Stamp Duty Leviable on Agreement to Sell When Possession Follows: Supreme Court Ruling

Introduction

In a significant judgment delivered on February 14, 2025, the Supreme Court of India clarified a crucial aspect of stamp duty law that has far-reaching implications for property transactions across the country. The case of Ramesh Mishrimal Jain v. Avinash Vishwanath Patne & Anr. [1] established definitively that agreements to sell immovable property become subject to stamp duty as conveyances when possession is transferred to the buyer, regardless of whether the formal sale deed has been executed. This ruling reinforces the fiscal principles underlying the Maharashtra Stamp Act, 1958 (formerly known as the Bombay Stamp Act, 1958) and provides much-needed clarity for property buyers, sellers, and legal practitioners navigating real estate transactions in Maharashtra and other states with similar legislative provisions.

The judgment, authored by Justice R. Mahadevan and concurred with by Justice J.B. Pardiwala, addressed a long-standing debate about when stamp duty liability arises in property transactions where agreements to sell are executed but the actual conveyance deed follows later. The court’s decision underscores a fundamental principle: stamp duty is levied on instruments, not transactions, and the nature of an instrument must be determined by its substance rather than its form or nomenclature.

Background of the Case

The dispute originated from a property transaction in Ratnagiri, Maharashtra, involving an agreement to sell executed on September 3, 2003. The appellant, Ramesh Mishrimal Jain, was already occupying the disputed property as a tenant when he entered into an agreement to purchase it from the mother of the first respondent, Avinash Vishwanath Patne. The agreement was executed on a stamp paper worth merely fifty rupees, far below the stamp duty required for a conveyance under the Maharashtra Stamp Act.

The property in question comprised House No. 78/B/8 measuring 18 x 9 feet and an adjoining room measuring 9 x 3 feet, situated at Paiki Village Kasaba Khed, Khed Taluk, within the limits of Khed Municipal Council, Maharashtra. The agreed consideration for the property was eleven lakh rupees, with an advance payment of one lakh rupees made by the appellant at the time of agreement execution. The agreement stipulated a timeline for the execution of the sale deed, after which possession on ownership basis would be transferred to the buyer.

When the sale transaction did not materialize as per the terms of the agreement, the appellant filed a suit for specific performance before the Court of Civil Judge, Senior Division, Ratnagiri. In response, the respondents filed an application under Section 34 of the Maharashtra Stamp Act seeking to impound the agreement to sell document on the grounds that it was not adequately stamped. The respondents contended that stamp duty of forty-four thousand rupees was required to be paid, along with a penalty of one lakh thirty-one thousand eight hundred fifty rupees.

The Appellant’s Arguments

The appellant advanced several arguments challenging the applicability of stamp duty to the agreement to sell. His primary contention centered on the interpretation of Explanation I to Article 25 of Schedule I of the Maharashtra Stamp Act. He argued that this provision applied only when there was either an actual transfer of possession or an explicit agreement to transfer possession pursuant to the agreement to sell itself.

According to the appellant’s counsel, the agreement clearly stated that he was in possession of the property in his capacity as a tenant, which was legally distinct and independent from any possessory rights that might arise from the agreement to sell. The appellant emphasized that the agreement explicitly mentioned that possession on ownership basis would only be transferred upon execution of the sale deed, and until such time, his possession would continue as a tenant. An extension agreement dated July 28, 2004, further reiterated this position, confirming that the appellant’s possession would remain on a monthly tenancy basis until the sale deed was executed.

The appellant’s legal team argued that when transfer of possession is linked to a future contingent event such as execution of a sale deed, the agreement cannot be deemed to be a conveyance for stamp duty purposes. They submitted that in cases where possession remains with the seller until the sale deed is executed, or where the buyer is already in possession under a different legal capacity such as tenancy, the agreement to sell cannot be equated with a conveyance. The conditions necessary for application of Explanation I to Article 25, they contended, were not satisfied: no possession was transferred under the agreement to sell; no agreement to transfer possession existed until the sale deed would be executed; and the appellant’s possession remained that of a tenant, legally distinct from possessory rights arising from ownership.

