3/16/25, 6:22 PM Delhi High Court ends uncertainty of stamp duty on mergers involving wholly-owned subsidiaries
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The L lN N C l I i L Fi A i L L lJ b हिंदी ಕನ್ನ ಡ
Delhi High Court ends uncertainty of stamp duty on
mergers involving wholly-owned subsidiaries
The Delhi High Court's judgment in Ambuja Cements Ltd v. Collector of Stamps,
Delhi brings much-needed clarity to the stamp duty implications of such mergers
in Delhi.
Khaitan & Co - Atul Pandey, Hirak Mukhopadhyay, Shruti Gupta
Atul Pandey, Hirak Mukhopadhyay, Shruti Gupta
Published on: 04 Dec 2024, 12:18 pm 5 min read
Law in brief
The general principle with regard to stamp duty is that duty is determined with
reference to the instrument and not with respect to the transaction. With
regard to the imposition of stamp duty on schemes of arrangement and
amalgamation sanctioned by the High Courts / National Company Law Tribunal
(“NCLT”) (as the case maybe), there was a considerable ambiguity in relation to
the same, due to the absence of a specific entry in the Indian Stamp Act 1899 as
applicable to certain States. However, the Supreme Court in Hindustan Lever
vs State of Maharashtra (AIR 2004 SC 326) settled this ambiguity by observing
that the amalgamation scheme sanctioned by the Court would be an
"instrument", with respect to the Maharashtra Stamp Act, 1958. This principle
has since been applied to other stamp duty provisions across various States,
where schemes sanctioned by the Court are now treated as "instruments"
subject to stamp duty.
While some States have amended their laws to explicitly include court-
sanctioned schemes under "conveyance," the Indian Stamp Act, 1899, and some
State laws, like Delhi, have not updated the definition of "conveyance" to include
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3/16/25, 6:22 PM Delhi High Court ends uncertainty of stamp duty on mergers involving wholly-owned subsidiaries
mergers / demergers. This has led to inconsistencies in applying stamp duty on
orders sanctioning such merger / demerger across different jurisdictions. Subscribe
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Stamp duty on mergers in Delhi: Delhi Towers judgment
The Delhi High Court, relying on Hindustan Lever vs State of Maharashtra, held
in Delhi Towers Ltd vs. GNCT of Delhi ([2010] 159 CompCas 129 (Delhi)), that an
order of the High Court approving a scheme of amalgamation would be subject
to stamp duty even in the absence of an express inclusion of such orders within
the definition of “conveyance”.
Stamp duty on specific mergers: 1937 Central Government
notification
While the judicial decisions have provided necessary clarity in relation to the
treatment of mergers for imposition of stamp duty, Notification no. 13 dated
December 25, 1937 issued by the Central Government (“1937 Notification”),
however, provides for the exemption of stamp duty in cases of wholly owned
subsidiary merging into its holding company and cases similar to the same. The
1937 Notification provides for three cases, which are exempted from the
imposition of stamp duty -
“…(i) where at least 90 per cent of the issued share capital of the transferee
company is in the beneficial ownership of the transferor company, or
(ii) where the transfer takes place between a parent company and a subsidiary
company one of which is the beneficial owner of not less than 90 per cent of the
issued share capital of the other: or
(iii) where the transfer takes place between two subsidiary companies of each of
which not less than 90 per cent of the share capital is in the beneficial
ownership of a common parent company…”
Ambiguity in relation to the adoption of 1937 Notification by
various States
There is considerable ambiguity regarding the adoption of the 1937 Notification,
as some States have neither explicitly adopted nor repealed it. For example,
Haryana has enacted merger provisions under the conveyance article and
imposed stamp duty on mergers and repealed the 1937 Notification, while States
like Rajasthan and Gujarat have enacted their own Stamp Acts, thereby repealing
all prior notifications not covered under their specific Stamp Acts. In contrast,
Uttarakhand and Uttar Pradesh have neither addressed mergers specifically nor
enacted a State Stamp Act, leaving the applicability of the 1937 Notification
unclear.
