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Delhi High Court Ruling on Tax Assessment Dispute: Implications of Statutory Provisions and Tribunal Orders

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Delhi High Court Ruling on Tax Assessment Dispute: Implications of Statutory Provisions and Tribunal Orders

Case title:  NEW DELHI TELEVISION LIMITED VS DISPUTE RESOLUTION PANEL 2 & ANR

Case no.: W.P.(C) 2322/2021

Dated on: 20TH May 2024

Quorum: Hon’ble Mr. Justice YASHWANT VARMA and Hon’ble Mr. Justice PURUSHAINDRA KUMAR KAURAV

FACTS OF THE CASE

The writ petitioner impugns the order of the Dispute Resolution Panel1 dated 29 January 2021 and which has negated its objections to the draft assessment order framed on 31 March 2013. The said draft assessment order came to be made pursuant to an order made by the Transfer Pricing Officer on 29 October 2019. Although the TPO had framed an order on 17 October 2017, the record would reflect that no corresponding order as envisaged under Section 92CA (4) of the Income Tax Act, 1961 was framed. The petitioner had urged for the consideration of the DRP that the reference made on 27 December 2018 and the consequential order dated 29 October 2019 framed by the TPO seeking to give effect to the original order of the ITAT dated 14 July 2017 were clearly barred by the prescription of limitation as embodied in Section 153(3) of the Act. The petitioners had argued that the period of nine months when computed from the passing of the order of the ITAT would have come to an end on 31 December 2018. It was in the aforesaid light that it was urged that there was no authority which inhered in the Assessing Officer to pass further orders referable to Section 92CA (4) of the Act. The petitioner filed its Return of Income for Assessment Year 2009-10 on 30 September 2009 declaring a loss of INR 64 crores. Taking note of certain international transactions, the AO after obtaining requisite approvals is stated to have made a reference to the TPO. The TPO proceeded to determine the transfer pricing adjustments liable to be made in terms of an order dated 30 January 2013. Both the respondents as well as the petitioner herein aggrieved by the final assessment order proceeded to institute appeals before the ITAT. The ITAT upon consideration of the challenges so made, by a final order dated 14 July 2017 confirmed the additions made by the AO under Section 69A of the Act. The additions on account of disallowance under Section 14A of the Act as well as those made with the reference to Section 68 of the Act on account of unexplained secured loans were set aside and the matter remitted to the AO for fresh adjudication. Pursuant to the aforesaid order, the AO on 26 July 2017 proceeded to draw an appeal effect order dealing with the subjects and heads which were remitted for its consideration. In terms of this order, the tax demand of the writ petitioner was revised to INR 428,93,32,536/-. The said order of the AO came to be challenged by the writ petitioner by way of W.P.(C) 6483 of 2017 and on which the Court by an order of 01 August 2017, upon finding that the petitioners had been able to establish a prima facie case directed that no coercive steps would be taken pursuant to the demands which had been raised. The said writ petition continues to remain pending on the board of the Court.

ISSUES

whether the objections raised by the writ petitioner against the draft assessment order, which were negated by the Dispute Resolution Panel (DRP), are justifiable?

whether the Transfer Pricing Officer (TPO) and Assessing Officer (AO) had the authority to take certain actions, particularly in light of the orders issued by the Income Tax Appellate Tribunal (ITAT) and statutory provisions?

LEGAL PROVISIONS

  1. Income Tax Act, 1961

Section 92CA: This section deals with the reference to Transfer Pricing Officer (TPO) for computation of Arm’s Length Price (ALP) in case of international transactions or specified domestic transactions.

Section 144C: This section outlines the procedure for making draft assessment orders in cases of transfer pricing adjustments, and the role of the Dispute Resolution Panel (DRP) in resolving objections raised by taxpayers.

Section 153: This section pertains to the time limits for completion of assessments. Subsections (3) and (4) of this section seem particularly relevant in the case, concerning assessments made in accordance with the procedure prescribed by Section 92CA.

Section 69A: This section deals with unexplained money, investment, etc.

Section 14A: This section deals with disallowance of expenditure incurred in relation to income not includible in total income.

Section 68: This section pertains to cash credits.

Section 254: This section relates to orders of Appellate Tribunals and the powers of such tribunals.