The Respondents’ Counter-Arguments

The respondents presented compelling counter-arguments grounded in established legal principles and judicial precedents. Their counsel emphasized that under Article 25 of Schedule I of the Maharashtra Stamp Act, an agreement to sell must be treated as a conveyance if possession is either handed over immediately upon execution of the agreement or agreed to be transferred within a specified timeframe.

The respondents highlighted a crucial factual aspect: the appellant was already in possession of the property as a tenant, and according to the agreement to sell, this possession was to be converted into ownership-based possession within eleven months or such extended time as agreed between the parties. This arrangement, they argued, brought the agreement squarely within the ambit of Explanation I to Article 25 of Schedule I, thereby making it a deemed conveyance liable for stamp duty as provided under the Act.

To substantiate their position, the respondents relied on two landmark Supreme Court judgments. The first was Veena Hasmukh Jain and another v. State of Maharashtra and Others [2], where the apex court categorically held that stamp duty is levied on the instrument and not on the transaction. The second precedent cited was Shyamsundar Radheshyam Agrawal v. Pushpabai Nilkanth Patil [3], which reinforced the principle that the character and duty liability of an instrument must be determined by its content and effect rather than its formal execution or completion.

The respondents also pointed to the practical reality that the appellant had retained possession of the property continuously and had even filed a suit for specific performance of the agreement to sell, seeking transfer of ownership. Simultaneously, the first respondent had filed a separate suit for eviction and recovery of possession of the property. These concurrent proceedings, the respondents argued, clearly established that the appellant was in possession of the property and that the agreement to sell had created possessory rights that required proper stamp duty payment.

Legal Framework: The Maharashtra Stamp Act, 1958

The Maharashtra Stamp Act, 1958, is the primary legislation governing stamp duties in the state of Maharashtra. The Act’s fundamental principle, as articulated in Section 3, is that stamp duty is levied on instruments and not on transactions. This distinction is crucial because it means that the duty liability is determined by the nature and content of the document itself, regardless of whether the transaction it evidences is ultimately completed.

Article 25 of Schedule I to the Act deals with conveyances and prescribes the applicable stamp duty rates. The term “conveyance” is defined broadly to include every instrument by which property, whether movable or immovable, is transferred to or vested in any person inter vivos, except in cases specifically provided for elsewhere in the Schedule.

The critical provision in the present case is Explanation I to Article 25, which was inserted to address situations where agreements to sell might effectively operate as conveyances despite not being formally labeled as such. Explanation I states: “For the purposes of this article, where in the case of agreement to sell an immovable property, the possession of any immovable property is transferred or agreed to be transferred to the purchaser before the execution, or at the time of execution, or after the execution of such agreement without executing the conveyance in respect thereof, then such agreement to sell shall be deemed to be a conveyance and stamp duty thereon shall be leviable accordingly.”

This Explanation contains two important provisos. The first proviso states that the provisions of Section 32-A of the Act shall apply mutatis mutandis to such agreements deemed to be conveyances. Section 32-A deals with the determination of market value for stamp duty purposes. The second proviso addresses situations where a conveyance is subsequently executed pursuant to the agreement to sell, providing that stamp duty already paid on the agreement (deemed to be a conveyance) shall be adjusted against the total duty leviable on the eventual conveyance. This ensures that parties are not required to pay stamp duty twice on the same transaction.

The Doctrine of Part Performance: Section 53A of the Transfer of Property Act, 1882

Central to the Supreme Court’s reasoning in this case was the application of Section 53A of the Transfer of Property Act, 1882. This provision embodies the equitable doctrine of part performance and provides crucial protection to transferees who have acted on the basis of an agreement for transfer of immovable property.

Section 53A provides: “Where any person contracts to transfer for consideration any immoveable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty, and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract, and the transferee has performed or is willing to perform his part of the contract, then, notwithstanding that where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefor by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract.”

