Friday, 18 September 2020

Whether Collector must impose ten times penalty for deficit stamp duty?

According to Section 40(1)(b) if the Collector is

of opinion that such instrument is chargeable with duty

and is not duly stamped, he shall require the payment

of the of the proper duty or the amount required to

make up the same, together with a penalty of the five

rupees; or, if he thinks fit, an amount not exceeding

ten times the amount of the proper duty or of the

deficient portion thereof. The statutory scheme of

Section 40(1)(b) as noticed above indicates that when

the Collector is satisfied that instrument is not duly

stamped, he shall require the payment of proper duty

together with a penalty of the five rupees. The

relevant part of Section 40(1)(b) which falls for

consideration in these appeals is: “or, if he thinks

fit, an amount not exceeding ten times the amount of

the proper duty or deficient portion thereof.”{Para 16 }


17. The amount of penalty thus can be an amount not

exceeding ten times. The expression “an amount not

exceeding ten times” is preceded by expression “if he

thinks fit”. The statutory scheme, thus, vest the

discretion to the Collector to impose the penalty

amount not exceeding ten times. Whenever statute

transfers discretion to an authority the discretion is

to be exercised in furtherance of objects of the

enactment. The discretion is to be exercised not on

whims or fancies rather the discretion is to be

exercised on rational basis in a fair manner. The

amount of penalty not exceeding ten times is not an

amount to be imposed as a matter of force. Neither

imposition of penalty of ten times under Section 40(1)

(b) is automatic nor can be mechanically imposed. 

21. The purpose of penalty generally is a deterrence

and not retribution. When a discretion is given to a

public authority, such public authority should exercise

such discretion reasonably and not in oppressive

manner. The responsibility to exercise the discretion

in reasonable manner lies more in cases where

discretion vested by the statute is unfettered.

Imposition of the extreme penalty i.e. ten times of the

duty or deficient portion thereof cannot be based on

the mere factum of evasion of duty. The reason such as

fraud or deceit in order to deprive the Revenue or

undue enrichment are relevant factors to arrive at a

decision as to what should be the extent of penalty

under Section 40(1)(b).


“6………The Collector has the power to

require the person concerned to pay the proper

duty together with a penalty amount which the

Collector has to fix in consideration of all

aspects involved. The restriction imposed on

the Collector in imposing the penalty amount is

that under no circumstances the penalty amount

shall go beyond ten times the duty or the

deficient portion thereof. That is the farthest

limit which meant only in very extreme

situations the penalty need be imposed up to

that limit. It is unnecessary for us to say

that the Collector is not required by law to

impose the maximum rate of penalty as a matter

of course whenever an impounded document is

sent to him. He has to take into account

various aspects including the financial

position of the person concerned.”

23. This Court in the above case categorically held

that it is only in the very extreme situation that

penalty needs to be imposed to the extent of ten times.

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 3195-319 6 OF 2020


TRUSTEES OF H.C. DHANDA TRUST Vs  STATE OF MADHYA PRADESH 


Author: ASHOK BHUSHAN,J.

Dated: SEPTEMBER 17, 2020.

Leave granted.

2. The appellant by these appeals challenges the

judgment of learned Single Judge of the High Court of

Madhya Pradesh, Bench at Indore in Writ Petition

No.8888 of 2011 dated 30.03.2017 dismissing the Writ

Petition of the appellant as well as the judgment dated

04.09.2017 of the Division Bench dismissing the Writ

Appeal filed by the appellant against the judgment of

the learned Single Judge. The Division Bench has

dismissed the writ appeal vide its judgment dated

04.09.2017 holding it as not maintainable.

3. Brief facts of the case giving rise to these

appeals are:

Late Shri Harish Chand Dhanda, a Minister in

erstwhile Government of Maharaja Holkar of Indore

received the free gift of land measuring 108,900 sq.ft.

(one lac eight thousand nine hundred) situate at

Yeshwant Niwas Road, Indore by Order No.58 of

22.04.1946. Late Shri H.C. Dhanda got constructed in

the above piece of land, a building known as ‘Hotel

Lantern’. Another piece of land situate at 5, Ravindra

Nath Tagore Marg, Indore was gifted to Late Shri H.C.

