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Judgment
A.S. Bopanna, J.—The petitioners are before this Court praying to strike down Article 6(1)(a)(v) of the Karnataka Stamp Act as being violative of Article 14 of the Constitution insofar as the petitioners are concerned. The first petitioner claims to be a Class-I Contractor engaged in carrying out major civil works for Government Departments, Corporations etc., for the last several years. The second petitioner is a partnership firm carrying on commercial activities. They have developed residential and commercial complex in Bangalore. The third petitioner is incorporated under the provisions of the Companies Act and have executed major Civil Contract work for Government Departments and Corporations.
The petitioners had approached the second respondent for financial assistance and the loan of Rs. 52.65 crores was sanctioned as per the details stated in the petition. In that regard, in order to secure the loan, the petitioners were required to create equitable mortgage of the immovable properties. Such document required payment of stamp duty. Prior to 31.03.2007, the stamp duty payable was 0.5% if the loan amount exceeded Rs. 10,000/-. But with effect from 01.04.2007, Article 6 was amended as follows;
By the proviso contained therein, in respect of loan for development of property for commercial use, the maximum stamp duty payable was fixed at Rs. 5,00,000/- and in respect of loan for development of property for residential use, the maximum stamp duty payable was Rs. 50,000/-. In respect of other loans, when it exceeds Rs. 10,000/- for every additional Rs. 5,000/- or part thereof in excess of Rs. 10,000/-, ad valorem stamp duty at 0.5% is provided. The petitioners who have secured loan for their commercial activities but not for ''development'' of property are therefore aggrieved by the same and contend that it amounts to discrimination.
The first respondent has filed the objection statement seeking to justify their action. It is averred that in the interest of the businessmen to enable them to avail loan facilities, the Stamp Duty at the first instance was reduced from 1% to 0.5% in respect of instruments specified in Article 6 of the Schedule with effect from 01.04.2003. The Government, thereafter with the intention of encouraging the loan facilities in respect of development of properties for the purpose of commercial and residential use has incorporated the ''proviso'' to Article 6(1)(a) of the Schedule with effect from 01.04.2007. It is averred that inherent power of Government was exercised to allow reasonable classification on objective basis in public interest. It is their contention that in the case of Taxation greater latitude is available to the Legislature. If the loan is obtained for development of property for commercial or residential use, the loanee can avail the benefit of lower stamp duty as per the proviso to Article 6(1)(a) of the Act. The first respondent has accordingly sought to justify their action.
Heard Sri T.S. Amar Kumar, learned counsel for the petitioners and Sri Vijayakumar A. Patil, learned Government Advocate for the first respondent and perused the writ papers.
On the contention raised in the writ petition relating to discrimination, the decisions relied on by the learned counsel needs to be noticed at the outset so as to assimilate the legal position.
The learned counsel for the petitioners has relied on the following decisions:
(i) The case of Ayurveda Pharmacy and Another Vs. State of Tamil Nadu, wherein while considering the levy on Ayurvedic drugs, it is held that where the commodities belong to the same class or category, there must be a rational basis for discriminating between one commodity and another for the purpose of imposing tax. What the actual rate should be is not a matter for the Courts to determine generally, but when a distinction is made between commodities falling in the same category, a question arises as to whether there is justification for the discrimination. In the facts therein, it was held that three preparations were all medicinal preparations, the mere circumstance that they contained a high percentage of alcohol and could be used as alcoholic beverage could not justify they being treated differently from other medicinal preparations.
(ii) The case of Sansar Chand Atri Vs. State of Punjab and Another, wherein while considering whether the appellants therein were ''ex-servicemen'' for the purpose of appointment, it was held that a person whether relieved, discharged or retired should be considered as ''ex-serviceman''. If a discharged army man is not considered as ''ex-serviceman'', it will create a class within a class without rational basis.
