Introduction :

  • The Indian Stamp Act, 1899 is the governing body in India for applying stamp duty on various instruments.
  • It extends to the whole of India except the state of Jammu & Kashmir.
  • Though the Indian Stamp Act,1899 is a central governing body, some state stamp acts have amended some of the provisions of the Indian Stamp Act and made it applicable in the amended way to their respective states.
  • That is the reason why stamp duty rates differ in different states.

Why the Stamp Duty is payable on amalgamation?

  • Section 3 of the Indian Stamp Act,the Bombay Stamp Act and all other states stamp acts creates a charge on every instrument which is specified in the schedules to the Act and also if the instrument is executed in the state or executed out of the state but relates to any property in the state or is received in the state for any matter or thing done or to be done in the state. Executed and Execution with respect to above means “signed” and “signature” or sealed Further an Instrument includes every document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded, but does not include a bill of exchange, cheque, promissory note, bill of lading, letter of credit, policy of insurance, transfer of share, debenture, proxy and receipt ;

Thus to ascertain when shall the duty is payable the following three essentials must exist :

  1. On execution of an instrument, and
  2. On instrument which is specified in the schedule to the Act for which the schedule prescribes the rate of duty, and
    1. Such instrument is executed in the state or
    2. Received in the state. So the charge is created, in favour of the Government for levy of stamp duty in relation to an order of amalgamation of companies, only where it is able to establish that the order of amalgamation satisfies all the above conditions.

As per the Indian Stamp Act, 1899 stamp duty is payable on any conveyance. Conveyance as per the Bombay Stamp Act includes:

  1. a conveyance on sale,
  2. Every instrument,
  3. Every decree or final order of any
  4. every order made by the High Court under section 394 of the Companies Act, 1956 in respect of amalgamation or reconstruction of companies; and every order made by the Reserve Bank of India under Section 44A of the Banking Regulation Act,1949 in respect of amalgmation or reconstruction of Banking Companies.

by which property, whether movable or immovable, or any estate or interest in any property is transferred to, or vested in, any other person, inter vivos, and which is not otherwise specifically provided for by Schedule I In the above definition, clause (iv) was specifically brought to bring an order of High Court under sec. 394 of Companies Act, 1956 with respect to amalgamation of companies under the purview of Stamp Duty. Apart from the Bombay Stamp Act, which is applicable in Maharashtra, states like Rajasthan, Gujarat and Karnataka have also brought an order of High Court passed under sec. 394 under the definition of conveyance. But still the same hasn’t been amended in all the other states. Thus producing inconsistency and non-uniformity regarding implication of Stamp Duty on amalgamation of companies, all over India . So, an order passed by the High Court of the above mentioned states under section 394 of the Companies Act, 1956 with respect to amalgamation, demerger or reconstruction of companies

Levy of stamp duty in amalgamation by the transferee company state

  • The companies have to get scheme of amalgamation sanctioned from their respective High Court wherever Registered office of the Companies are situated.As order of the High Court of the transferee company has the effect of transferring the assets and liabilities of one company to another company the law of that state i.e. the state of the transferee company shall be empowered to levy and collect stamp duty.
    Although the instrument which on its execution did not attract stamp duty for it having been executed outside the state, may still be liable for stamp duty if it relates to any property situated in the state.
    Stamp Duty in amalgamation might be payable in two cases. On the first instance, stamp duty shall be payable where the instrument is executed. Suppose company A is amalgamating with company B and both the companies have their registered office in the same state then the duty will be payable in that state. Secondly if the transferor company has properties situated in different states then the duty shall also be payable in the following states where the properties are situated.
    However, stamp duty paid in one state can come to the rescue while making the payment of stamp duty in other state. It means that stamp duty paid in one state can be claimed for set off during the payment of duty in other state.
    But if where two or more companies are merging to form another company then in this case order of which High Court will attract stamp duty.