Dhanda by his father-in-law late Col. V.B. Jadhav on

05.10.1948. Late Shri H.C. Dhanda possessed various

other movable and immovable properties in the city of

Indore with which we are not concerned in the present

appeals. Late Shri H.C. Dhanda executed his last Will

dated 26.10.2002. In his Will he mentioned his movable

and immovable properties apart from the above two

immovable properties and by his Will he created a Trust

in which he appointed his son, Yogesh Dhanda as

Chairman of Trust, Shri B.J. Dave, Chartered

Accountant, Indore and one Shri Chhaganlal Nagar as

member. The above two immovable properties apart from

other properties were put in Trust under the aforesaid

Will. All Trustees under the Will were the executors of

the Will. Shri H.C. Dhanda died on 05.07.2003.

4. A meeting of Board of Trustees was held on

06.04.2005. A resolution was passed by

Executors/Trustees to transfer and vest area by

executing a Deed of Transfer with a site plan from the

trustees to beneficiaries by registering the same. On

21.04.2005 a Deed of Assent was executed between M/s

H.C. Dhanda Trust, a private trust as one part and

Jogesh Dhanda and others as other part. By Deed of

Assent the Trustees/Executors gave assent to complete

the title of the Legatees and vest absolutely and

forever in their favour both Lantern Hotel and Jahaj

Mahal property. A notice was issued by the Collector of

Stamps, District Indore stating that in Deed of Assent

dated 21.04.2005 proper stamp duty has not been paid,

22.03.2007 was fixed for appearance. The notice further

stated that why deficit stamp duty of Rs. 1,62,82,150/-

on the document dated 21.04.2005, and ten times penalty

should not be imposed. The Trust appeared before the

Collector of Stamps and filed its objection. The

Collector of Stamps passed an order dated 22.09.2008

holding the Deed of Assent dated 21.04.2005 as a gift

deed. The Collector held that under Indian Stamp Act,

1899, the stamp duty payable on a gift deed would be 8%

of the market value, Municipal duty 1% and Janpad duty

1%. The Collector found deficit duty to the extent of

Rs.1,28,09,700/- and also imposed ten times penalty

i.e. Rs.12,80,97,000/-. The order called upon the Trust

to deposit amount of Rs.14,09,06,700/- within thirty

days. Aggrieved against the order of Collector,

Reference Application was filed by the appellant before

the Board of Revenue, Madhya Pradesh, Gwalior. Board of

Revenue vide its order dated 25.10.2011 upheld

deficiency of stamp duty of Rs.1,28,09,700/- and ten

times penalty of Rs.12,80,97,000/-. The order called

upon the Trust to deposit amount of Rs.14,09,06,700/-

within thirty days. Board of Revenue vide its order

dated 25.10.2011 upheld the order of the Collector

dated 22.09.2008 and dismissed the Reference

Application. Challenging the order of the Board of

Revenue as well as the Collector of Stamps a Writ

Petition No.8888 of 2011 was filed by the appellant in

the High Court of Madhya Pradesh. Learned Single Judge

of the High Court vide its judgment dated 30.03.2017

dismissed the writ petition. Learned Single Judge

upheld the order of the Collector by which deficiency

in the stamp duty and ten times penalty was imposed.

5. An SLP was filed in this Court challenging the

order of the learned Single Judge by the appellant

which was withdrawn by the appellant on 4.5.2017

seeking liberty to file writ appeal in the High Court.

The writ appeal was filed by the appellant being Writ

appeal No.255 of 2017 which has been dismissed by the

Division Bench on 4.9.2017 holding the writ appeal as

not maintainable. Aggrieved against the aforesaid two

orders these appeals have been filed by the appellant.

6. This Court by its order dated 10.11.2017 issued

limited notice to the following effect:

“Issue notice, returnable in six weeks,

limited to the quantum of penalty that has been

imposed by the Collector (Stamps).

Subject to the condition that stamp duty

is paid within a period of one month, there

shall be stay of the order qua the penalty.”

7. In response to the above notice the respondents

have appeared.

8. We have heard Shri A.K. Chitale, learned senior

counsel, for the appellant and Shri Tushar Mehta,

learned Solicitor General, for the State.

9. Shri A.K. Chitale, learned senior counsel appearing

for the appellant submits that the Deed of Assent

executed on 21.04.2005 is referable to Section 331 and

332 of Indian Succession Act, 1925. Shri Chitale

submitted that document in question is not a Gift Deed.

