Law Relating to stamps

An overview of the Indian Stamp Act, 1899

B L Vinay Bangalore
B.Com,. ACS
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What is Stamp Duty?

Stamp duty is a tax that is levied on documents, like legal documents military commissions, licences and land transactions

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Why It should be paid?

 It is also a source of income to the Government.  Documents not properly stamped are not admitted in court as evidence
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History

Indian postal systems for efficient military and governmental communications had developed long before the arrival of Europeans

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When it should be paid?

It is payable before execution of the document or on the day of execution of document or on the next working day. Execution of a document means putting signatures on the instrument by persons party to the document.

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Some types of Stamps

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Stamps

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First Stamp of India and world

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E stamping
E-stamping is a computer based application and a secured electronic way of stamping documents.

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Franking Machine

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Constitutional validity
Union List, Entry 91 and State List, entry 63 confers power to prescribe the rates of stamp duties

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Important Terminologies
A Bill of Lading is a receipt by the master of a ship for goods delivered to him for delivery to X or his assigns. The term "conveyance" includes a conveyance on sale and every instrument by which property is transferred inter vivos1 and which is not otherwise specifically provided for by Schedule. It does not include a will
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Important Terminologies
An "instrument" to include every document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded. Eg: leases, mortgages, promissory notes and wills Executed/Execution: Under Section 1(12), the words "executed" and "execution" (used with reference to instruments), mean "signed" and "signature" respectively (very imp because stamp duty need to be paid when docs are executed
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Important Terminologies
Bill Of Exchange: The Negotiable Instruments Act, defines a "bill of exchange" as an instrument in writing, containing an unconditional order signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument bill of exchange payable on demand
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Important Terminologies
Chargeable: Under Section 2(6) "chargeable" as applied to an instrument executed or first executed after the commencement of the Act means chargeable under the Act and as applied to any other instrument, chargeable under the law in force in India when such instrument was executed or where several persons executed the instrument at different times, first executed
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Important Terminologies
Toll is a tax paid for some liberty or privilege, such as for passage over a bridge, ferry, along a highway or for the sale of articles in a market or fair or the like. It does not include 'octroi' or 'chungi'

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Important Terminologies
Promissory Note: As defined by the Negotiable Instruments Act, 1881. It also includes a note promising the payment of any sum of money out of a particular fund which may or may not be available, or upon any condition or contingency which may or may not be performed or happen. [Section 2(22)]
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Important Terminologies
"Stamp" means any mark, seal or endorsement by any agency or person duly authorized by the State Government and includes an adhesive or impressed stamp for the purposes of duty chargeable under this Act. This definition of the stamp has been inserted by the Finance (No. 2) Act, 2004
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INSTRUMENTS CHARGEABLE WITH DUTY Section 3 of the Act is the charging section It provides that subject to the provisions of the Act and the exemptions contained in Schedule I, the following instruments shall be chargeable with a duty 1.every instrument mentioned in that Schedule 2.every bill of exchange, promissory note
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However, no duty shall be chargeable in respect of instrument executed by or on behalf of or in favour of the Government for the sale, transfer either absolutely or by way of mortgage or otherwise, of any ship or vessel registered under the Merchant Shipping Act, 1894 Any instrument executed by, or, on behalf of, or in favour of, the special Economic Zone
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EXTENT OF LIABILITY OF INSTRUMENTS TO DUTY

several instruments in single transaction of sale, mortgage or settlement: only the principal instrument shall be chargeable with the duty prescribed for the conveyance, mortgage or settlement; and each of the other instruments shall be chargeable with a duty of one rupee Contd..
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EXTENT OF LIABILITY OF INSTRUMENTS TO DUTY A executed a conveyance of immovable property. On the same deed his nephew (undivided in status) endorsed his consent to the sale, as such consent was considered to be necessary. It was held that the conveyance was the principal instrument

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Section 4 (one rupee condition) not applicable

C2

A lease is executed and got registered. A second document is executed altering the terms of the first document. The second document has to be stamped as a lease. Section 4 does not apply.
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Slide 23 C2 Eg: Renewal of Working Capital Loan

COMPUTER, 10/11/2011

Principal and ancillary

The test is "What is the leading object? Which is principal and which is ancillary? If an instrument taken with reference to its primary object is exempted then stamp duty cannot be charged merely because matter ancillary to it is included and that matter is chargeable to stamp duty.
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Principal and ancillary

