Requirement of registration and stamping of a Family Settlement Deed
The requirement of registration for Family Settlement Deeds and payment of Stamp Duty has been a perennial topic of discussion. Broadly speaking, document registration in India and the rate of applicable duty on such registration are governed by the Registration Act, 1908 (Registration Act) and the Stamp Act, 1899 (Stamp Act), respectively. This note analyses the requirement for registration and payment of Stamp Duty on Family Settlement Deeds, which are used to resolve disputes and divide family property among members and typically involve immovable property.
Do Family Settlement Deeds need to be registered?
- The Registration Act classifies documents as either compulsory or optional for registration, with Sections 17 and 18 detailing the relevant requirements.
- Section 17 of the Registration Act specifies a list of documents that must be compulsorily registered. Section 17(1)(b) of the Registration Act mandates compulsory registration of 'other non-testamentary instruments (documents other than Wills, etc.) that create, declare, assign, limit, or extinguish any right, title, or interest in immovable property, provided the value of the property is INR 100 or more, including documents that impact the ownership or control of immovable property either currently or in the future'.
- However, Section 17(2)(v) provides an important exception to the aforesaid and states that Section 17(1)(b) does not apply to those documents that only create a right to obtain another document, which, when executed, will create, declare, assign, limit, or extinguish any such right.
- Therefore, if the Family Settlement Deed creates, declares, assigns, limits, or extinguishes any rights in immovable property, it falls under the ambit of Section 17(1)(b); however, if the Family Settlement Deed does not create, declare, assign, limit, or extinguish any rights in immovable property, it would fall within the scope of the exception contained in Section 17(2)(v) of the Registration Act.
- In light of the above, determining whether a Family Settlement Deed needs to be registered requires careful consideration and analysis of the nature of the document, as established by the Supreme Court of India in Kale v. Dy Director of Consolidation1. In this matter, the Court stated that registration would only be necessary if the terms of the family arrangement are documented in writing and the document itself creates, declares, assigns, limits, or extinguishes any rights in immovable property. This view was also reaVirmed by the Supreme Court in Korukonda Chalapathi Rao & Anr v. Korukonda Annapurna Sampath Kumar2 wherein the Court distinguished between a mere Memorandum from a Family Settlement Deed, stating that Memorandum in itself does not create or extinguish any rights in immovable properties and, therefore, does not fall within the scope of Section 17(2) of the Registration Act, making it not compulsorily registrable.
Applicability of Stamp Duty on Family Settlement Deeds
- Under Article 45 of the Stamp Act, Stamp Duty for any instrument executed between co-owners of an immovable property is charged at half a percent of the market value of the separated share or shares of the property. The largest share remaining after the property is partitioned (or, if there are two or more shares of equal value and not smaller than any of the other shares, then one of such equal shares) shall be deemed to be that from which the other shares are separated. Given that a Family Settlement Deed typically involves a partition between co-owners, the incidence of Stamp Duty will also be applicable to such a deed.
- On the other hand, a document that merely records the past transactions of any family arrangement may not require to be stamped or registered. This view was upheld by the Supreme Court in the matter of Korukonda Chalapathi Rao & Anr v. Korukonda Annapurna Sampath Kumar (supra), wherein the Court addressed the nature of Khararunama (which is a family settlement document that records the past transactions and arrangements) and determined that such a document, being a mere record of previous transactions, may not require to be stamped.
- The Supreme Court also referenced the judgment of the Division Bench of the Madras High Court in AC Lakshmipathy & Ors v. AM Chakrapani Reddiar & Ors, wherein the Court noted that a document in the nature of a Memorandum, which evidences a family arrangement already made and serves as a record of what had been agreed upon, does not need to be stamped or registered.
2023 land regulations in West Bengal: Conversion of leasehold interest to freehold title
A consolidated and standardised land allotment policy was issued by the Land and Land Reforms Department (L&LR Department) of the Government of West Bengal (State Government) vide order No. 6686-LP/1-A-18/2012 dated 26/12/2012 (Existing Policy).
Under Clause 3(i) of the Existing Policy, land allotted to any individual/company/institution etc. under the Policy could only be transferred to them by the Government and its parastatals (entities and corporations that primarily act as functionaries of the State Government) by way of long-term lease for a period not exceeding 99 years, with the option for renewal for the same period under same or additional conditions that may be imposed and included in the Renewal Lease Deed. However, since January 2023, the State Government has begun to change this position and has allowed transfer and conversion of government-owned land on a freehold basis by existing lessees and prospective allottees. This was eVectuated via a series of notifications and amendments throughout 2023, which are discussed in subsequent sections.