(iii) The case of Aashirwad Films Vs. Union of India (UOI) and Others, wherein while considering the validity of imposing entertainment tax at different rates for Telugu films and Non-Telugu films, it is held that the State undoubtedly enjoys a greater latitude in the matter of taxing statute. It may impose a tax on a class of people and may not do so in respect of the other class, but taxation laws must also pass the test of Article 14 of the Constitution of India. The extent of reasonability of any taxation statute lies in its efficiency to achieve the object sought to be achieved by the statute. The test of reasonableness, however would vary from statute to statute and the nature of the right sought to be infringed or the purpose for imposition of the restriction. On the facts, it was held that the classification therein only on the basis of language without anything more and in particular having regard to the difference in the rate of tax is ex-facie arbitrary.
Learned Government Advocate on the other hand relied on the decision of the Constitution Bench of the Hon''ble Supreme Court in the case of Mafatlal Industries Ltd. and Others Vs. Union of India (UOI) and Others, wherein while considering varied issues relating to refund of excise and customs duty collected contrary to law, it is held that the Courts while exercising jurisdiction under Article 32 and 226 of the Constitution should have due regard to the legislative intent manifested by the provisions of the Act. The power under Article 226 has to be exercised to effectuate the regime of law and not for abrogating it and is conceived to serve the law and not to transgress them. In the matter of taxation laws, the Court permits a greater latitude to the discretion of the Legislature. The State is allowed to pick and choose districts, objects, persons, methods and even rates for taxation, if it does so reasonably. The Courts view the laws relating to economic activities with greater latitude than other matters.
A cumulative perusal of the decisions cited by both sides would indicate that in order to discriminate between persons or commodities falling within the same category or class, there must be a rational basis and should not be arbitrary. The nature of consideration to determine the validity would differ from statute to statute and the object sought to be achieved. When the consideration relates to taxation laws, the Courts are required to permit greater latitude to the discretion of the legislature. If done reasonably, the State is allowed to pick and choose persons, methods and rates.
In the above backdrop, the stamp duty imposed in the instant fact is to be perused. It is not in dispute that the stamp duty at the first instance was reduced from 1% to 0.5% in respect of the instruments specified in Article 6 of the Schedule with effect from 01.04.2003 without any further distinction or differentiation between the class of persons executing such documents. The contention on behalf of the first respondent in the objection statement as an explanation for introducing the proviso to the said Article and limiting the maximum duty for the benefit on class of businessmen was to encourage the disbursal of loan facilities in respect of development of properties for the purpose of commercial and residential use. In this context, though there is no dispute with regard to the concession for residential purpose, there is no explanation as to how the business persons availing loan for development of properties for commercial purpose were considered as different from the persons availing loan for any other business purpose and what difference it would have made to the business when it only related to the stamp duty on the document to be executed in favour of the Bank to secure the loan. Certainly, from the law enunciated from the decisions noticed above, if there is a reasonable explanation or consideration for such differentiation greater latitude is to be given in respect of the decisions of the Government in fiscal matters. Keeping this in view, the statement of objects and reasons of Karnataka Act No. 7/2007 by which the said amendment was made would only indicate that it is to give effect to the proposals made in the Budget Speech. In that view, a reference to the Budget of 2007-2008 on this subject reads as hereunder:
A perusal of the same would disclose that except for making the change, no reason is given for treating one class of business persons as distinct in respect of a similar loan transaction when the stamp duty being charged is only in respect of the registration of the document for securing the loan to the bankers. The object to be achieved by benefiting only one class of business persons is not spelt out so as to explain the reasonable basis or the same having rational basis.
