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The purpose of penalty is a deterrence and not retribution: SC


TRUSTEES OF H.C. DHANDA TRUST V. STATE OF MADHYA PRADESH AND ORS

CIVIL APPEAL NOS. 3195-3196 OF 2020, SEPTEMBER 17, 2020.

The Bench comprised of Justice Ashok Bhushan, Justice R. Subhash Reddy, and Justice M.R. Shah has held that in cases of an extreme situation, the penalty for non-payment of stamp duty must be imposed to the extent of 10 times of proper duty.

Late H.C Dhanda, father of the appellant received a piece of land as a gift on which he constructed a building and he holds another piece of land that was gifted to him by his father-in-law. The appellant’s father executed his last will in which he has created a trust and appointed the appellant as the chairman of Trust. After the death of the appellant’s father, a meeting was held by the board of trustees on 06.04.2005 in which they decided to execute a deed of transfer to beneficiaries after registration, in that process the collector issued a notice dated 21.04.2005 that as there was a due on stamp duty to pay for which the penalty was 10 times higher and the appellants were asked to pay the whole amount. So the appellants filed a Writ Petition in High Court which was dismissed then the appellant through a Special Leave Petition approached the Supreme Court.

The question before the court was “Whether the imposition of 10 times penalty by the collector of stamps under Section 40 of the Indian Stamps, Act, 1899 was validly imposed or not”.

Appellants argued that the document was not a gift deed as the property is inherited by the appellants under the Indian succession act, 1925 and that the collector has unreasonably imposed ten times penalty. The Respondent contended that the document is a gift of sale and the appellant intentionally tried to suppress the facts to escape from paying the stamp duty due to which he has to pay the 10 times penalty.

The court found out that the market value of the property to be Rs. 1, 28, 09,900. The court has looked into Section 40 of the Indian Stamps Act, 1899 under which Section 40(1)(b) states that “if the collector is of opinion that if it was chargeable with duty and when the same is duly not stamped then he has to make the payment of proper duty of the same with a penalty of Rs. 5 Or an amount exceeding not more than 10 times of proper duty”.

The court observed that The statutory scheme of Section 40(1)(b) indicates that when the Collector is satisfied that instrument is not duly stamped, he shall require the payment of proper duty together with a penalty of the five rupees. The relevant part of Section 40(1)(b) which falls for consideration in these appeals is: “or, if he thinks fit, an amount not exceeding ten times the amount of the proper duty or deficient portion thereof.” The amount of penalty thus can be an amount not exceeding ten times. The expression “an amount not exceeding ten times” is preceded by expression “if he thinks fit”. The statutory scheme, thus, vest the discretion to the Collector to impose the penalty amount not exceeding ten times.
The legislative intent which is clear from reading of Sections 33,35,38 and 39 indicates that with respect to the instrument not duly stamped, ten times penalty is not always retained and power can be exercised under Section 39 to reduce penalty in regard to that there is a statutory discretion in Collector to refund penalty.

The Court referred to the cases: Gangtappa and another vs. Fakkirappa, 2019 in which the court laid that in all cases the extent of the penalty up to 10 times is not realized and Peteti Subba Rao vs. Anumala S. Narendra, 2002 in which the court held that in an extreme situations only the penalty needs to be imposed to the extent of ten times. The court said “when the discretion is with public authority then it must try to reduce the same by considering upon the financial capacity of the person to pay”.

The court finally concluded that in cases of the extreme situation only the penalty must be imposed to the level of 10 times, though there exists an intention in the appellant’s mind to escape from the stamp duty, this reason is not sufficient to impose such an extreme penalty on them.

As a result, the appeals were allowed and the order of the collector of stamps dated 22.09.2008 is modified to the extent that penalty imposed of ten times of Rs. 12,80,97,000/- is modified into five times penalty i.e. Rs. 6,40,48,500/-. The appeals are partly allowed to the above extent.

CIVIL APPEAL NOS. 3195-3196 OF 2020
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- Goduguluri Venkata Sri Vidya (Damodaram Sanjivayya National Law University)

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