In India, stamp duty is levied under Indian Stamp Act, 1899 (“Stamp Act”) as well as various legislation enacted by different States in India for the levy of stamp duty. Every instrument under which rights are created or transferred needs to be stamped under the specific stamp duty legislation.
Section 3 of Stamp Act is the charging section which provides for the levy of stamp duty on specified instruments upon their execution. Relevant provision of section 3 is reproduced below:
3. Instruments chargeable with duty- Subject to the provisions of this Act and the exemptions contained in Schedule I, the following instruments shall be chargeable with duty of the amount indicated in that Schedule as the proper duty therefore respectively, that is to say—
(a) every instrument mentioned in that Schedule which, not having been previously executed by any person, is executed in India on or after the first day of July, 1899;
(b) every bill of exchange payable otherwise than on demand or promissory note drawn or made out of India on or after that day and accepted or paid, or presented for acceptance or payment, or endorsed, transferred or otherwise negotiated, in India; and
(c) every instrument (other than a bill of exchange, or promissory note) mentioned in that Schedule, which, not having been previously executed by any person, is executed out of India on or after that day, relates to any property situate, or to any matter or thing done or to be done, in India and is received in India.
As per the above provision, broadly, two things are required for chargeability of stamp duty:
- There must be an instrument as mentioned in the schedule I of Stamp Act.
- The instrument must be executed.
What is execution?
Section 2(12) of Stamp Act defines the terms “executed” and “execution”, which is also widened by the recent amendment 1The amendment was brought by the Finance Act, 2019, which by Notification of Ministry of Finance dated 8th January, 2020 are to be effective from the 1st day of April, 2020” to take into account, attribution of electronic records. It states that:
2(12). “Executed and execution”- executed and execution used with reference to instruments, mean signed and signature and includes attribution of electronic record within the meaning of section 11 of the Information Technology Act, 2000.
Thus execution means putting signature on the instrument by the party to the agreement. Attribution 2Section 11 of the IT Act provides for attribution of electronic record as follows – “11. Attribution of electronic records.–An electronic record shall be attributed to the originator– (a) if it was sent by the originator himself; (b) by a person who had the authority to act on behalf of the originator in respect of that electronic record; or (c) by an information system programmed by or on behalf of the originator to operate automatically.” of electronic record will also be treated as execution. It can be concluded from the above definition that, the specific instrument would attract payment of stamp duty upon their execution i.e. when it is signed or bears a signature, even if the execution takes place electronically.
Object of the Act
The Stamp Act is a purely fiscal measure enacted to secure revenue for the State on certain class of instruments. The stringent provisions of the Act are concerned solely in the interest of the revenue, and once that object is secured according to law, the party staking his claim on the instrument will not be defeated on the ground of the initial defect in the instrument 3Devachand v. Hirachand, 13 Bom 449; Tukaram v. Sonaji, 7 NLR 26 : 10 IC 701 ; Hindustan Steel Ltd. v. Dilip Construction Co., AIR 1969 SC 1238 : 1969 (3) SCR 736 : 1969 (1) SCC 597; Brojomohan v. Lachminarayan, 5 Pat LJ 660 : AIR 1920 Pat 50, affirmed by the Privy Council in Lachminarayan v. Broj Mohan, 51 IA 332 : 4 Pat 34 : AIR 1924 PC 221 : 82 IC 787 : Sethuraman v. Ramanathan, AIR 1946 Mad 437 : ILR (1946) Mad 141 : 227 IC 364. . The object of the Act is three fold:
- to raise the revenue by taxing instruments;
- to penalise by rendering an unduly stamped instrument, to be inadmissible in evidence and
- also to provide for penalty against evasions of Stamp duty4K. Manavala Naicker v. K.R. Gopal Krishnaiah, AIR 1969 AP.
Scheme of the Indian Stamp Act
The Indian Stamp Act contains eight chapters.
Chapter-1 is sections 1 and 2 i.e; extent of applicability and definitions.
Chapter-2 is Sections 3 to 30 regarding stamp duties, valuation and who to pay. Chapter-3 is Sections 31and 32 regarding adjudication as to proper stamp.
Chapter-4 is Sections 33 to 48 relating to instruments not duly stamped, power of impounding by Court or Collector, use of the instruments, admissibility and objections relating to it in evidence.
Chapters-5 and 6 i.e., Secs 49 to 61 relate to allowances, reference and revision. Chapter-7 is Sections 62 to72 relates to criminal offences, jurisdiction of a Magistrate and procedure.
Chapter-8 is Sections 73 to 78 relates to supplemental provisions.
The aspects to be considered for levy of stamp duty and penalty
In Chapter 2 (Secs.3 to 30) of Stamp Act; Section 29 speaks of duty by whom payable. As per Sections 3 to 6 r/w.17 to 19, the aspects to be considered are:
- The facts affecting stamp duty must set forth in the document as per Sec.27 including the facts about consideration
- Market value as on date of document executed to know whether any stamp duty payable, if so, whether properly paid or not5See 1960 A.P. 155 and 2000 (3) ALT 787.
