M/s.Waterfall Estate (East) Pvt. LimitedReg. Office New No.68 v. The State of Tamil Nadu

IN THE HIGH COURT OF JUDICATURE AT MADRASDated : 09.02.2007CORAM:THE HON'BLE MR. JUSTICE M.E.N.PATRUDUW.P.Nos.12920 & 12921 of 2006 &WPMP NO.14511, 14512, 14514 &n 14515 of 2006M/s.Waterfall Estate (East) Pvt. LimitedReg. Office New No.68, (Old NO.63)Cathedral Road, GopalapuramChennai – 500 086Rep. By its Director. ... Petitioner in W.P.No.12920/06M/s.Waterfall Estate (West) Pvt. LimitedReg. Office New No.68, (Old NO.63)Cathedral Road, GopalapuramChennai – 500 086Rep. By its Director. ... Petitioner in W.P.No.12921/06versus1. The State of Tamil Nadu Rep. By the Secretary to Government Land and Administration Secretariat, Fort St. George Chennai – 600 009.2. The District Collector of Coimbatore Coimbatore District Coimbatore – 641 018.3. The District Registrar (Stamps) Tiruppur Coimbtore District.4. The Chief Controlling Revenue Authority-cum- Inspector General of Registration 120, Santhome High Road Chennai – 600 028. ... Respondents in both WPs Petitions filed under article 226 of the Constitution ofIndia for issuance of a writ of Certiorari calling for the recordsof the 4th respondent dated 14.03.2006 passed in D.Dis.No.61782/P https://hcservices.ecourts.gov.in/hcservices/ (1)/2003 and quash the same as the same being illegal, arbitraryand unconstitutional to the provisions of the Indian Stamp Act andNotification No.1224 dated 25.04.1964. For Petitioners : Shri.Sathish Parasaran For Respondents :Smt.C.K.Vishnupriya, G.A COMMON ORDER 1.00 Whether remission of stamp duty for registering thedocument is permissible in the transfer of property between theparent and its subsidiary company?2.00 The said common question is involved hence commonorder is pronounced in both the writs.3.00 The forceful argument of Shri.Sathish Parasaran, thelearned counsel appearing for the petitioner is that thepetitioner is exempted from paying the stamp duty and can get thedocument registered as per notification issued by the state ofTamil Nadu and therefore the demand to pay the stamp duty isillegal and the order impugned is to be quashed.4.00 If the said argument is accepted undoubtedly the writpetitions are to be allowed. 4.01 But the contention of the learned Government Advocateappearing for the respondents is that the notification is notapplicable in the case of the petitioner's transaction. Hencethe petitioner cannot claim any exemption under the notification.5.00 Thus it is necessary to go into the details of thenotification and the nature of notification and its applciation.6.00 Before doing this exercise, the Court has to read therelevant facts.7.00 Facts: (i) M/s.Kothari Industrial Corporation Limited transferredits two Tea Estates to two of its owned subsidiary companies byname 1)M/s.Waterfall Estate (East) Private Limited 2)M/s.Waterfall Estate (West) Private Limited https://hcservices.ecourts.gov.in/hcservices/ (ii) Both of them are private limited and wholly owned bypetitioner. Two instruments of transfer dated 28.09.2001 and30.11.2001 under Document Nos. 2558 of 2001 and 2582 of 2001 areexecuted in favour of the above two private limited company. Thedocuments were presented before the Sub Registrar of Annamalaialongwith the other documents with certified copy of the annualreturns, balance sheet, etc., and claimed the remission of stampduty relying on the notification No.1224 issued by the Governmentof Tamil Nadu.(iii) In brief the notification says that where the transfertakes place between the parent company and its subsidiary companyand one of which is the beneficial owner of not less than 90%issued capital share it is entitled to remission of stamp duty.(iv) The sub Registrar registered the document and acceptedthe instruments of transfer. (v) While so, the audit objected.(vi) Hence the District Registrar, Tiruppur had issued ashow cause notice dated 13.02.2003 under section 33(A) of theIndian Stamp Act asking to show cause as to why Stamp duty shouldnot be collected from the the petitioners. (vii) The basis for issuing the said show cause notice is,to avail stamp duty remission under Notification No.1224, thetransferor company should hold 90% of the issued Capital of thetransferee company, and that the transferor company was holdingless than 90% of the issued Capital and therefore the stamp dutyremission was wrongly given. 8.00 Case of petitioner: (i) The contention of the petitioners is that there ismisconception of law and leading of the provision of the companylaw Act. It is stated that there is no distinction betweenissued capital and subscribed capital, but there is differencebetween authorised capital on the one hand and issued subscribedcapital on the other. It is staid that the law is well settled inthis regard. Hence, the demand by the third respondent holdingthat the petitioners were not entitled to the remission of Stampduty is incorrect. (ii) When the petitioner appealed before the fourthrespondent, the fourth respondent confirmed the earlier ordersthrough the impugned order dated 14.03.2006. https://hcservices.ecourts.gov.in/hcservices/ (iii) The petitioners are challenging the legality andcorrectness of the said impugned order before this Court. (iv) The main ground on which the petitioners is challengingare that the respondents did not properly appreciate theprovisions of the Notification No.1224. It is non-application ofmind by the respondents and Notification has to be read as awhole. (v) It is contended that M/s. Kothari Industrial CorporationLimited is company and the petitioners' units are its subsidiarycompanies and the notification is applicable in the instant case.9.00 Counter: (i) The respondents filed detailed counter.