In this background, what is also relevant in the instant facts is that during the pendency of this petition, the discrimination being complained by the petitioners has been removed by the subsequent amendment to Article 6(1)(a) of the Act by Karnataka Act No. 8/2008. Since the loan transaction and document executed by the petitioner is contended to be during the period intervening the Karnataka Act No. 7/2007 and the Karnataka Act No. 8/2008, the subsequent amendment and the manner in which it has been made also needs to be considered since at this juncture, though it would not be necessary for this Court to strike down Article 6(1)(a)(v) as it has undergone change, it would have to be in any event determined as to whether the additional stamp duty which was burdened on the petitioners is to be eased and in that regard, any relief would be available to the petitioners. Hence, before adverting to the issue relating to discrimination as contended, the effect of the subsequent change is to be considered to determine as to whether it would enure to the benefit of the petitioners since it is contended that it is with retrospective effect.
In that light, a perusal of the amendment made by Karnataka Act No. 8/2008 would disclose that in respect of all instruments relating to commercial loans, the maximum stamp duty payable is Rs. 5 lakhs which was the benefit earlier available only in respect of loans pertaining to development of property for commercial purpose. Since the discrimination has been removed within a short duration, the intention of the Government in doing so is also to be ascertained. Once again, the Statement of objects and reasons relating to Karnataka Act No. 8/2008 provides that it is to give effect to the proposals made in the Budget proposal of 2008-2009. The reference to the Budget proposal on this subject reads as hereunder:
2.14. Several suggestions received during discussions with industry and trade in regard to stamp duty and registration have been examined. Also suggestions received from lending institutions have also been considered. In order to improve the business environment in the State and to facilitate financial transactions of the general public the following concessions and rationalization of stamp duty are proposed.
� I propose to reduce the Stamp Duty on Agreements of Deposit of Title Deeds under Article 6(1) of the schedule to the Karnataka Stamp Act 1957 from 0.5% to 0.25% on all types of loan subject to a maximum Rupees Five Lakhs.
Though the Budget Proposal has been given effect by Karnataka Act No. 8/2008 by bringing it into force with effect from 01.08.2008, the change made to Article 6(1)(a) indicates that the entries relating thereto is substituted as stated in the notification. It is in that context, the learned counsel for the petitioners relied on the decision of the Hon''ble Supreme Court in the case of Government of India and Others Vs. Indian Tobacco Association, to contend that since the word ''substituted'' is employed it should date back and the benefit would be available. The observations contained in paras 26 to 29 of the said decision would sum up the scope and nature of consideration. It reads as hereunder:
We are not oblivious of the fact that in certain situations, the court having regard to the purport and object sought to be achieved by the legislature may construe the word "substitution" as an "amendment'' having a prospective effect but such a question does not arise in the instant case.
There is another aspect of the matter which may not be lost sight of. Where a statute is passed for the purpose of supplying an obvious omission in a former statute, the subsequent statute relates back to the time when the prior act was passed. (See Attorney General V. Pougett.)
The doctrine of fairness also is now considered to be a relevant factor for construing a statute. In a case of this nature where the effect of a beneficent statute was sought to be extended keeping in view the fact that the benefit was already availed of by the agriculturalists of tobacco in Guntur, it would be highly unfair if the benefit granted to them is taken away, although the same was meant to be extended to them also. For such purposes the statute need not be given retrospective effect by express words but the intent and object of the legislature in relation thereto can be culled out from the background facts.
The question has furthermore to be considered having regard to the language and object discernible from the statute read as a whole. The respondents were not ineligible from obtaining the benefit. Once they are held to be eligible for obtaining the benefit, the amended notification being an exemption notification should receive the beneficent construction.
