Family Property Partitioners Exempt From Stamp Duty If Shares Already Separated: Allahabad HC
The Allahabad High Court ruled that family members who partition their property and have already separated their shares before executing a partition document are not subject to stamp duty under Section 2(15) of the Indian Stamp Act.
The case arose from concerns regarding unpaid stamp duty related to a partition deed. The petitioners, a family of nine, had reached an oral agreement to partition their property in mid-2011, which was later documented in a memorandum of settlement on May 23, 2012. Subsequently, one family member sought a declaration of his title, initiating a legal suit. This led to a compromise agreement filed on September 29, 2012, followed by a court decree on October 16, 2012.
One family member then sought approval for a property map from the Muzaffar Nagar Development Authority, leading to an inquiry into the stamp duty status. Consequently, proceedings were initiated against the petitioners due to alleged non-payment of stamp duty. The petitioners contested this, claiming that they were already in possession of their respective shares before the memorandum of settlement, arguing that they were not co-sharers and thus Section 2(15) did not apply.
In response, the respondents argued that the partition deed was not registered to evade stamp duty and insisted that the partition executed on May 23, 2012, required payment of stamp duty as per Section 2(15).
A single-judge bench of Justice Piyush Agrawal highlighted that, based on the relevant provisions, if a partition instrument is signed by co-owners based on prior terms of a partition, it must be executed without possession for stamp duty to apply. The Court added, “From bare reading of the afore-quoted Sections, it clearly shows that if an instrument of partition is executed, duly signed by the coowners, on previous terms of partition without possession, stamp duty is liable to be paid on the said instrument. . In other words, Section 2 (15) (iii) of the Act will be applicable, if an instrument of partition is executed by co-owners of the property, on a declaration of terms of a previous partition by co-owners, then it should be without possession”
For clarity, Section 2(15) defines an "instrument of partition" as any document in which co-owners of a property agree to divide it into separate shares. This includes any final order from a civil court or revenue authority regarding a partition, as well as any instruments that record the terms of a partition.
Advocate Tarun Agrawal appeared for the petitioners, and Additional Chief Standing Counsel A.C. Mishra appeared for the Respondents.
The Court found that the respondents acknowledged the existence of an oral family partition, a fact not disputed by them. The Court analyzed Section 2(15) and affirmed that stamp duty applies only if the partition instrument is executed without prior possession by co-owners. The Court said, “Once the shares of each family member were divided and separate possession of their respective shares were occupied by them, they cease to be co-owners of the property on the date of execution of memo of partition in written. In other words, once the respective parties had taken possession of their shares, they cease to be the co[1]owner of the property.”
The Court noted that the State had not substantiated its claim that the partition was incomplete during the execution of the memorandum. The Court added, “The record shows that in view of the oral family settlement, the respective parties not only divided their shares but also taken possession of their respective shares by metes and bounds, then at the time of reducing in writing the memorandum of settlement, will not be treated as instrument which is covered under Section 2 (15) (iii) of the Act”
Furthermore, the Court criticized the lack of justification for imposing a penalty on the petitioners, asserting that there was no evidence of an intent to evade stamp duty. The absence of a reasoned explanation for the penalty led the court to conclude that the orders against the petitioners were unsustainable.
Consequently, the Court allowed the writ petition.
Cause Title: Somansh Prakash & Ors. v. State of U.P. & Ors., [2024:AHC:153200]