A) ABSTRACT / HEADNOTE

The judgment addresses the scope and limits of discretionary power vested in the Collector of Stamps under Section 40(1)(b) of the Indian Stamp Act, 1899, particularly concerning the imposition of penalty up to ten times the deficient stamp duty. The dispute arose from the execution of a Deed of Assent by trustees of a private trust in favour of beneficiaries pursuant to a testamentary trust. The revenue authorities classified the instrument as a gift deed, determined substantial deficit stamp duty, and imposed the maximum statutory penalty of ten times the deficiency. The orders of the Collector and the Board of Revenue were upheld by the High Court.

The Supreme Court confined its scrutiny to the quantum of penalty, examining whether the maximum penalty was justified in the absence of findings of fraud, contumacious conduct, or deliberate deceit. The Court undertook a purposive interpretation of Sections 33, 35, 38, 39, and 40 of the Stamp Act, emphasising that the phrase “if he thinks fit” mandates a reasoned, proportionate, and non-mechanical exercise of discretion. The Court reiterated that penalty provisions serve a deterrent and not retributive function.

While affirming the finding of stamp duty evasion, the Court held that mere intention to evade duty, without aggravating circumstances, does not justify the extreme penalty. Consequently, the penalty was reduced to five times the deficient stamp duty to meet the ends of justice. The decision clarifies the jurisprudence on administrative discretion in fiscal statutes and reinforces proportionality as a governing principle in penalty imposition.

Keywords:
Indian Stamp Act, Section 40 discretion, stamp duty evasion, penalty proportionality, Deed of Assent, administrative discretion

B) CASE DETAILS

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The controversy originates from the exercise of statutory powers under the Indian Stamp Act, 1899, a fiscal legislation intended to secure revenue for the State through compulsory stamping of instruments affecting rights in property. The present case is situated at the intersection of trust law, succession law, and stamp duty administration.

The appellant trust was created through a testamentary disposition, where immovable properties were vested in trustees for eventual transfer to beneficiaries. The trustees executed a Deed of Assent, a document recognised under Sections 331 and 332 of the Indian Succession Act, 1925, to complete the vesting of title in favour of legatees. The instrument was stamped with a nominal duty of Rs. 200.

Revenue authorities initiated proceedings under Section 33 of the Stamp Act, impounded the document, and proceeded under Section 40, classifying it as a gift deed attracting ad valorem duty. The Collector determined a substantial deficiency and imposed a ten-times penalty, invoking the upper statutory limit.

The challenge before the Supreme Court was not directed against the classification of the document or the determination of stamp duty. The Court deliberately limited its inquiry to the legality and proportionality of the maximum penalty. This narrow focus allowed the Court to clarify the contours of administrative discretion under fiscal statutes and to reiterate that discretion must be guided by reason, fairness, and proportionality rather than revenue absolutism.

D) FACTS OF THE CASE

Late Shri Harish Chand Dhanda acquired valuable immovable properties in Indore through gifts made in 1946 and 1948. During his lifetime, he constructed a commercial building known as Hotel Lantern and held other properties. On 26.10.2002, he executed his last Will, creating a private trust and appointing trustees who were also named executors. The trust was intended to hold and manage the properties for the benefit of designated beneficiaries.

Upon his death on 05.07.2003, the trustees assumed control. On 06.04.2005, the trustees resolved to transfer and vest specific properties in favour of beneficiaries by executing a registered transfer deed. Instead, on 21.04.2005, a Deed of Assent was executed, whereby trustees assented to the vesting of absolute title in the legatees. The document was stamped with Rs. 200.

The Collector of Stamps, Indore, issued notice alleging insufficient stamping and proposed recovery of deficit duty exceeding Rs. 1.28 crores along with ten times penalty. By order dated 22.09.2008, the Collector held the instrument to be a gift deed, calculated stamp duty at applicable rates, and imposed a penalty of Rs. 12.80 crores.

