INTRODUCTION
Navigating corporate restructurings in India involves intricate legal hurdles, particularly concerning the stamp duty levied on court-approved mergers. The lack of clarity primarily arises from varying state-specific stamp duty regulations and older notifications (some pre-dating independence) that either limit the payable stamp duty or grant exemptions for particular transaction types.
In this context, it becomes pertinent to note that stamp duty is determined with reference to the instrument and not the transaction. The ambiguity vis-à-vis determination of stamp duty in Delhi was addressed by the Hon’ble Delhi High Court in the matter of Delhi Towers Limited v. GNCT of Delhi[1] wherein it was held that in the absence of any specific entry in the Stamp Schedule as applicable to Delhi, definition of Conveyance in the Indian Stamp Act, 1899 covers the activity of amalgamation of two or more companies and therefore, stamp entry as applicable to Conveyance i.e., entry 23 of Schedule 1-A would be applicable to the order of amalgamation.
That so far as the determination of the stamp duty in case of a scheme of amalgamation is concerned, the same is to be determined by the appropriate adjudicating authority on the instrument of conveyance i.e., the order sanctioned by the Hon’ble Tribunal, after due verification only on the basis of the price of shares allotted to the shareholders of the transferor company or any other consideration, if paid, on the basis of share exchange ratio of the shares. The order so passed by the Hon’ble Tribunal would be treated as an “instrument of conveyance” in accordance with the ratio given in the judgment of Delhi Towers Limited v. GNCT of Delhi[2] for the purpose of Entry 23 of Schedule 1-A as applicable to Delhi. Further, in such an event the value to be taken into account for purposes of computing the stamp duty should be the amount set forth in the order as required under the said Article 23.
MERGER OF WHOLLY-OWNED SUBSIDIARY WITH PARENT COMPANY
While the judicial decisions have provided necessary clarity in relation to the treatment of mergers for imposition of stamp duty, Notification no. 13 dated December 25, 1937, issued by the Central Government (“1937 Notification”), provides for the exemption of stamp duty in cases of Wholly-Owned Subsidiary (“WOS”) merging into its holding company and cases similar to the same. Interestingly, the applicability of the 1937 Notification has been uncertain on account of its withdrawal by the Lieutenant Governor of the National Capital Territory of Delhi vide its notification No. F.1(423)/ Regn.Br./ HQ/ Div.Com./ 10 dated June 1, 2011. Owing to the ambiguity in the operability of the 1937 Notification, the revenue authorities had been attempting to levy stamp duty on the value of the cancelled shares of the WOS.
As a welcome move, the Hon’ble Delhi High Court in the case of Ambuja Cement Ltd. vs Collector Of Stamps, Delhi[3] upheld the enforceability of the 1937 Notification in Delhi, ruling that a merger between two WOS of a common parent company falls within its scope and is, therefore, exempt from stamp duty.
CASE ANALYSIS
The factual matrix involved a merger of Ambuja Cements India Private Limited (“ACIPL”)– a 100% subsidiary of Holderind Investments Ltd., Mauritius (“Holderind”)which held 55% shares of ACIPL directly and the remaining 45% shares were held by Holcim (India) Private Limited (“Holcim”) – with Holcim (WOS of Holderind). ACIPL did not have any immovable property at that time and the only movable property held by ACIPL was its shareholding in ACC Limited (“ACC”) and Ambuja Cements Limited (“ACL”) in dematerialized form. Upon approval of the merger, Holcim issued 353,84,08,355 equity shares to the shareholders of ACIPL in accordance with the share exchange ratio and ACIPL was dissolved without winding up. The board of directors also authorized issuance of share certificate bearing no.12 to Holderind.
The Collector of Stamps, Delhi had issued notices in 2014 seeking stamp duty payment on the merger order and the issuance of shares, but the Delhi High Court quashed this contention, affirming that the merger was covered under the 1937 Notification and therefore exempt from stamp duty. This matter has been pending adjudication since 2014, and until recently, the Collector of Stamps had not acted on stamp duty matters involving mergers of a WOS with its parent company, likely due to the ongoing legal uncertainty surrounding the enforceability of the 1937 Notification in Delhi.
The rationale behind the 1937 Notification is sound – when a WOS merges with its parent or two WOS of the same parent merge with each other, there is no material change in the parent company’s financial position. This is because the WOS’s financials are already consolidated in the parent’s books. Further, in the case of a WOS merging into its parent, no specific consideration is payable as no new shares are issued by the WOS; instead, the shares held by the parent company are cancelled, which further justifies the exemption from stamp duty. This principle is also recognised in the Income Tax Act, 1961, where Section 47 clarifies that transfers between a parent company and its WOS (or vice versa) are not regarded as transfers (subject to certain conditions).
CONCLUSION
The judgment in the present case brings much-needed clarity to the stamp duty implications of such mergers in Delhi. Prior to this judgment, the lack of a clear adoption or repeal of the 1937 Notification in Delhi left mergers involving WOS at the discretion of the stamp authorities, who erroneously sought to levy stamp duty on mergers involving WOSs by imposing duty on the value of the shares cancelled in the merger, a practice that lacked any legal basis. However, with the Delhi High Court’s judgment explicitly upholding the 1937 Notification, the matter has now been conclusively resolved. Any merger falling within the scope of the 1937 Notification will now be exempt from stamp duty in Delhi, thus eliminating the previous uncertainty and ensuring greater clarity for mergers of WOS with their parent companies.
[1] MANU/DE/3152/2009
[2] ibid
[3] MANU/DE/7784/2024