Where a document contains a transfer of mortgage and an agreement to make a loan, the mortgage and the loan are distinct matters and separately chargeable. If in a lease there is also an agreement to pay a certain sum on account of the balance of previous year, the document is chargeable (I) as a lease and (ii) also as a bond.
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INSTRUMENTS COMING WITHIN SEVERAL DESCRIPTIONS IN SCHEDULE-I SCHEDULE-

There may be cases where an instrument may come under several descriptions in Schedule-I to the Act. In such a circumstance it is chargeable ONLY with the highest of such duties

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BONDS, DEBENTURES, ETC. ISSUED UNDER THE LOCAL AUTHORITIES LOAN ACT, 1879

It shall be chargeable with a duty of one percent on the total amount of the bonds, debentures or other securities issued by it

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Securities dealt in depository not liable to stamp duty

It shall be chargeable with duty on the total amount of security issued by it and such securities need not be stamped

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Reduction, remission and compounding of duties

Section 9 empowers the Government, (Central or the State as the case may be), to reduce or remit, whether prospectively, or retrospectively, the duties payable on any instrument or class of instruments or in favour of particular class of persons or members of such class

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Valuation for duty under the act According to Section 20, where an instrument is chargeable with ad valorem duty in respect of any money expressed in any currency other than that of India such money in the currency of India, according to the current rate of exchange on the date of the instrument.

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Valuation for duty under the act

C3

Section 21 provides that in the case of an instrument chargeable with ad valorem duty in respect of any stock or any marketable or other security, such duty shall be calculated on the value of such stock or security according to the average price or the value thereof on the date of the instrument.
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Slide 31 C3 Normally stamp duty will be paid on the face value of the security. Franking need to be done in Stock Exchange Library (BGSE)
COMPUTER, 10/11/2011

Valuation for duty under the act Where interest is expressly made payable by the terms of the instrument, interest should not be calculated for stamp duty

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Valuation for duty under the act

According to Section 24, where any property is transferred to any person in consideration (wholly or in part) of any debt due to him, such debt, money or stock is to be deemed the whole or part, (as the case may be), of the consideration

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Consideration to be set out

C4

The consideration and all other facts and circumstances affecting the chargeability of any instrument with duty or the amount of duty with which it is chargeable shall be fully and truly set forth in the instrument. "Value of any property" would mean that real value of the property in the open market at the time the document was executed and not at the time when the executant acquired it.
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Slide 34 C4 Anniyan movie

COMPUTER, 10/11/2011

Apportionment
Section 28 prescribes certain rules for apportionment of the consideration, in cases of certain conveyances arising out of a property being contracted to be sold and thereafter conveyed in parts etc As the parties think fit Two or more purchases by one person, then each distinct part of the shall be chargeable with ad valorem duty
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Persons liable to pay duty

In case of Bond, Debenture or Mortgage deed, it should be paid by the person, drawing, making or executing such instrument Insurance: by the person effecting the insurance but in case of fire insurance it is by the person who is issuing the policy Partition: By the parties thereto in proportion to their respective shares
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Receipts
person receiving any money exceeding twenty rupees in amount/cheque or promissory note for an amount exceeding five hundred rupees or receiving in satisfaction of a debt give a duly stamped receipt for the same

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METHODS OF STAMPING
Stamp duty must be paid according to the provisions contained in the Act as the State Government concerned may by rule, direct as to  description of stamps the number of stamps which may be used in the case of bills of exchange or promissory notes, the size of the paper on which they are written.
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Types of Stamping
Adhesive stamping, and Impressed stamping.

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USE OF ADHESIVE STAMPS

instruments chargeable with a duty not exceeding 10 naya paisa bills of exchange and promissory notes drawn or made out of India; entry as an advocate, vakil or attorney on the roll of a High Court notarial acts transfers by endorsement of shares
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Cancellation of adhesive stamps

The user should cancel the stamps so that it cannot be used again. If a person fails to cancel the stamp, he becomes liable to penalty

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Mode of cancellation of adhesive stamps

By writing on or across the stamp his name or initials Eg: post office will put its seal for canceling the same

