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I.C.I.C.I. v. State of Maharashtra
Factual and Procedural Background
The appeal concerns an agreement dated 13 June 1994 by which the respondents agreed to grant the appellants a long-term lease of certain land. The sole controversy is fiscal: whether this agreement attracted stamp duty under Article 36 of the Bombay Stamp Act, 1958, which taxes “lease … and any agreement to let” only when there is an “immediate and present demise” (Explanation III). The High Court had held the duty payable. The present judgment, delivered by the Supreme Court of India, reviews that conclusion.
Legal Issues Presented
- Whether the 13 June 1994 agreement constituted a “lease” within the meaning of Article 36 of the Bombay Stamp Act, 1958, thereby attracting stamp duty, or was merely an agreement for a future lease carrying no present charge.
Arguments of the Parties
Appellants' Arguments
- The document is only an agreement for a future lease; until execution of a formal lease the appellants are mere licensees.
- Clause 2 expressly denies any present demise and withholds any legal interest in the land.
- Because there is no “immediate and present demise,” Explanation III to Article 36 removes the instrument from the charging provision.
Respondents' Arguments
- In substance, the agreement itself effects a lease because it places the appellants in possession and requires payment of rent-like amounts.
- Accordingly, the instrument should be stamped as a lease under Article 36.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Associated Hotels of India Ltd. v. R. N. Kapoor, 1960 1 SCR 368 | Differentiates a lease (transfer of an interest in land) from a licence (mere permission to use). | Used to show that the agreement gives only a licence to enter and build, not a transferable interest; therefore it is not a lease. |
| State of Maharashtra v. Atur India (P) Ltd., JT 1994 (1) SC 640 | Distinction between a lease and an agreement for lease. | Cited to reinforce that a mere agreement to grant a lease in future is not itself a lease for fiscal purposes. |
Court's Reasoning and Analysis
1. The Court examined Clause 1, which grants the appellants only a licence to enter the land for three years to construct buildings; possession is purpose-specific and temporary.
2. Clause 2 explicitly disclaims any demise and states that no legal interest passes until a formal lease is executed and registered.
3. Clause 7 obliges the authority to grant, and the licensee to accept, an 80-year lease in the future, confirming the parties’ intention to execute a separate lease deed.
4. Clause 8 allocates costs for that future lease, further evidencing that the operative lease was yet to come.
5. Applying Explanation III to Article 36, an agreement is chargeable as a lease only if it effects an “immediate and present demise.” Because the present instrument withholds any such demise, Article 36 is inapplicable.
6. Relying on Associated Hotels and Atur India, the Court reiterated the conceptual divide between a licence/agreement for lease and a completed lease conveying an interest in land.
7. The parties have since executed a formal lease on 8 April 1999 and paid the requisite stamp duty on that document, underscoring that the earlier agreement was not itself a lease.
Holding and Implications
Appeal Allowed; High Court judgment set aside.
Direct Effect: The 1994 agreement is not liable to stamp duty under Article 36; the appellants are relieved of that fiscal burden. Broader Implication: The decision reaffirms that, under the Bombay Stamp Act, an agreement that postpones the transfer of a leasehold interest until a future deed is executed remains a non-chargeable licence or agreement for lease.
(1) The only narrow question in this appeal is whether in respect of an agreement of lease dated 13/6/1994 executed by the respondents in favour of the appellants, stamp duty under article 36 of the bombay stamp act, 1958 is payable. article 36 deals with “lease including an under-lease or sub-lease and any agreement to let or sub-let or any renewal of lease.” Explanation III of Article 36 which was in force at the material time, makes it clear that “an agreement of lease shall not be chargeable as a lease unless there is an immediate and present demise”.
(2) In the present case, the document is on the face of it an agreement to create a lease in future. It is, however, submitted by the respondents that in substance the document itself creates a lease. The document demises immediately and presents an interest in the land in favour of the appellants. If we examine the agreement under clause 1 of the agreement of lease, there is a clear provision that during the period of three years from the date of possession, the licensees (as the appellants are described), shall have a licence and authority only to enter upon the land for the purpose of erecting a building or buildings for the purpose of housing its offices and no other purpose, and until the grant of a lease, the licensee shall be deemed to be a bare licensee only of the said land at the same rent and subject to the same terms including liability for payment of rates, land revenue and taxes, as if the lease had been actually executed.