The significance of this provision lies in its recognition that possession taken pursuant to a contract for sale of immovable property creates equitable rights that deserve legal protection, even if the formal requirements of transfer have not been completed. When a transferee takes possession under an agreement to sell and pays or is willing to pay the consideration, the law protects that transferee from being dispossessed by the transferor, subject to certain conditions being fulfilled.

The Supreme Court in the present case recognized that when possession is admittedly with the purchaser even before the date of the agreement, or is transferred pursuant to it, this implies acquisition of possessory rights protected under Section 53A. These possessory rights, once created, attract the obligation to pay proper stamp duty on the instrument that creates them. The court noted that the appellant’s possession of the property, regardless of whether it initially arose from a tenancy relationship, was being continued and converted into ownership-based possession through the agreement to sell. This transformation of the nature of possession triggered the stamp duty liability.

The Supreme Court’s Analysis and Reasoning

The Supreme Court began its analysis by framing the core issue: whether the appellant was liable to pay stamp duty and penalty on the agreement to sell dated September 3, 2003. The court acknowledged the appellant’s specific contention that the agreement clearly stated possession was on a rental basis and would not form part of the sale transaction, with ownership-based possession to be given only upon completion of the sale transaction and execution of the sale deed.

However, the court firmly rejected this argument by reiterating a fundamental principle of stamp duty law: stamp duty is levied on the instrument, not on the transaction. Furthermore, the court emphasized that it is immaterial whether possession of the property is handed over at the time of execution of the agreement to sell or whether it is agreed to be transferred at a future date. What matters is the substance of what the agreement achieves, not the form it takes or the labels attached to different aspects of the arrangement.

The court analyzed the specific clauses of the agreement to sell executed between the appellant and the mother of the first respondent. The agreement stated: “this property is in your occupation on rental basis and it will not be part of the sale transaction. After completion of sale transaction, the possession of the said property will be given to you on the ownership basis.” Additionally, there was a clause providing a timeline for execution of the sale deed.

The Supreme Court observed that since possession was admittedly with the appellant even before the date of the agreement, this implied acquisition of possessory rights protected under Section 53A of the Transfer of Property Act. The agreement to sell included a clause confirming that physical possession had already been handed over to the appellant, regardless of the basis of such possession. This satisfied the requirement to treat the instrument as a conveyance within the meaning of Explanation I to Article 25 of Schedule I of the Maharashtra Stamp Act, with only the formality of executing the sale deed remaining.

The court particularly noted that the appellant had filed a suit for specific performance of the agreement to sell against the respondents, while the first respondent had filed a separate suit seeking eviction of the appellant from the property. Both suits were pending before competent courts. The existence of these parallel proceedings clearly established that the appellant was in possession of the property and that the agreement to sell had created possessory rights that necessitated payment of proper stamp duty.

Judicial Precedents: Building on Established Principles

The Supreme Court’s decision was firmly grounded in well-established judicial precedents that have interpreted similar provisions in the Maharashtra Stamp Act and other state stamp acts. The court extensively relied on two key judgments that had dealt with identical legal issues.

In Veena Hasmukh Jain and another v. State of Maharashtra and Others [2], decided on January 28, 1999, the Supreme Court had addressed the question of whether an agreement to sell could be treated as a document of conveyance liable for levy of stamp duty. That case involved agreements for sale of flats covered by the Maharashtra Ownership Flats Act. The court held that duty in respect of an agreement covered by Explanation I to Article 25 is leviable as if it is a conveyance. The conditions to be fulfilled are that if there is an agreement to sell immovable property and possession of such property is transferred to the purchaser before execution, at the time of execution, or subsequently without executing any conveyance, such agreement to sell is deemed to be a conveyance.

The Veena Hasmukh Jain judgment emphasized that if the legislature thought it appropriate to collect duty at the stage of the agreement itself when certain conditions are fulfilled, rather than postponing collection until completion of the transaction by execution of a conveyance deed, this was a valid exercise of legislative power. The court observed that when substantial conditions of a conveyance have already been fulfilled, such as passing of consideration and delivery of possession, with only the formality of execution of a sale deed remaining, the state is entitled to charge stamp duty at the agreement stage itself.

