its legal incidents. Where the property is land, such incidents include, inter alia, all things attached to the earth. When the property is machinery attached to the earth, the movable parts also are comprehended in the transfer, the court observed.

Perusing the conveyance deed, in light of Section 8 of the Transfer of Property Act, the court concluded that the vendor intended to convey all things which stood attached to the earth, including the plant and machinery.

“In the Recital Clause, a proper reading of the same would tend to indicate that what is conveyed is rights over the scheduled property, which, no doubt, is the land, as described in the Schedule but it includes all the rights, easements, interests, etc., i.e., the rights which ordinarily passed on such sale over the land. It is from a reading the said recital in conjunction with Section 8 of the Transfer of Property Act that the intention of the parties become self-evident that the vendor intended to convey, all things, which inter alia stood attached to the earth. The mere fact that there is no express reference to plant and machinery in the Recital Clause cannot mean that the interest in the plant and machinery which stood attached to the land, which was scheduled, was not conveyed to the first respondent,” the bench said.

It further observed that the sale consideration of what was actually purchased by the respondent vendee, was expressly set out in the Preamble to the Sale Deed. “The sum of Rs.8.35 crores had been, in unambiguous terms, indicated as the total sale consideration for the asset sold to the first respondent, comprising of land, building, civil works, plant and machinery and current assets, etc.”

It observed: “The first respondent has taken out the value of the land, building and civil works, and shown it at Rs.10105000/-, and then indicating only the said amount as value. This is apparently to tide over the liability to stamp duty for what was actually, in law, conveyed to the first respondent.”

The court concluded that the Division Bench had overlooked the nature of the transaction, the effect of the auction sale, the property sold and its value. Further, it did not consider the preambular part of the Sale Deed and also failed to bear in mind the power available with the registration authorities.

“The effort of respondents 1 and 2 was to avoid payment of the stamp duty as due in law. The Division Bench erred in not noticing the true purport of the sale deed in conjunction with Section 8 of the Transfer of Property Act and the definition of the word ‘immovable property’, which we have adverted to,” said the court.

“We would think that the learned Amicus is right in pointing out that in the nature of the transaction, and what was actually sold by the Official Liquidator, plant and machinery, such as would answer the description of immovable property, must also be found part of the property for the purpose of the stamp duty and other charges as per law,” the court said.

The bench thus set aside the judgment of the Division Bench and restored the judgment of the Single Judge, directing the District Registrar to ascertain the value of plant and machinery which was permanently embedded to the earth and answering the description of the immovable property under law, for the purpose of Stamp Duty.

Case Title: The Sub Registrar, Amudalavalasa & Anr. vs. M/s Dankuni Steels Ltd. & Ors.

Citation : 2023 LiveLaw (SC) 357

Counsels for Appellant: Mr. G. N. Reddy, AOR Mr. Mahfooz A. Nazki, AOR Mr. Polanki Gowtham, Adv. Mr. T. Vijaya Bhaskar Reddy, Adv. Mr. K.V. Girish Chowdary, Adv. Ms. Niti Richhariya, Adv. Ms. Rajeshwari Mukherjee, Adv.

Counsel for Respondent: Mr. Gopal Jha, AOR

Indian Stamps Act, 1899- Proviso to Section 27: The Supreme Court has held that the Registration Authorities are empowered under the proviso to Section 27 of the Indian Stamps Act, as inserted by the Andhra Pradesh Amending Act, 1988, to inspect the property, which is the subject matter of the instrument, make necessary enquiries and satisfy itself that the provisions of Section 27, which requires that all facts affecting the levy of Stamp Duty are fully and truly set forth in instrument, are complied with.

Transfer of Property Act, 1882- Section 8: The top court reckoned that in view of Section 8 of the Transfer of Property Act, in the absence of an express or implied indication, a transfer of land would pass to the transferee all things attached to the earth, including the plant and machinery embedded on the land-Perusing the Sale Deed, the court remarked that merely because no express reference to plant and machinery was contained in the Recital Clause of the Sale Deed, it cannot mean that the interest in the plant and machinery which stood attached to the land which was scheduled in the Deed, was not conveyed to the vendee. Therefore, the value of plant and machinery must also be ascertained for computation of stamp duty, it ruled-The court, however, added that only such plant and machinery, which was permanently embedded to the earth and answered the description of the immovable property, as defined in law, can be said to have been conveyed under the deed.

Click Here To Read/Download Judgment