BRIEF BACKGROUND & FACTS

A Writ Petition was filed by Ambuja Cements Limited, the Petitioner, challenging the imposition of stamp duty on a merger order under Article 23 of Schedule IA of the Indian Stamp Act, 1899.

A Scheme of Arrangement between Holcim (India) Private Limited (Transferee Company) and Ambuja Cement India Private Limited (ACIPL/ Transferor Company) having common parent company i.e., Holderind Investments Ltd Mauritus, was approved by the Delhi High Court on November 14, 2011.  Transferor Company primarily functioned as an investment company and held no immovable property and its only assets were shares in two companies: ACC Limited and Ambuja Cements Limited, held in dematerialized form.

To implement the merger, the Transferee Company issued Equity Shares to the shareholders of ACIPL (i.e., Holderind Investments Ltd.). In March 2014, the Collector of Stamps, Delhi, issued a show-cause notice alleging that the Transferee Company had failed to pay stamp duty on the merger order under Article 23 of Schedule IA of the Indian Stamp Act, 1899.

The notice demanded payment of stamp duty calculated at 3% of the total value of the merger transaction (₹7,295.94 crores), amounting to ₹218.87 crores, along with a penalty of ₹69 crores. The notice relied on the precedent set in Delhi Towers Ltd. v. GNCT of Delhi (2009 SCC OnLine Del 3959) to classify the merger as a “conveyance” requiring stamp duty. However, the Transferee Company argued that vide Notification no. 13 dated 25.12.1937 issued by the Central Government (1937 Notification), the transaction was not exigible to stamp duty.

KEY ISSUE

Whether the exemption from stamp duty on the order of merger between two or more subsidiaries of a common parent company provided under the 1937 Notification is applicable and binding?

ANALYSIS & FINDINGS

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 Delhi Towers Ltd. case clarified the application of stamp duty in cases of mergers and amalgamations, specifically highlighting that court orders sanctioning such schemes qualify as “conveyances” under the Indian Stamp Act.

Furthermore, the Court reaffirmed the applicability of the 1937 Notification which provides an exemption from stamp duty on instrument evidencing transfer of property between companies, in case where:

1. at least 90 per cent of the issued share capital of the transferee company is in the beneficial ownership of the transferor company, or
2. 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
3. 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.