In a key decision, the Karnataka High Court dealt with two connected writ petitions involving leading real estate developers[1], challenging the decision of the stamp and registration authorities in Karnataka. The key issue was whether stamp duty applies to super built-up areas and car parks when the sale deed refers only to an undivided land share. The decision clearly explains the legal position on dual ownership and how stamp duty must be calculated on such documents.
Background
The real estate developers, petitioners in the instant case, had entered into a Joint Development Agreements (JDA) and, later, sale deeds to acquire specific undivided shares of land for construction of residential projects. The Sub-Registrar of Properties presumed undervaluation of the property at the time of registration of these documents. The State of Karnataka argued that since the buildings (residential apartments and car parks) already existed or were planned at the time of the sale deed, stamp duty should have been charged on the collective value of the land and the constructed area.
However, the petitioners stated that their sale deed explicitly covered only specific undivided land share, and not the buildings. They claimed that separate ownership of land and buildings constructed over it is legally recognised and hence, including the super built-up area and car parks in market-value computation while assessing stamp duty was incorrect.
Recognition of Dual Ownership
The Karnataka High Court confirmed that Indian law permits dual ownership of property. This means that ownership of land and the structures built upon it can be owned by different persons. The Court referred to decisions from the Privy Council, the Supreme Court of India, and various High Courts. These judgments depart from English Common Law principle “quicquid plantatur solo, solo cedit” (whatever is affixed to the soil goes with it).
In particular, the Court relied on:
- Bishan Das & Ors. v. State of Punjab & Ors.[2], where the Supreme Court held that if someone constructs with permission on another’s land, it will not amount to trespass and such construction would not belong to the landowner automatically, rejecting application of the Latin maxim “quicquid plantatur solo, solo cedit”.
- M/s. Laxmi Enterprises v. The Commissioner BBMP and Anr.[3], where the Karnataka High Court held that if a lease of land allows construction, the lessee owns the building, not the State, unless the lease deed mandates that any building constructed on the leased land would be in the ownership of the lessor (State).
- Dinkar S. Vaidya v. Ganpat S. Gore[4], where the Bombay High Court distinguished between tenancy of land and tenancy of structure. The Court held that the land and the structure are two distinct premises and distinct ownership is vested in two distinct persons.
Basis the above, the Karnataka High Court concluded that a purchaser or developer can validly elect to buy, sell, or convey only an undivided share in the underlying land, while the buildings are treated as a separate legal interest.
Instrument vs. Transaction: Determination of Stamp Duty
The judgment underscores that the correct subject of stamp duty is the “instrument” as executed, not the broader “transaction” or what the stamp and registration authorities assume the nature of the transaction to be. The four corners of the deed must be entirely read to ascertain precisely what is being conveyed, rather than considering external factors or assumptions about the intentions of parties.
Thus, even if a JDA contemplates a future construction or completed construction on the land, a separate sale deed transferring only a share in the undivided land cannot automatically be subjected to stamp duty for the construction, if the deed says so clearly.
Structuring Deals to Minimise Stamp Duty
The Karnataka High Court reiterated its previously recognised proposition in Smt. Mohini Devi v. The Sub-Registrar[5], which inter alia observed that parties have a legitimate right to structure their transactions to reduce stamp duty liability as long as the instrument is clear. If the sale deed only conveys an undivided share in land and does not mention the buildings, the presence or future presence of a superstructure does not convert the legally effective conveyance into one for both the land and buildings.
Judgment
The Court ruled in favour of the petitioners and quashed the orders demanding additional stamp duty and registration fee. It held that the sale deed was valid and did not undervalue the property. It also affirmed the principle of dual ownership, where the sale of an undivided land share, separate from the superstructure, is legally permissible under law.
Practical Implications
For Developers
The judgement validates transactional models where developers buy land shares through sale deeds while documenting construction arrangements separately. This helps mitigate stamp duty outlays, so long as all documents accurately reflect the true nature of the conveyances.
For Purchasers
Buyers must verify if they are buying the constructed area itself or only an undivided land share, coupled with a construction agreement for the constructed area. Clear drafting is essential to avoid confusion or future disputes over ownership.
For Stamp and Registration Authorities
The authorities now have definitive guidance that stamp duty must be charged based on the contents of the deed. If the deed mentions only an undivided land share, the value of constructed area cannot be added unless the deed says so.
Conclusion
By upholding dual ownership and focusing on the specific contents of the sale deed, the Karnataka High Court reassured that Indian law permits separate ownership of land and buildings, if clearly stated.
While there are many judgments across India supporting this position, the Karnataka High Court has merely reiterated a settled legal principle. The judgement reinforces the principle that stamp duty must be calculated basis what is expressly conveyed in the document and not based on assumptions about the transaction. It ensures clarity, reduced stamp duty where permissible and protects parties from overreach by revenue authorities. Note that this decision does not touch upon conveyances involving constructed areas that are a part of real estate projects registered under the Real Estate (Regulation and Development) Act, 2016, which are governed by rules and regulations and model agreements notified by each State/ Union Territory in India.
For further information, please contact:
Abhilash Pillai, Partner, Cyril Amarchand Mangaldas
abhilash.pillai@cyrilshroff.com
[1] Writ Petition No. 52706 of 2019; Writ Petition No. 2665 of 2020
[2] AIR 1961 SC 1570
[3] ILR 2012 KAR 5474
[4] 1980 SCC OnLine Bom 137
[5] ILR 1999 KAR 2630
