TaxTMI 
TaxTMI 
2013 (11) TMI 1818
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Stamp Act or not. [C] Whether the deponent is entitled to take stamp duty on the share price of appointed date i.e. Rs. 50.05/- on the appointment date Transferor Company transferred the said share to the transferee company? The contention of the applicant is that the share was originally transferred to the transferee company for the face value of Rs. 2/- only or [sic; and not for] Rupees 50.05/-. [D] Whether the deponent has to consider the market value [Rs.50.05/-] as per the statement of SEBI or face value [Rs. 2/-] i.e. on the date of appointment date i.e.1st April, 2010." 2. Brief facts of the case may be narrated thus: 2.1 The applicant is Alembic Pharmaceuticals Limited, a company registered under the provisions of Companies Act, 1956 and having its office at Alembic Road, Vadodara [Gujarat] which made a demerger from the parent company known as Alembic Limited by virtue of the order passed by this High Court in Company Petition No. 152 of 2010 and Company Petition No. 153 of 2010 dated 21st March, 2011 under Section 394 of the Companies Act. Pursuant to such order, the transferor company transferred 13,35,15,914 equity shares to the transferee co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....articles to Article 20: Description of instrument: Proper Stamp duty: CONVEYANCE so far as it relates to reconstruction or amalgamation of companies by an order of the High Court under section 394 of the Companies Act 1956. Subject to maximum of twenty five crores rupees [i] an amount equal to 1 per cent of the aggregate amount comprising of the market value of share issued or allotted in exchange of or otherwise, or the face value of such shares, whichever is higher and the amount of consideration, if any, paid for such amalgamation, or [ii] an amount equal to 1 per cent of the true market value of the immovable property situated in the State of Gujarat of the transferor company whichever is higher." [Explanation 1] For the purpose of this Article and subject to sub-item (a) of item (ii) of clause (f) of article 45 an agreement to sell an immovable Property or an irrevocable power of attorney shall, in case of transfer of possession of such property before, at the time of, or after the execution of such agreement or power of attorney, be deemed to be a conveyance and the stamp duty thereon shall be chargeable accordin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ld alternative submissions. 4.1 The first branch of argument of Mr. Soparkar is that under the main provision [de hors the explanation], there are two parameters for quantifying the stamp duty payable. The first applies only to amalgamation and, therefore, the only parameter for demerger is the second one. 4.2 Mr. Soparkar contends that if a view is taken that both the parameters must be applied, then, the very quantification provision and the consequential levy would fail, and therefore, it should be held that there could be no levy of stamp duty on demerger. In this connection, Mr. Soparkar has placed strong reliance upon two Supreme Court decisions; one in the case of C.I.T. v. B.C. SRINIVASA SETTY reported in 128 ITR 294 [SC] and the second in the case of PNB FINANCE LTD. v. CIT (SC) reported in 307 ITR 75 [SC]. 4.3 The second branch of submission made by Mr. Soparkar is that the only way to uphold the levy of stamp duty on demerger is by holding that only the second parameter would be applicable in case of demerger and for that purpose, the phrase "whichever is higher" be treated as otiose in case of demerger. Therefore, according to Mr. Soparkar, the only parameter f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he aforesaid contentions of Mr. Soparkar and her submissions may be summed up thus: 5.1 The issue involved in the present matter is that Alembic Limited, a Company registered under the provisions of the Companies Act, 1956 being the demerged company herein as per the order of this High Court passed in the Company Petition No. 153 of 2010 demerged from Alembic Pharma, an undertaking of Alembic Limited. As a result, the transferor company transferred 13,35,15,914 equity shares to the transferee company, being Alembic Pharma Limited on the appointed date which is 1st April, 2010. In light of the said order of this High Court in Company Petition No. 153 of 2010, the applicant made an application for payment of stamp duty on the ground that the scheme approved by this High Court was an arrangement of demerger. The said application was made before the Additional Superintendent of Stamp, under Section 31 of the said Act. The Collector, Stamp, considered all the provisions of law and came to the conclusion that the applicant company would be liable to pay stamp duty under Article 20[d] of the said Act and thus, would be liable to pay stamp duty for an amount of Rs. 06,68,24,715/- on the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r reorganization. The said principles, Ms. Mehta continues, would also be necessary for the purpose of appreciating the issue involved in the present reference. Ms. Mehta points out that Section 391 of the Companies Act deals with power to compromise or make arrangement with the creditors and members and the scope of this section is that it deals with the right of the company to enter into a compromise or arrangement: [a] Between itself and its creditors or any class of them, and, [b] Between itself and its members or any class of them. 5.5 By referring to the Law of Lexicon 1997 Edition, Ms. Mehta contends that the term 'reconstruction' means "a reconstruction normally involves the transfer of company's undertaking or part of it to new company which is going to carry on substantially the same business as the business transferred to it". 