- January 17, 2023
Notification by the Urban Development and Municipal AMairs Department
By an order dated January 17, 2023, the Urban Development and Municipal AVairs Department (UDMA Department) of the State Government introduced the West Bengal Land Conversion (Leasehold Land to Freehold) Scheme, 2022 (2022 Scheme) whereby lessees of residential and commercial plots leased out by parastatals under lease tenures amounting to or exceeding 99 years, are permitted to apply for the conversion of their leasehold rights to the land to freehold rights, subject to certain restrictions and eligibility requirements. If found eligible for conversion, the lessee would thereafter be required to pay the requisite conversion fee as described in the 2022 Scheme, which is chargeable on the basis of the plot area and valuation of land as determined by the Inspector General of Registration and Commissioner of Stamp Revenue, West Bengal, and formulated according to the land usage, plot size and whether the plots are built-up or vacant. Subject to approval of the application of conversion, the lessee would be granted a Certificate of Modification along with a model Deed of Conveyance, to be executed within the period stipulated in the Certificate of Modification.
A significant restriction was imposed by the 2022 Scheme whereby change in land use is not permissible post conversion from leasehold to freehold, except in cases of exceptional necessity after taking prior permission from the concerned authorities following extant rules, orders, and statutory provisions. Prior approval of the UDMA Department is also required to be taken by a parastatal on a case-to-case basis for the conversion of leasehold land parcels to freehold.
Key aspects:
- Lessees/mutated lessees/assignees may apply for such conversion. 'Mutated lessee' and 'assignee' have been defined to mean present lessee to whom the leasehold right has been devolved by inheritance or Will or valid transfer.
- All dues to parastatals/State Government on account of lease rent and other charges shall be cleared in order to become eligible to submit an application for conversion.
- If the concerned plot includes constructed buildings, there is a requirement to have a valid Completion Certificate (CC) or an Occupancy Certificate (OC), both of which are deemed to include partial CC and partial OC.
- As on the date of application for conversion, there should be no deviation in the context of building rules/laws and lease conditions. If there is any deviation, the conversion proposal may be considered only after regularization, if such regularization is permissible under applicable laws.
- If the leasehold right is mortgaged, a No-Objection Certificate (NOC) from the mortgagee shall be submitted along with the application for conversion.
- If any advance lease rent is paid, the same may be adjusted against the conversion fee.
- A formula has been provided for calculating the conversion fee.
- Post conversion, a Certificate of Modification as generated by the UDMA Department would be made available to the lessee/mutated lessee/assignee online along with a Deed of Conveyance.
- The applicant is required to deposit the previous Lease Deed in original at the time of execution of the Deed of Conveyance post conversion. Certified copy of the Lease Deed may be deposited in case of loss or damage of the original Lease Deed.
- The lessee/mutated lessee/assignee is required to pay the applicable Stamp Duty and registration fee at the time of registration of the Deed of Conveyance.
- April 10, 2023
Land Reforms (Amendment) Act, 2023
On April 10, 2023, the West Bengal Legislature passed the West Bengal Land Reforms (Amendment) Act, 2023 (Amendment Act).
Key aspects:
- The second proviso to Section 14YA of the West Bengal Land Reforms Act, 1956 (Principal Act) – which provided that 'any person acquiring land in excess of the ceiling limit prescribed under the Principal Act, if permitted by the State Government to establish an industrial park, industrial hub, industrial estate, financial hub, logistic hub, bio-tech park, food park or township, shall lease out such excess land subject to permissions and fee as outlined in the aforesaid provision'
- was amended to permit transfer of such excess land on a freehold basis.
- Section 52(2) of the Principal Act, which provides for management of land vested in the State Government under the Act, was amended to permit existing and prospective lessees of vested nonagricultural lands to apply for holding such land on a freehold basis as raiyat even in excess of the ceiling limit for the purpose for which it is intended to be settled, subject to payment of prescribed fee and such other terms and conditions as may be imposed by the State Government.
- Section 52(3) was amended to permit the State Government to formulate separate sets of rules in respect of the purposes mentioned in the above-mentioned proviso to Section 14YA of the Principal Act.
- June 8, 2023
Amendment to the West Bengal Land Reforms Rules, 1965
The State Government, acting through its L&LR Department vide an Order dated June 8, 2023, amended the West Bengal Land Reforms Rules, 1965 by insertion of Rule 28B, which provided that all lands belonging to the State Government, excluding land comprised in tea gardens, shall be managed for transfer on a freehold basis on such terms and notifications as the State Government may provide.
- July 7, 2023
Land Reforms Manual, 1991 Amendment
By an Order dated July 7, 2023, the State Government amended the West Bengal Land & Land Reforms Manual, 1991 so as to authorise the Collector of a District to settle any non-agricultural land vested in the State Government or any specified classes of such land on a leasehold or a freehold basis, with prior permission of the State Government. Rule 216, which previously permitted settlement of non-agricultural land solely on a leasehold basis, was suitably amended to permit settlement on such lands on a freehold basis. Additionally, Rule 218 (iii) was inserted to provide that the freehold settlement of non-agricultural land is to be made under the registered Deeds of Conveyance, the formats of which were inserted as Form Nos. 10 and 11 of Appendix IV of the West Bengal Land & Land Reforms Manual, 1991.
- July 10, 2023
Notification by the Land & Land Reforms and Refugee Rehabilitation Department dated 10th July 2023
Vide an Order dated July 10, 2023, the State Government, by a Notification of the L&LR Department, specified the manner of transfer of various classes of land on a freehold basis.
