The question as to whether amalgamation and merger of companies would attract stamp duty even without an amendment to the respective State’s law is now before the Supreme Court as different views have been taken by the High Courts on this issue. Apart from planning corporate restructuring one has to look into stamp duty aspect on its implementation.
1. Introduction
Business reorganizations have been a common phenomenon in the last decade. Different strategies are pooled in for the purpose of growth, expansion and most importantly profiteering. Business reorganization helps corporate in finding better exit and entry routes. Sections 391 to 394 of the Companies Act, 1956 provide for provisions pertaining to compromise, arrangement, reconstruction and amalgamation. Every scheme of amalgamation or merger has to be sanctioned by the High Court. The company law jurisprudence aspect of sections 391 to 394 has been almost well-settled but stamp duty implication on sanction of scheme of amalgamation and merger is on a sticky wicket. The levy of stamp duty is important aspect in relation to amalgamation and mergers. Apart from planning corporate restructuring one also has to look into stamp duty aspect on its implementation.
2. Stamp Duty – State & Central Levy
Stamp duty is a duty leviable on instruments which are chargeable under the stamp laws. Stamp duty is more of a State subject, though to bring uniformity in duties chargeable, the power to prescribe rate, reduce or remit such duties is vested in the Central Government (entry 91 of the Union List). However, power to prescribe duties on other instrument is vested in the State legislature (entry 63 of the State List). Whereas the mechanism of collection and management of stamp duties in respect to both the classes of instrument is the subject-matter of both the Centre and the States (entry 44 of the Concurrent List). Most of the States follow the Indian Stamp Act, 1899 having made amendments to the Schedule or having its own schedule except for the States like Maharashtra, Gujarat, Karnataka, Kerala, Rajasthan, West Bengal and Uttar Pradesh which have separate enactments. Thus, the Act is a composite Act amended by the Union and States in their respective spheres of legislations.