Aniruddha JainA Writ Petition was filed by Ambuja Cements Limited (hereinafter “the Petitioner” or “ACL”), challenging the imposition of stamp duty on a merger order under Article 23 of Schedule IA of the Indian Stamp Act, 1899 by Collector of Stamps, Delhi (hereinafter “Respondent”).
Brief Facts of the Case:
- Holcim (India) Private Limited (hereinafter referred to as “the petitioner” or “HIPL”) is a wholly owned subsidiary of Holderind Investments Ltd., Mauritius (hereinafter referred to as “Holderind”). Ambuja Cements India Private Limited (hereinafter referred to as “ACIPL”). ACIPL was a 100% subsidiary of Holderind which held 55% shares of ACIPL directly and the remaining 45% shares were held by Holcim (India) Private Limited.
- The Boards of Directors approved a scheme of amalgamation between Holcim (India) Private Limited and Ambuja Cements India Private Limited whereby ACIPL was proposed to be merged into HIPL.
- ACIPL did not have any immovable property at that time and the only movable property held by ACIPL was its shareholding in ACC Limited (hereinafter referred to as “ACC”) and Ambuja Cements Limited which were in demat form.
- Pursuant to the approval of the scheme with effect for 06.01.2012, HIPL issued shares to Holderind for its 55% stake in ACIPL and obviously its holding in ACIPL were cancelled.
- HIPL received a show cause notice from the Respondent that it had not paid the stamp duty on the merger order and was directed to furnish proof of payment of stamp duty on the conveyance as per the India Stamp Act, 1899.
- The show-cause notice also specified that it was being issued in view of the judgment passed by this Court in Delhi Towers Ltd. V G.N.C.T. of Delhi, 2009 SCC OnLine Del 3959 (hereinafter referred to as “Delhi Towers Ltd.”).
- In the preliminary report, HIPL stated that no stamp duty was payable on the merger order under the head ‘conveyance’ and the transfer of shares of ACC and ACL from ACIPL to HIPL was in dematerialized form did not attract any stamp duty.
- It was also stated that both the transferor and transferee companies were wholly owned subsidiaries of a common parent company. The merger had taken place between two subsidiary companies each of which not less than 90 per cent of the share capital was in the beneficial ownership of a common parent company and the said transaction was not exigible to stamp duty by virtue of Notification no. 13 dated 25.12.1937 issued by the Central Government (hereinafter referred to as “the 1937 Notification”) which was also mentioned in the Delhi Towers Ltd. judgment which provides for exemption in stamp duty where
- at least 90 per cent of the issued share capital of the transferee company is in the beneficial ownership of the transferor company, or
- where the transfer takes place between a parent company and a subsidiary company one of which is the beneficial owner of not less than 90 per cent of the issued share capital of the other, or
- where the transfer takes place between two subsidiary companies of each of which not less than 90 per cent of the share capital is in the beneficial ownership of a common parent company:
- The respondent passed the impugned order on 07.08.2014 holding that as per Article 23 of Schedule IA of the Act, the petitioner was liable to pay stamp duty on the merger order @ 3% of the total amount of Rs.7295,93,97,242/- which comes to Rs.218,87,81,917.26 besides imposing a penalty of Rs.69,00,00,000/-
- The petitioner, being aggrieved filed the present petition and challenged the impugned order on the grounds that the respondent misinterpreted and misapplied Delhi Towers Ltd. while passing the impugned order.
Hon’ble Delhi High Court’s Decision
The Court’s analysis focused on the broad interpretation of “conveyance” under Section 2(10) of the Indian Stamp Act, which defines “conveyance” as any document that transfers property between living persons. The Court emphasized that the statutory definition of “conveyance” is an inclusive definition and should not be confined to specific instruments listed in the statute.
The Court in Delhi Towers Ltd. reiterated that the chargeability to stamp duty is not contingent on whether the conveyance is by operation of law or through a private agreement between the parties. The Court further noted that the transfer of property between two companies, as sanctioned by the court, is an inter Vivos transaction and, thus, falls under the definition of “conveyance.”
The Court referred to the Supreme Court judgment in Hindustan Lever Ltd. v. State of Maharashtra (2004) 9 SCC 438, which clarified that court orders sanctioning schemes of amalgamation are also subject to stamp duty.
Additionally, the Court cited the case of Li Taka Pharmaceuticals Ltd. v. State of Maharashtra (1996), which held that the transfer of shares constitutes a “conveyance” and is subject to stamp duty based on the market value of the property. This further solidified the position that a scheme of amalgamation, whether involving immovable or movable property, is covered under the definition of “conveyance” and is subject to stamp duty.
The Transferee Company also relied heavily on the 1937 Notification, which provides an exemption from stamp duty for transfers between parent and subsidiary companies, provided certain conditions are met. Specifically, the exemption applies where the transfer takes place between two subsidiary companies of each of which not less than 90 per cent of the share capital is in the beneficial ownership of a common parent company.
The respondent, however, argued that the 1937 Notification had been repealed when the Central Government extended Schedule IA of the Punjab Stamp Act to Delhi. The respondent claimed that since the 1937 Notification was not included in Schedule IA, the exemption did not apply. However, the Court rejected this argument, noting that the 1937 Notification was still applicable and binding, as previously upheld in Sandy Estates Ltd. v. Landbase India Ltd. (1997). In this case, the Court had held that no stamp duty was applicable to transfers of assets between a 100% subsidiary and its parent company.
The Court further held that the 1937 Notification was applicable to the present case because both the Transferee Company and ACIPL were wholly owned subsidiaries of the same parent company, Holderind Investments Ltd., thereby satisfying the conditions for the exemption. Consequently, the scheme of amalgamation and the merger order were exempt from stamp duty under the 1937 Notification.
Conclusion
The Hon’ble High Court re-affirmed applicability of Notification no. 13 dated 25.12.1937 and accordingly, the show-cause notice and the impugned order issued by the respondent are quashed and set aside along with all consequential proceedings. Point to ponder from this decision is in any conveyance, there must be assets, the Transferor, the transferee, and consideration.
Now some assets which are exempted from stamp duty like shares in demat form etc. So, whether it will be possible to argue that consideration paid as part of the scheme on exempted assets should be excluded while working out stamp duty liability.
