Supreme Court Provides Clarity on Stamp Duty in Tenant-to-Owner Transactions

 The Hon’ble Supreme Court in its ruling held that a long-standing tenant who enters into an agreement to sell with his landlord to purchase the very property he has been occupying cannot be made to pay stamp duty on that agreement as though it were a conveyance deed. The Court set aside the orders of both the Trial Court and the Hon’ble HC of AP, which had directed the tenant-buyer to pay stamp duty and penalty before the agreement could be admitted in evidence in a specific performance suit.

In this case, the appellant had been a tenant of the suit property for nearly five decades. In 2009, the landlady agreed to sell him the property for Rs. 9 lakhs, of which Rs. 6.5 lakhs was paid as advance on the date of the agreement itself. The balance was to be paid at the time of registration. However, the landlady subsequently denied the agreement altogether, filed for eviction under the AP Rent Act, and refused to execute the sale deed. The tenant filed a suit for specific performance. When he sought to produce the agreement to sell as evidence in court, the landlady objected - contending that since the tenant was already in possession of the property, the agreement amounted to a conveyance deed and was therefore insufficiently stamped. The Trial Court and the High Court both accepted this objection.

The Hon’ble SC examined Explanation I to Article 47A of Schedule I-A of the AP Stamp Act, which states that an agreement to sell “followed by or evidencing delivery of possession” is chargeable as a sale. The Court held that this applies only where possession has a clear nexus with the agreement — i.e., it flows from or is evidenced by the agreement itself. Since the buyer’s possession existed earlier under a tenancy, it was not linked to the agreement. The eviction order of January 2017 confirmed that the tenancy was never surrendered, and the relationship remained landlord-tenant. Hence, no deemed conveyance or stamp duty arose. The Court also distinguished the Bombay Stamp Act and its own order in the case of Ramesh Mishrimal Jain v. Avinash Vishwanath Patne (2025).

Keeping the above in mind, the ruling highlights practical considerations. Agreements for tenants purchasing occupied premises may clearly record the existing tenancy and avoid clauses implying surrender. Possession may ideally pass on registration. The decision also indicates that stamp authorities should consider the nature and origin of possession before treating agreements as deemed conveyances.