A company is not liable to pay stamp duty in respect of a transfer of shares not duly stamped.

NOTE : The Inspector General of Registration referred the following questions to the High Court :

"Whether the impounded deed of transfer dated 11-5-1942 executed at Ahmedabad and acted upon in Baroda is chargeable with a stamp duty of Rs.14-4-0 under Art.62 of Schedule I of the Indian Stamp Act in accordance with the assessment of the Collector of Baroda and of the Inspector General of Registration. Poona, as the Chief Controlling Revenue Authority for the purpose of Indian Stamp Act? (2) Whether the company is liable to a nominal penalty of annas 4/- on the said deed of transfer in accordance with the assessment of the Collector of Baroda and the Inspector General of Registration, Poona?"

CHAGLA, C.J.:- A rather interesting question arises as to the liability of a company to pay stamp duty in respect of a transfer of shares not duly stamped, and the question arises in the following way. The Jagdish Mills Ltd., is a public limited company which was incorporated in Baroda under the Baroda State Companies Act of Samvat year 1975. It appears that between 1942 and 1-4-1949, various transfer deeds were sent to the company duly executed from outside the Baroda State, and inasmuch as the transferor or the transferee did not have the necessary Baroda stamps they used to send moneys to the company and the practice was that the company used to buy the requisite Baroda stamps, affix them to the transfer deeds and get them registered.

It was found subsequently that two employees of the company had misappropriated these moneys and had not stamped the transfer deeds as required by law. The company coming to know of this, very honestly and properly drew the attention of the revenue authorities on 3-5-1950, to the position then obtaining and pointed out that a large number of transfer deeds had not been duly stamped. The revenue authorities took the view that in respect of these transfer deeds the company was not only liable to pay the Baroda stamp duty plus the penalty, but also the Indian stamp duty plus the penalty. The company was prepared to pay the Baroda stamp duty and the penalty, but objected to paying the Indian stamp duty and penalty, and the question that arises on this reference is whether the company is liable to pay the Indian stamp duty in respect of these transfer deeds.

2. Now, one sample transfer deed has been selected for the purpose of the question under reference and that sample transfer deed was executed on 5-8-1945. The transferor is the Ambica Mills Ltd., in Ahmedabad and the transferee is the Industrial and Prudential Assurance Co. Ltd., a company having its head office in Bombay. Therefore, both the seller and the purchaser were in British India. The contention of the revenue authorities is that inasmuch as this transfer deed was executed in British India as it then was, there is a liability to pay stamp duty under Art.62(a). When the transfer deed was executed, Baroda was an independent State, and the contention put forward by the company was that the only liability was to pay the stamp duty of the Baroda State inasmuch as the company was registered in Baroda, and the question that has been raised is, what is the effect of the merger which took place in 1949 upon the liability of the company?

The revenue authorities took the view that inasmuch as the question of fixing the liability with regard to stamp duty arose after the merger, the company was liable to pay Indian stamp duty as well. In our opinion, however interesting the question may be, it does not strictly arise on the facts of the case and it is possible to dispose of this reference on a much narrower ground.

3. Now, before we decide whether there is a liability to pay Indian stamp duty, we must decide whether there is any liability at all upon the company to pay any duty. For that purpose the first provision of the law to which attention might be drawn is S.34(3), Companies Act. That sub-section provides :

"It shall not be lawful for the company to re