The Bombay High Court has held that an agreed share in the gross sale proceeds of a real estate project constitutes consideration under a development agreement and can be taken into account while determining the market value for levy of stamp duty.
The bench of Justice Amit Borkar ruled that the stamp authorities were justified in treating the revenue-sharing arrangement between the landowner and developer as deferred consideration and in computing its value as on the date of execution of the agreement by considering the development potential, applicable Annual Statement of Rates (ASR) and rates of the proposed constructed premises.
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The Court consequently dismissed a writ petition filed by M/s VTP Homee Landmark LLP and upheld a deficit stamp-duty demand of ₹43,84,100, together with the statutory penalty or other amount payable under the Maharashtra Stamp Act, 1958.
The dispute concerned two parcels of land situated at Village Kharadi, Taluka Haveli, District Pune. One parcel, bearing Survey No. 10/3A, measured approximately 8,950 square metres, while the other, bearing Survey No. 26/2/1+2/3, measured about 392 square metres.
An agreement dated November 2, 2012 was executed for development of the properties. Under the arrangement, the parties agreed to share revenue from the residential and commercial portions of the proposed project in specified proportions. The judgment records that the landowner was entitled to 45% of the gross sale proceeds from residential units and 50% from commercial units, while the promoter-builder would receive the remaining share.
The document authorised the promoter-builder to enter the property, undertake construction and development, obtain permissions, arrange finance, market the project and sell flats, units and commercial premises. It also contemplated execution of a power of attorney to enable the developer and its nominees to carry out activities connected with the project.
The agreement was initially registered on a market value of approximately ₹6.74 crore, on which stamp duty of ₹33.73 lakh was paid. Following an audit objection regarding non-consideration of the revenue-sharing clause, the stamp authorities reassessed the transaction.
The competent authority valued the instrument at ₹15,51,41,600 and calculated stamp duty of ₹77,57,100. After giving credit for the duty already paid, it determined a deficit of ₹43,84,100 and also imposed penalty. The appellate authority upheld the determination on August 26, 2019, leading the petitioner to approach the High Court.
The petitioner argued that Article 5(g-a)(i) of Schedule I to the Maharashtra Stamp Act had been wrongly applied. It claimed that the consideration could not be calculated by relying upon a hypothetical future share in sale proceeds, since the ultimate selling price of flats and commercial units was unknown when the agreement was executed.
According to the petitioner, stamp duty should have been calculated with reference to the value of the land existing on the date of the instrument. Future construction and prospective receipts from sale of units, it argued, could not be treated as present consideration.
The petitioner also contended that the Ready Reckoner was merely a guiding factor and did not conclusively determine the actual market value. It highlighted that the property was allegedly landlocked and subject to litigation, circumstances which, according to it, depressed the value of the land.
Another contention was that the petitioner was the landowner and not the developer. It sought to distinguish the High Court’s earlier ruling in Kolte Patil Developers Ltd. v. Chief Controller (Revenue Authority) on that basis. The petitioner also relied on clauses declaring that the parties were acting on a principal-to-principal basis and did not intend to create a partnership, association of persons or profit-and-loss sharing arrangement.
It further questioned the role of the Accountant General or Comptroller and Auditor General in raising an objection concerning the calculation of stamp duty.
The High Court held that Article 5(g-a)(i) does not require the person presenting or challenging the document to be the developer. The provision applies where an instrument gives authority or power to a promoter or developer for construction, development, sale or transfer of immovable property.
The Court examined the agreement as a whole and found that it conferred substantial and effective development rights upon the second party, described in the document as a promoter-builder. That party was authorised to enter the property, construct the project, obtain approvals, arrange funds, undertake marketing and execute sales.
The Court observed that the true character of the document had to be gathered from the rights and obligations created by it, rather than from the label used by the parties. The fact that the petitioner was the owner of the property therefore did not take the agreement outside Article 5(g-a)(i).
The clauses stating that the relationship was on a principal-to-principal basis and did not constitute a partnership were also held to be immaterial to the stamp-duty issue. Those clauses might be relevant to determine whether a partnership or joint venture had been created, but the relevant enquiry was whether development authority had been granted and what consideration was recorded for that grant.
