Case Summary
| Citation | Duncans Industries Ltd. v. State of U.P. (2000) 1 SCC 633 |
| Keywords | sec 3 tpa, immovable or movable property, plant and machinery, fertilizer factory |
| Facts | A company agreed to transfer its fertilizer business including the plant and machinery. The parties had treated them as movables and had delivered possession of the said plant and machinery as movables. This plant and machinery related to the fertilizer business of manufacturing, marketing distribution and sale of urea fertilizer, and included ammonia manufacturing plants, captive power plants, vehicles, furniture, air conditioners, standby systems, pipelines, railway siding, etc. The machineries which formed the fertilizer plant were permanently embedded in the earth, for running the fertilizer factory and at the time, when these machineries were embedded in earth, they were done so by the owner with an intention, to use them permanently. By showing plant and machinery as movable property, they were saving taxes which were imposed on transfer of immovable property. |
| Issues | What is the character of plant and machinery? |
| Contentions | |
| Law Points | Sale of a fertilizer factory would include not only the land but also the plant and the machinery of the factory. The very nature of the user of these machineries, it was necessary that they be permanently attached to the ground. Things permanently attached to what is embedded in the earth, for the permanent beneficial enjoyment of that to which it is attached, the requisite factors here are that: → Firstly, it must be a permanent attachment, i.e., intended to be used in perpetuity or till the life of the attachment. → Secondly, its attachment constitutes a permanent improvement to the thing to which it is attached. Primarily, the court will have to take into consideration the intention of the parties (sic party) when it decided to embed the machinery, whether such embedment was intended to be temporary or permanent. The description of the machines as seen in the schedule attached to the deed of conveyance also shows without any doubt that they were set up permanently in the land in question with a view to operate a fertilizer plant and the same was not embedded to dismantle and remove the same for the purpose of sale as machinery at any point of time. The facts show that the purpose for which these machines were embedded was to use the plant as a factory for the manufacture of fertilizer at various stages of its production. Hence, the contention that these machines should be treated as moveables cannot be accepted. |
| Judgement | The court held that these were immovable properties. Therefore, physical delivery of possession, without a written, attested and registered document could not convey any title to the other party in these properties. |
| Ratio Decidendi & Case Authority |
Full Case Details
N. SANTOSH HEGDE, J.- A deed of conveyance dated 9-6-1994 executed by a company named
ICI India Ltd. in favour of Chand Chhap Fertilizer and Chemicals Ltd. when presented for
registration, the Registrar concerned referred the said document under Section 47-A(2) of the Stamp
Act to the Collector complaining of non-compliance with Section 27 of the said Act and praying for
proper valuation to be made and to collect the stamp duty and penalty payable on the said document.
The Collector after inquiry levied a stamp duty of Rs 37, 01, 26,832.50 and a penalty of Rs 30,
53,167.50. The said order came to be challenged by the aggrieved party in a revision under Section 56
of the Stamp Act before the Chief Controlling Revenue Authority in Stamp Revision No. 36/95-96
and the said revisional authority as per his order dated 4-4-1995 partly allowed the challenge and so
far as the imposition of penalty was concerned the same was set aside and slightly modified the stamp
duty levied by the Collector. Consequent to the order of the revisional authority, the appellant herein
became liable to pay stamp duty on the said deed of conveyance amounting to Rs 36, 68, 08,887.50.
This order of the revisional authority came to be challenged before the High Court in Civil
Miscellaneous Writ Petition No. 9170 of 1995 which came to be dismissed and as against this order of
the High Court of Judicature at Allahabad dated 7-7-1997; the appellant has preferred the above civil
appeal.