5.6 According to Ms. Mehta, Section 391 of the Companies Act deals with the right of the companies to enter into a compromise or arrangement which covers reconstruction, merger, demerger and spinning of a unit by a company and the arrangement contemplated under Section 391 also includes reorganization of share capital of a company. Ms. Mehta ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lso to consider Clause 4, transfer of undertaking, as well as clauses 13 to 15 and on perusing the said scheme, it appears that it would fall within the scope of reconstruction for the reason that the very purpose of the said scheme is for reorganization of its share capital. Ms. Mehta points out that for every one share of Alembic Limited, one more additional share of Alembic Pharmaceutical Limited is issued to all the shareholders of Alembic Limited and hence, the shareholders will continue to hold their shareholding in Alembic Limited and will be given additional share of Alembic Pharma Limited. This is very indicative of the fact that this agreement is merely an agreement of reconstruction for reorganizing of its share capital. In view of what is mentioned hereinabove, Ms. Mehta submits that it is very clear that the provisions of Article 20[d] of Schedule-I of the said Act would be attracted to the case of the applicant and the explanation III[b] would apply whereby, the applicant would be liable to pay 1% of stamp duty which would amount to Rs. 06,68,24,715/-. 5.9 To test the submissions as mentioned above, according to Ms. Mehta, it would be necessary to consider the prov....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing for the sake of argument but not admitting, even if the case of the applicant is accepted, the arrangement of demerger which is proposed to be made under Section 391 of the Companies Act would also be covered under Section 394 of the Companies Act and the present scheme as ordered by this High Court, if accepted in full being a scheme of demerger, it is a scheme of arrangement under Sections 391 to 394 of the Companies Act, and therefore, the contention of the applicant that the present scheme is a demerger scheme and, thus, the provisions of Article 20[d] of the Bombay Act does not hold good, is not tenable in law. The word 'arrangement' used in Section 391 of the Companies Act, according to Ms. Mehta, is of wide import and includes reconstruction of share capital by the consolidation of different class of shares or division of shares. Ms. Mehta relies upon a decision of the High Court of Calcutta in the case of Hindustan Commercial Bank v. Hindustan General Electric Corporation, AIR 1960 Calcutta 637 wherein the said aspect is reflected. 5.11 Ms. Mehta further contended that in order to appreciate the concept and meaning of demerger, the Finance Act, 1999 is required to be....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... September, 2001, the relevant words were amalgamation of companies which were substituted by the phrase "reconstruction or amalgamation of Companies". Similarly, clause 20(d) was substituted by Gujarat Act No. 5 of 2002 with effect from April 1, 2004 making it applicable to reconstruction or amalgamation of companies by an order of the High Court under Section 394 of the Companies Act, 1956. Thus, the object of the above amendments is to fix the stamp duty on conveyance resulting from an order under Section 394 of the Companies Act in case of either amalgamation or reconstruction. 7. In the case before us, there is no dispute that there has been demerger of the parent company into two companies and we find substance in the contention of Ms. Mehta, the learned Advocate appearing on behalf of the State that demerger comes within the purview of the word 'reconstruction' and the present case is not one of amalgamation of two companies. Therefore, on the basis of the aforesaid Article, we propose to consider what will be the proper stamp duty payable in the case before us, where the case is one of demerger or reconstruction of a company. 8. We, at the same time, do not find subst....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t is a cardinal principle of construction of statute that when language of the statute is plain and unambiguous, then the court must give effect to the words used in the statute and it would not be open to the courts to adopt a hypothetical construction on the ground that such construction is more consistent with the alleged object and policy of the Act. In Kirkness v. John Hudson and Co. Ltd., 1955 (2) All ER 345, Lord Reid pointed out as to what is the meaning of "ambiguous" and held that "a provision is not ambiguous merely because it contains a word which in different context is capable of different meanings and it would be hard to find anywhere a sentence of any length which does not contain such a word. A provision is, in my judgment, ambiguous only if it contains a word or phrase which in that particular context is capable of having more than one meaning." It is no doubt true that if on going through the plain meaning of the language of statutes, it leads to anomalies, injustices and absurdities, then the court may look into the purpose for which the statute has been brought and would try to give a meaning, which would adhere to the purpose of the statute. Patanjali Sastri, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... will be entertained thirty days before the expiry of the lease:" 11.1 In the above context, the Supreme Court made the following observations: "We have heard the counsel for the parties on the interpretation to be placed upon the above Rules. The presence