The very observation made by the Hon''ble Supreme Court noticed above would disclose that even if the word ''substitution'' is employed, the Court having regard to the purport and object sought to be achieved by the Legislature may construe the word ''substitution'' as ''amendment'' having prospective effect. Therefore, there can be no hard and fast rule that the use of the word ''substitution'' would in all cases date back to provide retrospective effect. In the instant case, as noticed, the statement of objects and reasons is not explicit. Further, the budget proposal which refers to the change being made due to discussions and suggestions does not refer to the intention to provide such relief with retrospective effect. Further, by the said amendment, the change made is not just the change to limit the stamp duty payable to the maximum of Rupees Five lakhs to assume that all business loan transactions have been brought on par and the benefit which was available to one class of business transactions has been made applicable to all from the date it was available for one class of business transaction. On the other hand, the rate of stamp duty was also reduced from 0.5% to 0.25% on all types of loan subject to a maximum. Hence, if in such circumstance retrospective effect is given, the stamp duty paid in respect of all transactions would stand reduce and finance raised by the State would become amenable for refund which certainly was not the intention of the Legislature. Hence, having regard to these aspects, in the instant facts, I am unable to accept the contention that the change made is with retrospective effect merely because the word ''substituted'' is employed. In my considered opinion, it is an amendment with prospective effect from 01.08.2008.
Hence, the issue relating to whether the proviso containing the benefit of limiting the stamp duty only in respect of loan obtained for development of the property for commercial use and providing ad valorem Stamp duty in respect of the other loans for commercial purpose is sustainable or whether it amounts to discrimination is to be examined, keeping in perspective the legal position assimilated from the decisions cited above with regard to the nature of amendment.
From the decisions noticed above, the well settled position of law is that, there can be no doubt whatsoever about the power of the State in the matter of levying tax which includes Stamp duty. The power of the State to pick and choose persons, methods and rates is again well settled. But, the settled position is also that even taxation laws must pass the test of Article 14 of the Constitution of India. Hence, it will have to be shown that such levy discriminates by making classification which is unreasonable, arbitrary and without rational basis. Though reasonable discrimination is permissible, it means that the classification should not be arbitrary and whimsical, but should be rational and reasonable.
In the present case, vide Article 6, the stamp duty levied is on agreement relating to deposit of title deeds which is an instrument for creating security for the repayment of money advanced or to be advanced by way of loan. By the explanation, what constitutes such instrument is also explained. Irrespective of the commercial purpose for which the loan is obtained such security is to be created in favour of the lending institution to secure the loan. Therefore, the nature of the document or the nature of security created is not different in respect of loan advanced to the borrower for the purpose of development of property for commercial purpose as against the loan advanced to a borrower for any other commercial purpose. Hence, the borrowers of such loan are similarly placed and do not belong to different category of persons to assume that one class of persons are chosen for stamp duty at a particular rate as against the other. Hence, when it is seen that they are similarly placed, the question is whether the discrimination is reasonable?
In order to determine this aspect, as noticed, the statement of objects and reasons of Act No. 7/2007 only states that it is to give effect to the Budget Speech. The Budget Speech of 2007-2008 extracted above except for stating that in respect of instruments relating to development of property for commercial purpose, the stamp duty would be maximum of Rupees five Lakhs and in respect of other purpose, it would be ad valorem. There is no indication whatsoever about the reason for such ceiling on stamp duty, if the loan is utilized for a particular purpose when all other requirements relating to security and instrument are similar. In the objection statement filed to the instant petition, except for vaguely contending that the proviso to Article 6(1)(a) is made in order to encourage the development of properties for commercial activities, there is no explanation as to how that object would be achieved by merely limiting the stamp duty for such loans. In fact, in the entire objection statement, the emphasis is on the power of the State to impose different Stamp duty and to discriminate regarding which the position is well settled, but the reasonability and rationality of such discrimination has not been brought forth except for stating that it is to encourage development. Mere reduction in stamp duty on a document creating charge certainly cannot be accepted as a motivating factor for business persons to take up development in preference to other business activity. In any case, it is not the stand of the State that loan secured for development of property for commercial purpose is a different class of loan and business persons undertaking such projects belong to a different class. When that is the case, the further mini classification carved out from similar set of persons without rational basis certainly offends Article 14 of the Constitution and amounts to discrimination.
