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TMI Blog2009 (8) TMI 1163X X X X Extracts X X X X X X X X Extracts X X X X ..... s a person, who entered into two agreement with the third petitioner, one for the purchase of an undivided share of land owned by the said petitioner and the other for construction of a residential flat. The members of the first petitioner, including petitioners 2 to 4 are engaged in the business of development of properties and construction of apartments and other buildings. 3. The fifth petitioner entered into Ext.P1 agreement dated 13.1.2007 with the third petitioner, for the purchase of an undivided share of a land owned by the latter. Simultaneously, the fifth petitioner also entered into another agreement with the third petitioner, for the construction of a flat in the property owned by the latter. Ext.P2 dated 13.1.2007 is the agreement concerning construction of the residential flat. The petitioners submit that similar agreements have been entered into by petitioners 2 to 4 and other members of the first petitioner with several persons, for the sale of undivided share of land belonging to them and for construction of apartment blocks. The petitioners also submitted that in certain cases, the owners of land entered into agreements with the builders, for a joint ventur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d), not Rs. 100 or part thereof of the amount or value of the consideration for being a transfer such conveyance. charged or exempted provided that if the conveyance relates to any transfer of undivided under No.55 of share of any land and refers to any immovable property agreement relating to the situated within the construction of any building or part of building, including flat or Municipal Corporations apartment or room etc., the value of or Municipalities. such building or such part of the building shall also be included in such consideration, and the stamp duty if any paid in respect of such agreement shall be deducted from the stamp duty payable for the conveyance." A new clause (f) has been added to Article 44 by the aforementioned Amending Act. The said Article 44 deals with power of attorney. The relevant portion, which was introduced as per the amendment to the said Article, reads as follows: "44. Power of attorney (as defined by section 2(p), not being a proxy). (f) when authorising a The same duty as a conveyance person other than his (No.21 or 22 as the case may father, mother, wife or be) for the amount of husband, son, daughter, consideration/estimate broth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of the proposed construction or development mentioned in the agreement. The measure of tax indicated is highly arbitrary and irrational, it is pointed out. As per the newly amended Article 21 of the Schedule to the Act, when an undivided share in a land is conveyed and the same refers to any agreement relating to construction of any building, flat, apartment, room, etc., the value of such building, flat, apartment, room etc. shall also be included in the consideration for conveyance. It is also provided that any stamp duty paid in respect of the agreement shall be deducted from the stamp duty payable for conveyance. Article 22 deals with conveyance in Municipalities and Municipal Corporations. The newly introduced proviso to Article 21 finds a place in Article 22 also. The learned Senior Counsel submitted that when an undivided share in a property is conveyed, the duty is computed with reference to the flat or apartment that may come up in that land. The learned Senior Counsel pointed out that in many cases, the agreement mentioned in Article 5(c) need not consummate into a sale. Similarly, a construction need not necessarily take place, even if the undivided share is transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es place. Relying on Section 54 of the Transfer of Property Act, it is submitted that agreement for conveyance does not transfer any interest in the immovable property. The learned counsel also submitted that the builder or land owner is not the owner of the flat/apartment. A third party purchases an undivided share and the builder executes a works contract and a flat is constructed in the property owned by the third party. So, in that transaction, no sale of flat takes place between the builder and the owner of the undivided share, who purchased it from the land owner or from the builder. The learned counsel also submitted that if a fully constructed flat is sold by the builder, then stamp duty has to be paid for the land as well as the flat. In the case on hand, the learned counsel submitted that the person who purchased the undivided share in the land engages the builder to construct a flat for him. It is a works contract. So, duty is tried to be levied on construction of the building by the builder in execution of a works contract. The State Legislature has no legislative competence to do that. The actions of the State, though legislative, are liable to be interfered with, as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his contentions. 7. We considered the rival submissions made at the Bar and also went through the decisions cited by both sides. Before referring to the decisions, we may refer to the agreements produced in this case as Exts.P1 to P3 and the power of attorney produced as Ext.P4. Ext.P1 is an agreement executed between the fifth petitioner and the third petitioner for the purchase of 1238/270000 undivided share in 120.115 cents of land in Re-survey No.457/1 of Kakkanad Vilage in Ernakulam District for a consideration of Rs. 1,32,466/-. The said agreement would show that one of the conditions of sale is that the fifth petitioner should entrust the work of construction to the third petitioner. The said agreement would also show that the first party thereto (third petitioner herein) has an approved plan from the Trikkakara Panchayat for the construction of a multi storeyed building called Infra Vantage in the above-said property, consisting of two bed room and three bed room apartments with common areas, common facilities, common amenities etc. The proposal is to construct a huge apartment consisting of 16 floors including the ground floor. As mentioned earlier, the agreement fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant Rules. Therefore, the third petitioner is not a works contractor. 