2. ICI India Ltd., a company registered under the Companies Act, 1956 executed an agreement of
sale dated 11-11-1993 wherein it agreed to transfer on an “as is where is” basis and “as a going
concern” its fertilizer business of manufacturing, marketing, distribution and sale of urea fertilizer in
favour of Chand Chhap Fertilizer and Chemicals Ltd. (“CCFCL”), also a company incorporated under
the Companies Act, 1956 which company has since been renamed as M/s Duncans Industries Limited,
Fertilizer Division, Kanpur Nagar (the appellant herein) for a total sale consideration of Rs 70 crores
which was termed as “slump price” in the agreement. The said agreement also stated that the vendor
would on the “transfer date” transfer the fertilizer business by actual delivery of possession to CCFCL
in respect of such of the estates and properties mentioned in the agreement as were capable of being
transferred by actual and/or constructive delivery and in respect of the estates requiring transfer by
execution of necessary documents vesting the title thereof in CCFCL, and it was further agreed and
declared that the ownership in respect of the assets and properties comprised in the “fertilizer
business” to be transferred as per the agreement, would be deemed to be vested in CCFCL on and
from the “transfer date” which, according to the agreement means 1-12-1993 or such other date as
may be agreed to by and between ICI India and CCFCL. The term “fertilizer business” was defined to
mean and include the following other properties:
“(i) demised land being Plots Nos. 2-B and 5 and the sub-divided portion of Plot No. 2
demarcated and admeasuring in the aggregate an area of 243.4387 acres equivalent to 9,
85,159.50 sq m. Being the unshaded portion shown on the plan annexed hereto together with
the buildings and structures thereon forming part of the fertilizer business as on the transfer
date;
(ii) freehold land and residential building thereon with the name ‘Chandralok’, situate at
Plot No. 4/284, Parbati Bangla Road, Kanpur comprising 94 residential flats;
33
(iii) freehold land and residential building thereon with the name ‘Chandrakala’, situate at
Navsheel Apartments, 56 Cantonment, Kanpur comprising a guest house on the ground floor
and 3 residential flats on the first floor;
(iv) plant and machinery relating to the fertilizer business including the ammoniamanufacturing plants, the captive power plant and all other moveable capital assets including
vehicles, furniture, air conditioners, standby systems, pipelines, railway siding etc., as on the
transfer date and wheresoever situate, all of which relate exclusively to the fertilizer business
and are owned and in the possession of ICI or are owned by ICI but in the lawful possession
of any third party for and on behalf of ICI;”
3. Pursuant to the said agreement, a deed of conveyance dated 9-6-1994 was executed by the said
ICI in favour of CCFCL, on the presentation of the said conveyance deed for registration. The SubRegistrar made a reference to the Collector under Section 47-A(2) of the Stamp Act, 1899 (“the Act”)
stating that in the document under reference all the details required under Section 27 of the Act had
not been given by the parties, hence valuation and examination is essential and requested the
Collector to determine the value as required under the Act and the rules and to take action to realise
the deficit stamp duty and penalty. Consequent upon this reference made by the Sub-Registrar, the
Collector after necessary inquiry as per his order dated 20-2-1995 referred to above levied stamp duty
and penalty to which reference has already been made. Being aggrieved by the said order of the
Collector, the appellant preferred a revision petition to the Chief Controlling Revenue Authority who,
as already stated, by his order dated 9-6-1994 set aside the penalty and modified the duty payable to
Rs 36,68,08,887.50 which order came to be challenged before the High Court unsuccessfully.
4. Before the High Court the appellant had challenged the authority of the Sub-Registrar to make
a reference to the Collector on the ground that there was no material to entertain any “reason to
believe” that the market value of the property which was the subject-matter of the conveyance deed
had not been truly set forth in the instrument. The High Court negatived the said contention after
considering the arguments of the appellant in detail, and before us no argument has been advanced on
this score.
5. Mr M.L. Verma, learned Senior Counsel appearing for the appellant urged that the High Court
committed an error in coming to the conclusion that the plant and machinery which were transferred
by the vendor to the appellant, were immovable properties, attracting the provisions of the Stamp Act
and at any rate under the conveyance deed dated 9-6-1994, the vendor had not conveyed any title to
the appellant in regard to the plant and machinery. He also contended that the High Court erred in
relying upon paras 10 and 11 of the conveyance deed to come to the conclusion that the plant and
machinery were the subject-matter of the said deed. He contended that the said paragraphs merely
made a reference to an earlier instrument and mere reference to some earlier transaction in a document
does not amount to incorporation in that document of the terms and conditions relating thereto. It was
also contended that the High Court failed to look into the intention of the parties who by an agreement
dated 11-11-1993 had treated the plant and machinery as moveables and have delivered possession of
the said plant and machinery as moveables on 11-12-1993. Hence, the said plant and machinery is
neither immovable property nor the property which has been transferred by virtue of the deed of
conveyance dated 9-6-1994. Therefore, the value of the said plant and machinery could not have been
taken into consideration for the purpose of arriving at the correct and true value of the property
conveyed under the deed of conveyance. He also contended that the valuation in regard to the plant
34
and machinery made by the authorities and as accepted by the High Court is incorrect and contrary
to law.