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42

Writing on stamp paper

A. Instrument shall be written in such manner that the stamp may appear on the face of the instrument and cannot be used for or applied to any other instrument B. No second instrument chargeable with duty shall be written upon piece of stamp paper i.e. new stamp paper to be used
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Time of stamping instruments

a. Instruments executed inside India: Section 17 provides that all instruments chargeable with duty and executed by any person in India shall be stamped before or at the time of execution a subsequent stamping, (however close in time) could not render the document as one stamped at the time of execution
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Contd
b. Instruments executed outside India: every instrument chargeable with duty executed only out of India may be stamped within three months after it has been first received in India. The same be duly stamped Collector who shall stamp the same in such a manner as the State Government may by rule prescribe
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Contd
Where an instrument is brought to the Collector after the expiry of three months, the Collector may, instead of declining to stamp it, validate it, if he is satisfied that the omission to stamp in time was due to a reasonable cause. (remember limitation act)

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Adjudication as to stamps
a.Chapter III, consisting of Sections 31 and 32, deals with adjudication by the Collector, as to the proper stamp that an instrument has to bear. The provisions of this Chapter are intended to assist any party who is in doubt as to the proper stamp to be affixed. The Collector he shall determine the proper stamp duty on payment of a nominal fee
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Adjudication as to stamps
b. The Collector may require to be furnished with an abstract of the instrument or other evidence as he may deem necessary c. The duty of the Collector under Section 31 is only to determine the stamp duty payable upon the instrument. He is not authorised to impound the instrument or to impose any penalty if he comes to the conclusion that the instrument is not sufficiently stamped
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Adjudication as to stamps
d. When an instrument is brought to the Collector and the Collector is of the opinion that the instrument is already fully stamped, he shall certify by endorsement on such instrument, that the full duty (stating the amount) with which it is chargeable has been paid

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Contd.
Collector shall not make any endorsement where a. Any instrument is executed and brought to him after the expiration of one month b. any instrument is executed out of India and brought to him after the expiration of three months c. instrument chargeable with a duty not exceeding 10 naya paiseis brought to him after the drawing or execution thereof, on paper not duly stamped
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Instruments not duly stamped treatment and consequences (impounding)

Section 33 contains a mandate on certain officials to impound an instrument which is not duly stamped. Every person in charge of a public office, except an officer of police shall, if it appears to him that the instrument is not duly stamped, impound the same. The object of this Section is to protect the revenue. Further the instrument must be impounded, before it can be admitted in evidence. Once it is admitted in evidence, the instrument cannot be impounded at a later stage
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 Pls read p.no 268 of the material An arbitrator has the consent of parties to adjudicate an arbitrator has a statutory duty under Section 33(1) to check whether the instrument so produced is duly stamped and if not, to impound the same

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UNSTAMPED RECEIPTS
An unstamped receipt produced in the course of an audit of any public account, the officer either to impound or to require the receipt to be stamped.

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INSTRUMENTS NOT DULY STAMPED INADMISSIBLE IN EVIDENCE

no instrument chargeable with duty shall be a. admitted in evidence unless such instrument is duly stamped b. The proviso to Section 35 provides as under: I. any instrument not being an instrument chargeable with a duty not exceeding 10 naya paisa only can be admitted in evidence on payment of the duty with which the same is chargeable
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 where any person from whom a stamped receipt could have been demanded has given an unstamped receipt and such receipt, if stamped, would be admissible in evidence against him, on payment of a penalty of Re. 1/- by the person tendering it;

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 where a contract or agreement of any kind is affected by the correspondence consisting of two or more letters and any one of the letters bears the proper stamp, the contract or agreement shall be deemed to be duly stamped

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 nothing contained in Section 35 shall prevent the admission of any instrument in evidence in any proceeding in a criminal Court

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 also nothing contained in Section 35 shall prevent the admission of any instrument in the Court, when such instrument has been executed by or on behalf of the Government

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ADMISSION OF INSTRUMENTS (WHERE NOT TO BE QUESTIONED)

If notwithstanding any objection, the trial Court admits the document, the matter ends there and the Court cannot subsequently order the deficiency to be made and levy penalty. It is like certificate of incorporation once issued it is deemed that all the compliance has been made
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ADMISSION OF IMPROPERLY STAMPED INSTRUMENTS

A person impounding an instrument and receiving the same in evidence shall send, to the Collector of Stamps, an authenticated copy of such instrument, together with a certificate stating the amount of duty and penalty levied in respect thereof and shall send such amount to the Collector
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DEALING WITH INSTRUMENTS IMPOUNDED

A person impounding an instrument and receiving the same in evidence shall send, to the Collector of Stamps, an authenticated copy of such instrument, together with a certificate in writing, stating the amount of duty and penalty levied in respect thereof shall send such amount to the Collector
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DEALING WITH INSTRUMENTS IMPOUNDED

Section 39 vests the Collector with certain powers to refund penalty recovered by a court on impounding a document not duly stamped when produced before it. The Collector, on examining the instrument so received by him may, in his discretion, refund the whole penalty.

