Karnataka High Court
The Chief Controlling Authority vs Texas Instruments India Limited on 18 September, 2003
Equivalent citations: AIR2004KANT70, ILR2003KAR4386, AIR 2004 KARNATAKA 70, 2003 AIR - KANT. H. C. R. 2987, 2004 A I H C 667, (2004) 14 ALLINDCAS 430 (KAR), (2003) ILR (KANT) (4) 4386, (2003) 6 KANT LJ 437, (2004) 17 INDLD 170, (2004) 1 KCCR 94
Bench: V.G. Sabhahit, H.G. Ramesh
ORDER
N.K. Jain, C. J.
1. This is a reference made under Section 54(1) of the Karnataka Stamp Act 1957 (hereinafter called 'the Act').
2. The essential facts leading upto this reference are as follows:
The instrument styled as lease deed dated 18.10.1996 executed by M/s. Golf View Homes a registered partnership firm as lessor and M/s. Texas Instruments India Limited as lessee, was presented for registration before Sub-Registrar Bangalore (South) Taluk. Said instrument is drawn up on stamp paper of Rs. 21,92,000/- Under the said document lessor has leased premises with 1,41,183 /- sq.ft. of the built up area for a period of 10 years on monthly rent of Rs. 11.25 per square foot for first 5 years and for next five years rent at escalation of 30%. The lessor received Rs. 3,81,19,410/- equalent to rent for 24 months as a refundable security deposit which is repayable by the lessor and will be adjusted in the rental for the last two years of lease period. The rent reserved at agreed rate for the first five years at the rate of Rs. 15,88,308/- per month would come to Rs. 9,52,98,525/- and for next five years at the rate of Rs. 20,64,800/- would come to Rs. 12,38,88,024/- and total rent reserved would come to Rs. 21,91,86,549/- and average annual rent would be 21,19,18,655/- and stamp duty of 10% Rs. 21,91,900/-was paid. Under Article 30 (a) of schedule to the Act and stamp duty of Rs. 100/- was paid on the refundable security deposit under Article 47 of the schedule to the Act. The said document was impounded under Section 33 of the Act on the ground that it was insufficiently stamped and matter was referred to the District Registrar under Section 37(2) for determination of the correct duty under Section 39 of the Act.
3. The Deputy Commissioner of Stamps, Bangalore (Urban) District, felt a doubt as to the correct amount of stamp duty to which the document is chargeable and wherefore the statement of case was drawn up and submitted to Chief Controlling Revenue Authority under Section 53(2) of the Act. The opinion was rendered on 18.5.1998, holding that the amount of Rs. 3,81,19,410/-deposited as a security deposit adjustable in the rental of the last 2 years of the lease period is to be treated as Advance under Article 30(c) of the Act and deficit stamp duty of Rs. 38,11,940/- is to be paid.
4. The claimant desired the matter to be referred to this Court as a statement of case of opinion under Section 54 of the Act and accordingly, this reference is made for seeking for opinion on the following questions:
1) Whether the distinction made by the CCRA in the impugned order between CHIEF CONTROLLING REVENUE AUTHORITY v. M.V. CHANDRASHEKAR AND ORS. (1985) 1 KLJ 99 and the present case is tenable especially since in the said case the Hon'ble High Court of Karnataka has held that in respect of refundable security deposit paid to secure performance by the Lessee of its obligations under the lease deed the appropriate stamp duty to be levied would be the stamp duty payable in respect of a security bond (Article 47), equivalent to Rs. 100/-. In the instant case also, the lessee has deposited a refundable security deposit with the lessor and the mere failure to mention in the lease deed that the security deposit was deposited to ensue the performance of the lessee's obligations under the lease deed, will not change the character of the security deposit.
2) Whether the stipulation in the lease deed that the refundable security deposit is adjustable against the rentals for the last two years of the lease period would cause the said sum of Rs. 3,81,19,410/- to partake the character of a premium or money advanced in addition to rent thus attracting stamp duty under Article 30(c) of the Karnataka Stamp Act, 1957, especially since the amount advanced is in the nature of a security deposit and remains as such with the lessor for the first eight years of the lease period and does not take on the character of an advance in addition to rent reserved. In fact the deposit amount is to be refunded as stipulated in the above mentioned clauses if the lease is terminated during the first eight years of the lease period. Only in the event of the lease continuing beyond eight years, will be security deposit be adjustable as part payment of rent for the last two years of the lease period. Hence, the security deposit becomes part advance rental for the last two years of the lease period, which will not fall within the purview, intent or language of Section 30(c) of the Karnataka Stamp Act, 1957.
3) Whether the levy of stamp duty on security deposit where the same is adjustable against rent is justified in law in view of the fact that the stamp duty having been charged on the basis of a 10 year lease, levying of stamp duty on the sum or Rs. 3,81,19,410/- which is adjustable against rent of the last two years, would amount to levy of stamp duty on lease rental twice over which is impermissible in law".
