State of Haryana vide its notification dated 22nd November, 2017; amendment (changed); The Indian Stamp Act (Haryana Second Amendment) Act; 2017; this Article enlightens the former and amended version i.e. present Stamp Duty structure on Merger and Amalgamation in Haryana and its impact on transactions/order(s) of NCLT.
RATE OF STAMP DUTY BEFORE AND AFTER AMENDMENT
RATE OF STAMP DUTY (Before Amendment)
Revenue Department of Haryana through its circular dated 21.04.2016; imposed rate of duty on all Instruments of Merger and Amalgamation @ 5% on order of court evidencing transfer of property as of the Indian Stamp Act, 1899.
RATE OF STAMP DUTY (After Amendment)
After amendment to The Indian Stamp (Haryana Second Amendment) Act, 1899; new entry has been inserted whereby stamp duty on merger or Amalgamation/Demerger of Companies Act, 1956/2013 shall be chargeable @ 1.5% -
(i) Of amount of Fair Market Value** of property or;
(ii) Of the amount consideration as mentioned in Order;
Higher of the above point (i) or (ii) shall be considered as amount payable towards stamp duty ; subject to maximum duty of Rs. 7.5 Crore.
** Fare Market Value (FMV) is the price, in terms of cash or equivalent, that a buyer could reasonably be expected to pay, and a seller could reasonably be expected to accept, if the business were exposed for sale on the open market for a reasonable period of time, with both buyer and seller being in possession of the pertinent facts and neither being under any compulsion to act.
For Example -
ABC LTD, a company having registered office in Haryana makes application before NCLT (Chandigarh) for approval of Scheme of Merger with XYZ LTD, company having registered office of company in Haryana and Value of property involved is RS. 100 Cr. in order of NCLT (F.M.V Rs. 120 Cr.) and Consideration amount to 20 Cr.
(a) AMOUNT OF DUTY PRE-AMENDMENT
Rate of Duty @ 5% on value of property involved in order of amalgamation.
In present case value of property in order amounts to Rs. 100 Cr. Hence amount of duty payable will be 5% of 100 Cr. i.e. Rs 5Cr.
(b) AMOUNT OF DUTY POST-AMENDMENT
Now, in present case calculation will be made as per new rate of duty –
(i) Market value of property; (1.5% of 120 Cr.) i.e. Rs 1.8 Cr; or
(ii) Consideration involved in the order.(1.5% of 20 Cr) i.e. Rs. 30 Lakhs
Whichever is higher of (i) or (ii); i.e. Rs 1.8 Cr.
From above analysis, it is clear that Fair market value of property and consideration paid shall be considered for purpose of charging Stamp Duty. Secondly a maximum bar of Rs. 7.5 Cr. is imposed irrespective of value of property or consideration paid.
Let’s examine effect of present amendment by various examples-
Suppose that if Scheme of Merger is approved between two Companies and by virtue of said Scheme of Merger the properties of Transferor Company (Haryana) are transferred to Transferee Company (Delhi) which is situated in 7 different states.
(i) Will order of Merger be charged to stamp?
Yes, order approving Scheme of Arrangement will be charged to rate of Stamp Duty prevailing in Delhi as well as in Haryana.
(ii) Will each state charge stamp duty on properties situated in other 7 states (other than Delhi & Haryana)?
Yes, by virtue of aforesaid order properties will be mutated in name of Transferee Company but will be charged at prevailing rate of Stamp Duty in respective states.
(iii) Set off of stamp duty is permitted?
No, Stamp Duty paid in one state cannot be set off against duty paid in another State. Hence it can be said that each and every state has jurisdiction to charge Stamp Duty. In present case Duty will be charged on order in Delhi and Haryana and will also be paid in 7 other states, whenever order of Merger is presented before authorities for mutation of property in name of Transferee Company.
(iv) What if, both Transferor and Transferee Company having registered office & properties are situated in Haryana?
In present case the amended provisions of Indian Stamp (Second Amendment Haryana) Act, 2017; will apply as all properties and registered office of company is situated in Haryana, i.e. stamp duty will be charged @ 1.5 % of -
(a) F.M.V of Properties transferred; or
(b) Consideration paid
Whichever is higher with maximum duty chargeable to Rs. 7.5 Cr. irrespective of F.M.V of property or Consideration paid.