6. Mr Gopal Subramanium, learned Senior Counsel appearing on behalf of the State in reply
contended that the document dated 11-11-1993 (agreement of sale and transfer of fertilizer business)
by ICI in favour of CCFCL contemplated an agreement to transfer the business of manufacturing
marketing, distribution and sale of urea fertilizer that is fertilizer business itself with a stipulation that
the first stream, second stream and the third stream urea-manufacturing plants as well as the
ammonia-manufacturing plants would also be transferred as a part of the transfer of fertilizer business
of ICI as a going concern. He also contended that a reading of the document at para 1(c) (i) which
defines “fertilizer business” clearly shows that the intention of the vendor was to transfer all
properties that comprised the fertilizer business. He also drew our attention to the observations of the
High Court which had in specific terms noted that the learned counsel representing the appellant
before it had not seriously challenged the valuation made by the authorities, hence he contended that
the challenge made to the valuation by the appellant before us should not be countenanced.
7. We have heard learned counsel for the parties and the question that arises for our consideration
is: whether by the conveyance deed dated 9-6-1994, the plant and machinery were also transferred;
and if so, whether the High Court was right in accepting the valuation as made by the authorities for
the purpose of stamp duty payable.
8. Considering the question whether the plant and machinery in the instant case can be construed
as immovable property or not, the High Court came to the conclusion that the machineries which
formed the fertilizer plant, were permanently embedded in the earth with an intention of running the
fertilizer factory and while embedding these machineries the intention of the party was not to remove
the same for the purpose of any sale of the same either as a part of a machinery or scrap and in the
very nature of the user of these machineries, it was necessary that these machineries be permanently
fixed to the ground. Therefore, it came to the conclusion that these machineries were immovable
property which were permanently attached to the land in question. While coming to this conclusion
the learned Judge relied upon the observations found in the case of Reynolds v. Ashby & Son [1904
AC 466] and Official Liquidator v. Sri Krishna Deo [AIR 1959 All 247]. We are inclined to agree
with the above finding of the High Court that the plant and machinery in the instant case are
immovable properties. The question whether a machinery which is embedded in the earth is moveable
property or an immovable property, depends upon the facts and circumstances of each case. Primarily,
the court will have to take into consideration the intention of the parties (sic party) when it decided to
embed the machinery, whether such embedment was intended to be temporary or permanent. A
careful perusal of the agreement of sale and the conveyance deed along with the attendant
circumstances and taking into consideration the nature of machineries involved clearly shows that the
machineries which have been embedded in the earth to constitute a fertilizer plant in the instant case,
are definitely embedded permanently with a view to utilise the same as a fertilizer plant. The
description of the machines as seen in the schedule attached to the deed of conveyance also shows
without any doubt that they were set up permanently in the land in question with a view to operate a
fertilizer plant and the same was not embedded to dismantle and remove the same for the purpose of
sale as machinery at any point of time. The facts as could be found also show that the purpose for
which these machines were embedded was to use the plant as a factory for the manufacture of
fertilizer at various stages of its production. Hence, the contention that these machines should be
treated as moveables cannot be accepted. Nor can it be said that the plant and machinery could have
35
been transferred by delivery of possession on any date prior to the date of conveyance of the title to
the land. Mr Verma, in support of his contention that the machineries in question are not immovable
properties, relied on a judgment of this Court in Sirpur Paper Mills Ltd. v. CCE [(1998) 1 SCC 400].
In the said case, this Court while considering the leviability of excise duty on paper-making machines,
based on the facts of that case, came to the conclusion that the machineries involved in that case did
not constitute immovable property. As stated above, whether a machinery embedded in the earth can
be treated as moveable or immovable property depends upon the facts and circumstances of each case.
The Court considering the said question will have to take into consideration the intention of the
parties which embedded the machinery and also the intention of the parties who intend alienating that
machinery. In the case cited by Mr Verma, this Court in para 4 of the judgment had observed thus:
“In view of this finding of fact, it is not possible to hold that the machinery assembled
and erected by the appellant at its factory site was immovable property as something attached
to earth like a building or a tree. The Tribunal has pointed out that it was for the operational
efficiency of the machine that it was attached to earth. If the appellant wanted to sell the
paper-making machine it could always remove it from its base and sell it.”