The second crucial precedent was Shyamsundar Radheshyam Agrawal v. Pushpabai Nilkanth Patil [3], decided in 2024. This case dealt with multiple agreements for sale executed at different times between different parties. The Supreme Court in that judgment reiterated that if an agreement is entered into and that agreement itself contemplates the delivery of possession of the property within a stipulated time, such agreement should be deemed to be a conveyance for purposes of duty leviable under the Maharashtra Stamp Act. The court noted that in documents where there was a clause for conveyance and possession was admittedly handed over on the date of the agreement, this implied acquisition of possessory rights protected under Section 53A of the Transfer of Property Act, which requires payment of proper stamp duty and registration as mandated under Section 17 of the Registration Act, 1908.

The court also referred to the Andhra Pradesh High Court decision in B. Ratnamala v. G. Rudramma, which provided insightful analysis of the expressions “followed by or evidencing delivery of possession” in the context of stamp duty provisions. The High Court in that case observed that stamp duty legislation being fiscal statutes, the plain language of the section as per its natural meaning is the true guide, and no inferences, analogies or presumptions can have any place. The Andhra Pradesh High Court held that an agreement containing specific recital of delivery of possession or indicating delivery of possession even in the past is liable for stamp duty as a sale under the relevant explanation to the stamp duty provision.

Practical Implications for Property Transactions

The Supreme Court’s decision has significant practical implications for property transactions in Maharashtra and other states with similar stamp duty provisions. The ruling clarifies that parties to an agreement to sell cannot avoid stamp duty liability merely by structuring the agreement to defer formal transfer of possession until execution of the sale deed, if the buyer is already in possession under any capacity or if possession is agreed to be transferred pursuant to the agreement.

For property buyers, this means that adequate stamp duty must be paid at the time of executing an agreement to sell if the agreement contemplates transfer of possession before the final sale deed is executed. Failure to pay appropriate stamp duty can result in the document being impounded, making it inadmissible as evidence until the deficit duty and penalty are paid. This can create serious complications if the buyer later seeks to enforce the agreement through a suit for specific performance, as the agreement itself would not be admissible in evidence without proper stamping.

For sellers, the judgment provides clarity that they cannot be compelled to execute a sale deed based on an inadequately stamped agreement to sell. If a buyer has failed to pay proper stamp duty on an agreement that operates as a deemed conveyance due to transfer of possession, the seller can raise this objection, potentially leading to impounding of the document and imposition of penalties on the buyer.

The decision also has implications for tenants who subsequently enter into agreements to purchase the property they are occupying. The Supreme Court’s reasoning makes it clear that even though such buyers may already be in possession as tenants, the agreement to convert that tenancy-based possession into ownership-based possession triggers stamp duty liability as a conveyance. The court rejected the argument that possession as a tenant could be legally distinguished from possession pursuant to an agreement to sell for purposes of determining stamp duty liability.

Real estate professionals, including lawyers, property consultants, and registration authorities, must now ensure that agreements to sell are properly stamped based on the substance of the arrangement rather than its form. If an agreement provides for transfer of possession before execution of the sale deed, or if the buyer is already in possession and the agreement contemplates conversion of that possession into ownership-based possession, the agreement must be stamped as a conveyance at the applicable rates.

Revenue Considerations and Policy Objectives

The Supreme Court’s interpretation of the stamp duty provisions serves important revenue objectives for the state. By requiring stamp duty to be paid at the earliest point when possessory rights are created through an agreement to sell, rather than waiting until a formal conveyance deed is executed, the state can secure its revenue at an earlier stage. This approach reduces the risk of revenue loss that might occur if transactions are not ultimately completed through execution of a formal sale deed.

The court in Veena Hasmukh Jain had noted that the object of equating an agreement to sell at par with a conveyance in specified circumstances was to realize revenue at the earliest point of time. This policy objective is consistent with the fiscal nature of stamp duty legislation, which aims to generate revenue for the state from instruments that effect or evidence property transfers.

