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Delhi High Court Reduces Deposit Requirement in Stamp Duty Dispute to 25%: Pending Further Adjudication

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CASE TITLE – HARI PARVAT FINANCIAL ADVISORS AND CONSULTANTS PRIVATE LIMITED v. OFFICE OF THE COLLECTOR OF STAMPS

CASE NUMBER – LPA 383/2024 & CM APPL. 28428/2024, CM APPL. 28429/2024

DATED ON – 13.05.2024

QUORUM – Hon’ble Acting Chief Justice Ms. Manmeet Pritam Singh Arora

FACTS OF THE CASE

This is an appeal put forth by the Appellant, challenging the decision of a Learned Single Judge of the same Hon’ble High Court of Delhi. Where the Appellant was granted an interim stay subject to deposit a 50% pay demanded by the Collector of Stamps, Chanakyapuri. The Learned Counsel for the Appellant stated that the Appellant in September, 2017 had approached the Collector of Stamps with an application under Section 31 of the Indian Stamp Act, 1899 for the determination of the stamp duty payable. However, the appellant after much delay on 1st April, 2024 received an order from the Collector of Stamps inter alia (‘among other things’) indicating that the appellant is liable to pay stamp duty along with a penalty, totaling to Rs.1,00,20,167/-.

ISSUES

Whether the Collector of Stamps is out of his jurisdiction when exercising his powers of adjudication while his duty is merely those of an Advisory one?

LEGAL PROVISION

Section 31 of the Indian Stamp Act, 1899, prescribes the procedure on how to get official clarification on the required stamp duty for a document from the Collector of Stamps.

Section 56 of the Indian Stamp Act, 1899,  prescribes the establishment of the oversight power by which the Chief Controlling Revenue Authority reviews the Collectors’ decisions in certain matters.

CONTENTIONS BY THE APPELLANT

The Appellant states that the order passed by the Collector of Stamps is wholly without jurisdiction and directing the appellant to deposit 50% of the demand raised as a pre-condition would prima facie legitimize an order passed without jurisdiction. The argument is also based on the fact that when an “instrument” is submitted to a collector under Section 31 of the Stamp Act for determination of stamp duty, the jurisdiction exercised by the collector is an advisory jurisdiction and the collector is not called upon to exercise powers of adjudication. While exercising power under Section 31, the collector has to merely determine the duty and has no power to impound the document.

CONTENTIONS BY THE RESPONDENT

The Learned Counsel for the Respondent submitted that the writ petition in itself is not maintainable as the appellant has an alternative effective remedy of approaching the Chief Controlling Revenue Authority under Section 56 of the Stamp Act.

COURT ANALYSIS AND JUDGEMENT

The Hon’ble Court did not deem it appropriate to comment as to the merits of the case as it was still pending adjudication before the Learned Single Judge of the same Court. However, keeping in view the facts and circumstances of the case, reduced the amount of the deposit to 25% of the demand raised by the Collector of Stamps. And had instructed the amount to be deposited with the Registry of this Court within four weeks from the date. And due to the current position that the Court finds itself in, it had further strongly iterated that although the current Appeal has been disposed of, it refused to make any comments regarding it’s merits, and also mentioned that the rights and contentions of either parties remain open.

This could also mean that the parties could work on and further strengthen their arguments and even bring forth a clear precedent regarding this issue.

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Judgement Reviewed by – Gnaneswarran Beemarao

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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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