On July 26, 2023, the Inspector General of Registration and Controller of Stamps, State of Maharashtra (IGR) issued a circular based on the order issued by the Bombay High Court in Writ Petition (OS) 4575/2022, wherein it dealt with the question of stamp duty payable on Permanent Alternate Accommodation Agreement (PAAA).
In this case, the Bombay High Court quashed and set-aside the earlier circulars issued by the IGR dated June 23, 2015 and March 30, 2017 and held that once the development agreement is fully stamped, the instrument executed between the members of the society with the developer for the purpose of availing permanent alternate accommodation cannot be separately assessed and be subject to payment of stamp duty beyond Rs 100, which is the requirement mentioned in section 4(1) of Maharashtra Stamp Act, 1958, if the same is related to rebuilt premises in lieu of the old premises even if the agreement records additional area available to a member, free of cost, as the same is not a purchase or transfer.
Previously, the IGR vide its circular dated June 23, 2015 had clarified that if the development agreement is executed only between the society and developer, the document to transfer the premises, which is for the personal benefit of the member of the society, cannot be construed as an incidental agreement and shall be treated as an independent agreement and stamp duty shall be levied on the construction costs for the area approved by the housing society for the premises to be transferred.
Further, the IGR vide its circular dated March 30, 2017 had stated that in case of fulfilment of the below conditions, the PAAA shall be treated as incidental document to the original development agreement and provisions of section 4(1) of the Maharashtra Stamp Act, 1958 shall be applicable:
- Tripartite development agreement executed between the society, member and developer;
- Clause to be incorporated in the tripartite development agreement with respect to executing a separate transfer document of new flat in favour of each member;
- Limited objective of transferring the built-up area in the transfer document in favour of the member as per terms of the tripartite development agreement; and
- Society should be a consenting party in the transfer document executed in favour of the individual member.
Aggrieved by the aforementioned circulars, several petitions were filed in the Bombay High Court.
Relevant provision of the Maharashtra Stamp Act, 1958:
As per Article 5(g-a)(i), if the instrument is relating to giving authority or power to a promoter or a developer, by whatever name called, for construction on, development of or, sale or transfer (in any manner whatsoever) of, any immoveable property, then the same duty as is leviable on a conveyance under clauses (b) or (c), as the case may be, of article 25, on the market value of the property shall be applicable.
As per Section 4(1), in case of any development agreement, sale, mortgage or settlement, several instruments are employed for completing the transaction, the principal instrument only shall be chargeable with the duty prescribed in Schedule-I for the conveyance, development agreement, mortgage or settlement and all other instruments shall be chargeable with a duty of Rs 100 instead of the duty (if any) prescribed for it in that Schedule.
In the verdict delivered, the bench, comprising of Justice Gautam Patel and Justice Neeta Gokhale, observed as follows:
A development agreement executed between society and developer for development of the society’s property requires to be stamped;
It’s optional for the individual members to sign the development agreement;
It’s optional for the society to sign the PAAA;
Once the development agreement is stamped, the PAAA cannot be assessed separately for payment of stamp duty beyond Rs 100 as mentioned in section 4(1) of the Maharashtra Stamp Act, 1958, if it relates to the rebuilt or reconstructed premises in lieu of the old premises by the members, even if the PAAA includes additional area available free of cost to the existing members.
Based on the above and as per the directions of the Bombay High Court, the IGR vide its circular dated July 26, 2023, quashed the earlier circulars dated June 23, 2015 and March 30, 2017 recording the above-mentioned findings.
The key takeaway is that the aforementioned order of the Bombay High Court and the circular will ensure that stamp duty is not paid on the same transaction twice and will further boost redevelopment of societies by making the process quicker and more economical.
