SC lays down code for stamp duty

The term fertiliser business included the plant and machinery and from the transfer date were to vest with Duncans. The conveyance deed to effectuate the transfer, mentioned in an earlier agreement by which plant and machinery were given over to Duncans, sought to give the impression that the deed related only to the land involved in the transaction. Stamp duty was calculated by the Duncans on the basis that what was sought to be conveyed by the deed was only land and not the plant and machinery.

The Registrar under the Stamp Act refused to register the conveyance deed on the ground that full details were not being supplied concerning the items in the deed. He accordingly referred the matter to the Collector for necessary action. The Collector took the plant and machinery into account. He levied a stamp duty of about Rs 37 lakh and a penalty of Rs 30 lakh. On revision the Chief Controlling Revenue Authority set aside the penalty and reduced the stamp fee to about Rs 36.68 lakh. Duncans challenged this in the high court which dismissed their plea. Accordingly Duncans appealed to the Supreme Court.

The apex court held that plant and machinery would not be treated as movables in such a transaction if the intention of the parties who embedded the machinery into the earth, the intention of the party selling the machinery and the very nature of the user of the machinery gave conclusions of immovable property. It was not the case of Duncans that the possession of plant and machinery was handed-over to it by ICI after dismantling the machinery. ICI had not embedded the machinery and plant with a view to dismantle and sell it. The apex court found that the deed had sought to convey the impression that what stood transferred was the land on which the plant and machinery stood.

But this was negated by the schedule annexed to the deed. The Schedule clearly showed the plant and machinery were standing on the land. Further the Income Tax application under S.269 UL 3 of the Income Tax Act clearly stated that the 8220;slump price8221; of Rs 70 crore was for sale of plant and machinery along with the land. To find out the real intention of the parties and to find out what actually has been conveyed, the court will look into a prior agreement, unless there is a categorical intention that a prior agreement is not to be incorporated into the deed though the deed refers to paragraphs of that agreement.

Accordingly the apex court held that merely because in some paras of the deed the fact of land being transferred is highlighted, and machinery is stated to have been handed over on a prior date, the court will not automatically conclude that the deed did not transfer the plant and machinery also. On the question of valuation of the plant and machinery, the court found that this had been arrived at on documents given by Duncans itself The court held that once it is convinced that the method adopted by the authorities for the purposes of valuation is based on relevant materials then it will not interfere with such a finding of fact.

The Supreme Court has tried to send a message to the corporate world of transparent corporate governance. This is clear from the fact that it dismissed the appeal of Duncans with costs. Will the corporate sector take this message and avoid unnecessary litigation for the cost of which it gets income tax deduction?