Delhi High Court in the case of S.E. Investment Limited (CO. APPL. (M) 38/2011 & CO. APPL. 293/2011) held that increase in Authorized Capital is not liable to stamp duty under Indian Stamp Act, 1899 as applicable in Delhi
Facts of the Case –S.E. Investment Limited (the Petitioner) was incorporated with an authorized share capital of INR 2 million which was gradually increased to INR 85 million.The Petitioner had paid stamp duty on the increase in the authorized share capital from INR 2 million to INR 85 million.The Petitioner further increased its authorized shares capital from INR 85 million to INR 1250 million and filed Form No. 5 with Registrar of Companies (RoC). The ROC insisted on payment of Stamp duty.The Petitioner sought clarification from the Collector of Stamps, Government of National Capital Territory of Delhi (Stamp duty authority) as to whether any additional stamp duty on increase in authorized share capital was payable in accordance with Article 10 of the Schedule IA of the Indian Stamp (Delhi Amendment) Act, 2007 (Delhi Stamp Act). In response to the application the Petitioner was directed by the Stamp duty authority to pay the stamp duty of INR 1.87 million on increased authorized shares capital of INR 1165 million.The Petitioner filed a writ petition before the Delhi High Court.
Petitioner’s contentions –The Petitioner contended that the provisions of Article 10 of the Schedule IA of the Delhi Stamp Act , as reproduced below, did not mention that the Stamp duty was payable on increase in the authorized share capital.
“Article 10 – Articles of Association of a company-
| a) When the authorized share capital of the company does not exceed 1 Lakh | Delhi – 0.15 percent of the authorized share capital with a monetary ceiling of
INR 2.5 million |
| b) In other cases | Delhi – 0.15 percent of the authorized share capital with a monetary ceiling of INR 2.5 million” |
- The Petitioner further submitted that the words ‘in other cases’ as appearing in clause (b) of Article 10 of Schedule IA as mentioned above refers to a cases in which authorized share capital at the time of incorporation and registration of the company exceeds INR 1 lakh and not a case of subsequent increase in authorized share capital.
- The Petitioner also emphasized that this distinction was clearly understood by State Legislatures of Madhya Pradesh and certain other states and had amended Article 10 applicable in their states. The Article 10 as amended by Madhya Pradesh is as below:
- “Article 10 …………………………………………………..
| (b) Where the company has nominal share capital or increased share capital | 0.15 percent of such nominal or increased share capital subject to a minimum of one thousand rupees and a maximum of INR Five Lakhs |
- Thus, the decision given by the Stamp duty authority overlooks the correct legal position and violets the Article 10 of the Delhi Stamp Act.
Stamp duty Authority’s contentions
- The Stamp Authority contended that the phrase ‘in other cases’ as appearing in clause (b) of Article 10 of the Delhi Stamp Act would include any subsequent increase in authorized capital.
- The Stamp Authority contended that the Petitioner had paid stamp duty on earlier increase in authorized share capital and hence, it cannot refuse to pay on further addition now.
- The Petitioner itself invited the adjudication by the Collector of Stamps and hence, it was bound to respect the decision given by the Collector of Stamps in this regard.
High Court Ruling
- The High Court observed that there is no express provision for charging stamp duty on the increase in authorized share capital in Schedule IA of the Delhi Stamp Act.
- A statute authorizing the levy of stamp duty is in the nature of fiscal statute, therefore Stamp duty cannot be levied except by the authority of law. The provisions of a fiscal statute admit of strict construction.
- The High Court also relied on the Supreme Court judgment in the case of AV Fernandez v. State of Kerala (AIR 1957 SC 657) and Commissioner of Wealth Tax v. Ellis Bridge Gymkhana [1998] 1 SCC 384 (SC), where it was held that the rule of construction of a charging section is that before taxing any person, it must be shown that he falls within the ambit of the charging section by clear words used in the section. No one can be taxed by implication.
- In the absence of any specific provision in the Act for levy of stamp duty on the increase in authorized share capital it is not possible to legally sustain the demand raised by the Collector of Stamps.
- A mere fact that the Petitioner earlier paid stamp duty on increase in authorized share capital cannot act as estoppel against the Petitioner.
- However, court has clarified that the decision will not enable the Petitioner to claim refund of any stamp duty paid earlier.
Our Comments
- This is a welcome ruling by the Delhi High Court, which may relieve burden of stamp duty on increase in authorized capital.
- It should be noted that the draft bill to amend the Indian Stamp Act, 1899 released by the Department of Revenue, Ministry of Finance specifically provides for the levy of stamp duty on increase in authorized share capital. Proposed amendment is as under: “Article 10 –
| (b) Where the company has nominal share capital or increased share capital | 0.15 percent of such nominal or increased share capital subject to a minimum of one thousand rupees and a maximum of five Lakh rupees |
Thus, on enactment of the amendment bill the increase in authorized share capital should be liable to stamp duty at least in the states where India Stamp Act is applicable.