Key aspects:
- In case of land retained by an intermediary under Section 6(1)(g) of the West Bengal Estate Acquisitions Act, 1953 and deemed to be leased out to such intermediary by the State Government under Section 4B(2) of the West Bengal Land Reforms Act, 1955, the conversion fee for existing lessees, whether the intermediary or a subsequent transferee, shall be 15% of the current market price as determined by the Inspector General of Registration.
- In case of fresh applicants for freehold settlement, conversion rate shall amount to the salami payable in terms of Rule 6A and Rule 6B of the West Bengal Land Reforms Rules 1965 (varying in accordance with utilisation of the land) in addition to 15% of the current market price.
- In case of land settled under the Tea Tourism and Allied Business Policy, 2019, the conversion rate for existing lessees/joint venture companies is 110% of the current market price (95% of salami for 99-year lease in addition to 15% of the current market price) in case of new projects and 15% of the current market price in case of lessees of existing projects who have already paid the requisite salami.
- In case of land leased out by the State Government for 2% of the current market price for industrial purposes, after vesting of ceiling surplus land purchased for that purpose, the conversion fee payable by the lessee shall be 7% of the current market price minus the amount of salami already paid.
- In case of leasehold land settled for 30 years or 99 years
under WBIDC, WBHDC and WBSIDC, the conversion fee shall be as
follows:
- For 99-year leases, 15% of the current market price
- For 30-year leases, 70% of the current market price (55% of the current market price for conversion of lease period from 30 to 99 years, in addition to 15% of the market price for conversion to freehold)
- In case of land held by transferees/assignees other than lessees, 25% of the current market price
- In the case of Kolkata khasmahal land, 15% of the current market price
- In all such cases specified till this point, any diversion from the activity for which the land is permitted to be used shall lead to cancellation of the Deed. All such transfers are permitted even if in excess of the ceiling limit prescribed under the West Bengal Land Reforms Act, 1955.
- In case of vested land settled with multi-storied residential buildings, individual flat assignees shall pay conversion fee of 15% of the current market value of the flat, while lessees of unsold units shall pay conversion fee as outlined hereinabove in case of leasehold land settled for 30 years or 99 years.
- In case of vacant unencumbered vested land, the land is to be auctioned in terms of the Land Allotment Policy 2012.
- For pocket vested lands where allotment is made on realization of salami of 95% of the current market price, the applicant shall have to pay an additional 15% of the current market price as a conversion fee.
- For land comprising industrial parks allotted to applicants, the conversion fee shall be 15% of the current market price in addition to the 'declared price.'
- For already leased out land, Stamp Duty for registration of the deed shall be based upon the additional amount to be charged for freehold conversion.
- November 17, 2023
Amendment to the 2022 Scheme by the UDMA Department
The UDMA Department passed a Notification dated November 17, 2023, whereby several modifications were introduced pursuant to the 2022 Scheme.
Key aspects:
- Industrial plots, institutional plots and plots of mixed-use shall come under the purview of the Scheme.
- All industrial plots falling within Sector-V of Salt Lake shall be outside the purview of the Scheme.
- Industrial plots under other sectors of Salt Lake shall also be outside the purview of the Scheme and shall not be considered for conversion into freehold from leasehold.
- There shall not be any violation of the terms and conditions of the original Lease Deed.
- For industrial plots of land, the conversion fee as proposed by the July Notification were adopted, i.e. industrial plots on 99-year lease shall be subjected to conversion fee determined at 15% of the current market price of the land as determined by the IGR.
- Once transferred to freehold, the entire land schedule shall be flagged in the UDMA land record system to restrict any future conversion related to the use of the land.
- No further conversion shall be allowed after transferring the land on a freehold basis for a specific purpose. This condition of the restriction of change of land use shall be included in the Deed of Conveyance.
- Stamp Duty chargeable on already leased out land shall be based on the additional amount to be charged for freehold transformation/conversion under the Scheme.
- June 11, 2024
Notification by the UDMA Department
The Government of West Bengal, acting through the UDMA Department, issued a Notification dated June 11, 2024, to aid the conversion of leasehold interest to freehold title.
Key aspects:
- Three categories of tenure were specified for the purpose of computation of conversion fee: 30 years, between 30 years and 99 years and between 99 years to 999 years.
- Conversion of proportionate undivided share of land appertaining to a flat/shop was permitted, subject to the same charges as the freehold conversion of leasehold land.
- License agreements where similar rights were conferred as are conferred through leasehold agreements, of tenures of 99 years and above, and which were granted prior to the 2012 Land Allotment Policy shall also be considered for conversion so long as the State Government/parastatal incurs no revenue loss and provided that all the interest and penalties as per the provisions of the license agreement are realised.
- Stamp Duty for registration of Deed of Conveyance shall vary between conversion of lease deeds and license agreements. It shall be payable on the consideration amount paid for conversion in respect of lease deeds and shall be charged on 110% of the current valuation of the land minus the consideration amount paid for execution of the license agreement, in respect of license agreements.
- The Scheme shall not be applicable to land leased out at concessional rates and other plots which have been allotted at token price.
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