Indian Stamp Act • Official Statutory Text & Practice Guide
Statutory Regulation
Legal Standard
Competent Court / Tribunal
Act 1899
Section 23 of Indian Stamp Act: Instruments reserving interest
Official Bare Act Text
Override / Mandate Mens Rea (Intent) Actus Reus (Conduct) Punishment Limitation Monetary
Where interest is expressly made payable by the terms of an instrument, such instrument shall not be chargeable with duty higher than that with which it would have been chargeable had no mention of interest been made therein.
Legal Commentary & Landmark Judgments: Section 23
Section 23 of the Indian Stamp Act, 1899 enacts the vital statutory principle that instruments reserving interest are chargeable with duty only upon the principal sum secured, establishing that interest is an accessory accretion not subject to additional or advance stamp duty.
Principal Sum Exclusivity Rule: Where interest is expressly made payable by the terms of an instrument, such instrument shall not be chargeable with duty higher than that with which it would have been chargeable had no mention of interest been made therein.
Accessory Character of Accrued Interest: Recognizes that interest is contingent, variable, and accruing over time; stamp duty cannot be levied on future, unrealized interest streams at the threshold of execution.
Scope Across Bonds, Mortgages, and Promissory Notes: Applies across all loan agreements, mortgage deeds, debenture issues, and promissory notes, shielding borrowers and lenders from speculative ad valorem calculations on compounded interest clauses.
Key Landmark Precedents:
Pramatha Nath v. Dwarka Nath (1896) ILR 23 Cal 571: The Calcutta High Court held that where a promissory note or bond stipulates payment of principal along with high compound interest, stamp duty is payable strictly on the principal amount, and reservation of interest cannot be factored into duty calculation.
Sambhu Dayal v. Jagdish Prasad AIR 1960 All 392: The Allahabad High Court affirmed that under Section 23, interest is purely accessory to the debt; an instrument cannot be impounded or deemed insufficiently stamped merely because the duty was not calculated on the projected interest liability.
Courtroom Practice & Strategic Litigation Guidance:
When calculating stamp duty on high-value loan agreements or mortgage deeds containing default interest or penal compounding covenants, compute duty exclusively on the principal sanctioned loan amount. If a revenue audit or bank auditor raises a demand calculating duty on total interest payouts over the loan tenure, cite Section 23 to quash the demand at the threshold.
Legal Commentary & Landmark Judgments: Section 23
Section 23 of the Indian Stamp Act, 1899 enacts the vital statutory principle that instruments reserving interest are chargeable with duty only upon the principal sum secured, establishing that interest is an accessory accretion not subject to additional or advance stamp duty.
When calculating stamp duty on high-value loan agreements or mortgage deeds containing default interest or penal compounding covenants, compute duty exclusively on the principal sanctioned loan amount. If a revenue audit or bank auditor raises a demand calculating duty on total interest payouts over the loan tenure, cite Section 23 to quash the demand at the threshold.