5. We have heard Sri. K.G. Raghavan the learned Counsel appearing for the claimant and Sri Parthasarathy, learned AGA., for Revenue.
6. Sri Parthasarathy, learned AGA., submitted that receipt of Rs. 3,81,19,410/- as security deposit adjustable in the rental for last two years, would attract additional duty under Article 30(c) of the Schedule to the Act as said amount is received as advance as rent for 9th and 10th year of lease would become due only during those years and amount is received in advance at the time of execution of lease deed on 18.10.1996. He has relied upon the decision of this Court in CRC No. 11781 dated 17.8.1994 relied upon by Revenue and submitted that stamp duty of only Rs. 100/- is paid on advance amount and wherefore demand of additional duty towards advance amount received is justified.
7. The learned Counsel appearing for the claimant Sri K.G. Raghavan submitted that amount of advance received under Clause 3.2 of the lease deed would operate as security deposit for first 8 years for prompt payment of rent and would be adjustable towards the rent of 9th and 10th year of lease and at any rate amount would be refundable if lease is cancelled before 10 years and amount would not go in to the pocket of the lessor. He has relied upon decision of full Bench of this Court in C.C.R.A. v. CHANDRASHEKAR AND ORS. and the decision of Delhi High Court in C.C.R.A. v. M.P BROKERS CO., AIR 1980 DELHI / 249 and further submitted that decision in CRC. No. 11/81 is not applicable to the facts of this case and wherefore stamp duty already paid is sufficient and demand of additional duty attracted under Article 30(c) of schedule to the Act is not justified as it would amount to levy of duty on rent amount twice, which is not permissible under law.
8. We have given anxious consideration to the contention of the learned Counsel for the parties and perused the decisions relied upon by them and carefully scrutinised the contents of the lease deed in question dated 18.10.1996.
9. It is clear from the material on record and contention of the parties that the question that is required to be determined and opinion to be furnished is limited to the question as to whether the amount received under Clause 3.2 of the lease deed would be money advanced in addition to rent reserved to attract duty under Article 30(c) of schedule to the Act which reads as follows:
Article 30 (c) : Description of Instrument:
Where the lease is granted for a fine or premium or for money advanced in addition to rent reserved.
The same duty as for a conveyance (No. 20) for a market value equal to the amount or value of such fine or premium or advance as set forth in the lease, in addition to the duty which would have been payable on such lease, if no fine or premium or advance had been paid or delivered.
10. Clause 3.1 and 3.2 of lease deed reads as follows:
"3.1: The monthly rental payable for the first five years of the lease is Rs. 11.25 (Rupees eleven and paise twentyfive only) per each square feet of the area of the building constructed on the Demised Premises of 1,41,183 square feet (One lakh forty one thousand one hundred and eighty three square feet only), the exact measurements whereof have been jointly measured and verified by the representatives of the parties and the accuracy whereof is hereby acknowledged. The lessee shall pay the monthly rent by the fifth day of the following month. Escalation of this lease rental shall be capped at 30% every five years of the lease. Further, the schedule property comprising not less than 6 acres 1 gunta only of land shall be furnished to the lessee for its use and enjoyment at no additional lease rental.
3.2: The lessor and lessee hereby acknowledged that the amount of Rs. 3,81,19,410/ equal to 24 months lease rental has been paid as a refundable security deposit which is repayable by the lessor and will be adjusted in the rental of the last two years of the lease period."
11. It is clear from the above said provisions that for attracting duty under Article 30(c) of schedule to the Act it is to be shown that money paid in advance i.e. prior to arising of liability on account of rent and that payment is in addition to rent reserved. Amount for which there is both liability and covenant to pay as rent cannot be termed as advance. The legal character of such amount paid is rent and merely because it is paid in advance under the covenant its character does not change. The term "money advanced" in Article 30(c) has to be construed ejusdem generis with other terms preceding namely fine or premium which would indicate that money advanced does not contain idea of repayment and indicative of the amount going irrevocably in to the pocket of the lessor. The object of addition of the words or for money advanced is apparently to regain transactions which are a combination of lease and mortgage and which are embodied in the form of a lease providing for payment of an advance.