 

CONTENTIONS OF THE APPELLANT

Mr. Jolly, learned counsel appearing in support of the writ petition, at the outset, submitted that as would be evident from a reading of the order of the ITAT dated 14 July 2017, the Mr. Jolly, learned counsel appearing in support of the writ petition, at the outset, submitted that as would be evident from a reading of the order of the ITAT dated 14 July 2017, the It was further highlighted by Mr. Jolly that although the respondents on 02 January 2018 preferred appeals against the order dated 14 July 2017 of the ITAT, those appeals stand confined to the merits of the various issues which came to be decided. Even in those appeals Mr. Jolly submitted, the respondents do not assail or question the correctness of the action of the ITAT in remitting the matter to the TPO. Mr. Jolly submitted that as is well settled in law, neither the AO nor the TPO can possibly be recognized to have the authority to act contrary to the terms of the remand as the ITAT may choose to frame. It was his submission that once the ITAT had itself remanded the matter to the TPO, there existed no justification or requirement in law for a reference being made by the AO on 27 December 2018. The fact that the respondents had never questioned the validity of the aforesaid order of the ITAT according to Mr. Jolly is evident from the various notices which were issued by the AO as well as the TPO and are dated 18 August 2017, 22 August 2017, 05 September 2017 and 15 September 2017. Mr. Jolly then argued that a bare reading of the first order of the TPO dated 17 October 2017 would itself establish that the said authority had proceeded to act in terms of the directions of the ITAT and in order to give effect to and implement the order of 14 July 2017. It was then submitted by Mr. Jolly that once the TPO acting in compliance with the direction of the ITAT had proceeded to pass an order on 17 October 2017, it clearly stood divested of any authority or jurisdiction to undertake an identical exercise while purporting to act in terms of the reference which came to be subsequently made by the AO on 27 December 2018. It was pointed out by Mr. Jolly that the second reference which the AO chose to draw on 27 December 2018, was itself more than a year after the first order had been passed by the TPO. In any case, according to learned counsel, such a reference was wholly unnecessary bearing in mind the admitted position of the ITAT itself having remitted identified issues for the consideration of the TPO. The reference and the assumption of jurisdiction by the TPO was then assailed on the ground of limitation as constructed in terms of Section 153 of the Act. Mr. Jolly submitted that undisputedly in terms of the order of 14 July 2017, and which would clearly be liable to be read as requiring a fresh assessment being undertaken, the time frame within which the AO or the TPO could have concluded that exercise would be governed by Section 153(3) of the Act. Viewed in that light, learned counsel submitted that the limitation for drawing up a draft appeal effect order would have expired on 31 December 2018. This, according to Mr. Jolly, would clearly flow from the plain language of Section 153(3) of the Act.

CONTENTIONS OF THE RESPONDENTS

Mr. Zoheb Hossain, learned counsel appearing for the respondents, firstly raised a preliminary objection and contended that the writ petition ought not to be entertained against the directions of the DRP. Mr. Hossain submitted that in terms of the scheme underlying Section 144C of the Act, the statute creates a special mechanism to deal with cases where variations may arise as a result of transfer pricing adjustments. Mr. Hossain submitted that in all such cases, eligible assessees are furnished a draft assessment order against which the statute entitles them to prefer objections before the DRP. It was pointed out that once the DRP disposes of those objections, the matter stands placed before the AO who would then proceed to pass an assessment order. According to learned counsel, it is only when a final assessment order in accordance with the direction of the DRP comes to be framed that an assessee could be recognised to have a right to assail the action of the respondents or take recourse to a legal remedy. Mr. Hossain submitted that the adjudication of objections by the DRP is only a step-in aid of assessment in the case of an eligible assessee and does not result in a creation of a liability. A tax liability, according to learned counsel would arise only once a final assessment order is passed and which is appealable before the ITAT. Mr. Hossain also alluded to courts having noticed the aforesaid distinctive features underlying assessments undertaken in terms of Section 144C of the Act and desisting from invoking their extraordinary jurisdiction, bearing in mind the remedy available to an assessee and which would be available to be pursued once a final assessment order is framed. It was then submitted that the challenge as laid to the directions of DRP is misconceived since the said authority clearly stands denuded of the jurisdiction to examine objections of limitation or other jurisdictional challenges that may be raised. It was submitted that as would be evident from Section 144C (8) of the Act, the power of the DRP stands restricted to “confirming, reducing or enhancing the variations proposed”. That power, according to Mr. Hossain, cannot possibly be recognized as being akin to or equated with a power to set aside. It was the submission of Mr. Hossain that a statutory authority, as is well settled, is bound to exercise its jurisdiction within the four corners of the statute. Mr. Hossain submitted that since the DRP derives its power from Section 144C(8) of the Act, it cannot possibly be construed to have the authority to rule on every portrayed illegality or aspects pertaining to asserted jurisdictional errors.