Having arrived at the above conclusion, any claim of being discriminated upon in the present circumstances can be accepted only if the ''instrument'' securing the loan had come into existence after 01.04.2007 upto 01.08.2008. Hence, if an ''instrument'' creating charge had come into being prior to that date, the stamp duty prescribed prior to introduction of proviso would have been payable and the plea of discrimination will not be acceptable in such case. Therefore, it will depend on the fact situation evolving in each case. In that view, the factual matrix in the instant case would have to be noticed closely so as to determine whether the grievance of the petitioner about being discriminated can be accepted right away or not?
From the case put forth, the petitioners no doubt contend with regard to they having approached the second respondent-bank for financial assistance and that the second respondent-bank has sanctioned the loan of Rs. 52.65 crores for various commercial purposes. The table indicated in the petition depicts the type and quantum of loan granted in respect of each of the petitioners. The petitioners also contend that in view of the extent of loan granted, the instrument creating security would be liable for stamp duty of Rs. 26,32,500/- and if the proviso incorporating the maximum limit was made applicable, it would have been only Rs. 5,00,000/-.
To appreciate the facts, a perusal of the communications at Annexures-B, C and D to the petition will disclose that each of the petitioners have addressed separate communications, all dated 24.01.2007 to the second respondent-bank seeking for the financial assistance as stated therein. The communications at Annexures-E, F and G will disclose that separate letters have been addressed by the second respondent-bank to each of the petitioners indicating sanction and the terms thereto. Insofar as the first and third petitioners, the sanction letter is dated 25.01.2007. The sanction letter addressed to the second petitioner is dated 01.03.2007. Further, the communication dated 10.03.2007 (Annexure-H) addressed by the second respondent-bank to the first petitioner would indicate that as on the said date, the title deeds of the properties in original have been received by them from the Union Bank of India for securing their loan. This would indicate that the deposit of title deeds had already taken place in respect of the loan sanctioned to the first and third petitioners even prior to the amendment which was with effect from 01.04.2007. In respect of the second petitioner, the second respondent-bank has addressed the communication dated 28.05.2007 wherein the separate sanction letter dated 01.03.2007 is referred and the creation of equitable mortgage is referred therein. Hence, only in respect of the loan transaction in favour of the second petitioner, the equitable mortgage was the subject matter and was yet to be created even after 01.04.2007.
Though the petitioners contend that they are group concerns, the manner in which distinct consideration of the loan facility has been made on different dates and since the deposit of title deeds has taken effect in respect of first and third petitioners prior to the amendment, they cannot seek to derive benefit by complaining about discrimination unless it is established that it was a consolidated loan and was treated as single transaction with a single instrument creating security. Insofar as the second petitioner, it is evident that the document creating security had not been executed as on 01.04.2007. Hence, the maximum limit of Rs. 5,00,000/- indicated under the proviso would be available in respect of the loan transaction relating to the second petitioner. The first respondent, through the competent authority would have to therefore examine this aspect and collect the appropriate stamp duty which was applicable prior to 01.04.2007 in respect of the security created by the first and third petitioners, if it is not established as a single transaction as stated above and the benefit of the proviso is to be granted to the transaction of the second petitioner only if it is not established. Hence, the competent Authority shall make the demand for payment of stamp duty keeping in view the above observations and recover the same. In the result, for all the above stated reasons, I pass the following:
(i) W.P. No. 8608/2007 is allowed in part.
(ii) Though I see no reason to strike down Article 6(1)(a)(v) of the Karnataka Stamp Act, it is held that the benefit of maximum stamp duty of Rs. 5,00,000/- (Rupees five lakhs only) provided only in respect of loan secured for development of property for commercial purpose as against other loans for business purpose is discriminatory.
(iii) The case of petitioners be examined by the Competent Authority of the first respondent in terms of the observations made in paragraphs 23 and 24 supra and the stamp duty be recovered accordingly to the extent payable.
(iv) Parties to bear their own costs.