In the case of Trustees of H.C Dhanda Trust v. State of Madhya Pradesh & Ors. The Full Bench of the Supreme Court held that the discretion exercised by the Collector to impose a penalty on evasion of stamp duty must be based on a rational and fair basis.
Brief Facts of the Case
The Collector of Stamps held a transfer of property as a gift deed. It found a deficit of stamp duty to Rs.1,28,09,700/- and also imposed ten times penalty to Rs.12,80,97,000/-. Its order required the Appellant Trust to deposit the amount of Rs.14,09,06,700/- within thirty days.
The Appellant has filed the present appeal on being aggrieved by the orders of the lower courts against this issue.
Appellant’s Arguments
About Section 331 and 332 of the Indian Succession Act, 1925, the document, the executed Deed is not a Gift Deed. Also, the said Deed of Assent was executed and there exists no deficiency in the stamp duty. Also, the penalty of ten times was not justified nor explained by the Collector of Stamps.
Respondent’s Arguments
The Appellant was involved in the evasion of stamp duty hence the penalty imposed was justified. There were proved suppression of facts which led to the loss of adequate stamp duty being paid. Hence the imposition of penalty is not illegal.
Court’s Observation
The issue for determination is the imposition of ten times penalty by the Collector of Stamps under Section 40 of the Indian Stamp Act, 1899 (“the Act”).The provision under Section 40(1) indicates that if the Collector is satisfied, he has the authority to impose a penalty amount that does not exceed ten times. This discretion of the Collector has to be exercised.
The Bench observed that the legislative intent of Sections 33, 35, 38, and 39 of the Act is not to impose a penalty to the extent of ten times in all situations. The purpose of the penalty generally is deterrence and not retribution. When discretion is given to a public authority, such public authority should exercise such discretion and not in an oppressive manner.
The imposition of the extreme penalty i.e. ten times of the duty or deficient part thereof cannot be based on the mere fact of evasion of duty.
It stated that the reason such as fraud or deceit to deprive the Revenue or undue enrichment are relevant factors to decide about what should be the extent of the penalty under Section 40(1)(b). It is only in the very extreme situations that the penalty needs to be imposed to the extent of ten times.
The Bench stated that in the present facts and circumstances, it was not a case of imposition of extreme penalty of ten times of deficiency of stamp duty.
Hence, reducing the penalty imposed to the extent of the half i.e. five times of deficiency in the stamp duty was necessary.
Court’s Decision
The Court reduced the stamp duty penalty of ten times of Rs.12,80,97,000/- into five times the penalty i.e. Rs.6,40,48,500/-. It held that this was not a case where an extreme penalty of ten times of deficiency of stamp duty is required.
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