Supreme Court: Stamp Duty on power of attorney given to unrelated person is constitutionally valid

June 25, 2012
1 min read

In a recent decision in case of State of M.P. Vs Rakesh Kohli, the Supreme Court has upheld the constitutional validity of Levy of Stamp Duty at the rate of 2% of value of property transferred by power of attorney (POA).

The impugned law passed by the Madhya Pradesh State Legislature provides that POA given to a person other than kith or kin, without consideration, authorizing such person to sell immovable property situated in Madhya Pradesh will attract stamp duty at two per cent on the market value of the property which is subject matter of POA. By creating two categories, namely, an agent who is a blood relation, i.e. father, mother, wife or husband, son or daughter, brother or sister and an agent other than the kith and kin, without consideration, the Legislature has sought to curb inappropriate mode of transfer of immovable properties.

In effect, by bringing in this law, the Legislature has sought to levy stamp duty on ostensible POA, the real intention of which is the transfer of immovable property. The classification of POAs as those given to relatives and those given to non-relatives, thus, cannot be said to be without any rationale. It has a direct nexus to the object of the Stamp Act. The conclusion of the High Court, therefore, that the impugned provision is arbitrary, unreasonable and irrational is unsustainable.

While dealing with constitutional validity of a tax law, the court must have regard to the following principles: (i) there is always presumption in favour of constitutionality of a law made by Parliament or a State Legislature, (ii) no enactment can be struck down by just saying that it is arbitrary or unreasonable or irrational but some constitutional infirmity has to be found, (iii) the court is not concerned with the wisdom or unwisdom, the justice or injustice of the law as the Parliament and State Legislatures are supposed to be alive to the needs of the people whom they represent and they are the best judge of the community by whose suffrage they come into existence, (iv) hardship is not relevant in pronouncing on the constitutional validity of a fiscal statute or economic law and, (v) in the field of taxation, the Legislature enjoys greater latitude for classification.

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