 

COURT’S ANALYSIS AND JUDGEMENT

Although we had in the introductory parts of this decision noted that both Mr. Jolly as well as Mr. Hossain had addressed submissions on the basis of Section 153 as it appears on the statute book presently and post the amendments introduced by Finance Act, 2022, we had chosen to briefly digress and examine the various amendments introduced in that provision commencing from Finance Act, 2014 principally to underline the following two fundamental aspects. The TPO while undertaking that evaluation also stands enabled by virtue of Section 92CA(2B) to take into consideration any international transaction which though not disclosed in the report under Section 92E by the assessee may come to its notice. In any case, and as would be evident from the undisputed facts which obtain in the instant matter, the order of the ITAT dated 14 July 2017 and to the extent that certain aspects were remanded for the consideration of the TPO directly were neither questioned nor assailed at any time by the respondents. In fact, and as the writ petitioners have rightly pointed out, the aforesaid directions as framed were duly acknowledged and accepted and which fact becomes evident from not only the various notices which were issued by the jurisdictional AO and form part of our record such as Annexure P-12, P-14, P-15 and P-16 but also by the action of the TPO itself which had proceeded to pass an order on 17 October 2017. It thus becomes apparent that the principal order of the ITAT dated 14 July 2017 had come to be duly implemented by the TPO on 17 October 2017 itself. We are thus of the considered opinion that once the TPO had proceeded to pass the order of 17 October 2017, all that the AO was obliged to do was pass an assessment order in accordance with the procedure prescribed in Section 92CA (4) of the Act. It is pertinent to note that sub-section (4) of Section 153 is concerned with a reference referable to Section 92CA (1). That provision, as noticed hereinabove, is confined to a reference to the TPO that may be made by the AO. The limited application of Section 153(4) is also evidenced from that provision using the expression “made during the course of the proceeding for the assessment or reassessment”. That leaves us to examine the argument of a deemed reference which was advanced by Mr. Hossain. According to Mr. Hossain, the order of 14 July 2017 should be construed as being a reference governed by Section 153(4) of the Act and consequently the expanded period of limitation of twelve months becoming applicable. We find ourselves unable to sustain that submission bearing in mind the indubitable position which emerges from a plain reading of Section 153(3) of the Act and which encompasses and makes adequate provisions for a fresh order under Section 92CA (4) being liable to be made pursuant to an order of the ITAT under Section 254 of the Act. Since the aforesaid contingency is already provisioned for in sub section (3), there would exist no justification for such an order of the ITAT being placed or viewed as traceable to sub-section (4) of Section 153 of the Act. We further find that the judgment rendered by a learned Single Judge of the Karnataka High Court in TE Connectivity was concerned with an order of the ITAT which had remitted the matter to the “Assessing Officer/Transfer Pricing Officer/Dispute Resolution Panel”. In any case the High Court in that case had ultimately held in favour of the assessee. We find ourselves unable to discern any observation or conclusion appearing in that decision which could possibly be viewed as lending credence to the submissions addressed by the respondents in this proceeding. Accordingly, and for all the aforesaid reasons, while we refuse to interfere with the order of the DRP impugned herein, we allow the instant writ petition and hold that the second respondent stands barred in law from passing any further orders of final assessment pertaining to AY 2009-10. The petitioner shall consequently be entitled to all consequential reliefs.

