Agreement Not Creating Present Demise Is A Licence; Not Chargeable To Stamp Duty As A Lease: Bombay High Court
The High Court held that where the instrument merely permits entry for limited purposes and contemplates execution of a lease in the future, it operates only as a licence, and such an agreement cannot be subjected to stamp duty chargeable on a lease under the stamp law.
The Bombay High Court has held that an agreement described as an “Agreement to Lease”, which does not bring about an immediate and present demise of the property, cannot be termed as a lease and is liable to be treated only as a licence for the purposes of stamp duty.
The Court was hearing a writ petition challenging orders passed by the Chief Controlling Revenue Authority and the Collector of Stamps, by which an agreement executed between the petitioner and CIDCO had been treated as a lease and subjected to stamp duty under Article 36 of Schedule I of the Maharashtra Stamp Act.
A Bench of Justice Abhay Ahuja, held: “Agreement To lease which does not create a present demise cannot be termed as a lease and is considered a license only and cannot be chargeable to stamp duty as a lease”.
Senior Advocate G.S. Hegde appeared for CIDCO, while the petitioner was represented by Tejas Gokhale, Advocate.
Background
CIDCO had introduced a scheme for allotment of developed residential plots in Navi Mumbai for the construction of staff housing by industries and corporate entities. Pursuant to the scheme, the petitioner was allotted a plot and paid the full premium in 1992.
An instrument titled “Agreement To Lease” was executed between CIDCO and the petitioner on 13 October 1995. Under the agreement, the petitioner was permitted to enter upon the land for a limited period for the construction of residential buildings, with a lease for 60 years contemplated to be executed upon fulfilment of stipulated conditions.
The Collector of Stamps initiated proceedings under the Stamp Act and held that the agreement was liable to be treated as a lease, raising a demand for deficit stamp duty, along with penalty and interest. This view was affirmed by the Chief Controlling Revenue Authority, leading the petitioner to approach the High Court.
Court’s Observation
The Bombay High Court examined the terms of the Agreement To Lease and noted that the instrument consistently described the petitioner as a licensee. The Court took note of Clause 2 of the agreement, which expressly stated that “nothing in these presents contained shall be construed as demise in law of the said land… so as to give to the Licensee any legal interest therein until the lease hereby provided shall be executed and registered.”
The Court observed that the agreement granted only a licence for a period of four years to enter upon the land for construction purposes, and that the lease was contemplated to be executed only upon certification of completion of works and fulfilment of contractual conditions.
Relying on precedents, including State of Maharashtra v. Atur India Pvt. Ltd. and the decisions of this Court in Jasubhai Business Services Pvt. Ltd., the High Court reiterated that an agreement to lease which does not create a present demise does not constitute a lease.
The Court further rejected the contention that deletion of Explanation III to Article 36 of the Stamp Act altered the legal position, holding that “if parties enter into an agreement to let and from a holistic reading of the agreement or other surrounding circumstances that there was immediate and present demise made under an agreement, then irrespective of the explanation, the instrument would be chargeable with stamp duty, however, if the nomenclature describes the agreement as ‘agreement to let’ or ‘agreement to lease’ or ‘agreement for lease’ but there is no present demise, the document will not be chargeable with stamp duty”.
The Court concluded that “the said agreement does not create a present demise in favour of the Petitioner and the status of the Petitioner as licensee would only change only after the actual execution of the lease deed which would be executed only after the works as contemplated in the agreement are fulfilled and therefore the said agreement cannot be termed as a lease”.
Conclusion
Holding that the agreement was only an agreement to lease and operated merely as a licence, the Bombay High Court set aside the order passed by the Chief Controlling Revenue Authority, as well as the order of the Collector of Stamps and the consequential demand notice.
The writ petition was accordingly allowed.
Cause Title: Deepak Fertilisers And Petrochemicals Corporation Limited v. The Chief Controlling Revenue Authority & Others (Neutral Citation: 2025:BHC-AS:56115)
Appearances
Petitioner: Tejas Gokhale, Advocate, instructed by Argus Partners.
Respondents: Senior Advocate G.S. Hegde, P.M. Bhansali and Arafat Siddique, Advocates. P.J. Gavhane, AGP.