(ii) It is stated that the deed of transfer executed byM/s. Kothari Industrial Corporation Limited in favour of M/s.Waterfalls Estate (West) Limited conveying the property inquestion for a consideration amount of Rs.11 crores and theduty borne by the deed is nil. However, the said sale deed wasregistered. Then Accountant General's audit noted the incorrectremission of stamp duty was accorded leading to loss of properstamp duty and it is huge loss of revenue.(iii) The forceful contention of the respondents is that thetransferor company is not holding more than 90% of the issuedshare capital of the transferee company. Whereas, under thenotification, the transferor company must hold more than 90% ofthe issue share capital of the transferee company. It is statedthat the deed in question is not entitled for remission. Parentcompany is holding 100% in the subscribed and paid up sharecapital.10.00 Discussion on Point: (i) Registration : The law of Registration is an importantbranch of law. The object and purpose of the registration ofdocument is to give information to people regarding legal rightsand obligations arising or affecting a particular property, andto, perpetuate document which may afterwards be of legalimportance, and also may prevent fraud. Therefore, the object ofregistering document is to give notice to the world that such adocument has been executed, to prevent fraud and forgery and tosecure a reliable and complete account of transactions effectingthe title of the property. https://hcservices.ecourts.gov.in/hcservices/ (ii) The Registration Act 1908 popularly known as Act No.XVIof 1864 laid down formalities which must be complied with beforethe document is presented for registration. The State Governmentshall prepare a table of fees payable for the registration ofdocument.(iii) Stamp Act : Indian Stamp Act deals with the instrumentschargeable with duty and what are the nature of stamp duties.(iv) The subject relating to stamp duty occurs at Entry 44 inlist 3 of VII schedule of Constitution. The rates of stamp dutyare provided in Entry 63 of List II. (v) The Indian Stamp Act was enacted by Indian Parliamentin exercise of Entry 44 List III. (vi) The stamp Act is a fiscal measure enacted to securerevenue for the State on certain classes of instruments, it is notenacted to arm a litigant with a weapon of technicality to meetthe case of his opponent. The stringent provisions of the Act areconceived in the interest of the revenue. (vii) In the fiscal statues like stamp Act, theinterpretation has to be according to strict letter of the law andnot only in case of doubt but even in case of beneficialinterpretation favouring the subject, the rule is to tend infavour of the subject. The sole object of the Indian Stamp Act isto increase revenue and its provisions must be construed ashaving in view only the protection of revenue. The provisionscontained in the act impose pecuniary burdens as this act is afiscal enactment.(viii) In order to determine whether any, and if any, stampduty is chargeable upon an instrument the legal rule is that thereal and true meaning of the instrument is to be ascertained. Itis a sound cannon of construction that all parts of a documentare to be read together and no portion can be read disjunctly orin isolation or omitted. (ix) In order to interpret a provision or a notificationwhich is neither ambiguous nor incomplete, the recitals in thesaid document ought to be generally the safe and sole guide forany interpretation. (x) In B.Ratnamala Vs. Rudramma reported in AIR 2000 AP 167,the Division Bench of the Andhra Pradhesh High Court hasexpressed the following view on interpretation of the provisionunder the Stamp Act at para 9. https://hcservices.ecourts.gov.in/hcservices/ " While considering the provisions of the IndianStamp Act, it has to be borne in mind that the said Actbeing a fiscal statue, plain language of the section asper its natural meaning is the true guide. Noinferences, analogies or any presumptions can have anyplace. As the incidence of duty is one the execution ofthe deed, regard must, therefore, be had only to theterms of the document." (xi) It is to be borne in mind that this Act with which atpresent I am concerned is as Act imposing liability forcollecting stamp duty. The notification which I am dealing isfiscal in nature. Therefore, it must not only literally construedbut must be strictly construed in order to find out whether aliability is fastened or not. The subject is to be taxed or notto be taxed and for that purpose and also that every Act ofparliament or legislation must be read a wording to its naturalconstruction of words. (xii) Justice Rowlatt of