Trustees of H.C. Dhanda Trust Vs. State of Madhya Pradesh and Ors. - (Supreme Court) (17 Sep 2020)

'Ten times penalty' prescribed for deficit stamp duty cannot be mechanically imposed

MANU/SC/0694/2020

Civil

The Appellant by present appeals challenges the judgment of learned Single Judge of the High Court dismissing the Writ Petition of the Appellant as well as the judgment 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 holding it as not maintainable.

The Appellant submits that, the Deed of Assent executed on 21st April, 2005 is referable to Sections 331 and 332 of Indian Succession Act, 1925. Document in question is not a Gift Deed. 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. It is further submitted 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. 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. Only question to be determined in present 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.

Section 40 of Act, 1899 provides for Collectors power to stamp instruments impounded. The amount of penalty 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) of Act , 1899 is automatic nor can be mechanically imposed.

The legislative intent is clear from reading of Sections 33, 35, 38 and 39 of Act, 1899 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 of Act, 1899 to reduce penalty in regard to that there is a statutory discretion in Collector to refund penalty. 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.

It is only in the very extreme situation that penalty needs to be imposed to the extent of ten times. 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.

No proper reasons have been given either by the Collector or by the High Court justifying the imposition of maximum penalty of ten times. The order of the Collector of Stamps 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.

Tags : STAMP DUTY PENALTY IMPOSITION