AGREEMENT TO SALE – A CONVEYANCE AND SUBJECTED TO STAMP DUTY?

[DR.MARIAPPAN GOVINDARAJAN]

Agreement to Sale

Agreement to sale is a contract between a seller and a buyer that commits the seller to selling a property to the buyer at a future date. It establishes the intention of the parties to sell the property, but does not transfer ownership. 

Conveyance

Conveyance is the term that refers to the act in which the ownership of a property is transferred from one person to another. It is a legal document that is made when transferring the said ownership from the seller to the buyer.

Issue

The issue to be discussed in this article is as to whether the agreement to sale amounts a conveyance and is liable to stamp duty with reference to decided case laws.

Bombay Stamp Act

The object of the Stamp Act is to levy stamp duty on different kinds of instruments.  For the purpose of this article, it is useful to go through the Explanation 1 to Article 25 of Schedule I of Bombay Stamp Act.  The explanation provides that in the case of agreement to sell an immovable property, the possession of any immovable property is transferred or agreed to be transferred to the purchaser before the execution, or at the time of execution, or after the execution of such agreement without executing the conveyance in respect thereof, then such agreement to sell shall be deemed to be a conveyance and stamp duty thereon shall be leviable accordingly.  The provisions of Section 32-A shall apply mutatis mutandis to such agreement which is deemed to be a conveyance as aforesaid, as they apply to a conveyance under that Section.  Subsequently, if a conveyance is executed in pursuance of such agreement of sale, the stamp duty, if any, already paid and recovered on the agreement of sale which is deemed to be a conveyance, shall be adjusted towards the total duty leviable on the conveyance. 

Case laws

In B. RATNAMALA VERSUS. G. RUDRAMMA - 1999 (8) TMI 1031 - ANDHRA PRADESH HIGH COURT, the Supreme Court held that if the agreement records the fact that the possession was delivered earlier and such recital serves as evidence of delivery of possession, though prior to the agreement, it falls under the second limb. Therefore, on a proper interpretation of the said expressions, it would follow that an agreement containing specific recital of delivery of possession or indicating delivery of possession even in the past is liable for stamp duty as a ‘sale’ under the said Explanation.

In SHYAMSUNDAR RADHESHYAM AGRAWAL & ANR. VERSUS PUSHPABAI NILKANTH PATIL & ORS. - 2024 (9) TMI 1406 - SUPREME COURT, the Supreme Court held that the object of the Explanation is clear that if an agreement is entered into and that agreement itself contemplates the delivery of possession of the property within the stipulated time, then, such an agreement should be deemed to be a conveyance for the purpose of duty leviable under the Bombay Stamp Act.

In ‘RAMESH MISHRIMAL JAIN VERSUS AVINASH VISHWANATH PATNE & ANR. - 2025 (2) TMI 737 - SUPREME COURT, the appellant and the respondents in the present appeal entered into an agreement for sale dated 03.09.2003.  The appellant, as a plaintiff filed a civil suit before Civil Court, Ratnagiri for the specific performance of the agreement to sale deed.  The respondents repudiate the same.  However, pending this suit the respondents filed an application under section 34 of the Bombay Stamp Act, 1958, for impounding of the said document on the ground that the said deed was executed on a stamp paper of Rs.50, whereas the stamp duty to the tune of Rs.44,000/- was required to pay since the property is situated within the limits of Khed Municipal Council.  In addition, a penalty of Rs.1,31,850/- is also to be levied.

The appellant contended that the agreement to sale is not an agreement of conveyance and no stamp duty was payable on the said agreement. The Trial Court allowed the said application filed by the respondent on 03.08.2015 impounding the said agreement.  The Trial Court further directed the said document to be sent to the Registrar of Stamps for recovery of stamp duty and penalty on it.  The appellant filed a writ petition before the High Court challenging the said order.  The High Court dismissed the writ petition.

Being aggrieved against the order of High Court the appellant filed the present appeal before the Supreme Court.  The appellant submitted the following before the Supreme Court-

• Explanation I to Article 25 of the Bombay Stamp Act, 1958, applies only in cases, where there is either an actual transfer of possession or an agreement to transfer possession pursuant to the agreement to sell.
• The said explanation does not apply to cases where the transfer of possession is explicitly contingent upon the execution of a subsequent document, such as, sale deed or conveyance deed.
• When the transfer of possession is linked to a future event, such as the execution of a sale deed, the agreement cannot be deemed to be a conveyance for the purposes of stamp duty under Explanation I.
• In the present case, the agreement to sell dated 03.09.2003 explicitly states that the suit property is in the possession of the appellant in the capacity as tenant, and this possession is independent of the sale transaction.
• The extension agreement dated 28.07.2004 entered into between the parties, also reiterates the same position and it expressly states that the appellant’s possession will continue to be on a monthly tenancy basis until the execution of the sale deed.
• The trial Court erred in holding that Explanation I applies to the present case and directed the document to be sent to the Registrar of Stamps for recovery of stamp duty and penalty from the appellant; and the same was also affirmed by the High Court by the order impugned herein.

Therefore, the appellant prayed to quash the impugned order of the Trial Court as confirmed by the High Court. 

The respondent submitted the following before the Supreme Court-

• The subject property was jointly owned by the Respondent No.1and his mother and after her demise, the Respondent No.1 became the absolute owner of the same.
• In terms of Article 25 of Schedule I of the Bombay Stamp Act, agreement to sell is to be treated as a ‘conveyance’ if possession is-

• handed over immediately; or
• agreed to be transferred without mentioning any particular time.

• The appellant was already in possession as a tenant and in terms of agreement to sell, it was agreed to transfer possession within 11 months thereto or extended time, and therefore the said agreement to sell will be a ‘deemed’ conveyance within the meaning of explanation I to Article 25 of Schedule I of Bombay Stamp Act and stamp duty as provided thereunder is leviable.
• the order impugned herein does not call for any interference at the hands of the Supreme Court.

The Supreme Court considered the submissions of both the parties and also perused the available documents in this case.  The Supreme Court framed the question to be decided in the present appeal which is ‘whether the appellant is liable to pay stamp duty and penalty on the agreement to sell dated 03.09.2003 allegedly executed between the appellant and the mother of Respondent No.1 in respect of the suit property?’

The Supreme Court observed that the stamp duty is on the instrument and not on the transaction.  it is immaterial, whether the possession of the property has been handed over at the time of execution of the agreement to sell or whether it has been agreed to transfer the possession.  The Supreme Court, in this regard, analysed the explanation 1 to Article 25 of Schedule I of the Bombay Stamp Act.

The Supreme Court observed that in the instant case, the agreement to sell executed between the appellant and mother of the Respondent No.1, specifically states that this property is in your occupation on rental basis and it will not be part of the sale transaction. After completion of sale transaction, the possession of the said property will be given to you on the ownership basis.  Further, there was a clause, by which, timeline was given for execution of sale deed.  the agreement to sell includes a clause stating that physical possession had already been handed over to the appellant, regardless of the basis of such possession.  This satisfies the requirement to treat the instrument as a ‘conveyance’.  The appellant filed a suit for specific performance of the agreement to sell against the respondents.  Respondent No.1 filed a suit seeking eviction of the appellant from the subject property. Both the suits are pending, which clearly establish the possession of the property by the appellant. Therefore, the said document is liable for payment of stamp duty at the hands of the appellant.

The Supreme Court did not find any reason to interfere with the orders passed by the Courts below.  The Supreme Court dismissed the appeal.