Himanshu Sharma
Whether shares/securities issued by company or an issuer in demat form are chargeable to stamp duty under Indian Stamp Act? If yes then on what value it will be charged or how consideration would be calculated for the purpose of levy of stamp duty?
Issue No-1: Share issued by company or an issuer in demat form?
- Many times it was contended by the company or an issuer that the stamp duty payable only to the shares physically issued in the form of duly executed share certificate and
- not subjected to the payment of any stamp duty in the absence of any instrument in writing executed by the company.
Under the Indian Stamp Act, the stamp duty in respect of share issued by the company or issuer is payable in two account:
1. At the time of issuing of securities payable by the Company or issuer and
2. At the time of transfer of shares by the person holding title of ownership to the transferee, payable by the person executing the instrument of deed of transfer of share/ securities.
For Your ready reference, we would like to reproduce the applicable sub clause (a) of section 8A and as well as the Article 19 of the Indian Stamp Act 1899 which are as follows:
8A. Securities dealt in depository not liable to stamp duty:-
Notwithstanding anything contained in this Act or any other law for the time being in force:-
(a) An Issuer, by the issue of securities to one or more depositories shall, in respect of such issue, be chargeable with duty on the total amount of security issued by it and such security need not to be stamped.
Explanation of Sec 8A
Any Company or an Issuer
- who has issued their securities to their respective depositories i.e Stock Exchange, so that any prospective buyer and seller can trade the same on respective stock exchange and
- as such trading was continuously being conducted on online stock exchange, it will not require any stamping
Shall be chargeable to stamp duty.
When we read the section 8A of Indian Stamp Act, 1899 and the explanation thereof, it clearly states that as soon as the Company or issuer issues the securities to their respective depositories he will be chargeable with duty on the total amount of security issued by it and the said section nowhere specifically said that the shares issued in physical form are only chargeable to stamp duty or share issued in demat form are not chargeable to stamp duty.
However trading of securities by the depositories itself from/to the prospective customers or traders except the original issuer, are not liable to stamp duty.
The intention of the legislature was to charge duty on the amount of securities issued by the Company/ issuer to their depositories. Here the roll of company/issuer get finished as soon as they issued securities/shares to the depositories, now the roll of depositories get started for further issuance of securities to the prospective buyer. Depositories are acting on behalf of the Company/issuer.
However for a while if we follow the intention of the Company/issuer which is just to evade the payment of duty, it will not fulfill the intention of the legislature.
Coming to the Next issue: Valuation for the purpose of chargeability
As per Article 19 of schedule-1A, Section 21 and Section 27 of the Indian stamp act, which deals with the issuing of shares by the company or an issuer and as well as their valuation for the purpose of chargeability of stamp duty are reproduced hereunder:
19. Certificate or other document:
| evidencing the right or title of the holder thereof, or any other person, either to any other shares, scrips or stock in or any incorporated company or other body corporate or to become proprietor of shares or scrip or stock in or of any such company or body.
|
One Rupee for every one thousand or Part Thereof, of the value of the share Shares or Scrips
|
As per section 21 of Indian Stamp Act,1899
where an instrument is chargeable with advoleram duty in respect of any stock or of any marketable or other securities, such duty shall be calculated on the value of such stock or securities according to the average price of the value thereof on the date of the instrument.
Therefore by virtue of reading section 21 with the spirit of article 19, leaves no doubt that the value means the market value of the property as on the date of the instrument.
As per section 27 of Indian Stamp Act,1899
The consideration (if any) and all other facts and circumstances affecting the chargeability of any instrument ‘with duty, or the amount of the duty with which it is chargeable, shall be fully and truly set forth therein.
The object of the section 27 of the Stamp Act is to cast duty upon the person drawing the instrument to clearly stipulate the consideration and /or market value of the property transacted so that the authority/ revenue may ascertain the proper duty payable on the instrument in accordance with the law as stipulated in the schedule.
However for a while if we presume that the intention of the legislature was to charge duty on the face value of the security issued by the company/issuer, then the objective of Section 21 and Section 27 which are specific section for the purpose of valuation of securities will get defeated.
Much emphasis has been laid by the Company/issuer on the expression of the term “Notwithstanding anything contained in this Act or any other law for the time being in force” in section 8A of the Indian Stamp Act to canvass the argument that at the first instance this section has an overriding effect on all the other provision of the Act including the charging section 3 of the Indian Stamp Act and hence no duty is payable in the absence of charging section.
In this regarding we would like to state that “Notwithstanding anything contained in this Act or any other law for the time being in force” is an non Obstante Clause. It serves a definite purpose, In case the non obstante clause comes in direct conflict with any other provision of the statue, it is the non obstante clause which will prevail. It does not mean to say that all other provision of the statue, which in present case is Indian Stamp Act, would become nugatory or useless.
Further with the support of section 27 which was inserted by the Indian Stamp (Delhi Second Ammendment), 2001 in order to prevent evasion has a definite purpose and object sought to be achieved by the legislature.
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Stamp duty has to be paid at the time of issue whether shares in demat or physical form.