(3) Clause 2 expressly provides that the agreement does not demise any interest in land in favour of the appellants. Clause 2 is as follows:
“2 Not a demise.-Nothing contained in these presents shall be construed as a demise in law of the said land hereby agreed to be demised or any part thereof so as to give to the licensee any legal interest therein until the lease hereby contemplated shall be executed and registered, but the licensee shall only have a licence to enter upon the said land for the purpose of performing this agreement.”
(4) Clause 7 of the agreement is as follows:
have been erected in accordance with the term:: thereof and if the licensee shall have observed all the stipulations and conditions hereinbefore contained, the authority shall grant, and the licensee or his nominee subject to the following conditions shall accept a lease (which shall be executed by the parties in duplicate) of the said land and the building erected thereon for the term of 80 years from the date of possession on payment of ground rent at the following rates.............”
Ground rent The lessee shall have to pay annual ground rent at the following rates, payable annually in advance, without any deductions whatsoever, on the 10th of January in each and every year: S.No. Year of lease Rate of Rate of
ground rent ground rent
payable by payable by
lessee of lessee of
land to be land to be
used for used for
commercial residential
and paracommercial purpose
purpose and public
amenities.
1. From the Nil Nil
commencement
of the terms of
lease up to the
end of 3 years
2. From the 4th 1% of the premium Nil
year up amount
to the 20th year of the
term of lease.
3 From the
21st year up 2% of the premium Nil
term of lease, amount
4. From the
51st year of 3% of the premium Nil”
the term of amount
lease up to
the end of the term of
lease.
Hãj°v
(5) CLAUSE 8 requires that the lease, as and when executed in terms of clause 7, shall be prepared in duplicate and all costs, charges and expenses in that connection as also in connection with the execution of the agreement and its duplicate shall be paid by the licensee alone.
(6) Therefore, there is a clear intention of the parties to execute a document of lease in future. Until such document is executed, the status of the appellants is that of a licensee. In fact, we are informed by the appellants that pursuant to this agreement, a tease has, in fact, now been executed between the parties on 8/4/1999 and stamp duty amounting to Rs 5,45,30,600.00 has been paid by the appellants on the document of lease.
(7) Our attention has been drawn to a decision of this court in Associated Hotels Of India Ltd v. R.N Kapoor 1960 1 SCR 368 at page 383 where this court has made a distinction between a lease and a licence. Referring to section 105 of the transfer of property act, this court has observed that it defines a lease of immovable property as a transfer of a right to enjoy such property made for a certain time in consideration for a price paid or promised. A lease is, therefore, a transfer of an interest in land and the interest transferred is called the leasehold interest. It follows that the lessee gets that right to the exclusion of the lessor. Whereas section 52 of the indian easements act, defines a licence thus:
“52. Where one person grants to another, or to a definite number of other persons, a right to do, or continue to do, in or upon the immovable property of the grantor, something which would, in the absence of such right, be unlawful, and such right does not amount to an easement or an interest in the property, the right is called a licence.”
(8) Therefore, is a document gives only a right to use the property in a particular way or under certain terms, while it remains in possession and control of the owner thereof, it will be a licence. In the present case, the licensee has been put in possession only for the purpose of constructing a building or buildings. Under this document, no interest in the land is conveyed in favour of the appellants. The agreement does not create a lease, nor does it demise any interest in land in favour of the appellants. In this connection, a reference may also be made to subsequent decision of this court in State of Maharashtra v. Atur India (P) Ltd. JT 1994 (1) SC 640 where this court has made a distinction between a lease and an agreement for lease.
(9) Although it has been contended by the respondents that there is a demise of interest in the land under the said agreement, the agreement does not demise any such interest in the land. Clause 2 expressly sets out that this agreement is not to be construed as a demise in law of the said land so as to give to the licensee any legal interest in the land. article 36 of the bombay stamp act is, therefore, not attracted to the said document.
(10) In the premises, the appeal is allowed and the judgment of the High court is set aside.
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