- Further it is not from the mere nomenclature but from substance i.e; contents and recitals in the document as a whole to decide by the Court from the nature of the transaction covered by the document to impound and collect stamp duty6AIR-1961-AP-424 & AIR 1961Mad 504(FB).
- For stamp duty to levy and to impound it is the date of execution of the document and the value of the property by then that is the criteria.
- The Court to impound a document if not duly stamped, the crucial date is the date of execution since the stamp duty payable is as per the law that was prevailing on the date of execution and not the date of production for consideration before Court or Collector7Sec. 1992-AP-183 & 1968-A.P.213 (FB). See also AIR-1962-Raj-68 & 1954. HP.51.
Procedure for examination and impounding of instruments not duly stamped
Chapter III & IV, (Secs. 31 to 48) deal with procedure for examination and impounding of instruments not duly stamped by whom, when and how and duty of court to impound and at request of parties to refer to collector and then duty of the collector to adjudicate, decide and collect stamp duty once referred by court or brought to collector by a party. Secs.31 and 32 speak about the administrative duty of the collector to decide the stamp duty on document produced before him for his opinion and order of the Collector in relation thereto and further that such duty once paid and certified by collector that is final8See 1946 Mad. 437, 1942 Mad 381 and 1961 S.C. 787.
As per Sec 35 Stamp Act there is a total and absolute bar to the admissibility of an unstamped instrument in evidence whatever may be the nature or the purpose or how ever foreign and independent the purpose may be for which it is sought to be used, unless there is a compliance with the requirements of provisos to sec 35 or unless it is duly impounded as per Sec. 33 by following the procedure laid down in Sec. 37 to 429See AIR 1962 A.P. 132; AIR-1972-AP 373 and 2003 (2) ALD 638. See further 2002(3) LS 159..
Sec 36 of the stamp Act says once a document is admitted in evidence either by mistake or other wise, it is not open to reject the same either in the same proceedings or in the further stages of litigation in appeal or revision10see 1956 SC 12, 1961 SC1655, 1969(1) SCC 597; 1957 A.P.1022; 1962 AP 398; 1963-AP 442, 1977-AP 247&348, 1982 AP 240; 1968 (1) AWR 221; 2000(1)- ALD504 and also 2002(5)ALD660=3LS149.In1964(2)ALT374 It was held that even defendant raised objection on stamp duty for marking, when court marked the document it doesn’t mean that court rejected the objection unless there is an order of the court to that effect. See also 1969 A.P. 417 and 1978 S.C. 1393..
Thus as per Sec. 33 it is the duty of the trial court to necessarily apply mind to admissibility of the document and requirement of the stamp duty before receiving or admitting in evidence. It is also the duty of the other party to be alert to see the admissibility of the document presented by one party. Virtually the Court has an independent duty before admitting any document, on the question of stamp duty, even no objection taken by the parties. In 1933 Mad 117 it was held that in spite of waiver objection on stamp duty or admission regarding proof under Sec 58 Evidence Act, the instrument not duly stamped cannot be allowed to be admitted by Court Since, it is a fiscal legislation to collect revenue.
Rectification of inadequate and improper stamps
Inadequate stamping may mean no stamp or insufficient amount of stamp or stamp of full amount but of improper description. Provisions available in Indian law that facilitate such rectification are:
- WHEN INSUFFICIENTLY STAMPED DOCUMENT IS ALREADY SUBMITTED BEFORE THE COURT AS EVIDENCE – The inadequately stamped documents and instruments, once the remaining duty is paid along with a fine of Rs. 5 or if the proper duty or deficient portion exceeds Rs. 5, then, ten times such duty or portion, become rectified and as such become admissible as evidence. This is the procedure mentioned in Section 35 Proviso (a) of the Indian Stamp Act, 1899. Further, the Proviso (b) of the same Section allows in a situation where a stamped receipt is to be demanded and an unstamped receipt is given, to make such receipt admissible on the payment of Re. 1 fine by the person who tenders it.
- WHEN PLAINT IS PRESENTED BEFORE THE COURT ON INADEQUATELY STAMPED PAPER – If a plaint is presented before the Court on insufficiently or improperly stamped paper, then the Court has the power to reject the plaint by virtue of Order 7 Rule 11 of the Code of Civil Procedure, 1908. This is because under the Section 4 of the Court Fees Act, 1870, the High Court is barred from receiving insufficiently stamped document. However, at first, the Court will allow the plaintiff a period of time to pay the present the plaint on proper stamp papers, failing which the plaint will be rejected. It should be noted that in this scenario, stamp paper equates to court fees which are to be paid by the plaintiff. Once the plaint is presented on proper stamp papers, the suit or appeal will be treated as instituted from the date on which it was originally presented11Mannan Lal v. Chhotaka Bibi, (1970) 1 SCC 769.
- WHEN AN INADEQUATELY STAMPED INSTRUMENT IS PRESENTED FOR REGISTRATION– An inadequately stamped instrument is presented for registration under the Indian Registration Act, 1908, the Registrar or Sub-Registrar will return the instrument so that it be properly stamped and presented again for registration. Then re- registration procedure is to be followed as per the Section 23A of the Indian Registration Act, 1908.
