Introduction

Stamp duty is a tax levied on legal documents as prescribed under the Indian Stamp Act, 1899 (‘Stamp Act’). It is a crucial source of revenue for the government and ensures the legitimacy of various transactions and agreements.  A basic tenet of the Stamp Act is that the incidence of stamp duty is applicable to an ‘instrument’[1] and not the transaction it effects.[2] Failure to pay stamp duty or insufficient payment renders the document inadmissible as primary evidence, unless such inadequacy of payment is rectified.[3]

In recent years, ambiguity has arisen regarding the requirement of stamping a court approved scheme of arrangement or amalgamation (‘Scheme(s)’) under the provisions of the Stamp Act.  The constitution of India (‘Constitution’) grants both, the Parliament and the State Legislatures, with the authority to enact laws and provisions related to stamp duty within their respective jurisdictions under the seventh schedule of the Constitution. The Stamp Act serves as the central legislation governing stamp duty in India, while individual states are empowered to enact their own local stamp amendments to address regional issues.

While some States (such as Maharashtra, Kerala, Andhra Pradesh, West Bengal, etc) have amended their laws to explicitly include court-sanctioned orders (such as Schemes) under the definition of ‘conveyance’ in the state-specific schedule of the Stamp Act, other states (such as Delhi and Uttar Pradesh), have not updated the definition of ‘conveyance’ to include Schemes. This has led to inconsistencies in application of stamp duty on Schemes across different jurisdictions.

The recent case of Ambuja Cement Ltd. v. Collector of Stamps[4] (‘Ambuja Cement’), which relies on the landmark judgment in Delhi Towers Ltd. v. G.N.C.T. of Delhi[5] (‘Delhi Towers’) has provided clarity on stamping of Schemes in India, especially concerning the exemption in Delhi for Schemes involving certain categories of companies.

Delhi exemption from stamp duty on Schemes

Section 9(1)(a) of the Stamp Act empowers the Government[6] to reduce or remit stamp duty on any instrument executed in the territories under its administration.

Under the powers granted by Section 9(1), the Government (acting through the Governor General in Council), issued Notification No. 1 on January 16, 1937 (‘January 16 Notification’). This notification represented a significant policy decision designed to provide relief to corporate entities involved in the transfer of property or shares between companies which satisfied the Substantial Ownership Overlap Requirement (defined below).  The January 16 Notification was subsequently superseded by Notification No.13 dated 25 December 1937 (‘January 25 Notification’).  The January 25 Notification narrowed the exemption provided by the January 16 Notification with regards to exemption of stamp duty on corporate entities involved in the transfer of property or shares between companies which satisfied the Substantial Ownership Overlap Requirement (defined below) within the province of Delhi.  The January 25 Notification reads as follows:

“In exercise of the powers conferred by clause (a) of section 9 of the Indian Stamp Act, 1899 (II of 1899), and in supersession of all previous notifications issued from time to time under the said clause of the said section in so far as they relate to the Province of Delhi (hereinafter referred to as the said Province)…the Central Government is pleased to reduce, to the extent set forth in each case, the duties chargeable in the said Province under the said Act in respect of the instruments hereinafter described … and to remit the duties so chargeable in respect of instruments of the other classes hereinafter described:

Instrument evidencing transfer of property between companies limited by shares as defined in the Indian Companies Act, 1913, in a 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.

Provided that a certificate is obtained by the parties to the instrument from the officer appointed in this behalf by the Chief Commissioner of Delhi that the conditions above prescribed are fulfilled.”

The conditions quoted in (i)-(iii) above, which apply when at least 90% of the share capital of the transferee company is beneficially owned by the transferor company, or when there is a transfer between a parent and subsidiary company meeting specific ownership criteria are referred to as ‘Substantial Ownership Overlap Requirement’.

Judicial interpretation and statutory evolution 

Taking note of the catena of judgements that have been delivered by other High Courts, and the Supreme Court, the Delhi High Court (‘DHC’) in Delhi Towers ruled conclusively on whether Schemes are exigible to stamp duty under the ambit of ‘conveyance’ and Constitutional validity of the January 25 Notification.

Delhi Towers (2009)

In this case, fifteen transferor companies (all wholly-owned subsidiaries of the transferee company), proposed a merger with their parent company, Delhi Towers Limited. The proposed scheme of amalgamation became effective on March 28, 2003. The revenue authorities raised an objection at the stage of mutation of properties, stating that the Scheme was not duly stamped.

The broader question answered by the DHC in Delhi Towers considered whether Schemes are exigible to stamp duty under the Stamp Act.  In order to answer this question, the DHC evaluated whether a scheme of amalgamation will be covered within the definition of ‘conveyance’[7].  Answering this question in the positive, the DHC considered the following lines of argument:

Nature of an order approving a scheme of merger- The DHC observed that a scheme of amalgamation is based out of voluntary acts of and with consent of the parties. There is no element of statutory compulsion involved in effecting such a scheme.

Schemes are an ‘instrument’ within the definition of the Stamp Act- The DHC observed that any document creating or transferring a right in immovable property will be considered an ‘instrument’ under the Stamp Act.  Further, for the purposes of stamp duty, it is immaterial whether conveyance was by way of operation of law, statutory provision or by virtue of a private contract between parties.  Therefore, Schemes which transfer assets and liabilities from the transferor company to the transferee company would be exigible to stamp duty.  Any exemption to stamp duty has to be through specific statutory provision.

Inclusive definition of ‘conveyance’- Basis the broad and inclusive language employed by Section 2(10) of the Stamp Act, the DHC held that while Schemes are not specifically covered under the definition of ‘conveyance’, the same cannot be said to be excluded from its ambit. The DHC commented on the fact that several states had amended their definition of ‘conveyance’ and that such state-specific amendments were merely declaratory and clarificatory in nature.  Schemes by their nature are instruments of conveyance.

