This article has been authored by Suman Kumar Jha (Founding & Managing Partner), Afnaan Siddiqui (Co-Founder & Partner), Visakha Raghuram (Associate) and Harsh Kshitij.
INTRODUCTION
The Hon’ble Supreme Court of India has recently passed a judgment on 06.04.2024 whereby the order passed by the Hon’ble High Court of Bombay was upheld, settling the issue of stamp duty implications on increase in authorized share capital by a company. The brief facts of the judgment are that the Respondent Company had increased its authorized share capital firstly from Rs. 36 crores to Rs. 600 crores in the year 1992 and later to Rs. 1200 crores. Upon increasing its authorized share capital in the year 1992, it had paid stamp duty amounting to Rs 1,12,80,000 as per Article 10 of Schedule-I of the Bombay Stamp Act, 1958 (as it stood then).
On 02.08.1994, Article 10 of Schedule-I of the Bombay Stamp Act, 1958 was amended and a maximum cap of Rs. 25 Lakhs on stamp duty was introduced which would be payable by the company increasing such authorized share capital.
After the amendment, the company further increased its Authorised Share Capital to Rs. 1200 crores and paid an amount of Rs. 25 Lakhs on this further increase. The company also furnished Form 5 to the Registrar of Companies, intimating such increase in authorized share capital.
The respondent company’s contention before the Hon’ble High Court was that the payment of Rs. 25 Lakhs as stamp duty on the subsequent increase in authorized share capital was inadvertent as it had already paid Rs. 1.12 crores in the year 1992 as stamp duty.
The Appellant i.e. the State of Maharashtra’s contention was that stamp duty shall be payable by a company whenever there is an increase in authorized share capital, each being a separate taxable event. Therefore, the subsequent stamp duty payment of Rs. 25 lakhs was valid.
ISSUES AND ANALYSIS
The issues before the Hon’ble Supreme Court were:
- Whether the notice sent to the Registrar in Form No. 5 is an instrument as defined under Section 2(l) of the Indian Stamp Act?
To answer this issue, this Court held that filing of Form No. 5 is only a method prescribed for intimating any increase in authorized share capital to the registrar of companies. Only the Articles of association are an “instrument” within the meaning of Section 2(l) of the Stamp Act and accordingly have been mentioned in Article 10 of Schedule-I of the Stamp Act. Further, the Court reiterated the position of law that general law prevails over specific law. In the present case, the Companies Act is the special law and the Stamp Act is the general law with respect to Articles of Association.
The Hon’ble Court drew support from M. Swaminathan v. Chairman and Managing Director, 1987 SCC OnLine Mad 438 wherein Section 31(2) of the Companies Act, 2013 was discussed. The intention of Section 31(2) is to confer validity on any alterations to the articles as if they were originally contained therein. Further, in the Stamp Act, the legislature has specifically mentioned that stamp duty is to be charged inter alia on increase in share capital of the capital subject to the maximum amount of Rs. 25 lakhs.
- Whether the maximum cap on stamp duty is applicable every time there is an increase in the share capital or is it a one time measure?
The Hon’ble Court emphasized strict interpretation of fiscal statutes. It referred to the case of CWT v. Ellis Bridge Gymkhana, (1998) 1 SCC 384 wherein it was held that a charging section has to be construed strictly and if a person has not been brought within the ambit of the charging section by clear words, he cannot be taxed at all.
The Hon’ble Court held that stamp duty will be charged on subsequent increases in the authorized share capital, subject to the maximum cap. In case stamp duty equivalent to or more than the cap has already been paid, no further stamp duty can be levied. Therefore, the maximum cap of Rs. 25 lakhs would be applicable as a one-time measure.
However, upon introduction of the Maharashtra Stamp (Amendment) Act, 2015, Article 10 was further amended and now reads as follows:
| 1 | 2 |
| Description of Instrument | Proper Stamp Duty |
| 10. ARTICLES OF ASSOCIATION OF A COMPANY – Where the Company has no share capital or nominal share capital or increased share capital. | [0.2 per cent. on share capital or increased share capital, as the case may be] subject to a maximum of Rs. 50,00,000. |
At present, the cap will be applicable on each individual increase.
However, in case of the respondent company, the articles of association is not a fresh instrument but only an increase in share capital has been made in the original document.
Based on these reasons, the Hon’ble Supreme Court ordered refund of Rs. 25 lakhs to the respondent along with interest @ 6% per annum. Therefore, this judgment re-emphasizes the principle of strict interpretation of fiscal statutes.