The Article has been authored by Suman Kumar Jha (Founder & Managing Partner), Afnaan Siddiqui (Co-Founder & Partner), Visakha Raghuram (Associate) and Akshita Varshney
Introduction
The Hon’ble High Court of Delhi, in this judgment of major significance, has addressed a key issue involving stamp duty in the context of corporate mergers and amalgamations. The case arose from the issue of validity of the Government Notification No. 13, dated December 25, 1937, issued by the Central Government concerns which provides an exemption from payment of stamp duty upon mergers between companies that have a holding-subsidiary relationship. The Court has addressed the issues of enforceability of this notification, the question of suo-motu power of the Collector of Stamps and whether stamp duty is attracted on a scheme whereunder only movable property is transferred and set an important precedent for the treatment of stamp duty in such transactions in Delhi.
Facts and Disputes
The dispute arose from a merger between Ambuja Cement India Private Limited (‘ACIPL’) and Holcim India Private Limited (‘HIPL’) wherein both these companies were wholly owned subsidiaries of Holderind Investments Limited. The order approving the merger was passed by the Hon’ble High Court of Delhi in 2011 and was registered by HIPL in Form 21 on 07.12.2011. Pursuant to the said order, only shares were transferred from ACIPL to HIPL as there were no immovable property held by ACIPL. Under the Indian Stamp Act, 1899 (as applicable on the Union Territory of Delhi), stamp duty is applicable under Article 23 (Conveyance) of Schedule IA of the said Act on a scheme of merger approved by competent court.
The Collector of Stamps issued a show-cause notice to HIPL , alleging that stamp duty had not been paid on the merger order. The notice invoked the judgment in Delhi Towers Ltd. v. GNCT of Delhi (2009) and stated that the transaction could be considered liable for stamp duty on conveyance under Article 23 of Schedule IA of the Indian Stamp Act. The Collector contended that stamp duty should be applicable on both the transfer of assets and the issue of shares as part of the amalgamation.
HIPL, being the petitioner in the present case responded to the said notice stating that since both the transferor and transferee companies were wholly owned subsidiaries of a common parent, the merger was exempt under Notification No. 13, dated December 25, 1937 (‘1937 Notification’), issued by the Central Government. This notification provided an exemption from stamp duty on certain types of mergers and amalgamations involving wholly owned subsidiaries.
Notwithstanding this view, the Collector imposed a stamp duty liability of Rs. 218.87 crore and a penalty of Rs. 69 crore for non-payment of stamp duty on the merger order.
Issues Involved
The key legal issues were:
- Whether the Collector of Stamps had suo-motu powers to initiate action and impose stamp duty on the Petitioner?
- Whether stamp duty is applicable on a Scheme whereunder only movable property in the form of shares are being transferred without any immovable property?
- Whether the 1937 Notification is still in force or has been repealed by the Central Government when it issued Government Notification No. GSR 1958, extended Schedule IA of the Stamp Act of Punjab to the Union Territory of Delhi.?
Observations of the Court
The judgment addressed several critical points:
Validity of the 1937 Notification: The Court emphasized that the 1937 Notification, which exempted mergers between wholly owned subsidiaries from stamp duty, is still in force. This has been settled by this Court in the judgment of Delhi Towers v. G.N.C.T. of Delhi. Therefore, as HIPL and ACIPL were wholly owned subsidiaries of a common parent company, they are exempted from applicability of stamp duty on a scheme.
Suo-Motu Powers of the Collector of Stamps: The Court noted that the show-cause notice issued by the Collector was dated 29.04.2014. However, the order sanctioning the scheme was filed for registration on 07.12.2011. Section 47A of the Indian Stamp Act, 1899 confers suo-motu powers upon the Collector to determine the chargeable duties and deficient amount within a period of two years from the date of registration, which upon calculation comes to be till 06.12.2013. Therefore, the show-cause notice was issued beyond the prescribed period of limitation. This failure to issue the notice within the time limits set by law, proved to be in favour of the Petitioner.
Applicability of Stamp Duty upon transfer of movable property pursuant to Scheme: The Petitioner argued that the present merger did not involve transfer of any immovable property. Hence, stamp duty will not be applicable as only movable property in the form of shares were contemplated to be transferred. The Court observed that transfer of immovable property under a scheme is not a prerequisite for charging stamp duty. Even if an order sanctioning a scheme of merger results in transfer of only movable property, it would fall under the definition of conveyance and would be chargeable to stamp duty under Article 23 of Schedule IA of the Act.
Ruling
The Delhi High Court ruled in favour of the Petitioner, quashing the show-cause notice and the subsequent demand for Rs. 218.87 crore in stamp duty along with a penalty of Rs. 69 crore. The Court held that:
- The merger order did not attract stamp duty under the Indian Stamp Act.
- The exemption under Notification No. 13 of 1937 applied, and stamp duty was not leviable on the transfer of assets in this case.
- The show-cause notice issued by the Collector was beyond the prescribed limitation period.
As a result, the Court quashed the impugned order passed by the Collector of Stamps, Delhi, and all related proceedings, confirming that no stamp duty would be applicable on the merger between the two wholly owned subsidiaries of the parent company.
Significance of the Case
This judgment is significant because it clarifies the application of stamp duty on mergers and amalgamations of companies within the Union Territory of Delhi, especially those involving wholly owned subsidiaries.
For companies involved in mergers or acquisitions in India, the case sets an important precedent on how adjudicating authorities treat exemptions under old notifications and underscores the importance of timely issuance of show-cause notices by such authorities.