Introduction
Recently the Bombay High Court in Adityaraj Builders v. State of Maharashtra & ors. & group matters, order dated February 17, 2023 passed in writ petition no. 4575 of 2022, writ petition no. 4609 of 2022 & writ petition no. 4580 of 2022 held that by virtue of Section 4(1) of Maharashtra Stamp Act, 1958 (Stamp Act), no stamp duty on Permanent Alternate Accommodation Agreement (PAAA) if the Development Agreement pursuant to which PAAA is entered into is stamped.
Facts
In the present case, the petitioners all raised a common question of law under the Maharashtra Stamp Act 1958. All of them related to Stamp Duty sought to be levied on what are called Permanent Alternate Accommodation Agreements (“PAAA”). Typically, these are executed by a developer with individual members of housing societies or other persons already in occupation and whose houses are being redeveloped. Usually, these agreements follow a pattern. The society enters into an agreement, often called a Development Agreement (“DA”) or a Redevelopment Agreement with a developer. That DA has two parts. One part is the construction of new homes for existing society members or occupants. The second part is the construction of what are called free sale units which the developer can put to sale in the open market. Sometimes, but not always, individual society members also sign the DA. Equally, there are many cases where the society executes the DA with the developer, but individual members do not. Those individual members are still members of the society and the society acts on their behalf.
Issue
The issue was regarding the demand by the stamp authority that the individual PAAAs for members or existing occupants must also be stamped on a value reckoned at the cost of construction even though the DA was properly stamped. The challenge was against two circulars issued by the Inspector General of Registration & Controller of Stamps, Maharashtra under the authority of the Chief Controlling Revenue Authority and the State Government of Maharashtra, dated 23.06.2015 & 30.03.2017. The first circular directed that any PAAAs between the society members and the developer is different from the DA between the society and the developer. The second circular which came out as a clarificatory circular specifies compliance and the criteria for such compliance to the PAAAs with individual society members. It was stated that if society members are have not signed the DA then they have to pay stamp duty at the time of entering into PAAAs. Thus the question before the Court was whether the demand by Stamp Authority that the individual PAAAs for members must be stamped on a value reckoned at the cost of construction and a question of validity regarding the two circulars dated 23.06.2015 and 30.03.2017.
Findings
The Impugned Circulars dated 23rd June 2015 and 30th March 2017 were held to be beyond jurisdictional remit of revenue authorities to dictate instruments of payment of stamp duty. The Court interpreted Section 4(1) of the Stamp Act which states as under :
“4. Several instruments used in single transaction of development agreement, sale, lease, mortgage or settlement.
- Where, in the case of any development agreement, sale, lease, mortgage or settlement, several instruments are employed for completing the transaction, the principal instrument only shall be chargeable with the duty prescribed in Schedule I for the conveyance, development agreement, lease, mortgage or settlement, and each of the other instruments shall be chargeable with a duty of one hundred rupees instead of the duty (if any) prescribed for it in that Schedule.
- The parties may determine for themselves which of the instruments so employed shall, for the purposes of sub- section (1), be deemed to be the principal instrument
- If the parties fail to determine the principal instrument between themselves, then the officer before whom the instrument is produced may, for the purposes of this section, determine the principal instrument:
Provided that the duty chargeable on the instrument so determined shall be the highest duty which would be chargeable in respect of any of the said instruments employed.”
The Court held that DA is like a Master Agreement for the purposes of Section 4. Thus PAAAs have to be stamped only Rs 100. Further,
Society is the owner of land and building and members have the occupancy rights. The Society acts for and behalf of it’s members. The Agreements entered into by the Society binds all it’s members. Thus, it makes no difference whether the DA is signed by the members or not. It was concluded as under :
- A Development Agreement between a cooperative housing society and a developer for development of the society’s property (land, building, apartments, flats, garages, godowns, galas) requires to be stamped.
- The Development Agreement need not be signed by individual members of the society. That is optional. Even if individual members do not sign, the DA controls the re-development and the rights of society members.
- A Permanent Alternative Accommodation Agreement between a developer and an individual society member does not require to be signed on behalf of the society. That, too, is optional, with the society as a confirming party.
- Once the Development Agreement is stamped, the PAAA cannot be separately assessed to stamp beyond the Rs.100 requirement of Section 4(1) if it relates to and only to rebuilt or reconstructed premises in lieu of the old premises used/ occupied by the member, and even if the PAAA includes additional area available free to the member because it is not a purchase or a transfer but is in lieu of the member’s old premises. The stamp on the Development Agreement includes the reconstruction of every unit in the society building. Stamp cannot be levied twice.
- To the extent that the PAAA is limited to the rebuilt premises without the actual purchase for consideration of any additional area, the PAAA is an incidental
document within the meaning of Section
4(1) of the Stamp Act. - A PAAA between a developer and a society member is to be additionally stamped only to the extent that it provides for the purchase by the member for actual stated consideration and a purchase price of the additional area over and above any area that is made available to the member in lieu of the earlier premises.
- The provision or stipulation for assessing stamp on the PAAA on the cost of construction of the new premises in lieu of the old premises cannot be sustained.
Conclusion
This is a landmark decision by the Bombay High Court. It will ease the process of redevelopmentand the levy of stamp duty on PAAAs will n longer be a consideration for a members to give consent to redevelopment. The decision will have a lot of impact on taxability of redevelopment under Income Tax. The Court has in no uncertain terms held that there is no purchase or transfer when a member receives new flat in lieu of old flat. Same would hold true even for tenanted premises. Thus, there won’t be any capital gains tax in the hand of members. Most of the times Asessee took the position that capital gains arising on surrender of old flat for new flat was not taxable on account of Section 54 and 54F. But such benefit was not available to all and in many cases the benefit was denied as no actual moneys were invested. However, it appears that by virtue of this decision there is no taxable event.
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PUBLICATIONS FOR SALE
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