The Bombay High Court has clarified that although an order of amalgamation under Section 394 of the Companies Act, 1956 is a “conveyance” within the meaning of Section 2(g) of the Maharashtra Stamp Act, stamp duty on such order can be computed only in the manner prescribed under Article 25(da) of Schedule I to the Stamp Act, namely with reference to the value of shares issued or allotted and the consideration paid.
The Court held that where no shares are issued or allotted and no consideration is paid, internal accounting entries such as goodwill, share premium, reduction of share capital, and profit and loss adjustments cannot be treated as consideration or transaction value for the levy of stamp duty. Accordingly, the Court quashed the adjudication order and the appellate order.
A Single Judge Bench of Justice Amit Borkar observed that an order sanctioning amalgamation under Section 394 of the Companies Act, 1956 falls within the definition of “conveyance” under Section 2(g) of the Maharashtra Stamp Act. However, mere chargeability as a conveyance does not conclude the issue of computation of stamp duty, which must be determined strictly under Article 25(da).
The Bench observed that Article 25(da) contemplates levy with reference to the market value of shares issued or allotted in exchange or otherwise, and the amount of consideration paid for the amalgamation. In the present case, since Drillco Seco Limited was a wholly owned subsidiary of the petitioner, no new shares were issued, no money was paid, and the shares already held by the petitioner merely stood cancelled upon amalgamation.
The Bench rejected the State’s contention that the expression “or otherwise” enabled the authorities to rely on figures such as profit and loss, goodwill and share premium for stamp duty computation. It held that the words “or otherwise” are connected with the phrase “shares issued or allotted in exchange or otherwise” and cannot be read as conferring an unlimited power to treat accounting entries as the basis of levy.
The Bench further observed that reduction of share capital, adjustment of losses, and creation of goodwill were internal accounting steps undertaken to balance the books after amalgamation. Such figures did not represent real payment, issuance of shares, or consideration received by shareholders, and therefore could not be treated as consideration for the purposes of Article 25(da).
Thus, the Bench found the appellate reasoning inconsistent because, at one stage, it referred to the value of the transferor company, while at another stage, it relied on figures from the books of the petitioner. This inconsistency reinforced the conclusion that the computation method adopted by the authorities was legally unsustainable.
Briefly, the petitioner had challenged the adjudication order passed by the Joint District Registrar and Collector of Stamps (Respondent no.2) and the appellate order passed by the Chief Controlling Revenue Authority. The dispute arose from a scheme of amalgamation sanctioned by the Bombay High Court on February 11, 2005, whereby Drillco Seco Limited, a wholly owned subsidiary of the petitioner, stood amalgamated with the petitioner and all its rights, liabilities and obligations vested in the petitioner.
Under the sanctioned scheme, the entire share capital of Drillco Seco Limited held by the petitioner stood cancelled. No shares were issued by the petitioner and no monetary consideration was paid to the transferor company or its shareholders under the scheme. The petitioner filed Form No. 21 with the Registrar of Companies on March 28, 2005, though the form contained an inadvertent error mentioning the date of the order as March 2, 2025 instead of the correct date.
Since the Registrar of Companies insisted on proof regarding stamp duty, the petitioner applied for adjudication under Section 31 of the Maharashtra Stamp Act. By order dated May 12, 2006, respondent No. 2 held that stamp duty was payable on the amalgamation order by treating goodwill and share premium as consideration and computed duty and penalty accordingly.
Appearances:
Senior Advocate Vineet Naik, along with Advocates Raghav Gupta, Treesa Benny, and Rashi Savla, for the Petitioner
Additional G.P O.A. Chandurkar and AGP V.S. Nimbalkar, for the Respondents
