The Supreme Court held that an agreement to sell between a landlord and a tenant already in possession is not a deemed conveyance unless possession is transferred or the tenancy is surrendered. It added that stamp duty applies only when possession follows.
The Supreme Court determined that an agreement to sell made between a landlord and a tenant, who is already in possession of the property, does not constitute a deemed conveyance or sale for stamp duty purposes unless possession is transferred in part performance of the agreement or if there is a formal surrender of the tenancy.
Justices B.V. Nagarathna and R. Mahadevan, in the case of Vayyaeti Srinivasarao vs. Gaineedi Jagajyothi, set-aside the decisions of the Andhra Pradesh High Court and the Trial Court, which had impounded the agreement to sell, arguing it was a conveyance deed subject to stamp duty and penalties.
The appellant, Vayyaeti Srinivasarao, had been a tenant of the respondent, Gaineedi Jagajyothi, for over fifty years in Dowlaiswaram Village, Andhra Pradesh.
Earlier, On October 14, 2009, they entered an agreement to sell the property for a total of Rs. 9,00,000, with Rs. 6,50,000 paid as an advance. When the respondent allegedly refused to finalize the sale deed, the appellant filed a lawsuit (O.S. No. 188/2013) for specific performance.
During the trial, the appellant sought to submit the agreement to sell as evidence. The respondent objected, claiming that the agreement functioned as a “conveyance deed” under the Stamp (Andhra Pradesh Amendment) Act, 1922, and thus required stamp duty and penalties.
Earlier, On December 21, 2016, the Trial Court ruled that the appellant was responsible for paying stamp duty and penalties, classifying the document as a “conveyance deed.”
This decision was upheld by the Andhra Pradesh High Court in 2022, which asserted that the agreement indicated delivery of possession, making it taxable as a sale.
Notably, during this time, the respondent successfully evicted the appellant from the property through an order dated January 3, 2017, under the Andhra Pradesh Buildings (Lease, Rent and Eviction) Control Act, 1960.
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The appellant’s counsel argued that he remained in possession as a tenant and not as a buyer under the agreement to sell.
They maintained that the tenancy had not ended, as reflected by the subsequent eviction order.
Thus, the agreement could not be interpreted as facilitating a “sale” under Explanation I to Article 47A of Schedule I-A of the A.P. Stamp Act.
Conversely, the respondent asserted that the agreement to sell effectively amounted to a sale deed, referencing a recent Supreme Court ruling in Ramesh Mishrimal Jain vs. Avinash Vishwanath Patne (2025), which held that an agreement to sell could be considered a deemed conveyance where possession is transferred or agreed to be transferred.
The Supreme Court examined Explanation I to Article 47A of Schedule I-A of the A.P. Stamp Act, which states,
“An agreement to sell followed by or evidencing delivery of possession of the property agreed to be sold shall be chargeable as a ‘sale’ under this Article.”
The Court distinguished this case from Ramesh Mishrimal Jain, noting that in that instance, the Court applied Section 53A of the Transfer of Property Act (Part Performance) because the tenant had acquired possessory rights as a buyer.
In the present case, the Bench noted that the tenancy remained in effect even after the execution of the agreement.
The Court stated,
“In this case, the appellant was a tenant of the respondent-landlady on the date of execution of the agreement to sell dated 14.10.2009… The question is whether the said jural relationship was converted to one of vendor and vendee upon the execution of the agreement to sell. If the possession of the suit schedule property continued to be held by the appellant as a tenant even upon the execution of the agreement to sell, there would be no conveyance/sale within the meaning of the Explanation I to Article 47A of Schedule I-A of the A.P. Stamp Act.”
The Court emphasized that there was neither an express surrender nor an “implied surrender” of the lease as per Section 111 of the Transfer of Property Act.
The eviction order obtained by the landlady against the appellant after the agreement was a significant factor proving their relationship remained that of landlord and tenant.
The judgment observed,
“The respondent-landlord did not treat the possession of the suit schedule property by the appellant-tenant pursuant to the agreement to sell dated 14.10.2009 as a vendee… Thus, there is no express or implied surrender of the tenancy by the appellant in favour of the landlord vendor.”
The Court further clarified the application of the A.P. Stamp Act, stating,
“In other words, the possession of the schedule property by the appellant herein was not following the agreement to sell nor was delivery of possession pursuant to the execution of agreement to sell as stipulated under the A.P. Stamp Act. It is only when the possession is acquired in relation to the execution of the agreement to sell, that it would be a deemed conveyance and stamp duty has to be levied as conveyance.”
The Supreme Court granted the appeals and annulled the decisions of the High Court and the Trial Court.
The Court concluded,
“The appellant herein is not liable to pay any additional duty and penalty on the said instrument and neither is the said instrument liable to be impounded for the purpose of payment of duty and penalty.”
The Trial Court was instructed to categorize the agreement to sell as an exhibit and resolve the suit within six months.
Case Title: Vayyaeti Srinivasarao vs. Gaineedi Jagajyothi
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