Heard learned counsel for the petitioner and the learned Standing Counsel.
The instant writ petition assails the orders passed by the respondents in proceedings initiated against the petitioner under Section 47-A of the Indian Stamp Act 18991. The issue itself arises consequent to the execution of an agreement to sell on 31 May 1993 in favour of the petitioner. The aforesaid agreement to sell was followed by a sale deed being executed on 31 January 1994. The respondents, however, drew proceedings under Section 47-A of the Act holding the petitioner liable to pay additional stamp duty on the original agreement to sell which had been executed. Article 23 as appearing in Schedule 1-B prescribes the stamp duty payable on conveyances. It appears that the respondents proceeded in the matter on the basis of of Article 23 as it stood in its amended form after the promulgation of U.P. Act No. 22 of 1998 and more particularly the Explanation which came to be introduced pursuant thereto. Article 23, as it existed on the date of execution of the agreement to sell, namely 31 May 1993, carried no Explanation. This position is not disputed by the respondents.
By virtue of U.P. Act No. 22 of 1998 an Explanation came to be appended to Article 23 which reads thus:-
"For the purposes of this Article, in the case of an agreement to sell an immovable property, where possession is delivered before the execution or at the time of execution, or is agreed to be delivered without executing the conveyance, the agreement shall be deemed to be a conveyance and stamp duty thereon shall be payable accordingly:
Provided that the provisions of Section 47-A shall mutatis mutandis apply to such agreement:
Provided further that when conveyance in pursuance of such agreement is executed, the stamp duty paid on the agreement shall be adjusted towards the total duty payable on the conveyance."
According to the respondents since the agreement to sell also evidenced possession having been delivered, it was liable to be deemed to be a conveyance and stamp duty liable to be paid accordingly. Prior to the insertion of the said Explanation, Article 23 read thus:-
"23. CONVEYANCE as defined by Section 2(10) not being a TRANSFER charged or exempted under No. 62."
The petitioner contends that the agreement to sell would be exigible to duty in accordance with the provisions made in Article 23 as it stood on the date of execution of that instrument. According to the petitioner since Article 23 at that time only covered "Conveyance" as defined in Section 2(10) of the Act, an agreement to sell, with or without possession, could not have been taxed as a conveyance. According to the petitioner Section 2(10) of the Act brought within its ambit only actual conveyances and sales by which movable or immovable property may have been transferred. They would contend that an agreement to sell was neither contemplated nor covered in the definition of "conveyance" as embodied in Section 2(10). A more serious challenge is raised to the impugned orders on the ground that although the Explanation came to be added for the first time by virtue of U.P. Act No. 22 of 1998, the instrument in question has been taxed as if that amendment applied retrospectively. It was in that backdrop that it was submitted that the Explanation clearly introduced a new liability in respect of an agreement to sell and that consequently it could not be interpreted as having retroactive operation.
The Court at the outset notes that the petitioners appear to be correct in their submission that the amended Article 23 could have had no application since it came to be introduced after the execution of the instrument in question. It must be borne in mind that while the agreement to sell came to be executed on 31 May 1993, U.P. Act No. 22 of 1998 came to be promulgated on 1 September 1998 and therefore evidently after the execution of the instrument forming subject matter of the proceeding. Since an instrument becomes exigible to duty under the Act the moment it is executed, it necessarily must be taxed in accordance with the provisions made in Schedule 1-B as existing at that time. An amendment to Schedule 1-B which is introduced much after the execution of the instrument cannot be held to apply.
The Court additionally finds that while an agreement to sell with possession was brought within the ambit of a conveyance by virtue of the Explanation which came to be added to Article 23, that would still require the Court to answer the question whether that Explanation could be construed as being declaratory, having been added ex abundanti cautela or did it introduce a new liability which was otherwise not contemplated in the provision.
An Explanation when added to a statutory provision is generally understood as being aimed at ironing out the creases or expounding and clarifying the true intent of the statute. However, one can never ignore that interpretation of statutes is fundamentally concerned with substance and not mere form. Merely because what is introduced is titled as an explanation, that in itself would not necessarily commend itself to be an exposition of the existing law. At least such a conclusion cannot be held to be inevitable or one which brooks no exception. In case the explanation introduces a substantive law or makes provision for matters which cannot be viewed as being implicit and contemplated in the provision as it stood, the explanation cannot be recognised or held to be declaratory. In case it is found that the Explanation creates obligations or liabilities whose attributes were non existent in the original provision, it cannot be interpreted to be an elucidation of that provision.