Shri Chitale submits that the penalty imposed by the

Collector of Stamps was wholly illegal. There was no

dishonest conduct on the part of the appellant, Deed of

Assent was executed bona fide on which there was no

deficiency in the stamp duty. Shri Chitale submits that

no reason has been given by the Collector of Stamps as

to why maximum penalty of ten times was imposed on the

appellant while determining the stamp duty. Shri

Chitale submits that the Collector of Stamps has not

exercised his jurisdiction in reasonable and fair

manner and imposition of ten times penalty on the

appellant deserves to be set aside.

10. Shri Tushar Mehta, learned Solicitor General

refuting the submission of counsel for the appellant

contends that nature of document having been found to

be gift the Collector has rightly determined the

deficiency in the stamp duty and imposed ten times

penalty. Shri Mehta submits that there was clear

intention of the appellant to evade the payment of

stamp duty which clearly called for imposition of ten

times penalty. Shri Mehta referred to the order of

Board of Revenue and submits that Board of Revenue has

also upheld imposition of ten times penalty by holding

that the applicant has executed Deed of Assent

suppressing the facts intentionally due to which there

has been loss of stamp duty. This can neither be termed

as wrong nor illegal.

11. We have considered the submissions of the parties

and perused the records.

12. Only question to be determined in these appeals is

as to whether the imposition of ten times penalty by

the Collector of Stamps under Section 40 of the Indian

Stamp Act, 1899 was validly imposed or not.

13. The Collector of Stamps vide its order dated

22.09.2008 determined the nature of document dated

21.04.2005 as Gift Deed. The Collector of Stamps in his

order also proceeded to determine the market value of

property, Lantern Hotel situate at Yashwant Niwas Road

and Jahaj Mahal situate in Ravindra Nath Tagore Marg,

on the market value of both afove properties stamp duty

payable was determined as Rs.1,28,09,900/-, stamp duty

of Rs.200/- only having been paid on the document

deficit duty was determined as Rs.1,28,09,700/-. The

Collector of Stamps by the same order also imposed ten

times penalty of Rs.12,80,97,000/-.

14. Before we proceed to consider the respective

submissions, it is useful to extract the order of the

Collector of Stamps which contains the discussion

regarding imposition of penalty, which is as follows:

“……In the above background, the deed in

question is classified in the category of a

gift deed. The total market value of the

property in question in the position of year

2005-06 under the document is fixed at market

value Rs.12,80,99,000/-, on which total stamp

duty of Rs.1,28,09,900/- is payable. Only

Rs.200/- stamp duty has been paid on the

document. Thus, remaining stamp duty

Rs.1,28,09,700/- and, since the party has not

mentioned the actual nature of the document

with an intention to escape the duty,

therefore, under Section 40 of the Indian Stamp

Act, 1899, ten times penalty Rs.12,80,97,000/-

is imposed. Thus, total Rs.14,09,06,700/- shall

be deposited in the treasure within 30 days.”

15. Section 40 of Indian Stamp Act, 1899 provides for

Collectors power to stamp instruments impounded.

Section 40(1) which is relevant for the present case

which is as follows:

“40. Collectors power to stamp instruments

impounded. — (1) When the Collector impounds

any instrument under section 33, or receives

any instrument sent to him under section 38,

sub-section (2), not being an instrument

chargeable with a duty not exceeding ten naye

paise only or a bill of exchange or promissory

note, he shall adopt the following procedure: —

(a) if he is of opinion that such

instrument is duly stampeded or is not

chargeable with duty, he shall certify by

endorsement thereon that it is duly

stamped, or that it is not so chargeable,

as the case may be;

b) if he is of opinion that such

instrument is chargeable with duty and is

not duly stamped, he shall require the

payment of the proper duty or the amount

required to make up the same, together

with a penalty of five rupees; or, if he

thinks fit, an amount not exceeding ten

times the amount of the proper duty or of

the deficient portion thereof, whether

such amount exceeds or falls short of five

rupees:

Provided that, when such instrument

has been impounded only because it has

been written in contravention of section

13 or section 14, the Collector may, if he

thinks fit, remit the whole penalty

prescribed by this section.”

