No stamp duty for property transfer in Delhi merger

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A long-drawn-out controversy has been resolved by Delhi High Court in its important judgment on the matter of Delhi Towers Limited v GNCT of Delhi.

The court decided that if a wholly owned subsidiary merges with its parent company in Delhi and subsequently inherits the parent company’s property, it does not have to pay stamp duty to the state government of Delhi. The basis of the court’s finding is that under central government legislation as it applies in Delhi, the parent company is not required to pay stamp duty to the state once an amalgamation order is approved by the court, as it is expected to do in those states (Maharashtra, Gujarat, Karnataka, Rajasthan, Chattisgarh, Madhya Pradesh and Andhra Pradesh) which have included orders to approve schemes of amalgamation (under section 394 of the Companies Act, 1956) within the definition of “conveyance”.

The Indian Stamp Act, 1899, requires payment of stamp duty on all instruments that purport to transfer immovable property. The Stamp Act does not mention “amalgamation” as a stampable article; nevertheless, the definition of “conveyance” given in the Stamp Act covers any instrument which purports to transfer property.

A scheme of amalgamation between Delhi Towers and its parent company was approved by Delhi High Court’s special Company Court. Despite this, the authorities of the Government of the National Capital Territory (GNCT) of Delhi refused to alter GNCT’s records to show that Delhi Towers now owned rights to the properties of its parent company without paying stamp duty. Delhi Towers filed a case in protest.

The two main questions before the court were: (i) whether an order passed by the Company Court approving a scheme of amalgamation is covered by the definition of “conveyance” in sub-section 10 of section 2 of the Indian Stamp Act, 1899; and (ii) whether the central government’s notification number 13 of 25 December 1937 applies to the GNCT in Delhi. Notification no 13 dated 25 December 1937, provides for stamp duty exemption on certain transactions among holding and subsidiary companies. Through this judgment the court has held that this notification is still applicable in Delhi even if it is not specifically adopted by the Legislative Assembly of Delhi. Therefore, no stamp duty is payable if the transaction is covered under the said notification.

On the first question, the court held that whether or not there is a specific provision in the Indian Stamp Act, a Company Court order approving a scheme of amalgamation (under sub-section 2 of section 394 of the Companies Act, 1956) makes property transfers under the amalgamation liable to the payment of stamp duty under the Indian Stamp Act. The court clarified that the lack of statutory amendment to bring property transfers occuring in Delhi under an approved scheme of amalgamation within the definition of “conveyance” is irrelevant.

However, on the second question, the court held that the central government has competence to legislate on the issue of stamp duty, and no legislation by the GNCT of Delhi with regard to the rate of stamp duty on the instrument in question has been pointed out. The court held that the central government’s notification of 25 December 1937 applies to the GNCT of Delhi, and directed that if Delhi Towers satisfied the condition prescribed in the notification, no stamp duty would be chargeable on property transfers under the scheme of amalgamation.

The court further clarified that in the case of a merger of two unrelated companies, the transferee company has to pay stamp duty when assuming the immovable properties of the transferor company. With this judgment, it has now been made clear that the liability to pay stamp duty will arise on all court orders approving schemes of arrangement if they involve a transfer of property unless specifically excluded.

The judgment is especially significant for companies undertaking corporate restructuring exercises through mergers or de-mergers which do not fall within the ambit of the 1937 notification.

The update of court judgments is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at [email protected] or [email protected] Readers should not act on the basis of this information without seeking professional legal advice.