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Judgement Reviewed by – HARIRAGHAVA JP

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Delhi High Court Affirms Eviction Order in Delhi Rent Control Act Dispute, Rejects Petition on Bona Fide Requirement Claim

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Delhi High Court Affirms Eviction Order in Delhi Rent Control Act Dispute, Rejects Petition on Bona Fide Requirement Claim 

Case Name: Scon Financial Services Pvt Ltd v. S C Kaura  

Case No.: RC.REV. 358/2023 

Dated: May 15,2024 

Quorum:  Justice Girish Kathpalia  

 

FACTS OF THE CASE: 

The present respondent filed an eviction petition against the petitioner under Section 14(1)(e) of the Act, claiming to be the owner of the ground floor flat at 49, Basant Enclave, New Delhi (henceforth referred to as “the subject premises”). The petitioner claimed that, by virtue of a rent agreement, the petitioner (previously known as M/s Sarein Consultants Pvt. Ltd.) was inducted as a tenant in the subject premises with effect from 01.12.1988 for the general manager, Mr. Shiv Kumar Vasesi, for residential purposes.  

The rent for the petition was Rs. 2,420/-per month, excluding water and electricity charges. He currently has a legitimate need for the subject premises as a place to live and doesn’t have access to a suitably adequate substitute. Due to his marital strife, he had been living with his sister in the government housing that was assigned to her. 

 However, on December 31, 2004, when she retired, they moved into her Dwarka flat. He wedded Ms. Promila on July 23, 2005, following the breakdown of his first marriage, and he retired from the military on August 31, 2005. He had been living in several rented properties with his wife since May 2011, during which time she also passed away.  

The tenant/petitioner submitted an application for leave to contest after receiving the summons in the prescribed format. In it, they made a wide claim that the respondent/landlord had hidden not only his property but also all other properties, including his dwelling property in New Delhi. The respondent/landlord’s demonstration of a non-genuine demand for the subject premises is demonstrated by the concealing of the additional accommodations that are available to him.  

After considering all sides of the argument, the petitioner/tenant submitted a rebuttal to the application for leave to contest. The learned Additional Rent Controller then issued the contested order, denying the petitioner/tenant the opportunity to appeal the proceedings. 

 LEGAL PROVISIONS: 

  • Section 25B(8) of the Delhi Rent Control Act- Vacant possession to landlord. In spite of any other laws that may be in place, if a tenant’s interest in a property is determined for any reason and an order is made by the Controller under this Act to recover possession of the property, all parties who may be occupying the property must abide by the terms of section 18, and the landlord will obtain vacant possession of the property by evicting all such parties from it. However, nothing in this section will apply to any parties who have an independent title to the property. 

 CONTENTIONS OF THE APPELLANTS:  

The learned counsel for the appellant argued that from a legal standpoint, the contested order cannot stand. The petitioner, who is also the tenant, contended that the petition is not legitimate since the landlord, who is the respondent, failed to reveal his affiliation with the Green Park property. The respondent, or landlord, filed rent deeds displaying his dwellings in leased premises, but the learned counsel for the tenant/petitioner further contended that as the documents were not registered or stamped, the learned Additional Rent Controller should have seized them. 

He also contended that the contested order is unsustainable. On behalf of the petitioner/tenant, it was contended that the petition lacked genuineness because the landlord/respondent failed to reveal his relationship to the Green Park property. The learned attorney representing the tenant/peter further contended that since the respondent/landlord’s rent deeds, which list his houses on leased property, are not stamped or registered, the learned Additional Rent Controller should have seized them. 

 CONTENTIONS OF THE RESPONDENTS: 

The learned counsel for the respondents argued that the current petition is without merit and backed the contested eviction decision. After walking me through the opposing pleadings, the learned counsel for the respondent/landlord cited the order dated 18.12.2023 of the previous bench in support of his argument that the petitioner/tenant had not presented any evidence at all to support a leave to contest request, even though notice of the current proceedings had been given to them on the limited portion of the Green Park property.  

To bolster his contention that a tenant cannot be granted permission to contest based solely on unsubstantiated allegations, the landlord’s/respondent’s knowledgeable legal representative cited numerous court rulings, such as Abid-Ul-Islam vs. Inder Sain Dua, 2022 (6) SCC 30; Hari Shankar vs. Madan Mohan Gupta, 111 (2004) DLT 534; and Suresh Chand vs. Vijay Shankar, 2024.  

Even though the petitioner/tenant had been informed of the current proceedings on the limited portion of the Green Park property, the learned counsel for the respondent/landlord cited the order dated 18.12.2023 of the previous bench to support his argument that they had not provided any evidence at all to support a leave to contest request. 