While judicial scrutiny, particularly the Delhi Towers Ltd judgment, has
supported its applicability, the Lieutenant Governor of the National Capital
Territory of Delhi vide its notification No. F.1(423)/ Regn.Br./ HQ/ Div.Com./ 10
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3/16/25, 6:22 PM Delhi High Court ends uncertainty of stamp duty on mergers involving wholly-owned subsidiaries
dated June 1, 2011 withdrew an earlier form of the 1937 Notification dated
Notification No.1 dated January 16, 1937 which was already superseded by the Subscribe
1937 Notification. Therefore, due to the ambiguity in the applicability of the 1937
L L l N the Delhi’s
Notification, N C l authorities
stamp I i
have L Fi
erroneously A
sought i L
to impose L lJ b हिंदी ಕನ್ನ ಡ
stamp duty on mergers involving a wholly owned subsidiary (WOS) merging into
its parent company. However, in such mergers, no new shares are issued by the
WOS; instead, the shares held by the parent company are cancelled. Despite
this, the revenue authorities attempted to levy stamp duty on the value of
cancelled shares, which has no legal basis under the 1937 Notification.
Recent decision by the Delhi High Court: Ambuja Cements
Ltd v. Collector of Stamps, Delhi
On November 6, 2024, the Delhi High Court in the case of Ambuja Cements Ltd
v. Collector of Stamps, Delhi (W.P. (C) 5638/2014 and CM Appl. 13964/2014)
(“Ambuja Cements Judgment”) upheld the enforceability of the 1937 Notification
in Delhi, ruling that a merger between two wholly owned subsidiaries of a
common parent company falls within its scope and is, therefore, exempt from
stamp duty.
The factual matrix involved a merger of Ambuja Cements India Private Limited
(“ACIPL”) - a 100 per cent subsidiary of Holderind Investments Ltd., Mauritius
(“Holderind”) which held 55 per cent shares of ACIPL directly and the remaining
45 per cent shares were held by Holcim (India) Private Limited (“Holcim”) - with
Holcim (a wholly owned subsidiary of Holderind).
ACIPL did not have any immovable property at that time and the only movable
property held by ACIPL was its shareholding in ACC Limited ("ACC") and Ambuja
Cements Limited ("ACL") in dematerialized form. Upon approval of the merger,
Holcim issued 353,84,08,355 equity shares to the shareholders of ACIPL in
accordance with the share exchange ratio and ACIPL was dissolved without
winding up. The board of directors also authorized issuance of share certificate
bearing no.12 to Holderind.
The Collector of Stamps, Delhi had issued notices in 2014 seeking stamp duty
payment on the merger order and the issuance of shares, but the Delhi High
Court quashed this contention, affirming that the merger was covered under
the 1937 Notification and therefore exempt from stamp duty.
This matter has been pending adjudication since 2014, and until recently, the
Collector of Stamps had not acted on stamp duty matters involving mergers of a
wholly owned subsidiary with its parent company, likely due to the ongoing
legal uncertainty surrounding the enforceability of the 1937 Notification in
Delhi.
Impact and Implication
The rationale behind the 1937 Notification is sound - when a WOS merges with
its parent or two WOS of the same parent merge with each other, there is no
material change in the parent company’s financial position. This is because the
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3/16/25, 6:22 PM Delhi High Court ends uncertainty of stamp duty on mergers involving wholly-owned subsidiaries
WOS’s financials are already consolidated in the parent’s books. Further, in the
case of a WOS merging into its parent, no specific consideration is payable, Subscribe
which further justifies the exemption from stamp duty. This principle is also
L L l Nin the NIncome C
recognised l Act, 1961,
Tax I where
i L Fi
Section A that itransfers
47 clarifies L L lJ b हिंदी ಕನ್ನ ಡ
between a parent company and its wholly owned subsidiary (or vice versa) are
not regarded as transfers (subject to certain conditions).