The Maharashtra Stamp Act’s framework, as interpreted by the Supreme Court, ensures that parties cannot avoid or defer stamp duty liability through clever structuring of agreements. If the substance of an arrangement is that possessory rights are being transferred through an agreement to sell, stamp duty must be paid on that agreement regardless of whether the parties have labeled it as merely an agreement or have provided that formal title transfer will occur through a separate conveyance deed later.

The second proviso to Explanation I to Article 25 addresses potential double taxation concerns by providing that stamp duty already paid on an agreement deemed to be a conveyance shall be adjusted against duty payable on the eventual conveyance deed. This ensures that parties pay stamp duty only once on the transaction, but requires them to pay it at the stage when possessory rights are transferred rather than waiting until formal title transfer.

The Procedure of Impounding and Its Consequences

The Supreme Court’s judgment also provides important guidance on the procedure and consequences of impounding inadequately stamped documents. Section 34 of the Maharashtra Stamp Act empowers courts and persons in charge of public offices to examine documents produced before them and, if such documents are not duly stamped, to impound them.

In the present case, the respondents had filed an application under Section 34 seeking to impound the agreement to sell on grounds that it was executed on a stamp paper of only fifty rupees when stamp duty of forty-four thousand rupees was required. The trial court allowed this application and directed that the impounded document be sent to the Registrar of Stamps for recovery of deficit stamp duty and penalty.

When a document is impounded, it cannot be used as evidence in any court proceedings until the deficit duty and penalty have been paid. This creates a significant practical problem for parties seeking to enforce such documents. In the present case, the appellant had filed a suit for specific performance of the agreement to sell, but the agreement itself was impounded and could not be admitted in evidence to prove his case until proper stamping was completed.

The Supreme Court clarified that until the defect of inadequate stamping is cured by satisfying the requirements under Section 34 of the Act, the impounded document cannot be used in evidence. This reinforces the importance of ensuring proper stamping at the time of execution of agreements to sell, particularly when such agreements contemplate transfer of possession.

The court also noted that recovery would be restricted to the extent of the difference in stamp duty along with the entire penalty from the date of execution of the agreement to sell until the date of payment of stamp duty. If stamp duty is already paid or recovered on the agreement to sell, the second proviso to Article 25 provides that the same shall be deducted while computing stamp duty payable when the sale deed is eventually executed.

Distinction Between Possession as Tenant and Possessory Rights Under Agreement to Sell

One of the key arguments advanced by the appellant was that his possession of the property should be viewed solely as possession in his capacity as a tenant, which was legally distinct from possession that might arise from the agreement to sell. The appellant contended that the agreement explicitly stated that possession on ownership basis would be transferred only upon execution of the sale deed, and until then, his possession continued to be that of a tenant.

The Supreme Court rejected this argument, holding that the substance of the arrangement must prevail over its form. The court observed that the agreement to sell included a clause confirming that physical possession had already been handed over to the appellant, regardless of the basis of such possession. What mattered was not the label attached to the possession but the fact that the agreement contemplated conversion of the appellant’s existing possession into ownership-based possession.

This aspect of the court’s reasoning draws support from the analysis in B. Ratnamala v. G. Rudramma, where the Andhra Pradesh High Court had dealt with a similar situation involving conversion of a tenant into a purchaser. The High Court in that case observed that even though there may not be a redelivery of possession as a tenant and fresh delivery to the same person as a purchaser, the factum of change of relationship certainly leads to the inference of a change in the nature of possession. The court noted that this could be considered as symbolic delivery, which may amount to actual delivery in given circumstances.

The Supreme Court in the present case adopted similar reasoning, emphasizing that the agreement to sell contemplated transformation of the nature of possession from tenancy-based to ownership-based. This transformation, coupled with the agreement to pay consideration for purchase of the property, created possessory rights protected under Section 53A of the Transfer of Property Act, which in turn triggered stamp duty liability under Explanation I to Article 25 of the Maharashtra Stamp Act.

