Duty Payable by Whom
Chapter Sixty-Six
Syllabus topic 4.2, "Duty payable by whom [Section 30]"
Pages 348 to 351 of 378
In one line
Unless the parties have agreed otherwise, the Act says which of them pays: the buyer on a conveyance, the tenant on a lease, the landlord on the counterpart, both equally on an exchange, the sharers rateably on a partition, and in every other case the person executing the document.
In exam wording: section 30 provides that, in the absence of an agreement to the contrary, the expense of providing the proper stamp shall be borne as the section directs.
The section opens with a default
The words "in the absence of an agreement to the contrary" govern the whole section. Section 30 is a default rule, not a mandatory allocation, and parties are free to agree that the other side will pay. What they cannot do is agree that nobody will pay: the Government's claim to the duty is unaffected by their bargain, which only decides who bears the expense as between themselves.
The allocation
(a) The person drawing, making or executing the instrument, in the case of the instruments the section lists by their Schedule I articles. Those are principally bonds and security instruments: an administration bond, an agreement relating to deposit of title-deeds, pawn or pledge, a bond, a bottomry bond, a customs bond, a further charge, an indemnity bond, a mortgage deed, a release, a respondentia bond, a security-bond or mortgage-deed, a settlement, and transfers of debentures and of interests secured by a bond, mortgage deed or policy of insurance.
The common thread is that these are documents by which one person assumes an obligation in favour of another, so the person undertaking it provides the stamp.
(b) The grantee, in the case of a conveyance, including a re-conveyance of mortgaged property; and the lessee or intended lessee, in the case of a lease or agreement to lease.
This is the practical rule that answers most questions: on a sale, the buyer pays; on a lease, the tenant pays.
(c) The lessor, in the case of a counterpart of a lease. The counterpart is the copy the landlord keeps, so he provides its stamp.
(d) The parties in equal shares, in the case of an instrument of exchange. Each gives and each receives, so the burden is split.
(e) The purchaser, in the case of a certificate of sale of the property to which the certificate relates.
(f) The parties in proportion to their respective shares in the whole property partitioned, in the case of an instrument of partition; and where the partition is made in execution of an order of a Revenue authority, Civil Court or arbitrator, in such proportion as that authority, Court or arbitrator directs.
Duty Payable by Whom
(f-a) The person receiving the contract, in the case of instruments of works contract under Article 63 of Schedule I.
(g) The person executing the instrument, in any other case. This is the residual rule, and it catches everything the earlier clauses do not.
Section 30A: financial institutions
Inserted by the Maharashtra Tax Laws (Levy and Amendment) Act 2013, this section reverses the ordinary rule in a very common class of transaction.
Notwithstanding section 30, where an instrument referred to in clauses (a) to (g) of section 30 is executed in favour of or by any financial institution such as a bank, non-banking finance company, housing finance company or the like, and it creates any right in favour of such an institution, the liability to pay the proper stamp duty is on that financial institution, without affecting its right, if any, to collect it from the other party if the other party fails to pay.
Two points follow. Under section 30(a) a mortgage deed would ordinarily be stamped by the mortgagor, that is the borrower. Since 2013, where the mortgagee is a bank or similar institution, the statutory liability is the institution's. And the institution keeps a right of recovery from the borrower, so in commercial practice the borrower still funds it; what has changed is who the Government looks to.
The reason for the change is collection. An institution is a far more reliable payer than an individual borrower, and putting the liability on it protects the revenue.
A worked example
Hema is buying a flat at Thane from Iqbal, funding it with a bank loan secured by a mortgage of the flat.
The sale deed. A conveyance, so under section 30(b) the duty is borne by the grantee, that is Hema, unless she and Iqbal have agreed otherwise.
The mortgage deed in favour of the bank. Under section 30(a) it would be the person executing it, that is Hema as mortgagor. But the instrument is executed in favour of a financial institution and creates a right in its favour, so under section 30A the liability is the bank's, with a right to collect it from Hema if she does not pay.