The High Court placed particular emphasis on Clause 5.1 of the agreement, which described revenue sharing as consideration for jointly developing the property. It held that the absence of a fixed payment on the execution date did not mean that the agreement was without consideration.
The consideration had been agreed in a different form: a specified percentage of the gross sale proceeds that would become payable as the project progressed and units were sold. The collection-account and monthly-statement clauses reinforced the conclusion that revenue sharing was a central part of the parties’ financial arrangement and not a contingent or accidental term.
The Court noted that the landowner contributed the land and title, while the developer contributed capital, construction, development expertise and marketing. Their respective shares in the sale proceeds represented the agreed return for these contributions.
The judgment also clarified that the refundable security deposit of ₹4.20 crore could not be treated as the only consideration. While the deposit was expressly refundable, the agreement itself described the revenue-sharing entitlement as consideration.
The Court followed the principle laid down in Kolte Patil Developers Ltd., holding that monetary consideration may take the form of revenue sharing and may remain deferred until the constructed units are sold.
It rejected the argument that the uncertainty of the final selling price made valuation impermissible. Stamp duty, the Court explained, must be determined with reference to the date of the instrument. The authorities are not required to wait until completion of the project and actual sale of every unit.
Instead, the agreed consideration may be computed on the execution date by considering the available Floor Space Index, development potential, applicable ASR for the land and rates applicable to the proposed constructed tenements. The mere possibility that the project configuration, market rate or ultimate selling price may later change does not erase the agreed percentage of sale proceeds from the document.
The Court also rejected the argument that this method amounted to taxation of future profits. The calculation was not a levy on income or profit but a valuation exercise undertaken solely to determine the market value on which stamp duty was payable.
Likewise, the possibility that subsequent agreements for sale of completed units would independently attract stamp duty did not render the levy on the development agreement a case of impermissible double taxation. The development agreement and later sale deeds are separate instruments governing different stages of the transaction.
The High Court observed that the Ready Reckoner is indeed a reference point and not necessarily conclusive in every case. However, that did not permit the authorities to ignore consideration expressly recorded in the agreement.
Under the statutory definition of market value, the authorities were required to consider both the price that the property would fetch in the open market on the execution date and the consideration stated in the instrument. Where the agreed consideration produced a higher value, that higher valuation could be adopted for stamp-duty purposes.
The Court found that the valuation of ₹15,51,41,600 was not an imaginary figure disconnected from the transaction. The calculation reflected the land area, applicable rates, residential and commercial components, development potential and agreed revenue-sharing percentages. The authorities had also relied upon a deferment factor of 0.85 to bring the future consideration to its present value.
While acknowledging that valuation must rest on a proper basis and cannot be arbitrary, the Court held that the material before it did not establish that the method used by the stamp authority lacked a rational connection with the agreement.
The petitioner’s claims that the property was landlocked and embroiled in litigation were insufficient to invalidate the valuation. The agreement itself proceeded on the basis that development rights could be exercised and contained assurances concerning title and development potential.
The Court said that the audit objection did not itself determine the stamp duty payable. It merely brought the alleged short payment to the department’s attention.
The final adjudication was undertaken by the competent stamp authority after examining the agreement, valuation and applicable statutory provision. Accordingly, even if the auditor could not independently determine liability, the Collector’s statutory jurisdiction to examine and recover deficient stamp duty remained unaffected.
The High Court concluded that the November 2, 2012 development agreement was correctly classified under Article 5(g-a)(i) of Schedule I to the Maharashtra Stamp Act. The revenue-sharing arrangement constituted consideration for the development rights granted to the promoter-builder, and its value could be determined on the execution date by considering the project’s development potential and applicable rates.
Finding no basis to interfere with the valuation or the deficit demand, the Court dismissed the writ petition and upheld the orders dated November 4, 2015 and August 26, 2019. Any interim protection stood vacated, and the authorities were permitted to recover the deficit stamp duty of ₹43,84,100 along with the statutory penalty or other amount payable under the Act.
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