COURT’S ANALYSIS AND JUDGMENT: 

The court reviewed in terms of the legal position, the respondent/landlord claims that merely making bald assertions without providing any evidence is insufficient to allow permission to challenge the issues of a bona fide requirement and the existence of a reasonably appropriate alternative lodging.  

The court further pronounced that the petitioner/tenant contends that only the allegations made in the affidavit requesting permission to contest are sufficient to create a triable issue; in support of this claim, the petitioner/tenant’s skilled counsel cited the ruling made by the Honourable Supreme Court.  

The tenant’s averments in the affidavit requesting leave to contest must be supported by some credible evidence, according to the court’s considered opinion. If this were not the case, clever affidavit drafting would inevitably result in the grant of leave to contest, defeating the very purpose for which Chapter IIIA was added to the Act in 1976. 

Regretfully, our judicial system does not guarantee the prompt determination of cases. Under the Delhi Rent Control Act, a tenancy lawsuit may take over ten years, or even longer, to get a final verdict.  

Regarding the Green Park property, the petitioner/tenant entered into the record of the current proceedings a few carefully chosen documents from previous court cases involving the Green Park property and Smt. Promila, the now-deceased wife of the respondent/landlord, who was a party to those cases.  

Lean legal counsel for the petitioner/tenant attempted to portray the respondent/landlord as having acquired a stake in the Green Park property following the death of his wife by using those handpicked documents.  

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Judgment reviewed by Riddhi S Bhora 

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Legal Precedent Upheld: Himachal Pradesh High Court Condemns Petitioner’s Attempt to Shift Blame onto Government for Notice Issuance Error

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Case Name: State of H.P. & anr v. M/s Jagson International Ltd. 

Case No.: OMP(M) No. 89 of 2024 

Dated: April 30, 2024 

Quorum: Justice Satyen Vaidya 

 

FACTS OF THE CASE: 

The instant application for a pardon of delay was filed with the allegations that no decision could be made regarding a challenge to the contested award until after general elections were conducted by the Election Commission on November 11, 2022, and the majority of senior officers were on election duty until December 8, 2022.  

Furthermore, it has been claimed that even after 8.12.2023, the government took a long time to form. Again, for this reason, it was not possible to decide whether to dispute the award, and as a result, the petition’s filing was delayed by 30 days.  

The respondent has objected to the prayer for a pardon of the delay. It has been argued that 120 days is the maximum amount of time that an application under Section 34 of the Act may be filed, according to the Act. Based on calculations made by the respondent, the petitioners’ Section 34 Act application was deemed unmaintainable since it was filed 122 days after it was submitted.  

It has also been claimed that even after 8.12.2023, the government took a long time to form, and once more, as a result, no decision could be made to contest the award. As a result, the filing of the petition was delayed by thirty days throughout this process. 

 

LEGAL PROVISIONS: 

  • Section 34 of the Arbitration and Conciliation Act. If a request was made under section 33, the request may be set aside only after three months have passed from the date the party making the request received the arbitral award or the date the arbitral tribunal decided to proceed with the request. The applicant may file an extension of thirty days for the Court to consider the application, but only if the Court determines that the applicant was prevented from filing within the allotted three months due to substantial reason.  

 

CONTENTIONS OF THE APPELLANTS: 

According to the petitioners, the decision to file the application could not be made since there would be elections until December 8, 2022, and then there would be a delay in the formation of the government. From my perspective, the petitioners’ given cause is extremely ambiguous.  

The petitioners contended that because the majority of senior officers were assigned to election duty until December 8, 2022, and because general elections were scheduled by the Election Commission on November 11, 2022, no decision could be made regarding a challenge to the contested award until after that date. This was the basis for their instant application for a pardon of delay. 

It has also been claimed that even after 8.12.2023, the government took a long time to form, and once more, as a result, no decision could be made to contest the award. As a result, the filing of the petition was delayed by 30 days throughout this process.  

The petitioners argued that In response to the explanation provided by the petitioners for the delay in filing the application, it has been stated that the decision to file the application could not be made because of elections through December 8, 2022, and the subsequent delay in the formation of the Government. 