12. The contents of the lease deed in the present case clearly shows that the amount of Rs. 3,81,19,410/- is received by the lessor on the date of lease as per covenant 3.2 of the instrument. The amount is equivalent to 24 months rent. The amount so received is termed as refundable security deposit which is repayable by the lessor and adjusted in the rental of the last two years of the lease period. Said amount represents less that 20% of rent reserved for the lease period. The amount will not irrevocably go into the pocket of the lessor, it will serve as security deposit for prompt payment of rent for first eight years and is refundable if lease is terminated before stipulated period and the amount will be adjusted towards rent for 9th and 10th years of lease. Wherefore, the amount received under the clause creates liability and covenant to pay as rent and the real effect of payment is to pay in advance the rent payable for the 9th and 10th year. The term "money advanced" does not connote the idea of repayment. Further, the payment of said amount would not be in addition to rent reserved as the lessee in view of said amount under Clause 3.2 is relieved of his liability to pay rent for 9th and 10th years of lease as he is entitled to call upon the lessor to adjust the amount towards rent for 9th and 10th year of lease. At any rate the transaction cannot be termed as combination of lease and mortgage. It is also clear from the calculation made for payment of stamp duty that rent reserved for 10 years as stipulated in the lease is taken for calculating average annual rent and wherefore sum of Rs. 3,81,19,410/ has also been taken into account while calculating average annual rent and imposition of further duty would only mean imposition of duty again on amount which has already suffered duty and this would be justified only if revenue is able to show that amount received as advance is in addition to rent reserved. The revenue is not justified in relying upon the decision of this Court in CRC.No. 11/81 (AIR 1985 KAR. 56) as in the said case this Court having regard to the fact that amount was received even before lease commenced, there was no stipulation for repayment or adjustment in rent and was in addition to rent reserved held that transaction would attract duty under Article 30(c) of schedule to the Act as is clear from observation made in para-28 which reads as follows:
"28. Rent could be reserved and the liability to pay rent could be incurred only after the commencement of the lease and the commencement of the lease, as explained above, would only be after the lessor handed over the distillery to the lessee and lessee erected the boiler and made the factory ready for commencing the work. That being so, it becomes amply clear that the entire sum of Rs. 8,00,000/- was paid in advance before the period of lease commenced and the liability for rent was incurred by the lessee. Such a sum paid in advance could only be as consideration for the grant of the lease and it clearly amounts to premium as defined under Section 105 of the TP Act. In a sense, it is also akin to money advanced in addition to the rent reserved. There is no stipulation, however, for the return of the advance or for its adjustment towards the end of the lease. Therefore, it is the nature of premium and we have no hesitation to hold that the advance of Rs. 8,00,000/- paid on the facts of the present case, under Clause (1) of the agreement clearly amounts to payment of premium and, as such, the case is covered under Article 30(c) of the Schedule to the Act".
(Underlining supplied)
13. In the decision of this Court in Chief Controlling Revenue Authority v. Chandrashekar and Ors. (1985(1) KLJ 99) this Court was considering the question as to whether amount was reserved under lease deed as security deposit for the proper maintenance of demised coffee estate and the amount was repayable in installment on due compliance of clause for maintenance of demised premises or adjustable towards damage or loss caused for lack of maintenance by lessee. The question referred was whether amount received under the said clause amounted to 'fine' or 'premium' for attracting duty under Article 30(c) of schedule to the Act and this Court held that duty under Article 30(c) was not attracted for the following reasons:
"Under this clause the lessee is called upon to make the said deposit with the lessor to ensure due performance of his obligations under the lease deed, namely, proper maintenance of the estate etc., during the lease period. In substance, the management of the estate is entrusted to the lessee, the details of which are specified in Clause 2. There is complete surrender of all the rights of the lessor in favour of the lessee during the lease period and the lessee is to make a deposit of Rs. 1,25,000/- with the lessor, as a security for the proper management of the estate and to indemnify the lessor in case of any loss or expenditure which the lessor may incur on account of the laches on the part of the lessee. The deposit amount is liable to be returned to the lessee in two installments, on a satisfactory discharge of his obligations under the lease deed.
In our considered view, this security deposit does not bear the characteristics of 'premium' or a 'fine' to fall within CI.(C) of Article30 of the Act, namely, lease granted for a fine or premium or for money advanced in addition to the rent reserved."
14. In view of the above said reasoning the inevitable conclusion would be that amount reserved under Clause 3.2 of lease deed in the present case is not money advanced in addition to rent reserved and does not attract duty under Article 30(c) of schedule to the Act and accordingly, we give our opinion to the questions referred as follows:
Q.No. 1: The duty paid on the amount reserved under Clause 3.2 of lease deed dated 18.10.1996 as refundable Security Deposit under Article 47 of schedule to the Act is appropriate.
Q.No. 2: The amount reserved as refundable Security Deposit under Clause 3.2 of lease deed dated 18.10.1996 is not money advanced in addition to rent reserved and does not attract duty under Article 30(c) of schedule to the Act.
Q.No. 3: The amount received under Clause 3.2 of lease deed dated 18.10.1996 having been charged on the basis of ten years lease for the purpose of calculating an average annual lease amount for payment of stamp duty cannot be levied with duty again as the instrument does not attract the provisions of Article 30(c) of the schedule to the Act.
The reference is answered accordingly. A copy of this order under the seal of the Court and signature of the Registrar shall be sent to the Chief Control Officer of Revenue Authorities as required under Section 56(2) of the Karnataka Stamp Act.