16. According to Section 40(1)(b) if the Collector is

of opinion that such instrument is chargeable with duty

and is not duly stamped, he shall require the payment

of the of the proper duty or the amount required to

make up the same, together with a penalty of the five

rupees; or, if he thinks fit, an amount not exceeding

ten times the amount of the proper duty or of the

deficient portion thereof. The statutory scheme of

Section 40(1)(b) as noticed above indicates that when

the Collector is satisfied that instrument is not duly

stamped, he shall require the payment of proper duty

together with a penalty of the five rupees. The

relevant part of Section 40(1)(b) which falls for

consideration in these appeals is: “or, if he thinks

fit, an amount not exceeding ten times the amount of

the proper duty or deficient portion thereof.”


17. The amount of penalty thus can be an amount not

exceeding ten times. The expression “an amount not

exceeding ten times” is preceded by expression “if he

thinks fit”. The statutory scheme, thus, vest the

discretion to the Collector to impose the penalty

amount not exceeding ten times. Whenever statute

transfers discretion to an authority the discretion is

to be exercised in furtherance of objects of the

enactment. The discretion is to be exercised not on

whims or fancies rather the discretion is to be

exercised on rational basis in a fair manner. The

amount of penalty not exceeding ten times is not an

amount to be imposed as a matter of force. Neither

imposition of penalty of ten times under Section 40(1)

(b) is automatic nor can be mechanically imposed. The

concept of imposition of penalty of ten times of a sum

equal to ten times of the proper duty or deficiency

thereof has occurred in other provisions of the Act as

well. We may refer to Section 35(a) in this context is

as follows:


“35. Instruments not duly stamped

inadmissible in evidence, etc. — No instrument

chargeable with duty shall be admitted in

evidence for any purpose by any person having

by law or consent of parties authority to

receive evidence, or shall be acted upon,

registered or authenticated by any such person

or by any public officer, unless such

instrument is duly stamped :

Provided that—

(a)any such instrument shall be admitted

in evidence on payment of the duty with

which the same is chargeable, or, in the

case of any instrument insufficiently

stamped, of the amount required to make

up such duty, together with a penalty of

five rupees, or, when ten times the

amount of the proper duty or deficient

portion thereof exceeds five rupees, of

a sum equal to ten times such duty or

portion;

(b)… … … …”

18. It is relevant to notice that Section 35

contemplates that when ten times the amount of the

proper duty of or deficient portion thereof exceeds

five rupees, of a sum equal to ten times such duty or

portion is required to be deposited. Under Section 39

Collector is empowered to refund penalty. As noticed

above under Section 35(a) there is no option except to

pay sum equal to ten times of such duty or deficient

portion but Section 39 empowers the Collector to refund

any portion of the penalty in excess of five rupees

which is expressed in following words: “if he thinks

fit refund any portion of the penalty in excess of five

rupees which has been paid in respect of such

instrument.”

19. The legislative intent which is clear from reading

of Sections 33,35,38 and 39 indicates that with respect

to the instrument not duly stamped, ten times penalty

is not always retained and power can be exercised under

Section 39 to reduce penalty in regard to that there is

a statutory discretion in Collector to refund penalty.

20. Section 39(1)(b) of the Indian Stamp Act, 1899 came

for consideration before this Court in Gangtappa and

another vs. Fakkirappa, 2019(3) SCC 788 (of which one

of us Ashok Bhushan, J. was a member). This Court

noticed the legislative scheme and held that the

legislature has never contemplated that in all cases

penalty to the extent of ten times should be ultimately

realized. In paragraph 16 following has been laid down

by this Court:

“16. Deputy Commissioner under Section 38

is empowered to refund any portion of the

penalty in excess of five rupees which has been

paid in respect of such instrument. Section 38

Sub-section (1) again uses the expression "if

he thinks fit". Thus, in cases where penalty of

10 times has been imposed, Deputy Commissioner

has discretion to direct the refund of the

penalty in facts of a particular case. The

power to refund the penalty Under Section 38

clearly indicates that legislature have never

contemplated that in all cases penalty to the

extent of 10 times should be ultimately

realised. Although the procedural part which

provides for impounding and realisation of duty

and penalty does not give any discretion Under

Section 33 for imposing any lesser penalty than

10 times, however, when provision of Section 38

is read, the discretion given to Deputy

Commissioner to refund the penalty is akin to

exercise of the jurisdiction Under Section 39

where while determining the penalty he can

impose the penalty lesser than 10 times.” 20.