 

CONTENTIONS OF THE RESPONDENTS: 

 The learned counsel representing the respondents argued that the respondent has objected to the prayer for a pardon of the delay. It has been argued that 120 days is the maximum amount of time that an application under Section 34 of the Act may be filed, according to the Act. The petitioners’ application under Section 34 of the Act was deemed preferable by the respondent after 122 days, indicating that the application was not maintainable. 

It has also been claimed that the Act’s Section 34(3) allows for a maximum extension of 30 days during the period beyond three months, provided the court is satisfied that the applicant was prevented from filing the application within the three months allotted by justifiable cause.  

The respondent claims that the petitioners seeking an extension of time past three months have not established any cause at all, let alone adequate cause. At the application hearing, the respondent also presented the argument that the statute of limitations of 30 days beyond a period of three months had run out on November 3, 2023—a public holiday known as Second Saturday. The public holiday continued into the following day, 12.3.2023.  

The repondents argued that the petitioners had given notice under Section 34(5) of the Act on 7.2.2023 indicating their intention to file the application under Section 34 of the Act, according to the respondent’s specific submission. The application, which can be found on page 206 of the paper book, has a copy of the notice that the petitioners sent to the respondent in accordance with Section 34(5) of the Act attached as Annexure P-5. 

 

COURT’S ANALYSIS AND JUDGMENT: 

The respondent’s argument that the petitioners filed the application 122 days later seems to be based on an incorrect computation. Instead of using the three months that are specified in sub-Section (3) of Section 34 of the Act, the respondent has computed a period of 90 days, which is not an accurate calculating method. Since three months would equate to the conclusion of three calendar months, the three months in this instance had ended on 11.2.2023. 

The petitioners have therefore requested a 30-day period of condonation. Under this interpretation, there is no reason not to evaluate the merits of an immediate application for a pardon of tardiness. 

The petitioners were expected to disclose their bona fides together with a reasonable explanation for their failure to file the application within the allotted time, as required by the proviso to Section 34(3) of the Act, as the court observed. The petitioners have utterly failed to provide any justification at all, much less a compelling one. 

Even the nebulous claims regarding the obstruction of decision-making caused by the elections and the subsequent formation of the government are refuted by the fact that on 7.2.2023, the petitioners themselves issued a notice under Section 34(5) of the Act, indicating that a decision had already been made by 7.2.2023 to file the application under Section 34 of the Act. However, the application was not filed until 13.3.2023 and there is no explanation provided as to why it was not filed immediately after 7.2.2023.  

Based on the presented facts and legal explanation, the court determined that the petitioners have not demonstrated a valid reason, much less a sufficient one, for their failure to file their Section 34 Act application within the allotted three months. Consequently, the application is rejected as it is deemed unsuccessful. 

  

 

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Judgment reviewed by Riddhi S Bhora. 

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Maximum Stamp Duty of Rs. 25 lakhs is applicable only as a one-time measure and not on each subsequent increase in the share capital of a company: Supreme Court

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Case title: State of Maharashtra & Anr. Vs National Organic Chemical Industries Ltd.

Case no.: Civil Appeal No. 8821 of 2011

Decision on: April 5th, 2024

Quoram: Justice Sudhanshu Dhulia and Justice Prasanna B. Varale

Facts of the case

The respondent company was incorporated with an initial share capital of Rs. 36 crores and in 1992, it increased its share capital to Rs. 600 crores and accordingly paid a stamp duty of Rs.1,12,80,000/- as per Article 10 of Schedule-I of the Bombay Stamp Act, 1958. The State/appellant amended Article 10 and introduced a maximum cap of Rs. 25 lakhs on stamp duty which would be payable by a company. Subsequently, the respondent passed a resolution for a further increase in its share capital to Rs. 1,200 crores and paid Rs. 25 lakhs as stamp duty. However, according to the respondent, this was done inadvertently as it was soon realized that stamp duty was not liable to be paid by them since the maximum stamp duty which was of Rs. 25 lakhs payable on Articles of Association (AOA) as per the provisions of the Stamp Act, had already been paid by them in 1992.