Constitutional validity of January 25 Notification- On the specific question regarding the validity and applicability of the January 25 Notification, the DHC held that applicability of a pre-Constitution law is not conditional upon the making of an adaptation or a modification in the post-Constitution law for its continued applicability, however, repeal of such a law has to be specific. Hence, the January 25 Notification is still applicable and binding.

Repeal of January 16 Notification (2011)

In 2011, the Lieutenant Governor of the National Capital Territory of Delhi (‘LG’) withdrew the January 16 Notification[8] which had already been superseded by the January 25 Notification.  This caused some uncertainty regarding the validity of the January 25 Notification itself.

Some ambiguity also stemmed from the fact that Delhi’s revenue authorities began relying on the decision in Delhi Towers to erroneously impose stamp duty on mergers that satisfied the Substantial Ownership Overlap Requirement. The DHC in Ambuja Cement in fact took note of the fact that while Delhi’s revenue authorities had placed reliance on Delhi Towers to come to the conclusion that a Scheme will be stamped under the provision of ‘conveyance’, they had failed to appreciate the applicability of January 25 Notification, the validity of which Delhi Towers had re-affirmed.

Ambuja Cement (2024)

The DHC in Ambuja Cement reiterated the Delhi Towers decision and reaffirmed that a Scheme qualifies as a ‘conveyance.’ The DHC further clarified that whether or not immovable property is transferred by a Scheme is irrelevant and a Scheme that involves only movable property (e.g., dematerialized shares) is still subject to stamp duty. Further, the DHC reaffirmed the Constitutional validity of January 25 Notification.

Analysis and current position

Delhi Towers and Ambuja Cement have provided substantial clarity on several aspects of stamp duty applicable on Schemes in India and the narrow exemption provided by the 25 January Notification in Delhi.  Presently, the contours of stamp duty leviable on Schemes is as follows:

Requirement of payment of stamp duty on a scheme of amalgamation: The DHC has clarified that Schemes are ‘instruments’ under the Stamp Act and, as such, are subject to stamp duty under the head of ‘conveyance.’

Exemption from payment of stamp duty on a scheme of amalgamation: The January 25 Notification offers a narrow exemption from payment of stamp duty in Delhi when the companies satisfy the Substantial Ownership Overlap Requirement.  Any applicant finding refuge in such exemption is required to provide a certificate obtained from the officer appointed in this behalf by the ‘Chief Commissioner of Delhi’ confirming that the Substantial Ownership Overlap Requirement is fulfilled.

It may be noted that while Delhi Towers and Ambuja Cement have both categorically upheld the Constitutional validity of the January 25 Notification, in neither case the bench provided any observations or detailed guidance regarding the procedural details of availing benefit of the January 25 Notification by companies satisfying the Substantial Ownership Overlap Requirement in Delhi.

One of the practical issues that can arise for companies attempting to seek the exemption provided by the January 25 Notification is the prior requirement of obtaining a certificate from an officer appointed in this behalf by the ‘Chief Commissioner of Delhi’ evidencing that the companies are in compliance with the Substantial Ownership Overlap Requirement.  In this regard, it is pertinent to note that prior to the Constitution coming into force, the primary administrator of the then state of Delhi was known as the ‘Chief Commissioner’. Thereafter, as per Article 239(1) read with Article 239AA(1) of the Constitution, the union territory of Delhi was managed by an ‘administrator’ which is the LG.  Therefore, as per rules of statutory interpretation, in order to avoid a reading of the above condition that will result in an absurd interpretation, the above certificate ought to be obtained from an officer appointed by the LG. However, due to the lack of express clarity provided by the courts in India or the LG, companies may face practical problems in availing the benefit of the January 25 Notification.

Calculation of stamp duty: In merger transactions, stamp duty will be levied on two instruments, on Schemes themselves (as an instrument of conveyance) and separately on the instrument of issuance of shares. In respect of the calculation of the stamp duty payable on the court approved scheme of arrangement, the DHC stated that in a scheme of amalgamation, a going concern is transferred and not assets and liabilities separately. Thus, the calculation of stamp duty should typically be based on the shares allotted to the shareholders of the transferor company and that valuation would be on the basis of the share exchange ratio.

Hence, the legal framework regarding stamp duty on Schemes has evolved through key judicial decisions like Delhi Towers and Ambuja Cement. These decisions have clarified that Schemes are subject to stamp duty as ‘instruments of conveyance’ under the Stamp Act. While the January 25 Notification provides a narrow exemption in Delhi, the practical challenges related to the certification process remain unresolved. Companies seeking the exemption must navigate these challenges carefully to ensure compliance.

By Nidhi Arora (Partner) and Shagun Taparia (Associate)

[1] ‘Instrument’ is defined as every document by which any right or liabilities are to be created, transferred, limited, extended, extinguished or recorded as per Section 2 (14) of the Indian Stamp Act, 1899 (‘Stamp Act’).

[2] In Re Commissioners of Inland Revenue, AIR 2009 SC 2283.

[3] Section 35, Stamp Act.

[4] W.P.(C) 5638/2014 and criminal application no. 13964/2014

[5] CA No. 466/2008 in Company Petition No. 50/2003

[6] ‘Government’ is defined as the Central Government in relation to any document chargeable with stamp duty under the Stamp Act and falling within List I in the seventh schedule to the Constitution; and for any instrument other than the aforesaid, the relevant State Government.

[7]‘Conveyance’ includes a conveyance on sale and every instrument by which property, whether movable or immovable, is transferred inter vivos and which is not otherwise specifically provided for by Schedule I.

[8] Vide notification No. F.1(423)/ Regn.Br./ HQ/ Div.Com./ 10 dated June 1, 2011