The Ambuja Cements Judgment brings much-needed clarity to the stamp duty
implications of such mergers in Delhi. Prior to this judgment, the lack of a clear
adoption or repeal of the 1937 Notification in Delhi left mergers involving WOSs
at the discretion of the stamp authorities, who erroneously sought to levy
stamp duty on mergers involving WOSs by imposing duty on the value of the
shares cancelled in the merger, a practice that lacked any legal basis. However,
with the Delhi High Court’s judgment explicitly upholding the 1937 Notification,
the matter has now been conclusively resolved. Any merger falling within the
scope of the 1937 Notification will now be exempt from stamp duty in Delhi,
thus eliminating the previous uncertainty and ensuring greater clarity for
mergers of WOSs with their parent companies.
About the authors: Atul Pandey is a Partner, Hirak Mukhopadhyay is a Counsel
and Shruti Gupta is a Senior Associate at Khaitan & Co.
If you would like your Deals, Columns, Press Releases to be published on Bar &
Bench, please fill in the form available here.
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Delhi High Court ends uncertainty of stamp duty on
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Delhi High Court ends uncertainty of stamp duty on …
The general principle with regard to stamp duty is that
duty is determined with reference to the instrument …
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Atul Pandey Hirak Mukhopadhyay Shruti Gupta
The Viewpoint
Unsettling the settled: The growing influence of
Legislative Amendments on Judicial Oversight
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3/16/25, 6:22 PM Delhi High Court ends uncertainty of stamp duty on mergers involving wholly-owned subsidiaries
In recent times, there have been instances where legislative actions, often with
retrospective effect, have overturned judicial decisions. Subscribe
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LKS - Rohini Mukherjee, Neha Jain
Rohini Mukherjee, Neha Jain
Published on: 15 Mar 2025, 3:15 pm 4 min read
With India marking its 76th year of adoption and commemoration of the
Constitution, one aspect that has remained constant is the democratic
framework of India, which was built on the three pillars of governance: the
Legislature, the Executive, and the Judiciary. While the Legislature enacts laws
and the Judiciary interprets them, recent episodes in tax law, especially under
the GST regime, illustrate a growing tension between these pillars. In recent
times, there have been instances where legislative actions, often with
retrospective effect, have overturned judicial decisions. It raises important
questions about the predictability of tax laws and the balance between
governance institutions.
The latest triggering point is the proposed amendment in Section 17(5)(d) of the
CGST Act, retrospectively replacing “plant or machinery” with “plant and
machinery” from July 1, 2017, in Finance Bill, 2025.
In the case of Chief Commissioner of Central Goods and Service Tax & Ors. Vs
M/s Safari Retreats Private Limited & Ors. 2024 (10) TMI 286 - SC, the apex
court analysed the meaning of plant or machinery used in the statute and held
that a “functionality test” should be applied to determine whether the
construction of immovable property qualifies as “plant or machinery” for input
tax credit (ITC) purposes. Here it is pertinent to highlight that the above issue of
ITC on plant or machinery came before High Court of Odisha in the year 2018,
that is, just one year after GST came into existence, and thus highlights the
relevance of ITC on such capital goods as they form a major chunk of business
investment and the ITC as well.
However, after a favourable judgment from the High Court, the order was
appealed before the apex court in 2019, and it took almost five years for the
apex court to decide the matter on account of its complexity and the
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3/16/25, 6:22 PM Delhi High Court ends uncertainty of stamp duty on mergers involving wholly-owned subsidiaries
involvement of different stakeholders in said matter. Ultimately, the ruling
favoured the taxpayer engaged in constructing a shopping mall intended for Subscribe
leasing, thereby permitting ITC where the building formed an integral part of
L business
the L l N operations.
N C l it gaveIa sigh
Thus, i of relief
L toFithe taxpayers.
A i L L lJ b हिंदी ಕನ್ನ ಡ
However, within three months of the judgment, the GST Council recommended
an amendment to Section 17(5)(d) of the CGST Act, retrospectively replacing
“plant or machinery” with “plant and machinery” from July 1, 2017, which has
now been introduced vide the Finance Bill, 2025. Thus, this legislative
intervention reversed the position laid down by the Supreme Court and brought
back the legal position to square one.
This raises a key question, that is, whether such retrospective amendment
serves a broader policy objective, or does it simply create uncertainty for
businesses planning their investments based on established judicial
interpretations?
