Power of attorney executed with assignment deed under SARFAESI Act wasn’t liable for separate stamp duty: SC

Case Details: Asset Reconstruction Co. (India) Ltd. v. Chief Controlling Revenue Authority - [2022] 138 taxmann.com 37 (SC)

Judiciary and Counsel Details

• • Hemant Gupta and V. Ramasubramaniam, JJ.

Facts of the Case

In the instant case, the Oriental Bank of Commerce (OBC) assigned a debt in favour of appellant – an Asset Reconstruction Company (ARC) registered u/s 3 of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).

Along with the assignment deed, the Bank had executed an irrevocable Power of Attorney (PoA) in favour of the company, empowering the assignee, as an agent of the Bank, to sell any immovable property. The assignment deed was registered with the Sub-Registrar and the stamp duty was paid on it.

However, an audit objection was raised by the Office of Accountant General on the ground that the assignment deed contained a reference to a Power of Attorney (PoA) and hence PoA was chargeable to stamp duty under the Bombay Stamp Act, 1958. Thereafter, the Stamp Duty Collector referred the matter to the Chief Controlling Revenue Authority, who in turn issued a notice to the appellant.

After considering the reply submitted by the appellant, the Chief Controlling Revenue Authority passed an order setting aside the order of adjudication and directed recovery of the deficit stamp duty.

Further, on the submission of the application, the Chief Controlling Revenue Authority referred to two questions for opinion of the Court:

(a) Whether the objection raised by the accountant general proper or not?

(b) Whether the appellant is liable to pay the stamp duty as per the Bombay Stamp Act or not?

Accordingly, a full Bench of the Gujarat High Court held that separate stamp duty has to be paid on the PoA as well. Further, the full Bench of HC relied on Article 45(f) of Schedule I to the Bombay Stamp Act, 1958 which makes a PoA given for a consideration and containing an authority to sell any immovable property chargeable to stamp duty. The ARC approached the SC against the full Bench verdict.

Supreme Court Held

On appeal, the Supreme Court held that the reasoning of the High Court cannot be accepted as for invoking Article 45(f) of Schedule I to the Bombay Stamp Act, 1958, two conditions have to be satisfied i.e. the PoA should have been given for a consideration and an authorization to sell any immovable property should flow out of the instrument. In the present case, the consideration was paid by the ARC to the bank for the purpose of acquisition of the financial assets. Further, the authorization to sell any immovable property didn’t flow out of the PoA instead flows out of the provisions of the SARFAESI Act.

In this regard, a bench observed that the HC overlooked the fact that there was no independent instrument of PoA and that the power of sale of a secured asset flowed out of the provisions of the SARFAESI Act, 2002 and not out of an independent instrument of PoA.

The Court noted that under Amendment Act 44 of 2016, subsection (1A) was inserted in section 5 of the SARFAESI Act, exempting from stamp duty, any document executed by any bank in favour of ARC. Though the amendment was not applicable to this particular case, the Court said that it has taken note of the amendment to show how far the Parliament has gone.

Further, the Court observed that once a single instrument has been charged under a correct charging provision of the Statute, the Revenue Authority cannot split the instrument into two, because of the reduction in the stamp duty facilitated by a notification issued by the Government.

Accordingly, the appeal was allowed and the demand of stamp duty on PoA was set aside.