9. From the above observations, it is clear that this Court has decided the issue in that case based
on the facts and circumstances pertaining to that case hence the same will not help the appellant in
supporting its contention in this case where after perusing the documents and other attending
circumstances available in this case, we have come to the conclusion that the plant and machinery in
this case cannot but be described as an immovable property. Hence, we agree with the High Court on
this point.
10. The next question for consideration is whether the vendor did transfer the title of the plant and
machinery in the instant case by the conveyance deed dated 9-6-1994. Here again, it is imperative to
ascertain the intention of the parties from the material available on record. While ascertaining the
intention of the parties, we cannot preclude the contents of the agreement pursuant to which the
conveyance deed in question has come into existence. We have noticed that as per the agreement it is
clear that what was agreed to be sold is the entire business of fertilizer on an “as is where is” basis
including the land, building thereon, plant and machinery relating to fertilizer business – description of
which is found in the definition of the term “fertilizer business” in the agreement itself which has been
extracted by us hereinabove. It is not the case of the appellant when it contends that the possession of
plant and machinery was handed over separately to the appellant by the vendor, that these machineries
were dismantled and given to the appellant, nor is it possible to visualise from the nature of the plant
that is involved in the instant case that such a possession dehors the land could be given by the vendor
to the appellant. It is obviously to reduce the market value of the property the document in question is
attempted to be drafted as a conveyance deed regarding the land only. The appellant had embarked
upon a methodology by which it purported to transfer the possession of the plant and machinery
separately and is contending now that this handing over possession of the machinery is dehors the
conveyance deed. We are not convinced with this argument. Apart from the recitals in the agreement
of sale, it is clear from the recitals in the conveyance deed itself that what is conveyed under the deed
dated 9-6-1994 is not only the land but the entire fertilizer business including plant and machinery. A
perusal of clauses 10, 11 and 13 of the said deed shows that it is the fertilizer factory which the vendor
had agreed to transfer along with its business as a going concern and to complete the same the
conveyance deed in question was being executed. There is implicit reference to the sale of fertilizer
factory as a going concern in the conveyance deed itself. That apart, the inclusion of Schedule III to
36
the conveyance deed wherein a plan delineating the various machineries comprising of the fertilizer
factory is appended shows that it is the land with standing fertilizer factory which is being conveyed
under the deed, though an attempt to camouflage this part of the property sold is made in the recitals,
in our opinion, the parties concerned have not been able to successfully do so. While considering this
question of transfer of plant and machinery being part of the conveyance deed or not, reliance can also
be placed on the application filed by the appellant before the appropriate authority of the Income Tax
Department wherein while disclosing the market value of the immovable property sought to be
transferred the appellant himself has mentioned the value of the property so transferred as Rs 70
crores which is the figure found in the agreement of sale which agreement includes the sale of plant
and machinery along with the land.
A certificate issued by the appropriate authority under Section 269-UL (3) of the Income Tax Act
evidences this fact. In the said application made by the appellant for obtaining the said certificate, the
appellant has in specific terms at Serial No. (iv) of the schedule included plant and machinery, railway
siding and other immovable properties as part of the fertilizer business undertaking. It is also found on
record that by a supplementary affidavit dated 8-9-1993 filed before the Income Tax Department
while filing Form 37-I prescribed under the Income Tax Rules the petitioner has again shown all these
plant and machinery along with the plan which is now attached to the conveyance deed as part of the
property that is being conveyed. Merely because in some of the relevant paragraphs of the conveyance
deed the appellant has tried to highlight the fact that what is being sold under the conveyance deed is
only the land and a reference is made in regard to the handing over of possession of the machinery on
an earlier date does not ipso facto establish that the vendor did not convey the title of the plant and
machinery under the conveyance deed dated 9-6-1994.
13. For the reasons stated above, we are of the considered opinion that the vendor as per the
conveyance deed dated 9-6-1994 has conveyed the title it had not only in regard to the land in
question but also to the entire fertilizer business on “as is where is” condition including the plant and
machinery standing on the said land. Therefore, the authorities below were totally justified in taking
into consideration the value of these plant and machineries along with the value of the land for the
purpose of the Act.
16. For the reasons stated above, this appeal fails and the same is dismissed with costs.
