Stamp Duty On Amalgamation Cannot Be Based on Goodwill, Share Premium Account Entries: Bombay High Court

The Bombay High Court has held that while an amalgamation order is chargeable to stamp duty as a “conveyance”, stamp authorities cannot levy duty on such an order by treating accounting entries such as goodwill, share premium, or profit and loss figures as consideration in the absence of any real issuance of shares or payment of money.

Holding that amounts reflected in accounts can be considered for stamp duty only if they are clearly linked to actual issuance of shares or real payment of consideration, a bench of Justice Amit Borkar observed:

“If there is money paid, that can be counted. But if there is neither, then the authority cannot create a value by picking up accounting entries and calling them consideration. That would be going beyond the law. It would make the provision wider than what the Legislature has written. Therefore, unless the amounts shown in the accounts can clearly be linked to actual issuance of shares or actual payment of consideration, they cannot be used for levying stamp duty.”

The case involved Seco Tools India and its wholly owned subsidiary Drillco Seco Limited, which merged under a scheme sanctioned on February 11, 2005. Seco Tools filed Form 21 on March 28, 2005, and sought adjudication on August 17, 2005, following which stamp duty was levied by order dated May 12, 2006, and upheld on August 16, 2010, by treating accounting entries as consideration.

The court held that the statutory framework requires real transaction value, either shares issued or consideration paid, for levy of stamp duty. It clarified that internal accounting adjustments cannot be equated with consideration. The court said:

“The figures of goodwill, share premium and profit and loss account do not represent consideration or value of shares issued. They are only accounting adjustments. Hence, using them for levy of stamp duty is not legally correct.”

Accordingly, the court allowed Seco Tools' writ petition, quashing both the adjudication order dated May 12, 2006 and the appellate order dated August 16, 2010.