In Keshavji Ravji & Co. v. CIT,2 the Supreme Court pertinently held:-
37. Sri Ramachandran urged that the introduction, in the year 1984, of Explanation I to Section 40(b) was not to effect or bring about any change in the law, but was intended to be a mere legislative exposition of what the law has always been. An 'Explanation', generally speaking, is intended to explain the meaning of certain phrases and expressions contained in a statutory provision. There is no general theory as to the effect and intendment of an Explanation except that the purposes and intendment of the 'Explanation' are determined by own words. An Explanation, depending on its language, might supply or take away something from the contents of a provision. It is also true that an Explanation may-this is what Sri Ramachandran suggests in this case-be introduced by way of abundant--caution in order to clear any mental cobwebs surrounding the meaning of a statutory provision spun by interpretative errors and to place what the legislature considers to be the true meaning beyond controversy or doubt. Hypothetically, that such can be the possible purpose of an 'Explanation' cannot be doubted. But the question is whether in the present case, Explanation I inserted into Section 40(b) in the year 1984 has had that effect.
38. The notes on clauses appended to the Taxation Laws (Amendment) Bill, 1984, say that Clause 10 which seeks to amend Section 40 will take effect from 1st April, 1985 and will, accordingly, apply in relation to the assessment year 1985-86 and subsequent years. The express prospective operation and effectuation of the 'Explanation' might, perhaps, be a factor necessarily detracting from any evincement of the intent on the part of the legislature that the Explanation was intended more as a legislative exposition or clarification of the existing law than as a change in the law as it then obtained............"
Dealing with the characteristics of a declaration or clarificatory legislation, the Supreme Court in Union of India Vs. Martin Lottery Agency Ltd.3 held as under:-
43. The question as to whether a Subordinate Legislation or a Parliamentary Statute would be held to be clarificatory or declaratory or not would indisputably depend upon the nature thereof as also the object it seeks to achieve. What we intend to say is that if two views are not possible, resort to clarification and/or declaration may not be permissible.
44. This aspect of the matter has been considered by this Court in Virtual Soft Systems Ltd. v. CIT [(2007) 9 SCC 665], holding :
"50. It may be noted that the amendment made to Section 271 by the Finance Act, 2002 only stated that the amended provision would come into force with effect from 1.4.2003. The statute nowhere stated that the said amendment was either clarificatory or declaratory. On the contrary, the statue stated that the said amendment would come into effect on 1.4.2003 and therefore, would apply to only to future periods and not to any period prior to 1.4.2003 or to any assessment year prior to assessment year 2004-2005. It is the well settled legal position that an amendment can be considered to be declaratory and clarificatory only if the statue itself expressly and unequivocally states that it is a declaratory and clarificatory provision. If there is no such clear statement in the statute itself, the amendment will not be considered to be merely declaratory or clarificatory.
51. Even if the statute does contain a statement to the effect that the amendment is declaratory or clarificatory, that is not the end of the matter. The Court will not regard itself as being bound by the said statement made in the statute but will proceed to analyse the nature of the amendment and then conclude whether it is in reality a clarificatory or declaratory provision or whether it is an amendment which is intended to change the law and which applies to future periods."
48. The Gujarat High Court in CIT v. S.G. Pgnatal [(1980) 124 ITR 391 (Guj)] held that words "earned in India" occurring in clause (ii) must be interpreted as "arising or accruing in India" and not "from service rendered in India". Opining that the High Court proceeded on an incorrect hypothesis, it was held : (Sedco case[Sunrise Associates v. Govt. of NCT of Delhi, (2006) 5 SCC 603] [(2008) 5 SCC 176], SCC p. 723, para 9) "9. The High Court did not refer to the 1999 Explanation in upholding the inclusion of salary for the field break periods in the assessable income of the employees of the appellant. However the respondents have urged the point before us.