The expression “if he thinks fit” also

occurs in Section 40 sub-clause (b). The same

legislative scheme as occurring in Section 39

is also discernible in Section 40(b), there is

no legislative intentment that in all cases

penalty to the extent of ten times the amount

of proper stamp duty or deficient portion

should be realised. The discretion given to

Collector by use of expression “if he thinks

fit” gives ample latitude to Collector to apply

his mind on the relevant factors to determine

the extent of penalty to be imposed for a case

where instrument is not duly stamped.

Unavoidable circumstances including the conduct

of the party, his intent are the relevant

factors to come to a decision.

21. The purpose of penalty generally is a deterrence

and not retribution. When a discretion is given to a

public authority, such public authority should exercise

such discretion reasonably and not in oppressive

manner. The responsibility to exercise the discretion

in reasonable manner lies more in cases where

discretion vested by the statute is unfettered.

Imposition of the extreme penalty i.e. ten times of the

duty or deficient portion thereof cannot be based on

the mere factum of evasion of duty. The reason such as

fraud or deceit in order to deprive the Revenue or

undue enrichment are relevant factors to arrive at a

decision as to what should be the extent of penalty

under Section 40(1)(b).

22. We may refer to judgment of this Court in Peteti

Subba Rao vs. Anumala S. Narendra, 2002 (10) SCC 427.

This Court had occasion to consider in the above case

provisions of Section 40 of the Indian Stamp Act, 1899.

Referring to Section 40 this Court made following

observation in paragraph 6:

“6………The Collector has the power to

require the person concerned to pay the proper

duty together with a penalty amount which the

Collector has to fix in consideration of all

aspects involved. The restriction imposed on

the Collector in imposing the penalty amount is

that under no circumstances the penalty amount

shall go beyond ten times the duty or the

deficient portion thereof. That is the farthest

limit which meant only in very extreme

situations the penalty need be imposed up to

that limit. It is unnecessary for us to say

that the Collector is not required by law to

impose the maximum rate of penalty as a matter

of course whenever an impounded document is

sent to him. He has to take into account

various aspects including the financial

position of the person concerned.”

23. This Court in the above case categorically held

that it is only in the very extreme situation that

penalty needs to be imposed to the extent of ten times.

24. The Collector by imposing ten times penalty in his

order has given the reason for imposition as “the party

has not mentioned the actual nature of the document

with the intention to escape the duty”. When the

Collector found intention to escape the duty, it was

the case of imposition of penalty but whether the

reason given by the Collector is sufficient for

imposition of extreme penalty of ten times is the

question which needs to be further considered. The High

Court while considering the question of imposition of

penalty of ten times has also given almost same reason

in following words:

“………But in the present case the complete title

has been transferred by Trust to Jogesh Dhanda

and Ishan Dhanda in the name of Deed of Assent.

Therefore, there was intention to evade the

heavy stamp duty on such transaction.

Therefore, the Collector of Stamp has rightly

imposed 10 times penalty which is maximum under

the Act.

In view of the above, I do not find any

merit in this writ petition. The same is hereby

dismissed.”

25. No other reasons have been given either by the

Collector or by the High Court justifying the

imposition of maximum penalty of ten times. It is not

the case of Collector that the conduct of the appellant

was dishonest or contumacious. The High Court in its

judgment has noticed that although the resolution was

passed on 06.04.2005 to execute the Deed of Transfer by

Trustees in favour of Jogesh Dhanda and Ishan Dhanda,

but later on they deliberately executed the deed in the

name of Deed of Assent on a stamp paper of Rs.200/-.

For the reason given by the Collector as well as by the

High Court that there was intention to evade the stamp

duty in describing the document as Deed of Assent the

imposition of the penalty was called for but in the

facts and circumstances and the reasons which have been

given by the Collector of Stamps as noticed above we

are satisfied that this was not a case of imposition of

extreme penalty of ten times of deficiency of stamp

duty. Taking into consideration all facts and

circumstances of the case, we are of view that ends of

justice will be served in reducing the penalty imposed

to the extent of the half i.e. five times of deficiency

in the stamp duty.

26. In result the appeals are allowed the order of the

Collector of Stamps dated 22.09.2008 is modified to the

extent that penalty imposed of ten times of

Rs.12,80,97,000/- is modified into five times penalty

i.e. Rs.6,40,48,500/-. The appeals are partly allowed

to the above extent.

.....................J.

( ASHOK BHUSHAN )

......................J.

( R. SUBHASH REDDY )

......................J.

( M.R. SHAH )

NEW DELHI,

SEPTEMBER 17, 2020.


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