The Board of Revenue affirmed the order. A writ petition before the High Court was dismissed by the Single Judge, and the writ appeal was rejected as not maintainable. The Supreme Court granted leave limited solely to the issue of quantum of penalty.

E) LEGAL ISSUES RAISED

i. Whether the imposition of maximum penalty of ten times the deficient stamp duty under Section 40(1)(b) of the Indian Stamp Act, 1899 was legally justified?

ii. Whether discretion under Section 40(1)(b) can be exercised mechanically upon a finding of stamp duty evasion?

iii. Whether absence of fraud or contumacious conduct warrants reduction of penalty?

F) PETITIONER / APPELLANT’S ARGUMENTS

The counsels for the appellant submitted that the Deed of Assent was executed bona fide under Sections 331 and 332 of the Indian Succession Act, 1925. It was contended that the trustees acted in their capacity as executors and not as donors.

It was argued that even assuming a deficit in stamp duty, Section 40(1)(b) does not mandate imposition of the maximum penalty. The Collector failed to record any finding of fraud, dishonest intention, or contumacious conduct. The penalty was imposed mechanically without considering proportionality or mitigating circumstances.

Reliance was placed on Peteti Subba Rao v. Anumala S. Narendra (2002) 10 SCC 427, which held that maximum penalty is reserved for extreme cases.

G) RESPONDENT’S ARGUMENTS

The counsels for the State submitted that the trustees deliberately described the instrument as a Deed of Assent to evade substantial stamp duty. The intention to evade revenue was evident from the nature and effect of the transaction.

It was argued that once intention to evade is established, the Collector was justified in imposing the maximum statutory penalty. The Board of Revenue and the High Court had concurrently upheld the finding. No interference was warranted.

H) RELATED LEGAL PROVISIONS

i. Section 33, Indian Stamp Act, 1899
ii. Section 35, Indian Stamp Act, 1899
iii. Section 38, Indian Stamp Act, 1899
iv. Section 39, Indian Stamp Act, 1899
v. Section 40(1)(b), Indian Stamp Act, 1899
vi. Sections 331–332, Indian Succession Act, 1925

I) JUDGEMENT

The Supreme Court held that Section 40(1)(b) confers discretion and not an obligation to impose ten times penalty. The phrase “if he thinks fit” was interpreted as a legislative mandate requiring reasoned decision-making.

The Court undertook a conjoint reading of Sections 35, 38, and 39 to demonstrate that even where ten times penalty is initially levied, the statute contemplates reduction or refund. This legislative scheme negates any presumption that maximum penalty is the norm.

The Court reaffirmed that the object of penalty is deterrence, not retribution. Mere evasion of duty, without additional aggravating factors such as fraud or deceit, does not justify the extreme penalty.

In the present case, the only reason recorded was intention to escape duty. No finding of dishonest or contumacious conduct existed. The Court held that while penalty was justified, maximum penalty was disproportionate. Consequently, the penalty was reduced to five times the deficient duty.

a) RATIO DECIDENDI

The ratio is that imposition of ten times penalty under Section 40(1)(b) is discretionary, not automatic. Such discretion must be exercised rationally, proportionately, and for reasons recorded. Maximum penalty is reserved for extreme cases involving aggravating circumstances beyond mere evasion.

b) OBITER DICTA

The Court observed that unfettered discretion demands higher responsibility. Fiscal authorities must avoid oppressive use of power. Penalty jurisprudence must align with fairness and equity.

c) GUIDELINES

i. Penalty under Section 40(1)(b) must not be imposed mechanically.
ii. Reasons must be recorded justifying quantum of penalty.
iii. Maximum penalty should be reserved for extreme cases.
iv. Proportionality must guide fiscal discretion.

J) REFERENCES

a) Important Cases Referred

i. Gangtappa v. Fakkirappa, [2018] 13 SCR 603
ii. Peteti Subba Rao v. Anumala S. Narendra, (2002) 10 SCC 427

b) Important Statutes Referred

i. Indian Stamp Act, 1899
ii. Indian Succession Act, 1925