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Trustees of H.C. Dhanda Trust v. The State of Madhya Pradesh

Civil Appeal · 2020 INSC 551Decided 17 Sept 2020
Civil Appeal Nos. 3195-3196 of 2020
Justice Ashok Bhushan · Justice R. Subhash Reddy · Justice M.R. Shah

Background

A private family trust executed a "Deed of Assent" transferring two valuable properties in Indore (including a hotel) to the beneficiaries named in the trust's founder's will, paying only nominal stamp duty of Rs. 200. The Collector of Stamps classified the document as a gift deed, found a huge shortfall in stamp duty (about Rs. 1.28 crore), and imposed the maximum possible penalty of ten times that amount, over Rs. 12.8 crore, which was upheld by the Board of Revenue and the High Court.

Decision Breakdown

The Supreme Court did not disturb the finding that the document was effectively a gift deed attracting stamp duty, nor that some penalty was due given the apparent intention to avoid higher duty. However, it held that the law's "up to ten times" penalty under Section 40 of the Indian Stamp Act, 1899 is discretionary, not automatic, and should be reserved for the most extreme cases of dishonest or fraudulent conduct. Since neither the Collector nor the High Court had given adequate reasons for imposing the maximum penalty beyond noting an intention to save on duty, the Court reduced the penalty by half, to five times the deficiency.

Lesson Learnt

Tax and stamp-duty penalties that are framed as "up to" a maximum amount are meant to be applied proportionately to the seriousness of the wrongdoing: authorities cannot reflexively impose the harshest penalty just because duty was underpaid.

Official source (sci.gov.in)View Judgment (PDF)

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