    As discussed earlier, states have the power to amend the Indian stamp Act and make it applicable in their respective states. So there occurs a difference in rates at which stamp duty is applicable in case of amalgamation of companies. Following are the rates applicable in the state of Maharashtra.
    For the order of the High Court in respect of amalgamation or reconstruction of companies under section 394 of the Companies Act, 1956 or under the order of the Reserve Bank of India under section 44A of the Banking Regulation Act, 1949 the following rates are applicable :
    10% of the aggregate of the market value of shares issued/allotted and the amount of consideration paid but shall not exceed the higher of the following:

  1. 5% of the true market value of the immovable property located within the state of Maharashtra of the transferor company or
  2. 0.7% of aggregate of market value of shares issued / allotted in the course of amalgamation and amount of consideration paid, whichever is higher.

In case of demerger or reconstruction the duty shall not exceed the higher of the following:

  1. 5% of the true market value of the immovable property located within the state of Maharashtra transferred by the Demerging company to a resulting company.
  2. 0.7% of aggregate of market value of shares issued/allotted to the resulting company and amount of consideration paid for such demerger, which ever is higher.

Valuation of market value of shares issued in amalgamation for determining the liability of stamp duty.
For listed Companies:
For the purpose of the market value of shares in relation to transferee company whose shares are listed and quoted for trading on a stock exchange, means the market value of the shares as on the appointed date mentioned in the scheme of Amalgamation or when appointed date is not so fixed, the date of order of the High Court.
For Unlisted Companies:
If the shares of the transferee company are not listed or listed but not quoted for trading on a stock exchange, means the market value of the shares issued or allotted with reference to the market value of the shares of the transferor company or as determined by the Collector after giving the transferee company an opportunity of being heard.
It is not specifically provided, how the value of the shares is determined where the companies involved in amalgamation are not listed or listed but not quoted for trading on a stock exchange.

Cases where the transferor company have properties situated in different states.
In cases where companies in an amalgamation have their registered office in the same state or in different states but have properties outside the state. In such a situation the duty at the outset would be payable as per the law of the state where the companies are situated. However, liability to pay duty would arise subsequently at a time when the order of amalgamation is received in the state where the properties of the transferor company is/are situated. At this time duty paid in one state can be claimed for set-off while payment of other. But the question to be considered is how the set off would be worked out where duty on order of amalgamation is paid with reference to value of shares and the duty that is later required to be paid is with reference to value of the property.

Time period for paying stamp duty.
As per the provisions of Sec. 17 of the Bombay Stamp Act, the stamp duty should be paid on or before the execution of the instrument or the next working day following the day of execution of the instrument i.e. High Court order.Duty should be paid after the date of order of the court but before filing with the registrar of companies.

Adjudication as to proper stamps.
As per provision of Section 31 of Bombay Stamp Act this order need to filed for adjudication for determination of stamp duty payable on order of amalgamation or demerger etc with the colledtor and who shall determine the duty(if any) with which such the instrument is chargable.This order must be lodged with collector for adjudication within one month of the execution of first execution of such instruments in the state. Or if such instruments is executed or first ,out of the state ,within three months from the date of first receipt of such instruments in the state.

As per the decision held by the Supreme Court in Ruby Sales 1 SCC 531 and by Bombay High Court in Li Taka Pharma the following conclusions emerge:

  1. an order of a High Court passed u/s 394 of the Companies Act in respect of amalgamation of companies is an instrument within the meaning of the term conveyance under the Stamp Acts as applicable to the whole of India . Accordingly, an order u/s 394 of amalgamation of companies wherever passed in India will operate as a conveyance of properties from one company to another and shall be liable for stamp duty.
  2. that the amalgamation made in the Bombay Stamp Act as applicable to the states of Maharashtra and Gujarat are clarificatory in nature and do not have the effect of enlarging the scope of the term conveyance.

Location of property not relevant The location of a property is totally irrelevant for the purposes of deciding the place where stamp duty is payable.The duty is payable in the state where the instrument is executed. In amalgamation of companies the order of the High Court is the instrument on which duty is required to be paid.
Exemption from stamp duty in amalgamations :
There shall be no stamp duty payable in the following kind of amalgamations:

  1. Where at least 90% 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% of the issued share capital of the other or