Stamp Act, 1899: s.40(1)(b) – Imposition of maximum penalty when instrument not duly stamped – Propriety of – In the instant case, a resolution was passed by the Executors/Trustees of the appellant-Trust to transfer and vest immovable properties to the beneficiaries by executing a Deed of Transfer – However, subsequently a Deed of Assent was executed between them on payment of stamp duty of Rs.200 whereunder the Trustees gave assent to complete title of the Legatees and vest absolutely in favour of beneficiaries – Collector of Stamps held the Deed of Assent as Gift Deed and demanded deficit duty to the extent of Rs.1.28 lakhs and also imposed ten times penalty – Board of Revenue upheld the order of Collector – Aggrieved appellant-Trust filed writ petition which was also dismissed – In the instant case, the issue is whether the ten times penalty was validly imposed by the Collector of Stamps under s.40 – Held: The statutory scheme of s.40(1)(b) vest discretion to the Collector to impose the penalty amount not exceeding ten times – When statute transfers discretion to an authority, the discretion is to be exercised in furtherance of objects of the enactment – Imposition of penalty of ten times under s.40(1)(b) is neither automatic nor can it be mechanically imposed – Imposition of such extreme penalty cannot be based on the mere factum of evasion of duty – The Collector while imposing ten times penalty in his order gave reason that the party had not mentioned the actual nature of the document with the intention to escape the duty – No other reason was given either by the Collector or by the High Court justifying the imposition of maximum penalty of ten times – It was not the case of Collector that the conduct of the appellant was dishonest or contumacious – High Court noticed that although the resolution was passed to execute the Deed of Transfer by Trustees but later on they deliberately executed the deed in the name of Deed of Assent on a stamp paper of Rs.200/- - Thus, for the reason given by the Collector as well as by the High Court that there was intention to evade the stamp duty in describing the document as Deed of Assent, the imposition of the penalty was called for, but in the facts and circumstances and the reasons given by the Collector, it was not a case of imposition of extreme penalty of ten times of deficiency of stamp duty – In the ends of justice, penalty reduced to the extent of half i.e. five times of deficiency in the stamp duty.
Penalty: Imposition of, by public authority – Held: The purpose of penalty generally is a deterrence and not retribution – When discretion is given to a public authority, such public authority should exercise such discretion reasonably and not in oppressive manner – The responsibility to exercise discretion in reasonable manner lies more in cases where discretion vested by the statute is unfettered – Stamp Act, 1899 – s.40(1)(b).
Partly allowing the appeals, the Court
HELD: 1.1 Section 40 of Indian Stamp Act, 1899 provides for Collectors power to stamp instruments impounded. According to Section 40(1)(b), if the Collector is of opinion that such instrument is chargeable with duty and is not duly stamped, he shall require the payment of the proper duty or the amount required to make up the same, together with a penalty of the five rupees; or, if he thinks fit, an amount not exceeding ten times the amount of the proper duty or of the deficient portion thereof. The statutory scheme of Section 40(1)(b) indicates that when the Collector is satisfied that instrument is not duly stamped, he shall require the payment of proper duty together with a penalty of the five rupees. The relevant part of Section 40(1)(b) which falls for consideration in these appeals is: “or, if he thinks fit, an amount not exceeding ten times the amount of the proper duty or deficient portion thereof.” [Paras 15, 16][275-F-G; 276-D-F]
1.2 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) is automatic nor can be mechanically imposed. [Para 17][276-G; 277-A]
1.3 Section 35 contemplates that when ten times the amount of the proper duty of or deficient portion thereof exceeds five rupees, of a sum equal to ten times such duty or portion is required to be deposited. Under Section 39, Collector is empowered to refund penalty. Under Section 35(a) there is no option except to pay sum equal to ten times of such duty or deficient portion but Section 39 empowers the Collector to refund any portion of the penalty in excess of five rupees which is expressed in following words: “if he thinks fit refund any portion of the penalty in excess of five rupees which has been paid in respect of such instrument.” The legislative intent which is clear from reading of Sections 33, 35, 38 and 39 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 to reduce penalty in regard to that there is a statutory discretion in Collector to refund penalty. [Paras 18, 19][277-E-F, G] Gangtappa and another vs. Fakkirappa (2019) 3 SCC
788 : [2018] 13 SCR 603 – referred to.
2.1 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. The responsibility to exercise the discretion in reasonable manner lies more in cases where discretion vested by the statute is unfettered. Imposition of the extreme penalty i.e. ten times of the duty or deficient portion thereof cannot be based on the mere factum of evasion of duty. The reason such as fraud or deceit in order to deprive the Revenue or undue enrichment are relevant factors to arrive at a decision as to what should be the extent of penalty under Section
40 (1) (b). [Para 21][278-G-H; 279-A]
Peteti Subba Rao vs. Anumala S. Narendra (2002) 10 SCC 427 – relied on.
2.2 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 other reasons have been given either by the Collector or by the High Court justifying the imposition of maximum penalty of ten times. It is not the case of Collector that the conduct of the appellant was dishonest or contumacious. Taking into consideration all facts and circumstances of the case, in the ends of justice, the penalty imposed is reduced to the extent of the half i.e. five times of deficiency in the stamp duty. [Paras 24, 25, 26][279-F-G; 280-B-E]
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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