Consequently, the respondent wrote a letter seeking a refund of the payment of Stamp Duty of Rs. 25 lakhs but this request was turned down stating that whenever the authorized share capital of a company is increased, the stamp duty is payable on each such occasion at the time of filing of Form No. 5 and it is not a one-time measure. Aggrieved by the same, the respondent filed a writ petition before the High Court seeking a refund of Stamp Duty of Rs. 25 lakhs with interest, paid by them inadvertently. The High Court ruled in favor of the respondent and held that Form No.5 is not an instrument as defined by Section 2 of the Stamp Act and that stamp duty can only be charged on AOA, where the maximum duty (Rs.25 Lakhs), payable as per the amendment has already been paid. An appeal contesting the same was preferred before the Apex Court.

Submissions on behalf of the Appellants/State

The Counsel submitted that every time a company increases its share capital, it is a separate taxing event and stamp duty is liable to be paid irrespective of whether the maximum amount payable under the section has previously been paid. Further, he relied on Section 14 A of the Stamp Act and contended that any material or substantial alteration in the character of an instrument requires a fresh stamp duty according to its altered character. Hence, the maximum cap of Rs. 25 lakhs which was introduced after the payment of Stamp Duty of Rs.1,12,80,000/- cannot be taken into consideration in any case.

Submissions on behalf of the Respondents

The Counsel submits that it is only the Articles of Association of a company which are chargeable to Stamp Duty under Article 10. The Form No.5 which is being contended by the appellants to be a separate instrument is completely alien to the Stamp Act as it serves a very limited purpose of giving notice to the Registrar that a company has increased its share capital beyond the authorised share capital. She further submitted that increase in the share capital of a company does not materially or substantially alter the character of the Articles of Association so as to fall within Section 14A of the Stamp Act. Thus, the counsel through a catena of judgement contended that the fiscal statutes have to be construed strictly

Court’s Analysis and Judgement

The Court examined the relevant provisions of Stamp Duty Act and quoted the definition of instrument. The first question before the Court was whether the notice sent to the Registrar in Form No.5 is an “instrument” as defined under Section 2(l). On perusal of the provisions of Companies Act noted that it is the Registrar who is the custodian of the articles of a company and not the company. Thus, when a company has to alter the same or modify its share capital as recorded therein, it has to pass a resolution and file its Form No. 5. It relied on the decision of Allahabad High Court in New Egerton Woollen Milthels, In re, where the Court answered the above question in negative. The Court noted that filing of Form No. 5 is only a method prescribed, whereby “notice” of increase in share capital has to be sent to the Registrar, within 30 days of passing of such resolution. It further emphasized that it is only the articles which are an instrument within the meaning of Section 2(l) of the Stamp Act and not the Form No. 5.

Further, the Court addressed the question on whether the increase in share capital of the respondent would mandate the payment of Stamp Duty on the materially alters the character of the instrument, i.e., Articles of Association or whether the same could be considered as a part of and valid according to Section 31(2) of the Companies Act. The Court asserted that it is a settled position of law that in case of conflict between two laws, the general law must give way to the special law. A conjoined reading of the Stamp Act and the Companies Act would show that while the former governs the payment of stamp duty for all manner of instruments, the latter deals with all aspects relating to companies and other similar associations. Hence, stated that the Companies Act which is the special law overrides the General Law (Stamp Act) and thereby, any increase in the share capital of the company also shall be valid as if it were originally there when the Articles of Association were first stamped.

Secondly, on the question of whether the maximum cap on stamp duty is applicable every time there is an increase in the share capital or it is a one-time measure. The Court ruled that the Maharashtra Stamp (Amendment) Act, 2015 which amended the charging section for Articles of Association i.e., Article 10 of the Stamp Act fortifies on the fact that the maximum cap of Rs. 25 lakhs would be applicable as a one-time measure and not on each subsequent increase in the share capital of a company.

The Court rejected the contention of appellant that the stamp duty paid before the amendment cannot be taken into account and held that it is true that the amendment does not have retrospective effect, however since the instrument ‘Articles of Association’ remains the same and the increase was initiated by the respondent after the cap was introduced, the duty already paid on the same very instrument will have to be considered and that it is not a fresh instrument which has been brought to be stamped, but only the increase in share capital in the original document, which has been specifically made chargeable by the Legislation.

The Apex Court therefore, dismissed the appeal and upheld the order of the Bombay High Court. Accordingly, it directed the appellants to refund Rs. 25 lakhs paid by the respondent.

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Judgement Reviewed by – Keerthi K

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