10. In our view the 1999 Explanation could not apply to assessment years for the simple reason that it had not come into effect then. Prior to introducing the 1999 Explanation, the decision in CIT v. S.G. Pgnatale (supra) was followed in 1989 by a Division Bench of the Gauhati High Court in Commissioner of Income Tax v. Goslino Mario reported in [(2002) 10 SCC 165]. It found that the 1983 Explanation had been given effect from 1.4.1979 whereas the year in question in that case was 1976-77 and said : (ITR p.318) ". . . it is settled law that assessment has to be made with reference to the law which is in existence at the relevant time. The mere fact that the assessments in question has (sic) somehow remained pending on April 1, 1979, cannot be cogent reason to make the Explanation applicable to the cases of the present assessees. This fortuitous circumstance cannot take away the vested rights of the assessees at hand"."
49. Reverting to the decision of a Kerala High Court in CIT v. S.R. Patton [(1992) 193 ITR 49 (Ker)] wherein Gujarat High Court's judgment was followed, this Court noticed that explanation was not held to be a declaratory one but thereby the scope of Section 9(1)(ii) of the Act was widened. The law in the aforementioned premise was laid down as under : (Sedco case [2005) 12 SCC 717], SCC pp. 724-25, paras 17-19) "17. As was affirmed by this Court in Goslino Mario (supra), a cardinal principle of the tax law is that the law to be applied is that which is in force in the relevant assessment year unless otherwise provided expressly or by necessary implication. [See also: Reliance Jute and Industries. v. CIT [(1980) 1 SCC 139]. An Explanation to a statutory provision may fulfil the purpose of clearing up an ambiguity in the main provision or an Explanation can add to and widen the scope of the main section (See: Sonia Bhatia v. State of U.P. [(1981) 2 SCC 585 at 598]. If it is in its nature clarificatory then the Explanation must be read into the main provision with effect from the time that the main provision came into force (See: Shyam Sunder v. Ram Kumar [(2001) 8 SCC 24 (para 44)]; Brij Mohan Laxman Das v. CIT[(1997) 1 SCC 352 at 354], CIT v. Podar Cement [(1997) 5 SCC 482 at 506]. But if it changes the law it is not presumed to be retrospective irrespective of the fact that the phrase used are 'it is declared' or 'for the removal of doubts'.
18. There was and is no ambiguity in the main provision of Section 9(1)(ii). It includes salaries in the total income of an assessee if the assessee has earned it in India. The word "earned" had been judicially defined in S.G. Pgnatale (supra) by the High Court of Gujarat, in our view, correctly, to mean as income "arising or accruing in India". The amendment to the section by way of an Explanation in 1983 effected a change in the scope of that judicial definition so as to include with effect from 1979, "income payable for service rendered in India".
19. When the Explanation seeks to give an artificial meaning 'earned in India' and bring about a change effectively in the existing law and in addition is stated to come into force with effect from a future date, there is no principle of interpretation which would justify reading the Explanation as operating retrospectively."
As this Court views the Explanation inserted at the end of Article 23, it is evident that it seeks to introduce a substantive provision in the law bringing a certain genre of agreements to sell within the ambit of the expression conveyance. It, in essence, introduces and creates new obligations and liabilities which were otherwise not contemplated by Article 23. Regards must also be had to the fact that the Act while defining the word conveyance did not include agreements to sell nor can the language employed in Section 2 (10) be understood as envisioning an agreement to sell.
On a more fundamental plane, the Court finds that the Explanation itself while bringing agreements to sell within the ambit of Article 23, uses the expression- "shall be deemed to be a conveyance.....". It is thus manifest that agreements to sell are brought within the scope of Article 23 by virtue of a legal fiction that is introduced. This additionally convinces the Court that the Explanation is neither clarificatory nor declaratory and in any case cannot be viewed as being a mere exposition of the statutory position that existed. For these reasons also, the Court finds itself unable to sustain the impugned orders.
The writ petition is consequently allowed. The impugned orders dated 30 April 2001, passed by the respondent No. 3 and 31 March 2003, passed by the respondent No. 2 are hereby quashed. All moneys deposited or recovered from the petitioner pursuant to the impugned order shall consequently be refunded forthwith.
Order Date :- 28.11.2019 LA/-