Merger | Stamp Duty | Judgement on 19.02.2024

Ever wondered whether you should pay stamp duty on an order of merger? If yes, in which state to pay the stamp duty if the properties are in two different states? Stamp Duty on Scheme of Arrangements (merger/amalgamation/demerger) has always been puzzling, without which merger/demerger is not over. Stamp Duty on such Schemes is applicable in almost all the States of Bharat, but there are always some differences depending on the State laws on stamp duty. For Tamil Nadu, it was a contentious issue, since there were no clear judgements. Much to the relief now, the Madras High Court has settled the position on 19th February 2024 in the matter of State of Tamil Nadu vs. Serene Estate Private Limited in Writ Appeal No. 758 of 2022 [access here].

What was the central point in the Writ Petition?

The issue arose on account of several circulars, notifications and Government Orders (G.O.) in recent past starting from 20.11.2018 (circular), 01.03.2019 (G.0.), 01.03.2019 (notification), 19.02.2020 (G.O.), 19.06.2020 (circular) and 07.07.2023 (G.O.) issued by the Tamil Nadu government. The effect of these government directions was that all the Schemes relating to amalgamation or reconstruction shall be liable to stamp duty at the higher of the following rates:

• 2% of the value of the immovable properties or
• 0.6% of the net value of the shares transferred under the Scheme.

Questions framed by the High Court

The High Court framed six questions for consideration, out of which the following two questions are the most important:

Whether the mode of computation, that is, 2% of the value of the immovable property or 0.6% of the net value of the shares transferred whichever is higher, is in order?

Whether the stamp duty paid in other States, while registering the amalgamation orders are liable to be taken into account and set off as against the duty payable, while presenting the documents for registration in the State of Tamil Nadu?

What were the views of the Court?

Validity of circulars upheld. The High Court upheld the constitutionality of the circulars, notifications and the G.Os.

Order is an Instrument & Conveyance. It further re-iterated the positions of other state High Courts and the Supreme Court that an order of merger/demerger is an “instrument” and also a “conveyance” whereby a property is transferred. Therefore, such an Order will be subject to stamp duty.

Applicable Stamp Duty in Tamil Nadu. As to the rate of stamp duty, the Court held that the second part of the circular that is 0.6% of the net value of shares, is struck down and rest of the notification shall stand. Effectively now, the rate of applicable stamp duty will be 2% of the value of immovable property under the Scheme.

Stamp duty when property in multiple States. The Court clarified that if the duty paid in any other State is higher than the State of Tamil Nadu, then the same has to be taken into consideration and no duty shall be payable. If the duty paid is lesser than what is payable in the State of Tamil Nadu, then whatever amount paid is to be set off and the balance duty is to be paid on the instrument of amalgamation.

What happens if there is no immovable property?

By implication, where there is no immovable property in the Scheme, the Order/Scheme will not attract any stamp duty.