Levy of stamp duty on amalgamation orders passed by the High Court under section 394 of the Companies Act, 1956, is not ultra vires the Constitution as it is a duty on the instrument and not on the transfer of property.

Headnote:
STAMP DUTY - BOMBAY STAMP ACT, 1958 - SECTION 2(G)(IV) - CONSTITUTIONALITY - LEVY OF STAMP DUTY ON AMALGAMATION ORDERS PASSED BY THE HIGH COURT UNDER SECTION 394 OF THE COMPANIES ACT, 1956 - WHETHER ULTRA VIRES THE CONSTITUTION - HELD, NO.
Fact of the Case:

The petitioners challenged the constitutional validity of section 2(g)(iv) read with Article 25 of Schedule I of the Bombay Stamp Act, 1958, which imposed stamp duty on amalgamation orders passed by the High Court under section 394 of the Companies Act, 1956. The petitioners contended that the impugned provisions were ultra vires the Constitution as they encroached upon the field of Parliament under Entry 44 List I, Seventh Schedule of the Constitution, which empowered Parliament to impose stamp duties other than duties or fees collected by means of judicial stamps.
Finding of the Court:

The Court held that the impugned provisions were not ultra vires the Constitution. It held that the levy of stamp duty was on the instrument (amalgamation order) and not on the transfer of property. The measure of duty was on the basis of the valuation of the property transferred. There was a direct relationship for determining the measure of the stamp duty. The measure of tax was not determinative of its essential character or of the competence of the legislature. The true nature and character of the stamp duty was on the instrument or the document which transferred the property and it did not cease to be a duty on the instrument because for determining the rates, the measure adopted by the legislature was the valuation of the property.
Issues: 1. Whether section 2(g)(iv) read with Article 25 of Schedule I of the Bombay Stamp Act, 1958, which imposed stamp duty on amalgamation orders passed by the High Court under section 394 of the Companies Act, 1956, was ultra vires the Constitution? 2. Whether the levy of stamp duty was on the instrument or on the transfer of property?
Ratio Decidendi: 1. The levy of stamp duty was on the instrument (amalgamation order) and not on the transfer of property. 2. The measure of duty was on the basis of the valuation of the property transferred. 3. There was a direct relationship for determining the measure of the stamp duty. 4. The measure of tax was not determinative of its essential character or of the competence of the legislature. 5. The true nature and character of the stamp duty was on the instrument or the document which transferred the property and it did not cease to be a duty on the instrument because for determining the rates, the measure adopted by the legislature was the valuation of the property.
Final Decision: The petitions challenging the constitutional validity of section 2(g)(iv) read with Article 25 of Schedule I of the Bombay Stamp Act, 1958, were dismissed.

JUDGMENT - M.B. SHAH, C.J.:--- In this group of petitions, the petitioners have prayed that section 2(g) (iv) read with Article 25 of Schedule I of the Bombay Stamp Act, 1958 be declared unconstitutional, ultra vires the Constitution of India null void. It is also prayed that the respondents be restrained from requiring the petitioners to pay stamp duty on the amalgamation orders passed by this Court or from taking any steps against the petitioners under the provisions of the Bombay Stamp Act, 1958.

2. At the time of admission of the petitions, this Court had granted interim relief by taking usual undertakings that in the event this Court directs the petitioners, the petitioners shall pay the entire amount of stamp duty assessed without prejudice to the rights and contentions of the petitioners.

3. For appreciating the contention of the petitioners, it would be necessary to refer to section 2(g) of the Bombay Stamp Act. Section 2(g) reads as under:-

"2(g) "Conveyance" includes, -

(i) a conveyance on sale,

(ii) every instrument,

(iii) every decree or final order of any Civil Court.

(iv) every order made by the High Court under section 394 of the Companies Act, in respect of amalgamation of companies;

by which property, whether moveable or immovable, or any estate or interest in any property is transferred to, or vested in, any person, inter vivos, and which is not otherwise specifically provided for by Schedule I;"

Clause (g)(iii), which is added by Maharashtra Act No. 27 of 1985 which has come into operation from 10th December, 1985, provides that conveyance includes every decree or final order of any Civil Court. Clause (g)(iv) is added by Maharashtra Act No. 17 of 1993 which has come into operation from 1st April, 1993. Before appreciating the contentions raised, it would be appropriate to state that even prior to amendment, a conveyance would include every instrument by which the property is transferred to or vested in any other person inter vivos. Under Clause (g)(ii), conveyance included every instrument by which whether movable or immovable property or asset or interest in any property is transferred to or vested in any other person inter vivos and which is not otherwise specifically provided. By adding 2(g)(iii), it is made clear that 'every instrument' would include consent decree or final order of any Civil Court.

4. Section 2(g)(iii) came up for interpretation before this Court and finally before the Supreme Court in the case of (Ruby Sales and Services (P.) Ltd. another v. State of Maharashtra others)1, 1994(2) Bom.C.R. 248. The Supreme Court in that case held that there is no particular pleasure in merely going by the label but what is decisive is the terms of the document. It is clear from the term of the consent decree that it is also an "instrument" under which title has been passed over; it is a live document transferring the property in dispute from the defendants to the plaintiffs; and the consent decree falls under the definitions of "conveyance" as well as "instrument". The Court further held that the amendment in 1985 was made out of abundant caution and it does not mean that the consent decree was not otherwise covered by the definitions given in section 2(g) or 2(1) of the Act. The Court further held that merely because an agreement is put in the shape of a consent decree, it does not change the contents of the document. It remains an agreement and it is subject to all rights and liabilities which any agreement may suffer.

5. By Act No.17 of 1993, the Legislature has also added section 2(g)(iv) to include every order passed by the High Court under section 394 of the Companies Act in respect of amalgamation of companies. In our view, applying the ratio of the decision in the case of Ruby Sales Service, (supra) prima facie, it appears to be clarificatory. As such, the amalgamation order passed under section 394 of the Companies Act is based upon the agreement between the two companies. In amalgamation, two

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1996 Supreme(Bom) 102

Levy of stamp duty on amalgamation orders passed by the High Court under section 394 of the Companies Act, 1956, is not ultra vires the Constitution as it is a duty on the instrument and not on the transfer of property.

Cases Referred (4)