The Chief Controlling Revenue Authority vs Mrs. Bagyalakshmi Krishnan

Ramachandra Iyer, J.—This is a reference u/s 57 of the Indian Stamp Act. The question referred to this Court relates to the construction of

the document, dated 26th December, 1954, executed by Chokkalingam Chettiar in favour of the respondent Mrs. Bagyalakshmi Krishnan and that

is

Whether the document is only a surrender of lease as it purports to be but also a conveyance of movable assets and liabilities of the lessee''s

factory for a consideration of Rs. 1,45,837-3-1 and the document therefore falls within Articles 49(b) and 18 of Schedule I-A of the Stamp Act

and be stamped as such.

The respondent granted a lease of certain immovable properties with structures thereon and machinery known as ''Vijayakumar Ginning

Factory'' at Peelamedu, Coimbatore, by a document, dated 5th December, 1949, in favour of Chokkalingam Chettiar, for a period of 10 years

commencing from 1st April, 1949. Under its terms the lessee was to pay the lessor a premium of Rs. 1,00,000 which sum together with interest

thereon at 4 per cent, per annum was to be adjusted every year by giving credit a sum of Rs. 10,000 therefrom and the interest thereon in the rent

payable every year. The lessee covenanted to yield up the demised property on the termination of the tenancy with advantages thereto and the

fixtures which existed on the date of the demise other than the trade or tenants'' fixtures removable by the lessee.

It appears that the Ginning factory was worked by a firm of partners, the lessee being the managing partner and the lessor being one of the

partners. Chokkalingam Chettiar became indebted to the firm in a large sum of money. On 26th December, 1954, Chokkalingam Chettiar

executed a document styled deed of cancellation and surrender of lease in favour of Mrs. Bagyalakshmi the lessor and that is the subject-matter of

this reference. That bore a stamp of Rs. 15 evidently under Article 49 of Schedule I-A of the Stamp Act. The document first refers to the lease

deed,dated 5th December, 1949 and then proceeds to state that the lessee was unable to continue the lease to the full term of the lease period,

that both the lessor and lessee agreed to terminate the lease, that in consideration of Rs. 1,45,837-3-1 undertaken to be paid by the lessor on

behalf of the lessee to the firm in respect of his liability the lessee agreed to relinquish all claims and rights as lessee under the registered deed of

lease, dated 5th December, 1949 and cancel the same completely which cancellation is also accepted and agreed to by the lessor. He then goes

on to say

Hereafter by reason of this deed of cancellation the aforementioned registered deed of lease, dated 5th December, 1949 shall cease to operate

and will not have any effect as and from this date and the lessor is entitled henceforth to the undermentioned leasehold property with its entire

assets, both movable and immovable, including the yarn security deposit sum of Rs. 500 (N.S. certificate) standing in the name of the lessee

absolutely and free of any claim or right on the part of the lessee who has also today surrendered possession to the lessor of the entire leasehold

and liabilities as they stand today and as disclosed in the accounts of the leasehold factory and as specified and outlined in the table attached to the

schedule hereunder, including all articles, machinery, motor press, stock on hand, furniture, live-stock, Hessien cloth, gunny bags, cycle, etc. The

lessor is further bound and hereby undertakes to assign, if so required, in favour of the lossor and at lessor''s expense all debts including decrees,

and shares, motor cars, factory licence, etc., as and when required.

Then follows certain covenants in regard to the liability of the lessee for undisclosed debts and arrears of tax and the liability of the lessor in regard

to future commitments, and taxes and the right of the lessee to obtain refund of tax if any relating to the period for which he was liable. The

document then proceeds to state

that both the lessor and lessee hereby agree that each is not liable to the other in any manner in regard to any rights or obligations arising under the

lease deed dated 5th December, 1949, which stands hereby mutually cancelled as and from this date. In view of the consideration paid by the

lessor to the lessee as specified and under this document the lessee has no further claim against the lessor either by way of refund in respect of

deposit paid by him on the lease deed, dated 5th December, 1949, or to any compensation for the cancellation of the lease during the middle of

the term.

