A concession agreement is a contractual arrangement between a private party (Concessionaire) and a Concessioning Authority (CA)1, wherein the CA grants the private party with a right to design, construct, repair, maintain and/or operate a public infrastructure in exchange for milestone-based payments (especially for agreements regarding design and construction obligations) and/or revenue collection rights (prevalent in long-term infrastructure projects which typically entail operation of the asset by the Concessionaire). The primary theme across concession agreements is that the CA licenses rights to the project and its assets for a fee; however, in some instances, the agreement may transfer these rights on a leasehold basis instead of licensing.
Whether a concession agreement would constitute a lease or a license, and the impact of the revenue model on this classification, are vital considerations for calculating the applicable stamp duty, that can have a significant financial impact on capital-intensive projects. In Rewa Tollway Pvt Ltd v. State of Madhya Pradesh & Ors,2 the Supreme Court of India upheld the decision of the Madhya Pradesh High Court which classified a concession agreement for construction of roads and bridges on the Build, Operate and Transfer model (BOT model) and the attendant right to collect toll by the Concessionaire as an instrument of lease under the Indian Stamp Act, 1899 (Stamp Act) and the Transfer of Property Act,1882 (TP Act). This article attempts to clarify some of the pertinent points regarding the classification of concession agreements as instruments of lease or licence and analyses the implication of the Rewa Tollway judgment on payment of stamp duty on such agreements.
Section 105 of the TP Act defines 'lease' as an express or implied transfer, whether for a fixed term or in perpetuity, in exchange of price or other consideration. The Stamp Act, under Section 2(16) expands upon this definition to include lease of immovable property as well as instruments like 'patta', 'kabuliyat', and any documents through which tolls are collected. Additionally, Section 2(14) of the Stamp Act defines 'instrument' broadly as any document that creates, transfers, limits, extends, extinguishes, or records a right or liability. As such, an 'instrument' imposing a toll, even if it is not a 'lease' under the TP Act, can still be treated as a lease for stamp duty purposes, as held by the Supreme Court in State of Uttarakhand v. Harpal Singh Rawat3. In this case, the respondent was awarded the right to collect tolls from Haldwani Bypass Road and the Gaula bridge, and the Court ruled that the payments made by the respondent were 'lease money', thus subject to stamp duty under Section 2(16)(c) of the Stamp Act.
From a combined reading of the Stamp Act and the judgment in Harpal Singh Rawat, it is clear that even if a concession agreement is granted as a license, it may still be treated as a lease for stamp duty purposes if the right to impose tolls is granted to the Concessionaire. Therefore, stamp duty on such agreement should be calculated as if they were leases, regardless of whether the quality as lease under the TP Act.
In Banney Khan v. Chief Inspector of Stamps, UP4, the Allahabad High Court provided a broad interpretation to the term 'toll' under Section 2(16)(c) of the Stamp Act, which provides that an 'instrument by which tolls of any description are let' qualifies as lease. The term 'tolls' is defined to include any sum charged by the CA for a privilege or liberty granted to the public. The case involved a contract where the petitioner was granted the right to collect tolls from occupiers of the 'New Subzi Mandi' premises owned by the Municipal Board, Ujhani, for 1 year. In return, the petitioner agreed to pay a fixed sum of INR 23,700 to the Board. The Inspector of Stamps, upon reviewing the agreement, classified it as a 'lease' and charged the petitioner with deficit stamp duty and a penalty. On reference under Section 57 of the Stamp Act, the Court ruled that the collection of tolls by the petitioner constituted the 'letting of tolls' under Section 2(16)(c) of the Stamp Act and held that the term 'toll' includes fee, fares, or market tolls charged in exchange for the temporary use of land, and also encompasses payments made by individuals using the market for selling commodities, as is customary. Therefore, the Court classified the agreement as a lease under the Stamp Act.
A similar view was adopted by the Supreme Court in Nasiruddin v. State of Uttar Pradesh5 (where the Court further classified that the term 'tolls of any description' under Section 2(16)(c) of the Stamp Act includes all types of levies, charges and fees) and the Andhra Pradesh High Court in Uppalapati Durga Prasad v. Executive Engineer (R&B) N.H Division6 (where the Court held that toll collection for using road or a bridge, is akin to leasing out the right to collect tolls). In all these judgments discussed above, the Supreme Court and High Courts have consistently interpreted the term 'toll' to be inclusive of all kinds of payments, sums and taxes, and have not restricted the term to concession agreements pertaining to highways, roads and bridges. Thus, it can be safely concluded that any amount charged to end users of infrastructure project where the CA has transferred the right to collect such charges to the Concessionaire will be treated as 'tolls' for the purposes of the Stamp Act and thus the agreement will be deemed as lease under the Stamp Act.
The Supreme Court's judgment in Rewa Tollway may impact both the revenue structuring of the concession agreement, and the stamp duty payable on them, particularly where the State transfers the right to collect tolls or chargers to a private party. However, there may be specific instances wherein the concession agreements do not grant the Concessionaire with the right to collect revenue from the end users (as an illustration, in Hybrid Annuity Model, the Concessionaire receives annuity payments from the CA for construction costs, without collecting revenue from users). In Chief Controlling Revenue Authority v. Anti Biotic Project Virbhadra7, the Allahabad High Court addressed whether an agreement granting the right to extract water from river Ganga at Rishikesh for 25 years at a fixed cost of INR 6,000 per cusec would amount to lease under the Stamp Act. The Court held that water is movable property, and the agreement did not create right over any immovable property, therefore it was not considered a lease under the Stamp Act. While this reasoning may broadly apply to other concession agreements, each case must be evaluated individually.
Footnotes
1. The Concessioning Authority is a state instrumentality, generally a government department, corporation or parastatal.
2. 2024 INSC 539
3. (2011) 4 SCC 575
4. AIR 1976 All 475
5. (2018) 1 SCC 754
6. AIR 2001 AP 442
7. AIR 1979 All 355
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.