Stamp Act | Stamp Duty Determined By Instruments' Legal Character, Not Its Nomenclature: Supreme Court

The Supreme Court held that while determining the chargeability of the Stamp Duty, the decisive factor is to ascertain the true legal character of the instrument, not the nomenclature assigned to the instrument.

A bench of Justices Ahsanuddin Amanullah and Prashant Kumar Mishra dismissed an appeal filed by a company that attempted to color a mortgage deed like a security bond to attract lesser stamp duty, affirming the higher demand for stamp duty on the deed.

The appellant executed a “Security Bond cum Mortgage Deed” in favour of the Meerut Development Authority (MDA) to secure obligations for colony development, including payment of external development charges and provision of amenities. Under the deed, the appellant mortgaged specified properties to the MDA, empowering it to sell them in case of default to recover ₹1,00,44,000/-. An advance deposit of ₹15,00,000/- was also made, with the bond becoming void upon full compliance. A stamp duty of ₹100/- was paid under Article 57, Schedule 1-B of the Indian Stamp Act.

However, the revenue authorities demanded a higher stamp duty of ₹4,61,660/- (Rupees Four Lakh Sixty-One Thousand Six Hundred and Sixty), arguing that the instrument was a simple mortgage deed giving rights to the MDA upon default; therefore, the nomenclature of the instruments should not be the decisive factor for determining the chargeability of the stamp duty.

The revenue authorities, followed by the Allahabad High Court, upheld the demand for higher stamp duty, leading to an appeal before the Supreme Court filed by the Appellant-assessee.

Affirming the concurrent findings, the judgment authored by Justice Mishra agreed with the revenue's contention that the instrument was given a color of security bond despite it transferring all rights to the MDA upon default. Therefore, the same must attract the higher stamp duty.

“In substance and effect, the deed confers a right over specified properties in favour of the Meerut Development Authority to secure performance of an obligation, while preserving the appellant's interest until full discharge of obligation. The nomenclature “Security Bond cum Mortgage Deed” is, therefore, inconsequential, as it is the substance and operative provisions of the instrument which govern its character for the purposes of stamp duty.”, the court said.

The Court dismissed the appellant's contention that execution of the instrument under Article 57, Schedule 1-B of the Indian Stamp Act, 1899, exempted it from higher stamp duty. It clarified that Article 57 applies only when the surety is furnished by a third party, not by the principal debtor. Since the appellant had provided surety over its own assets, Article 57 was held inapplicable.

“It stands beyond doubt, that the deed was not executed by a surety but by the principal debtor/appellant, the company, through its director. It is evident that the company itself mortgaged the properties and not the director in his individual capacity. A company, though a juristic person, is not a sentient being, consequently, it must act through its directors. This firmly establishes that the properties were not mortgaged by a third party, but by the principal debtor itself, which, in our opinion, does not attract Article 57.”, the court said.

“In the absence of any surety, to attract Article 57 of the Indian Stamp Act, the deed executed by the appellant cannot be termed as a security bond. It, however, fulfils all the requirements of a mortgage deed, falling under the ambit of Article 40 of Schedule 1-B of the Indian Stamp Act.”, the court added.

Accordingly, the appeal was dismissed.

Cause Title: M/S GODWIN CONSTRUCTION PVT. LTD. VERSUS COMMISSIONER, MEERUT DIVISION & ANR.

Citation : 2025 LiveLaw (SC) 992

Counsel appearing for the Appellants: Mr. Pahlad Singh Sharma, AOR, Ms. Kavita Jha, Senior Advocate, Mr. Vaibhav Kulkarni, Advocate, Mr. Aniket Deepak Agrawal, AOR, and Mr. Akash Shukla, Advocate

Counsel appearing for the Respondents: Mr. Shaurya Sahay, AOR, and Mr. Bhakti Vardhan Singh, AOR

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