England said long time ago, "thatin a taxing act one has to look merely and fairly what is clearlysaid. There is no room for any intendment. There is no equitiesabout a tax. There is no presumption as to tax. Nothing is to beread in. Nothing is to be implied. One has to look fairly at thelanguage used. The question as to what is covered must be foundout from the language, according to its natural meaning fairly andsquarely read". (xiii) Justice Krishna Iyer in Martand Dairy and Farm Vs.Union of India reported in AIR 1975 SC-1492 has observed that'taxing consideration may stem from administrative experience andother factors of life and not artistic visualisation or neat logicand so the literal, though pedestrian, interpretation mustprevail'. (xiv) Therefore, to find out the intention of legislature ifpossible it should be found out from the language employed and incase of doubt, the purpose of legislation should be sought for toclarify the ambiguity only if any. Thus it is time to note thelanguage in the notification.(xv) Notification"-The said notification is extracted below: "(38) Instrument evidencing transfer of property betweencompanies limited by shares as defined in the CompaniesAct, 1956, in a case where (i) at least 90% of the IssuedShare Capital of the transferee company is in the https://hcservices.ecourts.gov.in/hcservices/ beneficial ownership of the transferor company, or (ii)where the transfer takes place between a parent companyand a subsidiary company one of which is the beneficialowner of not less than 90% of the issued share capital ofthe other or (iii) where the transfer takes place betweentwo subsidiary companies of each of which not less than90 per cent of the share capital is in the beneficialownership of a common parent company.Provided that a certified copy of the relevantrecords of the Companies kept in the office of theRegistrar of Companies, Madras, is produced by theparties in the instrument to prove that the conditionsabove prescribed are fulfilled."(xvi) Plain reading of the notification discloses when everthere is transfer of property between the companies limited byshares and in a case where atleast 90% of the Issued ShareCapital (Emphasis supplied) of the transferee company is in thebeneficial ownership of the transferor company or where thetransfer takes place between a parent company and the subsidiarycompany which is in a beneficial ownership of not less than 90 percent of the Issued Share Capital of the other. Then only, theremission will apply. Therefore, the State is its wisdom hasissued a notification as mentioned supra through item No.38dealing with reductions and remissions in respect of payment ofstamp duty, that the remission will apply only to cases oftransfer of properties between two as mentioned in thenotification.(xvii) As the Court has already indicated that in a case offiscal nature true meaning of the statue is to be taken intoconsideration and there is no scope for any interpretation.(xviii) Shri.Sathish Parasaran, learned counsel appearingfor the petitioner forcefully contended that the notification isto be read for the benefit of the parties and beneficial ownerbecomes eligible to the rights when the shares get subscribed fromout of the issued share capital. Hence, it should be construedthat the issued share capital means subscribed share capital. (xix) It is also contended that the issued share capitalbreak up is the amount approved by the shareholders for issueand allotment to the persons subscribing to the said issuedcapital of the company and it means Directors of the company haspower to issue and allot shares to the subscribers up to thatnominee value of the issued capital and the entire nominal valuewhich is essential requirement to be fulfilled under thenotification in order to become eligible for stamp duty exemption. https://hcservices.ecourts.gov.in/hcservices/ (xx) It is also forcefully contended that beneficial ownerbecomes eligible to the rights only when the shares getsubscribed from out of the issued share capital. Hence, it shouldbe construed that the issued share capital means subscribed sharecapital. (xxi) It is stated that break up figures of the sharescapital are shown and the same are also dealt by the 4th respondentin the impugned order. (xxii) Perused the impugned order. The Inspector General ofRegistration who is the Chief Controlling Revenue Authority haspassed the impugned order on 14.03.2006, while considering therevision petitions of the petitioners herein, questioning theorders of the District Registrar who is the 3rd respondentdemanding payment of stamp duty. The description of the documentsare furnished in the orders. In para 3 of the order, it isclearly stated that as per Document NO.2558 of 2001 out of theissued share capital of 90,350 shares of the Transferee Companyonly 14,500 shares were paid and subscribed and out of that theTransferor company i.e. the parent company is holding only 14,493shares. Similarly, as far as Document No.2582 of 2991, out of theissued share capital of 35,350 shares of the Transferee Companyonly 8,850 shares were paid and subscribed and out of theTransferor company i.e. the parent company is holding only 8,585shares.