However, in recent years, this document has been the subject of numerous debates and challenges, undergoing several revisions to reflect the evolving infrastructure landscape. One such critical issue which impacts the entire business model of PPPs is the application of stamp duty on the agreement. This article aims to analyse the stamp duty obligations applicable to such agreements.

Application of Stamp Duty on Concession Agreement

It is known that stamp duty is payable on the basis of the rights that are being transferred under the agreement.

Under the PPP model, the earlier Concession Agreement used to be stamped as an ‘agreement’, as applicable in New Delhi (being the place of execution), as it was considered then that the right provided under the Concession Agreement to the Concessionaire is to be treated as a ‘license’ and not as ‘lease’.

Recently, however, revenue authorities in various states have sought to levy stamp duty on the Concession Agreement, as applicable to ‘lease’ in terms of Section 2 (16) of the Indian Stamp Act, 1899. 

According to the Transfer of Property Act, 1882, a property is considered as a ‘lease’ when it fulfils the following criteria:

(1) There is a transfer of a right to enjoy such property,

(2) It is made for a fixed time, express or implied or in perpetuity,

(3) There has to be consideration of a price paid or promised.

This was observed in the case of Rewa Tollway P. Limited v. State of Madhya Pradesh, [(2024) 9 SCC 680], dated July 19, 2024.

Relevant extract from the Act:

“105. Lease defined.—A lease of immoveable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms.”

Lessor, lessee, premium and rent defined.—The transferor is called the lessor, the transferee is called the lessee, the price is called the premium, and the money, share, service or other thing to be so rendered is called the rent.”

The Concession Agreement meets the criteria outlined above.

Possession is transferred to the Concessionaire for the purpose of collecting the toll for a duration as specified in the Concession Agreement, with consideration as mutually agreed upon. Therefore, it is classified as a lease, as upheld in the Rewa Tollways (supra) case.

Additionally, Section 2(16) of the Indian Stamp Act, 1899, states that any instrument by which the right to collect tolls of any description is let is considered a ‘lease’. In the Concession Agreement, the ‘right to collect’ tolls is left to the Concessionaire. This has been observed in the case of Abhijeet Ashoka Infra Structure Pvt. Limited v. The Joint District Registrar, (2020 SCC OnLine Bom 394), dated March 6, 2020, wherein the court held that the immovable property itself is not leased but the ‘right to collect toll’ is leased. Therefore, it is observed that the Concession Agreement, i.e., the instrument, leases out the ‘right to collect tolls’ to the Concessionaire, decrying it as a ‘lease’ under the Indian Stamp Act.

Relevant extract of the Act:

(16) “Lease”. — “lease” means a lease of immovable property, and includes also—

(a) a patta;

(b) a kabuliyat or other undertaking in writing, not being a counterpart of a lease, to cultivate, occupy, or pay or deliver rent for, immovable property;

(c) any instrument by which tolls of any description are let;

(d) any writing on an application for a lease intended to signify that the application is granted;

Further, this provision under the Indian Stamp Act is broader than the corresponding provision under the Transfer of Property Act. Therefore, an agreement that meets the criteria under the Transfer of Property Act will inevitably satisfy the requirements of the Indian Stamp Act when it comes to the payment of stamp duty, and in such cases, it will unquestionably be stamped as a lease. This position has been upheld and supported through various judicial decisions, most notably by the Hon’ble Supreme Court of India in the case of Rewa Tollway (supra), wherein the Court held that Concession Agreements entitling the Concessionaire to collect toll fees must be stamped as a ‘lease’, owing to the wide scope of application of Section 2(16) of the Indian Stamp Act, which includes any instrument by which tolls of any description are let. This concept has been consistently upheld in other significant rulings as well, such as Nasiruddin v. State of Uttar Pradesh, [(2018) 1 SCC 754], dated December 6, 2017; State of Uttarakhand v. Harpal Singh Rawat, [(2011) 4 SCC 575], dated February 17, 2011, and R.V. Infrastructure Engineers Pvt. Ltd. v. State of M.P. and Ors., [2010(91) AIC 479], dated 11 February, 2010.

Therefore, on the basis of existing statutes and judicial precedents, it is unequivocal that Concession Agreements involving tolling are to be stamped as a ‘lease’ under Section 2(16) of the Indian Stamp Act, 1899.