It is noteworthy that this is not the first time that the judiciary has interpreted
the tax laws in a certain manner and the same has been effectively nullified due
to a legislative amendment.
In 2012, the Supreme Court delivered a landmark ruling in favour of Vodafone
International Holdings BV, 2012 (1) TMI 52 - SC, holding that its offshore
transaction, specifically the indirect share transfer, was not liable to Indian
capital gains tax. Later, the government introduced retrospective amendments
to the Income Tax Act, 1961, to treat capital gains earned in an offshore transfer
of shares (or interest) in a foreign entity, taxable in India, if such shares (or
interest) derive ‘substantial value' from Indian assets. This move, while intended
to address perceived gaps in the tax framework, prompts reflection on how
such changes impact investor confidence and the predictability of tax
obligations.
Historically, Indian courts have differentiated between games of skill and games
of chance, with the former recognized as legitimate business activities (refer
Gameskraft Technologies Private Limited v. DGGI, 2023 (5) TMI 926 – Karnataka
HC). Recently, the GST Council decided to impose a uniform 28 per cent tax on
all online gaming and, thus, diminished the line between skill-based games and
chance-based games. This has sparked a rift between the taxpayer and the
taxman. Stakeholders in the online gaming industry wonder whether this
treatment through the meaning given to online gaming in Section 2(80A and
80B) of the CGST Act intends to array the differential treatment under the garb
of bringing uniformity in taxes between these two types of games.
The common thread in all the above cases is that it has become a recurrent
occurrence that the legislative overrules judicial pronouncements by way of
amendments with retrospective effect. While there is no iota of doubt that the
legislature has the authority to update laws, such changes must be balanced
with the need for legal certainty.
It is noteworthy that such retrospective amendments, by their nature, can
unsettle established legal positions, leading to legal uncertainty.
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3/16/25, 6:22 PM Delhi High Court ends uncertainty of stamp duty on mergers involving wholly-owned subsidiaries
This, in turn, can adversely impact long-term business planning. In the event of
retrospective changes, companies are placed in a precarious position to revise Subscribe
their strategies and potentially face unexpected liabilities.
L L lN N C l I i L Fi A i L L lJ b हिंदी ಕನ್ನ ಡ
Further, when laws are applied retrospectively, taxpayers may encounter
unforeseen financial obligations that disrupt cash flow and long-term planning.
Further, unpredictable tax policies can deter both domestic and foreign
investment, as investors typically seek a stable regulatory environment. Given
that attracting Foreign Direct Investment (FDI) is a key pillar of the "Make in
India" initiative, a focus which has been reiterated in Budget 2025 and previous
budgets as well, such unpredictability could undermine investor confidence and
impede the very growth these initiatives aim to promote.
In the above backdrop, in situations where retrospective amendments are made
or a ruling is pronounced by the Supreme Court which appears to be against the
intention of the legislature, businesses should take a commercial call to take
advantage of the same during the intervening time. In certain scenarios, the
taxpayer can evaluate whether to take a commercial call to pay under protest to
safeguard against potential interest liability in case there is an adverse
retrospective amendment thereafter. Additionally, in a scenario where it is the
subject matter of input tax credit eligibility, businesses may evaluate whether
they should opt to not utilize such credit (wherever possible) till the matter
attains finality. Thus, considering the uncertainty owing to such retrospective
amendments by the legislature on judicial pronouncements, there is a need for
businesses to strategize and evaluate opportunities.
About the authors: Rohini Mukherjee is a Partner and Neha Jain is a Senior
Associate at Lakshmikumaran & Sridharan attorneys.
Disclaimer: The opinions expressed in this article are those of the author(s). The
opinions presented do not necessarily reflect the views of Bar & Bench.
If you would like your Deals, Columns, Press Releases to be published on Bar &
Bench, please fill in the form available here.
Neha Jain The Viewpoint Retrospective Amendment
Lakshmikumaran & Sridharan Attorneys Legislative Overruling
Rohini Mukherjee
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3/16/25, 6:22 PM Delhi High Court ends uncertainty of stamp duty on mergers involving wholly-owned subsidiaries
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