Case: Board Of Revenue, Uttar Pradesh Vs. Rai Saheb Sidhnath Mehrotra

The respondent is one of the executants of the deed dated December 15, 1952. The executants, hereinafter referred to as the venodrs, were lessees of two plots of land and on these plots they had constructed an oil mill, known as Sri Govind Oil Mills, as Ice and Cold Storage Factory, and buildings in which the factories stood. The Ice and Cold Storage Factory was being run by the vendors in partnership with Shyam Sunder Gupta and Satya Prakash Gupta. The vendors had equitably mortgaged these properties with the Chartered Bank of India, and a sum of Rs. 10,00,000 was due to the Bank. In order to pay off the debt, the vendors entered into a contract with Messrs Oil Corporation of India Ltd., hereinafter referred to as the vendees, for the sale of the lands, buildings, plants, machinery and stores and goodwill of the Govind Oil Mills and Ice and Cold Storage Factory for a sum of Rs. 5,55,000, made up as follows; Rs. 1,12,000 for the plant and machinery and goodwill of the Ice and Cold Storage Factory, Rs. 3,00,000 for the machinery of Sri Govind Oil Mills, Rs.25,000 for stores, Rs. 18,000 for goodwill and Rs. 1,00,000 for the buildings and the lessee rights in the plots. Out of this Rs. 66,000 was payable to Messrs Shyam Sunder Gupta and Satya Parkash Gupta in respect of their share in the Kanpur Ice and Cold Storage Factory and the remainder to the vendors.4. The Chartered Bank agreed to release from its charge the properties to be conveyed to the vendees provided a sum of Rs. 5,00,000 was paid to it. The vendees agreed to pay the said Bank a sum of Rs. 4,89,000, while the vendors agreed to pay Rs. 11,000 to the Bank to make up the balance.5. In pursuance of this agreement, the vendors handed over the possession of plant and machinery of the two factories to the vendees, who paid before December 15, 1952, Rs. 3,89,000 to the said Bank. On December 15, 1952, the sale deed in respect of the buildings and the lessee rights was executed. Clause 2 of the deed providedvendees hereby declare that the properties hereby conveyed are free from all encumbrances except the charge in favour of the Chartered Bank of India, Australia and China. The Mall, Kanpur, which would be paid off so far as the properties hereby conveyed are concerned in the manner set forth above."

Court's reasoning:
Does this phrase mean that whenever mortgaged property is sold the explanation applies or does it imply that if mortgaged property is sold subject to the mortgage then and then only the explanation applies? In our view, the correct meaning is the latter meaning. Let us see what would be the position if A, instead of selling property as in illustration 2, adopts the following mode of selling. A sells property to B for Rs. 1700, which is subject to mortgage to C for Rs. 1,000 and unpaid interest Rs. 200. A agrees that Rs. 1200 be paid to C and Rs. 500 to him. If the first meaning is adopted, the consideration on which the stamp duty would be leviable would be Rs. 1700, which is the consideration expressed in terms of Art. 23, and Rs. 1200 deemed to be consideration within S. 24; the total amounting to Rs. 2900. In our opinion this result could never have been intended. We agree with the decision of the Calcutta High Court in ILR 58 Cal 33   : (AIR 1931 Cal 193   FB) and of the Bombay High Court in Waman Martand Bhalerao v. Commissioner Central Division, ILR 49 Bom 73 : (AIR 1924 Bom 524  ) that the phrase "subject to a mortgage or other encumbrance" in the explanation to S. 24 qualifies the word sale and not the word property. We need hardly say that the Stamp Act is a taxing statute and must be construed strictly, and if two meanings are equally possible, the meaning in favour of the subject must be given effect to.Before we considered the facts of this case, we may mention that it is plain from the explanation that it is only the unpaid mortgage money that is deemed to be part of the consideration. If the mortgage money has been paid off by the date of the conveyance the explanation does not require it to be added to the consideration. If the mortgage money has been paid off by the vendee before the date of the sale, as part of the consideration, it would be included in the amount leviable with stamp duty under Art. 23, but not under the explanation. The conveyance deed would, in the above eventuality, recite the fact that so much money has been paid to the mortgagee and it would be the consideration expressed in thehas already been noticed that this sum of Rs. 11,000 forms part of the price for items other than the immoveable property. Mr. Aggarwala has not seriously controverted the finding of the High Court on this point. Accordingly, we hold that this sum of Rs. 11,000 cannot be included for the purpose of levying stamp duty.