Conclusion and Final Observations

The Supreme Court’s judgment in Ramesh Mishrimal Jain v. Avinash Vishwanath Patne & Anr. represents an important clarification of stamp duty law in the context of agreements to sell immovable property. By affirming that stamp duty is levied on instruments rather than transactions, and by emphasizing that the substance of an arrangement prevails over its form, the court has provided clear guidance to parties involved in property transactions.

The decision reinforces several key principles. First, agreements to sell that contemplate transfer of possession before execution of a formal conveyance deed are deemed to be conveyances for stamp duty purposes and must be stamped accordingly. Second, it is immaterial whether possession is transferred before, at the time of, or after execution of the agreement to sell; what matters is that possession is transferred or agreed to be transferred without execution of a conveyance deed. Third, the nature of prior possession (such as possession as a tenant) does not shield the agreement from stamp duty liability if the agreement contemplates conversion of that possession into ownership-based possession.

The judgment also clarifies the interplay between Section 53A of the Transfer of Property Act and Explanation I to Article 25 of the Maharashtra Stamp Act. When possession is taken or continued pursuant to an agreement to sell, possessory rights protected under Section 53A are created, and these rights attract stamp duty liability on the instrument creating them.

For legal practitioners, the decision emphasizes the importance of careful drafting of agreements to sell and ensuring proper stamping at the time of execution. For buyers and sellers, it underscores the need to understand their stamp duty obligations and to fulfill them promptly to avoid complications in enforcement of their rights. For revenue authorities, the judgment provides clear authority for treating agreements to sell as conveyances in appropriate circumstances and recovering stamp duty accordingly.

The decision ultimately serves the dual purpose of protecting the state’s revenue interests while providing clarity and predictability in property transactions. By requiring stamp duty to be paid at the stage when possessory rights are created, rather than waiting until formal title transfer, the law ensures timely revenue collection while also making the rights and obligations of parties to property transactions clearer and more definite.

References

[1] Ramesh Mishrimal Jain v. Avinash Vishwanath Patne & Anr., 2025 INSC 213, available at https://api.sci.gov.in/supremecourt/2020/8427/8427_2020_13_1501_59451_Judgement_14-Feb-2025.pdf 

[2] Veena Hasmukh Jain and another v. State of Maharashtra and Others, (1999) 5 SCC 725, available at https://indiankanoon.org/doc/129955674/ 

[3] Shyamsundar Radheshyam Agrawal v. Pushpabai Nilkanth Patil, (2024) 10 SCC 324, available at https://www.livelaw.in/supreme-court/bombay-stamp-act-agreement-to-sell-attracts-stamp-duty-if-possession-is-granted-supreme-court-283993 

[4] Transfer of Property Act, 1882, Section 53A, available at https://indiankanoon.org/doc/221518/ 

[5] Maharashtra Stamp Act, 1958, available at https://prsindia.org/files/bills_acts/acts_states/maharashtra/1958/Act%2060%20of%201958%20MH.pdf 

[6] LiveLaw, “Bombay Stamp Act | Agreement To Sell Attracts Stamp Duty If Possession Is Granted: Supreme Court,” February 14, 2025, available at https://www.livelaw.in/supreme-court/bombay-stamp-act-agreement-to-sell-attracts-stamp-duty-if-possession-is-granted-supreme-court-283993 

[7] Bar and Bench, “Stamp duty payable on instrument, not on transaction, observes Supreme Court,” available at https://www.barandbench.com/view-point/stamp-duty-payable-on-instrument-not-on-transaction-observes-supreme-court 

[8] CaseMine, “Agreement to Sell with Possession Deemed a Conveyance for Stamp Duty: Supreme Court Of India,” available at https://www.casemine.com/commentary/in/agreement-to-sell-with-possession-deemed-a-conveyance-for-stamp-duty/view 

[9] Lexology, “Agreement to sell granting possession of immovable property must be treated as a conveyance for stamp duty purposes,” available at https://www.lexology.com/library/detail.aspx?g=cefaf538-7882-4d46-bf9d-5e6f4570e5ab