Possession Handed Over Before the Sale Deed Makes the Agreement a Conveyance: Supreme Court Rejects Appeal Against Stamp Duty Demand

In a crucial ruling Supreme Court of India upheld the impounding of an agreement to sell under the Bombay Stamp Act, 1958, dismissing an appeal that sought exemption from stamp duty. The Court held that when possession is handed over before the execution of the sale deed, the agreement is deemed to be a conveyance and attracts full stamp duty.

The bench of Justice J.B. Pardiwala and Justice R. Mahadevan upheld the Bombay High Court’s decision, which had confirmed the trial court’s direction to impound the agreement and recover the deficit stamp duty along with penalties. The Court ruled, “Stamp duty is on the instrument, not on the transaction. Whether possession is delivered before, at the time of, or after execution, the agreement to sell is a conveyance and must be stamped accordingly.”

The case arose from a 2003 agreement to sell a property in Ratnagiri, Maharashtra, involving Ramesh Mishrimal Jain (appellant) and Avinash Vishwanath Patne (respondent). The property in question was House No. 78/B/8 along with an adjoining room in Kasaba Khed, Khed Taluk.

The appellant, a tenant in the property, entered into an agreement to purchase it from the landlord’s mother for ₹11 lakhs. He paid ₹1 lakh as an advance and agreed to pay the balance within 11 months. However, when the sale deed was not executed, he filed a suit in 2012 for specific performance, seeking court intervention to enforce the sale.

The respondent contested the suit, arguing that the agreement was not properly stamped and should be impounded. He claimed that as per Explanation I to Article 25 of the Bombay Stamp Act, 1958, the agreement was a deemed conveyance and should have been stamped as such. The trial court in 2015 upheld this argument and directed the document to be impounded.

The Bombay High Court in 2019 upheld the trial court’s order, leading to the present appeal before the Supreme Court.

 “Once Possession Is Delivered, the Agreement Becomes a Conveyance”

The Supreme Court dismissed the appellant’s argument that the agreement was not a conveyance because possession remained with him as a tenant. The Court noted that the agreement explicitly stated that possession would continue with the appellant until ownership was transferred through a sale deed.

Referring to Explanation I to Article 25 of the Bombay Stamp Act, 1958, the Court held: “Where possession of the property is transferred or agreed to be transferred before, at the time of, or after execution of the agreement without executing a separate conveyance deed, the agreement to sell is deemed to be a conveyance and must be stamped accordingly.”

The Court dismissed the appellant’s contention that stamp duty should only apply when the final sale deed is executed, emphasizing that the law mandates payment at the stage when possession is transferred under the agreement itself.

Reliance on Precedents: Supreme Court Affirms Earlier Rulings on Stamp Duty
The Court relied on its landmark ruling in Veena Hasmukh Jain v. State of Maharashtra (1999) 5 SCC 725, where it was held that: “When an agreement provides for the transfer of possession of the property within a stipulated time, such an agreement is deemed to be a conveyance under the Stamp Act, and stamp duty must be paid accordingly.”

The Court also cited Shyamsundar Radheshyam Agrawal v. Pushpabai Nilkanth Patil (2024) 10 SCC 324, which reaffirmed that: “Stamp duty is levied on the instrument, not on the transaction. Whether the possession is given immediately or agreed to be given later, once possession is mentioned in the agreement, it becomes liable for full stamp duty.”

Tenant’s Possession and Ownership Transfer: No Exception Under the Stamp Act
The appellant argued that since he was already in possession as a tenant, the agreement did not create a fresh transfer of possession and hence, it should not be deemed a conveyance.

Rejecting this contention, the Court clarified: “Possession, whether as a tenant or as a prospective owner, changes its nature when an agreement to sell is executed. The relationship of the parties transforms from that of landlord-tenant to vendor-purchaser, triggering the obligation to pay stamp duty.”

The Court also dismissed the appellant’s reliance on tenancy laws, stating: “The agreement clearly stated that possession would remain with the appellant until the sale deed was executed. The change in jural relationship itself attracts stamp duty, even if the physical occupation of the property remains unchanged.”

The Supreme Court upheld the trial court’s and High Court’s decisions, directing the appellant to pay the required stamp duty and penalty. The Court clarified: “As per the second proviso to Article 25, if stamp duty is already paid on the agreement to sell, it shall be adjusted against the duty payable on the final conveyance. However, until the deficiency is cured, the document remains impounded and cannot be used in evidence.”

The appeal was dismissed, and the Supreme Court reaffirmed the principle that stamp duty laws must be strictly applied, and agreements that amount to conveyances must be stamped accordingly.

Conclusion: Supreme Court Strengthens Stamp Duty Enforcement
This ruling is a major precedent in property law, reinforcing that agreements to sell that include possession clauses are deemed conveyances and must be stamped accordingly. The Supreme Court has made it clear that attempts to evade stamp duty by structuring agreements as tenancy transactions will not be entertained.

By upholding the impounding of the agreement, the Court has sent a strong message to real estate transactions, ensuring that the state does not lose revenue due to attempts to bypass stamp duty requirements.

The decision also clarifies that stamp duty is a charge on the instrument itself, not merely on the nature of the transaction, ensuring that legal formalities are strictly enforced in property transactions.

Date of Decision: February 14, 2025