8. Ext.P3 is the agreement entered into by the third petitioner with third parties, under which it gets possession of certain land for construction of residential flats. The third petitioner offered a portion of the built up area to the land owners. In consideration of that, they have handed over possession of the property and also executed Ext.P4 power of attorney in favour of the third petitioner, so that the said petitioner can do with respect to the property all that can be done by the owners. So, a close reading of Exts.P3 and P4 would show that the owners have transferred the property to the builder in consideration of giving them a portion of the built up area going to be constructed and on the strength of Ext.P4 power of attorney, the builder will sell the undivided share to third parties and also along with that sell the flats on completion of construction of them. Exts.P3 and P4, when taken together, are meant to evade stamp duty on conveyance of property, as in the case of Exts.P1 and P2. Thus, a reading of Exts.P1 to P4 would show that, they are used to evade stamp duty. In this context, we wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... slation are not grounds to interfere with the same. In this context, we may refer to the decision of the Apex Court in Veena Hasmukh Jain v. State of Maharashtra, (supra), wherein the validity of a provision in the Bombay Stamp Act, providing that agreement for sale of a flat plus delivery of possession will be deemed to be conveyance, was challenged. In the said decision, the Apex Court held as follows: "The duty in respect of an agreement covered by Schedule I, Article 25, Explanation I of the Bombay Stamp Act, 1958 is leviable as if it is a conveyance. The conditions to be fulfilled are that if there is an agreement to sell immovable property and possession of such property is transferred to the purchaser before the execution or at the time of execution or subsequently without executing any conveyance in respect thereof, such an agreement to sell is deemed to be a 'conveyance'. In the event a conveyance is executed in pursuance of such agreement subsequently, the stamp duty 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. It is open to the legislature to lev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statute governing taxation should be viewed, in contra distinction to a statute governing civil rights. The relevant portion of the judgment on the above point reads as follows: "72. As regards fiscal or tax measures greater latitude is given to such statutes than to other statutes. Thus in the Constitution Bench decision of this Court in R.K.Garg v. Union of India (1981) 4 SCC 675, this Court observed (SCC pp.690-91, para 8) "8. Another rule of equal importance is that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion, etc. It has been said by no less a person than Holmes, J. that the legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or straitjacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the legislature. The court should feel more inclined to give judicial deference to legislative judgment in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lt to conceive of a legislation which is not capable of being abused by perverted human ingenuity. The court must therefore adjudge the constitutionality of such legislation by the generality of its provisions and not by its crudities or inequities or by the possibilities of abuse of any of its provisions. If any crudities, inequities or possibilities of abuse come to light, the legislature can always step in and enact suitable amendatory legislation. That is the essence of pragmatic approach which must guide and inspire the legislature in dealing with complex issues.". 73. All decisions in the economic and social spheres are essentially ad hoc and experimental. Since economic matters are extremely complicated, this inevitably entails special treatment for special situations. The State must therefore be left with wide latitude in devising ways and means of fiscal or regulatory measures, and the court should not, unless compelled by the statute or by the Constitution, encroach into this field, or invalidate such law.". Going by the principles laid down by the Apex Court in the above decision, which was also a decision concerning stamp duty, we have no doubt in our mind that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en before the taxable event, the sale, took place. Following the above decision, this Court upheld the provisions for collection of advance tax under Section 47(16-A) of Kerala Value Added Tax Act. (See, Fancy Sales Corporation v. Sales Tax Inspector, 2007(2) KLT 174). The said decision of the Single Bench has been upheld by the Division Bench also. So, even before the taxable event takes place, tax can be levied, if it is made to prevent evasion of tax. The said decision will squarely apply to the facts of this case also. 13. In view of the above legal position, the contention that the impugned provisions offend Articles 14 and 19(1)(g) of the Constitution of India, cannot be accepted. There is no discrimination pointed out in the impugned provisions, to attract Article 14 of the Constitution. A legislation cannot be invalidated by simply saying that its provisions are arbitrary, unless the challenge is referable to specific violation of any constitutional provision. The payment or the liability to pay stamp duty will not, in any way, affect the rights of the first petitioner or its members to carry on the business of development of lands or building flats. If, pursuant to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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