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COLLECTOR'S POWER TO STAMP INSTRUMENT IMPOUNDED the Collector when impounding any instrument shall adopt the following procedure if he is of the opinion that instrument is duly stamped or is not chargeable with duty, he shall certify by endorsement thereon that it is duly stamped, or that it is not so chargeable as the case may be;
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COLLECTOR'S POWER TO STAMP INSTRUMENT IMPOUNDED

if he is of the opinion that such instrument, is chargeable with duty and is not duly stamped, he shall require the payment of the proper duty or the amount required to make up the same, together with a penalty of Rs. 5/-,

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64

Instruments unduly stamped by accident (like compounding of offences)

where a person, of his own motion bring it to the Collector's notice that the instrument is not duly stamped, if the Collector is satisfied, that the omission to pay the proper duty was due to accident, mistake or urgent necessity, he may receive the deficit amount and certify by endorsement on the instrument that the proper duty has been levied
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Contd..
In order to avail of the benefit of this section, the instrument must be produced before the Collector within one year of the date of its execution Where the instrument having been brought to the notice of the Collector within the period of one year, the Collector is in doubt regarding the amount of duty chargeable, he may refer the case to the Chief Controlling Revenue Authority and proceed in accordance with the decision of such authority
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Endorsement of instrument on which duty has been paid

where duty and penalty, if any, have been levied and realized by the court or any other body or by the Collector. In such cases, the authority must make an endorsement on the instrument as to the amount paid and the name and the residence of the person paying the same. Upon such certification, the instrument becomes admissible in evidence and may be registered and acted upon as if it had been duly stamped.

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PROSECUTION FOR OFFENCES AGAINST STAMP LAW

Section 43 deals with prosecutions for offences against the Stamp Law. This section provides that a levy of a penalty or payment thereof in respect of an unstamped or insufficiently stamped document (as provided for in Chapter IV) does not necessarily exempt a person from liability for prosecution for such offence
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Contd
However no such prosecution shall be instituted in the case of any instrument in respect of which a penalty has been paid, unless it appears to the Collector that the offence was committed with the intention of evading the payment of proper duty. The Collector can initiate criminal proceedings if he sees reasons therefor.
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NONNON-LIABILITY FOR LOSS OF INSTRUMENTS SENT

Section 46 provides that where any instrument sent to the Collector under Section 38(2) is lost, destroyed during transmission, the person sending the same, shall not be liable for such loss, destruction or damage. (because it will be beyond their control)

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POWER TO STAMP IN CERTAIN CASES

when any bill exchange or promissory note chargeable with a duty not exceeding 10 naya paise is presented for payment unstamped, the person to whom it is so presented may affix thereto the necessary adhesive stamp, and may pay the sum payable upon such bill or note and may charge the duty against the person who ought to have paid the same, or deduct it from the sum payable
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RECOVERY OF DUTIES AND PENALTIES

Chapter may be recovered by the Collector by distress and sale of the movable property of the person or by any other process used for the recovery of the arrears of land revenue

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72

TIME LIMITS (Limititation)

Section 50 prescribes the time limit within which an application for relief in respect of impressed stamps spoiled, can be made; different time limits have been specified for the purpose, namely: I. within two months of the date of the instrument II. in the case of a stamped paper on which no instrument has been executed by any of the parties thereto, within six months after the stamp has been spoiled
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Condt... Condt...
III stamped paper in which an instrument has been executed, within six months after the date of the instrument, or if it is not dated, within six months after the execution thereof by the person by whom it was first or alone executed:

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UNUSED FORMS
Chief Controlling Revenue Authority or the Collector if authorised by the Chief Controlling Revenue Authority, to allow refunds in cases where refunds of stamps on printed forms used by bankers, incorporated companies/bodies corporate if required, if for any sufficient reasons such forms have ceased to be required by the said banker, company or body corporate (Eg: cancellation of `1,000 notes/cancellation of stamp papers for registration of properties etc.,)
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MISUSED STAMPS
Section 52 deals with allowance for misused stamps and applies to both impressed and adhesive stamps in the following instances: 1.When any person has inadvertently used, stamp of a description other than that prescribed or has inadvertently used any stamp for an instrument not chargeable with any duty
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Contd.
II. When any stamp used for an instrument has been inadvertently rendered useless The Collector may, on application made within prescribed time being restamped with the proper duty, cancel and allow as spoiled the stamp so misused or rendered useless. In such case the Collector may give in lieu thereof a. other stamps of the same description and value
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Contd.
stamps of any other description to the same amount in value at his discretion, the same value in money, deducting ten naya paisa for each rupee or fraction of a rupee. (Eg: Deducting money when DD is cancelled)

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DEBENTURES
When any duly stamped debenture is renewed by the issue of a new debenture in the same terms, the Collector shall, upon application made within one month, repay to the person issuing such debenture, the value of the stamp on the original or on the new debenture whichever shall be less. Provided that the original debenture is produced before the Collector and cancelled by him in such manner as the State Government may direct.
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REFERENCE AND REVISION

The powers exercisable by a Collector shall in all cases be subject to the control of the Chief Controlling Revenue Authority. Further, if any Collector, acting under Sections 31, 40 or 41, feels doubt as to the amount of duty with which any instrument is chargeable, he may draw up a statement of the case, and refer it, with his own opinion thereon, for the decision of the Chief Controlling Revenue Authority (Eg: Subject to the approval of ROC consent of shareholders has been given)
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Contd..
Such authority shall consider the case and send a copy of its decision to the Collector, who shall proceed to assess and charge the duty (if any) in conformity with such decision Chief Controlling Revenue Authority may with its own opinion thereon to the High Court and the same shall be decided by not less than three Judges of the High Court and the majority decision shall prevail.

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PROSECUTION
The Collector has got the power notwithstanding anything contained in the order of the lower court, to prosecute a person if any offence against the Stamp Act which he considers that the person has committed in respect of such an instrument. The prosecution is instituted when he is satisfied that the offence is committed with an intention of evading the proper stamp duty
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CRIMINAL OFFENCES
Sections 62 to 72 deal with penalties for offences. The provisions are as under: 1.Drawing, making, issuing, endorsing or transferring, or signing otherwise than as a witness or promissory note without the same being duly stamped; or 2.executing or signing otherwise than as a witness without the same being duly stamped
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Contd
3. voting or attempting to vote under any proxy not duly stamped shall, for every such offence, be punishable with fine which may extend to five hundred rupees

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84

Contd
Any person required by Section 12 to cancel an adhesive stamp, and failing to cancel such stamp. shall be punishable with fine which may extend to one hundred rupees (Section 63). The criminal intention is necessary for an offence under this Section

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85

Contd
As per Section 64, any person who, with intent to defraud the Government a. executes any instrument in which all the facts are not fully and truly set forth b. being employed in or about the preparation of any instrument, neglects or omits fully all such facts and circumstances; c. does any other Act calculated to deprive the Government of any duty or penalty under this Act Here also, an intention to evade payment of proper stamp duty or intention to defraud the Government of its stamp revenue is necessary.
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Contd
Any person who being required to give a receipt, refuses or neglects to give the same with intent to defraud the Government shall be punishable with fine which may extend to one hundred rupees

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87

Contd
Any person shall be punishable with fine which may extend to Rs. 200/- if he a. receives, or takes credit for any premium or consideration for any contract of insurance and does not, within one month make out and execute a duly stamped policy of such insurance; b. makes, executes or delivers out any policy which is not duly stamped
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TAKING COGNIZANCE(To take notice of)

No prosecution shall be instituted without the sanction of the Collector or such other officer as the State Government generally or the Collector specially, authorises in that behalf The Chief Controlling Revenue Authority, or any officer authorised may stay any such prosecution or compound any such offence The amount of any such composition shall be recoverable as prescribed
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Contd.
A Magistrate other than a Presidency Magistrate or a Magistrate whose powers are not less than those of a Magistrate of the second class, shall try any offence under this Act

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MISCELLANEOUS PROVISIONS
Chapter VIII, containing Sections 73 to 78 deals with supplemental provisions regarding inspection of relevant registers, books, records, etc; to enter the premises for that purpose, powers of Government to frame rules for the sale and supply of stamps and to make rules generally to carry out the provisions of the Act.
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SCHEDULE
The Schedule to the Stamp Act prescribes the rates of stamp duties on instruments

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Questions

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