The document then sets out the demised property which was surrendered and the details of the assets and liabilities which were transferred to the

lessor. The movables and outstandings which included book debts, decrees, etc., are valued at Rs. 2,57,310-1-1. This sum includes a liability of

Rs. 1,24,365-4-3 of Mrs. Bagyalakshmi the lessor, to the lessee. The liabilities are valued at Rs. 1,11,472-14-0. Deducting the value of the

liability from that of the assets a sum of Rs. 1,45,837-3-1 is arrived at, which represents the consideration agreed to be paid by Mrs.

Bagyalakshmi to the lessee. When the reference came up for hearing before us there was a doubt whether the liability of Mrs. Bagyalakshmi to the

extent of Rs. 1,24,365-4-3 included her liability in respect of the premium deposit made by the lessee. We directed the respondent to file an

affidavit in regard to it. An affidavit has now been filed by Mrs. Bagyalakshmi from which it is clear that the sum of Rs. 1,24,365-4-3 does not

include the unexhausted premium deposit.

The deed was stamped under Article 49 of Schedule I-A as a surrender of the lease and a duty of Rs. 15 was paid. When the document was

presented for registration, it was registered as a pending document and the question of the proper stamp was referred to the District Registrar,

Coimbatore, for adjudication. That Officer held that the document, in addition to its being a surrender, was a conveyance of movables, namely the

assets and liabilities of the factory for a consideration of Rs. 1,45,837-3-1 and that it was liable for a duty both as a surrender of a lease and also

as a conveyance and that the duty of Rs. 4,395 was payable thereon. Therefore he called upon the respondent to pay the deficit stamp of Rs.

4380. The respondent appealed to the Board of Revenue against the order but without success. Thereupon he filed a petition under Article 226 of

the Constitution, W.P. No. 948 of 1955, in this Court to direct the petitioner to refer the question of the proper stamp duty payable on the

document u/s 57 and this Court by its order, dated 19th November, 1956, directed such reference.

The question is whether the document, dated 26th December, 1954, is a mere surrender of a lease as contended by the respondent or a

composite one, a surrender of lease and a conveyance of movables, as contended by the Chief Controlling Revenue authority. That it operates as a

surrender of a lease is admitted by both parties. Under its terms the lessor was to retain the entire balance of the premium and the lessee gave up

his right to the same. The amount outstanding on this account has not however been disclosed in the document but it is clear from the affidavit filed

by the respondent that it was not included in the liability of Mrs. Bagyalakshmi to the lessee which was mentioned as Rs. 1,24,365-4-3. Ex facie

the document also purports to transfer the assets and libilities belonging to the lessee in addition to the surrender of the leasehold premises. It is

well-settled that the substance of the transaction and not merely the language in which the draftsman put it should be the guiding factor in the

determination of the proper stamp duty. A conveyance is liable to stamp duty under Article 19 of Schedule I-A of the Stamp Act. A conveyance

has been defined u/s 2(10) as

including the conveyance on sale and other instrument by which property, whether movable or immovable, is transferred inter vivos and which is

not otherwise specifically provided for by Schedule I or I-A.

Under the document the property in the shape of movable assets and outstandings together with the liabilities are transferred for a price which was

arrived at on a due valuation of the assets and liabilities. That there is a present transfer of the movables and outstandings is clear from the recital

that the lessor was ""entitled henceforth"" to them absolutely and free of any claim or right on the part of the lessee. Although an attempt has been

made to camouflage the nature of the transaction by making up the surrender of the leasehold premises with the transfer of the movables, it is

evident on a reference to the lease deed, dated 5th December, 1949, that the latter were not part of or accessory to the leasehold. They belonged

to Chokkalingam Chettiar and he intended to convey the title in them to Mrs. Bagyalakshmi. The transfer of such movables and outstandings