(xxiii) By noting the above, the 4th respondent has come to aspecific conclusion that the holding of the issued share capitalof the Transferor Company is 14,493 shares under in onetransaction and 8,585 shares in other transaction. Hence, the 4threspondent came to a definite conclusion that the condition laiddown in the notification issued in G.O.Ms.No.1224/Revenue, dated25.04.1964 and G.O.Ms.No.37/CT & RE Department dated 25.01.1995for according remission of transfer duty is that atleast 90% ofthe issued share capital of the transferee company is in thebeneficial ownership of the transferor company and since 90% ofthe issued share capital of the transferee company is not held bythe transferor company, the petitioner is liable to pay the stampduty.(xxiv) I do not find any irregularity or illegality in theimpugned order. It is a reasoned order. In the case ofregistration of payment of stamp duty the real and true meaning ofinstrument is to be ascertained to determine whether the stampduty is to be chargeable and what stamp duty is to be demandedupon instrument. https://hcservices.ecourts.gov.in/hcservices/ (xxv) The Supreme Court of India in various cases like AIR1977 SC 500 clearly held that in order to determine whether any,and if any what stamp duty is chargeable upon an instrument, thereal and true meaning of the instrument is to be ascertained fordescription of it given in the instrument itself. The Full Benchof Madras High Court in AIR 1975 - 161 clearly held that when aquestion arises whether a document should be chargeable or not,the first thing to be looked into is the document itself in orderto determine the character thereof. Therefore, the recitals ofthe document should not be lost sight and all parts of thedocument has to be read together and it is a sound cannon ofconstruction that all parts of the document are to be readtogether, no portion can be read disjunctily or in isolation oromitted and the Revenue Authorities cannot ignore recitals andterms of document in order to interpret a document which is neithrambiguous nor incomplete and the recitals in the said documentought to be generally accepted and there is no further necessityto interpret in a different way. Therefore, the contention of thecounsel for the petitioner that issued share capital must betreated as subscribed share capital in unacceptable.(xxvi) Shri.Sathish Parasan, while highlighting thearguments stated that sections 397, 398 and 399 of the CompaniesAct deals with the issue, It is not correct, They are withapplication for relief in case of Oppression and application incase of Mismanagement and right to apply under sections 397and 398. They are nothing to do with the issue before us. (xxvii) The learned counsel also cited a decision reportedin Re Vs Albert David Limited 68 C.W.N.-163. It is a casedisposed of under the Companies Act 1956 under section 397, 398and 399 and while dealing with a matter under the companies Act,there was detailed discussion on facts with regard to averments inthe petition and nature of verification, circumstances justifying exercise of court's discretion and appointment ofadministrator. In the above case the priority under section 399of the Act, the right to apply under section 397 and 398 is goneinto, inter alia, to members holing not less than one tenth of theissued share capital of the company, provided that the applicantor applicants have paid all calls and other sums due on theirshares. In the course of discussion it is noted at page 170 thatwhether shares not actually issued i.e. subscribed and paid forare to be considered Issued Share Capital within the meaning ofsection 399 of the Act is the actual subscribed capital.Therefore, there was no interpretation under the Companies Actwhat is meant my Issued Share capital and what is meant bySubscribed Share Capital. https://hcservices.ecourts.gov.in/hcservices/ (xxviii) The facts and circumstances and the findings in theabove case are not at all applicable in the case before me. Inthis case, we are dealing with the payment of stamp duty by thepetitioners for registration of the document and the very objectof the stamp Act is fiscal measure enacted to secure revenue ofthe State on certain classes of instruments. I have highlightedthat in a case of such statues, the real and true meaning of theinstruments, the provision and the notification must be taken andthere is no scope for any interpretation.19.00 For all the foregoing reason, I hold that there are nomerit in the writ petitions. Therefore, the impugned order isupheld and the writ petitions are dismissed. No costs. rjSd/Asst.Registrar/true copy/Sub Asst.RegistrarTo1. The Secretary to Government Land and Administration Secretariat, Fort St. George Chennai – 600 009.2. The District Collector of Coimbatore Coimbatore District, Coimbatore – 641 018.3. The District Registrar (Stamps) Tiruppur Coimbtore District.4. The Chief Controlling Revenue Authority-cum- Inspector General of Registration 120, Santhome High Road Chennai – 600 028. + 2 ccs to Government Pleader SR No. 8720, 8121+ 1 cc to M/s. Satish Parasaran, Advocate SR No. 8162 Order in W.P.Nos.12920 & 12921 of 2006 AVA(CO)SR/15.2.2007