India: Major Relief: Members To Benefit From Stamp Duty Paid On Development Agreements

1. INTRODUCTION

The Inspector General of Registration and Controller of Stamps, State of Maharashtra, Pune (“IGR, Maharashtra”) has in its notification dated 26^th July 2023 (“said Notification”) issued explanatory directives in respect of levying stamp duty on permanent alternative accommodation agreements entered into between a developer and members of a co-operative housing societies (“Society/Societies”) for re-development of Society's property.

2. BACKGROUND

The IGR, Maharashtra had in its Circular dated 23^rd June 2015¹ and Circular dated 30th March 2017² issued guidelines in respect of stamp duty levied on the document executed by the developer in favour of a member of the Society while allotting flats/shares in a redeveloped building of a project (“Earlier Circulars”). The Earlier Circulars contemplated that the permanent alternative accommodation agreement shall be stamped as per Article 25 of the Maharashtra Stamp Act, 1958 (“said Act”) as applicable on a development agreement. The stamp duty required to be paid on the permanent alternative accommodation agreement was in addition to the stamp duty levied on the development agreement executed with the Society for redevelopment of Society's property which resulted in payment of double stamp duty.

The Earlier Circulars were challenged by Adityaraj Builders and Others before the Hon'ble Bombay High Court in Writ Petition No. 4575/2022³ (said “Writ Petition”). As a major relief to the members of the Societies, the Hon'ble Bombay High Court passed an order dated 17th February 2023 in the said Writ Petition (“said Order”) whereby it was directed that once a development agreement is fully stamped, the permanent alternative accommodation agreement cannot be separately assessed to stamp beyond INR 100/- in lieu of Section 4 (1) of the said Act.

The IGR, Maharashtra vide the said Notification further reiterated and clarified the statutory position on payment of stamp duty on the permanent alternative accommodation agreements by issuing the following directives:

3. QUICK VIEW

3.1 In light of the said Notification, double stamp duty will not be required to be paid if a permanent alternative accommodation agreement is in respect of Existing Area and Additional Area only.

3.2 The permanent alternative accommodation agreements shall not be assessed for stamp beyond INR 100/- (Indian Rupees One Hundred Only) in lieu of Section 4 (1) of the said Act provided: (a) full stamp duty has been paid on the development agreement; and (b) the permanent alternative accommodation agreements is in respect of Existing Area and Additional Area. If the permanent alternative accommodation agreement includes the Purchased Area also, then stamp duty as per the said Act shall be applicable only in respect of the Purchased Area.

3.3 It comes as a major relief for developers as traditionally, it is seen that the developers had to pay the stamp duty on permanent alternative accommodation agreements for Existing Area and Additional Area. This will reduce the overall cost and expenses of the project.

3.4 This move will encourage the stakeholders to register the permanent alternative accommodation agreements upfront which otherwise used to be delayed to avoid paying stamp duty under Section 25 of the said Act. This will ultimately result in protection of rights of all the stakeholders.

Footnotes

1. Circular dated 23rd June 2015 bearing no. जा. क्रमाांक. कार्ाासन १५/बामुदत/मार्ादर्ाक सूचना/६२१

2. Circular dated 30th March 2017 bearing no. क्रमाांक. का. ५/ मुद्ाांक-१७/प्र.क्र. १०/१३/ ३०३/२०१७

3. Adityaraj Builders and Ors. vs. The State of Maharashtra and Ors. (17.02.2023 - BOMHC) : MANU/MH/1166/2023

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