India: Bombay High Court Judgment On Stamp Duty Payable On Inter-State Amalgamations

Last Updated: 5 October 2016
Article by DSK Legal

The Hon'ble High Court of Bombay on March 31, 2016 has held that where a Scheme of Amalgamation is executed between two companies registered in two different states pursuant to which two orders of two different high courts are issued for sanctioning of the Scheme of Amalgamation, then the said two orders are two independent instruments. The said two orders cannot be said to be same document especially when the two orders are issued upon two different petitions for two different companies.

Thus, as per the High Court of Bombay, stamp duty becomes payable on all the orders of the High Court/s sanctioning a Scheme of Amalgamation and no set off can be claimed for stamp duty paid in another state in cases where one of the orders sanctioning the Scheme of Amalgamation is of the High Court of Bombay, in terms of Section 4 read with Section 19 of the Bombay Stamp Act, 1958.

The said judgment was passed in the matter of Chief Controlling Revenue v/s M/s Reliance Industries Limited wherein the Respondent, Reliance Petroleum Limited, having its registered office in Gujarat ("Transferor Company") executed a Scheme of Amalgamation with Reliance Industries Limited having its registered office in Bombay ("Transferee Company"). Pursuant to the Scheme of Arrangement, from the appointed date, the assets / undertakings of the Transferor Company were to, without any further act, instrument or deed, stand transferred / vested in or deemed to have been transferred / vested in the Transferee Company.

The Transferor Company filed petition in Gujarat High Court and the Transferee Company filed a petition in the Bombay High Court for sanctioning the arrangement contained in the Scheme of Amalgamation. First, the Gujarat High Court and thereafter the Bombay High Court sanctioned the Scheme of Arrangement.

The Transferee Company made an application to the Superintendent of Stamp (Head- Quarters) Mumbai seeking a set-off of maximum stamp duty payable in Mumbai against the stamp-duty already paid in Gujarat.

Transferee Company sought set-off of INR 10 Crores paid in Gujarat from the maximum amount of INR 25 crores payable in Bombay.

The Superintendent of Stamps, Mumbai rejected the set off. After a series of appeals, the revenue authorities in Maharashtra preferred a reference to the Bombay High Court to decide on the questions of law.

The issues involved in the instant case and the Court's ruling thereon were as follows:

  1. Whether a scheme sanctioned between the two companies under Section 391 and 394 of the Companies Act is one and same document chargeable to stamp duty regardless of the fact that order sanctioning the scheme may have been passed by two different High Courts by virtue of the fact that the Registered Offices of the two Companies are situated in two different states?

    The Bombay High Court rephrased the first issue to understand what is the instrument in the instant case for the purposes of the Bombay Stamp Act? Whether the 'scheme of arrangement which has been sanctioned by the court is the instrument' or 'the order of the court sanctioning the scheme is the instrument?' This question is the most important one, as the answer to this essentially decides the issues in the other three questions. The Court noted that it is clear that stamp duty is payable on an "instrument" and not a transaction. In answering this question, the Bombay High Court referred to Court rulings in Hindustan Lever v. State of Maharashtra reported as (2004) 9 SCC 438 and Li Taka Pharmaceuticals v. State of Maharashtra reported as 1996 (2) Mah. L.J. 156. It was noted that the earlier precedents support the intention that the transfer by way of a Scheme of Amalgamation is made effective by an order sanctioning the Scheme of Arrangement hence the order is the instrument for the purposes of the Bombay Stamp Act. The Bombay High Court ultimately concluded that in a Scheme of Amalgamation involving two companies, there would be two instruments (i.e. two orders) which would be liable to stamp duty. The Bombay High Court stated as under:-

    "21 Although the two orders of two different high courts are pertaining to same scheme they are independently different instruments and cannot be said to be same document especially when the two orders of different high courts are upon two different petitions by two different companies. When the scheme of the said Act is based on chargeability on instrument and not on transactions, it is immaterial whether it is pertaining to one and the same transaction. The duty is attracted on the instrument and not on transaction."
  2. Whether the instrument in respect of amalgamation or compromise or scheme between the two companies is such a scheme, compromise or arrangement and the orders sanctioning the same are incidental as the computation of stamp duty and valuation is solely based on the scheme and scheme alone?

    The Bombay High Court stated that Section 4 of the Bombay Stamp Act which deals with "incidental instruments" is a section that applies to some specific types of agreements, which list does not include a Scheme of Arrangement, and hence the two orders cannot be considered as being identical.
  3. Whether in a scheme, compromise or arrangement sanctioned under Section 391 and 394 of the Companies Act where registered office of the two companies are situated in two different States, the Company in state of Maharashtra is entitled for rebate under Section 19 in respect of the stamp duty paid on the said scheme in another State?

    The Bombay High Court was of the opinion that Section 19 of the Bombay Stamp Act provides for set-off of stamp duty only where a document executed outside a State is subsequently brought into the State, stamp duty would have to be paid on that instrument after set-off of duty that has already been paid in another state. The Bombay High Court concluded that in a Scheme of Amalgamation, which is sanctioned by two court orders, for the purposes of stamp duty payable in Maharashtra, only the order of the Bombay High Court would be relevant and the provisions of Section 19 would not apply.


The said judgment can have serious ramifications on transactions where a Scheme of Amalgamation is executed between two or more companies having registered office in more than one state. In such a case, stamp duty would become payable on all the orders of the High Court/s. While in literal interpretation of the provisions of stamp act, court order may prima facie seem appropriate, however it does result in incongruous consequences on grounds of equity and principles of avoidance of double taxation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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