- IMPOUNDING INADEQUATELY STAMPED INSTRUMENTS – When an inadequately stamped instrument is presented in any public office, such officer, may on realising that the instrument is inadequately stamped, impound (take over) such instrument under Section 33 of the Indian Stamp Act, 1899. However, as per Section 34 of the Act, such officer has the power to require a duly stamped receipt where the duty does not exceed ten naye paise instead of impounding the unstamped receipt. The impounded instruments are sent to the Collector under Section 38 of the Act. Under Section 40 of the Act, the Collector has the power to stamp the impounded instruments and levy the duties and fines from the person by whom the duty is originally payable.
- WHEN INSTRUMENTS ARE INADEQUATELY STAMPED BY ACCIDENT– The Section 41 of the Indian Stamp Act, 1899, also provides for situations where an instrument on which ten naye paise duty is payable, is inadequately stamped and the person who executed it, on his own motion brings it to the notice of the Collector saying that such inadequate stamping was an accident, mistake or urgent necessity then the Collector will allow the proper stamp duty to be paid to correct the error without levying any fine.
- WHEN INADEQUATELY STAMPED INSTRUMENTS ARE REGISTERED – There is no reason to assume that just because an instrument or document is registered under the Indian Registration Act, 1908, such document is adequately or properly stamped. In a situation where an instrument is improperly stamped by mistake or otherwise, the Registering Officer will call for the original document from the party that presented the same for registration, give the party an opportunity to be heard as to why the instrument was inadequately stamped, record such reasons in writing furnish a copy to such party and impound such instrument. 
- PENALTY FOR INADEQUATE STAMPS – The Indian Stamp Act, 1899, under Chapter VII provides for multiple stamp law offences and prescribes the penalty for the same. For instance, under Section 62, the penalty for executing an instrument inadequately stamped is a fine upto Rs. 500 which may be reduced based on fines already paid earlier.
- FOREIGN DOCUMENTS BEING BROUGHT INTO INDIA – In case of instruments executed in a foreign country, Sections 18 of the Indian Stamp Act, 1899, provide that documents executed out of India are to be stamped within 3 months of such instrument or document being brought into India. Section 18 applies to instruments other than bills of exchange and promissory notes while Section 19 applies to bills of exchange and promissory notes drawn out of India, which says that it proper stamp has to be affixed in India before cancelling it. From various judgments given by the Supreme Court and various High Courts, for instance, Malaysian Airlines Systems Bhd Vs. M/S. Stic Travels (P) Ltd., 2000(7) SC ALE 670 and Kuldip Kaur and ors. Vs. Prakash Chand Khurana and ors., AIR 1983 Delhi 328, it appears that documents executed outside India are required to be mandatorily stamped when they are brought into India regardless of whether they were duly stamped in the country in which they were executed. This seems to emanate from the legal maxim lex fori, which essentially means that the law of the country in which the action is brought is the law which is to be followed, and here, the stamp duty to be payable in India forms a part and parcel of the procedural laws in India. Further, when the question arises as to what one should do in case of foreign documents being brought into India, i.e., if they are stamped in another country do they need to be stamped in India again, a subsequent question arises – Do foreign courts or tribunals accept Indians agreements or documents that are not properly stamped according to Indian laws? Due to lack of any legislation in this regard, it is difficult to point it out definitely. All that can be said is, a document executed India, stamped or not, would by the principle of lex fori, have to be stamped in the country in whose Courts it is sought to be produced. However, it is to be noted that if an intellectual property from India is sought to be registered with the US Patent Office, the Indian counterpart is required to be adequately stamped before being produced before the Indian Patent Office or the Trademark Registry.
Difference between Stamp Act and Registration Act
The main difference between the provisions of stamp Act and Registration Act from effect of not duly stamped and not registered are while considering the effect of not duly stamping an instrument, the effect of non-registration mentioned in Sec 49 Registration Act is not relevant. It is because there is no total bar for admitting unregistered document if duly stamped, since it can be used for collateral purpose or other purposes specified in Sec 49, though u/s.49 an unregistered document (when compulsory to register) is inadmissible for main purpose to affect any rights in immovable property and the terms and conditions in the instrument. Whereas an unstamped document is not at all admissible (even for collateral purpose) unless it is duly stamped since, there is a total bar to admit any part of the instrument in evidence12In 2003(2)-ALD 638 it was held by dealing with scope of Sec 35 stamp Act and 49 Registration Act, by following 1972-AP-373 that for an unstamped document there is a total bar for its admission hence it cannot be admitted even for collateral purpose unless stamp duty is levied and paid whereas an unregistered document once duly stamped or stamp duty and penalty is paid, even not registered, though u/s 17 it is compulsorily registerable, for collateral purpose or such other specified purpose as per Sec 49 r./w 17 of the Registration Act it can be admitted and looked into. See also AIR1962 A.P132..
The Stamp Act and Registration Act are not in pari-materia. The principles that govern the interpretation of the Stamp Act cannot be applied to the interpretation of the provisions of the Registration Act. However, these two acts may be read together and the definition in one Act may be applied to the other Act only when there is no such definition in the other Act131970 AIR Bom.109.