Government proposed to amend Indian Stamp Act, 1899

The Department of Revenue, Ministry of Finance, has released the draft Amendment Bill (“Bill”) containing the proposed amendments in the Indian Stamp Act, 1899 (“Act”). Changes are proposed in numerous provisions of the century old enactment. The Bill has been sent to all the State Governments for obtaining their views and the same has also been posted on the Finance Ministry’s website i.e. www.finmin.nic.in for obtaining the suggestions/ comments of interested stake-holders. Clause wise reasons for proposing such amendments and comparison of the existing provisions and the proposed amendments have been made available on the website.

One of the key proposals of the said Bill is, inter-alia, to enlarge the scope of application of the Act by explicitly levying stamp duty on every order of the Court/Tribunal sanctioning the scheme of amalgamation or reconstruction of companies, including banking companies, by which property is transferred inter vivos. The said proposal is of vital importance in any amalgamation, merger or demerger transaction.

Under the extant provisions, section 3 of the Act creates a charge for levy of stamp duty on execution of an instrument, wherein, every instrument of conveyance executed in India shall be chargeable with stamp duty in accordance with Schedule to the Stamp Act. Thus, stamp duty is payable on an instrument which is listed in the Schedule attached to the Stamp Act as applicable to the relevant State.

In this regard, the aspect of levy of stamp duty on an order of High Court under section 394 of the Companies Act, 1956 has been in dispute for long. Over a period of time, contrary judgments have been pronounced by various High Courts, particularly, in respect of those States where order of the Court under section 394 of the Companies Act, 1956 is not specified in the Schedule as amounting to conveyance.

To attain a quietus, the definition of the expression “conveyance” is proposed to be amended so as to include in its scope every such order of the High Court/Tribunal under section 394 of the Companies Act, 1956 sanctioning the scheme of amalgamation or reconstruction of companies including the order made by Reserve Bank of India in respect of amalgamation or reconstruction of banking companies under section 44A of the Banking Regulation Act, 1949. An explanation is also proposed to be added to the term “conveyance” in order to make the transfer of property by a co-owner to another co-owner, chargeable with the duty of conveyance unless it is an instrument of partition. The rate of stamp duty on conveyance as proposed is 5% of the market value of the property which is the subject matter of conveyance. There is no guidance provided as to how the market value of the property, being an undertaking, will be arrived at.

Given below is the comparison of the extant definition of “conveyance” with the proposed amendment:

By way of proposed amendment in the Central Statute, the Central Government has intended, on the basis of the comments to be received from all the State Governments, to put to rest the controversy on leviability of stamp duty on any order of the Tribunal or High Court sanctioning the scheme of amalgamation / reconstruction and at the same time, increase the revenue of the exchequer. On the other hand, the proposed amendment may act as a dampener for the corporates to undertake corporate restructuring exercise.