The Rights of the Deceased: Moral Rights Incidental to Copyright Law
- Vanshika Agrawal
- 2024-04-25
Contents hide
2 Background To The Constitutional Provision Of Stamp Duty
3 Implication Of Stamp Duty On Mergers & Acquisitions
4 The 2020 Amendment To Stamp Act
Indian Stamp Act- In Indian Company Act of 1956 and the Income Tax Act of 1961 deals with the provisions of mergers and acquisitions, but pertinently the two Acts does not define the term Merger which literally means unification of two or more companies into one to create a new company which involves a complex process from accrual of assets and liabilities of the companies involved to the establishment of the single form of business including the shareholders, employers etc on their part. The Income Tax Act of 1961 explains the corresponding term Amalgamation, which means the merger of one or more than one company with one or more than one new companies
to form one single unified company, based upon the fulfilment of certain specified conditions to reap
the benefits under the beneficial tax treatment.
Under the Indian Stamp Act, the Stamp duty is a type of tax which is paid to the government for the sale of an immovable property under§3 of the Act of 1899. The payment of Stamp duty has to be made prior to the execution of the document or instrument which renders the document or
instrument as of evidentiary value and capable of being admissible in court.[2] The universal principle in relation to stamp duty is that duty is require
to be ascertain keeping in mind the instrument and not merely the transaction.[3]
The Finance Act of 2019 and the Indian Stamp (Collection of Stamp Duty through Stock Exchanges, Clearing Corporations and Depositories) Rules, 2019 proposed by the amendment to
the Indian Stamp Act, 1899 in order to facilitate the ease of business and bring uniformity in payment of stamp duties in issue and transfer of securities and
therefore, it was stress to bring in the significant amendment to the Act of 1899.
Thereafter, an amendment to the Indian Stamp Act 1899 is bring into effect from 1st July, 2020 which has significantly lay down the rate of payment of stamp duty and has also outline the process of levying and collecting the stamp duty. This paradigm shift through the amendment is fundamentally important to be analyse in terms of Mergers and
Acquisitions as through this amendment the taxable event has shifted from
the concept of execution of an instrument listed in the constitutional schedule to the concept of the corporate action with regard to any transaction.
Stamp Duty is the subject which is place under the State List wherein the Schedule 7 List II Entry 63 of the Constitution empowers the States to prescribe the rates of duties on instruments other than those specified in the Union List. The Union List under Schedule 7 List I Entry 91 empowers the Central Legislature to prescribe for the rate of stamp duty in respect of Negotiable Instruments, Bill of Lading, Letters of Credit, transfer of shares and
debentures, proxies and receipts etc and
all the matters except the fixation of rate of stamp duty are
the subject of Concurrent List under Schedule7 List III Entry 44. Thus, only few states in India have their own indigenous Stamp Acts.
The payment of Stamp Duty is not only a constitutional mandatory but a fiscal statutory as in Hameed Joharan v. Abdul Salam,[4] the SC has held that- the Indian Stamp Act of 1899 has been engrafted in the Statute Book to consolidate and amend the law relating to stamps. Its applicability thus stands restricted to the scheme of the Act. It is a true fiscal statute in nature, as such strict construction is require to be effect and no liberal interpretation. It is a well-settled principle of statutory interpretation of a taxing statute that a subject will be liable to tax and
will be entitle to exemption from tax according to the strict language of the taxing statute. The stamp laws shall be construe strictly and
if an instrument is not mention in the law, no stamp duty is payable.
The process of Mergers & Acquisition involves a wide range of execution and registration of documents in all as these instruments consist of signed affidavits, memorandum and
articles of association of companies, bills of exchange, registered bonds, mortgage deeds, documents pertaining
to conveyance, financial receipts, debenture/share certificates, insurance policy documents and partnership deeds among others.
