HOW AMBUJA CEMENT SAVED RS 287.87 CRORES IN STAMP DUTY

 DELHI HIGH COURT CONFIRMS THAT NON APPLICABILITY OF STAMP DUTY ON MERGERS AND AMALGAMATION BETWEEN HOLDING AND SUBSIDIARY COMPANY - 

HOW AMBUJA CEMENT SAVED RS 287.87 CRORES IN STAMP DUTY

BRIEF BACKGROUND & FACTS OF THE CASE

A Writ Petition was filed by Ambuja Cements Limited, the Petitioner, challenging the imposition of stamp duty on a merger order under Article 23 of Schedule IA of the Indian Stamp Act, 1899 for the merger between holding and subsidiary company.

A Scheme of Arrangement between Holcim (India) Private Limited (Transferee Company) and Ambuja Cement India Private Limited (ACIPL/ Transferor Company) having common parent company i.e., Holderind Investments Ltd Mauritus, was approved by the Delhi High Court on November 14, 2011.

To implement the merger, the Transferee Company issued Equity Shares to the shareholders of ACIPL (i.e., Holderind Investments Ltd.). In March 2014, the Collector of Stamps, Delhi, issued a show-cause notice alleging that the Transferee Company had failed to pay stamp duty on the merger order under Article 23 of Schedule IA of the Indian Stamp Act, 1899.

The notice demanded payment of stamp duty calculated at 3% of the total value of the merger transaction (₹7,295.94 crores), amounting to ₹218.87 crores, along with a penalty of ₹69 crores.
The notice relied on the precedent set in Delhi Towers Ltd. v. GNCT of Delhi (2009 SCC OnLine Del 3959) to classify the merger as a “conveyance” requiring stamp duty. However, the Transferee Company argued that vide Notification no. 13 dated 25.12.1937 issued by the Central Government (1937 Notification), the transaction was not eligible to stamp duty.

Whether the exemption from stamp duty on the order of merger between two or more subsidiaries of a common parent company provided under the 1937 Notification is applicable and binding?

The Court in Delhi Towers Ltd viewed that that the transfer of property between two companies, as sanctioned by the court, is an inter vivos transaction and, thus, falls under the definition of “conveyance.”

The Supreme Court judgment in Hindustan Lever Ltd. v. State of Maharashtra (2004) 9 SCC 438, which clarified that court orders sanctioning schemes of amalgamation are also subject to stamp duty.

The Court cited the case of Li Taka Pharmaceuticals Ltd. v. State of Maharashtra (1996), which held that the transfer of shares constitutes a “conveyance” and is subject to stamp duty based on the market value of the property.

 This further solidified the position that a scheme of amalgamation, whether involving immovable or movable property, is covered under the definition of “conveyance” and is subject to stamp duty.
The Transferee Company also relied heavily on the 1937 Notification, which provides an exemption from stamp duty for transfers between parent and subsidiary companies.
rvsekar2007@gmail.com

DEMAND OF ₹218.87 CRORES AS STAMP DUTY

EXEMPT FROM STIAMP DUTY AS TRANSACTION IS NOT A CONVEYANCE

MAIN LEGAL ISSUE

DELHI TOWERS LTD

HINDUSTAN LEVER LTD. V. STATE OF MAHARASHTRA

LI TAKA PHARMACEUTICALS LTD. V. STATE OF MAHARASHTRA

EXEMPTION FROM STAMP DUTY BETWEEN HOLDING COMPANY AND SUBSIDIARY COMPANY

DELHI HIGH COURT AFFIRMS

The Delhi High Court reaffirmed the applicability of the 1937 Notification which provides an exemption from stamp duty on instrument evidencing transfer of property between companies, in case where:

·      at least 90 per cent of the issued share capital of the transferee company is in the beneficial ownership of the transferor company, or

·      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 per cent of the issued share capital of the other, or

·      Where the transfer takes place between two subsidiary companies of each of which not less than 90 per cent of the share capital is in the beneficial ownership of a common parent company.

    R V Seckar FCS

79047 19295