The real estate sector being the second largest generator of employment in the
Indian economy has regained its momentum in the market today after experiencing
a slowdown during the tenure of Covid pandemic [i]. Buildings which are old,
dilapidated and in a precarious condition along with being unsafe for habitation
are undergoing redevelopment rapidly in order to prevent any kind of damage
and/or loss to the lives and limbs of the tenants/occupants as well as to the
Shedding light upon the concept of redevelopment, we can
state that when a society appoints a developer for the redevelopment of their
society property, the developer allots to each and every member of the society
permanent alternate accommodation free of any cost and on ownership basis in the
proposed new building accompanied with providing transit compensation to the
members of the society during the period of construction of the new building.
However, if any society member desires to purchase any additional area over and
above to what is being provided to him/her by the developer in respect of
redevelopment then the same can be purchased by him/her for consideration.
from execution and registration of a Development Agreement (more particularly
referred to as the DA), other agreements of and incidental to the DA like
Permanent Alternate Accommodation Agreement ( PAAA), Power of Attorney (POA)
etc. are also entered into accordingly.
Analysis of the ruling of the Hon'ble Bombay High Court
Placing reliance upon the idea of redevelopment, the levy of stamp duty appears
to be one of the major concerns of the relevant parties. A division bench of
Justice G.S. Patel and Justice Neeta Gokhale of the Hon'ble Bombay High Court
pronounced a landmark judgment on 17th February, 2023 in Adityaraj Builders v/s.
State of Maharashtra & ORS
pertaining to the levy of stamp duty on the
Permanent Alternate Accommodation Agreement (PAAA).[ii]
The petitions dealt with a
common question of law under the Maharashtra Stamp Act with respect to the levy
of Stamp Duty on the Permanent Alternate Accommodation Agreement ("PAAA"). The
petitions challenged the Circulars dated 23rd June, 2015 and 30th March, 2017
issued by the Inspector General of Registration and Controller of Stamps, Maharashtra State charging stamp duty on PAAA's and related guidelines.
On June 23, 2015, the Chief Controlling Revenue & Authority issued a circular
providing that if the DA is executed only between the CHS and Developer, the
document to transfer the premises to the member society shall be treated as an
independent agreement and stamp duty will be levied on the construction costs.
On March 30, 2017, the Chief Controlling Revenue Authority issued a
clarificatory circular that the PAAA's will be included in the DA only if every
single society member countersigns the DA.
The bench observed that the issue was the demand by the stamp authority that the
individual PAAA's for members or existing occupants must also be stamped at a
value reckoned at the cost of construction. However, the bench noted that the
existing members and the occupants cannot be considered as 'purchasers' in any
sense of the areas to which they are legally entitled upon reconstruction.
The bench also further asserted that in matters relating to redevelopment of
societies, from the perspective of the society member she or he is getting (a) a
home in replacement of a home (b) a larger home in replacement of a smaller home
and (c) the option of purchasing additional area for the replacement home. It is
undoubtedly clear that items (a) and (b) are not liable to stamp duty, it is
only item (c) that is liable to stamp.
The court observed that the issue of correct payment of stamp duty would affect
a large number of redevelopment projects across the State and Mumbai. The court
set aside and revoked the circulars which contemplated that a Permanent
Alternate Accommodation Agreement (PAAA) executed between the developer and
members of the society requires it to be stamped again even though the
development agreement executed between the developer and the society is already
The bench in its judgment held the following:
- Development Agreement between a cooperative housing society and a
developer for development of the society's property (land, building,
apartments, flats, garages, godowns, galas) requires to be stamped.
- The Development Agreement need not be signed by individual members of the
society. That is optional. Even if individual members do not sign, the DA
controls the re-development and the rights of society members.
- A Permanent Alternative Accommodation Agreement between a developer and
an individual society member does not require to be signed on behalf of the
society. That, too, is optional, with the society as a confirming party.
- Once the Development Agreement is stamped, the PAAA cannot be separately
assessed to stamp duty beyond the Rs.100 requirement of Section 4(1) of the
Maharashtra Stamp Act, 1958 if it relates to and only to rebuilt or
reconstructed premises in lieu of the old premises used/occupied by the member,
and even if the PAAA includes additional area available free to the member
because it is not a purchase or a transfer but is in lieu of the member's old
premises. The stamp on the Development Agreement includes the reconstruction of
every unit in the society building. Stamp duty cannot be levied twice.
- To the extent that the PAAA is limited to the rebuilt premises without the
actual purchase for consideration of any additional area, the PAAA is an
incidental document within the meaning of Section 4(1) of the Stamp Act.
- A PAAA between a developer and a society member is to be additionally
stamped only to the extent that it provides for the purchase by the member for
actual stated consideration and a purchase price of additional area over and
above any area that is made available to the member in lieu of the earlier
- The judgment directed the quashing of Circulars dated 23rd June, 2015
and 30th March, 2017 issued by the Inspector General of Registration and
Controller of Stamps, Maharashtra being ultra vires of the Stamp Act.
- The judgment also stated that the provision or stipulation for assessing
stamp duty on the PAAA on the cost of construction of the new premises in lieu
of the old premises cannot be sustained.
- Reference to redevelopment and homes includes garages, galas, commercial
and industrial use and every form of redevelopment of the society.
The bench disposed off the writ petitions without any order as to costs.
Implication of the ruling upon the society members
The judgment has provided relaxation to the individual members of the society as
they are no more mandatorily required to sign the DA. The individual members of
the society only have to comply with the requirement of signing the PAAA without
any payment of stamp duty in respect of redevelopment of their society. However,
the individual members of the society shall be required to pay the stamp duty
only in respect of the additional area which is purchased by him/her for
Impact of the ruling on the real estate industry
We have often heard of several instances where the redevelopment of a society
gets stalled due to various reasons including the developer facing paucity of
funds, internal disputes between the society members, delayed permissions and
approvals from the government etc. One of the other major issues revolving
around the idea of redevelopment is the payment of stamp duty.
The judgment in the above matter can be perceived to be a shot in the arm for
the real estate industry as it will encourage more societies to go for
redevelopment of their society property when need be.
It has also provided much
needed respite to the residents taking possession of their new homes after the
redevelopment of their society property as they are now relieved from the
financial burden of paying stamp duty on additional area given by the developers
free of cost in their new homes in lieu of their old premises.
- Writ Petition No. 4575 of 2022 with connected cases
Award Winning Article Is Written By: Mrs.Nirali Yash Desai
Authentication No: MR344816295610-23-0323
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