cannot be achieved by a mere surrender which assumes a pre-existing interest in the surrenderee. The document therefore intends a dual effect

namely the surrender of the lease evidenced by the document of 5th December, 1949 and a transfer of the assets and liabilities. The covenants

contained in the document emphasise the transfer of the assets by and from the date of the document. The fact that the movables were enjoyed by

the lessee with the leasehold premises, or that the assets and liabilities arose in relation to the business which he did cannot disguise the fact that

such movables and outstandings were the property of the lessee independent of the lease and a transfer of the title was necessary and intended for

making them the property of the lessee. In Sahavanidhi (Virudhunagar) Ltd. v. Subrahmanya Nadar (1950) 2 M.L.J. 216 there was a scheme of

arrangement u/s 153-A of the Companies Act by which the Official Liquidators were to transfer the assets and liabilities to another limited

Company which was to float a number of joint stock companies for taking over the assets and liabilities of the company in liquidation. In

accordance with the scheme there was a transfer of the assets and liabilities and question arose whether the deeds of transfer of the assets and

liabilities were to be treated as conveyances or mere vouchers passed by the parties in token of their having carried out the terms of the Court''s

order. The learned Judges held that the documents ex facie purported to transfer movable property in the shape of book debts and promissory

notes and the consideration for such transfer being partly in the shape of cash payment and partly in the shape of covenants, entered into by the

transferee, the document should be deemed to be a conveyance and liable to stamp duty as such. The learned Judges observed:

The question is not whether these arrangements could not be effected otherwise than by the execution of a document like Exhibit A-2, but is,

whether, when a document like Exhibit A-2, has been duly executed, it is a conveyance as denned by Section 2, Clause (10) and Article 23 of the

Stamp Act. The position is the same with reference to the document referred to as A-3 which admittedly goes further than the Court''s order and

embodies as part of the bargain between the parties terms and conditions which are not found in the Court''s order"".... ""We are therefore of

opinion that these two documents fall within Article 23 of the Schedule I and are to be stamped as such.

The learned Counsel for the respondent contended that the transfer of the assets and liabilities was really part of the bargain of surrender and

that the principal transaction being the surrender of a lease stamp was leviable only under Article 49. He referred in this connection to the decision

in In Re: Dhampur Sugar Mills Ltd., , where it was held that a provision in an agreement by a Company for compensation to be paid to the

Managing Agent on the happening of one of the events specified therein was a term of the managing agency agreement, and cannot be treated as a

separate contract of indemnity when there was no separate consideration for it. It was not a distinct matter but part and parcel of the agreement as

a whole. We have already pointed out that the movables and outstandings were not the subject-matter of the lease by the respondent to

Chokkalingam but were, the property of the latter. The transfer of such movables and outstandings cannot be a part of the transaction of surrender.

On the other hand the movables and the outstandings are separately valued and consideration is paid by the lessor for obtaining the transfer under

the document. In Civil reference u/s 46 of the Stamp Act, I.L.R.(1895) 20 Bom. 432 it was held that an instrument which was in terms a

conveyance of the property at an agreed value was a sale of such property at that price and the circumstance that the transaction was part of a

larger transaction could not alter the character of the instrument.

The learned advocate for the respondent then referred to the clause in the agreement wherein the lessee undertook to assign if so required in

favour of the lessor at lessor''s expenses all debts, etc., as and when required and contended that there was no transfer by virtue of the document

which should be treated as a mere agreement. We are unable to agree with this contention. The document in terms purported to convey the

property and the clause referred to is nothing more than the usual assurance that is generally given by the vendor to the vendee to further implement

the conveyance. We are therefore of opinion that the document, dated 26th December, 1954, was intended to operate both as a surrender of the

lease and also as a conveyance of the movables and that it is liable to stamp duty under both heads, namely, Articles 49(b) and 18 of the Schedule

I-A of the Stamp Act. Reference answered accordingly.