Lease Classification: Impact of Stamp Duty

However, it is important to note that an agreement stamped as a lease requires the payment of a significantly higher stamp duty. In the past, as seen above, Concession Agreements were stamped as an ‘agreement’, with a stamp duty payment of just one hundred rupees. However, the evolving landscape has now necessitated the Concessionaire to pay an exorbitant sum in stamp duty due to the Concession Agreement being charged as a lease. This substantial increase in cost may ultimately discourage private entities from entering into such arrangements and impact the viability of the project, which may discourage bidders (private entities) from participating in the PPP Projects, especially Toll-Operate-Transfer (Toll Operate Transfer) projects.

For example, if the stamp duty payable in the respective state is two per cent of the premium payable by the Concessionaire, and assuming that the premium payable is one thousand crores, this would result in a stamp duty payment of approximately twenty crores. This amounts to an exorbitant sum.

This is particularly significant in the case of TOT projects, where the stamp duty is calculated based on the total amount paid to the Authority as a one-time upfront premium payment, further amplifying the financial impact. The imposition of a two per cent stamp duty in such cases could place a considerable financial burden on the Concessionaire, potentially rendering the project unviable, as this cost was not accounted for by bidders when formulating their financial proposals.

The government has actively encouraged the implementation of PPP projects, as evidenced by its emphasis on the same in the 2025 Union Budget. However, when considering the high risks inherent in infrastructure projects, imposing such a significant cost by way of heavy stamp duty on the Concessionaire may deter private entities from participating in the bidding process leading to a lack of interest in PPP Projects which will impact the implementation of infrastructure projects. To foster greater private sector involvement, it is essential to reduce these financial burdens and provide more incentives, rather than creating deterrents.

Way Forward

To address the issue and increase private participation in infrastructure projects, the following measures are suggested for relevant Authorities, such as the National Highways Authority of India (NHAI), NITI Aayog, the Ministry of Road Transport and Highways (MoRTH), the Rail Land Development Authority, and other state Authorities, as stamp duty falls under the state list:

1. Reimbursement of Stamp Duty: The Authorities may reimburse the entire cost of stamp duty payable by the Concessionaire on the Concession Agreement, or
2. Payment of Stamp Duty: The Authorities may themselves choose to pay the stamp duty, or
3. Waive/ Subsidise Stamp Duty: The Authorities may encourage the State Governments to waive the entire stamp duty payable by the Concessionaire by issuing an appropriate Government Order, etc.

An example of the same can be observed in the state of Madhya Pradesh, where, prior to the year 2002, Concession Agreements were treated as ‘licenses’ and attracted a nominal stamp duty of one hundred rupees. However, pursuant to an amendment made in 2002 to proviso (c) of Clause (C) of Article 33 of Schedule 1(A) of the Indian Stamp (M.P.) Act, 2002, such agreements began to be classified as ‘leases’, resulting in a significantly higher stamp duty.

This position was later reversed through a notification issued by the state on March 10, 2008, wherein Concession Agreements were revised to be treated as ‘licenses’ and attracted a fixed stamp duty of one hundred rupees, thereby restoring the pre-2002 position. This example is witnessed in the case of Rewa Tollways (supra).The above-mentioned example is not to assess whether stamp duty is to be paid as ‘lease’ or ‘license’ but to showcase that the state government can undertake measures that would aid the Concessionaire in executing the project, wherein one such step taken by the state of Madhya Pradesh is to reduce the stamp duty, as seen above.

Therefore, if the respective state governments or authorities undertake measures as suggested above, or any other measures, it will benefit the landscape of PPP projects and ultimately the public at large.

Conclusion

Concession Agreements involving toll collection are classified as leases under Section 2(16) of the Indian Stamp Act, 1899, based on the legal criteria outlined in the Transfer of Property Act, 1882 and judicial precedents.

However, the substantial stamp duty required for concession agreements stamped as leases imposes a significant financial burden on the concessionaire. This issue is particularly concerning, given that infrastructure projects are already high-risk endeavours, which are essential for the nation’s development. PPP projects are designed to drive large-scale infrastructure development through significant investments, and imposing such high stamp duty costs could discourage private entities from entering into these agreements. This, in turn, undermines the government’s efforts to attract private investment in critical public infrastructure.

To address this issue, it is crucial for the government and the relevant authorities to devise a solution that alleviates the financial burden on concessionaires. While several potential solutions have been suggested, it is essential that the government and participating authorities collaborate to implement a comprehensive approach that reduces these costs. This will help ensure continued private sector involvement in infrastructure projects, which are crucial for the country’s long-term growth and development.