Purpose Of Rectification Deed Is To Remove Inadvertent Errors, Clarify Imperfections In Earlier Deed: Madras High Court

In a recent judgment, the Madras High Court has given some clarifications about the scope of rectification deed and whether the entering of the rectification deed for clarifying a fact would mean the existence of the same in the original sale deed.The bench of Justice T. Raja and Justice D. Bharatha Chakravarty was considering the appeal of Vodafone Idea Limited under Section 47-A(10) of the Indian Stamps Act,1898 against the order of Inspector General of Registration.Relying on the Supreme Court judgment in Assistant Commercial Taxes Officer v. Makkad Plastic Agencies, 2011 4 SCC 750 which observed that the meaning of 'rectification' under the Sales Tax Act would include 'removal of defects or imperfections', the High Court held that, "...Whenever the rectification deed includes any additional property on which the duty is not charged, the rectification deed will be charged as if it were a sale deed as per Section 47-B of the Act. Thus, the scope of rectification deed may differ in every case. Rectification deed can be for rectification of mistake or on an inadvertent error or even clarifying the original document. Apart from correcting an error or removal of defect, Rectification deed can also remove 'imperfection' in the earlier document."In 2002, Vodafone Idea (previously B.P.L Mobile Cellular Limited) sold their land property in Coimbatore, together with the buildings and structures standing on ground. The sale deed in favour of M/s. Hindusthan Infrastructure Projects and Engineering Private Limited was for a consideration of Rs. 3.5 crores. However, the Inspector General of Registration reached a conclusion that the sale deed transfers an ongoing concern on 'as is where is basis' along with the plant and machinery and was undervalued. Thus, the impugned Order was issued imposing an additional stamp duty.Just before the issue of Show Cause Notice, both the appellants entered into a deed of rectification that unequivocally stated that the transfer of property does not comprise the plant and machinery therein and the vendor, Vodafone Idea, is still the owner of the same. Additional Advocate General argued that the rectification deed itself is a proof that the original sale deed sold plant and machinery along with the land, and a deed of rectification is only entered into between two parties when it is required to undo or modify something contained in the original deed.Considering the facts and circumstances of the case, the court observed as below:"Thus, when the rectification deed also mentions that the plant and machinery are not sold, it only clarifies the imperfection and the contention of the revenue that there has been a sale of plant and machinery which is running contra to the rectification deed is wholly misconceived and illogical as the mistake of fact can be always rectified, by moving rectification deed with consent of both parties."The court had also framed two other questions that required answers for adjudicating the dispute:(i) Whether or not the contentious Sale deed transfers the ongoing business on 'as is where is' condition along with plant and machinery?(ii) Whether the intention of the parties is to sell the plant and machinery and whether it can be ascertained from the other documents and circumstances also?On the first of the remaining questions, the court noted that the schedule in the sale deed is clear enough to arrive at the conclusion that the transfer is solely of the land and buildings alone. Even the Annexure-1A of sale deed mentions the structures that are sold and the value of buildings and electrical installation. Therefore, the court concluded that it is not a sale on 'as is where is' basis including plant and machinery."Every recital in the sale deed make it clear that the vendor is selling only the schedule property namely, the immovable property alone. The meaning of the above clause could only be that the permanent fixtures to the building such as doors, windows and other fixtures relating to the immovable property are being sold and not the business or plant and machinery relating to the business. The above recital is only an express statement of what is conveyed with the immovable property as per Section 8 of the Transfer of Properties Act", the court said.About the Supreme Court judgment in Duncans Industries Ltd v. State of U.P. And Others (1999), the court added that it was pertaining to the sale of factory or industry for which the major part of the consideration is paid for machinery that is embedded and permanent feature of such factory/ industry. According to the Madras High Court, the judgment in Duncans wanted to prevent the parties from escaping the liabality by showing these embedded, permanent features as plant and machinery. Thereby, the parties could not assert that the sale deed was for the immovable property of land/ shed alone for escaping payment of stamp duty."It is only in that context when a business is sold the plant and...

Purpose Of Rectification Deed Is To Remove Inadvertent Errors, Clarify Imperfections In Earlier Deed: Madras High Court

Sebin James

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