[Redevelopment Projects] No Stamp Duty On Individual Allotment Agreements If Development Agreement Is Stamped: Bombay High Court

A division bench of Justice GS Patel and Justice Neela Gokhale, while quashing two government circulars imposing separate stamp duties on PAAAs based on cost of construction held –

“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”.

The DA between the society and the developer is for construction of new homes for existing society members and of free sale units which the developer can sell in the open market. This DA has to be stamped. PAAAs are executed by a developer with individual members of a housing society or other occupants of the houses being redeveloped. The stamp authority demanded stamp duty for the individual PAAAs.

On June 23, 2015, the Chief Controlling Revenue Authority issued a circular providing that if the DA is executed only between the CHS and Developer, the document to transfer the premises to the member society shall be treated as an independent agreement and stamp duty will be levied on the construction costs.

On March 30, 2017, the Chief Controlling Revenue Authority issued a clarificatory circular that the PAAAs will be included in the DA only if every single society member countersigns the DA.

A batch of writ petitions filed by various developers challenged these circulars.

Section 4(1) of the Maharashtra Stamp Act provides that when several instruments are used for completing a single transaction in case of any development agreement, sale, lease, mortgage or settlement, only the principal instrument is liable to stamp duty and all other instruments will have a stamp duty of Rs 100.

The court noted that while executing a DA, the society acts for all its members and goes into redevelopment. PAAAs are only a particularisation per member of the development. There can be a DA without a single PAAA by attaching annexure for each member of the society. The court said that the segregation into several PAAAs is merely for convenience.

The court said that the revenue authority does not have the jurisdiction to dictate what form the instrument must take. Secondly there is no concept in law of a society not represent them the interest of all its members. Thus, the court rejected the argument that unless a member personally signs the DA, section 4(1) is not attracted.

The court added that if every member signs the DA, then section 4(1) simply has no application since it speaks of ‘more than one document’ and not ‘more than one party to a single document’.

The court explained that the society owns the land and the structures and has the right to all benefits of redevelopment. The DA comes into play because the developer bears the burden and cost of the development on consideration paid by the society. The free sale units available to the developer is the consideration for the developer’s obligation to complete construction and deliver possession, the court said. Thus, the developer is not selling homes to society members on redevelopment, the court said adding that the only sale is of any additional area that a member purchases.

The court said that the members are getting the following on redevelopment – (a) a home in replacement of a home, (b) a larger home in replacement of a smaller home, and (c) the option of purchasing additional area for the replacement home. “It is only item (c) that can ever be brought to stamp. Items (a) and (b) are never liable to stamp”, the court held.

The court also said that the members do not have to pay stamp duty on acquisition of additional built-up area from fungible Floor Space Index. The only stamp duty a member must pay is any additional area that he or she actually purchases for consideration, the court held.

“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 additional area over and above any area that is made available to the member in lieu of the earlier premises”, said the court.

The court concluded that DA need not be signed by individual members. Further, to the extent that the PAAA is limited to the rebuilt premises without the actual purchase of any additional areas, it is an incidental document under section 4(1) of the Stamp Act.

Appearances -

Petitioners - Advocates Dharam Sharma, Ashraf Diamondwala, S Murthy, Neha Shah, 

State - Assistant Government Pleaders Jyoti Chavan, Hemant Haryan, Kedar Dighe, Himanshu Takke

Amicus - Advocate Samit Shukla

Case no. – Writ Petition No. 4575 of 2022 with connected cases

Case Title – Adityaraj Builders v. State of Maharashtra and Ors. with connected cases