of the word "within" in Rule 12(4) has given room for some avoidable controversy. The said word appears to have crept into the sub-rule incautiously. The said word ('within') is not used either in sub-rule (2) of Rule 13 or for that matter in the latter portion of Rule 12(4). It must be noticed that the first half of Rule 12(4) ("In case where .........under sub-rule (2) of Rule 13") expressly refers to Rule 13(2) and says that if no application is made there under others can apply. The said words cannot and can never mean anything different than what is provided by Rule 13(2). It is for this reason that we say the word "within" therein is inappropriate and ought to be ignored. The Rule-Making authority would be well advised to delete the same." 12. We do not appreciate how the said decision can be of any help to the client of Mr. Soparkar; on the other hand, it recognizes the well- settled principles that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s for computing the income subject to that charge. The character of the computation provisions in each case bears a relationship to the nature of the charge. Thus the charging section and the computation provisions together constitute an integrated code. When there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section. Otherwise one would be driven to conclude that while a certain income seems to fall within the charging section there is no scheme of computation for quantifying it. The legislative pattern discernible in the Act is against such a conclusion. It must be borne in mind that the legislative intent is presumed to run uniformly through the entire conspectus of provisions pertaining to each head of income. No doubt there is a qualitative difference between the charging provision and a computation provision. And ordinarily the operation of the charging provision cannot be affected by the construction of a particular computation provision. But the question here is whether it is possible to apply the computation provision at all if a certain interpretation is pressed on the chargi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... a conclusion as held by the Supreme Court in the case of Commissioner of Income-tax, Bangalore,v. B. C. Srinivasa Setty (supra). We, therefore, find that the above decision also does not help Mr. Soparkar in any way. 16. In this connection, although we find substance in the contention of Mr. Soparkar that in the case of reconstruction of a company, it is the transferee company which allots the shares and it is the value of its shares which is primarily relevant for the purpose of determining the consideration for transfer of the assets from the transferor company, at the same time, we cannot lose sight of the fact that the legislature is also within its province to enact in a taxing statute a provision compelling payment of a minimum amount of Stamp duty in a given transaction and in the process, if it decides that in case of either amalgamation or reconstruction, the minimum stamp duty payable should be at least 1% of the true market value of the immovable property situated in the State of the transferor company, the same cannot be interfered at the instance of a High court unless it offends any other statutory provisions or is arbitrary. As it appears from the subsequent amen....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... It does not ordinarily enlarge the scope of the original section which it explains, but only makes the meaning clear beyond dispute." (P. 329) 46. Swarup in 'Legislation and Interpretation' very aptly sums up the scope and effect of an Explanation thus: "Sometimes an explanation is appended to stress upon a particular thing which ordinarily would not appear clearly from the provisions of the section. The proper function of an explanation is to make plain or elucidate what is enacted in the substantive provision and not to add or subtract from it. Thus an explanation does not either restrict or extend the enacting part; it does not enlarge or narrow down the scope of the original section that it is supposed to explain.......... The Explanation must be interpreted according to its own tenor; that it is meant to explain and not vice versa." (Pp. 297-298) 47. Bindra in 'Interpretation of Statutes' (5th Edn.) at page 67 states thus : "An explanation does not enlarge the scope of the original section that it is supposed to explain. It is axiomatic that an explanation only explains and does not expand or add to the scope of the original....
X X X X Extracts X X X X
X X X X Extracts X X X X
....st that the object of an Explanation to a statutory provision is - (a) to explain the meaning and intendment of the Act itself, (b) where there is any obscurity or vagueness in the main enactment, to clarify the same so as to make it consistent with the dominant object which it seems to subserve, (c) to provide an additional support to the dominant object of the Act in order to make it meaningful and purposeful, (d) an Explanation cannot in any way interfere with or change the enactment or any part thereof but where some gap is left which is relevant for the purpose of the Explanation, in order to suppress the mischief and advance the object of the Act it can help or assist the Court in interpreting the true purport and intendment of the enactment, and (e) it cannot, however, take away a statutory right with which any person under a statute has been clothed or set at naught the working of an Act by becoming an hindrance in the interpretation of the same" (Emphasis supplied by us). 18.1 We, consequently, find that the interpretation proposed by us in no way suggests that any of the Explanations (III) breaches any of the substantive ....