Introduction:

In a landmark judgment, the Allahabad High Court addressed the issue of stamp duty applicability under Section 2(15) of the Indian Stamp Act, 1899, for cases where family members divided their property and took possession before formalizing the agreement. The case, Somansh Prakash and 8 Others v. State of Uttar Pradesh and 3 Others, revolved around a family who had orally divided their joint family property in 2011, later drafting a written memorandum of settlement in 2012. The Court was tasked with determining whether the written settlement, which followed the division and possession, required stamp duty.

Arguments by Petitioners:

The petitioners argued that their property had been orally divided and they had taken possession of their shares by July/August 2011, months before the formal document in 2012. They claimed that they were no longer co-owners of the property by the time the settlement was written, making Section 2(15) inapplicable. The petitioners contended that the memorandum was simply a record of the previous oral partition and not a new instrument of partition.

They also stated there was no attempt to evade stamp duty, as the property had already been divided by metes and bounds. They challenged the imposition of a penalty, arguing that it was unjust, particularly as no rationale had been provided by the authorities for imposing it.

Arguments by Respondents:

The respondents, representing the state, argued that the written partition deed from May 2012 should be subject to stamp duty under Section 2(15). They asserted that the petitioners had not registered the partition deed and were thus trying to evade paying the required duty.

The respondents also argued that the petitioners remained co-owners until the memorandum of settlement was executed. They emphasized that even if there had been an oral agreement, the partition was not legally complete until the written document was registered, and failure to register would result in a loss to the state exchequer.

Court’s Findings and Judgment:

Justice Piyush Agrawal examined Section 2(15) of the Indian Stamp Act, which defines an “instrument of partition” as any document where co-owners agree to divide property into separate portions, including written records of partition. The court, however, distinguished between co-owners who still possess the property versus those who have already taken possession after partition.

In this case, the court found that the petitioners had divided and taken possession of their respective property shares before executing the 2012 memorandum, meaning they were no longer co-owners at the time of the document’s creation. Therefore, the memorandum was not subject to stamp duty, as it did not constitute an instrument of partition under Section 2(15).

Justice Agrawal also quashed the penalty imposed on the petitioners, criticizing the authorities for not providing valid reasons for the penalty. The court ruled that penalties could only be imposed in cases of deliberate stamp duty evasion, which was not demonstrated here.

Conclusion:

The Allahabad High Court allowed the petition, ruling that no stamp duty was applicable since the partition had already occurred through the oral agreement and possession. The court also set aside the penalty imposed, emphasizing the lack of intent to evade stamp duty and the authorities’ failure to provide justification.