A lease of the parking space to a neighbour. Under section 30(b) the lessee bears it; under (c), the lessor bears the duty on the counterpart.
Hema later exchanges a shop for her cousin's godown. Under section 30(d) the parties bear it in equal shares.
She and her brothers partition their father's land. Under section 30(f) each bears it in proportion to his share in the whole property partitioned; and if the partition is made in execution of a Court's order, in such proportion as the Court directs.
Duty Payable by Whom
She buys a plot at a court auction and receives a certificate of sale. Under section 30(e) the purchaser bears the duty.
The deed says Iqbal will pay the duty on the sale. Perfectly good between them, because section 30 applies only in the absence of an agreement to the contrary. It does not, however, give the Government a worse claim if neither pays.
What it does NOT mean
Section 30 is not mandatory. It applies only in the absence of an agreement to the contrary.
An agreement between the parties does not bind the Government. It allocates the expense between them, and the Act's machinery for recovering unpaid duty is unaffected.
The seller does not pay on a conveyance. The grantee does, unless agreed otherwise.
The lessee does not pay for the counterpart. The lessor does.
Since 2013 the borrower is not the person statutorily liable on a bank mortgage. The financial institution is, subject to its right of recovery.
Clause (g) is not a minor provision. It is the residual rule for every instrument not otherwise allocated.
Distinctions
| Instrument | Who bears the duty |
|---|---|
| Bond, mortgage deed, indemnity bond, release, settlement and the other listed articles | The person drawing, making or executing it, s.30(a) |
| Conveyance, including re-conveyance of mortgaged property | The grantee, s.30(b) |
| Lease or agreement to lease | The lessee or intended lessee, s.30(b) |
| Counterpart of a lease | The lessor, s.30(c) |
| Exchange | The parties in equal shares, s.30(d) |
| Certificate of sale | The purchaser, s.30(e) |
| Partition | The parties in proportion to their shares, or as the authority, Court or arbitrator directs, s.30(f) |
| Works contract | The person receiving the contract, s.30(f-a) |
| Any other case | The person executing the instrument, s.30(g) |
| Any of the above in favour of a financial institution | The institution, s.30A, with a right of recovery |
Quick revision
- s.30 applies in the absence of an agreement to the contrary; the parties may reallocate the expense between themselves, but not defeat the Government's claim.
- Conveyance: the grantee. Lease: the lessee. Counterpart: the lessor. Exchange: equally. Certificate of sale: the purchaser. Partition: rateably by share, or as directed. Works contract: the person receiving the contract. Bonds and security instruments: the person executing. Everything else: the person executing.
- s.30A, from 2013: where the instrument is executed in favour of or by a financial institution and creates a right in its favour, the institution is liable, without affecting its right to collect from the other party.
Test yourself
1. Who bears the stamp duty on a sale deed? The grantee, that is the buyer, in the absence of an agreement to the contrary.
Duty Payable by Whom
2. And on a lease and its counterpart? The lessee or intended lessee bears the duty on the lease; the lessor bears it on the counterpart.
3. How is the duty on a partition borne? By the parties in proportion to their respective shares in the whole property partitioned, or, where the partition is made in execution of an order of a Revenue authority, Civil Court or arbitrator, in such proportion as that authority, Court or arbitrator directs.
4. Who is liable on a mortgage in favour of a bank? The bank, under section 30A, notwithstanding section 30, since the instrument is executed in favour of a financial institution and creates a right in its favour. The bank retains its right to collect the duty from the borrower if he fails to pay.
5. Can the parties agree that the seller will pay the duty on a conveyance? Yes. Section 30 operates only in the absence of an agreement to the contrary, so the parties may allocate the expense as they choose between themselves.
6. Who pays where the Act's list does not cover the instrument? The person executing it, under the residual rule in section 30(g).
The rest of this subject
These notes are cut from the University's printed syllabus. Open the syllabus itself, or the past papers, for the same subject.