2012 (5) TMI 262 - SC - Indian Laws

Supreme Court upholds constitutionality of Indian Stamp Act provision, emphasizing rational basis for stamp duty collection.

State of MP Versus Rakesh Kohli

The Supreme Court upheld the constitutionality of Clause (d), Article 45 of Schedule 1-A of the Indian Stamp Act, 1899, as amended by the M.P. 2002 Act. ... Power of attorney (GPA) to non relatives in respect of immovable property - payment of full stamp duty in case of GPA - Indian Stamp Act, 1899 - Article 45 of Schedule 1-A - Section 3 of the Indian Stamp (Madhya Pradesh Amendment) Act, 1997 - Constitutional validity - whether ultra vires provision. While dealing with constitutional validity of a taxation law enacted by Parliament or State Legislature, the court must have regard to the following principles: (i), there is always presumption in favour of constitutionality of a law made by Parliament or a State Legislature (ii), no enactment can be struck down by just saying that it is arbitrary or unreasonable or irrational but some constitutional infirmity has to be found (iii), the court is not concerned with the wisdom or unwisdom, the justice or injustice of the law as the Parliament and State Legislatures are supposed to be alive to the needs of the people whom they represent and they are the best judge of the community by whose suffrage they come into existence (iv), hardship is not relevant in pronouncing on the constitutional validity of a fiscal statute or economic law and (v), in the field of taxation, the Legislature enjoys greater latitude for classification. Had the High Court kept in view the above well-known and important principles in law, it would not have declared Clause (d), Article 45 of Schedule 1-A as violative of Article 14 of the Constitution being arbitrary, unreasonable and irrational while holding that the provision may pass test of classification. By creating two categories, namely, an agent who is a blood relation, i.e. father, mother, wife or husband, son or daughter, brother or sister and an agent other than the kith and kin, without consideration, the Legislature has sought to curb inappropriate mode of transfer of immovable properties. Ordinarily, where executant himself is unable, for any reason, to execute the document, he would appoint his kith and kin as his power of attorney to complete the transaction on his behalf. If one does not have any kith or kin who he can appoint as power of attorney, he may execute the conveyance himself. The legislative idea behind Clause (d), Article 45 of Schedule 1-A is to curb tendency of transferring immovable properties through power of attorney and inappropriate documentation. By making a provision like this, the State Government has sought to collect stamp duty on such indirect and inappropriate mode of transfer by providing that power of attorney given to a person other than kith or kin, without consideration, authorizing such person to sell immovable property situated in Madhya Pradesh will attract stamp duty at two per cent on the market value of the property which is subject matter of power of attorney. In effect, by bringing in this law, the Madhya Pradesh State Legislature has sought to levy stamp duty on such ostensible document, the real intention of which is the transfer of immovable property. The classification, thus, cannot be said to be without any rationale. It has a direct nexus to the object of the 1899 Act. The conclusion of the High Court, therefore, that the impugned provision is arbitrary, unreasonable and irrational is unsustainable. Issues Involved:1. Constitutionality of Clause (d), Article 45 of Schedule 1-A of the Indian Stamp Act, 1899, as amended by the Indian Stamp (Madhya Pradesh Amendment) Act, 2002.2. Violation of Article 14 of the Constitution of India.Issue-wise Detailed Analysis:1. Constitutionality of Clause (d), Article 45 of Schedule 1-A of the Indian Stamp Act, 1899:The Supreme Court examined whether the Division Bench of the Madhya Pradesh High Court was justified in declaring Clause (d), Article 45 of Schedule 1-A of the Indian Stamp Act, 1899, as amended by the M.P. 2002 Act, unconstitutional. The clause prescribed a stamp duty of two percent on the market value of the property for a power of attorney given without consideration to a person other than close relatives (father, mother, wife, husband, son, daughter, brother, or sister) authorizing the sale of immovable property in Madhya Pradesh.The High Court had ruled this provision unconstitutional, reasoning that although it might pass the test of classification, it did not meet the second limb of Article 14, which prohibits arbitrariness, unreasonableness, and irrationality. The High Court argued that the provision was arbitrary as it unjustifiably distinguished between close relatives and others without a rational basis.The Supreme Court, however, disagreed with the High Court's reasoning. It emphasized that legislative enactments could only be struck down on two grounds: lack of legislative competence or violation of fundamental rights or other constitutional provisions. The Court reiterated that a legislative provision could not be invalidated merely because it appeared arbitrary or unreasonable unless a clear constitutional infirmity was evident.The Supreme Court highlighted that the classification made in Clause (d) had an intelligible differentia with a direct nexus to the object of the 1899 Act, which was to collect proper stamp duty to protect state revenue. The legislative intent was to prevent the misuse of power of attorney for transferring immovable properties without proper documentation and stamp duty. The Court concluded that the provision was neither arbitrary nor irrational and had a rational basis for the classification.2. Violation of Article 14 of the Constitution of India:Article 14 of the Constitution guarantees equality before the law and equal protection of the laws. The High Court had held that Clause (d) violated Article 14 as it created an unreasonable classification between close relatives and others.The Supreme Court, however, found that the High Court failed to provide a clear basis for deeming the provision arbitrary, unreasonable, or irrational. The Court noted that the provision did not discriminate unjustly but rather aimed to curb inappropriate transfers of immovable property through power of attorney. The classification had a rational relation to the object sought to be achieved by the statute, which was to ensure proper stamp duty collection and prevent revenue loss.The Court also emphasized that in the field of taxation, the legislature enjoys greater latitude for classification, and there is always a presumption in favor of the constitutionality of a law made by Parliament or a State Legislature. The Court concluded that the High Court erred in declaring the provision unconstitutional without a clear demonstration of discrimination or constitutional violation.Conclusion:The Supreme Court allowed the appeals, setting aside the judgment of the Madhya Pradesh High Court. It held that Clause (d), Article 45 of Schedule 1-A of the Indian Stamp Act, 1899, as amended by the M.P. 2002 Act, was not violative of Article 14 of the Constitution. The writ petitions filed by the respondents before the High Court were dismissed, and no order as to costs was made.