Amendments to the Indian Stamp Act
Every commercial transaction or business deal for it to gain enforceability in a Court of Law has to be registered. Registration necessarily means payment of registration charges specified by the Registration Act. The corollary to this Act is the Indian Stamp Act which prescribes the rates for the stamping of documents.
The monies collected in the form of stamp duty and registration are an important source of income to the State. The stamp duty varies depending upon the type of the transaction that takes place. Conveyance or Sale Deed for example, incurs a stamp duty of 2% on the total sale consideration for an amount upto 1 Crore, whereas the stamp duty increases to 3% if the sale amount is above 1 Crore.
Although the money appears negligible, for sale transactions involving huge monies, it does make a difference. Such stamp duty is a reason of utmost concern to the people investing in real estate.
The Ministry of Finance recently proposed certain amendments to the Indian Stamp Act. The Bill of Amendments amongst other things proposes to amend the definition of conveyance and lease of immovable property. This Bill has been sent to all the State Governments for obtaining their views and the same has also been posted on the Finance Ministry’s website i.e. www.finmin.nic.in for obtaining the suggestions/ comments of interested stake-holders. Clause wise reasons for proposing such amendments and comparison of the existing provisions and the proposed amendments have been made available on the website.
In this regard, the aspect of levy of stamp duty on an order of High Court under section 394 of the Companies Act, 1956 has been in dispute for long. Over a period of time, contrary judgments have been pronounced by various High Courts, particularly, in respect of those States where order of the Court under section 394 of the Companies Act, 1956 is not specified in the Schedule as amounting to conveyance.
And as such to attain a quietus, the definition clauses of the words: conveyance of movable and immovable property is sought to be altered to include within its ambit every such decree or final order of a court or revenue authority and any order of the tribunal or High Court sanctioning the scheme of reconstruction of companies which results in the transfer of property. Amalgamations here before were a very convenient method adopted by the corporates to dodge the duty. However after coming into for of the new amendments as proposed, they will have to come up with better ideas.
Similarly, 'lease' is proposed to be re-defined to include in its ambit an agreement to lease, the decree and final order of a court in respect of the lease and leases of movable property.
These amendments are on account of the recent judgment of the High Court of Delhi in Delhi Towers Ltd. v. GNCT of Delhi, wherein the High Court of Delhi ruled that stamp duty is payable on a court order approving the scheme of arrangement under Section 394 of the Companies Act, 1956, irrespective of a specific entry in the Stamp Act. A lot of confusion had been prevailing with respect to the stamping of a court order resulting in the transfer of immovable property, as reflected in the contradictory ruling of the various courts in India. The proposed amendments once enacted would bring to rest the speculations surrounding the stamping of such court orders.
The basic rationale behind the proposed amendments seems to be that the court order approving the amalgamation / restructuring of the companies is on account of an 'agreement' between the transferee company and the transferor company. It is for all practical purposes, a 'scheme' of amalgamation approved by the court in exercise of its jurisdiction under the Companies Act, 1956 which leads in the transfer of the immovable property from the transferor company to the transferee company, including the order made by Reserve Bank of India in respect of amalgamation or reconstruction of banking companies under section 44A of the Banking Regulation Act, 1949. These amendments as proposed are thus of vital importance to any transaction of amalgamation, merger or demerger as once the proposed amendments are approved, the order of the courts approving the schemes of restructuring of companies will have to be stamped. Once enacted, the said amendment would result in the restructuring of the companies via the intervention of the courts, become a rather expensive proposition.
An explanation is also proposed to be added to the term 'conveyance' in order to make the transfer of property by a co-owner to another co-owner, chargeable with the duty of conveyance unless it is an instrument of partition. The rate of stamp duty on conveyance as proposed is 5% of the market value of the property which is the subject matter of conveyance.
As per the 1937 notification on the remission of stamp duty, existent in certain states in India, there is an exemption on the payment of stamp duty, where the property is being transferred between group companies or between holding and subsidiary companies. However no such transaction is exempt in terms of these newly proposed amendments dealing with the amendment of the definition of 'conveyance'. Similarly, there is also a vacuum in the law in as much as the new amendments do not provide for the situation were a company may be having assets in more than one State.
The new Amendments also propose that the term 'market value' should be defined to mean in relation to any property which is the subject matter of an instrument, the price which such property would fetch or would have fetched if sold in open market on the date of execution of such instruments as determined by the specified authority or the consideration stated in the instrument whichever is higher. The inclusion of such definition would definitely assist in curbing the malpractice of the undervaluation of the properties for the sake of avoidance of higher incidence of stamp duty. However, there is no guidance provided as to how the market value of the property will be arrived at.
The Bill also proposes to make the non-payment of stamp duty as an offence punishable with imprisonment by imposing a rigorous punishment for a period upto six months along with a fine upto ten thousand rupees. Such an inclusion would have a deterrent affect on the defaulters evading stamp duty and would result in mounting revenues for the state exchequer.
The proposed amendments are an attempt to make the Stamp Act in sync with the changing times and re-solve the various anomalies as encountered by our courts, in interpreting the intent of the legislature. Though the primary objective of the Stamp Act is fiscal in nature, one can’t help but notice that the primary focus of the proposed amendments has been towards increasing the revenue for the state alongside bringing in more clarity to the current stamp duty regime. But at the same time, it sets an additional burden on the corporates who might have to reconsider their decisions for opting court based restructuring due to the proposed stamp duty implications.