For this purpose the power lies with the Court to order for approving a merger or demerger and giving effect to the transfer of assets and liabilities
to the transferee company, thereby making such order of Court subjected to stamp duty. Thus, when there is a transfer of assets of a particular company to another company
by means of a scheme of merger approved by a High Court, then such a transfer is an ‘operation of law’ and
therefore the particular order of High Court was not be consider as an instrument. Based on this interpretation in Sailendra Kumar Ray v. Bank of Calcutta Ltd[5], it was held that no liability for stamp duty to be paid arises in such cases. But this approach was later on reversed by various judgement of Supreme Court.[6]
§394 of the Companies Act, 1956 provides for a framework regarding the handing over of a property or any other liability attached to the property and henceforth due to passing of such an order by High Court the property in question shall be handed over and lie with the transferee company along with any such liability that exists on such a property. But there is no clarity as to whether the order passed by a High Court under §394(1) of
the Companies Act is subject to be stamp. The High Courts has power to authorize any scheme involving merger and
this ambiguity raises the question as to whether any such order is require to subject to a stamp duty.
High Courts in India have given divergent opinions with respect to payment of Stamp Duty on such orders of mergers, till
the Supreme Court of India has brought clarity on the subject by stating
that any order gives under §394(1) shall be liable for Stamp Duty to be pay on the same. Thereafter, the Bombay HC in the case of Li Taka Pharmaceuticals Ltd. V. State of Maharashtra & Ors,[7] clarified the issue of stamp duty in case of merger and acquisition as it held that
any order when pass under the ambit of section 394, the say order originates or is construct upon a compromise and/or
arrangement between the companies coming together for such an agreement of merger or amalgamation. In such a case, the
company which is transferring its assets and liabilities to another company is called as the transferor-company. The company which is acquire the assets in question for a consideration is called the transferee-company and the order by which the whole agreement for merger is authorize is to be term as
an ‘instrument’ which is very well define under section 2(1) of the Bombay Stamp Act which include all
such document due to which any right or liability is create or transfer.
The 2020 Amendment to the Indian Stamp Act has brought in the significant change wherein it prescribes for the rate of payment of Stamp Duty and it has been introduced through
Art.56A of Schedule I of the Indian Stamp Act, 1899 which lays down
the new Stamp Duty rates for different kinds of transactions related to
securities except in case of debentures. Further, the Amendment has brought in certain changes to the key definitions of Instruments, Securities, Debentures and Market Value. The Amendment has brought in the changes in Stamp Duty Payment in relation to Mergers and
Acquisitions as in 3 ways-[8]
This Amendment was necessary to the old laws of the Indian Stamp Act as this as not only proposed clarity in approach to certain subjects but has also brought in uniformity to the payment of Stamp Duty and means of collection of the duty. Through this Amendment it is expect firstly that it will do away with the past practice of certain states to use discretion in lowering stamp duty and Secondly, it will ensure a minimum of cost
collection and thereby enhanced revenue collection through the process. The Amendment is though materialized with the notion of rationalizing
the Stamp Duty Mechanism in India through centralizing the collection, it is
now more of a matter of practical implementation and
Judicial Scrutiny from its constitutionality to the achievement of its purpose with time.
[1] Aayusha Gupta, 4th Year Law Student, CMR School of Legal Studies, https://www.linkedin.com/in/Aayusha-gupta-2b86901a9.
[2] Vol4, Shashwat Jha, Stamp Duty Implications of Mergers and Acquisitions, SOUTH ASIAN LAW REVIEW JOURNAL(Feb6th, 2021 18:58).
[3] In RE Swadeshi Cotton Mills [AIR1932 All 29], it was held that the first thing to be looked into is the thing which is made liable to duty is an instrument. As defined under §2(14) of the Act of 1899.
[4] Hameed Joharan v. Abdul Salam (2001) 7SCC 573.
[5] Sailendra Kr. Ray v. Bank of Calcutta Ltd, AIR 1948 Cal 131.
[6] Sanjay Buch, Stamp Duty Implications Mergers and Acquisitions, ICAI(Feb7, 2021 12:35PM)https://www.wirc-icai.org/images/material/Stamp-Duty-Implications-of-Mergers-and-Acquisitions-SRB.pdf.
[7] Li Taka Pharmaceuticals Ltd. V. State of MH & Ors, AIR 1997 Bom.7.
[8] Diganth Sehgal, Impact of Amendment to the Indian Stamp Act on Merger and Amalgamation, IPLEADERS(Feb7, 2021 11:01AM) https://blog.ipleaders.in/impact-amendment-indian-stamp-act-merger-amalgamation/.
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