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Bombay High Court Clarifies Stamp Duty Calculation on Demerger Schemes

Mumbai: In a significant ruling, the Bombay High Court, presided over by Justice Sandeep V. Marne , has set aside orders by the Chief Controlling Revenue Authority (CCRA) and the Collector of Stamps, clarifying the methodology for calculating stamp duty on schemes of arrangement involving demergers under the Maharashtra Stamp Act, 1958. The Court held that stamp duty is to be levied based on the market value of shares issued or allotted in exchange, or 5% of the true market value of immovable property transferred, whichever is higher, and not on the 'enterprise value' or 'net worth' of the demerged undertaking.

The judgment, delivered on May 9, 2025, arose from a writ petition (No. 15746 of 2024) filed by Bharti Airtel Ltd. challenging the CCRA's order dated August 2, 2024, which had upheld the Collector of Stamps' assessment of Rs. 7,38,99,000 as stamp duty.

Case Background

The case pertained to a Scheme of Arrangement for the demerger of the consumer mobile business of Tata Teleservices (Maharashtra) Limited (TTML) into Bharti Airtel Ltd. (Petitioner). This scheme was sanctioned by the National Company Law Tribunal (NCLT), Mumbai, on December 4, 2018, and by NCLT, Delhi, on January 30, 2019, with an appointed date of July 1, 2019.

The Collector of Stamps, by an order dated November 14, 2022, assessed the stamp duty at Rs. 7,38,99,000. This was calculated at 0.7% of the 'net worth' or 'enterprise value' of TTML's demerged consumer mobile business, taken as Rs. 1055.70 crores. Bharti Airtel 's appeal to the CCRA was rejected, leading to the present writ petition.

Arguments Presented

Petitioner's Contentions ( Bharti Airtel Ltd.): Represented by Mr. Amit Jamsandekar, Bharti Airtel argued that: * The Collector and CCRA erred in levying stamp duty on the erroneously computed enterprise value of Rs. 1055.70 crores, ignoring TTML's gross debt of Rs. 950 crores. The actual market value of shares after deducting debt was Rs. 105.70 crores. * Under Article 25(da) of the Maharashtra Stamp Act, stamp duty is payable either at 5% of the market value of immovable property transferred (Rs. 1,86,70,450 in this case) or 0.7% of the aggregate market value of shares issued/allotted (which would be Rs. 23,75,088), whichever is higher. * The authorities could not selectively accept the Chartered Accountants' valuation report for enterprise value while ignoring the debt. * The revenue authorities cannot sit in appeal over the NCLT-sanctioned scheme. Reliance was placed on Li Taka Pharmaceuticals Ltd. and another Vs. The State of Maharashtra and others, [AIR 1997 Bom. 7] .

Respondents' Contentions (Revenue Authorities): Mrs. M. S. Bane and Mr. Aditya Deolekar, AGP, for the State, submitted that: * The Collector correctly ascertained the stamp duty based on the net worth of the demerged unit (Rs. 1055.70 crores) after due opportunity. * The scheme did not specify debt details, and no documents were submitted to demonstrate existing debt. * The Collector has adjudicatory power to determine the true nature of the transaction and the actual consideration. * Oral submissions were made that future license fees for spectrum were erroneously indicated as 'debts' and that there was 'hidden consideration.'

Court's Analysis and Legal Principles Applied

The High Court meticulously examined Article 25(da) of the Maharashtra Stamp Act, which governs stamp duty on amalgamation, merger, demerger, or reconstruction of companies.

Interpretation of Article 25(da): The Court noted that the proviso to Article 25(da) caps the duty. For demergers, it's the higher of: (i) 5% of the true market value of immovable property in Maharashtra transferred by the Demerging Company to the Resulting Company, OR (ii) 0.7% of the aggregate market value of shares issued or allotted to the Resulting Company and the amount of consideration paid for such demerger.

Collector's Misapplication: Justice Marne found that the Collector had computed 5% of TTML's immovable property value (Rs. 37,34,09,000) as Rs. 1,86,70,450. However, for the second limb, instead of using the market value of shares issued by Airtel , the Collector erroneously used 0.7% of the 'net worth' of TTML's demerged unit (Rs. 1055.70 crores), arriving at Rs. 7,38,99,000, and then demanded the higher of the two.

The Court observed: > "Perusal of Article-25(da)(ii) would indicate that the same does not recognise the concept of computation of stamp duty on the basis of enterprise value or net worth of the demerged undertaking. The computation needs to be done on the basis of market value of shares issued and allotted in exchange plus the actual consideration paid under the Scheme." (Para 28)

The Court found that the actual market value of shares issued by Airtel to TTML shareholders was approximately Rs. 33.92 crores. The 0.7% stamp duty on this would be Rs. 23,75,088.

Rejection of Respondents' Oral Submissions: The Court dismissed the respondents' oral arguments about 'hidden consideration' and erroneous treatment of spectrum license fees as debt, citing the Constitution Bench judgment in Mohinder Singh Gill and another Vs. The Chief Election Commissioner, New Delhi and others, [(1978) 1 SCC 405] . This precedent establishes that the validity of administrative orders must be judged by the reasons recorded in the order itself and cannot be supplemented by later affidavits or oral arguments. Neither the Collector's order nor the CCRA's order contained findings on these points.

Furthermore, the Court stated: > "The Collector of Stamps cannot sit in appeal over this commercial wisdom of shareholders of both the companies and which is accepted by the NCLT and assume that TTML was actually worth more than what is accepted by the shareholders and NCLT." (Para 38)

The Court emphasized: > "Once the Legislature has mandated that the stamp duty leviable on a Scheme of Arrangement must be determined on market value of shares issued/allotted in exchange plus amount of consideration paid, it would be beyond the jurisdiction of the Adjudicating Authority to determine the stamp duty payable on any other basis." (Para 34)

Final Decision and Implications

The High Court concluded that the Collector of Stamps "grossly erred" in computing stamp duty based on the 'net worth' of TTML's demerged unit. The correct approach, as per Article 25(da), required comparing: 1. 5% of the true market value of immovable properties (Rs. 1,86,70,450). 2. 0.7% of the market value of shares issued/allotted by Airtel (Rs. 23,75,088).

Since Rs. 1,86,70,450 was higher, this was deemed the correct stamp duty payable, an amount already paid by Bharti Airtel .

Consequently, the Court passed the following order: "(I) Order dated 14 November 2022 passed by the Collector of Stamps, as well as order dated 2 August 2024 passed by the CCRA are set aside. (II) It is held that the amount of stamp duty payable on the Scheme of Arrangement is Rs.1,86,70,450/-."

This judgment provides crucial clarity on the valuation principles for stamp duty in demerger schemes, reinforcing that statutory provisions for calculation must be strictly adhered to by revenue authorities, and NCLT-approved commercial arrangements cannot be arbitrarily re-interpreted without explicit findings grounded in law.